AGREEMENT OF MERGER

 

 

AGREEMENT OF MERGER

 

This agreement of merger (the “ Agreement” ) is dated as of January ____, 2006, between VirTra Systems, Inc. , a Texas corporation ( “ VTSI” ) and Virtra Merger Corporation , a Texas corporation ( “ VMC” ), upon the terms and conditions which follow.

Recitals

A.

The chief executive officers of VTSI and Altatron International, Inc., Chrysalis Manufacturing Corporation d/b/a Altatron EMS, Dynalyst Manufacturing Corporation, and Suntech Circuits signed a letter of intent of merger on October 24, 2005.   VMC has been subsequently incorporated to facilitate the merger of the acquired companies into VTSI.

B.        Prior to the execution of this Agreement, Altatron International, Inc., Chrysalis Manufacturing Corporation d/b/a Altatron EMS, and Dynalyst Manufacturing Corporation merged into VMC, with VMC as the surviving corporation and all of the outstanding capital stock or of those corporations changed into shares of VMC. VTSI and VMC desire to proceed with the execution of this Agreement without Suntech for the time being, although it is the intent of the parties to this Agreement, as well as the management of Suntech, to complete the Merger with Suntech as soon as may reasonably be practical.

C.        The boards of directors of VTSI and VMC deem it advisable and in the best interests of their corporations and their respective shareholders to consummate, and have approved, including for purposes of section 5.03 of the “ Texas Law,” the business combination transactions provided for in this Agreement, in which VMC will merge with and into VTSI, with VTSI continuing as the surviving corporation (the “ Merger” ), and all of the issued and outstanding shares of all the companies will be converted into shares of common stock, par value $0.005 per share, of VTSI, all as more fully set forth below.

B.

For federal income tax purposes, it is intended that the Merger shall qualify as a “reorganization” within the meaning of section 368(a) of the Internal Revenue Code of 1986, as amended (the “ Code” ) and the parties intend to adopt this Agreement as a “plan of reorganization” under section 368(a) of the Code and the associated Treasury Regulations.

C.

Each company desires to make certain representations, warranties, and agreements in connection with the Merger, and also to prescribe various conditions to the Merger.

D.

The boards of directors of each corporation have approved and adopted this Agreement.

E.

Capitalized terms that are not proper nouns are defined in section 13 below.

Accordingly, the parties agree as follows:

 

1. THE MERGER

 

1.1.

The Merger and Its Effect.  Subject to the terms and conditions of this Agreement, at the Effective Time (as defined below), VMC shall be merged with and into VTSI, which shall be the surviving corporation ( VTSI, as the party to the Merger surviving the Merger, is sometimes referred to as the “ Surviving Corporation” ), in accordance with this Agreement and which as of the Effective Date shall be governed by Texas Law.  Upon the effectiveness of the Merger:   (a) the separate corporate existence of VMC shall cease; (b) the Surviving Corporation shall possess all of the rights, privileges, powers, immunities, purposes, and franchises, both public and private, of VMC; (c) all real and personal property, tangible and intangible, of every kind and description belonging to VMC shall be vested in the Surviving Corporation without further act or deed, and title to any real estate vested in VMC shall not revert or in any way be impaired by reason of the Merger; (d) the Surviving Corporation shall be liable for all the obligations and Liabilities of VMC, and any claim existing or action or proceeding pending by or against VMC may be enforced against VTSI; and (e) neither the rights of creditors nor any “Liens” upon the property of VMC shall be impaired by the Merger.

1.2.

Effective Time of the Merger .  Upon the satisfaction or waiver of the conditions set forth in sections 8 and 9, and the “ Closing” of the Merger in accordance with section 3, the parties shall cause articles of merger meeting the requirements of section 5.04 of the Texas Law to be properly executed and filed in accordance with the terms of this Agreement and the applicable provisions of Texas Law.  The Merger shall become effective at the time of the filing of the articles of merger as provided above, or at such later time as the parties have agreed upon and designated in such filing as the effective time of the Merger (the “ Effective Time” ).

1.3.

Articles of Incorporation and Bylaws of Surviving Corporation.  From and after the Effective Time, the articles of incorporation of the Surviving Corporation shall be the articles of incorporation of VTSI as in effect immediately prior to the Effective Date with the amendments set forth in Schedule 1.3, and the bylaws of the Surviving Corp. shall be the bylaws of VTSI as in effect immediately prior to the Effective Time, in each case until further amended.

1.4.

Directors of the Surviving Corporation.  At the Effective Time, the individuals listed on Schedule 1.4 shall serve as the sole directors of the Surviving Corporation.  

1.5.

Officers of the Surviving Corporation.  At the Effective Time, the individuals listed on Schedule 1.5 shall serve as the sole officers of the Surviving Corporation.

1.6.

Fiscal Year.  The fiscal year of the Surviving Corporation shall end on the 31st day of December.  

2. CONVERSION OF SHARES; EFFECTIVE DATE

2.1.

