Document:

Exhibit 10.1

 

EXECUTION

 

Agreement

 

 

by and among

 

 

CGI HOLDING CORPORATION d/b/a THINK
PARTNERSHIP INC.,

 

LITMUS ACQUISITION SUB, INC.,

 

LITMUS MEDIA, INC.,

 

JOHN LINDEN

 

and

 

TOBIAS TEETER

 

 

Dated as of
February 17, 2006

 

 

	
  ARTICLE I
  DEFINITIONS

  	
  1

  
	
  ARTICLE II THE MERGER

  	
  11

  
	
  2.1

  	
  The Merger

  	
  11

  
	
  2.2

  	
  Effective
  Time

  	
  11

  
	
  2.3

  	
  Effect of
  the Merger

  	
  12

  
	
  2.4

  	
  Articles of
  Incorporation and Bylaws

  	
  12

  
	
  2.5

  	
  Directors
  and Officers.

  	
  12

  
	
  2.6

  	
  Effect on
  Litmus’s Capital Structure

  	
  12

  
	
  2.7

  	
  Options and
  Warrants

  	
  13

  
	
  2.8

  	
  Capital Structure
  of Litmus Acquisition Sub

  	
  13

  
	
  2.9

  	
  Taking of
  Necessary Action; Further Action.

  	
  13

  
	
  ARTICLE III RESTRICTIONS ON TRANSFER; REGISTRATION

  	
  14

  
	
  3.1

  	
  Restrictions
  on Transfer

  	
  14

  
	
  3.2

  	
  Registration

  	
  14

  
	
  ARTICLE IV REPRESENTATIONS AND WARRANTIES
  OF THE SHAREHOLDERS AND LITMUS

  	
  14

  
	
  4.1

  	
  Organization
  and Qualification

  	
  14

  
	
  4.2

  	
  Subsidiaries

  	
  14

  
	
  4.3

  	
  Articles of
  Incorporation, Bylaws and Corporate Records

  	
  14

  
	
  4.4

  	
  Authorization;
  Enforceability

  	
  15

  
	
  4.5

  	
  No Violation
  or Conflict

  	
  15

  
	
  4.6

  	
  Governmental
  Consents and Approvals

  	
  16

  
	
  4.7

  	
  Capital
  Structure

  	
  16

  
	
  4.8

  	
  Financial
  Statements

  	
  17

  
	
  4.9

  	
  Conduct in
  the Ordinary Course; Absence of Changes

  	
  17

  
	
  4.10

  	
  Real
  Property

  	
  17

  
	
  4.11

  	
  Personal
  Property

  	
  18

  
	
  4.12

  	
  Approval of
  Directors

  	
  19

  
	
  4.13

  	
  Insurance

  	
  19

  
	
  4.14

  	
  Permits

  	
  19

  
	
  4.15

  	
  Taxes

  	
  20

  
	
  4.16

  	
  Labor
  Matters

  	
  21

  
	
  4.17

  	
  Employees
  and Related Agreements; ERISA

  	
  23

  
	
  4.18

  	
  Environmental
  and Health/Safety Matters

  	
  24

  
	
  4.19

  	
  Certain
  Interests

  	
  27

  
	
  4.20

  	
  Litigation

  	
  27

  
	
  4.21

  	
  Intellectual
  Property and Web Sites

  	
  27

  
	
  4.22.

  	
  Adknowledge
  Release Agreement

  	
  28

  
	
  4.23

  	
  Receivables

  	
  28

  
	
  4.24

  	
  Residency;
  Investment Sophistication; Background

  	
  28

  
	
  4.25

  	
  Brokers

  	
  29

  
	
  4.26

  	
  Banks and
  Brokerage Accounts

  	
  29

  
	
  4.27

  	
  Indebtedness
  and Liabilities

  	
  29

  
	
  4.28

  	
  Contracts

  	
  30

  
	
  4.29

  	
  Spyware/Adware

  	
  31

  
	
  4.30

  	
  Material
  Information

  	
  31

  
	
  ARTICLE V REPRESENTATIONS AND WARRANTIES OF
  THK AND LITMUS ACQUISITION
  SUB

  	
  31

  
	
  5.1

  	
  Organization
  and Qualification

  	
  31

  
	
  5.2

  	
  Capital
  Structure

  	
  32

  
	
  5.3

  	
  Authorization;
  Enforceability

  	
  32

  
	
  5.4

  	
  No Violation
  or Conflict

  	
  33

  
	
  5.5

  	
  Governmental
  Consents and Approvals

  	
  33

  
	
  5.6

  	
  Litigation

  	
  33

  

 

i

 

	
  5.7

  	
  Interim
  Operations

  	
  33

  
	
  5.8

  	
  Brokers

  	
  33

  
	
  5.9

  	
  Material
  Information

  	
  33

  
	
  ARTICLE VI COVENANTS

  	
  34

  
	
  6.1

  	
  Performance

  	
  34

  
	
  6.2

  	
  Regulatory
  and Other Authorizations; Notices and Consents

  	
  34

  
	
  6.3

  	
  Notification

  	
  34

  
	
  6.4

  	
  Conduct of
  Business Pending Closing

  	
  35

  
	
  ARTICLE VII EMPLOYMENT MATTERS

  	
  36

  
	
  7.1

  	
  Current
  Employees

  	
  36

  
	
  7.2

  	
  Management
  of Surviving Corporation

  	
  36

  
	
  ARTICLE VIII EARNOUT

  	
  38

  
	
  8.1

  	
  Earnout

  	
  38

  
	
  8.2

  	
  Timing of
  Earnout Payments

  	
  39

  
	
  8.3

  	
  Calculation
  of Aggregate First Twelve Calendar Quarters Pre-Tax Earnings

  	
  40

  
	
  ARTICLE IX CONDITIONS PRECEDENT TO CLOSING

  	
  40

  
	
  9.1

  	
  Conditions
  Precedent to the Obligations of the Parties

  	
  40

  
	
  ARTICLE X INDEMNIFICATION

  	
  45

  
	
  10.1

  	
  Survival of
  Representations, Warranties and Covenants

  	
  45

  
	
  10.2

  	
  Indemnification

  	
  45

  
	
  10.3

  	
  Third Party
  Claim

  	
  46

  
	
  10.4

  	
  Set-Off

  	
  47

  
	
  10.5.

  	
  Limitations
  on Indemnity

  	
  47

  
	
  ARTICLE XI TERMINATION

  	
  48

  
	
  11.1

  	
  Termination

  	
  48

  
	
  11.2.

  	
  Effect of
  Termination

  	
  48

  
	
  ARTICLE XII TAX MATTERS

  	
  49

  
	
  12.1

  	
  Tax Returns

  	
  49

  
	
  12.2

  	
  Contest
  Provisions

  	
  50

  
	
  12.3

  	
  Assistance
  and Cooperation

  	
  50

  
	
  ARTICLE XIII MISCELLANEOUS

  	
  51

  
	
  13.1

  	
  Notices

  	
  51

  
	
  13.2

  	
  Entire Agreement

  	
  52

  
	
  13.3

  	
  Binding Effect

  	
  52

  
	
  13.4

  	
  Assignment

  	
  52

  
	
  13.5

  	
  Modifications and Amendments

  	
  52

  
	
  13.6

  	
  Waivers

  	
  52

  
	
  13.7

  	
  No Third Party Beneficiary

  	
  53

  
	
  13.8

  	
  Severability

  	
  53

  
	
  13.9

  	
  Publicity

  	
  53

  
	
  13.10

  	
  Governing Law

  	
  54

  
	
  13.11

  	
  Counterparts; Facsimile Signatures

  	
  54

  
	
  13.12

  	
  Headings

  	
  54

  
	
  13.13

  	
  Expenses

  	
  54

  
	
  13.14

  	
  Further Assurances

  	
  54

  
	
  13.15

  	
  Arbitration

  	
  54

  
	
  13.16

  	
  Incorporation by Reference

  	
  54

  

 

ii

 

EXHIBITS

 

	
  Exhibit A

  	
   

  	
  Articles of Merger

  
	
  Exhibit B-1

  	
   

  	
  Linden Employment Agreement

  
	
  Exhibit B-2

  	
   

  	
  Teeter Employment Agreement

  
	
  Exhibit C

  	
   

  	
  Registration Rights Agreement

  
	
  Exhibit D

  	
   

  	
  Warrant Agreement

  
	
  Exhibit E

  	
   

  	
  Set-Off Escrow Agreement

  

 

SCHEDULES

 

	
  Schedule 2.6

  	
   

  	
  Litmus Stock Ownership

  
	
  Schedule 4.1

  	
   

  	
  Litmus
  Organization & Qualification

  
	
  Schedule 4.2

  	
   

  	
  Litmus Subsidiaries Organization and
  Qualification

  
	
  Schedule 4.8

  	
   

  	
  Financial Statements

  
	
  Schedule 4.10(b)

  	
   

  	
  Leased Property

  
	
  Schedule 4.11(a)

  	
   

  	
  Tangible Personal Property

  
	
  Schedule 4.13

  	
   

  	
  Insurance

  
	
  Schedule 4.14

  	
   

  	
  Permits

  
	
  Schedule 4.15

  	
   

  	
  Taxes

  
	
  Schedule 4.17(a)

  	
   

  	
  Employees

  
	
  Schedule 4.18(h)

  	
   

  	
  Environmental and Health/Safety Matters

  
	
  Schedule 4.18(i)

  	
   

  	
  Business Assets Containing PCBs/Asbestos

  
	
  Schedule 4.18(j)

  	
   

  	
  Locations of Hazardous Substances

  
	
  Schedule 4.20

  	
   

  	
  Seller Litigation

  
	
  Schedule 4.25

  	
   

  	
  Brokers

  
	
  Schedule 4.26

  	
   

  	
  Cash on hand/Banks and Brokerage Accounts

  
	
  Schedule 4.28

  	
   

  	
  Contracts

  
	
  Schedule 5.1

  	
   

  	
  THK/Litmus Acquisition Sub Organization and
  Qualification

  
	
  Schedule 5.2(a)

  	
   

  	
  Capital Structure

  
	
  Schedule 5.2(b)

  	
   

  	
  Capital Contribution Obligations

  
	
  Schedule 5.5

  	
   

  	
  Governmental Consents and Approvals

  
	
  Schedule 5.6

  	
   

  	
  THK Litigation

  
	
  Schedule 5.9

  	
   

  	
  THK Material Information

  
	
  Schedule 6.5

  	
   

  	
  Pre Merger Employees

  
	
  Schedule 7.1

  	
   

  	
  Employee Salaries Letter

  
	
  Schedule 9.1(h)(9)

  	
   

  	
  Litmus Option Cancellation Agreement

  

 

iii

 

AGREEMENT

 

This Agreement
(“Agreement”) made and entered into as of February 17, 2006 by and among
CGI HOLDING CORPORATION, d/b/a THINK PARTNERSHIP INC., a Nevada corporation (“THK”),
LITMUS ACQUISITION SUB, INC., a Missouri corporation and wholly owned
subsidiary of THK (“Litmus Acquisition Sub”), LITMUS MEDIA, INC., a
Missouri corporation (“Litmus”), and JOHN LINDEN (“Linden”) and
TOBIAS TEETER (“Teeter”), two of the shareholders of Litmus
(individually, a “Shareholder” and collectively the “Shareholders”).  THK, Litmus Acquisition Sub, Litmus and the
Shareholders are sometimes referred to herein each, individually, as a “Party”
and, collectively, as the “Parties”.

