Stock Purchase Agreement
Between
Hyundai Syscomm Corp.
And
Electronic Control Security, Inc.
Dated as of December 22, 2006
Stock Purchase Agreement
This Stock Purchase Agreement (this "Agreement") is dated as of December
22, 2006, by and between
Hyundai Syscomm Corp., a California corporation with a place of business
at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇ ("HYUNDAI"), and
Electronic Control Security, Inc., a New Jersey corporation with a place
of business at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇ ("ECSI").
WHEREAS, HYUNDAI wishes to acquire up to fifty percent (50%) of the
outstanding shares of Common Stock ("Common Stock") of ECSI and ECSI is willing
to sell HYUNDAI up to fifty percent (50%) of the outstanding shares of Common
Stock upon the terms and subject to the conditions set forth in this Agreement;
and
WHEREAS, the shares of ECSI's Common Stock to be delivered to the Escrow
Agent referred to below or to HYUNDAI as Warrant Shares referred to below shall
be evidenced by stock certificates registered in the name of HYUNDAI that bear a
bear a restrictive legend (the "Legend") that indicates that the shares
evidenced thereby have not been registered under the Securities Act of 1933 (the
"Securities Act"); and
WHEREAS, four million eight hundred thousand (4,800,000) shares of ECSI's
Common Stock (the "Escrow Shares") are being delivered to ▇▇▇▇▇▇▇▇▇▇ Law, as
Escrow Agent (the "Escrow Agent"), under the Escrow Agreement dated as of the
date of this Agreement among ECSI, HYUNDAI and the Escrow Agent (the "Escrow
Agreement"), subject to the terms and conditions of the Escrow Agreement; and
WHEREAS, the purchase price of the Escrow Shares (the "Purchase Price") is
One Million Two Hundred Thousand Dollars ($1,200,000) and such Purchase Price
will be deposited by HYUNDAI with the Escrow Agent concurrently with the
satisfaction of certain conditions set forth in the Escrow Agreement; and
WHEREAS, the Escrow Shares are duly authorized newly issued shares of
Common Stock of ECSI and are evidenced by ten (10) stock certificates (the
"Escrow Certificates"), nine of which each evidence five hundred thousand
(500,000) of the Escrow Shares and one (1) of which evidences three hundred
thousand (300,000) of the Escrow Shares; and
WHEREAS, HYUNDAI and ECSI are executing and delivering a sub-contract
agreement dated as of the date hereof (the "Sub-Contract"), pursuant to which,
among other things: HYUNDAI has agreed to award ECSI at lease Twenty Five
Million Dollars ($25,000,000) of purchase orders for: (i) video surveillance
systems to be specified and integrated according to the specifications provided
pursuant to the Sub-Contract; (ii) security worthy assets in Asia; and/or (iii)
such other items as may be mutually agreeable to HYUNDAI and ECSI, and ECSI has
agreed to share a portion of the gross profits it makes from the Sub-Contract by
vesting the exercisability of the Warrant; and
WHEREAS, it is reasonable to assume that ECSI will have a gross profit
margin on these purchase orders under the Sub-Contract of at least thirty-five
percent (35%) if ECSI is efficient in purchasing and integrating the Systems;
and
WHEREAS, in order to facilitate HYUNDAI's ability to provide purchase
orders to ECSI under Sub-Contract: (i) 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; and (ii) 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 the Sub-Contract when and if such entity receives a contract in
that country which involves work that ECSI can perform; and
WHEREAS, in order to permit HYUNDAI to become and remain a fifty percent
(50%) holder of ECSI Common Stock: (i) HYUNDAI and ECSI have agreed to
compensate HYUNDAI for gross profit recognized by ECSI from the Sub-Contract on
a basis designed to share the benefit between ECSI and HYUNDAI; and (ii) ECSI is
issuing and delivering to HYUNDAI a warrant dated the date hereof (the
"Warrant") in order to effect such compensation; and
WHEREAS, the Warrant will expire on the tenth (10th) anniversary of its
date and cover a number of shares that will permit HYUNDAI to achieve and
maintain a fifty percent (50%) ownership interest in ECSI Common Stock provided
that HYUNDAI provides ECSI with a sufficient level of business under the
Sub-Contract; and
WHEREAS, the Warrant will become exercisable as HYUNDAI is credited with
its share of the gross profits generated by ECSI from the Sub-Contract as
provided below and, when exercisable, will have an exercise price of one cent
($.01) per share and a cashless exercise feature; and
WHEREAS, the formula ECSI and HYUNDAI have agreed on provides ECSI with
seventy percent (70%) of gross profits (as defined in the Sub-Contract) and
HYUNDAI with a credit for thirty percent (30%) of such gross profits; and
WHEREAS, ECSI and HYUNDAI have agreed that HYUNDAI may at its election
take its thirty percent (30%) of such gross profits in the form of cash or in
the form of ECSI Common Stock becoming exercisable under the Warrant ("Warrant
Shares"); and
WHEREAS, the Warrant Shares, when issued upon exercise of the Warrant,
will be duly authorized newly issued shares of ECSI Common Stock issued to or
upon the direction of HYUNDAI; and
WHEREAS, the Warrant will become exercisable for one (1) Warrant Share for
each: (i) fifty eight cents ($.58) of gross revenues credited to HYUNDAI until
the average purchase price per share of the Escrow Shares and the Warrant Shares
shall be forty cents ($.40) per share; and (ii) forty cents ($.40) of gross
revenues credited to HYUNDAI once the average cost of the Escrow Shares and the
Warrant Shares shall be forty cent ($.40) per share; and
WHEREAS, ECSI and HYUNDAI are executing and delivering a registration
rights agreement dated as of the date hereof (the "Registration Rights
Agreement"), pursuant to which, among other things, ECSI has agreed to register
