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STOCK PURCHASE AGREEMENT - ------------------------ This Stock Purchase Agreement (the "Agreement") is made and entered into this 23rd day of December, 1999, by and between The American Education Corporation, a Colorado corporation (the "Buyer"), and Andrew K. Gardner (the "Seller"). RECITALS - -------- A. The Seller owns all of the issued and outstanding Capital Stock of Dolphin, Inc., a New Jersey corporation. B. Pursuant to this Agreement the Buyer will purchase from the Seller, and the Seller will sell to the Buyer, all of the issued and outstanding Capital Stock of the Company. Now, therefore, in consideration of the premises and the mutual promises made herein, and in consideration of the representations, warranties, and covenants herein contained, the parties agree as follows. ARTICLE I DEFINITIONS The capitalized terms used in this Agreement have the meanings specified in Schedule 1. ARTICLE II PURCHASE AND SALE OF SHARES II.1 Agreement to Purchase and Sell the Shares. Pursuant to this Agreement the Buyer agrees to purchase all of the Shares from the Seller, and the Seller agrees to sell all of the Shares to the Buyer, for the consideration specified below. II.2 Purchase Price. Subject to the escrow provisions of Section 2.3 below, the purchase price (the "Purchase Price") for the Shares shall be One Million Eight Hundred Thousand Dollars ($1,800,000.00), comprised of (i) One Million Four Hundred Ninety-Two Thousand Two Hundred Fifty Dollars and Thirty Cents ($1,492,250.30) payable to the Seller in certified funds at the Closing; plus (ii) One Hundred Twenty-Seven Thousand Seven Hundred Forty-Nine Dollars and Seventy Cents ($127,749.70) payable to National Capital Companies, L.L.C. (the "Finders Fee") on behalf of the Seller; plus (iii) One Hundred Thirty-Two Thousand Dollars ($132,000.00) in certified funds to be deposited into escrow at the Closing (the "Escrow Cash"), plus (iv) Escrow Shares with an aggregate Share Price of Forty-eight Thousand Dollars ($48,000.00), to be deposited into escrow at the Closing. No fractional shares shall be issued, and an amount in cash (if any) shall be paid in lieu thereof equal to such fractional part of a share multiplied by the foregoing average price. II.3 Escrow. II.3.1 Escrow Shares. All of the Escrow Shares shall be placed in escrow on the Closing Date. The Seller will endorse in blank his certificates representing the Escrow Shares or will execute in blank, stock transfer powers to accompany such certificates. The Escrow Shares shall be maintained by UMB Oklahoma Bank (the "Escrow Agent"), pursuant to the terms of an Escrow Agreement among the Buyer, the Seller, and the Escrow Agent in form and substance reasonably satisfactory to the Buyer and the Seller (the "Escrow Agreement") for a period beginning at the Closing Date and ending, subject to the terms of the Escrow Agreement, on the first anniversary of the Closing Date, as an escrow available to satisfy the indemnification rights of the Buyer. The costs of the Escrow Agent shall be borne by the Buyer and the Seller as provided in the Escrow Agreement. II.3.2 Escrow Cash. All of the Escrow Cash shall also be placed in escrow with the Escrow Agent on the Closing Date, in an interest-bearing account. II.3.3 Application of the Escrow Shares and the Escrow Cash. The Escrow Shares and the Escrow Cash shall be distributed as required by Section 4 of the Escrow Agreement. The escrow established pursuant to this Section 2.3 shall terminate on the first anniversary of the Closing Date or as otherwise provided in the Escrow Agreement; provided, however, that the escrow shall continue beyond such period to the extent (and only to the extent) that the Buyer has given the Seller a notice of claim prior to such time and the indemnification claims asserted therein remain unsatisfied or unresolved. Upon termination of the escrow, the remaining Escrow Shares and Escrow Cash (along with any dividends, other distributions and interest earned thereon) shall be delivered by the Escrow Agent to the Seller. II.4 The Closing. Subject to and in accordance with the provisions of this Agreement, the closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Hartzog Conger & Cason, 1600 Bank of Oklahoma Plaza, Oklahoma City, Oklahoma 73102 commencing at 10:00 a.m. local time on December 22, 1999 unless (i) either the Buyer or the Seller unilaterally extends the Closing Date to a date no later than December 30, 1999 or (ii) the Buyer and the Seller mutually agree to a further extension in writing (the "Closing Date"). The parties intend for the Closing to be effective as of October 1, 1999. II.5 Deliveries by the Seller at the Closing. At the Closing, the Seller shall deliver or cause to be delivered the following to the Buyer: (a) stock certificate(s) representing all, and not less than all, of the Shares, duly endorsed in blank for transfer or accompanied by irrevocable and duly executed stock transfer powers, together with evidence satisfactory to the Buyer that the Buyer or its nominee has been entered upon the books of the Company as the holder of record of all of the Shares; (b) an opinion from the Seller's counsel addressed to the Buyer and the Buyer's counsel in form and substance as set forth in Exhibit "A" attached hereto; (c) evidence acceptable to the Buyer that all corporate books, minutes, records, Tax Returns, reports, files and other data related to the Company and the Business are in place at the Company and possession thereof has been relinquished to the Buyer; (d) the Seller's duly executed general release of all Liabilities of the Company to the Seller and of any claim that the Seller may have against the Company, in form and substance as set forth in Exhibit "B" hereto; (e) a duly authorized amendment to the Company's bylaws to permit the Company to have three or more directors; (f) certificates from the appropriate public officials to the effect that the Company is a validly existing corporation in good standing in its state of incorporation and in each state in which the Company carries on its business as required to be listed in Section 4.1 of the Disclosure Schedule, as of a date in December 1999; (g) a true and correct copy of the Certificate of Incorporation of the Company as of a date in December 1999, certified by the appropriate public official in its state of incorporation, and bylaws of the Company as of the Closing Date, certified by the secretary of the Company and by the Seller; (h) the duly executed Employment Agreement, a form of which is attached at Exhibit "C"; (i) the investor representation letter referenced in Section 4.36(a) below; (j) one or more letters in form and substance satisfactory to the Buyer from the Company's independent accountant addressed to the Buyer in which such accountant (i) consents to the filing of the Most Recent Fiscal Year End Financial Statements in the Buyer's SEC filings; (ii) consents to the incorporation by reference of such Most Recent Fiscal Year End Financial Statements in the Buyer's SEC registration statements; and (iii) acknowledges awareness of the use in the Buyer's Form 8-K, or any amendment thereto, of a report on unaudited interim financial information; (k) written confirmation from Commerce Bank, N.A. that the total balance of all its loans to the Company, including the Line of Credit, does not exceed $26,000.00; (l) a duly executed stock power executed in blank to permit the Escrow Agent to deliver the Escrow Shares in accordance with Escrow Agreement; (m) a release in form and substance satisfactory to the Buyer from National Capital Companies, L.L.C.; (n) an estoppel letter and consent in form and substance satisfactory to the Buyer from the landlord of the Leased Property; (o) resolutions duly adopted by the Company's board of