 

WITNESSETH:

 

WHEREAS,
Litmus and its Subsidiaries are engaged in the business of offering integrated
solutions for performance-based advertising, search marketing, and e-retailing
industries (collectively, the “Business”); and

 

WHEREAS, the
Board of Directors of THK and the Boards of Directors and shareholders (to the
extent required) of Litmus Acquisition Sub and Litmus have each approved this
Agreement and the Merger, in accordance with the laws of their respective
States of incorporation, and the terms and conditions set forth herein.

 

NOW,
THEREFORE, in consideration of the premises and the mutual covenants,
representations and warranties herein contained, and for other good and
valuable consideration, the receipt, adequacy and legal sufficiency of which
are hereby mutually acknowledged, intending to be legally bound, the Parties
hereby agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

In addition to
terms defined elsewhere in this Agreement, the following terms when used in
this Agreement shall have the respective meanings set forth below:

 

“2005
Pre-Tax Earnings” means the aggregate pre-tax earnings of the Business
during calendar year 2005 as certified by the THK Accountants.

 

“Aboveground
Storage Tanks” has the meaning given in Section 6901 et seq., as amended,
of RCRA, or any applicable state or local statute, law, ordinance, code, rule,
Regulation, order ruling, or decree governing Aboveground Storage Tanks or
Underground Storage Tanks.

 

“Action”
means any claim, demand, action, cause of action, chose in action, right of
recovery, right of set-off, suit, arbitration, inquiry, proceeding or
investigation by or before any Governmental Authority of which a Party has
notice.

 

1

 

“Adknowledge
Release Agreement” means the General Mutual Release Agreement and Covenant
Not to Sue dated October 27, 2005 among Adknowledge, Inc. (“Adknowledge”),
Scott W. Lynn (“Lynn”), the Shareholders, the Non-Party Shareholders and
Melissa Linden.

 

“Adware”
means a software application that resides on the user’s computer which displays
advertisements while the program is running without the user’s authorization.

 

“Affiliate”
means, with respect to a specified Person, any other Person that, directly or
indirectly through one or more intermediaries, controls, is controlled by or is
under common control with such Person, and without limiting the generality of
the foregoing, includes, with respect to the specified Person: (a) any other Person
which beneficially owns or holds 10% or
more of the outstanding voting securities or other securities convertible into
voting securities of such Person, (b) any other Person of which the specified
Person beneficially owns or holds 10% or more of the outstanding voting
securities or other securities convertible into voting securities, or (c) any
director, officer or employee of such Person.

 

“Aggregate
First Twelve Calendar Quarters Pre-Tax Earnings” means the aggregate
pre-tax earnings of the Business during the First Twelve Calendar Quarters, as
calculated and certified by the THK Accountants pursuant to Article VIII.

 

“Agreement”
is defined in the recitals to this Agreement.

 

“Approved
Liabilities” is defined in Section 4.27.

 

“Articles
of Merger” is defined in Section 2.2.

 

“Audited
Closing Date Balance Sheet” means the consolidated balance sheet of Litmus
and its Subsidiaries as of the Closing Date, as audited by the THK Accountants.

 

“Audited
Financials” is defined in Section 4.8.

 

“Business”
is defined in the recitals to this Agreement.

 

“Business
Assets” is defined in Section 4.18(a).

 

“Business
Day” means any day other than a Saturday, Sunday or other day on which
banks are required or authorized to be closed in the city of Chicago, Illinois.

 

“Cash
Consideration” is defined in Section 2.6.

 

“CERCLA”
has the meaning given in the Environmental Law definition.

 

“Claims of
Any Nature” is defined in Section 4.27.

 

“Closing”
shall mean the delivery of the documents referred to in Article IX and filing of
the documents referred to in Article II.

 

2

 

“Closing
Date” shall mean the day on which the Closing takes place.  The Closing shall be held at the offices of
Litmus or Shughart Thomson & Kilroy, P.C., 120 W. 12th Street, Suite 1600,
Kansas City, Missouri 64105, unless another place is agreed to in writing by
the Parties.

 

“Code”
shall mean the Internal Revenue Code of 1986, as amended.

 

“Company
Financials” is defined in Section 4.8.

 

“Contract”
means any contract, plan, undertaking, understanding, agreement, license,
lease, note, mortgage or other binding commitment, whether written or oral.

 

“Copyrights”
mean all U.S. copyrights (registered or otherwise) and registrations and
applications for registration thereof, and all rights therein provided by
multinational treaties or conventions.

 

“Court”
means any court or arbitration tribunal of the United States, any domestic
state, or any foreign country, and any political subdivision thereof.

 

“Database”
means all data and other information recorded, stored, transmitted and
retrieved in electronic form.

 

“DePrenger”
means Dylan DePrenger, an individual and one of the shareholders of Litmus.

 

“Documents”
means this Agreement together with the Articles of Merger, the Schedules and
Exhibits hereto, the Litmus Disclosure Schedule, and the other agreements,
documents and instruments required or contemplated to be executed in connection
herewith.

 

“Earnout
Payments” is defined in Section 8.1.

 

“Effective
Time” is defined in Section 2.2.

 

“Employee
Agreement” means each management, employment, bonus, loan or other
extension of credit, change in control, retention, severance, consulting,
non-compete, confidentiality, or similar agreement or contract any part of
which is in effect on the date of this Agreement or the Closing Date between
Litmus or any of its Subsidiaries and any employee pursuant to which Litmus or
such Subsidiary (i) provides annual compensation in excess of $50,000 or (ii)
is obligated to provide any severance benefit or annual payment in excess of
$25,000 following the Closing Date.

 

“Employee
Plans” means all employee benefit plans (as defined in Section 3(3) of
ERISA) and all bonus, stock or other security option, stock or other security
purchase, stock or other security appreciation rights, incentive, deferred
compensation, retirement or supplemental retirement, severance, golden
parachute, vacation, cafeteria, dependent care, medical care, employee
assistance program, education or tuition assistance programs, insurance and
other similar fringe or employee benefit plans, programs or arrangements, and
any current or former 

 

3

 

employment or executive
compensation or severance agreements, written or otherwise, which have ever
been sponsored or maintained or entered into for the benefit of, or relating
to, any present or former employee or director of Litmus or any of its
Subsidiaries, or any trade or business (whether or not incorporated) which is a
member of a controlled group or which is under common control with Litmus or
any of its Subsidiaries, within the meaning of Section 414 of the Code (an “ERISA
Affiliate”), whether or not such plan is terminated.

 

“Employee
Salaries Letter” is defined in Section 4.16(a).

 

“Environmental
Law” means, as enacted and in effect on or prior to the Closing Date, all
federal, state, regional or local statutes, laws, rules, regulations, codes,
orders, plans, injunctions, decrees, rulings, and changes or ordinances or
judicial or administrative interpretations thereof, any of which govern (or
purport to govern) or relate to pollution, protection of the environment,
public health and safety, air emissions, water discharges, hazardous or toxic
substances, solid or hazardous waste or occupational health and safety, as any
of these terms are or may be defined in such statutes, laws, rules,
regulations, codes, or ordinances, or judicial or administrative
interpretations thereof, including, without limitation, the United States Department
of Transportation Table (49 C.F.R. 172, 101) the Environmental Protection
Agency regulation 40 C.F.R. Part 302 and any amendments thereto; the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended by the Superfund Amendment and Reauthorization Act of 1986 (“SARA”)
and by subsequent amendments, 42 U.S.C. §9601, et seq. (hereinafter,
collectively, “CERCLA”); the Solid Waste Disposal Act, as amended by the
Resource Conversation and Recovery Act of 1976 and subsequent Hazardous and
Solid Waste Amendments of 1984, 42 U.S.C. §6901 et seq. (hereinafter,
collectively “RCRA”); the Hazardous Materials Transportation Act, as
amended, 49 U.S.C. §1801, et seq.; the Federal Water Pollution Control Act, as
amended, 33 U.S.C. §1311, et seq.; the Clean Air Act, as amended, 42 U.S.C.
§7401 7642; the Toxic Substances Control Act, as amended, 15 U.S.C. §2601 et
seq.; the Federal Insecticide, Fungicide, and Rodenticide Act, as amended, 7
U.S.C. §136 136y; the Emergency Planning and Community Right to Know Act of
1986, as amended, 42 U.S.C. §11001, et seq. (Title III of SARA); the
Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. §651, et seq.
(“OSHA”).

 

“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended.

 

“First
Twelve Quarters” means the period following the Closing Date and ending
twelve (12) full calendar quarters following the Closing Date.

 

“GAAP”
means United States generally accepted accounting principles and practices in
effect from time to time consistently applied.

 

“General
Claims” is defined in Section 10.1(a).

 

“Governmental
Authority” means any governmental or legislative agency or authority (other
than a Court) of the United States, any domestic state, or any foreign country,
and any political subdivision or agency thereof, and includes any authority
having governmental or quasi-governmental powers, including any administrative
agency or commission.

 

4

 

“Hardware”
means all mainframes, midrange computers, personal computers, notebooks,
servers, switches, printers, modems, drives, peripherals and any component of
any of the foregoing.

 

“Hazardous
Substance” means any Hazardous Substance, as defined in CERCLA, and any
other chemical, compound, product, solid, gas, liquid, pollutant, contaminant
or material which is regulated under any Environmental Law, and includes
without limitation, asbestos or any substance containing asbestos,
polychlorinated biphenyls and petroleum (including crude oil or any fraction
thereof).

