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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
December 19, 1997
ASSOCIATED TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 33-55254-45 87-0485306
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(State or other (Commission (I.R.S. Employer
jurisdiction) File Number) Identification No.)
204 Third Avenue, Suite 172, New York, New York 10021
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 988-0394
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ASSOCIATED TECHNOLOGIES
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Former name and former address, if changed since last report)
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Item 5. Other Events.
a. Transaction with Virtual Music Entertainment, Inc.
On December 19, 1997, Associated Technologies, Inc. (the
"Company") entered into a securities exchange agreement (the
"Securities Exchange Agreement") to purchase a majority of the
outstanding equity, on a fully-diluted basis, of Virtual Music
Entertainment, Inc. ("VME") in exchange for a minimum of 1,603,931
shares of the Company's common stock (assuming 51% of VME's equity
securities are exchanged). The closing of the exchange transaction
will occur upon and is subject to the satisfaction of certain
conditions set forth in the Securities Exchange Agreement. The
Company expects that the closing of the exchange transaction will
occur during January 1998. In addition, the Securities Exchange
Agreement contemplates that after the closing of the exchange
transaction, a merger will be effected whereby the Company, by
virtue of a merger of a wholly-owned subsidiary of the Company with
and into VME with VME being the surviving corporation, will acquire
ownership of the remaining outstanding equity of VME. In
connection with such merger, the Company will issue additional
shares of its common stock to certain security holders of VME and
receive as consideration therefor all of the outstanding securities
of VME not already owned by the Company on the date of such merger.
VME, based in Andover, Massachusetts, is involved in the
development of computer software games using digital sound
technology.
b. Reincorporation from State of Nevada to State of Delaware.
On December 18, 1997, the Company effected a change in the
state of its jurisdiction of incorporation from the State of Nevada
to the State of Delaware. Such change of jurisdiction was effected
by means of a merger of the Company's predecessor entity,
Associated Technologies, a Nevada corporation ("Associated-
Nevada"), into Associated Technologies, Inc., then a wholly-owned
Delaware subsidiary of Associated-Nevada formed for such purpose.
The Company was the surviving corporation of the merger described
in the previous sentence.
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Item 7. Financial Statements and Exhibits.
(c) Exhibits.
Exhibit No. Description
2(a) Securities Exchange Agreement, dated as of December
19, 1997, by and among the Company, VME and each VME
Securityholder party to a Joinder Agreement.
99(a) Press Release issued December 23, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
ASSOCIATED TECHNOLOGIES, INC.
By:/s/ Leonard N. McDowall
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Name: Leonard N. McDowall
Title: Vice-President
Dated: December 30, 1997
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EXHIBIT NO. 2(a) TO FORM 8-K
EXECUTION COPY
SECURITIES EXCHANGE AGREEMENT
BY AND AMONG
ASSOCIATED TECHNOLOGIES, INC.
VIRTUAL MUSIC ENTERTAINMENT, INC.
and
EACH VME SECURITYHOLDER PARTY TO A JOINDER AGREEMENT
Dated as of December 19, 1997
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EXHIBITS
EXHIBIT A ALLOCATION OF EXCHANGE CONSIDERATION
EXHIBIT B ESCROW AGREEMENT
EXHIBIT C FORM OF REGISTRATION RIGHTS DECLARATION
EXHIBIT D FORM OF VOTING AGREEMENT
EXHIBIT E FORM OF NON-COMPETE AGREEMENT
EXHIBIT F FORM OF MERGER AGREEMENT
EXHIBIT G FORM OF JOINDER AGREEMENT
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SECURITIES EXCHANGE AGREEMENT dated as of December 19,
1997 (the "Agreement"), by and among ASSOCIATED TECHNOLOGIES, INC.
a Delaware corporation ("Associated"), VIRTUAL MUSIC ENTERTAINMENT,
INC., a Delaware corporation ("VME") and each VME securityholder
party to a Joinder Agreement (as hereinafter defined)
(collectively, the "VME Securityholders").
WHEREAS, the respective Boards of Directors of Associated
and VME have (x) each determined that it is advisable and for the
benefit and in the best interests of their corporations and their
respective stockholders that VME combine with Associated by means
of (i) the exchange of securities contemplated hereunder (the
"Exchange") and (ii) a merger (the "Merger") to be effected
subsequent to the Exchange pursuant to the terms of an Agreement
and Plan of Merger (the "Merger Agreement") to be executed by
Associated, AT Sub, Inc., a wholly-owned subsidiary of Associated
organized under the laws of the State of Delaware ("Sub") and VME
at the Closing (as hereinafter defined) and attached hereto as
Exhibit F (the Merger, together with the Exchange, is sometimes
hereinafter referred to as the "Acquisition"), and (y) approved and
adopted the terms of this Agreement with respect to the Exchange
and the transactions to be effected hereunder as well as the terms
and conditions of the Merger Agreement with respect to the Merger
and the transactions to be effected thereunder.
NOW, THEREFORE, in consideration of the premises, the
mutual covenants, representations and warranties herein contained,
and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto
intending to be bound hereby agree as follows:
ARTICLE I
THE EXCHANGE
SECTION 1.1 The Exchange. Subject to the terms and
conditions hereof, on the Closing Date (as defined in Section 2.4),
Associated shall offer to purchase and the VME Securityholders
shall sell certain of the securities of VME owned by them in
exchange for fully paid and nonassessable shares of common stock,
$0.001 par value per share, of Associated (the "Associated Common
Stock") as determined by the Exchange Ratio set forth on Exhibit A
hereto (the "Exchange Ratio").
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ARTICLE 2
EXCHANGE OF SECURITIES
SECTION 2.1 Exchange of Securities. As of the Closing
Date, by virtue of the Exchange, each of the following:
(i) the shares of VME's common stock,
$.01 par value per share (the "VME Common Stock"), issued and
outstanding and held by the VME Securityholders immediately prior
to the Closing Date;
(ii) the shares of VME's Series D and
Series E Preferred Stock, $.01 par value per share (the "VME
Preferred Stock"), issued and outstanding and held by the VME
Securityholders immediately prior to the Closing Date;
(iii) warrants issued by VME to purchase
shares of its Series E Preferred Stock issued and outstanding and
held by the VME Securityholders immediately prior the Closing Date;
and
(iv) the entire aggregate amount of
principal and accrued interest on all principal outstanding (the
"Senior Debt") on the Closing Date pursuant to the terms of the
Loan Agreement dated as of the 19th day of September, 1996, as
amended, by and between VME and the secured parties named therein;
shall be sold and exchanged for shares of Associated Common Stock
as determined by the Exchange Ratio (the "Closing Shares"). The
Closing Shares are sometimes hereinafter referred to as the
"Exchange Consideration". The number of Closing Shares issuable to
the VME Securityholders shall be appropriately adjusted to reflect
fully the effect of any stock dividend (including any dividend or
distribution of securities convertible into Associated Common
Stock), reorganization, recapitalization, or other like change with
respect to Associated Common Stock occurring after the date hereof
and prior to the Closing Date. Each of the VME Common Stock, the
VME Preferred Stock and the instruments evidencing the Senior Debt
are hereinafter collectively referred to as the "VME Tendered
Securities". Stock certificates representing Closing Shares shall
be delivered to each VME Securityholder executing and delivering a
Joinder Agreement in the form attached hereto as Exhibit G (a
"Joinder Agreement") and the ancillary documents related thereto as
promptly as practicable following the Closing Date.
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SECTION 2.2 Conversion of Warrants. Each warrant
exercisable for shares of the capital stock of VME (each a "VME
Warrant") that is outstanding and unexercised and held by a VME
Securityholder after the Closing Date, by virtue of the Exchange,
automatically and without any action on the part of the holder
thereof, and subject to the other terms and conditions thereof,
shall be deemed to be exercisable for that number of shares of
Associated Common Stock that the holder of such VME Warrant would
have received in the Exchange pursuant to Section 2.1 had such
holder exercised such VME Warrant in full immediately prior to the
Closing Date and the price per share of VME Common Stock under such
VME Warrant, shall equal the price per share of VME Common Stock
under such VME Warrant as in effect prior to the Closing Date
divided by the applicable ratio set forth on Exhibit A hereto.
After the Closing Date, Associated shall issue to each holder of a
VME Warrant a new warrant on substantially the same terms as the
VME Warrant; provided, however, that the failure of Associated to
so issue new warrants in substitution for VME Warrants shall not
limit the rights of the holder hereunder or thereunder and each
such VME Warrant will be deemed amended to substitute Associated in
place of VME and the terms and conditions of each such VME Warrant
shall be applicable to Associated in the same manner as they would
have been applicable to VME if the Exchange had not occurred except
that such holder shall be entitled to receive the number of shares
of Associated Common Stock upon exercise and at an exercise price
as set forth and calculated pursuant to the first sentence of this
Section 2.2. Associated shall set aside and reserve the number of
shares of Associated Common Stock issuable upon exercise of the
replacement warrants issuable by Associated on the Closing Date in
exchange for the VME Warrants.
SECTION 2.3 Escrow. A portion of the Closing Shares
will be placed into escrow pursuant to the terms of an escrow
agreement in the form attached hereto as Exhibit B (the "Escrow
Agreement") to be used to satisfy any indemnification obligations
of the Indemnifying Stockholders (as hereinafter defined) arising
under Section 11.2 hereof.
SECTION 2.4 Closing. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place,
unless the parties shall otherwise agree, at the offices of Werbel
& Carnelutti, 711 Fifth Avenue, New York, New York 10022 at 10:00
A.M. local time (i) as soon as practicable after the day on which
the last condition set forth in Article 9 shall have been fulfilled
or waived or (ii) at such other time as VME and Associated may
mutually agree (the "Closing Date").
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ARTICLE 3
CERTIFICATES OF INCORPORATION AND BY-LAWS
SECTION 3.1 Directors and Officers of VME. The
directors and officers of VME after the Closing shall be the
directors and officers of VME prior to the Closing and they shall
hold office from the Closing Date until the respective successors
are duly elected or appointed and qualified in the manner provided
in the Certificate of Incorporation or By-Laws of VME or as
otherwise provided by law.
ARTICLE 4
CERTAIN PROVISIONS RELATING TO SHARES
SECTION 4.1 No Fractional Shares of Associated Common
Stock. No fractional shares of Associated Common Stock shall be
issued by Associated in the Exchange and the number of shares of
Associated Common Stock to be issued pursuant to the terms of the
Exchange shall be rounded down to the next whole number.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF VME
Except as set forth in the Disclosure Schedule to be
delivered by VME to Associated (the "VME Disclosure Schedule"),
which shall identify exceptions by specific Section references, VME
hereby represents and warrants to Associated that:
SECTION 5.1 Organization and Qualification;
Subsidiaries. Each of VME and Virtual Music Entertainment (EUR),
Ltd., its sole subsidiary, is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of
its organization, has all requisite power and authority to own,
lease and operate its properties and to carry on its business as it
is now being conducted and is duly qualified and in good standing
to do business in each jurisdiction in which the nature of the
business conducted by it or the ownership or leasing of its
properties makes such qualification necessary, other than where the
failure to be in good standing, or to have such power and
authority, or to be duly qualified and in good standing, as the
case may be, would not have a VME Material Adverse Effect. The
term "VME Material Adverse Effect" as used in this Agreement shall
mean any event, change or effect that, individually or when taken
together with all other such events, changes or effects, would be
materially adverse to the financial condition, properties, assets,
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business or operations of VME and its subsidiary, taken as a whole,
at the time of such event, change or effect.
SECTION 5.2 Certificates of Incorporation and By-Laws.
VME has heretofore furnished to Associated complete and correct
copies of the Certificates of Incorporation and the By-Laws, in
each case as amended or restated, of VME and its subsidiary.
Neither VME nor its subsidiary is in violation of any of the
provisions of its Certificate of Incorporation or By-Laws, or
equivalent organizational documents, as the case may be.
SECTION 5.3 Capitalization. As of the date of this
Agreement, the authorized capital stock of VME is as set forth on
Section 5.3 of the VME Disclosure Schedule. Section 5.3 of the VME
Disclosure Schedule lists all of the authorized, issued and
outstanding and treasury capital stock of VME as well as all shares
of capital stock reserved for future issuance pursuant to stock
options, warrants or convertible debt or equity securities as of
the date hereof. Section 5.3 of the VME Disclosure Schedule sets
forth the name and address (as reflected on the books and records
of VME) of (x) each holder of capital stock of VME and the number
and class of such shares and (y) each holder of a warrant or option
to purchase shares of capital stock of VME, the number of shares of
capital stock into which such warrants are exercisable, the
exercise price of such warrant and the expiration date of such
warrant. Appended to Section 5.3 of the VME Disclosure Schedule
are true and correct copies of the forms of the warrants issued by
VME. All the shares of VME Common Stock and VME Preferred Stock
issued and outstanding are duly authorized, validly issued, fully
paid and nonassessable and, except as set forth on Section 5.3 of
the VME Disclosure Schedule, are not subject to preemptive rights
created by statute, common law, VME's Certificate of Incorporation
or By-Laws, or any agreement to which VME is a party or is bound or
otherwise. The outstanding shares of capital stock of VME's
subsidiary are duly authorized and validly issued and, if
applicable, fully paid and nonassessable, and such shares owned by
VME are owned free and clear of all security interests, liens,
claims, pledges, agreements, limitations on VME's voting rights,
charges or other encumbrances of any nature whatsoever. There are
no options, warrants or other rights (including registration
rights), agreements, arrangements or commitments of any character
to which VME or its subsidiary is a party relating to the issued or
unissued capital stock or other securities of VME or its subsidiary
or obligating VME or its subsidiary to grant, issue or sell any
shares of the capital stock or other securities of VME or its
subsidiary, by sale, lease, license or otherwise, except (A) as
disclosed in Section 5.3 of the VME Disclosure Schedule and (B) for
VME's existing stock option plans to the extent stock options for
such shares thereunder have not yet been granted. As of the date
of this Agreement, except as set forth in Section 5.3 of the VME
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Disclosure Schedule, there are no obligations, contingent or
otherwise, of VME or its subsidiary to (x) repurchase, redeem or
otherwise acquire any shares of VME Common Stock or VME Preferred
Stock, or the capital stock of, or other equity interests in, the
subsidiary of VME or (y) (other than advances to VME's subsidiary
in the ordinary course of business) provide funds to, or make any
investment in (in the form of a loan, capital contribution or
otherwise), or provide any guarantee with respect to the
obligations of, the subsidiary of VME or any other person.
SECTION 5.4 Authority. VME has all requisite
corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. The execution and delivery
of this Agreement by VME and the consummation by VME of the
transactions contemplated hereby have been duly authorized by all
necessary corporate action and no other corporate proceedings on
the part of VME are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby. This Agreement
has been duly executed and delivered by VME and, assuming the due
authorization, execution and delivery thereof by Associated
constitutes the legal, valid and binding obligation of VME,
enforceable against VME in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium or other laws
affecting the enforcement of creditors' rights in general from time
to time in effect and general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity
or at law).