directors, in form and substance satisfactory to the Buyer and UMB Oklahoma Bank, approving the Company's guaranty of a loan to the Buyer and the Company's pledge of assets to secure such guaranty; (p) a release of all UCC-1 financing statements filed by the Seller to perfect his security interest in the Capital Stock sold to Byron Preiss Multimedia Company, Inc.; and (q) all other certificates, documents, and other instruments required to be delivered by the Seller or the Company pursuant to this Agreement. II.6 Deliveries by the Buyer at the Closing. At the Closing, the Buyer shall deliver, or cause to be delivered, the following to the Seller: (a) a wire transfer into an account designated by the Seller of the cash portion of the Purchase Price specified in Section 2.2(i) above; a check to National Capital Companies, L.L.C. in the amount of the Finders Fee specified in Section 2.2(ii) above; and a wire transfer into the Escrow Account of the Escrow Cash specified in Section 2.2(iii) above; (b) certificates representing the Escrow Shares, duly issued in the Seller's name, which Escrow Shares shall be delivered to the Escrow Agent pursuant to Section 2.3; (c) an opinion from the Buyer's counsel addressed to the Seller and the Seller's counsel in form and substance set forth in Exhibit "D"; (d) a wire transfer by the Buyer on behalf of the Company to Commerce Bank, N.A. in the amount of $25,197.11 representing the Total balance outstanding under the Line of Credit as of December 23, 1999 (with a per diem of $6.78 after that date); (e) a certificate, signed by the secretary or assistant secretary of the Buyer, in form satisfactory to the Seller, certifying as of the Closing Date to the form of and adoption of resolutions by the board of directors of the Buyer approving the transactions contemplated by this Agreement; (f) the duly executed Employment Agreement, a form of which is attached at Exhibit "C"; and (g) all other certificates, documents and other instruments required to be delivered by the Buyer pursuant to this Agreement. ARTICLE III REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION The Seller represents and warrants to the Buyer that the statements contained in this Article III are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Article III) and acknowledges and confirms that the Buyer is relying upon such representations and warranties in connection with the purchase by the Buyer hereunder. III.1 Authorization of Transaction. The Seller has full power and authority to execute and deliver this Agreement and the Ancillary Agreements and to perform his obligations hereunder and thereunder. This Agreement and the Ancillary Agreements to which the Seller is a party constitute the valid and legally binding obligation of the Seller, enforceable in accordance with their terms and conditions, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally or by general equitable principles. The foregoing limitations on enforceability shall not be deemed in any way to limit or affect the representations made in Section 3.4. III.2 Noncontravention. Neither the execution, delivery or performance of this Agreement or the Ancillary Agreements, nor the consummation of the transactions contemplated hereby or thereby, will (i) violate any Law or other restriction to which the Seller is subject, or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument or other arrangement to which the Seller is a party or by which he is bound or to which any of his assets is subject. The Seller need not give any notice to, make any filing or registration with, or obtain any authorization, consent or approval of any Person to execute, deliver or perform this Agreement or the Ancillary Agreements or to consummate the transactions contemplated by this Agreement and the Ancillary Agreements. III.3 Shares. The Seller holds of record and owns beneficially One Hundred (100) Shares (represented by certificate no. 3), constituting all of the issued and outstanding Shares, free and clear of any restrictions on transfer (other than any restrictions under the Securities Act and state securities laws), Taxes, Security Interests, options, warrants, purchase rights, contracts, commitments, equities, claims and other encumbrances of any kind. The Seller is not a party to any option, warrant, purchase right, or other contract or commitment that could require the Seller to sell, transfer, or otherwise dispose of any Capital Stock (other than this Agreement). The Seller is not a party to any voting trust, proxy, or other agreement or understanding with respect to the voting of any Capital Stock. Upon completion of the transaction contemplated by this Agreement, the Buyer will own good and marketable title to all of the Shares, free and clear of any valid and enforceable Security Interests or restrictions on transfer (other than any restrictions under the Securities Act and state securities laws). Without limiting any of the foregoing (i) neither Bushinghall Limited nor any of its Affiliates has a valid and enforceable Security Interest in any of the Shares and (ii) neither Byron Preiss Multimedia Company, Inc., its successor, nor any of its or their Affiliates has any ownership interest, whether of record or beneficially, in any of the Shares. ARTICLE IV REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY The Seller represents and warrants to the Buyer that the statements contained in this Article IV are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Article IV) and acknowledges and confirms that the Buyer is relying upon such representations and warranties in connection with the purchase by the Buyer hereunder. The Disclosure Schedule shall be arranged in paragraphs corresponding to the numbered paragraphs contained in Article IV. The mere listing (or inclusion of a copy) of a document or other item shall not be deemed adequate to disclose an exception to a representation or warranty made herein unless, in light of all the circumstances, such exception is fairly disclosed. IV.1 Organization and Authorization. (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of New Jersey. The Company has full corporate power and authority necessary to carry on the Business and to own and use the properties owned and used by it. The Company is not required to be qualified, licensed or registered to do business as a foreign corporation in any jurisdiction. Section 4.1 of the Disclosure Schedule lists the current directors and officers of the Company (as well as any all officers and directors who served at any time during the last three years). The Company is not in default under or in violation of any provision of its charter or bylaws. The Seller has delivered to the Buyer true, correct and complete copies of the Company's Certificate of Incorporation and Bylaws (both as amended to date). (b) The Company has conducted the Business since September 1991 at 10 Foster Avenue, Suite A2, Gibbsboro, New Jersey only under the name "Dolphin, Inc.," "Dolphin Inc.," "Dolphin Interactive" or "Dolphin". (c) The Company is not under any statutory, contractual or other obligation to (i) file any reports with the Securities and Exchange Commission pursuant to the Securities Exchange Act or any applicable state regulatory bodies or (ii) register any of its presently outstanding securities. (d) The Company has all requisite right, power and authority to execute, deliver and perform the Ancillary Agreements to which it is a party and to consummate the transactions contemplated thereby. The Ancillary Agreements to which the Company is a party have been duly authorized by all requisite corporate action on the part of the Company and have been and will be duly executed and delivered by the Company and constitute the legal, valid and binding obligation of the Company enforceable in accordance with