 

“Indebtedness”
means, with respect to any Person, (a) all indebtedness of such Person, whether
or not contingent, for borrowed money, (b) all obligations of such Person for
the deferred purchase price of property or services, (c) all obligations of
such Person evidenced by notes, bonds, debentures or other similar instruments,
(d) all indebtedness created or arising under any conditional sale or other
title retention agreement with respect to property acquired by such Person
(even though the rights and remedies of a creditor or a lender under such an
agreement in the event of default are limited to repossession or sale of such
property), (e) all obligations of such Person as lessee under leases that have
been or should be, in accordance with GAAP, recorded as capital leases, (f) all
obligations, contingent or otherwise, of such Person under trade acceptance,
letter of credit or similar facilities, (g) all obligations of such Person to
purchase, redeem, retire, defease or otherwise acquire for value any capital
stock of such Person or any warrants, rights or options to acquire such capital
stock, valued, in the case of redeemable preferred stock, at the greater of its
voluntary or involuntary liquidation preference plus accrued and unpaid
dividends, (h) all Indebtedness of others referred to in clauses (a) through
(g) above guaranteed directly or indirectly in any manner by such Person, or in
effect guaranteed directly or indirectly by such Person through an agreement
(1) to pay or purchase such Indebtedness or to advance or supply funds for the
payment or purchase of such Indebtedness, (2) to purchase, sell or lease (as
lessee or lessor) property, or to purchase or sell services, primarily for the
purpose of enabling the debtor to pay the Indebtedness or to assure the holder
of such Indebtedness against loss, (3) to supply funds to or in any other
manner invest in the debtor (including any agreement to pay for property or
services irrespective of whether such property is received or such services are
rendered) or (4) otherwise to assure a creditor against loss and all
Indebtedness referred to in clauses (a) through (g) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on property (including, without
limitation, accounts and contract rights) owned by such Person, even though
such Person has not assumed or become liable for the payment of such
Indebtedness.

 

“Information
System” means any combination of Hardware, Software and/or Database(s)
employed primarily for the creation, manipulation, storage, retrieval, display
and use of information in electronic form or media.

 

“Intellectual
Property” means (a) inventions, whether or not patentable, whether or not reduced
to practice or whether or not yet made the subject of a pending Patent
application or applications, (b) ideas and conceptions of potentially
patentable subject matter, including, without limitation, any patent
disclosures, whether or not reduced to practice and whether or not yet made the
subject of a pending Patent application or applications, (c) Patents, (d)
Trademarks, 

 

5

 

(e) Copyrights, (f) Software,
(g) trade secrets and confidential, technical or business information
(including ideas, formulas, compositions, inventions, and conceptions of
inventions whether patentable or unpatentable and whether or not reduced to
practice), (h) whether or not confidential, technology (including know-how and
show-how), manufacturing and production processes and techniques, research and
development information, drawings, specifications, designs, plans, proposals,
technical data, copyrightable works, financial, marketing and business data,
Databases, Information Systems, pricing and cost information, business and
marketing plans and customer and supplier lists and information, (i) copies and
tangible embodiments of all the foregoing, in whatever form or medium, (j) all
rights to obtain and rights to apply for Patents, and to register Trademarks
and Copyrights, (k) all rights under any license agreement and any license,
registered user agreement, technology or material, transfer agreement, and
other agreements or instruments with respect to items in (a) to (j) above; and
(l) all rights to sue and recover and retain damages and costs and attorneys’
fees for present and past infringement of any of the Intellectual Property
rights hereinabove set out.

 

“IRS”
shall mean the United States Internal Revenue Service.

 

“Knowledge”
means (a) in the case of an individual, knowledge of a particular fact or other
matter if such individual is actually aware of such fact or other matter, and
(b) in the case of a Person (other than an individual), such Person will be
deemed to have Knowledge of a particular fact or other matter if any individual
who is serving, or has at any time served, as a director, manager, officer,
partner, executor, or trustee of such Person (or in any similar capacity) has,
or at any time had, actual knowledge of such fact or other matter.

 

“Law”
means all laws, statutes,
ordinances and Regulations of any Governmental Authority including all
decisions of Courts having the effect of law in each such jurisdiction.

 

“Leased
Property” means any real property leased by Litmus or its Subsidiaries as
tenant, together with, to the extent leased by Litmus or its Subsidiaries all
buildings and other structures, facilities or improvements currently or
hereafter located thereon, all fixtures, systems, equipment and items of personal
property of Litmus or any of its Subsidiaries attached or appurtenant thereto,
and all easements, licenses, rights and appurtenances relating to the
foregoing.

 

“Leases”
is defined in Section 4.10(d).

 

“Liabilities”
means any and all debts, liabilities and obligations, whether accrued or fixed,
absolute or contingent, matured or unmatured or determined or determinable,
including, without limitation, those arising under any Law (including, without
limitation, any Environmental Law), Action or Order, liabilities for Taxes and
those liabilities arising under any Contract.

 

“Liens”
means any mortgage, pledge, security interest, attachment, encumbrance, lien
(statutory or otherwise), option, conditional sale agreement, right of first
refusal, first offer, termination, participation or purchase, or charge of any
kind (including any agreement to grant any of the foregoing), provided,
however, that the term “Lien” shall not include: (a) liens for
Taxes, assessments and charges any Governmental Authority due and being
contested in good 

 

6

 

faith and diligently by
appropriate proceedings (and for the payment of which adequate provision has
been made); (b) servitudes, easements, restrictions, rights-of-way and other similar
rights in real property or any interest therein granted to any third party; (c)
liens for Taxes either not due and payable or due but for which notice of
assessments has not been given; (d) undetermined or inchoate liens, charges and
privileges incidental to current construction or current operations and
statutory liens, charges, adverse claims, security interests or encumbrances of
any nature whatsoever claimed or held by any Governmental Authority which have
not at the time been filed or registered against the title to the asset or
served upon Litmus pursuant to Law or which relate to obligations not due or
delinquent; (e) assignments of insurance provided to third party landlords (or
their mortgagees) pursuant to the terms of any lease, and liens or rights
reserved in any lease for rent or for compliance with the terms of such lease;
(f) liens granted in the ordinary course of the Business, as applicable, to any
public utility, municipality or Government Authority in connection with the
operations of the Business, as applicable, other than liens granted for
borrowed money; (g) deposits or pledges made in connection with, or to secure
payment of, workers’ compensation, unemployment insurance, old age pension or
other social security programs mandated under applicable Laws; and (h)
restrictions on transfer of securities imposed by applicable state and federal
securities Laws.

 

“Linden”
is defined in the preamble to this Agreement.

 

“Linden
Employment Agreement” is defined in Section 9.1(h).

 

“Litigation”
means any suit, action, arbitration, cause of action, claim, complaint,
criminal prosecution, investigation, inquiry, demand letter, governmental or
other administrative proceeding, whether at law or at equity, before or by any
Court, Governmental Authority, arbitrator or other tribunal.

 

“Litmus”
is defined in the preamble to this Agreement.

 

“Litmus
Acquisition Sub” is defined in the preamble to this Agreement.

 

“Litmus
Certificates” is defined in Section 2.6.

 

“Litmus
Common Stock” is defined in Section 2.6.

 

“Litmus
Surviving Company” is defined in Section 2.1.

 

“Loss”
and “Losses” are defined in Section 10.2(a).

 

“Material
Adverse Effect” means when used in connection with a Person, any
circumstance, change, effect, event or occurrence that has or is reasonably
likely to have, individually or in the aggregate: (a) a materially adverse
impact to the business, operations, assets or Liabilities (including, without
limitation, contingent Liabilities), employee relationships, customer or
supplier relationships, results of operations or the condition (financial or
otherwise) of the Person, or (b) a materially adversely affect on the ability
of the Person to operate or conduct its business in the manner in which it is
currently operated or conducted.

 

7

 

“McReynolds”
means Jeff McReynolds, an individual and a shareholder of Litmus.

 

“Merger”
means the merger of Litmus Acquisition Sub with and into Litmus.

 

“Merger
Consideration” is defined in Section 2.6.

 

“Non-Party
Shareholders” means DePrenger and McReynolds.

 

“Option
Cancellation Agreement” means the agreement set forth on Schedule
9.1(h)(9) hereto.

 

“Order”
shall mean any judgment, order, writ, injunction, ruling, stipulation,
determination, award or decree of or by, or any settlement under the
jurisdiction of, any Court or Governmental Authority.

 

“Party”
or “Parties” is defined in the recitals to this Agreement.

 

“Patents”
mean all national (including the United States) and multinational statutory
invention registrations, patents, patent registrations and patent applications,
including all reissues, divisions, continuations, continuations-in-part,
extensions and reexaminations, and all rights therein provided by multinational
treaties or conventions and all improvements to the inventions disclosed in
each such registration, patent or application.

 

“Permits”
means any licenses, permits, pending applications, consents, certificates,
registrations, approvals and authorizations from a Governmental Authority.

 

“Person”
means any natural person, corporation, limited liability company,
unincorporated organization, partnership, association, joint stock company,
joint venture, trust or any other entity.

 

“RCRA”
has the meaning given in the Environmental Law definition.

 

“Real
Property” means the Leased Property.

 

“Receivables”
means any and all accounts receivable, notes, book debts and other amounts due
or accruing due to a Person, whether or not in the ordinary course of its
business, together with any unpaid financing charges accrued thereon.

 

“Registration
Rights Agreement” is defined in Section 9.1(h).

 

“Regulation”
means any rule or regulation of any Governmental Authority.

 

“Release”
means any release, spill, emission, leak, pumping, injection, deposit,
disposal, discharge, dispersal, leaching or migration (as such terms are used
or defined in the Environmental Laws) of a Hazardous Substance into the indoor
or outdoor environment or into 

 

8

 

or out of any property, including
the movement of Hazardous Substances through or in the air, soil, surface
water, groundwater or property.

 

“SEC”
means the United States Securities and Exchange Commission.

 

“Second
Bite” means Second Bite LLC, a Kansas limited liability company and a
wholly-owned Subsidiary of Litmus.

 

“Second
Bite LLC Interests” is defined in Section 4.7(b).

 

“Section
4.22 Claims” is defined in Section 10.1(a).

 

“Securities
Act” means the Securities Act of 1933, as amended from time to time.

 

“Set-Off”
is defined in Section 10.4.

 

“Set-Off
Escrow Agreement” is defined in Section 10.4.

 

“Shareholder”
and “Shareholders” are defined in the preamble to this Agreement

 

“Shareholder
Warrant Agreements” is defined in Section 9.1(i).

 

“Shareholders
Employment Agreement” is defined in Section 9.1(h).

 

“Software”
means any and all (a) computer programs, including any and all software
implementations of algorithms, models and methodologies, whether in source code
or object code, (b) Databases and compilations, including any and all data and
collections of data, whether machine readable or otherwise, (c) descriptions,
flow-charts and other work product used to design, plan, organize and develop
any of the foregoing, (d) the technology supporting any Internet site(s)
operated by or on behalf of the Person and (e) all documentation, including
user manuals and training materials, relating to any of the foregoing.

 

“Spyware”
means a software application that resides on the user’s computer containing
code that tracks a user’s personally identifiable information and passes it on
to third parties without the user’s authorization.

 

“Stock
Consideration” is defined in Section 2.6.

 

“Straddle
Period” means any taxable period that includes (but does not end on) the
Closing Date.

 

“Subsidiary”
or “Subsidiaries” of a specified Person means any other Person in which
such Person owns, directly or indirectly, more than 50% of the outstanding
voting securities or other securities convertible into voting securities, or
which may effectively be controlled, directly or indirectly, by such Person.

 

9

 

“Tangible
Personal Property” is defined in Section 4.11(a).