SECTION 5.5 No Conflict; Required Filings and
Consents.
(a) The execution and delivery of this Agreement by
VME does not, and the performance of this Agreement by VME and the
consummation of the transactions contemplated hereby will not, (i)
conflict with or violate the Certificate of Incorporation or
By-Laws, in each case as amended or restated, of VME or its
subsidiary, (ii) conflict with or violate any federal, state,
foreign or local law, statute, ordinance, rule, regulation, order,
judgment, arbitration award or decree (collectively, "Laws")
Government Permit (as hereinafter defined) in effect as of the date
of this Agreement and applicable to VME or its subsidiary or by
which any of their respective properties is bound or subject to
including, without limitation, Section 203 of Delaware Law or (iii)
result in any breach of or constitute a default (or an event that
with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a
lien or encumbrance on any of the properties or assets of VME or
its subsidiary pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, order, decree,
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franchise or other material instrument or obligation to which VME
or its subsidiary is a party or by which VME or its subsidiary or
any of their respective properties is bound or is subject to,
except for any such conflicts or violations described in clause
(ii) or breaches, defaults, events, rights of termination,
amendment, acceleration or cancellation or liens or encumbrances
described in clause (iii) that would not have a VME Material
Adverse Effect.
(b) The execution and delivery of this Agreement by
VME does not, and the performance of this Agreement by VME and the
ownership and operation of the business and properties of VME and
its subsidiary by VME following the Closing Date will not, as of
the date of this Agreement, require VME or its subsidiary to obtain
any consent, approval, authorization or permit of, or to make any
filing with or notification to, any governmental or regulatory
authority ("Governmental Entities"), except (i) for applicable
requirements, if any, of the Securities Act of 1933, as amended
(the "Securities Act"), and the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and state securities or blue sky laws
("Blue Sky Laws"), (ii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or
notifications, would not, either individually or in the aggregate,
prevent VME from performing its obligations under this Agreement or
otherwise have a VME Material Adverse Effect.
SECTION 5.6 Permits; Compliance. Each of VME and its
subsidiary is in possession of all franchises, grants, authoriza-
tions, licenses, permits, easements, variances, exemptions,
consents, certificates, approvals and orders necessary to own,
lease and operate its properties and to carry on its business as it
is now being conducted (collectively, the "VME Permits"), and there
is no action or proceeding or, to the knowledge of VME, investiga-
tion pending or threatened regarding suspension or cancellation of
any VME Permits, except where the failure to possess, or the
suspension or cancellation of, such VME Permits would not have a
VME Material Adverse Effect. Neither VME nor its subsidiary is in
conflict with, or in default or violation of (a) any Law or any
rule of professional conduct applicable thereto and applicable to
VME or its subsidiary or by which any of their respective
properties is bound or subject to or (b) any of the VME Permits,
except for any such conflicts, defaults or violations which would
not have a VME Material Adverse Effect.
SECTION 5.7 Financial Statements. VME has furnished
to Associated copies of the balance sheet of VME as at March 31,
1996 and March 31, 1997, and the related statements of operations,
stockholders' equity and cash flows of VME for the three years
ended March 31, 1997, audited by Coopers & Lybrand L.L.P. (the "VME
Audited Financial Statements"), and the balance sheet of VME as at
September 30, 1997 and statement of operations of VME for the six
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months ended September 30, 1997 (the "VME Unaudited Financial
Statements" and collectively with the VME Audited Financial
Statements, the "VME Financial Statements"). The VME Financial
Statements and notes thereto accurately and fairly reflect the
books and records of VME and fairly present the financial
condition, cash flow and results of operations of VME as at the
respective dates thereof and for the periods therein referred to,
all in accordance with generally accepted United States accounting
principles, consistently applied ("GAAP"), subject, in the case of
the VME Unaudited Financial Statements, to normal recurring
year-end adjustments (the effect of which will not, individually or
in the aggregate, be material) and the absence of notes (which, if
presented, would not differ materially from those included in the
VME Audited Financial Statements). Section 5.7 of the VME
Disclosure Schedule describes the deviations, if any, from GAAP of
the VME Unaudited Financial Statements.
SECTION 5.8 No Undisclosed Liabilities. There are no
liabilities of VME or its subsidiary of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable or
otherwise, except as disclosed on Section 5.8 of the VME Disclosure
Schedule and other than:
(a) liabilities disclosed or provided for in the
VME Financial Statements;
(b) liabilities incurred in the ordinary course of
business consistent with past practice (in nature and amount), and
which are not material in amount, since April 1, 1997; and
(c) liabilities that individually or in the
aggregate would not have a VME Material Adverse Effect.
SECTION 5.9 Contracts. Listed on Section 5.9 of the
VME Disclosure Schedule are all written contracts and agreements of
either VME and/or its subsidiary, including, but not limited to,
employment contracts, leases and management agreements, which
require the payment by or to VME or its subsidiary of more than
$50,000 annually (each a "VME Material Contract"). VME has
provided to Associated true, correct and complete copies of each
VME Material Contract. Except as set forth in Section 5.9 of the
VME Disclosure Schedule, neither VME nor its subsidiary is, nor has
either of them received any notice that either of them is, nor does
either of them have any knowledge that any other party is, in
default in any respect under any VME Material Contract; and there
has not occurred any event that with the lapse of time or the
giving of notice or both would constitute such a default except
where such event would not have a VME Material Adverse Effect.
Each VME Material Contract complies with all applicable Laws,
except where such non-compliance would not have a VME Material
Adverse Effect.
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SECTION 5.10 Absence of Certain Changes or Events.
Except as set forth in Section 5.10 of the VME Disclosure Schedule,
during the period commencing April 1, 1997, and ending on the date
of this Agreement, and other than as disclosed to Associated in
writing prior to the date hereof, (a) VME has not taken any actions
or failed to take any actions which would reasonably be expected to
have, either individually or in the aggregate, a VME Material
Adverse Effect and (b) neither VME nor its subsidiary has made a
change in its accounting methods, principles or practices.
SECTION 5.11 Absence of Litigation. Except as set
forth in Section 5.11 of the VME Disclosure Schedule, there is no
claim, action, suit, litigation, proceeding, arbitration or, to the
knowledge of VME, investigation of any kind, at law or in equity
(including actions or proceedings seeking injunctive relief),
pending or, to the knowledge of VME, threatened in writing against
VME or its subsidiary (except for claims, actions, suits,
litigations, proceedings, arbitrations, or investigations which,
individually or in the aggregate, would not reasonably be expected
to have a VME Material Adverse Effect), and neither VME nor its
subsidiary is subject to any continuing order of, consent decree,
or, to the knowledge of VME, continuing investigation by, any
Governmental Entity, or any judgment, order, writ, injunction,
decree or award of any Governmental Entity or arbitrator,
including, without limitation, cease-and-desist or other orders,
except for matters which, individually or in the aggregate, would
not have a VME Material Adverse Effect.
SECTION 5.12 Taxes. Except for such matters that would
not have a VME Material Adverse Effect or are disclosed in Section
5.12 of the VME Disclosure Schedule (a) VME and its subsidiary have
timely filed or will timely file all returns and reports required
to be filed by them with any taxing authority with respect to Taxes
(as hereinafter defined) for any period ending on or before the
Closing Date, taking into account any extension of time to file
granted to or obtained on behalf of VME and its subsidiary, (b) all
Taxes shown to be payable on such returns or reports that are due
prior to the Closing Date have been paid or will be paid when due
except for Taxes that are being contested in good faith by
appropriate proceedings (all of which are described in Section 5.12
of the VME Disclosure Schedule) and for which adequate reserves are
reflected on the VME Unaudited Financial Statements, (c) as of the
date hereof, no deficiency for any material amount of Tax has been
asserted or assessed in writing by a taxing authority against VME
or its subsidiary, (d) all liabilities for Taxes of VME or its
subsidiary that are or will become due or payable with respect to
periods covered by the financial statements referred to in Section
5.7 hereof have been paid or adequately reserved for on such
financial statements and (e) VME has not received written notice
that any Tax return or report of VME or its subsidiary is under
examination.
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SECTION 5.13 Certain Business Practices. As of the
date hereof, except for such actions which would not have a VME
Material Adverse Effect, neither VME nor its subsidiary nor, to the
knowledge of VME, any director, officer, agent or employee of VME
or its subsidiary has (i) used any funds for unlawful contribu-
tions, gifts, entertainment or other unlawful expenses relating to
political activity, (ii) made any unlawful payment to government
officials or employees, or (iii) made any other unlawful payment.
SECTION 5.14 Board and Stockholder Approval. The Board
of Directors of VME, at a meeting duly called and held, has by
requisite vote under applicable Laws (i) determined that it is in
the best interests of VME and the stockholders of VME that VME
enter into a business combination with Associated by means of the
Merger and facilitate the Merger by entering into this Agreement;
and (ii) approved this Agreement and the Merger Agreement,
including the consummation of the Merger.
SECTION 5.15 Books and Records. The books of account
and other financial records of VME and its subsidiary are in all
material respects complete and correct and are maintained in
accordance with good business practices and all Laws applicable to
VME. Except as set forth in Section 5.15 of the VME Disclosure
Schedule, the minute books of VME (all of which such minute books
shall be delivered by VME to Associated at the Closing) contain
accurate records of all meetings, and accurately reflect all
material corporate action of the stockholders and directors of VME.
SECTION 5.16 Intellectual Property. VME and its
subsidiary own, or have obtained a license or otherwise have
obtained the right to use in all jurisdictions necessary for the
operation of VME's business as is presently conducted, all patents
(including all applications, renewals, reissues, extensions,
divisions continuations and extensions thereof), trademarks
(including both registered and material unregistered trademarks and
applications therefor), service marks, trade names, copyrights
(including all registrations, renewals, modifications and
extensions thereof) and know-how and trade secrets of material
importance to the conduct of their business as currently conducted
(collectively the "VME Intellectual Property"), without, to VME's
knowledge, violating or conflicting with the rights of others.
"Material" as used in this Section 5.16 shall mean any intellectual
property right which, if VME does not own or have the right to use
such right in all jurisdictions necessary for the operation of its
business as presently conducted, will result in a VME Material
Adverse Effect, as defined in Section 5.1 hereof. VME has no
knowledge of any conflicting rights of others in any jurisdictions.
Notwithstanding the above, VME represents and warrants that it is
the owner of, or has the right to use, the music entertainment
software, including all copyrights therein, used in the conduct of
its business as currently conducted, and that such software was
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developed by employees of VME within the scope of their employment
or it has valid assignment of ownership, and there are no
conflicting rights of others in any jurisdictions with respect to
such music entertainment software. Section 5.16 of the VME
Disclosure Schedule lists all patents, all registered and material
unregistered trademarks, service marks and trade names and all
registered copyrights, and all applications for any of the
foregoing, that are used or owned by VME. Each of VME and its
subsidiary has taken all necessary action to maintain and protect
each item of VME Intellectual Property of material importance to
the conduct of VME's business as currently conducted. Except as
set forth in Section 5.16 or Section 5.11 of the VME Disclosure
Schedule, none of the VME Intellectual Property is subject to any
pledge, lien, charge or other encumbrance created by or through VME
or its subsidiary other than such encumbrances which individually
or in the aggregate would not have a VME Material Adverse Effect.
Except as set forth in Section 5.16 of the VME Disclosure Schedule,
with respect to each item of VME Intellectual Property, the item is
not subject to any outstanding injunction, judgment, order, decree,
ruling or charge other than such injunctions, judgments, orders,
decrees, rulings or charges which individually or in the aggregate
would not have a VME Material Adverse Effect. Except as set forth
in Section 5.16 or Section 5.11 of the VME Disclosure Schedule,
with respect to each item of VME Intellectual Property, no action,
suit, proceeding, hearing, investigation, charge, complaint, claim
or demand is pending or, to the knowledge of VME, is threatened
which challenges the legality, validity, enforceability, use or
ownership of the item other than any such challenge which
individually or in the aggregate would not have a VME Material
Adverse Effect. Except as set forth in Section 5.16, Section 5.9
or Section 5.11 of the VME Disclosure Schedule, with respect to
each item of VME Intellectual Property, neither VME nor its
subsidiary has ever agreed to indemnify any person for or against
any interference, infringement, misappropriation or other conflict
with respect to the item. Except as set forth in Section 5.9 of
the VME Disclosure Schedule, neither VME nor its subsidiary is in
default with respect to the payment of any royalties, license fees,
or other consideration to any owner or licensor of the VME
Intellectual Property. To the knowledge of VME, the software
currently marketed by VME (the "VME Software") does not infringe or
violate the patent, copyright, trademark, service marks or trade
secret rights of any other person. To the knowledge of VME, no
claim of any person is pending or threatened to the effect that any
VME Software infringes upon or conflicts with any such rights of
any such person, except as set forth in Section 5.11 of the VME
Disclosure Schedule.
SECTION 5.17 [Intentionally Omitted]
<PAGE>
<PAGE>
SECTION 5.18 Expenses of Transaction; Brokers. VME has
not incurred and will not incur fees and expenses in connection
with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, including the
Exchange, other than reasonable fees and expenses of counsel and
accountants, disbursements related to the consummation of the
transaction, and up to $40,000 of investment banking fees to Value
Investing Partners, Inc. ("VIP") (which investment banking fees are
to be paid out of VME's cash flow from operations after the
consummation of the Merger). Except as set forth in the preceding
sentence, no broker, finder, financial advisor or investment banker
is entitled to any brokerage, finder's or other fee or commission
in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of VME.
SECTION 5.19 [Intentionally Omitted]
SECTION 5.20 Non-Accredited Investors. VME reasonably
believes that each holder of VME Tendered Securities receiving
shares of Associated Common Stock in connection with the Exchange
is an "accredited investor" as that term is defined in Rule 501 of
Regulation D promulgated under the Securities Act.
SECTION 5.21 Employment-Related Matters. Except as set
forth in Section 5.21 of the VME Disclosure Schedule, (a) neither
VME nor its subsidiary is a party to any collective bargaining
agreement or other contract or agreement with any labor
organization or other representative of any of the employees of VME
or its subsidiary, (b) there is no labor strike, dispute, slowdown,
work stoppage, lockout or other labor controversy that is pending
or threatened against or otherwise affecting VME or its subsidiary,
and neither VME nor its subsidiary has experienced any labor
controversy since January 1, 1992; (c) neither VME nor its
subsidiary has closed any plant or facility, effectuated any
layoffs of employees or implemented any early retirement or
separation program at any time from or after January 1, 1992, nor
has VME or its subsidiary planned or announced any such action or
program for the future with respect to which VME has any material
liability; and (d) all salaries, wages, vacation pay, bonuses,
commissions and other compensation payable by VME or its subsidiary
to the employees of VME and its subsidiary, as applicable, before
the date hereof have been paid in all material respects as of the
date hereof.
SECTION 5.22 Insurance. Section 5.22 of the VME
Disclosure Schedule lists all contracts of insurance and indemnity
in force at the date hereof with respect to VME and its subsidiary.