Manner and Basis of Conversion.  At the Effective Date, and in the Merger,

2.1.1.

each of the 141,841 outstanding shares of preferred stock of VMC shall be changed into one share of Series A Preferred Stock of VTSI;

2.1.2.

each outstanding share of common stock in VMC shall be changed into a number of shares of VTSI determined by dividing 7,803,795 by such aggregate number of shares of VMC outstanding; and

 

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2.1.3.

each then-current outstanding share of VTSI shall be changed into a number of new shares of VTSI, determined by dividing 8,512,920 by the then-current number of VTSI shares outstanding.

The parties intend that application of the foregoing provisions of this section shall result in 16,316,715 shares of common stock and 141,841 shares of Series A Preferred Stock of VTSI outstanding after the Merger, of which 7,803,795 shares of common stock shall be held by former holders of VMC common stock as of the Effective Time, 8,512,920 shares of common stock shall be held by holders of VTSI common stock as of the Effective Time, and 141,841 shares of Series A Preferred Stock shall be held by former holders of VMC preferred stock. Each share of Series A Preferred Stock will be initially convertible into 8.9 shares of VTSI common stock, so that upon conversion the holders of such preferred stock would be entitled to receive 1,259,548 shares of VTSI common stock.

2.2.

Convertible Securities. The “Convertible Securities” of VTSI outstanding at the Effective Time shall remain outstanding after the Effective Time. Terms and conditions of such Convertible Securities, other than the exercise price or conversion price and number of shares issuable upon conversion or exercise (and terms and conditions determined by reference to such matters), shall remain unchanged. and the exercise price or conversion price and number of shares issuable upon conversion or exercise  (and terms and conditions determined by reference to such matters) shall be adjusted as set forth in the instruments governing such Convertible Securities.

2.3.

No Fractional Shares. No fractional VTSI Shares shall be issued; but rather, each fractional VTSI Share that would otherwise be issuable by virtue of the merger will be rounded up to a whole VTSI Share.  All of the VTSI Shares issuable pursuant to section 2 and the VTSI Shares issuable as a result of rounding up VTSI Shares are referred to as the “ VTSI Merger Shares.”

2.4.

Procedure for Conversion of Share Certificates.   Each holder of record of a stock certificate which prior to the Effective Time represented shares in either of the companies will be entitled to receive from VTSI, upon proper surrender of such stock certificate(s) to VTSI or its transfer agent, the VTSI Merger Shares in accordance with section 2.1.

2.5.

No Further Transactions.   The stock transfer books of VMC shall be closed as of the Effective Date, and no further registrations of transfers shall be made thereafter on the records of VMC.

2.6.

Rights of Holders.   No dividends shall be paid on any VTSI Merger Shares until the certificates evidencing such VTSI Merger Shares shall have been surrendered as required by section 2.4 above.

 

3. CLOSING

The Merger shall be consummated at a closing (the " Closing" ) at the offices of VTSI, 440 North Center, Arlington, Texas 76011, or at such other place as may be agreed by the parties.  The Closing shall take place on the tenth day following the meeting of the stockholders of VTSI and VMC specified in sections 8.4 and 9.4, whichever is later, or such other later date as may be agreed by the parties.  At the Closing, the articles of merger provided for by section  1.2 shall be filed in the office of the Secretary of State of Texas.

 

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4. REPRESENTATIONS AND WARRANTIES OF VTSI

VTSI represents and warrants to all the other companies that, except as disclosed on any schedule:

4.1.

Existence; Good Standing; Corporate Authority .   VTSI is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas and has the corporate power and lawful authority to own, lease, and operate its assets, properties, and business, and to carry on its business in all material respects as now conducted.

4.2.

Qualification.   VTSI is duly qualified as a foreign corporation to transact business in the jurisdictions set forth in Schedule 4.2, which are the only jurisdictions where the nature of its business or the ownership of its assets makes such qualification necessary, except as set forth on Schedule 4.2 or where the failure to so qualify would not have a “Material Adverse Effect” on VTSI.

4.3.

Authority.   VTSI has the requisite corporate power and authority to execute, deliver, and perform its obligations under this Agreement, every other document or agreement to be executed by VTSI under this Agreement (each a “ Transaction Document” ) and to consummate the transactions contemplated hereby.  The execution and delivery of this Agreement by VTSI and the performance by VTSI of its obligations, the execution and delivery of each of the Transactions Documents, and the performance of its obligations and the consummation of the transactions contemplated hereby have been duly authorized by the board of directors of VTSI, and all other necessary corporate action on the part of VTSI, other than the adoption and approval of this Agreement by the stockholders of VTSI, and no other corporate proceedings on the part of VTSI are necessary to authorize this Agreement, the Transaction Documents, and the transactions contemplated hereby (assuming due authorization, execution, and delivery by the other party or parties).  This Agreement has been duly and validly executed and delivered by VTSI and constitutes a legal, valid, and binding obligation of VTSI, enforceable against it in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other laws affecting the enforcement of creditors’ rights generally, or by general principles of equity.  Each Transaction Document has been, or, as of the Effective Time, will have been, duly and validly authorized, executed, and delivered by VTSI, and constitutes or will constitute as of such date a legally valid and binding obligation of VTSI, enforceable against it in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other laws affecting the enforcement of creditors' rights generally or by general principles of equity.

4.4.