with the Securities and Exchange Commission (the "Commission") for resale under
the Securities Act the Escrow Shares and the Warrant Shares as soon as and to
the maximum extent that such registration as a secondary offering is permitted
by the then-current interpretations of the Commission; and
WHEREAS, the issuance and delivery of the Escrow Shares to the Escrow
Agent, the execution and delivery of this Agreement, the Warrant, the
Sub-Contract and the Registration Rights Agreement are to take place at a
closing (the "Closing") to be held by telephone pursuant to Article 1 of this
Agreement; and
WHEREAS, HYUNDAI has made it a condition to the Closing to neutralize the
anti-dilution rights of the existing holders of outstanding ECSI securities with
anti-dilution rights (the "Derivative Securities") 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 any holder of any of the Derivative
Securities an adjustment of their instrument's conversion or exercise price; and
WHEREAS, in order to achieve this neutralization with respect to the
outstanding Derivative Securities, ECSI has agreed to obtain written waivers in
form and substance reasonably acceptable to HYUNDAI ("Waivers") from the holders
of all such Derivative Securities that would have their anti-dilution rights
adjusted as the result of the transactions contemplated by this Agreement and/or
to convince HYUNDAI that any holder of a Derivative Security that has not
provided a Waiver is not entitled to any adjustment of the conversion or
exercise price of the Derivative Securities held by such holder; and
WHEREAS, to enable ECSI to unencumber its assets by buying out the 8%
Convertible Debentures for up to one million two hundred thousand dollars
($1,200,000) (the "Debentures Buy Out Price"), HYUNDAI has agreed to provide
ECSI with funding (the "Funding") in an amount up to the Debentures Buy Out
Price to purchase all Debentures; and
WHEREAS, as a condition to the Closing, ECSI has agreed, at its own
expense, to obtain the Waivers; and
WHEREAS, ECSI and HYUNDAI (collectively, the "Parties" and sometimes
individually, a "Party") desire to execute and deliver this Agreement and all
related, required or necessary documentation that may be reasonably required to
complete the transactions contemplated hereby (collectively, the "Transaction
Documents"); and
WHEREAS, the Parties desire to make certain representations, warranties,
and agreements in connection with the transactions contemplated hereby (the
"Transaction");
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
representations, warranties, covenants, and agreements contained herein, the
adequacy and legal sufficiency of which are hereby acknowledged, the Parties
hereby agree as follows:
ARTICLE 1
THE CLOSING
1.1 The Closing The Closing will take place on the date of this Agreement
(the "Closing Date") The Closing will be held by telephone, at which time the
documents and instruments necessary or appropriate to effect the transactions
contemplated herein to occur at the Closing will be exchanged by E-mail or
facsimile transmission, with original counterparts to follow by next business
day courier delivery. Except as otherwise provided herein all actions taken at
the Closing will be deemed to be taken simultaneously.
(b) As a condition concurrent to the Closing of the Transactions, among
other such conditions that are set forth in Sections 5 and 6 hereof:(i) ECSI
shall have executed and delivered the indemnification agreement (the "ECSI
Indemnification Agreement") that is referenced in Section 5.4(b) hereof and
deposited the same into escrow for delivery to HYUNDAI; and (ii) HYUNDAI shall
have executed and delivered the indemnification agreement (the "HYUNDAI
Indemnification Agreement") that is referenced in Section 6.4(b) hereof and
deposited the same into escrow for delivery to ECSI.
(c) At the Closing, ECSI shall deliver or cause to be delivered to the
Escrow Agent the Escrow Certificates registered in the name of HYUNDAI
evidencing the Escrow Shares. Each of the Escrow Certificates shall bear the
Legend.
(d) At the Closing, ECSI shall deliver or cause to be delivered to HYUNDAI
the Warrant, which shall bear the Legend.
(e) At the Closing, ECSI and HYUNDAI shall execute and deliver to each
other the Registration Rights Agreement and the Sub-Contract.
(f) At the Closing, ECSI, HYUNDAI and the Escrow Agent shall execute and
deliver to each other the Escrow Agreement.
(g) the Purchase Price of the Escrow Shares ($1,200,000) will be deposited
by HYUNDAI with the Escrow Agent concurrently with the satisfaction of certain
conditions set forth in the Escrow Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF ECSI
ECSI hereby represents and warrants to HYUNDAI as follows:
2.1 Disclosure Schedule. The disclosure schedule attached hereto as Annex
2.1 (the "Disclosure Schedule") is divided into sections that correspond to the
sections of this Article 2. The Disclosure Schedule comprises a list of all
exceptions to the truth and accuracy of, and of all disclosures or descriptions
required by, the representations and warranties set forth in the remaining
sections of this Article 2. The Disclosure Schedule may incorporate by reference
disclosures made in the ECSI Commission Documents (as hereinafter defined) by
specific cross references to the location in the Disclosure Documents where such
incorporated information is located. To the extent that facts and circumstances
are disclosed as an exception to any representation and warranty hereunder, such
facts and circumstances shall be deemed to have been disclosed as an exception
to any other representation and warranty hereunder to which they could
reasonably be expected to apply. The Disclosure Schedule will be delivered at
least one trading day prior to the payment of the Purchase Price by Hyundai to
the Escrow Agent.