Such contracts of insurance and indemnity (collectively, the "VME
Insurance Contracts") insure against such risks and in such amounts
as are appropriate and reasonable considering the property,
business and operations of VME and its subsidiary. All of the VME
<PAGE>
Insurance Contracts are in full force and effect, with no default
thereunder by VME or its subsidiary which could permit the insurer
to deny payment of claims thereunder. Neither VME nor its
subsidiary has received notice from any of its insurance carriers
that any insurance premiums will be materially increased in the
future or that any insurance coverage provided under the VME
Insurance Contracts will not be available in the future on
substantially the same terms as now in effect. Neither VME nor its
subsidiary has received or given a notice of cancellation with
respect to any of the VME Insurance Contracts.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF ASSOCIATED
Except as set forth in the Disclosure Schedule to be
delivered by Associated to VME (the "Associated Disclosure
Schedule"), which shall identify exceptions by specific Section
references, Associated hereby represents and warrants to VME that:
SECTION 6.1 Organization and Qualification;
Subsidiaries. Each of Associated, Sub and Ogenic Technologies Pty
Ltd. ("Ogenic") is duly incorporated, duly organized, validly
existing and in good standing under the laws of the jurisdiction of
its organization, has all requisite power and authority to own,
lease and operate its properties and to carry on its business as it
is now being conducted and is duly qualified and in good standing
to do business in each jurisdiction in which the nature of the
business conducted by it or the ownership or leasing of its
properties makes such qualification necessary, other than where the
failure to be in good standing, or to have such power and
authority, or to be duly qualified and in good standing, as the
case may be, would not have an Associated Material Adverse Effect.
Each subsidiary that is owned, directly or indirectly, by
Associated is listed in Section 6.1 of the Associated Disclosure
Schedule. Each of Ogenic Sales, Pty Ltd. ("Ogenic Sales") and
Ogenic Industries Pty Ltd. ("Ogenic Industries") is a non-
operating/inactive subsidiary of Associated. Each of Sub, Ogenic
and any other subsidiary of Associated, except Ogenic Sales and
Ogenic Industries, listed in Section 6.1 of the Associated
Disclosure Schedule shall individually hereinafter be referred to
as a "Subsidiary" and together as "Subsidiaries". The term
"Associated Material Adverse Effect" as used in this Agreement
shall mean any event, change or effect that, individually or when
taken together with all other such events, changes or effects,
would be materially adverse to the financial condition, properties,
assets, business or operations of Associated and all of its
subsidiaries, at the time of such event, change or effect.
<PAGE>
SECTION 6.2 Certificate of Incorporation and By-Laws.
Associated has heretofore furnished to VME complete and correct
copies of the Certificates of Incorporation and the By-Laws, or the
equivalent organizational documents, in each case as amended or
restated, of Associated, Sub and Ogenic. Neither Associated, Sub
nor Ogenic is in violation of any of the provisions of its
Certificate of Incorporation or By-Laws, or equivalent
organizational documents, as the case may be.
SECTION 6.3 Capitalization. As of the date of this
Agreement, the authorized capital stock of Associated and the
Subsidiaries is as set forth on Section 6.3 of the Associated
Disclosure Schedule. Section 6.3 of the Associated Disclosure
Schedule lists all of the authorized, issued and outstanding and
treasury capital stock of Associated and the Subsidiaries as well
as all shares of capital stock reserved for future issuance
pursuant to stock options, warrants or convertible debt or equity
securities as of the date hereof. The shares of Associated Common
Stock to be issued in the Exchange or pursuant to this Agreement
(including shares of Associated Common Stock issuable upon the
exercise of options and warrants to be issued pursuant to this
Agreement) have been duly authorized and, when issued in accordance
with the Exchange or pursuant to this Agreement, will be validly
issued, fully paid and nonassessable. At the Closing Date,
Associated will have reserved and set aside the number of shares of
Associated Common Stock issuable upon exercise of (a) the
replacement warrants issuable by Associated at the Closing Date in
exchange for the VME Warrants pursuant to Section 2.2 and (b) the
options issuable by Associated to certain employees of VME pursuant
to Section 8.10. As of the date of this Agreement, there are no
options, warrants or other rights (including registration rights),
agreements, arrangements or commitments of any character to which
Associated or any Subsidiary is a party relating to the issued or
unissued capital stock or other securities of Associated or any
Subsidiary to grant, issue or sell any shares of the capital stock
or other securities of Associated or any Subsidiary by sale, lease,
license or otherwise, except (A) as disclosed in Section 6.3 of the
Associated Disclosure Schedule and (B) for options to purchase
Associated Common Stock under Associated's existing stock option
plans to the extent stock options for such shares thereunder have
not yet been granted. As of the date of this Agreement, there are
no obligations, contingent or otherwise, of Associated or any
Subsidiary to repurchase, redeem or otherwise acquire any shares of
Associated Common Stock or such other entity's common stock.
SECTION 6.4 Authority. Associated has all requisite
corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. The execution and delivery
of this Agreement by Associated and the consummation by Associated
of the transactions contemplated hereby have been duly authorized
<PAGE>
by all necessary corporate action and no other corporate
proceedings on the part of Associated are necessary to authorize
this Agreement or to consummate the transactions contemplated
hereby. This Agreement has been duly executed and delivered by
Associated and, assuming the due authorization (if applicable),
execution and delivery thereof by VME and the VME Securityholders,
constitutes the legal, valid and binding obligation of Associated
enforceable against Associated in accordance with its terms,
subject to applicable bankruptcy, insolvency, moratorium or other
laws affecting the enforcement of creditors' rights in general from
time to time in effect and general principles of equity (regardless
of whether such enforceability is considered in a proceeding in
equity or at law).
SECTION 6.5 No Conflict; Required Filings and
Consents.
(a) The execution and delivery of this Agreement by
Associated does not, and the performance of this Agreement by
Associated and the consummation of the transactions contemplated
hereby will not (i) conflict with or violate the Certificate of
Incorporation or By-Laws, or the equivalent organizational
documents, in each case as amended or restated, of Associated or
the Subsidiaries, (ii) conflict with or violate any Laws or
Associated Permit (as hereinafter defined) in effect as of the date
of this Agreement applicable to Associated or any of its
subsidiaries or by which any of their respective properties is
bound or subject to, including, without limitation, Section 203 of
Delaware Law, or (iii) result in any breach of or constitute a
default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result
in the creation of a lien or encumbrance on the properties or
assets of Associated or any Subsidiary pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit,
order, decree, franchise or other material instrument or obligation
to which Associated or any Subsidiary is a party or by which
Associated or any Subsidiary or any of their respective properties
is bound or subject to, except for any such conflicts or violations
described in clause (ii) or breaches, defaults, events, rights of
termination, amendment, acceleration or cancellation or liens or
encumbrances described in clause (iii) that would not have an
Associated Material Adverse Effect.
(b) The execution and delivery of this Agreement by
Associated does not, and the performance of this Agreement by
Associated will not, as of the date of this Agreement, require
Associated or any Subsidiary to obtain any consent, approval,
authorization or permit of, or to make any filing with or
notification to, any Governmental Entities, except (i) for
applicable requirements, if any, of the Securities Act, the
<PAGE>
Exchange Act and Blue Sky Laws and (ii) where the failure to obtain
such consents, approvals, authorizations or permits, or to make
such filings or notifications, would not, either individually or in
the aggregate, prevent either Associated from performing its
obligations under this Agreement or otherwise have an Associated
Material Adverse Effect.
SECTION 6.6 Permits; Compliance. Each of Associated
and each Subsidiary is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances,
exemptions, consents, certificates, approvals and orders necessary
to own, lease and operate its properties and to carry on its
business as it is now being conducted (collectively, the
"Associated Permits"), and there is no action or proceeding or, to
the knowledge of Associated or any Subsidiary, investigation
pending or threatened regarding suspension or cancellation of any
Associated Permits, except where the failure to possess, or the
suspension or cancellation of, such Associated Permits would not
have an Associated Material Adverse Effect. Neither Associated nor
any Subsidiary is in conflict with, or in default or violation of
(a) any Law or any rule of professional conduct applicable thereto
and applicable to Associated or any Subsidiary or by which any of
their respective properties is bound or subject to or (b) any of
the Associated Permits, except for any such conflicts, defaults or
violations which would not have an Associated Material Adverse
Effect.
SECTION 6.7 Financial Statements. Associated has
furnished to VME copies of the balance sheet of Associated as at
December 31, 1995 and December 31, 1996, and the related statements
of operations, stockholders' equity and cash flows of VME for the
three years ended December 31, 1996, audited by Stanton Partners
(the "Associated Audited Financial Statements"), and the balance
sheet of Associated as at September 30, 1997 and statement of
operations of Associated for the nine months ended September 30,
1997 (the "Associated Unaudited Financial Statements" and
collectively with the Associated Audited Financial Statements, the
"Associated Financial Statements"). The Associated Financial
Statements and notes thereto accurately and fairly reflect the
books and records of Associated and fairly present the financial
condition, cash flow and results of operations of Associated as at
the respective dates thereof and for the periods therein referred
to, all in accordance with GAAP, subject, in the case of the
Associated Unaudited Financial Statements, to normal recurring
year-end adjustments (the effect of which will not, individually or
in the aggregate, be material) and the absence of notes (which, if
presented, would not differ materially from those included in the
Associated Audited Financial Statements). Section 6.7 of the
Associated Disclosure Schedule describes the deviations, if any,
from GAAP of the Associated Unaudited Financial Statements.
<PAGE>
SECTION 6.8 No Undisclosed Liabilities. There are no
liabilities of Associated or any of its subsidiaries of any kind
whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, except as disclosed on Section 6.8 of
the Associated Disclosure Schedule, other than:
(a) liabilities disclosed or provided for in the
Associated Financial Statements;
(b) liabilities incurred in the ordinary course of
business consistent with past practice (in nature and amount), and
which are not material in amount, since June 30, 1997; and
(c) liabilities that individually or in the
aggregate would not have an Associated Material Adverse Effect.
SECTION 6.9 Contracts. Listed on Section 6.9 of the
Associated Disclosure Schedule are all written contracts and
agreements of Associated and Subsidiaries including, but not
limited to, employment contracts, leases and management agreements,
which require the payment by or to Associated or any Subsidiary of
more than $50,000 (in the case of contracts denominated in
Australian dollars, the equivalent amount at rate of exchange on
October 31, 1997) annually (each an "Associated Material
Contract"). Associated has provided to VME true, correct and
complete copies of each Associated Material Contract. Except as
set forth on the Associated Disclosure Schedule, neither Associated
nor any Subsidiary is, nor has any of them received any notice that
any of them is, nor does any of them have knowledge that any other
party is, in default in any respect under any Associated Material
Contract; and there has not occurred any event that with the lapse
of time or the giving of notice or both would constitute such a
default except where such event would not have an Associated
Material Adverse Effect. Each Associated Material Contract
complies with all applicable Laws, except where such non-compliance
would not have an Associated Material Adverse Effect.
SECTION 6.10 Absence of Certain Changes or Events.
During the period commencing December 31, 1996 and ending on the
date of this Agreement, and other than as disclosed to VME in
writing prior to the date hereof, (a) none of Associated, Sub nor
Ogenic has taken any actions or failed to take any actions which
would reasonably be expected to have, either individually or in the
aggregate, an Associated Material Adverse Effect and (b) neither
Associated, Sub nor Ogenic has made a change in its respective
accounting methods, principles or practices.
SECTION 6.11 Absence of Litigation. Except as set
forth in Section 6.11 of the Associated Disclosure Schedule, there
is no claim, action, suit, litigation, proceeding, arbitration or,
to the knowledge of Associated or any Subsidiary, investigation of
<PAGE>
any kind, at law or in equity (including actions or proceedings
seeking injunctive relief), pending or, to the knowledge of
Associated or any Subsidiary, threatened in writing against
Associated or any Subsidiary (except for claims, actions, suits,
litigations, proceedings, arbitrations, or investigations which,
individually or in the aggregate, would not reasonably be expected
to have an Associated Material Adverse Effect), and neither
Associated nor any Subsidiary is subject to any continuing order
of, consent decree, or, to the knowledge of Associated or any
Subsidiary, continuing investigation by, any Governmental Entity,
or any judgment, order, writ, injunction, decree or award of any
Governmental Entity or arbitrator, including, without limitation,
cease-and-desist or other orders, except for matters which,
individually or in the aggregate, would not have an Associated
Material Adverse Effect.
SECTION 6.12 Taxes. Except for such matters that would
not have an Associated Material Adverse Effect or are disclosed in
Section 6.12 of the Associated Disclosure Schedule (a) Associated
has timely filed or will timely file all returns and reports
required to be filed by it with any taxing authority with respect
to Taxes for any period ending on or before the Closing Date,
taking into account any extension of time to file granted to or
obtained on behalf of Associated and the Subsidiaries, (b) all
Taxes shown to be payable on such returns or reports that are due
prior to the Closing Date have been paid or will be paid when due
except for Taxes that are being contested in good faith by appro-
priate proceedings (all of which are described in Section 6.12 of
the Associated Disclosure Schedule) and for which adequate reserves
are reflected on the Associated Unaudited Financial Statements, (c)
as of the date hereof, no deficiency for any material amount of Tax
has been asserted or assessed in writing by a taxing authority
against Associated or the Subsidiaries, (d) all liabilities for
Taxes of Associated that are or will become due or payable with
respect to periods covered by the Associated Financial Statements
have been paid or adequately reserved for on such financial
statements and (e) Associated has not received written notice that
any Tax return or report of Associated is under examination.
SECTION 6.13 Certain Business Practices. As of the
date hereof, except for such actions which would not have an
Associated Material Adverse Effect, neither Associated nor, to the
knowledge of Associated, any directors, officers, agents or
employees of Associated has (i) used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses
relating to political activity, (ii) made any unlawful payment to
government officials or employees, or (iii) made any other unlawful
payment.
<PAGE>
SECTION 6.14 Board Approval. The Board of Directors of
Associated has approved the execution and delivery by Associated of
this Agreement and the consummation of the Exchange hereunder.
SECTION 6.15 Books and Records. The books of account
and other financial records of Associated and the Subsidiaries are
in all material respects complete and correct, and are maintained
in accordance with good business practices and all Laws applicable
to Associated and the Subsidiaries.