their respective terms and conditions, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditor's rights generally or by general equitable principles. The foregoing limitations on enforceability shall not be deemed in any way to limit or affect the representations made in Section 3.4. IV.2 Noncontravention. The execution, delivery and performance of the Ancillary Agreements to which the Company is a party and the consummation of the transactions contemplated thereby (i) will not violate the articles/ certificate of incorporation or bylaws of the Company; (ii) do not (or would not with the giving of notice, the lapse of time or the happening of any other event or condition) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument or other arrangement to which the Company is a party or by which or to which its assets is subject (or result in the imposition of any Security Interest upon any of the Company's assets); (iii) will not result in the violation of any Law or other restriction to which the Company is subject; and (iv) will not result in a breach of, or cause the termination or revocation of, any authorization held by the Company necessary to the operation of the Business. There is no requirement to give any notice to, make any filing or registration with, or obtain any authorization, consent, or approval of any Person in order for the parties to consummate the transactions contemplated by this Agreement and the Ancillary Agreements. IV.3 Brokers' Fees. The Seller shall discharge all Liability to National Capital Companies, L.L.C. under that certain letter agreement dated January 29, 1999, as amended and extended (the "National Capital Agreement"). Neither the Seller nor the Company has any other Liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which the Company or the Buyer could become liable or obligated. IV.4 Shares and Capitalization. The entire authorized Capital Stock of the Company consists (and will consist as of the Closing Date) of eighteen thousand (18,000) shares of common stock, no par value, of which one hundred (100) shares (and no more) are issued, outstanding and owned by the Seller and no shares are held in treasury. All of the issued and outstanding Shares have been duly authorized, are validly issued, fully paid, and nonassessable, and are held of record by the Seller. No shares of Capital Stock have been issued in violation of any preemptive rights. There are no dividends which have accrued or been declared but are unpaid on the Capital Stock. All taxes required to be paid in connection with the issuance and any transfers of the Capital Stock have been paid. All permits or authorizations required to be obtained from or registrations required to be effected with any Person in connection with any and all issuances of Capital Stock from the date of the Company's incorporation to the date hereof have been obtained or effected, and all securities of the Company have been issued and are held in accordance with the provisions of all applicable securities Laws. There are no obligations (contingent or otherwise) outstanding or options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require the Company to issue, purchase, sell, or otherwise cause to become outstanding any of its Capital Stock. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to the Company. There are no voting trusts, proxies, or other agreements or understandings with respect to the voting of the Capital Stock of the Company. IV.5 Intentionally Omitted. IV.6 Subsidiaries. The Company has no direct or indirect equity interest in any corporation, partnership, limited liability company, joint venture, business association or other entity. IV.7 Financial Statements. Attached as Section 4.7 of the Disclosure Schedules are the following financial statements (collectively the "Financial Statements") of the Company: (i) audited balance sheets and statements of income, changes in stockholders' equity, and cash flow as of and for the fiscal year ended December 31, 1996, the period ended March 21, 1997, and the year ended December 31, 1998 (the "Most Recent Fiscal Year End"); and (ii) an unaudited balance sheet and statement of income (the "Most Recent Financial Statements") as of and for the interim nine months ended September 30, 1999 (the "Most Recent Fiscal Month End"). The Financial Statements (including the notes thereto) (i) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, and present fairly in all material respects the assets, Liabilities, and financial condition of the Company as of such dates and the results of operations of the Company for such periods; and (ii) are materially consistent with the books and records of the Company (which books and records are materially correct and complete); provided, however, that the March 21, 1997 Financial Statements were, and the Most Recent Financial Statements are, subject to normal year-end adjustments (which are not in the case of the Most Recent Financial Statements anticipated to be material individually or in the aggregate) and may lack footnotes and other presentation items of the type required in GAAP statements. IV.8 Events Subsequent to Most Recent Fiscal Month End. Since the Most Recent Fiscal Month End, the Company has conducted the Business only in the Ordinary Course of Business and, without limiting the foregoing, since such date, there has not been (i) any material damage, destruction or loss (whether or not covered by insurance) to any of the material assets of the Company; (ii) any material change by the Company in its accounting method, principles or practices; (iii) any material revaluation by the Company of any of the assets of the Company, including without limitation, writing down the value of inventory or writing off notes or any accounts receivable other than in the Ordinary Course of Business; or (iv) any other material adverse change in the Business, properties or condition (financial or otherwise) of the Company. IV.9 Undisclosed Liabilities. Except as set forth in Section 4.9 of the Disclosure Schedule and in the Financial Statements, the Company has no Liabilities and there is no basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against the Company giving rise to any Liability, except for Liabilities which have arisen after the Most Recent Fiscal Month End in the Ordinary Course of Business (and which did not result from, arise out of, or relate to any breach of contract, breach of warranty, tort, infringement or violation of Law) and except for Liabilities which will not, individually or in the aggregate, have a material adverse effect upon the Business, properties, or condition (financial or otherwise) of the Company. IV.10 Legal Compliance. The Company has complied with, and is conducting the Business in accordance with, all applicable Laws, and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand or notice has been filed or commenced or, to the Knowledge of the Seller, threatened against the Company alleging any failure so to comply, except in each case where a failure or failures to comply will not, individually or in the aggregate, have a material adverse effect upon the Business, properties, or condition (financial or otherwise) of the Company. There is no basis for any such action, suit, proceeding or investigation (i) which would have a material adverse effect on the Business, properties or condition (financial or otherwise) of the Company or (ii) which would impair the Company's ability or obligation to perform fully on a timely basis any obligations which it may have or will have under this Agreement. There are no existing violations of any Laws by the Company which materially or adversely affect the Business or the possession, use, occupancy or operation of the Leased Property. IV.11 Tax Matters. (a) The Company has filed in accordance with applicable