2.2 Corporate Organization, etc. ECSI is a corporation duly organized,
validly existing and in good standing under the laws of the State of New Jersey
with the requisite corporate power and authority to carry on its business as it
is now being conducted and to own, operate and lease its properties and assets,
is duly qualified or licensed to do business as a foreign corporation in good
standing in every other jurisdiction in which the character or location of the
properties and assets owned, leased or operated by it or the conduct of its
business requires such qualification or licensing, except in such jurisdictions
in which the failure to be so qualified or licensed and in good standing would
not, individually or in the aggregate, have a Material Adverse Effect (as such
term is defined in Section 8.13 hereof) on ECSI. The Disclosure Schedule
contains a list of all jurisdictions in which ECSI is qualified or licensed to
do business and includes complete and correct copies of ECSI's articles of
incorporation and bylaws. ECSI does not own or control any capital stock of any
corporation or any interest in any partnership, joint venture or other entity.
2.3 Capitalization. The authorized capital securities of ECSI is set forth
in the Disclosure Schedule. The shares of Common Stock ("ECSI Common Stock") and
Preferred Stock ("ECSI Preferred Stock") of ECSI outstanding, as of the date of
this Agreement and as set forth in the Disclosure Schedule, represent all of the
issued and outstanding capital stock of ECSI. All issued and outstanding shares
of ECSI Common Stock and ECSI Preferred Stock are duly authorized, validly
issued, fully paid and nonassessable and are without, and were not issued in
violation of, preemptive rights. Other than as set forth in the Disclosure
Schedule, there are no other equity securities of ECSI outstanding or any
securities convertible into or exchangeable for such interests, securities or
rights. Other than as set forth on the Disclosure Schedule and pursuant to this
Agreement, there is no subscription, option, warrant, call, right, contract,
agreement, commitment, understanding or arrangement to which ECSI is a party, or
by which it is bound, with respect to the issuance, sale, delivery or transfer
of the capital securities of ECSI, including any right of conversion or exchange
under any security or other instrument. The Disclosure Statement sets forth or
incorporates by reference a complete list of all subsidiaries of ECSI. ECSI
agrees to furnish copies of the articles of incorporation and By-laws of ECSI
subsidiary upon the written request of HYUNDAI therefor.
2.4 Authorization ECSI has all requisite power and authority to enter
into, execute, deliver, and perform its obligations under this Agreement and the
Transaction Documents. This Agreement and the Transaction Documents have been
duly and validly executed and delivered by ECSI and, when countersigned by
HYUNDAI, are the valid and binding legal obligations of ECSI enforceable against
ECSI in accordance with their respective terms, subject to bankruptcy,
moratorium, principles of equity and other limitations limiting the rights of
creditors generally.
2.5 Non-Contravention Except as set forth in the Disclosure Schedule,
neither the execution, delivery and performance of this Agreement, the
Transaction Documents and each other agreement to be entered into in connection
with this Agreement or the Transaction Documents, nor the consummation of the
transactions contemplated herein or in the Transaction Documents will:
(a) violate, contravene or be in conflict with any provision of the
articles of incorporation or By-laws of ECSI or any subsidiary of ECSI
("Subsidiary");
(b) be in conflict with, or constitute a default, however defined (or an
event which, with the giving of due notice or lapse of time, or both, would
constitute such a default), under, or cause or permit the acceleration of the
maturity of, or give rise to any right of termination, cancellation, imposition
of fees or penalties under any debt, note, bond, lease, mortgage, indenture,
license, obligation, contract, commitment, franchise, permit, instrument or
other agreement or obligation to which ECSI or any Subsidiary is a party or by
which ECSI or any Subsidiary or any of their respective properties or assets is
or may be bound, other than any such event that could not reasonably be expected
to have a Material Adverse Effect;
(c) result in the creation or imposition of any pledge, lien, security
interest, restriction, option, claim or charge of any kind whatsoever
("Encumbrances") upon any property or assets of ECSI or any Subsidiary under any
debt, obligation, contract, agreement or commitment to which ECSI or any
Subsidiary is a party or by which ECSI or any Subsidiary of any of their
respective assets or properties are bound; or
(d) materially violate any statute, treaty, law, judgment, writ,
injunction, decision, decree, order, regulation, ordinance or other similar
authoritative matters (referred to herein individually as a "Law" and
collectively as "Laws") of any foreign, federal, state or local governmental or
quasi-governmental, administrative, regulatory or judicial court, department,
commission, agency, board, bureau, instrumentality or other authority (referred
to herein individually as an "Authority" and collectively as "Authorities"); or
(e) trigger any conversion price reduction in any Derivative Security
(assuming receipt of any Waivers that are delivered at the Closing).