SECTION 6.16 Intellectual Property. Associated and the
Subsidiaries own, or have obtained a license or otherwise have
obtained the right to use in all jurisdictions necessary for the
operation of Associated's and the Subsidiaries' businesses as they
are presently conducted, all patents (including all applications,
renewals, reissues, extensions, divisions, continuations and
extensions thereof) trademarks (including both registered and
material unregistered trademarks and applications therefor),
service marks, trade names, copyrights (including all
registrations, renewals, modifications and extension thereof) and
know-how and trade secrets of material importance to the conduct of
their businesses as currently conducted (collectively the
"Associated Intellectual Property"), without, to Associated's or
any Subsidiary's knowledge, violating or conflicting with the
rights of others. "Material" as used in this Section 6.16 shall
mean any intellectual property right which, if Associated does not
have the right to use such right in all jurisdictions necessary for
the operation of its business as presently conducted, will result
in an Associated Material Adverse Effect, as defined in Section 6.1
hereof. Neither Associated nor any Subsidiary has knowledge of any
conflicting rights of others in any jurisdictions. Notwithstanding
the above, Associated represents and warrants that it is the owner
of, or has the right to use, the operational and/or systems
software, including all copyrights therein, used in the conduct of
its business as currently conducted, and that such software was
developed by employees of Associated within the scope of their
employment or it has valid assignment of ownership, and there are
no conflicting rights of others in any jurisdictions with respect
to such operational and/or systems software. Section 6.16 of the
Associated Disclosure Schedule lists all patents, all registered
and material unregistered trademarks, service marks and trade names
and all registered copyrights, and all applications for any of the
foregoing, that are used or owned by Associated or any Subsidiary.
Each of Associated and each Subsidiary has taken all necessary
action to maintain and protect each item of Associated Intellectual
Property of material importance to the conduct of Associated's
business as currently conducted. Except as set forth in Section
6.16 or Section 6.11 of the Associated Disclosure Schedule, none of
the Associated Intellectual Property is subject to any pledge,
lien, charge or other encumbrance created by or through Associated
<PAGE>
or the Subsidiaries other than such encumbrances which individually
or in the aggregate would not have an Associated Material Adverse
Effect. Except as set forth in Section 6.16 or Section 6.11 of the
Associated Disclosure Schedule, with respect to each item of
Associated Intellectual Property, the item is not subject to any
outstanding injunction, judgment, order, decree, ruling or charge
other than such injunctions, judgments, orders, decrees, rulings or
charges which individually or in the aggregate would not have an
Associated Material Adverse Effect. Except as set forth in Section
6.16 of the Associated Disclosure Schedule, with respect to each
item of Associated Intellectual Property, no action, suit,
proceeding, hearing, investigation, charge, complaint, claim or
demand is pending or, to the knowledge of Associated or any
Subsidiary, is threatened which challenges the legality, validity,
enforceability, use or ownership of the item other than any such
challenge which individually or in the aggregate would not have an
Associated Material Adverse Effect. Except as set forth in Section
6.16, Section 6.9 or Section 6.11 of the Associated Disclosure
Schedule, with respect to each item of Associated Intellectual
Property, neither Associated nor any Subsidiary has ever agreed to
indemnify any person for or against any interference, infringement,
misappropriation or other conflict with respect to the item.
Except as set forth in Section 6.9 of the Associated Disclosure
Schedule, neither Associated nor any Subsidiary is in default with
respect to the payment of any royalties, license fees or other
consideration to any owner or licensor of the Associated
Intellectual Property. To the knowledge of Associated or any
Subsidiary, the software currently marketed by Associated or any
Subsidiary (the "Associated Software") does not infringe or violate
the patent, copyright, trademark, service marks or trade secret
rights of any other person. To the knowledge of Associated or any
Subsidiary, no claim of any person is pending or threatened to the
effect that any Associated Software infringes upon or conflicts
with any such rights of any such person, except as set forth in
Section 6.11 of the Associated Disclosure Schedule.
SECTION 6.17 Brokers. No broker, finder, financial
advisor or investment banker is entitled to any brokerage, finder's
or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or
on behalf of Associated or any Subsidiary.
SECTION 6.18 Investment Representation. Associated is
acquiring the VME Tendered Securities from the holders thereof for
its own account for investment, and not with a view to, or for sale
in connection with, any distribution thereof, nor with any present
intention of distributing or selling the same. Associated does not
have any present or contemplated agreement, undertaking arrange-
ment, obligation, indebtedness or commitment providing for the
disposition of the VME Tendered Securities after the Closing.
<PAGE>
SECTION 6.19 [Intentionally Omitted]
SECTION 6.20 VME Expenses. Associated shall be
responsible for all reasonable costs and expenses (including
reasonable fees and disbursements of counsel and accountants)
incurred by VME in connection with the matters contemplated by this
Agreement (including the Merger). It being understood that if the
Exchange is not consummated hereunder, VME shall be responsible for
all of its fees and expenses incurred in connection with the
matters contemplated by this Agreement.
SECTION 6.21 Employment-Related Matters. Except as set
forth in Section 6.21 of the Associated Disclosure Schedule, (a)
neither Associated nor any of the Subsidiaries is a party to any
collective bargaining agreement or other contract or agreement with
any labor organization or other representative of any of the
employees of Associated or any of the Subsidiaries, (b) there is no
labor strike, dispute, slowdown, work stoppage, lockout or other
labor controversy that is pending or threatened against or
otherwise affecting Associated or any of the Subsidiaries, and
neither Associated nor any of the Subsidiaries has experienced any
labor controversy since January 1, 1992; (c) neither Associated
nor any of the Subsidiaries has closed any plant or facility,
effectuated any layoffs of employees or implemented any early
retirement or separation program at any time from or after
January 1, 1992, nor has Associated or any of the Subsidiaries
planned or announced any such action or program for the future with
respect to which Associated has any material liability; and (d) all
salaries, wages, vacation pay, bonuses, commissions and other
compensation payable by Associated or the Subsidiaries to the
employees of Associated and the Subsidiaries, as applicable, before
the date hereof have been paid in all material respects as of the
date hereof.
SECTION 6.22 Insurance. Section 6.22 of the Associated
Disclosure Schedule lists all contracts of insurance and indemnity
in force at the date hereof with respect to Associated and the
Subsidiaries. Such contracts of insurance and indemnity
(collectively, the "Associated Insurance Contracts") insure against
such risks and in such amounts as are appropriate and reasonable
considering the property, business and operations of Associated and
the Subsidiaries. All of the Associated Insurance Contracts are in
full force and effect, with no default thereunder by Associated or
the Subsidiaries which could permit the insurer to deny payment of
claims thereunder. Neither Associated nor any of the Subsidiaries
has received notice from any of its insurance carriers that any
insurance premiums will be materially increased in the future or
that any insurance coverage provided under the Associated Insurance
Contracts will not be available in the future on substantially the
same terms as now in effect. Neither Associated nor any of the
<PAGE>
Subsidiaries has received or given a notice of cancellation with
respect to any of the Associated Insurance Contracts.
ARTICLE 7
COVENANTS
SECTION 7.1 Affirmative Covenants of VME, VME
Securityholders and Associated. Each of VME and Associated hereby
covenants and agrees that, during the period commencing on the date
hereof and continuing until the Closing Date, unless otherwise
expressly contemplated by this Agreement or consented to in writing
by the other party, which consent shall not be unreasonably
withheld or delayed, each of them will carry on its business, and
will cause each of its subsidiaries to carry on its business, in
the ordinary course and in substantially the same manner as it is
currently being conducted. In addition, Associated, the VME
Securityholders and VME shall each take all such action as may be
necessary or appropriate in order to effectuate the Exchange as
promptly as possible, subject to all of the terms and conditions
hereof. If, at any time after the Closing Date, any further action
is necessary or desirable to carry out the purposes of this
Agreement, the officers and directors of Associated and VME are
fully authorized in the name of such corporation or otherwise to
take, and shall take, all such action.
SECTION 7.2 Negative Covenants of VME and Associated.
Except as expressly contemplated by this Agreement or otherwise
consented to in writing by Associated or VME (which consent shall
not be unreasonably withheld or delayed), from the date of this
Agreement until the Closing Date, neither Associated nor VME will,
and neither Associated nor VME will permit any of its subsidiaries
to, do any of the following:
(a) enter into any contract or commitment, incur
any material indebtedness or take any other action that is not in
the ordinary course of business or that, at the time the party
enters into such contract or commitment, incurs such indebtedness
or takes such action, may reasonably be expected to have a material
adverse impact on the transaction contemplated hereby, provided,
that each may incur liabilities and obligations under contracts and
agreements entered into prior to the date of this Agreement and
disclosed to the other party;
(b) (i) increase the compensation payable to or to
become payable to any director or officer (by making a bonus
payment or otherwise) , (ii) grant any severance or termination pay
(other than pursuant to its normal severance policy as in effect on
the date of this Agreement and disclosed in writing to the other
parties hereto) to, or enter into any employment or severance
<PAGE>
agreement with, any director, officer or employee (other than
employment agreements entered into with the consent of the other
parties hereto, which consent shall not be unreasonably withheld);
or (iii) establish, adopt, enter, into or amend any employee
benefit plan or arrangement except as may be required by applicable
Law;
(c) declare or pay any dividend on, or make any
other distribution in respect of, outstanding shares of its capital
stock;
(d) (i) redeem, purchase or otherwise acquire any
shares of its capital stock or equity interest or any securities or
obligations convertible into or exchangeable for any shares of its
capital stock or equity interest, or any options, warrants or
conversion or other rights to acquire any shares of its capital
stock or any such securities or obligations (except in connection
with the conversion of the First Sydney Bridge Loan (as defined in
Section 9.1(f) hereof), the issuance by Associated of options to
purchase up to 108,000 shares of Associated Common Stock or as a
result of Associated's reincorporation in the State of Delaware,
(collectively, the "Permitted Transactions") all of which are
expressly permitted); (ii) effect any reorganization or
recapitalization; or (iii) split, combine or reclassify any of its
or its respective subsidiaries, capital stock or issue or authorize
or propose the issuance of any other securities in respect of, in
lieu of or in substitution for, shares of its capital stock;
(e) (i) issue, deliver, award, grant or sell, or
authorize or propose the issuance, delivery, award, grant or sale
(including the grant of any security interests, liens, claims,
pledges, limitations in voting rights, charges or other
encumbrances) of, any shares of any class of its capital stock or
other securities (including shares held in treasury), any
securities convertible into or exercisable or exchangeable for any
such shares, or any rights, warrants or options to acquire, any
such shares other than issuances of shares of VME Common Stock or
Associated Common Stock, as the case may be, pursuant to option or
warrant exercises and in connection with any of the Permitted
Transactions; or (ii) amend or otherwise modify the terms of any
such rights, warrants or options the effect of which shall be to
make such terms more favorable to the holders thereof;
(f) acquire or agree to acquire, by merging or
consolidating with, by purchasing an equity interest in or a
portion of the assets of, or by any other manner, any business or
any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to
acquire any assets of any other person (other than the purchase of
assets from suppliers or vendors in the ordinary course of business
and consistent with past practice);
<PAGE>
(g) sell, lease, exchange, mortgage, pledge,
transfer or otherwise dispose of, or agree to sell, lease,
exchange, mortgage, pledge, transfer or otherwise dispose of, any
of its assets other than in the ordinary course of business;
(h) propose or adopt any amendments to its
Certificate of Incorporation or its By-Laws, or the equivalent
organizational documents;
(i) change any of its methods of accounting in
effect, or make or rescind any express or deemed election relating
to taxes, settle or compromise any claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy
relating to taxes (except where the amount of such settlements or
controversies, individually or in the aggregate, does not exceed
$50,000), or change any of its methods of reporting income or
deductions for federal income tax purposes from those employed in
the preparation of the federal income tax returns for the taxable
year ending December 31, 1996, except as may be required by Law or
generally accepted accounting principles;
(j) incur any material obligation for borrowed
money or purchase money indebtedness, whether or not evidenced by
a note, bond, debenture or similar instrument, except in the
ordinary course of business consistent with past practice,
provided, that VME shall be permitted to incur indebtedness by
receiving loans from Silicon Valley Bank under a loan agreement
dated March 6, 1996 between VME and Silicon Valley Bank, provided,
that such loans be secured by accounts receivable and be applied
toward financing operating expenses;
(k) agree, whether in writing or otherwise, to take
any action described in clauses (a) through (j) above; provided,
however, that notwithstanding anything to the contrary set forth in
this Section 7.2, the parties expressly agree that Associated shall
be permitted to effect any Permitted Transaction and that VME shall
be permitted to take the actions described in Section 7.2(j).
SECTION 7.3 Access and Information. Between the date
of this Agreement and the Closing Date or earlier termination of
this Agreement, each of Associated and VME shall, and shall cause
each of its subsidiaries to, (a) afford the other party and its
officers, directors, accountants, legal counsel, and other
authorized representatives (collectively, the "Representatives")
access upon reasonable prior notice and during regular business
hours to its officers, employees, agents, properties, offices and
other facilities and to the books and records thereof and (b)
furnish promptly to the other party and its Representatives such
information concerning the business, properties, contracts, records
and personnel of it and its subsidiaries (including, without
limitation, financial, operating and other data and information) as
<PAGE>
may be requested, from time to time, by the other party. All of
such data and information shall be subject to the terms and
conditions of the Mutual Agreement of Confidentiality signed by
each of VME and Associated for the benefit of the other dated May
15, 1997 (the "Confidentiality Agreement").
SECTION 7.4 Confidentiality. The parties will comply
with all of their respective obligations under the Confidentiality
Agreement.
SECTION 7.5 No Solicitation of Business Transactions
by VME. (a) For the period from the date of execution of this
Agreement until the earlier to occur of (i) the Closing, (ii) the
termination of this Agreement pursuant to Article 10 (except
Section 10.1(e)) hereof, or (iii) January 15, 1998 (the "No-Shop
Period"), neither VME nor its Affiliates will, directly or
indirectly:
(i) solicit, initiate, participate in
discussions or negotiations, or provide any material non-public
information to any person, entity or group concerning, any tender
offer, exchange offer, merger, business combination, sale of
substantial assets, sale of shares of capital stock or similar
transaction involving VME (an "Acquisition Proposal"); or
(ii) effect, or enter into any agreement
to effect, any such Acquisition Proposal.
(b) Nothing contained in Section 7.5(a) shall
prevent the Board of Directors of VME from considering,
negotiating, approving and recommending to the stockholders of VME
a bona fide Acquisition Proposal not solicited in violation of this
Agreement, provided the Board of Directors determines in good faith
that it is required to do so in order to discharge properly its
fiduciary duties. Notwithstanding the foregoing, nothing contained
herein shall affect the obligations of each VME Securityholder, in
its capacity as a stockholder of VME, to act in good faith to
consummate the transactions contemplated hereby.
(c) VME agrees to promptly communicate to
Associated the receipt of any Acquisition Proposal or request for
material non-public information which it may receive in respect of
any such Acquisition Proposal.
(d) If the Board of Directors of the VME receives
a request for material non-public information by a person who
makes, or indicates that it is considering making a bona fide
Acquisition Proposal, and the Board of Directors determines in good
faith and upon the advice of independent counsel that it is
required to cause VME to act as provided in this Section 7.5(d) in
order to discharge properly the directors' fiduciary duties, then,
<PAGE>
provided the person making the Acquisition Proposal has executed a
confidentiality agreement substantially similar to the one then in
effect between VME and Associated, VME may provide such person with
access to information regarding VME.