Capitalization.   On the date of this Agreement, VTSI's authorized “ Capital Stock” consists of 100,000,000 common shares, of which 65,207,760 shares were issued and outstanding as of the date of the Agreement, and 2,000,000 preferred shares, of which none have been issued. No other class of Capital Stock of VTSI is authorized or outstanding. All of the issued and outstanding shares are duly authorized and are legally and validly issued, fully paid, and nonassessable.

4.5.

VTSI Convertible Securities.  On the date of this Agreement, except as set forth in Schedule 4.5, (a)   there are no outstanding Convertible Securities to acquire any Capital Stock

 

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of VTSI; (b) there are no shares of Capital Stock of VTSI reserved or set aside as treasury shares for any purpose and no stockholder of VTSI has preemptive rights; and (c) there are no voting trusts or other agreements or understandings with respect to the voting of shares of any class of Capital Stock of VTSI, except as contemplated by this Agreement.

4.6.

Subsidiaries.   VTSI has no Subsidiaries. Except as set forth in Schedule 4.6, VTSI is not a party to any partnership or joint venture agreement or arrangement and does not own any equity interest in any other corporation, partnership or other entity.  

4.7.

Certificate of Incorporation and Bylaws.   VTSI has made available to all of the other parties true, correct, and complete copies of the certificate of incorporation and bylaws of VTSI, and all amendments as of the date of this Agreement.

4.8.

No Conflicts . Except as disclosed in Schedule 4.8, neither the execution and delivery of this Agreement and the Transaction Documents, nor the performance by VTSI of its obligations, nor the consummation of the transactions contemplated hereby, will: (i)  conflict with VTSI’s certificate of incorporation or bylaws; (ii) violate any material statute, law, ordinance, rule, or regulation applicable to VTSI or any of its properties or assets; or (iii) violate, breach, be in conflict with, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or permit the termination of any provision of, or result in the termination of, the acceleration of the maturity of, or the acceleration of the performance of any obligation of VTSI, or result in the creation or imposition of any Lien upon any properties, assets, or business of VTSI under, any note, bond, indenture, mortgage, deed of trust, lease, franchise, permit, authorization, license, contract, instrument, or other agreement or commitment or any order, judgment, or decree to which VTSI is a party or by which VTSI or any of its assets or properties is bound or encumbered, or give any Person the right to require VTSI to purchase or repurchase any notes, bonds or instruments of any kind except, in each case, for such violations, conflicts, defaults, or other occurrences which would not have, and would not reasonably be expected to have, a Material Adverse Effect.

4.9.

No consents required. Except (i) for the filing of the articles of merger pursuant to Texas Law, (ii) for the VTSI stockholder approval (as set forth below) or (iii) with respect to matters set forth in Schedule 4.8, no consent, approval, or authorization of, permit from, or declaration, filing, or registration with, any governmental or regulatory authority, or any other person is required to be made or obtained by VTSI in connection with the execution, delivery, and performance of this Agreement, the Transaction Documents and the consummation of the transactions contemplated hereby except where the failure to obtain such consent, approval, authorization, permit, or declaration or to make such filing or registration would not have a Material Adverse Effect.

4.10.

Financial Statements.   VTSI has previously provided VMC with copies of its Annual Report on Form 10-KSB, and its most recent Quarterly Report on Form 10-QSB, each as filed with the Securities in Exchange Commission. The financial statements included in such reports (the " VTSI Financial Statements") were prepared in accordance with GAAP consistently applied throughout the periods indicated and fairly present the financial position, results of operations, and changes in stockholders' equity of VTSI as at and for the respective periods stated in such statements.

4.11.

No Material Adverse Change.   Except as set forth in Schedule 4.11, since September 30, 2005 (the " VTSI Balance Sheet Date” ), VTSI has conducted its business in all

 

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material respects only in the ordinary and usual course and except for its continuing to incur losses and depletion of its cash assets, there has been no material adverse change in the assets, liabilities, properties, business, or condition, financial or otherwise, of VTSI, and no event or condition exists or has occurred which would, so far as reasonably can be foreseen at this time , have a Material Adverse Effect, nor has there been any damage, destruction, or loss materially affecting the assets, properties, business, or condition of VTSI, whether or not covered by insurance.

4.12.

Tax Matters.  Except as set forth in Schedule 4.12, the total amounts accrued on the books and records of VTSI on both the VTSI Balance Sheet Date and the Effective Date represent and will represent adequate provisions, in accordance with GAAP, for the payment of all federal, state, county, local, foreign, and other income tax, excise tax, sales tax, use tax, gross receipts tax, franchise tax, property tax, employment, and payroll related tax, and all other taxes and import duties, including any penalties or interest, whether or not measured in whole or in part by income, whether disputed or not, which are hereafter found to be, or to have been, due with respect to the conduct of the business of VTSI during all periods covered by the “ VTSI Financial Statements” and during the period subsequent and up to and through the date of the Closing.  Except as disclosed in Schedule 4.12 or as would not have a Material Adverse Effect, VTSI has timely filed, on or before the relevant due dates (including any extensions of time to file), all income tax, excise tax, sales tax, use tax, gross receipts tax, franchise tax, employment and payroll related tax, property tax, and all other tax returns and reports which VTSI is required by law to file, all of which were properly prepared on a reasonable basis.  Except as disclosed in Schedule 4.12, VTSI has paid or provided for all taxes shown to be due on such returns and any amendments.  Except as disclosed in Schedule 4.12, there are no unpaid deficiencies or other assessments of tax, interest, or penalties owed by VTSI.  