Law all Tax Returns required to be filed by it, provided that the Company's federal income Tax Return for 1998 was filed late in October 1999. All such Tax Returns were correct and complete in all respects. All Taxes owed by the Company (whether or not shown on any Tax Return) have been paid. The Company is not currently the beneficiary of any extension of time within which to file any Tax Return. No claim has ever been made by an authority in any jurisdiction where the Company does not file Tax Returns that the Company is or may be subject to taxation by that jurisdiction. (b) The Company has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any Person. (c) The Seller has no reason to believe that any taxing authority may assess any additional Taxes for any period for which Tax Returns have been filed. There is no dispute or claim concerning any Tax Liability of the Company either (i) claimed or raised by any taxing authority in writing or (ii) as to which the Seller has Knowledge. Section 4.11 of the Disclosure Schedule lists all federal, state, local and foreign income Tax Returns filed with respect to the Company for taxable periods ended on or after December 31, 1995, indicates those Tax Returns that have been audited to the Seller's Knowledge, and indicates those Tax Returns that currently are the subject of audit to the Seller's Knowledge. The Seller has delivered to the Buyer correct and complete copies of all federal income Tax Returns, examination reports and statements of deficiencies assessed against or agreed to by the Company since December 31, 1995. (d) The Company has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. (e) The Company has not filed a consent under Code #341(f) concerning collapsible corporations. The Company has not made any payments, and is not obligated to make any payments, and is not a party to any agreement that under certain circumstances could obligate the Company to make any payments that will not be deductible under Code #280G. The Company has not been a United States real property holding corporation within the meaning of Code #897(c)(2) during the applicable period specified in Code #897(c)(1)(A)(ii). The Company has disclosed on its federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Taxes within the meaning of Code #6662. The Company is not a party to any Tax allocation or sharing agreement. The Company (i) has not been a member of an affiliated group filing a consolidated federal income Tax Return and (ii) has no Liability for the Taxes of any Person under Treasury Regulation #1.1502-6 (or any other similar provision of state, local or foreign Law), as a transferee or successor, by contract or otherwise. (f) The unpaid Taxes of the Company (i) did not, as of the Most Recent Fiscal Month End exceed the reserve for Tax Liability (as opposed to any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the Most Recent Balance Sheet (rather than in any notes thereto) and (ii) do not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Company in filing its Tax Returns. IV.12 Real Property. (a) The Company does not currently own and has never owned any real property. (b) The Company's operations were initially conducted from the Seller's residence. The Company does not currently lease and has never leased any real property other than as set forth in Section 4.12 of the Disclosure Schedule, which sets forth the street address of the sole parcel of real property leased by the Company (the "Leased Property"). The Company has previously delivered to the Buyer a true and complete copy of the lease, as amended to date (the "Lease"), relating to the Leased Property. (c) The Company enjoys a peaceful and undisturbed possession of the Leased Property. There are no parties (other than the Company) in possession of the Leased Property and, to the Knowledge of the Seller, no Person other than the Company has any right to use or occupy any part of the Leased Property. The Lease is in full force and effect and is a valid and legally binding obligation of the Company and, to the Seller's Knowledge, the landlord thereto, and will continue to be legal, valid, binding, enforceable and in full force and effect on identical terms following the consummation of the transactions contemplated hereby. (d) All rent and other sums and charges payable under the Lease are current, no notice of default or termination under the Lease is outstanding, and no termination event or condition or uncured default on the part of the Company or, to the Knowledge of the Seller, the landlord exists under the Lease, and no event has occurred and no condition exists which, with the giving of notice or the lapse of time or both, would constitute such a default or termination event or condition by the Seller. No party to the Lease has repudiated any provision thereof, and there are no disputes, oral agreements, or forbearance agreements in effect as to the Lease or the Leased Property. (e) The Company has not experienced any material interruption in the services provided to the Leased Property within the past one (1) year. The Leased Property is supplied with utilities and other services necessary for the operation of the Business. To the Seller's Knowledge, the landlord under the Lease has no plans to make any material alteration to the Leased Property, the cost of which would be borne in any part by the Company except as otherwise set forth in Section 4.12 of the Disclosure Schedule. To the Seller's Knowledge, all permits, licenses, franchises, approvals and authorizations of all governmental authorities having jurisdiction over the Leased Property required to have been issued to the Company to enable the Leased Property to be lawfully occupied and used for all of the purposes for which it is currently occupied are, as of the date hereof, in full force and effect. IV.13 Intellectual Property. (a) The Company has applied for or obtained any registrations for copyrights, patents, trade or service marks, trade names or logo types reasonably necessary to conduct the Business. Section 4.13A of the Disclosure Schedule sets forth all the material Owned Intellectual Property in current use by the Company. Section 4.13B of the Disclosure Schedule is a list of all Licensed Intellectual Property (categorized by licensor and licensee). All Licensed Intellectual Property that includes tools, libraries, utilities or routines identified or required to be identified in Section 4.13A of the Disclosure Schedule has been published under appropriate copyright notices. Except as set forth in Section 4.13C of the Disclosure Schedule: (a) the Company is the sole and exclusive owner of all right, title and interest in and to all the Owned Intellectual Property; (b) to the Seller's Knowledge, no royalties or fees (license or otherwise) are payable by the Company to any Person by reason of the ownership or use of any of the Intellectual Property; (c) there have been no claims made against the Company asserting the invalidity, abuse, misuse, or unenforceability of any Owned Intellectual Property, and to the Seller's Knowledge, there are no reasonable grounds for any claims against the Intellectual Property; (d) the Company has not made any claim of any violation or infringement by others of its rights in Owned Intellectual Property, and to the Seller's Knowledge, no reasonable grounds for such claims exist; (e) the Company has not received any written notice or, to the Seller's Knowledge, any other type of overt notice that it is in conflict with or infringing upon the asserted rights of others in connection with the Intellectual Property; (f) neither the use of the Owned Intellectual Property by the Company, the operation of the Business, the manufacture of its products, nor any formula, method, process, part or material employed by the Company in connection