(e) If VME publicly announces its intention to or
enters into an agreement in order to effect an Acquisition Proposal
on or prior to the end of the No-Shop Period (the "Transaction
Event"), VME shall pay to Associated, in consideration of the time,
effort and resources expended in connection herewith, $250,000 plus
any fees and expenses incurred in connection with collecting such
amount (the "Transaction Fee"). The Transaction Fee shall be
payable no later then ten business days after the Transaction Event
and shall be made by wire transfer of immediately available funds
to an account designated by Associated.
SECTION 7.6 Stockholder Representative. The VME
Securityholders shall have appointed Robert P. Forlenza and Leslie
A. Ferlazzo as stockholder representatives (the "Stockholder
Representatives") solely to perform the functions and obligations,
and to exercise all rights, (i) of the Stockholder Representatives
pursuant to Section 8.7 hereof, (ii) of the Indemnifying
Stockholders' Agent (as hereinafter defined) set forth in Article
11 hereof and (iii) of the Stockholders' Agent (as defined in the
Escrow Agreement) under the Escrow Agreement. Such authority shall
be valid (x) as to (i), until the full amount of the future funding
contemplated under Section 8.7 hereof shall have been received by
VME and (y) as to (ii) and (iii), until the date on which no Escrow
Shares (as defined in the Escrow Agreement) are held by the Escrow
Agent (as defined in the Escrow Agreement). The Stockholder
Representatives shall not be liable to any VME Securityholder with
respect to any action taken or omitted to be taken by either of the
Stockholder Representatives, except in the case of gross
negligence, bad faith or willful misconduct.
ARTICLE 8
ADDITIONAL AGREEMENTS
SECTION 8.1 Registration Rights. Associated shall
comply with the terms and conditions set forth in the Declaration
of Registration Rights (the "Registration Rights Declaration")
attached hereto as Exhibit C.
SECTION 8.2 Appropriate Action; Consents; Filings.
(a) VME and Associated shall each use all reasonable efforts to
(1) take, or cause to be taken, all appropriate action, and do, or
cause to be done, all things necessary, proper or advisable under
applicable Law or otherwise to consummate, satisfy the conditions
to, and make effective the transactions contemplated by this
<PAGE>
Agreement and by the Merger Agreement, (2) obtain from any
Governmental Entities or other persons any consents, licenses,
permits, waivers, approvals, authorizations or orders required to
be obtained or made by either company or any of the subsidiaries of
either in connection with the authorization, execution and delivery
of this Agreement and the Merger Agreement and the consummation of
the transactions contemplated hereby and thereby, (3) and make all
necessary filings, and thereafter make any other required
submissions, with respect to this Agreement and the Exchange and
with respect to the Merger Agreement and the Merger required under
(A) the Securities Act and the Exchange Act and the rules and
regulations thereunder, and any other applicable federal or state
securities laws, and (B) any other applicable Law. VME and
Associated shall furnish all information required for any
application or other filing to be made pursuant to the rules and
regulations of any applicable Law in connection with the
transactions contemplated by this Agreement and by the Merger
Agreement.
(b) Each of VME and Associated agrees to use its
best efforts to contest and resist any action, including
administrative or judicial actions, and to have vacated, lifted,
reversed or overturned any decree, judgment, injunction or other
order (whether temporary, preliminary or permanent) (an "Order")
that is in effect and that restricts, prevents or prohibits the
consummation of the Exchange or any other transactions contemplated
by this Agreement or of the Merger and any other transactions
contemplated by the Merger Agreement, by pursuing all reasonable
available avenues of administrative and judicial appeal; provided,
however, that in no event shall either VME or Associated take, or
be required to take, any action that might reasonably be expected
to have a VME Material Adverse Effect or an Associated Material
Adverse Effect.
(c) Each of VME and Associated shall give (or shall
cause their respective subsidiaries to give) any notices to third
parties, and use, and cause their respective subsidiaries to use,
its best efforts to obtain any third party consents (i) necessary
to consummate the transactions contemplated in this Agreement and
the Merger Agreement, (ii) disclosed or required to be disclosed in
the VME Disclosure Schedule or the Associated Disclosure Schedule,
as the case may be, (iii) otherwise required under any contracts,
licenses, leases or other agreements in connection with the
consummation of the transactions contemplated herein or therein or
(iv) required to prevent a VME Material Adverse Effect from
occurring prior to or after the Closing Date or an Associated
Material Adverse Effect from occurring prior to or after the
Closing Date.
<PAGE>
SECTION 8.3 Affiliates. VME will advise its
affiliates (as such term is defined in Rule 405 under the
Securities Act) of the resale restrictions imposed by federal
securities laws, on the shares of Associated Common Stock received
by them pursuant to the Exchange, and will use its best efforts to
obtain from each such affiliate a letter stating that such
affiliate is aware of such restrictions.
SECTION 8.4 Public Announcements. Except as otherwise
required by law, any press release or other public disclosure of
information regarding the Acquisition (including the existence if
this Agreement and the terms hereof), will be developed by
Associated, subject to the approval of VME, which shall not be
unreasonably withheld or delayed. No party hereto shall issue any
press release or make any public announcement relating to the
subject matter of this Agreement prior to the Closing without the
prior written approval of the other party, provided, however, that
any party hereto may make any public disclosure it believes in good
faith is required by applicable law or any listing or trading
agreement concerning its publicly-traded securities (in which case
the disclosing party will use its best efforts to advise the other
party prior to making the disclosure). In addition, VME
understands and acknowledges that Associated is a public company
and due to the sensitive nature of the transactions contemplated
hereby, until provided with further notice, VME will not trade for
its own account, and will restrict its employees and Affiliates (as
hereinafter defined) from trading, in any Associated Common Stock.
SECTION 8.5 Bonuses. VME shall be permitted to pay
bonuses and retroactive salaries aggregating $240,000 to certain
employees of VME as consideration for past services in creating
value in VME. Any additional bonuses payable or granted after the
date hereof shall be paid by the stockholders of VME as of the
Closing Date.
SECTION 8.6 Board Representation. The principal
stockholders of each of Associated and VME named on Schedule II and
Schedule I to the Voting Agreement (as hereinafter defined)
(respectively, the "Associated Principal Stockholders" and the "VME
Principal Stockholders") will enter into a voting agreement, in the
form of Exhibit D hereto (the "Voting Agreement").
SECTION 8.7 Future Funding. Associated agrees to
advance to VME $350,000 at the Closing and $200,000 on or before
January 15, 1998, all of which funding shall be obtained upon terms
and conditions satisfactory to Associated. Associated further
agrees to advance to VME an additional $1,500,000 (the "1.5m
Funding") as follows: $500,000 on or before February 16, 1998,
$200,000 on or before March 15, 1998, $500,000 on or before April
15, 1998 and $300,000 on or before May 15, 1998. Associated will
use its best efforts to obtain the 1.5m Funding through research
<PAGE>
and development funding or, subject to the last sentence of this
Section 8.7, otherwise upon terms and conditions reasonably
satisfactory to Associated. First Sydney Investments Pty Limited
("First Sydney") agrees that it will provide the 1.5m Funding if
other sources of funding are not identified in a reasonable period
of time. If First Sydney or any other third party provides the
1.5m Funding or any portion thereof, the consideration for each
advance provided by First Sydney or any other third party shall be
payable in shares of Associated Common Stock equal to such advance
valued for this purpose at a per share price of not less than
$2.50, unless otherwise consented to in writing by the Stockholder
Representatives.
SECTION 8.8 Indemnification and Insurance.
(a) The VME Certificate of Incorporation and By-
Laws provisions with respect to indemnification set forth in such
Certificate of Incorporation and By-Laws of VME, shall not be
amended, repealed or otherwise modified for a period of five years
from the Closing Date in any manner that would adversely affect the
rights thereunder of individuals who at or before the Closing Date
were directors, officers, employees or agents of VME, unless such
modification is required by law.
(b) Associated and VME shall, to the fullest extent
permitted under applicable law or under VME's Certificate of
Incorporation or By-Laws, indemnify and hold harmless, each present
and former director, officer or employee of each of Associated and
VME or any of its subsidiaries (collectively, the "Indemnified
Parties") against any costs or expenses (including attorneys'
fees), judgments, fines, losses, claims, damages, liabilities and
amounts paid in settlement in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, (i) arising out of or pertaining
to the transactions contemplated by this Agreement or (ii)
otherwise with respect to any acts or omissions occurring at or
prior to the Closing Date to the same extent as provided in VME's
Certificate of Incorporation or By-Laws or any applicable contract
or agreement as in effect on the date hereof, in each case for a
period of five years after the date hereof. In the event of any
such claim, action, suit, proceeding or investigation (whether
arising before or after the Closing Date), (A) any counsel retained
by the Indemnified Parties for any period after the Closing Date
shall be reasonably satisfactory to Associated and VME, (B) after
the Closing Date, Associated or VME shall pay the reasonable fees
of such counsel, promptly after statements therefor are received
and (C) Associated and VME will cooperate in the defense of any
such matter, provided, however, that neither Associated nor VME
shall be liable for any settlement effected without its written
consent (which consent shall not be unreasonably withheld); and
provided, further, that, in the event that any claim or claims of
<PAGE>
indemnification are asserted or made within such five year period,
all rights to indemnification in respect of any such claim or
claims shall continue until the disposition of any and all such
claims. The Indemnified Parties as a group may retain only one law
firm to represent them with respect to any single action unless
there is, under applicable standards of professional conduct, a
conflict on any significant issue between the positions of any two
or more Indemnified Parties.
(c) For a period of three years after the Closing
Date, Associated shall maintain or cause VME to maintain in effect,
directors' and officer's liability insurance covering those persons
who are currently covered by VME's directors' and officers'
liability insurance policy (a copy of which has been made available
to Associated) on terms comparable to those now applicable to
directors and officers of VME.
(d) As long as any nominee of either of the
Associated Principal Stockholders or the VME Principal Stockholders
shall serve on the Board of Directors of Associated in accordance
with the terms of the Voting Agreement, Associated shall, (i) to
the fullest extent permitted under applicable law or under its
Certificate of Incorporation or By-Laws, or the equivalent
organizational documents, indemnify and hold harmless all directors
against any costs or expenses (including attorneys' fees)
judgments, fines, losses, claims, damages, liabilities and amounts
paid in settlement in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal,
administrative or investigative, to the full extent permitted under
Associated's Certificate of Incorporation or By-Laws, or the
equivalent organizational documents, or any applicable contract or
agreement, and (ii) maintain in effect a directors' and officers'
liability insurance policy for all directors and containing terms
reasonably satisfactory to the directors. In the event of a claim,
action, suit, proceeding or investigation, (A) any counsel retained
by the directors shall be reasonably satisfactory to Associated,
(B) Associated shall pay the reasonable fees and expenses of such
counsel, promptly after statements therefor are received, and (C)
Associated will cooperate in the defense of any such matter;
provided, however, that Associated shall not be liable for any
settlement effected without its written consent (which consent
shall not be unreasonably withheld).
(e) This Section 8.8 shall survive the consummation
of the Exchange on the Closing Date, is intended to benefit VME and
the Indemnified Parties, shall be binding on all successors and
assigns of Associated and VME and shall be enforceable by the
Indemnified Parties, their heirs and their representatives.
<PAGE>
<PAGE>
SECTION 8.9 Nasdaq Rules. Associated shall comply
with any applicable rules and regulations of the Nasdaq Stock
Market, Inc. applicable to it in connection with the Exchange.
SECTION 8.10 Associated Options. Associated shall
reserve for issuance to certain employees of VME 600,000 shares of
Associated Common Stock pursuant to a newly adopted employee option
plan (the "Associated Option Plan") to be issued to such VME
employees as incentive stock options, to the extent possible. On
the Closing Date, Associated shall, against the delivery by Naples
of a writing evidencing the cancellation of any options he had
prior to the Closing Date to purchase shares of VME capital stock,
grant new five-year options to Bradley Naples under the Associated
Option Plan to purchase 200,000 shares of Associated Common Stock
at $1.75 per share which options shall vest as follows: 100,000
immediately and the remaining 100,000 to vest in increments of
4,000 on the first day of each of the twenty-five calendar months
commencing on January 1, 1998. It is agreed that the remainder of
the 600,000 shares to be reserved for issuance in accordance with
this Section 8.10 which are not subject to options granted to
Naples as contemplated hereby shall be subject to options to be
granted by the Board of Directors of Associated upon recommendation
of the Board of Directors of VME, upon the consummation of the
Merger, to employees of VME in such amounts, for such period of
time and with vesting schedules as shall reasonably be determined
by the Board of Directors of Associated upon recommendation of the
Board of Directors of VME.
SECTION 8.11 Associated Tax Returns. Associated agrees
to take all necessary actions to enable it to make the following
representations as of the closing of the Merger under the Merger
Agreement:
Associated has timely filed all returns and reports
required to be filed by it with any taxing authority with respect
to Taxes for any period ending on or before the closing of the
Merger, taking into account any extension of time to file granted
to or obtained on behalf of Associated and the Subsidiaries.
SECTION 8.12 SEC Compliance. Associated agrees to use
its best efforts to take all necessary actions to enable it to make
the following representation as of the closing of the Merger under
the Merger Agreement:
Associated has filed all required forms, reports,
statements and documents with the Securities and Exchange
Commission (the "SEC") required to be filed pursuant to the
Exchange Act. Associated heretofore has delivered or made
available to counsel for VME true and complete copies of (a) its
Annual Reports on Form 10-K for the four fiscal years ended
December 31, 1996, (b) its Quarterly Reports on Form 10-Q for the
<PAGE>
fiscal quarters ended June 30, 1993 and September 30, 1993 and each
of the three fiscal quarters ending in each of 1994, 1995, 1996 and
1997, (c) all proxy statements (if any) relating to Associated's
meetings of stockholders held since January 1, 1993, (d) all other
forms, reports, statements and documents filed or required to be
filed by it with the SEC since January 1, 1996 and (e) all
amendments and supplements to all such reports and statements, in
all such cases as filed by Associated with the SEC. The Associated
Annual Report on Form 10-K for the fiscal year ended December 31,
1996, as amended and its Quarterly Reports on Form 10-Q for the
fiscal quarters ended March 31, June 30 and September 30, 1997, as
amended are hereinafter referred to as the "Associated Reports".
As of their respective dates, the Associated Reports, as so
amended, complied in all material respects with all applicable
requirements of the Securities Act and Exchange Act and the rules
and regulations promulgated thereunder, and did not contain an
untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading.
SECTION 8.13 Stockholder Approval of Merger.
Associated covenants and agrees to use its reasonable best efforts
to, as promptly as practicable, cause VME to (i) take all action
necessary in accordance with Delaware Law, and its Certificate of
Incorporation and By-Laws, to convene a meeting of its
stockholders, or act by written consent, to act on the Merger; (ii)
unless otherwise required under the applicable fiduciary duties of
the directors of VME, as determined by such directors in good
faith, use all reasonable efforts to solicit from its stockholders
proxies in favor of adoption of the Merger Agreement and approval
of the transactions contemplated thereby, and shall take all other
lawful action reasonably necessary or advisable to secure the vote
or consent of stockholders to obtain such approvals.