2.6 Consents and Approvals. Except for the Waivers and as set forth in the
Disclosure Schedule, with respect to ECSI, no consent, approval, order or
authorization of or from, or registration, notification, declaration or filing
with ("Consent") any individual or entity, including without limitation any
Authority, is required in connection with the execution, delivery or performance
of this Agreement and the Transaction Documents by ECSI or the consummation by
ECSI of the transactions contemplated herein and therein, other than any Consent
for which the failure to so obtain could not reasonably be expected to have a
Material Adverse Effect.
2.7 Commission Filings; Financial Statements. (a) ECSI has made available
to HYUNDAI accurate and complete copies (including copies of exhibits) of each
report, registration statement and definitive proxy and information statements
filed by ECSI with the Commission since January 1, 2004 (collectively, with all
information incorporated by reference therein or deemed to be incorporated by
reference therein, "ECSI Commission Documents"). All statements, reports,
schedules, forms and other documents required to have been filed by ECSI with
the Commission have been so filed on a timely basis. As of the time it was filed
with the Commission (or, if amended or superseded by a filing prior to the date
of this Agreement, then on the date of such filing): (i) each ECSI Commission
Document complied in all material respects with the applicable requirements of
the Securities Act or the Securities Exchange Act of ▇▇▇▇ (▇▇▇ "▇▇▇▇▇▇▇▇ ▇▇▇");
and (ii) no ECSI Commission Document contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) The financial statements contained in the ECSI Commission Documents:
(i) complied as to form in all material respects with the published rules and
regulations of the Commission applicable thereto; (ii) were prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered (except as may be indicated in the notes to such financial statements
and, in the case of unaudited statements, as permitted by Form 10-QSB of the
Commission); and (iii) fairly present, in all material respects, the
consolidated financial position of ECSI and its consolidated subsidiaries as of
the respective dates thereof and the consolidated results of operations of ECSI
and its consolidated subsidiaries for the periods covered thereby. All
adjustments considered necessary for a fair presentation of the financial
statements have been included.
2.8 Absence of Undisclosed Liabilities. ECSI does not have any
liabilities, obligations or claims of any kind whatsoever, whether secured or
unsecured, accrued or unaccrued, fixed or contingent, matured or unmatured,
known or unknown, direct or indirect, contingent or otherwise and whether due or
to become due (referred to herein individually as a "Liability" and collectively
as "Liabilities"), other than: (a) Liabilities that are fully reflected or
reserved for in the consolidated balance sheet as at September 30, 2006 (the
"Balance Sheet") included in ECSI's Form 10-QSB filed with the Commission; (b)
Liabilities arising in the ordinary course of business after the date of the
Balance Sheet and (c) Liabilities that are set forth on the Disclosure Schedule
or incorporated therein by reference.
2.9 Absence of Certain Changes. Except as set forth in any ECSI Commission
Document, since the date of the Balance Sheet, ECSI has owned and operated its
assets, properties and business in the ordinary course of business and
consistent with past practice. Without limiting the generality of the foregoing,
subject to the aforesaid exceptions, since the date of the Balance Sheet, ECSI
has not experienced any change that has had or could reasonably be expected to
have a Material Adverse Effect on ECSI.
2.10 Litigation. Except as disclosed in the Disclosure Schedule or
incorporated by reference therein to the ECSI Commission Documents, there is no
legal, administrative, arbitration, or other proceeding, suit, claim or action
of any nature or investigation, review or audit of any kind, or any judgment,
decree, decision, injunction, writ or order (collectively "Claims") pending,
noticed, scheduled, or, to the knowledge of ECSI, threatened or contemplated by
or against or involving ECSI, its assets, properties or business or its
directors, officers, agents or employees (but only in their capacity as such),
whether at law or in equity, before or by any person or entity or Authority, or
which questions or challenges the validity of this Agreement or any action taken
or to be taken by the Parties hereto pursuant to this Agreement or in connection
with the transactions contemplated herein, other than any Claim that could not
reasonably be expected to have a Material Adverse Effect.
2.11 Contracts and Commitments; No Default. ECSI is not a party to, nor
are any of its Assets bound by, any material contract (an "ECSI Contract") that
is not disclosed in the Disclosure Schedule or incorporated by reference therein
to the ECSI Commission Documents. Except as disclosed in Disclosure Schedule and
other than the Derivative Securities the holders of which have executed and
delivered Waivers, none of ECSI Contracts contains a provision requiring the
consent of any party with respect to the consummation of the Transaction without
triggering a conversion price adjustment in any Derivative Security. ECSI is not
in breach, violation or default, however defined, in the performance of any of
its obligations under any ECSI Contract, and no facts and circumstances exist
which, whether with the giving of due notice, lapse of time, or both, would
constitute such breach, violation or default thereunder or thereof, and, to the
knowledge of ECSI, no other parties thereto are in a breach, violation or
default, however defined, thereunder or thereof, and no facts or circumstances
exist which, whether with the giving of due notice, lapse of time, or both,
would constitute such a breach, violation or default thereunder or thereof,
other than any such event that could not reasonably be expected to have a
Material Adverse Effect.