4.13.

Compliance with Laws.   (a) Except as is set forth in Schedule 4.13, VTSI is in compliance with, and has not received notice from any Governmental Authority alleging a violation by it of, any federal, state, county, local or foreign, statute, law, ordinance, regulation, or order (i) applicable to it or its business, or (ii) which otherwise is applicable to it involving the manufacture, production, storage, possession, sale, delivery, or distribution of any of its products or services; (b)  VTSI has not received any directives or orders from any Governmental Authority related to or affecting any of its products or facilities; (c)  VTSI has all licenses, permits, orders, authorizations, notifications, and approvals of any Governmental Authority material to the conduct of its business as presently conducted (collectively, the " Permits" ); and (d) all material Permits, the loss of which could have a Material Adverse Effect, are listed in Schedule 4.13 and are in full force and effect, no violations are or have been recorded in respect of any Permit which currently have or could have a Material Adverse Effect, and no proceeding is pending, or, to the best knowledge of VTSI, threatened, to revoke or limit any Permit, the loss of which could have a Material Adverse Effect.  

4.14.

No Defaults Under Loan Agreements.   Except as set forth in Schedule 4.14, VTSI is not in default under any “ Contractual Obligation” relating to borrowed money to which it is a party or by which it or its material assets or properties is bound, nor does any condition exist which with notice or lapse of time or both would constitute such default, and each such contract or other agreement relating to borrowed money is in full force and effect.  Except as set forth in Schedule 4.14, there is no agreement, contract, or instrument to which VTSI is a party

 

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and which evidences, individually or, in the case of related transactions, collectively, indebtedness of VTSI for money borrowed.  

4.15.

Litigation.   Except as set forth in Schedule 4.15, VTSI is not a party to, nor, to its knowledge, threatened with, any litigation or judicial, administrative, or arbitration proceeding or investigation.  Except as set forth in Schedule 4.14, there is no dispute with any Person under contract with VTSI which has a Material Adverse Effect on VTSI, or is reasonably likely to have a Material Adverse Effect on VTSI, and there is no present or to VTSI’s knowledge, threatened walkout, strike, or any other similar occurrence.  

4.16.

Agreements. Schedule 4.16 lists or refers to all of the following types of contracts and other agreements (whether oral or written) that are not otherwise disclosed in this Agreement and that provide for payments by or to VTSI in excess of $10,000 (a) to which VTSI is a party or (b) by or to which VTSI or its assets or properties are bound or subject:   (i) contracts and other agreements with any current or former officer, director, employee, consultant, or stockholder, including, without limitation, all non-competition agreements with employees; (ii) contracts and other agreements for the sale of products or services; (iii) contracts and other agreements for the purchase or acquisition of products, materials, supplies, equipment, merchandise, or services; (iv) joint venture agreements relating to its assets, properties, or business or by or to which it or its assets or properties are bound or subject; (v) warehousing, distributorship, representative, management, marketing, sales agency, or advertising agreements; and (vi) any other material contract or other agreement not made in the ordinary course of business (other than those reflected in any other schedule).  All of the contracts and other agreements set forth in Schedule 4.16 are (except as set forth in said schedule) in full force and effect in accordance with their respective terms, and VTSI is not in default, nor does any condition exist which with notice or lapse of time or both would constitute a default by VTSI, in any material respect, under any of them, nor, to the knowledge of VTSI, is any other party to any such contract or other agreement in default in any material respect on the date of this Agreement.  On the date of this Agreement, VTSI is not a party to or bound by any contracts or other agreements (other than those identified on a Schedule to this Agreement) which it believes either individually or in the aggregate have or could have a Material Adverse Effect on VTSI.

4.17.

Real Estate.  Except as set forth in Schedule 4.17, VTSI does not own or lease any real property.  Schedule 4.17 sets forth a list of:  (i) all leases, subleases, or other agreements under which VTSI is lessor or lessee of any real property.  Schedule 4.17 includes, without limitation, the location of the property, the names of the lessor and lessee, and any affiliation or other association between VTSI and the lessor and lessee.  Such leases, subleases, and other agreements are in full force and effect and, with respect to VTSI’s performance, no default, or event which, with notice or lapse of time or both, would constitute a default, in any material respect by VTSI, has occurred.

The real estate owned or leased by VTSI is not subject in any material respect to unlawful contamination from any substance or material presently identified as toxic or hazardous by any “ Environmental Laws” and VTSI has not caused or suffered to occur a material spillage or other discharge of any “ Hazardous Materials” within the meaning of any Environmental Law or otherwise conducted operations which could reasonably lead to the imposition of any Lien upon any real property owned or leased by VTSI or any material fine upon VTSI pursuant to any Environmental Law.

 

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4.18.

Officers, Directors and Employees.   Schedule 4.18 sets forth as of this date of the name and total annual compensation of each officer and director of VTSI, and each employee and consultant of VTSI, who is compensated at a rate in excess of $60,000 per annum.  Except for employment agreements described in Schedule 4.18, VTSI is not a party to any “ Contractual Obligation” which could obligate VTSI to pay severance or other similar compensation to an officer, director, employee, or other Person solely as a result of the Merger or other transactions contemplated.