SECTION 8.14 Preparation of Proxy Materials and Issuer
Disclosure Statement. Associated agrees that as promptly as
reasonably practicable after the execution of the Merger Agreement,
Associated shall and Associated shall cause VME to prepare the
proxy materials to be sent to the stockholders of VME in connection
with either (i) the action by written consent or (ii) the meeting
of the stockholders of VME to consider the Merger (such proxy
materials including any supplements thereto are referred to herein
as the "Proxy Materials"), and Associated shall prepare the
disclosure statement required under Rule 506 of Regulation D of the
Securities Act in connection with the offer and sale by Associated
of the Merger Shares to the stockholders of VME as contemplated by
the Merger Agreement to be included as part of the Proxy Materials
(the "Issuer Disclosure Statement") and all such materials will
not, on the dates the Issuer Disclosure Statement and Proxy
Materials (or any amendment thereof or supplement thereto) are
<PAGE>
first mailed to the stockholders of VME and at the time of the
meeting of stockholders of VME, if applicable, contain any
statement which, at such time in light of the circumstances in
which it was made, is false or misleading with respect to any
material fact, or shall omit to state any material fact necessary
in order to make the statements made therein at such time, in light
of the circumstances in which they were made, not false or
misleading, or omit to state any material fact necessary to correct
any statement in any earlier communication with respect to the
solicitation of proxies for the meeting of stockholders of VME
which has become false or misleading.
ARTICLE 9
CLOSING CONDITIONS
SECTION 9.1 Conditions to Obligations of Each Party
Under This Agreement. The respective obligations of each party to
effect the Exchange and the other transactions contemplated herein
shall be subject to the satisfaction at or prior to the Closing
Date of the following conditions, any or all of which may be
waived, in whole or in part, to the extent permitted by applicable
Law:
(a) No Order. No Governmental Entity or federal or
state court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is in effect and which
has the effect of making the Exchange illegal or otherwise
prohibiting consummation of the Exchange.
(b) Non-Compete Agreements. The stockholders of
VME listed on Schedule I to the Non-Compete Agreement (as
hereinafter defined) shall enter into agreements not to compete
with VME or its successor(s) in the interactive music business for
a period of three years, such agreements to be in the form attached
hereto as Exhibit E (each, a "Non-Compete Agreement"). The Non-
Compete Agreements (a) will not prohibit such stockholders from
holding (i) investments of 10% or less in a non-public portfolio
company and (ii) any investments in the equity securities of a
public company, in each case so long as such stockholder is not
represented on the board of directors of such company and (b) will
provide that the exclusive jurisdiction for matters relating to the
Non-Compete Agreements shall be in the courts of Massachusetts,
with Massachusetts law to govern the interpretation and enforcement
of the Non-Compete Agreements.
<PAGE>
(c) Employment Agreements. Each of Bradley Naples
and Deryck Graham will enter into an employment agreement, in a
form mutually agreeable to the parties hereto, (each, an
"Employment Agreement") with Associated. The Employment Agreements
will contain, inter alia, non-competition restrictions and
incentives for each of Mr. Naples and Mr. Graham reasonably
satisfactory to Associated and VME.
(d) Voting Agreement. The Associated Principal
Stockholders and the VME Principal Stockholders shall have entered
into the Voting Agreement.
(e) Escrow Agreement. The parties thereto shall
have entered into the Escrow Agreement.
(f) Associated Share Issuance. The loans by First
Sydney to Associated of $550,000 principal amount, evidenced by
promissory notes dated September 19, 1997 and December 4, 1997 in
the name of Associated in favor of First Sydney and bearing
interest at the rate of 10% per annum (the "First Sydney Bridge
Loan") will convert into shares of Associated Common Stock at a
conversion rate of one share of Associated Common Stock for every
$2.50 of principal amount of the First Sydney Bridge Loan and such
shares, upon issuance at the Closing to First Sydney (or its
nominee), will be fully paid, validly issued and nonassessable
shares of Associated Common Stock.
(g) Merger Agreement. The parties thereto shall
have entered into the Merger Agreement.
SECTION 9.2 Additional Conditions to Obligations of
Associated. The obligations of Associated to effect the Exchange
and the other transactions contemplated herein are also subject to
the satisfaction, on or prior to the Closing Date, of each of the
following conditions (any of which may be waived by Associated in
its sole discretion):
(a) Representations and Warranties. The
representations and warranties of VME and the VME Securityholders
contained in this Agreement shall be true and correct in all
material respects as of the Closing Date as though made on and as
of the Closing Date, except as expressly permitted or contemplated
by this Agreement, and the aggregate effect of all differences in
the representations and warranties of VME between those as of the
date of this Agreement and those as of the Closing Date does not
and will not have a VME Material Adverse Effect. Associated shall
have received a certificate of the President of VME to such effect.
<PAGE>
<PAGE>
(b) Agreements and Covenants. VME shall have
performed or complied with all agreements and covenants required by
this Agreement to be performed or complied with by it in all
material respects prior to the Closing Date. Associated shall have
received a certificate of the President of VME to such effect.
(c) Consents and Approvals. All material consents,
approvals and authorizations legally required to be obtained to
consummate the Exchange shall have been obtained from all required
Governmental Entities and any other third party.
(d) Opinion of VME's Counsel. Associated shall
have received an opinion of Foley, Hoag & Eliot LLP, counsel to
VME, in form and substance reasonably satisfactory to Associated,
substantially in the form set forth as Schedule 9.2(d) hereto.
(e) No VME Material Adverse Effect. Since the date
of this Agreement, there shall have been no VME Material Adverse
Effect. Associated shall have received a certificate of the
President of VME to such effect.
(f) Certificates. Associated shall have received
such certificates from officers and representatives of VME as it
shall have reasonably requested.
(g) Affiliates' Letters. VME shall have obtained
from each person who is an "affiliate" (as such term is defined in
Rule 144 of the Securities Act) of VME an executed letter agreement
to the effect that such person will not sell or otherwise transfer
any shares of Associated Common Stock received pursuant to the
Exchange except pursuant to an effective registration statement or
in compliance with Rule 144 or other exemption from the
registration requirements of the Securities Act.
(h) Percentage Ownership of VME. Upon the
consummation of the Exchange at the Closing, Associated shall own
at least 51% of the outstanding capital stock of VME on a fully-
diluted basis, taking into account the entire exercise of any
outstanding warrants or options or any other rights to purchase
additional shares of capital stock of VME. Associated shall
receive a certificate of the President of VME to such effect and
which states the actual such percentage of the outstanding capital
stock of VME so obtained by Associated. Such certificate shall
have appended to it a true and correct list setting forth the name
and address of each VME Securityholder, the number of VME Tendered
Securities held by each such VME Securityholder and the number of
Closing Shares to be received by each such VME Securityholder at
the Closing.
<PAGE>
SECTION 9.3 Additional Conditions to Obligations of
VME and the VME Securityholders. The obligations of VME and the
VME Securityholders to effect the Exchange and the other
transactions contemplated in this Agreement are also subject to the
satisfaction, on or prior to the Closing Date, of each of the
following conditions (any of which may be waived by VME and the VME
Securityholders in their sole discretion):
(a) Representations and Warranties. The
representations and warranties of Associated contained in this
Agreement shall be true and correct in all material respects as
though made at and as of the Closing Date, except as expressly
permitted or contemplated by the terms of this Agreement, and the
aggregate effect of all differences in the representations and
warranties of Associated between those as of the date of this
Agreement and those as of the Closing Date does not and will not
have an Associated Material Adverse Effect. The VME
Securityholders and VME shall have received a certificate of the
President of Associated to such effect.
(b) Agreements and Covenants. Associated shall
have performed or complied with all agreements and covenants
required by this Agreement to be performed or complied with by it
in all material respects prior to the Closing Date. The VME
Securityholders and VME shall have received a certificate of the
President of Associated to such effect.
(c) Consents and Approvals. All material consents,
approvals and authorizations legally required to be obtained to
consummate the Exchange shall have been obtained from all required
Governmental Entities and any other third party.
(d) Opinion of Counsel to Associated. VME and the
VME Securityholders shall have received an opinion of Werbel &
Carnelutti, A Professional Corporation, counsel to Associated, in
form and substance reasonably satisfactory to VME, substantially in
the form set forth as Schedule 9.3(d) hereto.
(e) No Associated Material Adverse Effect. Since
the date of this Agreement, there shall have been no Associated
Material Adverse Effect. VME and the VME Securityholders shall
have received a Certificate of the President of Associated to such
effect.
(f) Certificates. VME and the VME Securityholders
shall have received such certificates from officers and
representatives of Associated as it shall have reasonably
requested.
<PAGE>
(g) Associated Options. Associated shall have
granted options to certain employees of VME under the Associated
Option Plan in accordance with Section 8.10 hereof.
(h) Declaration of Registration Rights. Associated
shall have executed and delivered the Registration Rights
Declaration.
(i) Funding. The funds contemplated by Section 8.7
shall have been advanced at the Closing.
ARTICLE 10
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.1 Termination. This Agreement may be
terminated at any time prior to the Closing Date:
(a) by mutual written consent of Associated, VME
and the VME Securityholders;
(b) by Associated, upon a material breach by VME or
any VME Securityholder of any material covenant or agreement set
forth in this Agreement or a Joinder Agreement or if any material
representation or warranty of VME or any VME Securityholder in this
Agreement or a Joinder Agreement shall have become materially
untrue, in either case (i) if such breach or inaccuracy is not
cured within twenty (20) days of receipt of written notice thereof
from Associated and (ii) if as a result thereof the conditions set
forth in Section 9.2(a) or Section 9.2(b) hereof would not be
satisfied;
(c) by VME or the VME Securityholders, upon a
material breach by Associated of any material covenant or agreement
set forth in this Agreement or if any material representation or
warranty of Associated in this Agreement shall have become
materially untrue, in either case (i) if such breach or inaccuracy
is not cured within twenty (20) days of receipt or written notice
thereof from VME or a VME Securityholder and (ii) if as a result
thereof the conditions set forth in Section 9.3(a) or Section
9.3(b) hereof would not be satisfied;
(d) by either Associated or VME or the VME
Securityholders, if there shall be any Order which is final and
nonappealable preventing the consummation of the Exchange, except
if the party relying on such Order has not complied with its
obligations under Section 8.2(b) hereof;
<PAGE>
<PAGE>
(e) by either Associated or VME or the VME
Securityholders, if the Exchange shall not have been consummated
before December 31, 1997, provided, however that such date may be
extended by Associated and VME and the VME Securityholders; and
(f) by Associated or VME or the VME Securityholders
at any time prior to the Closing Date if (i) in the case of
termination by Associated, any of the conditions specified in
Section 9.2 shall not have been met in all material respects or
waived prior to such time as such condition can no longer be
satisfied or (ii) in the case of termination by VME or the VME
Securityholders, any of the conditions specified in Section 9.3
shall not have been met in all material respects or waived prior to
such time as such condition can no longer be satisfied.
The right of any party hereto to terminate this Agreement
pursuant to this Section 10.1 shall remain operative and in full
force and effect regardless of any investigation made by or on
behalf of any party hereto, any person controlling any such party
or any of their respective officers or directors, whether prior to
or after the execution of this Agreement.
SECTION 10.2 Effect of Termination. In the event of
the termination of this Agreement pursuant to Section 10.1 hereof,
this Agreement shall forthwith become void, there shall be no
liability on the part of Associated or VME or any of their
respective officers or directors or the VME Securityholders to the
other and all rights and obligations of any party hereto shall
cease. Notwithstanding the foregoing, (i) nothing herein shall
relieve any party of liability for any material inaccuracy of any
material representation or warranty or failure to perform or comply
with any material obligation under this Agreement prior to the
termination hereof and (ii) the obligations under Sections 7.5 and
10.5 and Articles 11 and 12 of this Agreement and the obligations
under the Confidentiality Agreement shall survive any termination
hereof.
SECTION 10.3 Amendment. To the extent permitted by
applicable law, this Agreement may be amended by the parties hereto
by action taken by or on behalf of them or, if applicable, their
respective Boards of Directors at any time prior to the Closing
Date. This Agreement may not be amended except by an instrument in
writing signed by the parties hereto.
SECTION 10.4 Waiver. At any time prior to the Closing
Date, any party hereto may (i) extend the time for the performance
of any of the obligations or other acts of any other party hereto,
(ii) waive any inaccuracies in the representations and warranties
of any other party contained herein or in any document delivered
pursuant hereto and (iii) waive compliance by any other party with
any of the agreements or conditions contained herein. Any such
<PAGE>
extension or waiver shall be valid only if set forth in an
instrument in writing signed by the party or parties to be bound
thereby.
SECTION 10.5 Fees, Expenses and Other Payments. (a)
Except as provided in Sections 7.5(e), 10.5(c) or 10.5(e) hereof,
all Expenses (as defined in paragraph (b) of this Section 10.5)
incurred by the parties hereto shall be borne solely and entirely
by Associated and Associated shall pay the reasonable fees of VME's
legal counsel at Closing. As promptly as possible, Associated and
VME shall advise the other of the estimated amount of its Expenses.
(b) "Expenses" as used in this Agreement shall
include all reasonable out-of-pocket expenses (including, without
limitation, all fees and expenses of counsel and accountants to a
party hereto and its affiliates) incurred by a party or on its
behalf in connection with or related to the authorization,
preparation, negotiation, execution and performance of this
Agreement, any effort to consummate any of the transactions
contemplated hereby, and all other matters related to the closing
of the transactions contemplated herein.
(c) If this Agreement shall be terminated by VME or
the VME Securityholders pursuant to Section 10.1(c) hereof or by
Associated pursuant to Section 10.1(b) hereof (in each case, the
"Non-Breaching Party"), then the other party shall pay to the Non-
Breaching Party, in consideration of the time, effort and resources
expended in connection herewith, all of the Expenses of the Non-
Breaching Party, together with all fees and expenses incurred by
the Non-Breaching Party in collecting such amounts (including,
without limitation, reasonable fees and disbursements of counsel
and court costs). Any such payment shall be in addition to any
other rights the Non-Breaching Party shall have.
(d) Any payment required to be made pursuant to
Section 10.5(c) shall be made to the Non-Breaching Party entitled
to receive such payment not later than ten (10) days after delivery
to the other party of a notice of demand for payment and an
itemization setting forth in reasonable detail all Expenses of the
Non-Breaching Party and shall be made by wire transfer of
immediately available funds to an account designated by the Non-
Breaching Party in the notice of demand for payment delivered
pursuant to this Section 10.5(d).
(e) In the event that the Exchange is not
consummated (except due to a termination of this Agreement by VME
or the VME Securityholders pursuant to Section 10.1(c)), then VME
shall bear the costs of its own Expenses including, without
limitation, the costs of its legal counsel.