 

“Tax”
or “Taxes” means any and all federal, state, local, or foreign taxes,
fees, levies, duties, tariffs, imposts, and other charges of any kind (together
with any and all interest, penalties, additions to tax and additional amounts
imposed with respect thereto) imposed by any Governmental Authority or other
taxing authority, including, without limitation: taxes or other charges on or
with respect to income, franchises, windfall or other profits, gross receipts,
property, sales, use, capital stock, payroll, employment, disability, social
security, workers’ compensation, unemployment compensation, or net worth; taxes
or other charges in the nature of excise, withholding, ad valorem, stamp,
transfer, value added, or gains taxes; license, registration and documentation
fees; and customs’ duties, tariffs, and similar charges, whether computed on a
separate or consolidated, unitary or combined basis or in any other manner,
whether disputed or not and including any obligation to indemnify or otherwise
assume or succeed to the Tax liability of any other Person, together with any
interest or penalty, addition to tax or additional amount imposed by any
Governmental Authority.

 

“Tax Claims”
is defined in Section 10.1(a).

 

“Tax
Returns” means returns, reports and information statements, including any
schedule or attachment thereto, with respect to Taxes required to be filed with
the IRS or any other Governmental Authority or other taxing authority or
agency, domestic or foreign, including consolidated, combined and unitary tax
returns.

 

“Teeter”
is defined in the preamble to this Agreement.

 

“Teeter
Employment Agreement” is defined in Section 9.1(h).

 

“THK”
is defined in the preamble to this Agreement.

 

“THK
Accountants” means THK’s independent certified public accountants, which
initially shall be Blackman Kallick Bartelstein, LLP.

 

“THK Common
Stock” means the Common Stock, $.001 par value per share, of THK.

 

“THK
General Claims” is defined in Section 10.1(b).

 

“THK
Indemnitees” is defined in Section 10.2(a).

 

“THK
Preferred Stock” is defined in Section 5.2(a).

 

“THK Three
Year Claims” is defined in Section 10.1(b).

 

“Three Year
Claims” is defined in Section 10.1(a).

 

“Trademarks”
mean all trademarks, service marks, trade dress, logos, trade names and
corporate names, whether or not registered, including all common law rights,
and registrations 

 

10

 

and applications for
registration thereof, including, but not limited to, all marks registered in
the United States Patent and Trademark Office, the Trademark Offices of the
States and Territories of the United States of America, and the Trademark
Offices of other nations throughout the world, and all rights therein provided
by multinational treaties or conventions.

 

“Unapproved
Liabilities” is defined in Section 10.2(a).

 

“Underground
Storage Tanks” has the meaning given in Section 6901 et seq., as amended,
of RCRA, or any applicable state or local statute, law, ordinance, code, rule,
Regulation, order ruling, or decree governing Aboveground Storage Tanks or
Underground Storage Tanks.

 

“ValidClick”
means ValidClick, Inc., a Missouri corporation and a wholly-owned Subsidiary of
Litmus.

 

“ValidClick
Stock” is defined in Section 4.7(b).

 

“Web Sites”
means all web sites, domain names, and associated internet properties, rights,
titles and interests in any way directly or indirectly used in or associated
with the Business.

 

ARTICLE II

 

THE MERGER

 

2.1           The
Merger.  At the Effective Time, in
accordance with the laws of the State of Missouri and the terms and conditions
of the Documents, Litmus Acquisition Sub shall be merged with and into
Litmus.  From and after the Effective
Time, the separate corporate existence of Litmus Acquisition Sub shall cease
and Litmus, as the surviving corporation in the Merger, shall continue its
existence under the laws of the State of Missouri as a wholly owned subsidiary
of THK.  Litmus, as the surviving
corporation after the Merger, is hereinafter sometimes referred to as the “Litmus
Surviving Company”.

 

2.2           Effective
Time.  Subject to the provisions of
this Agreement, on the Closing Date or as soon thereafter as is practicable,
the Parties shall cause the Merger to become effective by executing and filing
with the Secretary of State of the State of Missouri in accordance with RSMo
§ 351.435 Articles of Merger in the respective form required pursuant to RSMo
§ 351.430, which form shall be prepared by counsel to Litmus and THK, and
attached hereto as Exhibit A and made a part hereof (the “Articles of
Merger”), 12:01 a.m. on the date of such filing, or such later date and
time as may be agreed upon by the Parties and specified therein, being
hereinafter referred to as the “Effective Time”.  The Parties hereto shall take all necessary
steps to pre-clear the Merger with the Secretary of State of the State of
Missouri in order that on the Closing Date, the Articles of Merger may be filed
with the Secretary of State of the State of Missouri and become effective upon
filing.

 

11

 

2.3           Effect
of the Merger.  At the Effective
Time, the Merger shall have the effect set forth in the Documents and in the
applicable provisions of law.  Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time all of the assets, properties, rights, privileges, immunities, powers and
franchises of Litmus and Litmus Acquisition Sub shall vest in the Litmus
Surviving Company, and all of the debts, liabilities and duties of Litmus and
Litmus Acquisition Sub shall become the debts, liabilities and duties of the
Litmus Surviving Company.

 

2.4           Articles
of Incorporation and Bylaws.  From
and after the Effective Time and without further action on the part of the
Parties, the Articles of Incorporation and Bylaws of Litmus Acquisition Sub
immediately prior to the Effective Time shall be the Articles of Incorporation
and Bylaws of Litmus Surviving Company until amended in accordance with the
respective terms thereof.

 

2.5           Directors
and Officers.  The directors of
Litmus Surviving Company immediately following the Effective Time shall consist
of Linden and Teeter and three (3) or more persons designated by THK and the
officers of Litmus Surviving Company immediately prior to the Effective Time
shall be the officers immediately following the Effective Time, it being
expressly agreed that (a) Linden shall be the President of Litmus Surviving
Company and shall report to the President and the Chief Operating Officer of
THK as described more fully in the Linden Employment Agreement, and (b) Teeter
shall be a Vice President of Business Development and General Counsel of Litmus
Surviving Company and shall report to the President of Litmus Surviving Company
as described more fully in the Teeter Employment Agreement.  Both Linden and Teeter shall hold office in
accordance with their respective Shareholder Employment Agreement and the Articles
of Incorporation and Bylaws of Litmus Surviving Company, in each case, until
their respective successors are duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with their
respective Shareholder Employment Agreement and the Litmus Surviving Company’s
Articles of Incorporation and Bylaws.

 

2.6           Effect
on Litmus’s Capital Structure.  (a)
At the Effective Time, by virtue of the Merger and without any action on the
part of the Parties or the holders of any securities of Litmus, all of issued
and outstanding shares of common stock of Litmus immediately prior to the
Effective Time (“Litmus Common Stock”) shall be converted automatically
into the right to receive the sum of the Cash Consideration (as defined below)
and the Stock Consideration (as defined below) (which shall be referred to
collectively as the “Merger Consideration”).  For purposes of this Agreement, (i) the “Cash
Consideration” shall be the sum of the Initial Cash Consideration (as
defined below) and the Deferred Cash Consideration, if any (as defined and
calculated pursuant to Article VIII), and (ii) the “Stock Consideration”
shall be the sum of the Initial Stock Consideration (as defined below) and the
Deferred Stock Consideration, if any (as defined and calculated pursuant to
Article VIII).  The “Initial Cash
Consideration” shall be Six Million Five Hundred Thousand Dollars
($6,500,000) and the “Initial Stock Consideration” shall be Three
Million One Hundred Seventy Thousand Seven Hundred Thirty Two (3,170,732) shares
of THK Common Stock.

 

12

 

(b)           From and after the
Effective Time, all Litmus Common Stock shall automatically be redeemed and
canceled and shall cease to exist, and each holder of a certificate that
previously represented any such Litmus Common Stock (collectively, the “Litmus
Certificates”) shall cease to have any rights with respect thereto other
than the right to receive their pro rata portion of the Merger Consideration in
proportion to their stock ownership of Litmus as set forth in Schedule 2.6.  Unless the Shareholders and the Non-Party
Shareholders agree otherwise among themselves and so instruct THK in writing
signed by each of the Shareholders and the Non-Party Shareholders, each
Shareholder and Non-Party Shareholder shall receive its pro rata portion of the
Cash Consideration and its pro rata portion of the Stock Consideration upon
each distribution of Merger Consideration in proportion to their stock
ownership of Litmus as set forth in Schedule 2.6.  On the Closing Date, the Initial Cash
Consideration and Initial Stock Consideration shall be distributed to the
Shareholders and the Non-Party Shareholders of record on the Closing Date in
proportion to their stock ownership of Litmus as set forth in Schedule 2.6.

 

(c)           The foregoing Merger
Consideration shall be deemed to have been issued in full satisfaction of all
rights pertaining to the Litmus Common Stock, and after the Effective Time,
there shall be no further registration or transfers of Litmus Common
Stock.  If, after the Effective Time, any
Litmus Certificates are presented to Litmus Surviving Company for any reason,
they shall be cancelled and exchanged as provided in this Section 2.6. If any
Litmus Certificates representing Litmus Common Stock shall have been lost,
stolen or destroyed, THK shall issue in exchange for such lost, stolen or
destroyed certificates, upon the making of an affidavit of that fact by the
holder thereof, the applicable portion of the Merger Consideration.

 

2.7           Options
and Warrants.  Prior to the Effective
Time, Litmus and/or the Shareholders, at the sole expense of Litmus and/or the
Shareholders, shall take all actions necessary to cause all options, warrants
and other contractual or other rights to purchase or otherwise acquire or
convert into Litmus Common Stock, if any, to be converted into Litmus Common
Stock, or be cancelled, extinguished and terminated.

 

2.8           Capital
Structure of Litmus Acquisition Sub. 
Each share of common stock of Litmus Acquisition Sub issued and
outstanding immediately prior to the Effective Time shall be converted
automatically into a share of common stock of Litmus Surviving Company.  From and after the Effective Time, each certificate
of Litmus Acquisition Sub that previously represented a share of common stock
in Litmus Acquisition Sub shall evidence ownership of an equal share of common
stock of Litmus Surviving Company.

 

2.9           Taking
of Necessary Action; Further Action. 
If, at any time and from time to time after the Effective Time, any
further action is necessary or desirable to carry out the purposes of this
Agreement and to vest in the Litmus Surviving Company full right, title and
possession of all properties, assets, rights, privileges, powers and franchises
of Litmus and Litmus Acquisition Sub, the officers and directors of Litmus and
the Litmus Surviving Company shall be and are fully authorized and directed, in
the name of and on behalf of their respective companies, to take, or cause to
be taken, all such lawful and necessary action as is not inconsistent with this
Agreement.  THK shall cause Litmus
Acquisition Sub to perform all of its obligations relating to this Agreement
and the transactions contemplated hereby.

 

13

 

ARTICLE III

 

RESTRICTIONS ON TRANSFER; REGISTRATION

 

3.1           Restrictions on
Transfer.  All certificates
representing THK Common Stock issued pursuant to this Agreement shall bear a
legend stating that the THK Common Stock has not been registered under the
Securities Act, and may not be transferred or sold without such registration or
an exemption therefrom.