therewith, is infringing or has infringed upon any rights of others; (g) the Intellectual Property includes all rights necessary for the Company to legally conduct the Business as currently being conducted; (h) the consummation of the transactions contemplated hereby will not alter or impair in any material respects any of the Intellectual Property; (i) no interests or rights of the Company to any Owned Intellectual Property have been assigned, transferred, licensed or sublicensed by the Company to third parties outside the Ordinary Course of Business; and (j) each item of Intellectual Property will be available for use by the Company on substantially the same terms and conditions immediately subsequent to the Closing, free and clear of any Security Interests, Licenses, or other restrictions. (b) The Company has all necessary software, copyrights and other rights to publish its current existing titles, subject to the term of the licenses granted to the Company with respect to such titles. Section 4.13D of the Disclosure Schedule hereby sets forth a true, complete and correct list of all titles of third parties used by the Company (published, unpublished and in process) and primary licensors. Except as disclosed in Section 4.13D of the Disclosure Schedule hereto, during 1998, no third party developed in excess of 15% of any title developed by the Company, excepting development work performed internally by the customer of the Company that commissioned the title. (c) Except as set forth in Section 4.13E of the Disclosure Schedule: (i) subject to and/or with the exception of royalty obligations and any other contractual restrictions specifically described in Section 4.13E of the Disclosure Schedule, the Company owns, has the right to use, sell, license, and, to the Seller's Knowledge, prepare derivative works for, or dispose of all the Owned Intellectual Property required for or incident to the development, manufacture, operation and sale of all products and services in the manner currently expected to be sold by the Company, free and clear of any rights, Security Interests or claims of others; (ii) the Company owns or has the current right to use all software and/or programs of others as well as other Intellectual Property required for the conduct of the Business; (iii) the execution, delivery and performance of this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated herein and therein will not breach, violate or conflict with any instrument or agreement governing any material Intellectual Property right or in any way exclude the right of the Company to use, sell, license or dispose of or bring any action for the infringement of, any Owned Intellectual Property right; (iv) the manufacture, marketing, modification, license, sale or use of the Intellectual Property used by the Company in connection with the conduct or operation of the Business does not violate any license or agreement with any third party or infringe any license or agreement with any Person or infringe any proprietary right or interest of any Person, except where such violation would not adversely affect the Business, operations or properties of the Company; and there are no pending or, to the Seller's Knowledge, threatened claims or litigation contesting the validity, ownership or right to use, sell, license or dispose of any Owned Intellectual Property that is required in connection with the conduct or operation of the Business, nor has the Company received any written notice asserting that any Owned Intellectual Property, or the proposed use, sale, license or disposition thereof by it conflicts or will conflict with the rights of any other party; (v) to the Seller's Knowledge, the Company has not disposed of or permitted to lapse any rights to the use of any material Owned Intellectual Property; and (vi) the Company currently possesses all licenses and sublicenses required to operate the Business and is not in default under any such licenses and sublicenses. (d) Payments. No material payments, including maintenance fees, filings or registrations are required to be made so as to maintain the Intellectual Property in full force and effect, except those payments made in the ordinary course of the Buyer's business pursuant to agreements which are in full force and effect. (e) Technical Documentation. The Company owns and maintains such technical and descriptive materials relating to the acquisition, design, development, use, and maintenance of computer code and program documentation and materials related to the Licensed Intellectual Property as are adequate to conduct the Company's Business as it is currently conducted. (f) No Material Defects. To the Knowledge of the Seller and the Company, the Company's software products are free of all material flaws or defects which could reasonably be expected to have a material adverse effect on the Company's Business. (g) Section 4.13F of the Disclosure Schedule contains a list of all past and present employees and independent contractors ("Recipients") who have or have had access to the Company's Intellectual Property that is of a confidential nature and whose continued confidentiality is reasonably necessary for the conduct of the Company's Business as it is currently conducted. The Company has never given its consent to any Person, including any Recipients, to use its Intellectual Property except as necessary or convenient to the Company's Business. To the Seller's Knowledge, no Person has disclosed any portion of the Intellectual Property to any Person, other than to past and present Recipients and Persons subject to appropriate confidentiality limitations. All of the Recipients have signed appropriate confidentiality agreements containing customary restrictive provisions. To the Knowledge of the Seller, no currently employed Recipients are working for any Person that is currently a competitor of the Company except as disclosed in Section 4.13F of the Disclosure Schedule. IV.14 Contracts. Section 4.14 and the other Sections of the Disclosure Schedule list each contract and agreement (oral or written), not fully performed, to which the Company is a party or by which the Company or any of its property is bound, which contract or agreement (i) restricts the Company from engaging in any line of business or from competing with any Person; (ii) may involve the receipt or payment of more than $20,000 in any twelve-month period commenced after December 31, 1998; or (iii) is otherwise material to the Business, properties or condition (financial or otherwise) of the Company. The Seller has delivered or made available to the Buyer a correct and complete copy of each written agreement listed or required to be listed in Section 4.14 and the other Sections of the Disclosure Schedule (as amended to date) and a written summary setting forth the terms and conditions of each oral agreement referred to in Section 4.14 of the Disclosure Schedule. With respect to each such agreement (i) the agreement is in full force and effect and is the legal, valid, binding and enforceable obligation of the Company and, to the Seller's Knowledge, the other parties thereto; (ii) the agreement will continue to be the legal, valid, binding and enforceable obligation of the Company and, to the Seller's Knowledge, the other parties thereto on identical terms immediately following the consummation of the transactions contemplated hereby; (iii) neither the Company nor, to the Seller's Knowledge, any other party is in breach or default, and no event has occurred which with notice or lapse of time would constitute a breach or deffault, or permit termination, modification or acceleration, under the agreement; and (iv) no party has repudiated any provision of the agreement. IV.15 Inventory. Intentionally left blank. IV.16 Tangible Assets. Section 4.16 of the Disclosure