<PAGE>
ARTICLE 11
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
SECTION 11.1 Survival of Representations. Subject to
Section 10.2 hereof, all representations, warranties, covenants and
agreements made by any party in this Agreement or any certificate
or other writing delivered by any party pursuant hereto or in
connection herewith (a) shall survive the Closing and any
investigation at any time made by or on behalf of any party and (b)
shall terminate upon the first anniversary of the Closing Date (the
"Indemnification Expiration Date") (except that Associated Claims
and Stockholder Claims (each as hereinafter defined) pending on the
first anniversary of the Closing Date shall continue until resolved
pursuant to this Article 11).
SECTION 11.2 Agreement to Indemnify. Subject to the
terms and conditions of this Article 11, each VME Securityholder
(the "Indemnifying Stockholders") jointly, and not severally,
agrees to indemnify and hold harmless Associated, and Associated
agrees to indemnify and hold harmless the Indemnifying
Stockholders, from and against any loss, liability, damage, cost or
expense (including court costs and reasonable attorneys' fees and
disbursements) suffered, incurred or paid by Associated, or by the
Indemnifying Stockholders, respectively, which would not have been
suffered, incurred or paid if all the representations and
warranties of VME, or of Associated, respectively, contained in
this Agreement or any certificate or other writing delivered by
such party pursuant hereto or in connection herewith had been true,
complete and correct in all material respects (in the case of
claims by Associated, "Associated Claims"; in the case of claims by
the Indemnifying Stockholders, "Stockholder Claims"). The party
seeking indemnification is hereinafter sometimes referred to as the
"Indemnified Party", and the party from whom indemnification is
sought is hereinafter sometimes referred to as the "Indemnifying
Party".
SECTION 11.3 Limitation of Liability.
(a) Limitation of Claims. The obligations and
liabilities of the Indemnifying Stockholders hereunder with respect
to indemnification for Associated Claims, and of Associated
hereunder with respect to indemnification for Stockholder Claims,
shall be subject to the following limitations:
(i) The Indemnifying Stockholders shall
be obligated to indemnify Associated only with respect to those
Associated Claims as to which Associated has given, jointly to Mr.
Robert Forlenza and Mr. Leslie Ferlazzo (the "Indemnifying
Stockholders' Agent"), written notice thereof on or prior to the
Indemnification Expiration Date, and Associated shall be obligated
<PAGE>
to indemnify the Indemnifying Stockholders only with respect to
those Stockholder Claims as to which the Indemnifying Stockholders'
Agent has given Associated written notice thereof on or prior to
the Indemnification Expiration Date;
(ii) No indemnification shall be required
to be made by the Indemnifying Party hereunder unless the amount of
Associated Claims or Stockholder Claims, as the case may be,
exceeds $75,000 in the aggregate, in which case the Indemnifying
Party's indemnification obligation shall apply to the amount of
such Claims in excess of $75,000;
(iii) In the case of Associated Claims, all
claims for indemnification pursuant to Section 11.2 hereof shall be
recovered by Associated solely by the return to Associated of any
Escrow Shares (as defined in the Escrow Agreement) remaining in
escrow under the Escrow Agreement. Without limiting the generality
of the foregoing, Associated shall not have any recourse against
VME or any Indemnifying Stockholder individually, or any
Indemnifying Stockholder's assets or property, for Associated
Claims, except for recovery against any Escrow Shares pursuant to
the terms of this Agreement and the Escrow Agreement;
(iv) In the case of Stockholder Claims,
all claims for indemnification pursuant to Section 11.2 hereof
shall be recovered by the Indemnifying Stockholders solely by the
delivery of the Associated Shares (as defined in Section 11.5) to
which they are entitled pursuant to Section 11.5 hereof. Without
limiting the generality of the foregoing, neither VME nor the
Indemnifying Stockholders shall have any recourse against
Associated or its affiliates, or Associated's assets or property or
such affiliates' assets or property, for Stockholder Claims, except
for the issuance to them of the Associated Shares pursuant to the
terms of this Agreement.
(v) For purposes of determining the
number of Escrow Shares recoverable from the escrow sufficient to
satisfy an Associated Claim subject to indemnification hereunder,
the value of one Escrow Share shall be equal to the greater of (A)
the fair market value on the date of (x) a final non-appealable
order of a court of competent jurisdiction stating that Associated
is entitled to indemnification pursuant to this Article 11 and
specifying the amount of such recovery or (y) mutual written
agreement of Associated and the Indemnifying Stockholders that
Associated is entitled to indemnification pursuant to Article 11
and specifying the amount of such recovery or (B) $2.50.
<PAGE>
<PAGE>
(vi) Associated, VME and the Indemnifying
Stockholders acknowledge and agree that any distribution of Escrow
Shares from escrow to satisfy an Associated Claim hereunder shall
be done so as to reduce each Indemnifying Stockholder's interest in
the Escrow Shares remaining in escrow, on a pro rata basis, based
on each Indemnifying Stockholder's respective ownership interest in
the Escrow Shares remaining in escrow.
(vii) All costs and expenses (including,
without limitation, court costs and reasonable attorney's fees and
disbursements) incurred by the Indemnifying Stockholders' Agent in
connection with any Associated Claim pursuant to this Article 11 or
by the Stockholders' Agent (as defined in the Escrow Agreement)
under the Escrow Agreement shall be advanced by Associated to the
Indemnifying Stockholders' Agent or the Stockholders' Agent, as the
case may be; provided, however, that the aggregate amount of such
advance respecting such costs and expenses shall not exceed $25,000
and provided, further, however, that such amounts advanced and the
costs and expenses (including, without limitation, court costs and
reasonable attorney's fees and disbursements) incurred by
Associated up to a maximum of $25,000 shall be paid by the
Indemnifying Stockholders to Associated in the event that
Associated prevails with respect to such Associated Claim. It is
agreed that upon final resolution of such claim in favor of
Associated, such amount advanced shall be recovered by Associated
by the return of Escrow Shares remaining in escrow under the Escrow
Agreement valued at the greater of (A) market value on the date of
such resolution or (B) $2.50; provided, that in the event the
shares of Associated Common Stock received by the Indemnifying
Stockholders in the Exchange are freely tradeable at the time of
such final resolution of the claim in favor of Associated, such
advanced amount shall be recovered by Associated in cash; provided,
that irrespective of the market value of Associated Common Stock at
the time of such recovery, the aggregate amount of such cash
payment to Associated shall not exceed the aggregate market value
of 10,000 shares of Associated Common Stock.
(b) Exclusive Remedy. The indemnification provided
for in this Article 11 shall be the Indemnified Party's exclusive
remedy for any breach by Associated or VME, as the case may be, of
a representation or warranty contained in this Agreement or any
certificate or other writing delivered by Associated or VME, as the
case may be, pursuant hereto or in connection herewith.
Notwithstanding the foregoing, nothing contained herein shall limit
a party's rights or remedies with respect to claims resulting from
or arising out of fraud.
<PAGE>
<PAGE>
SECTION 11.4 Process of Indemnification for Claims.
(a) Notice From the Indemnified Party. The
Indemnified Party shall promptly notify the Indemnifying Party (in
the case of the Indemnifying Stockholders, the Indemnifying
Stockholders' Agent) of a Claim Notice from an Indemnified Party
with respect to any claim of a third party, such Indemnifying Party
(in the case of the Indemnifying Stockholders, the Indemnifying
Stockholders' Agent) may assume the defense thereof through counsel
of its own choosing and, in such event, shall agree to pay and
otherwise discharge, at the Indemnifying Party's cost, subject to
the limitations contained in Section 11.3 hereof, all judgments,
deficiencies, damages, settlements, liabilities, losses, costs and
legal and other expenses related thereto; and the Indemnified Party
shall cooperate in the defense or prosecution thereof and shall
furnish such records, information and testimony and attend all such
conferences, discovery proceedings, hearings, trials and appeals as
may be reasonably requested in connection therewith. If the
Indemnifying Party (in the case of the Indemnifying Stockholders,
the Indemnifying Stockholders' Agent) does not assume the defense
thereof, the Indemnifying Party (in the case of the Indemnifying
Stockholders, the Indemnifying Stockholders' Agent) shall similarly
cooperate with the Indemnified Party in such defense or
prosecution. The Indemnified Party shall have the right to
participate in the defense or prosecution of any lawsuit with
respect to which the Indemnifying Party (in the case of the
Indemnifying Stockholders, the Indemnifying Stockholders' Agent)
has assumed the defense and to employ its own counsel therein, but
the fees and expenses of such counsel shall be at the expense of
the Indemnified Party unless (i) the Indemnifying Party (in the
case of the Indemnifying Stockholders, the Indemnifying
Stockholders' Agent) shall not have promptly employed counsel
reasonably satisfactory to the Indemnified Party to take charge of
the defense of such action or the Indemnified Party shall have
reasonably concluded that there exists a significant conflict of
interest with respect to the conduct of such Indemnified Party's
defense by the Indemnifying Party, in either of which events such
fees and expenses shall be borne by the Indemnifying Party and the
Indemnifying Party (in the case of the Indemnifying Stockholders,
the Indemnifying Stockholders' Agent) shall not have the right to
direct the defense of any such action on behalf of the Indemnified
Party. The Indemnifying Party (in the case of the Indemnifying
Stockholders, the Indemnifying Stockholders' Agent) shall have the
right, in its sole discretion, to settle any claim solely for
monetary damages for which indemnification has been sought and is
available hereunder, provided, that the Indemnifying Party (in the
case of the Indemnifying Stockholders, the Indemnifying
Stockholders, Agent) shall not, without the prior written consent
of the Indemnified Party, agree to the settlement of any claim
which constitutes the subject of a Claim Notice which settlement,
in the reasonable opinion of the Indemnified Party, would have an
<PAGE>
adverse continuing effect on the business of the Indemnified Party.
The Indemnified Party shall give written notice to the Indemnifying
Party (in the case of the Indemnifying Stockholders, the
Indemnifying Stockholders' Agent) of any proposed settlement of any
suit, which settlement the Indemnifying Party (in the case of the
Indemnifying Stockholders, the Indemnifying Stockholders' Agent)
may, if it shall have assumed the defense of the suit, reject in
its reasonable judgment within 20 days of receipt of such notice.
Notwithstanding the foregoing, the Indemnified Party shall have the
right to pay or settle any suit for which indemnification has been
sought and is available hereunder, provided that, if the defense of
such claim shall have been assumed by the Indemnifying Party (in
the case of the Indemnifying Stockholders, the Indemnifying
Stockholders' Agent), the Indemnified Party shall automatically be
deemed to have waived any right to indemnification hereunder.
SECTION 11.5 Undertaking by Associated to Issue
Associated Shares.
(a) If, at any time prior to the Indemnification
Expiration Date, the Indemnifying Stockholders' Agent acting in
good faith believes that the Indemnifying Stockholders are entitled
to indemnification by Associated pursuant to this Article 11, the
Indemnifying Stockholders' Agent shall provide to Associated a
Claim Notice. Upon receipt of the Claim Notice, Associated shall
have 30 days to either (i) dispute such Stockholder Claim in the
manner provided in Section 11.4(b) hereof or (ii) issue to each
Indemnifying Stockholder, on a pro rata basis, such number of
additional shares (the "Associated Shares") of Associated Common
Stock valued at the greater of (A) the fair market value on such
date or (B) $2.50 per share, equal to such Claim; provided, that,
Associated shall not be required to issue a number of Associated
Shares, either in any one case or in the aggregate, greater than
the number of shares equal to 15% of the Closing Shares. As to any
Stockholder Claim which is disputed, Associated shall be required
to issue Associated Shares only upon (x) a final non-appealable
order of a court of competent jurisdiction stating that the
Indemnifying Stockholders are entitled to indemnification pursuant
to this Article 11 and specifying the amount of such recovery or
(y) mutual written agreement of Associated and the Indemnifying
Stockholders' Agent that the Indemnifying Stockholders are entitled
to indemnification pursuant to this Article 11 and specifying the
amount of such recovery. In the case of any issuance of Associated
Shares pursuant to the preceding proviso, the Associated Shares
shall be valued at the greater of (A) $2.50 or (B) the fair market
value of such shares on the date of the court order or written
agreement, as the case may be.
<PAGE>
<PAGE>
(b) Notwithstanding the provisions of paragraph (a)
above, as of the date which is 90 days after the Closing, the
maximum number of Associated Shares that Associated may be required
to issue hereunder shall be reduced to the number of shares equal
to 7.5% of the Closing Shares.
(c) Notwithstanding the provisions of paragraphs
(a) and (b) above, as of the Indemnification Expiration Date, the
maximum number of Associated Shares that Associated may be required
to issue hereunder shall be reduced to zero (0) plus the number of
shares, if any, then subject to a Claim Notice.
ARTICLE 12
GENERAL PROVISIONS
SECTION 12.1 Notices. All notices and other
communications given or made pursuant hereto shall be in writing
and shall be deemed to have been duly given or made as of the date
delivered, mailed or transmitted, and shall be effective upon
receipt, if delivered personally, mailed by registered or certified
mail (postage prepaid, return receipt requested) to the parties at
the following addresses (or at such other address for a party as
shall be specified by the methods specified in Section 12.1) or
sent by electronic transmission to the facsimile number specified
below:
(a) If to Associated:
Associated Technologies
c/o First Sydney Capital Limited
Level 5
151 Macquarie Street
Sydney NSW 2000 Australia
Attention: Mr. Leonard N. McDowall
Facsimile No.: 011-61-2-9241-5189
with a copy to:
Werbel & Carnelutti
711 Fifth Avenue
New York, New York 10022
Attention: Stephen M. Davis, Esq.
Facsimile No.: (212) 832-3353
<PAGE>
<PAGE>
(b) If to VME:
Virtual Music Entertainment
3 Riverside Drive
Andover, Massachusetts 01810
Attention: Mr. Bradley J. Naples
Facsimile No.: (508) 688-8824
with a copy to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Attention: Adam Sonnenschein, Esq.
Facsimile No.: (617) 832-7000
(c) If to the Indemnifying Stockholders' Agent:
Mr. Robert P. Forlenza
c/o Tudor Investment Corporation
40 Rowes Wharf 2nd Fl.
Boston, Massachusetts 02110
Facsimile No.: (617) 737-0993
Mr. Leslie A. Ferlazzo
c/o Woodstock Corporation
27 School Street
Boston, Massachusetts 02108
Facsimile No.: (617) 523-0229
with a copy to VME:
Virtual Music Entertainment
3 Riverside Drive
Andover, Massachusetts 01810
Attention: Bradley J. Naples
Facsimile No.: (508) 688-8824
(d) If to any VME Securityholder:
To the address set forth under such VME
Securityholder's name on Exhibit A to the
Joinder Agreement.