 

3.2           Registration.  At the Closing, THK and the Shareholders and
the Non-Party Shareholders shall enter into the Registration Rights Agreement.

 

ARTICLE IV

 

REPRESENTATIONS
AND WARRANTIES OF

THE SHAREHOLDERS AND LITMUS

 

In order to induce THK and Litmus Acquisition Sub to enter into this
Agreement and to consummate the transactions contemplated hereby, the
Shareholders and Litmus hereby jointly and severally represent and warrant to
each of THK and Litmus Acquisition Sub as follows:

 

4.1           Organization and
Qualification.  Litmus is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Missouri, with full corporate power and authority to own,
lease and operate its properties and to conduct its business as now conducted
except where failure to be so organized, existing and in good standing would
not reasonably be expected to have a Material Adverse Effect on Litmus, and is
duly licensed or qualified to transact business as a foreign corporation and is
in good standing in each of the jurisdictions listed on Schedule 4.1,
which are the only jurisdictions in which the failure to be so licensed or
qualified could have a Material Adverse Effect on Litmus.

 

4.2           Subsidiaries.  Litmus does not have any Subsidiaries other
than ValidClick and Second Bite and does not own, directly or indirectly, any
equity or other ownership interests of any other Person.  Each of ValidClick and Second Bite is a
corporation or limited liability company, duly organized, validly existing and
in good standing under the laws of the State of its formation, with full
corporate or other power and authority to own, lease and operate its properties
and to conduct its business as now conducted except where failure to be so
organized, existing and in good standing would not reasonably be expected to
have a Material Adverse Effect on ValidClick or Second Bite, respectively, and
is duly licensed or qualified to transact business as a foreign corporation or
entity and is in good standing in each of the jurisdictions listed on Schedule
4.2, which are the only jurisdictions in which the failure to be so
licensed or qualified could have a Material Adverse Effect on ValidClick or
Second Bite, respectively.

 

4.3           Articles of
Incorporation, Bylaws and Corporate Records.  True, correct and complete copies of each of
(a) the Articles of Incorporation of Litmus and ValidClick and the operating
agreement of Second Bite as amended and in effect on the date hereof, (b) the
Bylaws of Litmus and ValidClick as amended and in effect on the date hereof and
(c) the minute books of Litmus, ValidClick and Second Bite have been previously
made available to THK and Litmus 

 

14

 

Acquisition
Sub.  The minute books contain complete
and accurate records of all meetings and other actions of the directors,
committees of the directors, managers, committees of managers organizers,
shareholders and members of Litmus, ValidClick and Second Bite from the date of
their incorporation or formation to the date hereof.

 

4.4           Authorization;
Enforceability.  Litmus has the
corporate power and authority to own, hold, lease and operate its properties
and assets, to carry on its business as currently conducted and to execute,
deliver and perform its obligations under this Agreement and the other
Documents to which it is a party.  The
execution, delivery and performance of this Agreement and the other Documents
to which Litmus is a party and the consummation of the transactions
contemplated herein and therein have been duly authorized and approved by the
directors of Litmus and the Shareholders and Non-Party Shareholders, and no
other action on the part of Litmus or the Shareholders and Non-Party
Shareholders is necessary to consummate the transactions contemplated by this
Agreement and the other Documents.  This
Agreement and each of the other Documents to be executed and delivered by
Litmus and the Shareholders has been or, at the Closing, will be duly executed
and delivered by, and constitute the legal, valid and binding obligations of,
Litmus and the Shareholders, respectively, are enforceable against Litmus and
the Shareholders in accordance with their terms, except as enforcement may be
limited by bankruptcy, insolvency reorganization, moratorium and similar laws
relating to or affecting creditor rights generally or by general equity
principles (regardless of whether enforcement is sought in a proceeding in equity
or at law).

 

4.5           No Violation or
Conflict.  None of (a) the execution
and delivery by Litmus and the Shareholders of this Agreement and the other
Documents to be executed and delivered by Litmus or the Shareholders, (b) the
consummation by Litmus and the Shareholders of the transactions contemplated by
this Agreement and the other Documents or (c) the performance of this Agreement
and the other Documents required by this Agreement to be executed and delivered
by Litmus or the Shareholders at the Closing will (1) conflict with or violate
the Articles of Incorporation or the Bylaws or other constituent documents of
Litmus or any of its Subsidiaries, (2) to the Knowledge of Litmus or the
Shareholders, conflict with or violate any Law, Order or Permit applicable to
Litmus or any of its Subsidiaries or the Shareholders, or by which the
properties of Litmus and its Subsidiaries or the Litmus Common Stock are bound
or affected, or (3) result in any breach or violation of, or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or impair the rights of Litmus or its Subsidiaries or alter the
rights or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of any Lien on any of the properties or assets of Litmus or any of its
Subsidiaries pursuant to, any Contract, Permit or other instrument or
obligation to which Litmus is a party or by which Litmus or any of its Subsidiaries
or their respective properties are bound or affected except, (x) in the
case of clause (2) or (3) above, for any conflict, breach, violation, default
or other occurrence that would not, individually or in the aggregate, have a
Material Adverse Effect on Litmus and its Subsidiaries taken as a whole, and
(y) in the case of clause (2) or (3) above, for any provision of any Contract
or Permit which may restrict the assignment or transfer of the rights or
obligations of Litmus or its Subsidiaries thereunder, which Contracts and
Permits have been made available to THK and Litmus Acquisition Sub for review.

 

15

 

4.6           Governmental
Consents and Approvals.  The
execution, delivery and performance of this Agreement and the other Documents
by Litmus and the Shareholders do not and will not require any consent,
approval, authorization, Permit or other order of, action by, filing with or
notification to, any Governmental Authority except for the filings contemplated
by Article II.

 

4.7           Capital Structure.

 

(a)           The Shareholders and
the Non-Party Shareholders own 100% of the outstanding Litmus Common
Stock.  The Shareholders and the
Non-Party Shareholders, are the record and beneficial owners and holders of the
Litmus Common Stock free and clear of all Liens.  Except as described in this Section 4.7(a),
there will be no equity interests or other securities of Litmus authorized,
issued, reserved for issuance or otherwise outstanding at the Closing.  All of the Litmus Common Stock is duly
authorized, validly issued, fully paid and non-assessable, and not subject to,
or issued in violation of, any kind of preemptive, subscription or any kind of
similar rights. There are no bonds, debentures, notes or other Indebtedness of Litmus
having the right to vote (or convertible into securities having the right to
vote) on any matters on which the shareholders are eligible or required to
vote.  There are no other outstanding
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind (contingent or otherwise) to which
Litmus is a party or bound obligating Litmus to issue, deliver or sell, or
cause to be issued, delivered or sold, additional voting securities of Litmus
or obligating Litmus to issue, grant, extend or enter into any agreement to
issue, grant or extend any security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking that will survive the Closing.  There are no outstanding contractual
obligations of Litmus to repurchase, redeem or otherwise acquire any capital
stock (or options to acquire any such capital stock) or other security or
equity interest of Litmus which will survive the Closing.  All of the Litmus Common Stock was issued in
compliance with all applicable federal and state securities laws and is owned
by the Shareholders and the Non-Party Shareholders.  The Non-Party Shareholders have approved this
Agreement and the transactions contemplated hereby and waived any dissenters or
appraisal rights applicable to this Agreement and the transactions contemplated
hereby after full disclosure of the terms hereof, including the Shareholder
Warrant Agreements, the Shareholder Employment Agreements and the Employee
Warrant Agreements and the Schedules furnished by THK pursuant hereto.

 

(b)           Litmus owns 100% of the
outstanding capital stock of ValidClick (“ValidClick Stock”) and 100% of
the limited liability company membership interests in Second Bite (the “Second
Bite LLC Interests”).  Litmus is the
sole record and beneficial owner and holder of the ValidClick Stock and the
Second Bite LLC Interests free and clear of Liens.  Except as described in this Section 4.7(b),
there will be no equity interests or other securities of ValidClick or Second
Bite authorized, issued, reserved for issuance or otherwise outstanding at the
Closing.  All of the ValidClick Stock and
Second Bite LLC Interests are duly authorized, validly issued, fully paid and
non-assessable, and not subject to, or issued in violation of, any kind of
preemptive, subscription or any kind of similar rights.  There are no bonds, debentures, notes or
other Indebtedness of ValidClick or Second Bite having the right to vote (or
convertible into securities having the right to vote) on any matters on which
the shareholders or members are eligible or required to vote.  There are no other outstanding securities,
options, warrants, calls, rights, commitments, agreements, arrangements or
undertakings of any kind (contingent or otherwise) to which ValidClick or
Second Bite is a party or bound obligating ValidClick or 

 

16

 

Second Bite to
issue, grant, extend or enter into any agreement to issue, grant or extend any
security, option, warrant, call, right, commitment, agreement, arrangement or
undertaking that will survive the Closing. 
There are no outstanding contractual obligations of ValidClick or Second
Bite to repurchase, redeem or otherwise acquire any capital stock (or options
to acquire any such capital stock) or other security or equity interest of
ValidClick or Second Bite which will survive the Closing.  All of the ValidClick Stock and Second Bite
LLC Interests were issued in compliance with all applicable federal and state
securities laws and are owned by Litmus.

 

4.8           Financial Statements.  Schedule 4.8 sets forth the audited
consolidated annual balance sheets of Litmus and its Subsidiaries as of
December 31, 2003, and December 31, 2004, respectively, and the related audited
consolidated annual income statement and statement of cash flows for the
periods ended December 31, 2003 and December 31, 2004 accompanied by the
auditor’s report thereon, and (2) the audited consolidated balance sheet as of
September 30, 2005 and the schedules thereto and the related unaudited
consolidated income statement and statement of cash flows for the nine month
period then ended September 30, 2005 (the “Audited Financials” or the “Company
Financials”).  The Company Financials
(i) have been prepared in accordance with the books and records of the Person
to which they relate and (ii) are complete and correct have been prepared in
accordance with GAAP consistently applied for the periods presented, except, as
may be disclosed in the notes thereto and normal year-end adjustments, which
will not be material individually or in the aggregate.  The Company Financials present fairly the
financial condition and operating results of Litmus and its Subsidiaries as of
the dates and during the periods indicated therein, subject to normal year-end
adjustments, which will not be material in amount or significance in the
aggregate.

 

4.9           Conduct in the
Ordinary Course; Absence of Changes. 
Since October 31, 2005, Litmus has conducted the Business in the
ordinary course, consistent with past practice, and to the Knowledge of Litmus
and the Shareholders, there has been no change in the Business which has had,
or could reasonably be anticipated to result in, a Material Adverse Effect on
Litmus and its Subsidiaries taken as a whole.

 

4.10         Real Property.

 

(a)           Litmus and its
Subsidiaries do not own and have never owned any real property.