Schedule lists and briefly describes all material tangible assets comprising a part of or used in the Business. The Company has good and marketable title to each material item of equipment and other tangible personal property included as an asset in the Most Recent Fiscal Year End Financial Statements or acquired since such date (other than properties subsequently utilized or disposed of in the Ordinary Course of Business), free and clear of any Security Interests, except as set forth in Section 4.16 of the Disclosure Schedule. The Company owns or leases (pursuant to leases disclosed in Section 4.16 of the Disclosure Schedule) all buildings, machinery, equipment and other tangible assets necessary for the conduct of the Business as presently conducted. To the Knowledge of the Seller and without expanding Section 4.34 as to Year 2000 compliance, each such item of personal property with a replacement value in excess of Four Thousand Dollars ($4,000) is free from defects (patent and latent), has been maintained in accordance with normal industry practice, is in good operating condition and repair (subject to normal wear and tear), and is suitable for the purposes for which it presently is used and presently is proposed to be used. Following the Closing, the Company will continue to be entitled to the ownership and use of all assets necessary for the continued operation of the Business in the manner it is currently conducted. IV.17 Notes and Accounts Receivable. All notes and accounts receivable of the Company at September 30, 1999 are reflected properly on its books and records, are valid receivables subject to no setoffs or counterclaims, are current (except as set forth in Section 4.17 of the Disclosure Schedule) and will be fully collected within one hundred eighty (180) days of the Closing Date at their recorded amounts. IV.18 Powers of Attorney. There are no outstanding powers of attorney executed on behalf of the Company. IV.19 Insurance. (a) Section 4.19 of the Disclosure Schedule identifies each insurance policy (including policies providing property, casualty, liability and workers' compensation coverage and bond and surety arrangements) to which the Company is a party, a named insured, or otherwise the beneficiary of coverage. Section 4.19 of the Disclosure Schedule also contains a summary of the loss experience under each policy. (b) With respect to each such insurance policy: (i) the policy is legal, valid, binding, enforceable and in full force and effect; (ii) to the Seller's Knowledge, the policy will continue to be legal, valid, binding, enforceable and in full force and effect on identical terms immediately following the consummation of the transactions contemplated hereby; (iii) neither the Company nor to the Seller's Knowledge any other party to the policy is in breach or default (including with respect to the payment of premiums or the giving of notices), and no event has occurred which, with notice or the lapse of time, would constitute such a breach or default, or permit termination, modification or acceleration, under the policy; and (iv) no party to the policy has given written notice repudiating any provision thereof. The Seller has no reason to believe that any such insurance policy will not be renewed upon the expiration thereof at premiums substantially equivalent to those currently being paid, except for changes in such premiums applicable to insureds similarly situated. The Company is covered by insurance in scope and amount customary and reasonable for the business in which it has engaged. Section 4.19 of the Disclosure Schedule identifies any self-insurance arrangements affecting the Company. IV.20 Litigation. Section 4.20 of the Disclosure Schedule sets forth each instance in which the Company (i) is subject to any outstanding injunction, judgment, order, decree, ruling or charge or (ii) is (or has been) a party or, to the Knowledge of the Seller, is threatened to be made a party to any action, suit, proceeding, hearing, or investigation of, in, or before any court or quasi-judicial or administrative agency of any federal, state, local or foreign jurisdiction or before any arbitrator, in each case where such matter may result in any material adverse change in the Business, properties or condition (financial or otherwise) of the Company. The Seller has no reason to believe that any such action, suit, proceeding, hearing or investigation will be brought or threatened against the Company. IV.21 Product Warranty. Except for matters that are not reasonably likely to result in any material adverse change in the Business, properties or condition (financial or otherwise) of the Company, each title or product manufactured, sold, distributed, leased or delivered by the Company has been in conformity with all applicable contractual commitments and all express and implied warranties, and the Company has no Liabilities (and, to the Knowledge of the Seller, there is no basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against the Company giving rise to any Liabilities) for recall, withdrawal, replacement or repair thereof or other damages in connection therewith, subject only to the reserve for product warranty claims set forth on the face of the Most Recent Balance Sheet (rather than in any notes thereto) as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Company. IV.22 Product Liability. To the Knowledge of the Seller, the Company has no Liability (and there is no basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against the Company giving rise to any Liability) arising out of any injury to individuals or property as a result of the ownership, possession or use of any title or product manufactured, sold, distributed, leased or delivered by the Company. No title or product manufactured, sold, distributed, leased or delivered by the Company is subject to any guaranty, warranty or other indemnity other than as set forth in the related development contract. IV.23 Labor Relations. (a) The Company is not a party to, otherwise bound by or overtly threatened with any labor or collective bargaining agreement affecting its employees generally. There has not been in the past and the Seller has no Knowledge of any current organizational effort being made or threatened by or on behalf of any labor union with respect to employees of the Company. Without limiting the generality of Section 4.10, except as identified in Section 4.23 of the Disclosure Schedule (i) the Company has not committed or engaged in any unfair labor practice, and no unfair labor practice complaints or grievances, administrative proceedings or arbitration proceedings are pending or have been filed against the Company with any governmental or regulatory agency, of which either the Seller or the Company has received notice; (ii) the Company has not received any notice or communication reflecting an intention or threat to file any such complaint, grievance, arbitration proceeding, or arbitration hearing; (iii) no Person has made any claim or, to the Knowledge of the Seller, threatened any claim against the Company under any statute, regulation or ordinance relating to discrimination with respect to employees or employment practices and there exists no basis for any such claim, and (iv) no claim is pending or, to the Knowledge of the Seller, threatened against the Company in connection with the United States Wage and Hour Law, the Americans with Disabilities Act, the Occupational Safety and Health Act or similar Laws, where any such matter would result in a material adverse effect on the Business, properties or condition (financial or otherwise) of the Company. (b) To the Seller's Knowledge, no employee, consultant or agent of the Company is in violation of any term of any employment contract, confidentiality or non-disclosure agreement or any other