<PAGE>
<PAGE>
SECTION 12.2 Certain Definitions. For purposes of this
Agreement, the term:
(a) "Affiliate" means a person that directly or
indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the first mentioned
person;
(b) "Business Day" means any day other than a day
on which banks in the State of New York are authorized or obligated
to be closed;
(c) "control" (including the terms "controlled",
"controlled by" and "under common control with") means the
possession, directly or indirectly or as trustee or executor, of
the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock or as
trustee or executor, by contract or credit arrangement or
otherwise;
(d) "knowledge" or "known" means, with respect to
any matter in question, if an executive officer of VME or
Associated, as the case may be, has actual knowledge of such
matter; provided, that knowledge of a matter by an executive
officer of a subsidiary of VME or Associated, as the case may be,
shall be deemed to be knowledge by VME or Associated respectively;
(e) "person" means an individual, corporation,
partnership, association, trust, unincorporated organization, other
entity or group (as defined in Section 13 (d) of the Exchange Act)
and
(f) "Security Interest" means any mortgage, pledge,
lien, encumbrance, charge, or other security interest, other than
(a) mechanic's, materialmen's, landlord's, and similar liens, (b)
liens for Taxes not yet due and payable, (c) purchase money liens
and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the ordinary course of
business and not incurred in connection with the borrowing of
money.
(g) "Tax" or "Taxes" shall mean any and all taxes,
charges, fees, levies, payable to any federal, state, local or
foreign taxing authority or agency, including, without limitation,
i) income, franchise, profits, gross receipts, minimum, alternative
minimum, estimated, ad valorem, value added, sales, use, service,
real or personal property, capital stock, license, payroll,
withholding, disability, employment, social security, workers
compensation, unemployment compensation, utility, severance,
excise, stamp, windfall profits, transfer and gains taxes, ii)
customs duties, imposts, charges, levies or other similar
<PAGE>
assessments of any kind, and iii) interest, penalties and additions
to tax imposed with respect thereto.
SECTION 12.3 Headings. The headings contained in this
Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 12.4 Severability. If any term or other
provision of this Agreement is invalid, illegal or incapable of
being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected
in any manner materially adverse to any party. Upon such deter-
mination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable
manner to the end that transactions contemplated hereby are
fulfilled to the extent possible.
SECTION 12.5 Entire Agreement. This Agreement
(together with the Exhibits and Schedules hereto) and the
Confidentiality Agreement constitute the entire agreement of the
parties and supersede all prior agreements and undertakings, both
written and oral, between the parties, or any of them, with respect
to the subject matter hereof.
SECTION 12.6 Assignment. This Agreement shall not be
assigned by operation of law or otherwise.
SECTION 12.7 Parties in Interest. This Agreement shall
be binding upon and inure solely to the benefit of each party
hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other person any right,
benefit or remedy of any nature whatsoever under or by reason of
this Agreement.
SECTION 12.8 Failure or Indulgence Not Waiver; Remedies
Cumulative. No failure or delay on the part of any party hereto in
the exercise of any right hereunder shall impair such right or be
construed to be a waiver of, or acquiescence in, any breach of any
representation, warranty or agreement herein, nor shall any single
or partial exercise of any such right preclude other or further
exercise thereof or of any other right. All rights and remedies
existing under this Agreement are cumulative to, and not exclusive
of, any rights or remedies otherwise available.
<PAGE>
<PAGE>
SECTION 12.9 Governing Law. This Agreement shall be
governed by, and construed in accordance with, the laws of the
State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflicts of law. The
parties hereto stipulate and agree that (a) all legal actions
arising from or relating to this Agreement will be brought in a
court of competent jurisdiction in the United States of America,
(b) such venue is the proper and most convenient forum for such
actions and (c) the court of such venue shall have personal
jurisdiction over the parties hereto for the purposes of hearing
matters arising from or relating to this Agreement. The parties
hereto hereby waive all rights of transfer under the doctrine of
forum non conveniens or any similar doctrine or statue, however
denominated.
SECTION 12.10 Counterparts. This Agreement may be
executed in one or more counterparts, and by the different parties
hereto in separate counterparts, each of which when executed shall
be deemed to be an original but all of which taken together shall
constitute one and the same agreement.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, Associated and VME have caused this
Securities Exchange Agreement to be executed as of the date first
written above by their respective officers thereunto duly
authorized.
ASSOCIATED TECHNOLOGIES, INC.
By: ____________________________
Name:
Title:
VIRTUAL MUSIC ENTERTAINMENT, INC.
By: _____________________________
Name:
Title:
Solely with respect to Section 8.7
hereto:
FIRST SYDNEY INVESTMENTS PTY LIMITED
By: _____________________________
Name:
Title:
110262<PAGE>
<PAGE>
Schedule 9.2(d)
(i) VME is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware, has corporate power and authority to own all of its
properties and assets and to carry on its business as it is now
being conducted, and is duly qualified to do business and is in
good standing in each jurisdiction where it owns or leases any real
property.
(ii) The authorized capital stock of VME is in all
material respects as described in the Agreement, and all
outstanding shares are validly issued, fully paid and
nonassessable.
(iii) VME has corporate power and authority to
execute and deliver this Agreement and the Merger Agreement and to
consummate the transactions contemplated on its part hereby and
thereby; VME has taken all necessary corporate action to authorize
the execution and delivery of this Agreement and the Merger
Agreement by VME and the consummation by VME of the transactions
contemplated on its part hereby and thereby; and this Agreement and
the Merger Agreement have each been duly executed and delivered by
VME and each is a valid and binding agreement of VME enforceable in
accordance with its terms.
(iv) The execution and delivery of this Agreement
and the Merger Agreement by VME and the consummation by VME of the
transactions contemplated on its part hereby and thereby do not and
will not violate, if applicable, any provision of its Certificate
of Incorporation or By-Laws and, to the knowledge of such counsel
after due inquiry, (A) do not and will not violate, or result with
the giving of notice or the lapse of time or both in a violation
of, any provision of, or result in the acceleration of or entitle
any party to accelerate (whether after the giving of notice or
lapse of time or both) any obligation under, or result in the
creation or imposition of any lien, charge, pledge, security
interest or other encumbrance upon the property of VME or any of
its subsidiaries pursuant to any provision of, any mortgage, lien,
lease, agreement, license, instrument, law, ordinance, regulation,
order, arbitration award, judgment or decree to which VME or any of
its subsidiaries is a party or by which any of them is bound, and
(B) do not and will not constitute an event permitting termination
of any lease, agreement, license or instrument to which VME or any
of its subsidiaries is a party or by which any of them is bound,
except in any of the foregoing cases as shall be specified in such
opinion.
<PAGE>
<PAGE>
(v) Except for the filing of the appropriate
Certificate of Merger (the "Certificate of Merger") with the
Secretary of State of Delaware, all consents, authorizations,
orders or approvals of, and filings and registrations with, any
United States federal or state governmental commission, board or
other regulatory body required for or in connection with the
execution and delivery of this Agreement and the Merger Agreement
by VME and the consummation by VME of the transactions contemplated
on its part hereby and thereby have been obtained or made.
(vi) To the knowledge of such counsel after due
inquiry, there is no claim, action, suit or proceeding pending,
contemplated or threatened against VME or any of its properties
which seeks to prohibit, restrict or delay consummation of the
Exchange or the Merger or any of the conditions to the consummation
of the Exchange or the Merger, nor is there any judgment, decree,
injunction, ruling or order of any court, governmental department,
commission, agency or instrumentality, arbitrator or any other
person outstanding against VME which such counsel believes has or
may in the future have any such effect.
(vii) Upon the approval by the affirmative vote of
the stockholders of VME in accordance with applicable law and
subsequent filing of the Certificate of Merger with the Secretary
of State of the State of Delaware in accordance with the terms of
the Merger Agreement, the Merger shall become effective under the
DGCL.
Such opinion shall also cover such matters incident to
the transactions contemplated hereby as Associated may reasonably
request. In rendering such opinion, such counsel may rely as to
matters of fact to the extent specified therein upon certificates
of officers of VME and upon the opinion of other counsel
satisfactory to Associated as to all matters of the laws of states
other than Delaware. Any opinions relied upon by such counsel as
aforesaid shall be delivered together with the opinion of such
counsel, which shall state that such counsel believe their reliance
thereon is justified.
<PAGE>
<PAGE>
Schedule 9.3(d)
(i) Associated is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Delaware, has corporate power and authority to own all of its
properties and assets and to carry on its business as it is now
being conducted, and is duly qualified to do business and is in
good standing in each jurisdiction where it owns or leases any real
property.
(ii) The authorized capital stock of Associated is
in all material respects as described in the Agreement, and all
outstanding shares are and the Closing Shares, when issued and paid
for in accordance herewith will be, validly issued, fully paid and
nonassessable.
(iii) Associated has the corporate power and
authority to execute and deliver this Agreement and the Merger
Agreement and to consummate the transactions contemplated hereby
and thereby; Associated has taken all necessary corporate action to
authorize the execution and delivery of this Agreement by it and
the consummation by it of the transactions contemplated hereby and
thereby; and this Agreement and the Merger Agreement have been duly
executed and delivered by Associated, and is each a valid and
binding agreement of Associated enforceable in accordance with its
terms.
(iv) The execution and delivery of this Agreement
and the Merger Agreement by Associated and the consummation by it
of the transactions contemplated on its part hereby and thereby do
not and will not violate any provision of its Certificate of
Incorporation or Bylaws and, to the knowledge of such counsel after
due inquiry, (A) do not and will not violate, or result with the
giving of notice or the lapse of time or both in a violation of,
any provision of, or result in the acceleration of or entitle any
party to accelerate (whether after the giving of notice or lapse of
time or both) any obligation under, or result in the creation or
imposition of any lien, charge, pledge, security interest or other
encumbrance upon the property of Associated or any of its
subsidiaries pursuant to any provision of, any mortgage, lien,
lease, agreement, license, instrument, law, ordinance, regulation,
order, arbitration award, judgment or decree to which Associated or
any of its subsidiaries is a party or by which any of them is
bound, and (B) do not and will not constitute an event permitting
termination of any lease, agreement, license or instrument to which
Associated or any of its subsidiaries is a party or by which any of
them is bound, except in any of the foregoing cases as shall be
specified in the opinion.
<PAGE>
(v) Except for the filing of the appropriate
Certificate of Merger (the "Certificate of Merger") with the
Secretary of State of Delaware, all consents, authorizations,
orders or approvals of, and filings and registrations with, any
United States federal or state governmental commission, board or
other regulatory body required for or in connection with the
execution and delivery of this Agreement and the Merger Agreement
by Associated and the consummation by Associated of the
transactions contemplated hereby and thereby have been obtained or
made.
(vi) To the knowledge of such counsel after due
inquiry, there is no claim, action, suit or proceeding pending,
contemplated or threatened against Associated or any of its
subsidiaries or any of their properties which seeks to prohibit,
restrict or delay consummation of the Exchange or the Merger or any
of the conditions to consummation of the Exchange or the Merger,
nor is there any judgment, decree, injunction, ruling or order of
any court, governmental department, commission, agency or
instrumentality, arbitrator or any other person outstanding against
Associated or Sub which such counsel believes has or may in the
future have any such effect.
(vii) Upon the approval by the affirmative vote of
the stockholders of VME in accordance with applicable law and
subsequent filing of the Certificate of Merger with the Secretary
of State of the State of Delaware in accordance with the terms of
the Merger Agreement, the Merger shall become effective under the
DGCL.
Such opinion shall also cover such matters incident to the
transactions contemplated hereby as VME may reasonably request. In
rendering such opinion, such counsel may rely as to matters of fact
to the extent specified therein upon certificates of officers of
Associated and upon the opinion of other counsel satisfactory to
VME as to all matters of the laws of states other than Delaware.
Any opinions relied upon by such counsel as aforesaid shall be
delivered together with the opinion of such counsel, which shall
state that such counsel believe their reliance thereon is
justified.
110262<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit A to Securities Exchange Agreement
AT/VME Exchange Ratios
AT shares/VME Common Share 0.0378
AT Common
Shares re-
ceived per
Share (or Total Out- AT Shares
per $1 of Standing VME Received
VME Security debt)* Securities per Class
- -------------------------------------------------------------------
<S> <C> <C> <C>
Series D Preferred ($.76)
Preference Participation .3040 3,434,050 1,043,951
- ------------------------------------------------------------------
Series E Preferred (1.97)
Preference Participation .7880 1,528,582 1,204,523
- ------------------------------------------------------------------
Common Stock .0378 2,534,481 95,803
- ------------------------------------------------------------------
Series D Common Stock
Participation .0378 3,434,050 129,807
- ------------------------------------------------------------------
Series E Common Stock
Participation .0378 1,528,582 57,780
- ------------------------------------------------------------------
Shares issued on net
issuance basis upon
surrender of Warrants to
purchase Series E Stock
in Exchange .0378 1,476,130 55,798
- ------------------------------------------------------------------
Shares reserved for
exercise of Warrants to
purchase Series E Stock
surviving Merger .8258 144,528 119,351
- ------------------------------------------------------------------
Shares reserved for
exercise of 1996 Warrants
to purchase common stock
surviving Merger** .0378 133,389 5,042
- ------------------------------------------------------------------
Shares reserved for
exercise of 1995 Warrants
to purchase common stock
surviving Merger** .0378 132,153 4,995
<PAGE>
<S> <C> <C> <C>
Shares reserved for other
Options and Warrants
surviving Merger*** .0378 183,317 6,929
- ------------------------------------------------------------------
Total Shares/Equivalents
including shares issued
to satisfy Preferences
of Preferred Stock 14,345,945 2,723,980
- ------------------------------------------------------------------
Secured Debt**** .4000 $ 1,052,454 420,982
- ------------------------------------------------------------------
Total Shares ----- ----- 3,144,962
</TABLE>
* AT Common Stock valued at $2.50 per share.
** Warrants to purchase 360,000 shares of VME Common Stock will
be cancelled in the Exchange.
*** Includes warrants and options issued to Aerosmith and Messrs.
Wallace and Swain.
**** Secured Debt will be exchanged at the rate of one AT share for
each $2.50 of principal and interest (i.e., .4 AT shares for
each $1 of principal and interest) accrued as of 11/30/97.
<PAGE>
<PAGE>
EXHIBIT NO. 99(a) TO FORM 8-K
FOR IMMEDIATE RELEASE
Associated Technologies, Inc.
to Purchase Majority Stake in
Virtual Music Entertainment, Inc.
Sydney, Australia, December 23, 1997---Associated Technologies,
Inc. (OTC Bulletin Board: ATTT) announced today that on Friday,
December 19, 1997, it entered into an exchange agreement to
purchase a majority of the outstanding equity, on a fully-diluted
basis, of Virtual Music Entertainment, Inc. ("VME") in exchange for
a minimum of 1,603,931 shares of Associated common stock (assuming
51% of VME's equity securities are exchanged). The closing of the
exchange transaction is expected to take place on or about December
30, 1997. In addition, the exchange agreement contemplates that
after the closing of the exchange transaction, a merger will be
effected whereby Associated will acquire ownership of the remaining
outstanding equity of VME. In connection with such merger,
Associated will issue additional shares of its common stock to
certain security holders and receive as consideration therefor all
of the outstanding securities of VME not already owned by
Associated on the date of such merger.
VME, based in Andover, Massachusetts, is involved in the
development of computer software games using digital sound
technology.
Contact:
Deryck Graham, Vice President of Associated Technologies, Inc.,
011-618-9479-1711; or George Demakos of Select Media Ltd.,
516-333-1155
110262