2.12 No Broker or Finder. Neither ECSI nor, to the knowledge of ECSI, any
of its directors, officers or employees, has employed any broker, finder,
investment banker or financial advisor or incurred any liability for any
brokerage fee or commission, finder's fee or financial advisory fee, in
connection with the transactions contemplated hereby, nor is there any basis
known to ECSI for any such fee or commission to be claimed by any person or
entity.
No broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the Transaction based
upon arrangements made by or on behalf of ECSI.
2.13 Intercompany And Affiliate Transactions; Insider Interests. Except as
expressly identified in the Disclosure Schedule or incorporated by reference
therein to the ECSI Commission Documents, there are, and during the last two
years there have been, no transactions, agreements or arrangements of any kind,
direct or indirect, between ECSI, on the one hand, and any director, officer,
employee, stockholder, or affiliate of ECSI, on the other hand, including,
without limitation, loans, guarantees or pledges to, by or for ECSI or from, to,
by or for any of such persons, that are effected with all corporate consents and
approvals necessary under controlling law, and currently in effect.
2.14 Compliance with Law; Permits and Other Operating Rights. Except as
set forth in the Disclosure Schedule, the properties, business and operations of
ECSI are and have been in compliance in all respects with all Laws applicable to
ECSI's assets, properties, business and operations, except where the failure to
comply would not have a Material Adverse Effect. ECSI possesses all material
permits, licenses and other authorizations from all Authorities necessary to
permit it to operate its business in the manner in which it presently is
conducted and the consummation of the transactions contemplated by this
Agreement will not prevent ECSI from being able to continue to use such permits
and operating rights. ECSI has not received notice of any violation of any such
applicable Law, and is not in default with respect to any order, writ, judgment,
award, injunction or decree of any Authority, other than any such violation or
default that could not reasonably be expected to have a Material Adverse Effect.
2.15 Books and Records. The books of account, minute books, stock record
books, and other material records of ECSI, all of which have been made available
to HYUNDAI, are complete and correct in all material respects and have been
maintained in accordance with reasonable business practices. The minute books of
ECSI contain accurate and complete records, in all material respects, of all
formal meetings held of, and corporate action taken by, the directors and
officers, the managers and committees of the managers of ECSI. At the Closing,
all of those books and records will be in the possession of ECSI.
2.16 Business Generally; Accuracy of Information. No representation or
warranty made by ECSI in this Agreement, the Disclosure Schedule, or in any
document, agreement or certificate furnished or to be furnished to HYUNDAI at
the Closing by or on behalf of ECSI in connection with the Transaction contains
or will contain any untrue statement of material fact or omit or will omit to
state any material fact necessary in order to make the statements herein or
therein not misleading in light of the circumstances in which they are made, and
all of the foregoing completely and correctly present the information required
or purported to be set forth herein or therein.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF HYUNDAI
HYUNDAI represents and warrants to ECSI as follows:
3.1 Authorization and Power. HYUNDAI has all power and authority to enter
into this Agreement and the Transaction Documents and to carry out the
transactions contemplated herein and therein. HYUNDAI has taken all action
required by law or otherwise to authorize the execution, delivery and
performance of this Agreement and the Transaction Documents and the consummation
of the transactions contemplated herein and therein. This Agreement and the
Transaction Documents are the valid and binding legal obligations of HYUNDAI
enforceable against HYUNDAI in accordance with their respective terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or similar laws that affect creditors' rights generally.
3.2 Non-Contravention. Neither the execution, delivery and performance of
this Agreement and the Transaction Documents nor the consummation of the
Transaction will:
(a) be in conflict with, or constitute a default, however defined (or an
event which, with the giving of due notice or lapse of time, or both, would
constitute such a default), under any agreement to which HYUNDAI is a party; or
(b) violate any Law of any Authority.
3.3 Consents and Approvals. Except for the filing with the Commission of
an Initial Statement of beneficial Ownership on Form 3 and a Schedule 13D, no
Consent is required by any person or entity, including without limitation any
Authority, in connection with the execution, delivery and performance by
HYUNDAI, or the consummation of the transactions contemplated herein, other than
any Consent which, if not made or obtained, will not, individually or in the
aggregate, have a Material Adverse Effect on the business of HYUNDAI.
3.4 Litigation. There is no legal, administrative, arbitration, or other
proceeding, suit, claim or action of any nature or investigation, review or
audit of any kind, or any judgment, decree, decision, injunction, writ or order
pending, noticed, scheduled, or, to the knowledge of HYUNDAI, threatened or
contemplated by or against or involving HYUNDAI, its assets, properties or
business, whether at law or in equity, before or by any person or entity or
Authority, or which questions or challenges the validity of this Agreement or
any action taken or to be taken by the Parties hereto pursuant to this Agreement
and the Transaction Documents or in connection with the Transaction.
3.5 No Broker or Finder. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission payable by ECSI
in connection with the Transaction based upon arrangements made by or on behalf
of HYUNDAI.
3.6 Accredited Investor Status. HYUNDAI is an "accredited investor" as
such term is defined in Rule 501 of Regulation D promulgated by the Commission
under the Securities Act.
3.7 Access to ECSI Information. HYUNDAI has had the opportunity to examine
ECSI Commission Documents and the Disclosure Schedule and to obtain additional
information concerning ECSI from ECSI.