 

(b)           Schedule 4.10(b)
lists (1) the street address of each parcel of Leased Property, (2) the
identity of the lessor, lessee and current occupant (if different from lessee)
of each such parcel of Leased Property, and (3) the term and rental payment
terms of the leases (and any subleases) pertaining to each such parcel of
Leased Property.

 

(c)           Litmus has made
available to THK and Litmus Acquisition Sub, to the extent in the possession of
Litmus or its Subsidiaries, all title insurance policies, title reports,
surveys, certificates of occupancy, environmental reports and audits,
appraisals, other title documents and other documents relating to or otherwise
affecting the Leased Property or the operation of the Business thereon or any
other uses thereof.

 

17

 

(d)           Litmus has delivered,
or made available to THK and Litmus Acquisition Sub, true and correct copies of
all leases and subleases listed in Schedule 4.10(b) and any and all
ancillary documents pertaining thereto (including, but not limited to, all
amendments, consents for alterations and documents recording variations and
evidence of commencement dates and expiration dates) (the “Leases”).  With respect to each Lease:

 

(1)           each Lease is the
legal, valid and binding, obligation of the parties thereto, enforceable
against each party, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or affecting
creditor rights generally or by general equity principles (regardless of
whether enforcement is sought in a proceeding in equity or at law);

 

(2)           none of (a) the
execution and delivery by Litmus and each of the Shareholders of this Agreement
and the other Documents, (b) the consummation by Litmus and the Shareholders of
the transactions contemplated by this Agreement and the other Documents, (c)
the performance by Litmus and the Shareholders of this Agreement and the other
Documents will (1) conflict with or violate the terms of any Lease or (2)
result in any breach or violation of or constitute a default (or an event with
notice or lapse of time or both would become a default) under, or impair Litmus’s
rights or alter the rights or obligations of any third party under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any Lease;

 

(3)           neither Litmus nor, to
the Knowledge of Litmus and the Shareholders, any other party to any Lease, is
in breach or default under the Lease, and, to the Knowledge of Litmus and the
Shareholders no event has occurred that, with notice or lapse of time would
constitute a breach or default or permit termination, modification or
acceleration under the Lease; and

 

(4)           the rental set forth in
each Lease is the actual rental being paid, and there are no separate
agreements or understandings regarding the amount of rent.

 

4.11         Personal Property.

 

(a)           Schedule 4.11(a)
lists each item or distinct group of Hardware, machinery, equipment, tools,
supplies, furniture, fixtures, vehicles, rolling stock and other tangible
personal property with a value in excess of $5,000 used in the Business and
owned or leased by Litmus or its Subsidiaries (the “Tangible Personal
Property”).

 

(b)           Litmus has delivered or
made available to THK and Litmus Acquisition Sub correct and complete copies of
all Contracts to which Litmus or its Subsidiaries is a party, including
equipment leases, for Tangible Personal Property and any and all ancillary
documents pertaining thereto.  With
respect to each Contract to which Litmus or its Subsidiaries is a party for
Tangible Personal Property:

 

(1)           each Contract, together
with all ancillary documents delivered pursuant to the first sentence of this
Section 4.11(b), is the legal, valid and binding obligation of the parties
thereto, enforceable against each of the parties in accordance with the terms
thereof except as enforcement may be limited by bankruptcy, insolvency or other
similar laws affecting 

 

18

 

the
enforcement of creditor rights generally or by general equity principles
(regardless of whether enforcement is sought in a proceeding in equity or at
law);

 

(2)           neither Litmus or its
Subsidiaries nor, to the Knowledge of Litmus and the Shareholders, any other
party to any lease, is in breach or default, and no event has occurred that,
with notice or lapse of time would constitute such a breach or default or
permit termination, modification or acceleration under any lease; and

 

(3)           none of (a) the
execution and delivery by Litmus and the Shareholders of this Agreement and the
other Documents, (b) the consummation by Litmus and the Shareholders of the
transaction contemplated by this Agreement and the other Documents, (c) the
performance by Litmus or the Shareholders of this Agreement and the other
Documents required by this Agreement will (1) conflict with or violate the
terms of any lease or (2) result in any material breach or violation of or
constitute a default (or an event with notice or lapse of time or both would
become a default) under, or impair the rights of Litmus or its Subsidiaries or
alter the rights or obligations of any third party under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any lease,
which would have a Material Adverse Effect on Litmus and its Subsidiaries taken
as a whole.

(c)           All
Tangible Personal Property is adequate and usable for the use and purposes for
which it is currently used, is in good operating condition, and has been
maintained and repaired in accordance with good business practice.

 

4.12         Approval
of Directors and Shareholders.  The
directors of Litmus have, at a meeting duly called and held at which all
directors of Litmus were present or by a unanimous written consent:  (a) approved and declared advisable this
Agreement; (b) determined that the Merger and other transactions contemplated
by this Agreement are advisable, fair to and in the best interest of Litmus and
its shareholders; (c) recommended to the shareholders of Litmus (1) approval of
the Merger and the other transactions contemplated hereby and (2) approval and
adoption of this Agreement; and (d) directed that this Agreement be submitted
to the shareholders of Litmus for their approval and adoption.  The shareholders of Litmus have unanimously
approved the Merger and this Agreement after full disclosure of the terms
hereof, including the Shareholder Warrant Agreements, the Shareholder
Employment Agreements and the Employee Warrant Agreements.

 

4.13         Insurance.  Litmus has furnished or made available to THK
and Litmus Acquisition Sub true and complete copies of all insurance policies
and fidelity bonds covering the assets, business, equipment, properties and
operations of Litmus and its Subsidiaries relating to the Business, a list of
which (by type, carrier, policy number, limits, premium and expiration date) is
set forth in Schedule 4.13.  All
such insurance policies are in full force and effect and will remain in full force
and effect up to the Effective Time.

 

4.14         Permits.  Schedule 4.14 lists all Permits used
in or otherwise required to conduct the Business which, if not obtained by
Litmus, would have a Material Adverse Effect on Litmus and its Subsidiaries
taken as a whole.  Each of the Permits is
valid and in full force and effect as of the date of this Agreement.

 

19

 

4.15         Taxes.  Except as set forth in Schedule 4.15
hereto:

 

(a)           All
Tax Returns and reports in respect of Taxes required to be filed with respect
to Litmus or its Subsidiaries have been timely filed,

 

(b)           all
Taxes required to be shown on such returns and reports or otherwise due have
been timely paid,

 

(c)           all
such Tax Returns and reports are true, correct and complete in all material
respects,

 

(d)           no
adjustment relating to such returns has been proposed formally or informally by
any Governmental Authority and, to the Knowledge of Litmus and the
Shareholders, no basis exists for any such adjustment,

 

(e)           there
are no pending or, to the Knowledge of Litmus and the Shareholders, threatened
actions or proceedings for the assessment or collection of Taxes against Litmus
or its Subsidiaries,

 

(f)            no
consent under Section 341(f) of the Code has been filed with respect to Litmus
or its Subsidiaries,

 

(g)           there
are no Tax Liens on any assets of Litmus or its Subsidiaries,

 

(h)           each
of Litmus and its Subsidiaries has withheld and paid all Taxes required to have
been withheld and paid in connection with any amounts paid or owing to any
employee, independent contractor, creditor, shareholder, or other third party,
and all Forms W-2 and 1099 required with respect thereto have been properly
completed and timely filed,

 

(i)            Litmus
and its Subsidiaries have not consented to extend the time in which any Taxes
may be assessed or collected by any taxing authority,

 

(j)            Litmus
and its Subsidiaries have not requested or been granted an extension of the
time for filing any Tax Return to a date later than the Closing Date,

 

(k)           there
are no Liens for Taxes (other than for current Taxes not yet due and payable)
upon the assets of Litmus or its Subsidiaries,

 

(l)            Litmus
and its Subsidiaries will not be required:

 

(1)           as
a result of a change in method of accounting for a taxable period ending on or
prior to the Closing Date, to include any adjustment under Section 481(c) of
the Code (or any corresponding provision of state, local or foreign law) in
taxable income for any taxable period (or portion thereof) beginning after the
Closing Date, or

 

(2)           as
a result of any “closing agreement,” as described in Section 7121 of the Code
(or any corresponding provision of state, local or foreign law), to include any

 

20

 

item of income or exclude any item of
deduction from any taxable period (or portion thereof) beginning after the
Closing Date,

 

(m)          Litmus
and its Subsidiaries are not a party to or bound by any tax allocation or tax
sharing agreement and does not have any current or potential contractual
obligation to indemnify any other Person with respect to Taxes,

 

(n)           
to the Knowledge of Litmus and the Shareholders, there is no basis for any
assessment, deficiency notice, 30-day letter or similar notice with respect to
any Tax to be issued to Litmus or its Subsidiaries with respect to any period
on or before the Closing Date,

 

(o)           Litmus
and its Subsidiaries have not made any payments, and are not and will not
become obligated (under any Contract entered into on or before the Closing
Date) to make any payments, that will not be deductible under Section 280G of
the Code (or any corresponding provision of state, local or foreign law),

 

(p)           Litmus
and its Subsidiaries have not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code (or any
corresponding provision of state, local or foreign law) during the applicable
period specified in Section 897(c)(1)(a)(ii) of the Code (or any corresponding
provision of state, local or foreign law),

 

(q)           no
claim has ever been made in writing by a taxing authority in a jurisdiction
where Litmus or its Subsidiaries does not file Tax Returns that Litmus or any
of its Subsidiaries is or may be subject to Taxes assessed by such
jurisdiction,

 

(r)            Litmus
and its Subsidiaries do not have any physical presence in any foreign country,
as defined in the relevant tax treaty between the United States of America and
such foreign country,

 

(s)           true,
correct and complete copies of all income and sales Tax Returns filed by or
with respect to Litmus and its Subsidiaries for the past two (2) years have
been furnished or made available to THK, and

 

(t)            Litmus
and its Subsidiaries will not be subject to any Taxes pursuant to Section 1374
or Section 1375 of the Code (or any corresponding provision of state, local or
foreign law) with respect to the transactions contemplated by this Agreement.

 

4.16         Labor
Matters.

 

(a)           The
name, place of employment, the current annual salary rates, bonuses, deferred
or contingent compensation, pension, accrued vacation, “golden parachute” and
other like benefits paid or payable (in cash or otherwise) in 2004 and 2005,
the date of employment and a description of position and job function of each
current salaried employee, officer, manager, consultant or agent of Litmus or
its Subsidiaries is accurately stated in that certain Letter dated the date of
this Agreement from the Shareholders to Gerard M. Jacobs, the President and
Chief Executive Officer of THK (the “Employee Salaries Letter”).

 

21

 

(b)           No
employment, consulting, severance pay, continuation pay, termination or
indemnification agreements or other similar agreements of any nature (whether
in writing or oral) exist between Litmus or its Subsidiaries and any current or
former shareholder, officer, director, manager, member, employee or consultant,
except such indemnifications as may be provided in the By-Laws or other charter
documents of Litmus or its Subsidiaries and as may be identified in the
Employee Salaries Letter.