4.19.

Intellectual property.

4.19.1.

 

Schedule 4.19 contains a complete and accurate list and summary description, including any royalties paid or received by VTSI, of all contracts relating to the Intellectual Property Assets to which VTSI is a party or by which VTSI is bound (the " VTSI Intellectual Property Assets" ), except for any license implied by the sale of a product and perpetual, paid-up licenses for commonly available software programs with a value of less than $5,000 under which VTSI is the licensee.  There are no outstanding and, to VTSI's knowledge, no threatened, disputes, or disagreements with respect to any such agreement.

4.19.2.

 

Ownership of Intellectual Property Assets. Except as set forth on Schedule 4.19:

4.19.2.1.

VTSI is the owner of all right, title, and interest in and to each of the VTSI Intellectual Property Assets, free and clear of all liens, security interests, charges, encumbrances, equities, and other adverse claims, and has the right to use without payment to a third party all of the VTSI Intellectual Property Assets; and

4.19.2.2.

all former and current employees of VTSI have executed written contracts with VTSI that assign to VTSI all rights to any inventions, improvements, discoveries, or information relating to the business of VTSI.  No employee of VTSI has entered into any contract that restricts or limits in any way the scope or type of work in which the employee may be engaged or requires the employee to transfer, assign, or disclose information concerning his work to anyone other than VTSI.

4.19.3.

Patents

4.19.3.1.

Schedule 4.19 contains a complete and accurate list and summary description of all Patents held by VTSI (the " VTSI Patents").  

4.19.3.2.

Except as set forth in Schedule 4.19, all of such issued VTSI Patents are currently in compliance with formal legal requirements (including payment of filing, examination, and maintenance fees and proofs of working or use), and are not subject to any maintenance fees or taxes or actions falling due within 90 days after the date of Closing.

4.19.3.3.

Except as set forth in Schedule 4.19, no VTSI Patent has been or is now involved in any interference, reissue, reexamination, or opposition proceeding, and  there is not to VTSI's knowledge any potentially interfering patent or patent application of any third party.

4.19.3.4.

Except as set forth in Schedule 4.19, no VTSI Patent is infringed or, to VTSI's knowledge, has been challenged or threatened in any way.  Except as set forth in Schedule 4.19, none of the products manufactured and sold, nor any process or know-

 

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how used, by VTSI infringes or is alleged to infringe any patent or other proprietary right of any other Person.

4.19.3.5.

Except as set forth in Schedule 4.19, all products made, used, or sold under the Patents have been marked with the proper patent notice.

4.19.4.

Trademarks

4.19.4.1.

Schedule 4.19 contains a complete and accurate list and summary description of all VTSI Marks registered with the United States Patent and Trademark Office (the " VTSI Marks").

4.19.4.2.

Except as set forth in Schedule 4.19, all VTSI Marks that have been registered with the United States Patent and Trademark Office are currently in compliance with all formal legal requirements (including the timely post-registration filing of affidavits of use and incontestability and renewal applications), are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within 90 days after the Closing.

4.19.4.3.

Except as set forth in Schedule 4.19, no VTSI Mark has been or is now involved in any opposition, invalidation, or cancellation, and no such action is known by VTSI to be threatened with respect to any of the VTSI Marks.

4.19.4.4.

Except as set forth in Schedule 4.19, VTSI does not know of any potentially interfering trademark or trademark application of any third party.

4.19.4.5.

Except as set forth in Schedule 4.19, no VTSI Mark is infringed or, to VTSI's knowledge, has been challenged or threatened in any way.  None of the VTSI Marks used by VTSI infringes or is alleged to infringe any trade name, trademark, or service mark of any third party.

4.19.4.6.

Except as set forth in Schedule 4.19, all products and materials containing a Mark bear the proper federal registration notice where permitted by law.

4.19.5.

Copyrights

4.19.5.1.

Schedule 4.19 contains a complete and accurate list and summary description of all Copyright registrations held by VTSI (the " VTSI Copyrights").

4.19.5.2.

Except as set forth in Schedule 4.19, all the VTSI Copyrights which have been registered and are currently in compliance with formal legal requirements, are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within 90 days after the date of Closing.

4.19.5.3.

Except as set forth in Schedule 4.19, no VTSI Copyright is infringed or, to VTSI's knowledge, has been challenged or threatened in any way.  None of the subject matter of any of the Copyrights infringes or is alleged to infringe any copyright of any third party or is a derivative work based on the work of a third party.

4.19.6.

Trade Secrets

4.19.6.1.

Except as set forth in Schedule 4.19, with respect to each Trade Secret of VTSI,  the documentation relating to such Trade Secret is current, accurate, and

 

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sufficient in detail and content to identify and explain it and to allow its full and proper use without reliance on the knowledge or memory of any individual.

4.19.6.2.

Except as set forth in Schedule 4.19, VTSI has taken all reasonable precautions to protect the secrecy, confidentiality, and value of its Trade Secrets.   VTSI has good title and an absolute (but not necessarily exclusive) right to use its Trade Secrets.   VTSI's Trade Secrets are not part of the public knowledge or literature, and have not to VTSI's knowledge been used, divulged, or appropriated either for the benefit of any Person (other than VTSI) or to VTSI's detriment.  No Trade Secret of VTSI is subject to any adverse claim or has been challenged or threatened in any way.