3.8 Restricted Securities. HYUNDAI understands that the stock certificates
representing the Escrow Shares and that will represent the Sub-Contract Shares
will bear the Legend. Without limiting HYUNDAI's right to sell the Securities
pursuant to an effective registration statement or otherwise in compliance with
the 1933 Act, HYUNDAI is purchasing the Securities for its own account for
investment only and not with a view towards the public sale or distribution
thereof and not with a view to or for sale in connection with any distribution
thereof.
3.9 HYUNDAI hereby represents that, in connection with its investment or
the its decision to purchase of the Securities, HYUNDAI has not relied on any
statement or representation of any Person, including any such statement or
representation by ECSI or any of its controlling Persons, officers, directors,
partners, agents and employees or any of their respective attorneys, except as
specifically set forth herein or in the Escrow Agreement, the Registration
Rights Agreement or the Subcontract.
ARTICLE 4
COVENANTS OF THE PARTIES
4.1 Filings; Consents; Removal of Objections. The Parties agree to take or
cause to be taken all actions and do or cause to be done all things necessary,
proper or advisable under applicable Laws to consummate and make effective, as
soon as reasonably practicable, the Transaction, including without limitation
obtaining all Consents of any person or entity, whether private or governmental,
required in connection with the consummation of the transactions contemplated
herein. In furtherance, and not in limitation of the foregoing, it is the intent
of the Parties to consummate the Transaction at the earliest practicable time,
and they respectively agree to exert commercially reasonable efforts to that
end, including without limitation: (i) the removal or satisfaction, if possible,
of any objections to the validity or legality of the Transaction; and (ii) the
satisfaction of the conditions to consummation of the Transactions.
4.4 Further Assurances; Cooperation; Notification. Each of the Parties
hereto will, at and after Closing, execute and deliver such instruments and take
such other actions as the other Party may reasonably require in order to carry
out the intent of this Agreement and the Transaction Documents.
4.5 Public Announcements. Neither of the Parties hereto will make any
public announcement with respect to the Transaction without the prior written
consent of the other Party, which consent will not be unreasonably withheld or
delayed; provided, however, that either of the Parties hereto may at any time
make any announcements that are required by applicable Law so long as the Party
so required to make an announcement promptly upon learning of such requirement
notifies the other Party of such requirement and discusses with the other Party
in good faith the exact proposed wording of any such announcement.
4.6 Satisfaction of Conditions Concurrent. Each Party will use
commercially reasonable efforts to satisfy or cause to be satisfied all the
conditions concurrent that are applicable to them, and to cause the Transaction
to be consummated, and, without limiting the generality of the foregoing, to
obtain all material consents and authorizations of third parties and to make
filings with, and give all notices to, third parties that may be necessary or
reasonably required in order to effect the Transaction.
4.7 Lock-Up. For a period of six months from the Closing, HYUNDAI agrees
that it shall not (a) exercise any of its rights under the Registration Rights
Agreement or (b) sell or otherwise transfer any of the Registrable Securities
(as defined in the Registration Rights Agreement) without the prior written
consent of the Company; which consent will not be withheld or delayed if the
intended transferee in as Affiliate of HYUNDAI.
ARTICLE 5
CONDITIONS TO THE OBLIGATIONS OF HYUNDAI
Notwithstanding any other provision of this Agreement to the contrary, the
obligation of HYUNDAI to effect the Transaction is subject to the satisfaction
at the Closing, or waiver by HYUNDAI, of each of the following conditions:
5.1 Representations and Warranties True. The representations and
warranties of ECSI contained in this Agreement and the Transaction Documents,
including without limitation in the Disclosure Schedule delivered to ECSI as
Annex 2.1, are true, complete and accurate in all material respects as of the
date when made and at and as of the Closing Date as though such representations
and warranties were made at and as of such time, except for changes specifically
permitted or contemplated by this Agreement, and except insofar as the
representations and warranties relate expressly and solely to a particular date
or period, in which case they will be true and correct at the Closing with
respect to such date or period.
5.2 Performance. ECSI will have performed and complied in all material
respects with all agreements, covenants, obligations and conditions required by
this Agreement and the Transaction Documents to be performed or complied with by
ECSI on the Closing.
5.3 Required Approvals and Consents. (a) All action required by Law to
authorize the execution, delivery and performance of this Agreement and the
Transaction Documents and the consummation of the Transaction will have been
duly and validly taken.
(b) All Consents of or from all Authorities required hereunder to
consummate the Transaction will have been delivered, made or obtained, and
HYUNDAI will have received copies thereof.
(c) Waivers from the holders of all Derivative Securities from whom
Waivers are required, in form and substance reasonably satisfactory to HYUNDAI,
shall have been obtained and furnished to HYUNDAI.
5.4 Agreements and Documents. HYUNDAI will have received the following
agreements and documents, each of which will be in full force and effect:
(a) a certificate executed by ECSI confirming that the conditions set
forth in Sections 5.1, 5.2, 5.3, 5.5, 5.6, 5.7 and 5.8 have been duly satisfied.
(b) the duly executed and delivered ECSI Indemnity Agreement that is
attached hereto as Annex 5.4(b) and incorporated herein by reference.
5.5 Adverse Changes. No material adverse change will have occurred in the
business, financial condition, prospects, assets or operations of ECSI since
June 30, 2006, except as set forth on Annex 5.5 attached hereto.