 

(c)           Litmus
and its Subsidiaries are not a party to any collective bargaining agreement or
other labor union Contract applicable to persons employed by Litmus or its
Subsidiaries and, to the Knowledge of Litmus and the Shareholders,

 

(1)           there are no
controversies, strikes, slowdowns or work stoppages pending or threatened by
any employee against Litmus or its Subsidiaries;

 

(2)           there are no unfair
labor practice complaints pending against Litmus before the National Labor
Relations Board or any other Governmental Authority involving any current or
former employee of Litmus or its Subsidiaries;

 

(3)           Litmus and its
Subsidiaries have complied with all applicable Laws relating to the employment
of labor, including those related to wages, hours, collective bargaining and
the payment and withholding of taxes and other sums as required by any
Governmental Authority and have withheld and paid to any appropriate
Governmental Authority, or are holding for payment not yet due to such
Governmental Authority, all amounts required to be withheld from employees of
Litmus or its Subsidiaries and are not liable for any arrears of wages, taxes,
penalties or other sums for failure to comply with any of the foregoing;

 

(4)           Litmus and its
Subsidiaries have paid in full to all their respective employees, or adequately
accrued for in accordance with GAAP, all wages, salaries, commissions, bonuses,
benefits and other compensation due to or on behalf of its employees; provided however, that the employees of Litmus
and its Subsidiaries have until the end of a calendar year to use accrued
vacation;

 

(5)           there is no claim with
respect to payment of wages, salary or overtime pay that has been asserted or
is now pending or threatened against Litmus or its Subsidiaries before any
Governmental Authority with respect to any Persons currently or formerly
employed by Litmus or its Subsidiaries;

 

(6)           there is no charge or
proceedings with respect to a violation of any occupational safety or health
standards that has been asserted or is now pending or threatened with respect
to Litmus or its Subsidiaries; and

 

(7)           there is no charge of
discrimination in employment or employment practices, for any reason,
including, without limitation, age, gender, race, religion or other legally
protected category, which has been asserted and not settled or is now pending
or threatened against Litmus or its Subsidiaries before the United States Equal
Employment Opportunity Commission, or any other Governmental Authority in any
jurisdiction in which Litmus or its Subsidiaries have employed or currently
employs any Person.

 

22

 

4.17         Employees
and Related Agreements; ERISA.

 

(a)           Schedule 4.17(a)
contains a true and complete list of each Employee Plan and each Employee
Agreement of Litmus and its Subsidiaries. 
Litmus and its Subsidiaries have no plan or commitment, whether legally
binding or not, to establish any new Employee Plan, to enter into any Employee
Agreement or to modify or to terminate any Employee Plan or Employee Agreement
(except to the extent required by law as previously disclosed to THK, or as
required by this Agreement).

 

(b)           Litmus has provided to
THK and Litmus Acquisition Sub (1) current, true and complete copies of
each Employee Plan and each Employee Agreement, including all amendments
thereto, and trust or funding agreements with respect thereto, (2) the two most
recent annual actuarial valuations, if any, prepared for each Employee Plan,
(3) the two most recent annual reports (Series 5500 and all schedules thereto),
if any, required under ERISA in connection with each Employee Plan or related
trust, (4) a statement of alternative form of compliance pursuant to Department
of Labor Regulation §2520.104-23, if any, filed for each Employee Plan which is
an “employee pension benefit plan” as defined in Section 3(2) of ERISA for a
select group of management or highly compensated employees, (5) the most recent
determination letter received from the IRS, if any, for each Employee Plan and
related trust which is intended to satisfy the requirements of Section 401(a)
of the Code, (6) if the Employee Plan is funded, the most recent annual and
periodic accounting of Employee Plan assets, and (7) the most recent summary
plan description together with the most recent summary of modifications, if
any, required under ERISA with respect to each Employee Plan.

 

(c)           Except to the extent
any action does not have a Material Adverse Effect on Litmus or its
Subsidiaries, (1) Litmus and its Subsidiaries have performed all obligations
required to be performed by it under each Employee Plan and Employee Agreement
and is not in default under or in violation of any Employee Plan or Employee
Agreement, (2) each Employee Plan has been established and maintained in
accordance with its terms and in compliance with all requirements of Laws, (3)
each Employee Plan intended to qualify under Section 401 of the Code is so
qualified and a determination letter has been issued by the IRS to the effect
that each Employee Plan is so qualified and that each trust forming a part of
any Employee Plan is exempt from tax pursuant to Section 501(a) of the Code and,
to the Knowledge of Litmus and the Shareholders, no circumstances, exist which
could reasonably be expected to adversely affect this qualification or
exemption, (4) no “prohibited transaction,” within the meaning of Section 4975
of the Code or Section 406 of ERISA, has occurred with respect to any Employee
Plan, (5) there are no actions, proceedings, arbitrations, suits or claims
pending or, to the Knowledge of Litmus and the Shareholders, threatened or
anticipated (other than routine claims for benefits), with respect to any
Employee Plan or Employee Agreement, (6) no event or transaction has occurred
with respect to any Employee Plan that would result in the imposition of any
tax under Chapter 43 of Subtitle D of the Code, (7) no Employee Plan is under
audit or investigation by the IRS, the Department of Labor or other
Governmental Authority and, to the Knowledge of Litmus and the Shareholders, no
audit or investigation is pending or threatened, (8) no liability under any
Employee Plan has been funded nor has any obligation been satisfied with the
purchase of a Contract from an insurance company as to which Litmus or its
Subsidiaries have received notice that insurance company is insolvent or is in
rehabilitation or any similar proceeding, (9) Litmus and its Subsidiaries
have timely deposited and transmitted, or accrued, all amounts withheld 

 

23

 

from employees
for contributions or premium payments for each Employee Plan into the
appropriate trusts or accounts, and (10) each Employee Plan that allows loans
to plan participants has been operated in accordance with the plan’s written
loan policy; in addition, all outstanding loans from all Employee Plans are
current as of the Closing Date, and there are no loans in default.

 

(d)           Litmus and its
Subsidiaries are not the sponsor, and do not maintain, contribute to, or have
any liability in respect of, and have never sponsored, maintained, contributed
to, or had any liability in respect of, or been required to contribute to, an
“employee pension benefit plan” within the meaning of Section 3(2) of ERISA
that is subject to Title IV of ERISA, or a “multiple employer plan” (within the
meaning of Section 413 of the Code).

 

(e)           Litmus and its
Subsidiaries (1) do not maintain or contribute to any Employee Plan that
provides, or has any liability to provide, life insurance, medical, severance
or other employee welfare benefits to any employee upon his or her retirement
or termination of employment, except as may be required by Section 4980B of the
Code or otherwise at the expense of the employee, and (2) do not have any
obligation or agreement (whether in oral or written form) to any employee
(either individually or to employees as a group) that such employee(s) would be
provided with life insurance, medical, severance or other employee welfare
benefits upon their retirement or termination of employment, except to the
extent required by Section 4980B of the Code or otherwise at the expense of the
employee.

 

(f)            The execution of, and
performance of this Agreement and the other Documents and the transactions
contemplated hereby and thereby will not constitute an event under any Employee
Plan or Employee Agreement that will result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness,
vesting, distribution, increase in benefits or obligation to fund benefits with
respect to any employee of Litmus or its Subsidiaries.

 

(g)           No Employee Plan or
Employee Agreement is funded by a trust described in Section 501(c)(9) of the
Code.

 

(h)           Except with respect to
its Subsidiaries, Litmus is not (1) a shareholder of a “controlled group of
corporations,” or an “affiliated service group” within the meanings of Sections
414(b) or (m) of the Code, (2) required to be aggregated with any Person under
Section 414(o) of the Code; or (3) under “common control,” with any Person
within the meaning of Section 4001(a)(14) of ERISA or Section 414(c) of the
Code.

 

(i)            Litmus and its
Subsidiaries have complied with the requirements of the HIPAA Medical Privacy
Regulations with respect to each Employee Plan that is subject to such
requirements and with respect to the status of Litmus and its Subsidiaries as a
“covered entity” as defined therein.

 

4.18         Environmental
and Health/Safety Matters.

 

(a)           To the Knowledge of
Litmus and the Shareholders, Litmus and its Subsidiaries are and have at all
times been in compliance with Environmental Laws applicable to assets used in
the Business (“Business Assets”), and Litmus and its Subsidiaries are
not currently 

 

24

 

liable for any
penalties, fines or forfeitures for failure to comply with Environmental Laws,
except for any non-compliance as would not have a Material Adverse Effect on
Litmus and its Subsidiaries taken as a whole.

 

(b)           Litmus and its
Subsidiaries have obtained, or caused to be obtained (except where such failure
to obtain has not resulted in a Material Adverse Effect on Litmus or its
Subsidiaries), and, to the Knowledge of Litmus and the Shareholders, are in
compliance with, all applicable Permits required by Environmental Laws and
necessary for the operation of the Business, except for any non-compliance as
would not have a Material Adverse Effect on Litmus and its Subsidiaries taken
as a whole.  Copies of such Permits have
been provided to THK and Litmus Acquisition Sub.  There are no administrative or judicial
investigations, notices, claims or other proceedings pending or, to the
Knowledge of Litmus and the Shareholders, threatened by any Governmental
Authority or third parties against Litmus or its Subsidiaries or any of the
Business Assets which question the validity or entitlement of Litmus to any
Permit wherein an unfavorable decision, ruling or finding could have a Material
Adverse Effect on Litmus and its Subsidiaries taken as a whole.

 

(c)           Litmus and its
Subsidiaries have neither received nor does Litmus or the Shareholders have
Knowledge of any non-compliance order, warning letter, investigation, notice of
violation, claim, suit, action, judgment, or administrative or judicial
proceeding pending or threatened against or involving Litmus or its
Subsidiaries, issued by any Governmental Authority or third party with respect
to any Environmental Laws, which has not been resolved to the satisfaction of
the issuing Governmental Authority or third party and which could have a
Material Adverse Effect on Litmus and its Subsidiaries taken as a whole.

 

(d)           To the Knowledge of
Litmus and the Shareholders, Litmus and its Subsidiaries have not generated,
manufactured, used, recycled, transported, transferred, stored, handled,
treated, discharged, Released or disposed of, nor has it allowed or arranged
for any third parties to generate, manufacture, use, recycle transport, transfer,
store, handle, treat, discharge, Release or dispose of, Hazardous Substances to
or at any location, including property currently or previously owned by it,
other than a site lawfully allowed or permitted by the Environmental Laws or
other applicable requirements of Laws to receive such Hazardous Substances, nor
has Litmus or its Subsidiaries performed, arranged for or allowed by any method
or procedure such generation, manufacture, use, recycling, transportation,
transfer, storage, treatment, spillage, leakage, dumping, discharge, Release or
disposal in contravention of any Environmental Laws, except such as would not
have a Material Adverse Effect on Litmus and its Subsidiaries taken as a whole.