4.20.

Products.   VTSI has furnished VMC with representative information describing VTSI products and services.  

4.21.

Liens.   VTSI owns outright and has good and marketable title to all of its tangible property, including, without limitation, all of the tangible property reflected on the Balance Sheets included in the VTSI Financial Statements, in each case free and clear of any Lien, except as set forth on Schedule 4.21 and except for: (i) immaterial tangible property, (ii) assets and properties disposed of, or subject to purchase or sales orders, in the ordinary course of business since the Balance Sheet Date, (iii) Liens securing taxes, assessments, governmental charges or levies, or the claims of materialmen, carriers, landlords, and like persons, which are not yet due and payable, and (iv) minor Liens of a character which do not substantially impair the assets or properties of VTSI or materially detract from its business.

4.22.

Liabilities.   As at the date of this Agreement, VTSI did not have any material direct or indirect indebtedness or uninsured liability accrued, absolute, or contingent (and likely of occurring) or otherwise, including, without limitation, liabilities on account of taxes, other governmental charges or lawsuits brought, whether or not of a kind required by GAAP to be set forth, accrued, reserved for or reflected in a financial statement ( " Liabilities" ), which have not been adequately accrued, reserved for or reflected in the VTSI Financial Statements, except Liabilities (i) incurred since the VTSI Balance Sheet Date in the ordinary course of business, (ii) incurred in connection with this Agreement, (iii) of the type expressly referred to elsewhere in this Agreement or (iv) has disclosed in Schedule 4.22.  

4.23.

Employee Benefit Plans.   Schedule 4.23 sets forth a true and complete list of all written and oral pension, profit sharing, retirement, deferred compensation, stock purchase, stock option, incentive compensation, bonus, vacation, severance, sickness or disability, hospitalization, individual and group health and accident insurance, individual and group life insurance, and other material employee benefit plans, programs, commitments, or funding arrangements maintained by VTSI, (individually referred to as an " Employee Benefit Plan " and collectively referred to as " Employee Benefit Plans ") to which VTSI is a party, or under which VTSI has any obligations, present or future (other than obligations to pay current wages, salaries or sales commissions terminable on notice of 30 days or less) in respect of, or which otherwise cover or benefit, any of the current or former officers, employees or sales representatives (whether or not employees) of VTSI, or their beneficiaries.   VTSI has delivered or made available to the other parties true and complete copies of all documents, as they may have been amended to today’s date, embodying the terms of its Employee Benefit Plans.  

Except for the Employee Benefit Plans identified in Schedule 4.23, there is no " employee pension benefit plan", " employee welfare benefit plan," or " employee benefit plan" within the

 

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meaning of sections 3(1), 3(2) and 3(3) of “ERISA.”  No Employee Benefit Plan to which VTSI or any “ ERISA Affiliate” has maintained or contributed to is subject to Title IV of ERISA, or section 412 of the Code.  

VTSI does not maintain and has not maintained a plan which meets the safe harbor requirements of section 414(n)(5) of the Code and VTSI has not made any representations (including oral representations) with respect to the existence of such a plan to any customers, clients, employees, or any other person.   VTSI does not maintain and has not maintained any "voluntary employees' beneficiary association" within the meaning of section 501(c)(9) of the Code.

Except as set forth in Schedule 4.23, each Employee Benefit Plan described in Schedule 4.23 is in full force and effect in accordance with its terms and there are no material actions, suits, or claims pending (other than routine claims for benefits) or, to VTSI’s knowledge, threatened, against any Employee Benefit Plan or any fiduciary, and VTSI has performed all material obligations required to be performed by it under, and is not in default under or in violation of, any Employee Benefit Plan, in any material respect, and VTSI is in compliance in all material respects with the requirements prescribed by all statutes, laws, ordinances, orders or governmental rules or regulations applicable to the Employee Benefit Plans, including, without limitation, ERISA and the Code.  Neither VTSI nor any other " party-in-interest," as defined in section 3(14) of ERISA, has engaged in any " prohibited transaction," as defined in section 406 of ERISA, which could subject any Employee Benefit Plan, VTSI, or VMC, or any officer, director, partner, or employee of VTSI or VMC, or any fiduciary of any Employee Benefit Plan to a material penalty or excise tax imposed under section 502(i) of ERISA and section 4975 of the Code.

4.24.

Potential Conflicts of Interest.  Except as disclosed in Schedule 4.24, no officer or director of VTSI: (i) owns, directly or indirectly, any interest in (excepting not more than 5% stock holdings for investment purposes in securities of publicly held and traded companies) or is an officer, director, employee, or consultant of any entity which is a competitor, lessor, lessee, customer, or supplier of VTSI; (ii) has any interest, direct or indirect, in any material property or assets of VTSI (except in his capacity as a stockholder of VTSI); (iii) owns directly or indirectly, in whole or in part, any material copyright, trademark, trade name, service mark, franchise, patent, invention, permit, license, secret, or confidential information of the nature requiring a license for use by VTSI which VTSI is using or the use of which is necessary for the business of VTSI; or (iv) has any material cause of action or other claim whatsoever against, or owes any material amount to, VTSI, except for claims in the ordinary course of business (such as for accrued vacation pay, accrued benefits under Employee Benefit Plans, expense advances, and similar matters).