5.6 No Proceeding or Litigation. No suit, action, investigation, inquiry
or other proceeding by any Authority or other person or entity will have been
instituted or threatened which delays or questions the validity or legality of
the transactions contemplated hereby or which, if successfully asserted, would,
in the reasonable judgment of HYUNDAI, individually or in the aggregate,
otherwise have a Material Adverse Effect on ECSI's business, financial
condition, prospects, assets or operations or prevent or delay the consummation
of the transactions contemplated by this Agreement.
5.7 Legislation. No Law will have been enacted which prohibits, restricts
or delays the consummation of the Transaction or any of the conditions to the
consummation of the Transaction.
5.8 Appropriate Documentation. HYUNDAI will have received, in a form and
substance reasonably satisfactory to HYUNDAI, dated the Closing Date, all
certificates and other documents, instruments and writings to evidence the
fulfillment of the conditions set forth in this Article 5 as HYUNDAI may
reasonably request, along with duly executed copies of the Transaction Documents
by the Parties.
ARTICLE 6
CONDITIONS TO OBLIGATIONS OF ECSI
Notwithstanding anything in this Agreement to the contrary, the obligation
of ECSI to effect the transactions contemplated herein will be subject to the
satisfaction at or prior to the Closing of each of the following conditions:
6.1 Representations and Warranties True. The representations and
warranties of HYUNDAI contained in this Agreement and the Transaction Documents
will be true, complete and accurate in all material respects as of the date when
made and at and as of the Closing, as though such representations and warranties
were made at and as of such time, except for changes permitted or contemplated
in this Agreement, and except insofar as the representations and warranties
relate expressly and solely to a particular date or period, in which case they
will be true and correct at the Closing with respect to such date or period.
6.2 Performance. HYUNDAI will have performed and complied in all material
respects with all agreements, covenants, obligations and conditions required by
this Agreement and the Transaction Documents to be performed or complied with by
HYUNDAI at the Closing.
6.3 Required Approvals and Consents. (a) All action required by Law to
authorize the execution, delivery and performance of this Agreement and the
Transaction Documents and the consummation of the Transaction will have been
duly and validly taken.
(b) All Consents of or from all Authorities required hereunder to
consummate the transactions contemplated herein, will have been delivered, made
or obtained, and ECSI will have received copies thereof.
6.4 Agreements and Documents. ECSI will have received the following
agreements and documents, each of which will be in full force and effect:
(a) a certificate executed by HYUNDAI in full force and effect confirming
that the conditions set forth in Sections 6.1, 6.2, 6.3, 6.5, 6.6, 6.7 and 6.8
have been duly satisfied.
(b) the duly executed and delivered HYUNDAI Indemnity Agreement that is
attached hereto as Annex 6.4(b) and incorporated herein by reference.
6.5 Adverse Changes. No material adverse change will have occurred in the
ability of HYUNDAI to perform its obligations under this Agreement.
6.6 No Proceeding or Litigation. No suit, action, investigation, inquiry
or other proceeding by any Authority or other person or entity will have been
instituted or threatened which delays or questions the validity or legality of
the Transactions or which, if successfully asserted, would, in the reasonable
judgment of ECSI, individually or in the aggregate, otherwise have a Material
Adverse Effect on HYUNDAI's business, financial condition, prospects, assets or
operations or prevent or delay the consummation of the transactions contemplated
by this Agreement.
6.7 Legislation. No Law will have been enacted which prohibits, restricts
or delays the consummation of the Transaction or any of the conditions to the
consummation of the Transaction.
6.8 Appropriate Documentation. ECSI will have received, in a form and
substance reasonably satisfactory to ECSI, dated the Closing Date, all
certificates and other documents, instruments and writings to evidence the
fulfillment of the conditions set forth in this Article 6 as ECSI may reasonably
request, along with duly executed copies of the Transaction Documents by the
Parties.
ARTICLE 7
CERTAIN POST-CLOSING AGREEMENTS
7.1 HYUNDAI's Use of the ECSI Name in Asia. In order to augment the flow
of business to ECSI under the Sub-Contract, ECSI hereby grants to HYUNDAI a paid
up license to use the ECSI name solely in connection with establishing 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 the Sub-Contract when and if such entity receives a contract in
that country that involves work that ECSI can perform.
7.2 Voting Agreement and Proxy for the ECSI Shares Owned by HYUNDAI.
HYUNDAI agrees to provide ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, the Chief Executive Officer of ECSI,
with a voting agreement and proxy covering all shares of ECSI Common Stock from
time to time owned by ECSI. The voting agreement and proxy shall be in such form
as is mutually satisfactory to ECSI and HYUNDAI and shall comply in all respects
with applicable Law. The proxy shall be coupled with an interest and shall be
valid for the longest period permitted by applicable Law, but shall be revocable
as and to the extent provided in such voting agreement and proxy.
ARTICLE 8
MISCELLANEOUS PROVISIONS
8.1 Expenses. HYUNDAI and ECSI will each bear their own costs and expenses
relating to the transactions contemplated hereby, including without limitation,
fees and expenses of legal counsel, accountants, investment bankers, brokers or
finders, printers, copiers, consultants or other representatives for the
services used, hired or connected with the transactions contemplated hereby.