contract, agreement, commitment or understanding relating to the relationship of such employee, consultant or agent with the Company or any other party. (c) The Seller has no Knowledge that any officer or key employee or group of employees intends to terminate employment with the Company. (d) Except as set forth on Section 4.23 of the Disclosure Schedule, the Company is not required to make, and it is not currently making, a "reasonable accommodation" for any of its employees under the Americans With Disabilities Act or any similar New Jersey Law. All current employees of the Company have agreed in writing to be bound by the confidentiality provisions contained in the Company's employee handbook and/or are subject to written employment agreements with the Company, all of which employment agreements are identical in all material respects to the Employment Agreement between the Company and Mary McLean, a true, correct and complete copy of which has been provided to the Buyer; provided, however, that David Sides' Employment Agreement and the Seller's existing Employment Agreement (which will be restated in its entirety by the Employment Agreement) are different, and true, correct and complete copies of these Employment Agreements have also been provided to the Buyer. The Seller has also provided to the Buyer a true, correct and complete copy of the Consulting Agreement between the Company and Rebecca Shepherd. Other than the agreements referenced in the two immediately preceding sentences, no employee or independent contractor has any other agreement, whether oral or written, with respect to length of notice or severance payment required to terminate his or her employment or engagement. Except as set forth in Section 4.23 of the Disclosure Schedule or as set forth in the Company's articles/ certificate of incorporation or bylaws, and except with respect to the Company's liability insurance policy, there are no indemnification arrangements between the Company and any officer, director, consultant or employee. Without limiting Section 4.10, the Company is in compliance with all Laws respecting employment and employment practices, terms and conditions of employment, and wage and hours of work, except where any non-compliance would not result in a material adverse effect on the Business, properties or condition (financial or otherwise) of the Company. IV.24 ERISA Compliance. (a) Section 4.24 of the Disclosure Schedules identifies each and every employee benefit plan, including each employee pension benefit plan and employee welfare benefit plan (as such terms are defined in ERISA) (an "ERISA Plan") and each other retirement, deferred compensation, stock option, stock bonus, or other benefit program (a "Non-ERISA Plan") that is currently sponsored, maintained by or contributed to by the Company or any of its predecessors or ERISA Affiliates. Such ERISA Plan and Non-ERISA Plan are collectively referred to as "Employee Benefit Plans." (b) None of the Employee Benefit Plans is (i) a plan subject to Title IV of ERISA (a "Title IV Plan") or (ii) a multiemployer plan within the meaning of Section 3(37) of ERISA (a "Multiemployer Plan"). Neither the Company nor any ERISA Affiliate has ever sponsored, maintained or contributed to a Title IV Plan, nor has ever contributed or had an obligation to contribute to a Multiemployer Plan. (c) Without limiting any other representation or warranty provided by the Seller herein, with respect to each and every Employee Benefit Plan: (i) Each such Employee Benefit Plan complies in form and in operation in all material respects with the applicable requirements of ERISA, the Code and all other applicable Laws. (ii) Except as specifically set forth in Section 4.24 of the Disclosure Schedule, all reports and descriptions required by ERISA, the Code, or other applicable Laws, including Forms 5500, the summary annual reports and summary plan descriptions have been filed or distributed appropriately with respect to each such Employee Benefit Plan. (iii) The requirements of ERISA and of Code Section 4980B have, in all material respects, been met with respect to each such Employee Benefit Plan (to the extent such requirements apply to such Plans). (iv) All contributions including all employer contributions and employee salary reduction contributions which are due have been paid to each such Employee Benefit Plan which is an employee pension benefit plan and all contributions for any period ending on or before the Closing Date which are not yet due have been paid to each such employee pension benefit plan or accrued in accordance with the past customs and practice of the Company. All such contributions and other payments have been made in accordance with all applicable Laws including without limitation, Laws governing the timing of such payments. All premiums or other payments for all periods ending on or before the Closing Date have been paid with respect to each such Employee Benefit Plan which is an employee welfare benefit plan. (v) Each Employee Benefit Plan which is an employee pension plan meets and has met, in form and operation, the requirements for qualification under Code Section 401(a). (vi) There have been no prohibited transactions with respect to any Employee Benefit Plan. No fiduciary has any liability for material breach of fiduciary duty or any other material failure to act or comply in connection with the administration or investment of the assets of any such Employee Benefit Plan. No action, suit, proceeding, hearing, or investigation with respect to the administration or the investment of the assets of any such Employee Benefit Plan (other than routine claims for benefits) is pending or, to the Knowledge of the Seller, threatened. (vii) Except as set forth in Section 4.24 of the Disclosure Schedule, or as required under Section 601 et seq. of ERISA, and/or Code Section 4980(b), neither the Company nor any of its predecessors or Affiliates have ever provided post-retirement or post-employment termination benefits other than benefits under Employee Benefit Plans including without limitation, post- retirement or post-employment termination medical or health care coverage except to the extent required under Section 601 et seq. of ERISA and/or Code Section 4980(b), and neither the Company nor any Affiliate has any obligation to provide health or welfare benefits to any current or former employee following such employee's retirement or other termination from service. (viii) Except to the extent benefits are required to be provided pursuant to Section 601 of ERISA and/or Code Section 4980(b), the Company has the right to modify and/or terminate any and all benefits provided to retirees or otherwise terminated employees other than pensions with respect to both current and former employees. (ix) Neither the Seller, the Company nor any ERISA Affiliate thereof has any liability to the Internal Revenue Service with respect to any Employee Benefit Plan including, without limitation, any liability imposed by Chapter 43 of the Code. (x) All contributions and payments made or accrued to the Employee Benefit Plans are deductible under Code Section 162 or Section 404. No amount of any asset of any Employee Benefit Plan is subject to tax as unrelated business taxable income. (xi) No event has occurred or circumstances exist which could result in a material increase in premium cost of any Employee Benefit Plan that is insured or a material increase in benefit costs of such plans that are self-insured. (xii) Other than claims for benefits submitted by plan participants and/or beneficiaries, no claim against or legal proceeding involving any Employee Benefit Plan is pending or, to the Seller's Knowledge, threatened. (xiii) There does not now exist, nor do any circumstances exist, that could result in any control group liability that would