4.25.

Full Disclosure.   None of the information supplied or to be supplied by VTSI for inclusion in the documents to be prepared in connection with the transactions contemplated by this Agreement including, without limitation, (i) documents to be filed with the SEC, (ii) filings pursuant to any state securities and blue sky laws, and (iii) filings made in connection with obtaining the approvals of “ Governmental Authorities,” contain or will contain, at the time such documents are filed with any federal or state regulatory authority and/or at the time they are distributed to the stockholders of VTSI, any untrue statements of a material fact or omit to state any material fact necessary in order to make the statements not misleading.

 

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4.26.

Information in Proxy Statement. Information supplied by VTSI for inclusion or incorporation by reference in the “ Proxy Statement,” at the date mailed to the parties’ stockholders and at the time of the parties’ stockholders meeting contemplated hereby, will not contain any untrue statement of a material fact or omit to state any material fact required to be stated, or necessary in order to make the statements, in light of the circumstances under which they are made, not misleading.

 

5. REPRESENTATIONS AND WARRANTIES OF VMC

VMC, which for purposes of this section 5 shall be deemed to include all “Subsidiaries” of VMC unless the context indicates otherwise, represents and warrants to all the other companies that, except as disclosed on any schedule:

5.1.

Existence; Good Standing; Corporate Authority .   VMC is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas and has the corporate power and lawful authority to own, lease, and operate its assets, properties, and business, and to carry on its business in all material respects as now conducted.

5.2.

Qualification.   VMC is duly qualified as a foreign corporation to transact business in the jurisdictions set forth in Schedule 5.2, which are the only jurisdictions where the nature of its business or the ownership of its assets makes such qualification necessary, except as set forth on Schedule 5.2 or where the failure to so qualify would not have a “Material Adverse Effect” on VMC.

5.3.

Authority.   VMC has the requisite corporate power and authority to execute, deliver, and perform its obligations under this Agreement, every other Transaction Document to be executed by VMC under this Agreement and to consummate the transactions contemplated hereby.  The execution and delivery of this Agreement by VMC and the performance by VMC of its obligations, the execution and delivery of each of the Transactions Documents, and the performance of its obligations and the consummation of the transactions contemplated hereby have been duly authorized by the board of directors of VMC, and all other necessary corporate action on the part of VMC, other than the adoption and approval of this Agreement by the stockholders of VMC, and no other corporate proceedings on the part of VMC are necessary to authorize this Agreement, the Transaction Documents, and the transactions contemplated hereby (assuming due authorization, execution, and delivery by the other party or parties).  This Agreement has been duly and validly executed and delivered by VMC and constitutes a legal, valid, and binding obligation of VMC, enforceable against it in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other laws affecting the enforcement of creditors’ rights generally, or by general principles of equity.  Each Transaction Document has been, or, as of the Effective Time, will have been, duly and validly authorized, executed, and delivered by VMC, and constitutes or will constitute as of such date a legally valid and binding obligation of VMC, enforceable against it in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other laws affecting the enforcement of creditors' rights generally or by general principles of equity.

5.4.

Capitalization.   On the date of this Agreement, VMC's authorized Capital Stock consists of 100,000,000 shares of common stock, par value $.0001 per share, and 20,000,000

 

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shares of preferred stock, par value $10 per share of which 3,697,651 shares or common stock and  141,841 shares of preferred stock were issued and outstanding as of the date of this Agreement.  No other class of Capital Stock of VMC is authorized or outstanding. All of the issued and outstanding shares (i) are owned by the persons listed on Schedule 5.4 and (ii) are duly authorized and are legally and validly issued, fully paid, and nonassessable.

5.5.

VMC Convertible Securities.  On the date of this Agreement, except as set forth in Schedule 5.5, (a)   there are no outstanding Convertible Securities to acquire any Capital Stock of VMC; (b) there are no shares of Capital Stock of VMC reserved or set aside as treasury shares for any purpose and no stockholder of VMC has preemptive rights; and (c) there are no voting trusts or other agreements or understandings with respect to the voting of shares of any class of Capital Stock of VMC, except as contemplated by this Agreement.

5.6.

Subsidiaries.  Except as set forth in Schedule 5.6, VMC has no Subsidiaries and neither VMC nor any of its Subsidiaries is a party to any partnership or joint venture agreement or arrangement or owns any equity interest in any other corporation, partnership or other entity.  Except as set forth in Schedule 5.6, each subsidiary of VMC is a corporation duly organized, validly existing, and in good standing under the laws of the state or other jurisdiction of incorporation set forth on Schedule 5.6, and is duly qualified to do business as a foreign corporation, and in good standing in the jurisdictions (listed in Schedule 5.6) in which it owns property of the nature, or transacts business of the type, that would make such qualification necessary, except where the failure to so qualify would not have a Material Adverse Effect. Each Subsidiary of VMC has the power and lawful authority to own, lease and operate its assets, properties and business and to carry on its business in all material respects as now conducted.   VMC owns of record, free and clear of all Liens, 100% of the issued and outstanding Capital Stock of its Subsidiaries.