8.2 Survival. The representations and warranties of the Parties shall
survive the Closing for a period of two (2) years.
8.3 Amendment and Modification. Subject to applicable Law, this Agreement
may be amended or modified by the Parties at any time with respect to any of the
terms contained herein; provided, however, that all such amendments and
modifications must be in writing duly executed by all of the Parties hereto.
8.4 Waiver of Compliance; Consents. Any failure of a Party to comply with
any obligation, covenant, agreement or condition herein may be expressly waived
in writing by the Party entitled hereby to such compliance, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition will not operate as a waiver of, or estoppel with respect
to, any subsequent or other failure. No single or partial exercise of a right or
remedy will preclude any other or further exercise thereof or of any other right
or remedy hereunder. Whenever this Agreement requires or permits the consent by
or on behalf of a Party, such consent will be given in writing in the same
manner as for waivers of compliance.
8.5 No Third Party Beneficiaries. Nothing in this Agreement will entitle
any person or entity (other than a Party hereto and its respective successors
and assigns permitted hereby) to any claim, cause of action, remedy or right of
any kind.
8.6 Notices. All notices, requests, demands and other communications
required or permitted hereunder will be made in writing and will be deemed to
have been duly given and effective: (i) on the date of delivery, if delivered
personally; (ii) on the earlier of the fourth (4th) day after mailing or the
date of the return receipt acknowledgement, if mailed, postage prepaid, by
certified or registered mail, return receipt requested; or (iii) on the date of
transmission, if sent by facsimile, telecopy, telegraph, telex or other similar
telegraphic communications equipment to the addresses set forth below:
If to ECSI: With a copy to:
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Electronic Control Security, Inc. Aboudi & ▇▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇, ▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ Ind Zone 44641
Chief Executive Officer Israel
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇ Attention: ▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇ Telephone: ▇▇▇-▇-▇▇▇-▇▇▇▇
E-Mail: ▇_▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ Facsimile: 972-9-764-4834
E-Mail: ▇▇▇▇▇@▇-▇▇▇▇.▇▇▇
If to HYUNDAI: With a copy to:
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Hyundai Syscomm Corp. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇▇▇: ▇▇▇▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇-▇▇▇▇
Chairman of the Board Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇ Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇ E-Mail: ▇▇▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
E-Mail: ▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
or to such other person or address as either Party will furnish to the other in
writing in accordance with this subsection.
8.7 Assignment. This Agreement and all of the provisions hereof will be
binding upon and inure to the benefit of the Parties and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder will be assigned (whether
voluntarily, involuntarily, by operation of law or otherwise) by either Party
without the prior written consent of the other.
8.8 Governing Law. This Agreement and the legal relations among the
Parties hereto will be governed by and construed in accordance with the internal
substantive laws of the State of California (without regard to the laws of
conflict that might otherwise apply) as to all matters, including without
limitation matters of validity, construction, effect, performance and remedies.
8.9 Counterparts. This Agreement may be executed simultaneously in one or
more counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
8.10 Facsimile and Scanned Execution. Receipt by either Party of a
counterpart of this Agreement manually signed and then scanned electronically
and E-mailed to the other Party or manually signed and then sent by facsimile
transmission to the other Party shall, for all purposes, be deemed to be an
original counterpart with the same force and effect as the manually signed
counterpart from which it was electronically reproduced.
8.11 Headings. The headings of the sections and subsections of this
Agreement are inserted for convenience only and will not constitute a part
hereof.
8.12 Entire Agreement. This Agreement, the Disclosure Schedule and the
exhibits and other writings referred to in this Agreement or in the Disclosure
Schedule or any such exhibit or other writing are part of this Agreement,
together they embody the entire agreement and understanding of the Parties
hereto in respect of the transactions contemplated by this Agreement and
together they are referred to as this Agreement or the Transaction Documents.
There are no restrictions, promises, warranties, agreements, covenants or
undertakings, other than those expressly set forth or referred to in this
Agreement. This Agreement supersedes all prior agreements and understandings
between the Parties with respect to the transaction or transactions contemplated
by this Agreement, including, without limitation, the Memorandum of
Understanding dated November 28, 2006 between the Parties. Provisions of this
Agreement will be interpreted to be valid and enforceable under applicable Law
to the extent that such interpretation does not materially alter this Agreement;
provided, however, that if any such provision becomes invalid or unenforceable
under applicable Law such provision will be stricken to the extent necessary and
the remainder of such provisions and the remainder of this Agreement will
continue in full force and effect.
8.13 Definition of Material Adverse Effect. "Material Adverse Effect" with
respect to a party means a material adverse change in or effect on the business,
operations, financial condition, properties, liabilities or prospects of that
party taken as a whole; provided, however, that a Material Adverse Effect will
not be deemed to include (i) changes as a result of the announcement of this
Agreement or the transactions contemplated hereby, (ii) events or conditions
arising from changes in general business or economic conditions; (iii) changes
in the stock price of such party or (iv) changes in generally accepted
accounting principles.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
ECSI HYUNDAI
Electronic Control Security, Inc. Hyundai Syscomm Corp.
By:/s/▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ By:/s/▇▇▇▇▇▇ ▇▇▇
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▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇
Chief Executive Officer Chairman of the Board