be a Liability of the Buyer or the Company as a result of transactions contemplated by this Agreement. (xiv) No employee of the Company will become entitled to any retirement, severance or similar benefit or enhanced or accelerated benefits solely as a result of the transactions contemplated by this Agreement to the extent Buyer complies with its obligations hereunder. (d) The Seller has delivered or made available to the Buyer: (i) all documents that set forth the terms of each Employee Benefit Plan including (a) all plan descriptions and summary plan descriptions of such Employee Benefit Plans, and (b) all summaries and descriptions furnished to participants and beneficiaries regarding such Employee Benefit Plans; (ii) all personnel, payroll and employment manuals and policies; (iii) all registration statements filed with respect to any Employee Benefit Plan; (iv) a written description of each Employee Benefit Plan which is not otherwise in writing; (v) all insurance policies purchased by or to provide benefits under any Employee Benefit Plan; (vi) all contracts with third party administrators, actuaries, investment managers, consultants and other independent contractors that relate to any Employee Benefit Plan; (vii) all reports submitted within the four years preceding the date of this Agreement by third party administrators, actuaries, investment managers, consultants or other independent contractors with respect to any Employee Benefit Plan; (viii) the form(s) of notice provided to employees of their rights under ERISA Section 601 et seq. and Code Section 4980B; (ix) the Form 5500 filed in the most recent plan year with respect to each Employee Benefit Plan, including all schedules thereto and the opinions of independent accountants; (x) all notices that were given by the Company, any predecessor or any ERISA affiliate of the Company to the Internal Revenue Service, PBGC or any participant or beneficiary pursuant to statute within the four years preceding the date of this Agreement; (xi) all notices that were given by the Internal Revenue Service, or the Department of Labor to the Company within four years preceding the date of this Agreement; and (e) To the Seller's Knowledge, no statement, either written or oral, has been made by the Company to any person with regard to any Employee Benefit Plan that was not in accordance with the plan documents that could have a material adverse effect to the Company or to the Buyer. (f) Section 4.24 of the Disclosure Schedule identified each person who is currently receiving or entitled to receive continuing benefits under any health or other welfare benefit plan maintained by the Company or any ERISA Affiliate. IV.25 Guaranties. The Company is not a guarantor or otherwise liable for any Liability or obligation (including indebtedness) of any other Person. IV.26 Environment, Health, and Safety. (a) The Company and, to the Seller's Knowledge, the Company's predecessors and Affiliates have each complied with all Environmental, Health, and Safety Laws, and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand or notice has been filed or commenced against any of them alleging any failure so to comply, except where any non-compliance would not result in a material adverse effect on the Business, properties or condition (financial or otherwise) of the Company. Without limiting the generality of the foregoing, the Company and, to the Seller's Knowledge, the Company's predecessors and Affiliates have each been in compliance with all of the terms and conditions of all permits, licenses, and other authorizations which are required under, and have complied in all respects with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables which are contained in, all Environmental, Health, and Safety Laws, except where any non-compliance would not result in a material adverse effect on the Business, properties or condition (financial or otherwise) of the Company. (b) The Company has no Liability for damage to any real property or site, location or body of water (surface or subsurface), for any illness of or personal injury to any employee or other individual, or for any reason under any Environmental, Health, and Safety Law, except for matters that are not reasonably likely to result in any material adverse change in the Business, properties or condition (financial or otherwise) of the Company. The Seller has no Knowledge of any written notice to the effect that the Company or its predecessors and Affiliates have handled or disposed of any substance, arranged for the disposal of any substance, exposed any employee or other individual to any substance or condition, or owned or operated any property or facility in any manner that could form the basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against the Company giving rise to any Liability, except for matters that are not reasonably likely to result in any material adverse change in the Business, properties or condition (financial or otherwise) of the Company. (c) To the Knowledge of the Seller, all properties and equipment used in the Business of the Company have been free of asbestos, PCB's, methylene chloride, trichloroethylene, 1,2-trans-dichloroethylene, dioxins, dibenzofurans and other hazardous substances or wastes. (d) To the Knowledge of the Seller, the Company has always transferred or disposed of, or contracted or arranged for the transportation or disposal of, any hazardous or regulated waste, hazardous or regulated substance, infectious or medical waste, radioactive waste or sewage sludge in material compliance with all Environmental, Health, and Safety Laws. (e) The Company has never owned, leased or operated any underground storage tank containing petroleum products or wastes or other hazardous substances and regulated by 40 CFR 280 and/or other applicable federal, state or local Laws or requirements. (f) There are no reports, studies, analyses, tests or monitorings possessed or initiated by the Seller or the Company pertaining to hazardous or regulated materials or hazardous or regulated activities in, on, or under any facility ever owned, leased or operated at any time by the Company or concerning compliance by the Company or any other Person for whose conduct the Company is or may be held responsible, with Environmental, Health, and Safety Laws. IV.27 Certain Business Relationships with the Company. Except as set forth in Section 4.27 to the Disclosure Schedule, neither the Seller nor any of his Affiliates, owns directly or indirectly, any asset, tangible or intangible, or right which is used in the Business. Except for compensation and benefits accruing after November 30, 1999 in the Ordinary Course of Business (but not any bonuses payable to the Seller), the Company is not indebted, directly or indirectly, to any of its officers, directors or shareholders or to their Affiliates, in any amount whatsoever, and none of such officers, directors or shareholders, or any of their Affiliates, are indebted to the Company or have any direct or indirect ownership interest in any Person with which the Company is affiliated or with which the Company has a business relationship, or any Person which competes with the Company, and no officer, director or shareholder, or any of their Affiliates, is, directly or indirectly, interested in any contract, agreement, lease or arrangement pertaining to or relating to the Company, except for employment, consulting and other personal service agreements that may be in effect and which are referenced in Section 4.14 of the Disclosure Schedule, except with respect to a bank line of credit in favor of the Company which has been guaranteed by the Seller (the "Line of Credit"). The representation made in the immediately preceding sentence is limited such that David Sides shall not be included in the definition of "of