5.7.

Certificate of Incorporation and Bylaws.   VMC has made available to VTSI true, correct, and complete copies of the certificate of incorporation and bylaws of VMC, and all amendments as of the date of this Agreement.

5.8.

No Conflicts . Except as disclosed in Schedule 5.8, neither the execution and delivery of this Agreement and the Transaction Documents, nor the performance by VMC of its obligations, nor the consummation of the transactions contemplated hereby, will: (i)  conflict with VMC’s certificate of incorporation or bylaws; (ii) violate any material statute, law, ordinance, rule, or regulation applicable to VMC or any of its Subsidiaries or any of their properties or assets; or (iii) violate, breach, be in conflict with, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or permit the termination of any provision of, or result in the termination of, the acceleration of the maturity of, or the acceleration of the performance of any obligation of VMC or any of its Subsidiaries, or result in the creation or imposition of any Lien upon any properties, assets, or business of VMC or any of its Subsidiaries under, any note, bond, indenture, mortgage, deed of trust, lease, franchise, permit, authorization, license, contract, instrument, or other agreement or commitment or any order, judgment, or decree to which VMC or any of its Subsidiaries is a party or by which VMC or any of its Subsidiaries or any of their respective assets or properties is bound or encumbered, or give any Person the right to require VMC or any of its Subsidiaries to purchase or repurchase any notes, bonds or instruments of any kind except, in each case, for such violations, conflicts, defaults, or other occurrences which would not have, and would not reasonably be expected to have, a Material Adverse Effect.

 

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5.9.

No Consents Required. Except (i) for the filing of the articles of merger pursuant to Texas Law, (ii) for the VMC stockholder approval (as set forth below) or (iii) with respect to matters set forth in Schedule 5.8, no consent, approval, or authorization of, permit from, or declaration, filing, or registration with, any governmental or regulatory authority, or any other person is required to be made or obtained by VMC or its Subsidiaries in connection with the execution, delivery, and performance of this Agreement, the Transaction Documents and the consummation of the transactions contemplated hereby except where the failure to obtain such consent, approval, authorization, permit, or declaration or to make such filing or registration would not have a Material Adverse Effect.

5.10.

Unaudited Financial Statements.   VMC has previously provided VTR side with preliminary drafts, prepared in consultation with VMC's auditors but not yet audited, of the unaudited balance sheets of VMC as at September 30, 2005 (the " VMC Balance Sheet Date" ), together with the related unaudited statements of income, for the year then ended (the " VMC Unaudited Financial Statements" ). The VMC Unaudited Financial Statements were prepared in accordance with GAAP consistently applied throughout the periods indicated and fairly presents the financial position, results of operations, and changes in stockholders' equity of VMC as at the VMC Balance Sheet Date and for the respective periods stated in such statements.

5.11.

No Material Adverse Change.   Except as set forth in Schedule 5.10, since the VMC Balance Sheet Date, VMC has conducted its business in all material respects only in the ordinary and usual course and except for VMC continuing to incur losses and depletion of its cash assets, there has been no material adverse change in the assets, liabilities, properties, business, or condition, financial or otherwise, of VMC, and no event or condition exists or has occurred which would, so far as reasonably can be foreseen at this time , have a Material Adverse Effect, nor has there been any damage, destruction, or loss materially affecting the assets, properties, business, or condition of VMC, whether or not covered by insurance.

5.12.

Tax Matters.  Except as set forth in Schedule 5.12, the total amounts accrued on the books and records of VMC on both the VMC Balance Sheet Date and the Effective Date represent and will represent adequate provisions, in accordance with GAAP, for the payment of all federal, state, county, local, foreign, and other income tax, excise tax, sales tax, use tax, gross receipts tax, franchise tax, property tax, employment, and payroll related tax, and all other taxes and import duties, including any penalties or interest, whether or not measured in whole or in part by income, whether disputed or not, which are hereafter found to be, or to have been, due with respect to the conduct of the business of VMC during all periods covered by the VMC Unaudited Financial Statements and during the period subsequent and up to and through the date of the Closing, respectively.  Except as disclosed in Schedule 5.12 or as would not have a Material Adverse Effect, VMC has timely filed, on or before the relevant due dates (including any extensions of time to file), all income tax, excise tax, sales tax, use tax, gross receipts tax, franchise tax, employment and payroll related tax, property tax, and all other tax returns and reports which VMC is required by law to file, all of which were properly prepared on a reasonable basis.  Except as disclosed in Schedule 5.12, VMC has paid or provided for all taxes shown to be due on such returns and any amendments.  Except as disclosed in Schedule 5.12, there are no unpaid deficiencies or other assessments of tax, interest, or penalties owed by VMC.  

5.13.

Compliance with Laws.   (a) Except as is set forth in Schedule 5.13, VMC is in compliance with, and has not received notice from any “ Governmental Authority” alleging a violation by it of, any federal, state, county, local or foreign, statute, law, ordinance, regulation,

 

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or order (i) applicable to it or its business, or (ii) which otherwise is applicable to it involving the manufacture, production, storage, possession, sale, delivery, or distribution of any of its products or services; (b)  VMC has not received any directives or orders from any Governmental Authority related to or affecting any of its products or facilities; (c)  VMC has all P