 

(e)           To the Knowledge of
Litmus and the Shareholders, Litmus and its Subsidiaries have neither caused,
nor allowed to be caused or permitted, either by action or inaction, a Release
or discharge, or threatened Release or discharge, of any Hazardous Substance
on, into or beneath the surface of any parcel owned or leased by Litmus or its
Subsidiaries or to any properties adjacent thereto which would have a Material
Adverse Effect on Litmus and its Subsidiaries taken as a whole.  To the Knowledge of Litmus and the Shareholders,
there has neither occurred, nor is there presently occurring, a Release or
discharge, or threatened Release or discharge, of any Hazardous Substances on,
into or beneath the surface of any parcel owned or 

 

25

 

leased by
Litmus or its Subsidiaries or to any properties adjacent thereto which would
have a Material Adverse Effect on Litmus and its Subsidiaries taken as a whole.

 

(f)            To the Knowledge of
Litmus and the Shareholders, Litmus and its Subsidiaries have neither
generated, handled, manufactured, treated, stored, used, recycled, shipped,
transported, transferred, or disposed of, nor has Litmus or its Subsidiaries
allowed or arranged, by Contract or otherwise, for any third parties to
generate, handle, manufacture, treat, store, use, recycle, ship, transport,
transfer or dispose of, any Hazardous Substances to or at a site which,
pursuant to Environmental Laws or any similar state law has been placed or been
proposed for placement on the National Priorities List or its state equivalent.  Neither Litmus or its Subsidiaries nor the
Shareholders have received written notice, and neither Litmus nor the
Shareholders have Knowledge of any facts which could give rise to any notice,
that Litmus or its Subsidiaries is a potentially responsible party for a
federal or state environmental cleanup site or for corrective action under
Environmental Laws.  Litmus and its
Subsidiaries have not submitted nor (to the Knowledge of Litmus and the
Shareholders) was Litmus or its Subsidiaries required to submit, any notice
pursuant to Section 103(c) of CERCLA with respect to any parcel owned or leased
by Litmus or its Subsidiaries.  Litmus
and its Subsidiaries have not received any written request for information in
connection with any federal or state environmental cleanup site, or in
connection with any of real property or premises where Litmus or its
Subsidiaries has transported, transferred or disposed of Hazardous
Materials.  Litmus and its Subsidiaries
have neither been required, nor have Litmus or its Subsidiaries undertaken, any
response or remedial actions or clean up actions of any kind at the request of
any Governmental Authorities or at the request of any other third party.  To the Knowledge of Litmus and the Shareholders,
Litmus and its Subsidiaries have no liability under any Environmental Laws for
personal injury, property damage, natural resource damage, or clean up
obligations.

 

(g)           To the Knowledge of
Litmus and the Shareholders, there are no Aboveground Storage Tanks or
Underground Storage Tanks on any of the Real Property.

 

(h)           Schedule 4.18(h)
is a true and complete schedule of (1) all material environmental audits,
assessments, investigations or occupational health studies, of which Litmus or
the Shareholders have Knowledge, undertaken by Litmus or its Subsidiaries,
relating to or affecting Litmus or its Subsidiaries or any of the Real
Property, and (2) to the Knowledge of Litmus and the Shareholders, all
citations issued under OSHA, or similar state or local statutes, laws,
ordinances, codes, rules, regulations, orders, rulings, or decrees, relating to
or affecting Litmus or its Subsidiaries or any of the Real Property.

 

(i)            Schedule 4.18(i)
contains a list of the Business Assets which, to the Knowledge of Litmus and
the Shareholders, have been confirmed to contain PCBs or “asbestos” or
“asbestos containing material” (as such terms are identified under the
Environmental Laws).  To the Knowledge of
Litmus and the Shareholders, Litmus and its Subsidiaries have operated and
continue to operate in compliance with all Environmental Laws governing the
handling, use and exposure to and disposal of PCBs or asbestos or asbestos
containing materials, except where such noncompliance would not have a Material
Adverse Effect on Litmus and its Subsidiaries taken as a whole.  There are no claims, actions, suits,
governmental investigations or proceedings brought by any Governmental
Authority or third party pending, or, to the Knowledge of Litmus and the
Shareholders, threatened against or directly affecting Litmus or its
Subsidiaries, the 

 

26

 

Business
Assets or the Business relating to the use, handling or exposure to and
disposal of PCBs or asbestos or asbestos containing materials in connection
with their assets and operations.

 

(j)            Schedule 4.18(j)
is a true and complete schedule of the operations and activities, and locations
thereof, which have been conducted and are being conducted by Litmus or its
Subsidiaries on any of the Real Property which have involved the generation,
accumulation, storage, treatment, transportation, labeling, handling,
manufacturing, use, recycling, spilling, leaking, dumping, discharging, release
or disposal of any Hazardous Substances.

 

4.19         Certain
Interests.

 

(a)           To the Knowledge of
Litmus and the Shareholders, no officer, director or shareholder of Litmus, and
no immediate family member or spouse who resides with, or is a dependent of,
any Shareholder, officer or director:

 

(1)           has
any direct or indirect financial interest in any competitor, supplier or
customer of Litmus, provided, however, that the ownership of securities
representing no more than 3% of the outstanding voting power of any competitor,
supplier or customer, and which are also listed on any national securities
exchange or traded actively in the national over-the-counter market, shall not
be deemed to be a “financial interest” so long as the Person owning the
securities has no other connection or relationship with the competitor,
supplier or customer;

 

(2)           owns,
directly or indirectly, in whole or in part, or has any other interest in any
material tangible or intangible property which Litmus or its Subsidiaries uses
or has used in the conduct of the Business or otherwise; or

 

(3)           has
outstanding any Indebtedness to Litmus or its Subsidiaries.

 

(b)           To the Knowledge of
Litmus and the Shareholders, Litmus and its Subsidiaries have no Indebtedness,
Liabilities or any other obligation of any nature whatsoever to, any officer,
director or shareholder of Litmus or to any immediate family member or spouse
who resides with, or is a dependent of, any such officer, director or
shareholder, except as disclosed to THK and Litmus Acquisition Sub in this
Agreement and/or the Company Financial Statements.

 

4.20         Litigation.  Except as set forth on Schedule 4.20,
there are no Actions pending or, to the Knowledge of Litmus and the
Shareholders, threatened against, relating to or affecting Litmus or its
Subsidiaries or the Business before any Court, Governmental Agency or any
arbitrator or mediator.  Neither Litmus
or its Subsidiaries nor the Shareholders is subject to any Order, including but
not limited to any Order which prohibits or restricts the consummation of the
transactions contemplated hereby.

 

4.21         Intellectual
Property and Web Sites.  Except for
Software, content, or other similar services/property purchased on a
non-exclusive basis through Contracts with third parties, Litmus has the
exclusive rights, titles and interests in and to any and all Intellectual
Property and all of the Web Sites used by or being developed by, or otherwise
associated with, the present operations of the Business.

 

27

 

4.22         Adknowledge
Release Agreement.

 

(a)           The Adknowledge Release
Agreement, with respect to Litmus and the Shareholders and to the Knowledge of
Litmus and the Shareholders with respect to the other parties thereto, is in
full force and effect and constitutes the legal, valid and binding obligation
of the parties thereto, enforceable against each party except as enforcement
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to or affecting creditor rights generally or by general equity
principles (regardless of whether enforcement is sought in a proceeding in equity
or at law).  Litmus and the Shareholders
and, to the Knowledge of Litmus and the Shareholders, the Non-Party
Shareholders, Adknowledge and Lynn are not in breach of or default under, and
have not violated the terms of, the Adknowledge Release Agreements.  Notwithstanding the statements in the
Adknowledge Release Agreement, Melissa Linden is not a shareholder of
Litmus.  The Lawsuit (as defined in the
Adknowledge Release Agreement) has been dismissed by Adknowledge with prejudice
and, to the Knowledge of Litmus and the Shareholders, Adknowledge has notified
the U.S. Attorney’s Office as required by Section 7 of the Adknowledge
Release Agreement.

 

(b)           To the Knowledge of
Litmus and the Shareholders based on information concerning THK available in
its SEC reports and on its website and from other publicly-available sources,
THK is not an Unnamed Competitor (as defined in the Adknowledge Release
Agreement) and Linden and Teeter can enter into and perform their obligations
under this Agreement and the Shareholder Employment Agreements and otherwise be
employed by Litmus Surviving Company without violating the terms of the
Adknowledge Release Agreement.  The
representations and warranties in this Section 4.27(b) shall not apply to any
line of business that THK or any of its other Subsidiaries enters into after
the date of this Agreement or that was not publicly-disclosed by THK prior to
the date of this Agreement.

 

4.23         Receivables.  The Receivables of Litmus and its
Subsidiaries as reflected in the Company Financials, consist solely of bona fide accounts receivable generated by
the Business which, to the Knowledge of Litmus and the Shareholders, can be
collected in the ordinary course of the business in a manner consistent with
the historical collection results, efficiencies, policies, procedures and
patterns of the Business.

 

4.24         Residency;
Investment Sophistication; Background. 
Each of the Shareholders (a) is a resident of the State of Missouri, (b)
is (x) an “accredited investor” as defined in Section 501 of Regulation D
promulgated under the Securities Act and (y) capable of evaluating the
potential risks of an investment in THK Common Stock, (c) has received, read
and understands the public filings of THK with the SEC, including but not
limited to THK’s amended Annual Reports on amended Forms 10-KSB for the years
ended December 31, 2003 and December 31, 2004, including the amended and
restated financial statements and “Risk Factors” contained therein, and THK’s
amended Quarterly Reports on amended Forms 10-QSB for the quarters ended March
31, 2005, June 30, 2005 and September 30, 2005, Current Reports on Form 8-K,
the Registration Statement on Form SB-2, as amended (SEC File No. 333-121761),
and the Proxy Statement for its Annual Meeting scheduled for March 14, 2006 and
amendments to any of the foregoing filed with the SEC, including the amended
and restated financial statements and other disclosures contained therein, (d)
has been afforded a full opportunity to conduct such additional “due diligence”
investigation of THK, its Subsidiaries and Litmus Acquisition Sub, including 

 

28

 

their respective businesses,
management, balance sheets, financial results, prospects and risk factors as
the Shareholders have deemed appropriate, (e) has retained and has been advised
by his own competent lawyers and accountants in regard to the preparation,
negotiation and execution of this Agreement and the transactions contemplated
herein, (f) has never been charged, indicted or convicted of any felony
criminal offense, excepting only traffic violations, and (g) is acquiring the
shares of THK Common Stock issued as part of the Merger Consideration in good
faith solely for his own account with the present intention of holding such
shares for purposes of investment, and is not acquiring such shares with a view
to or for subdivision, distribution, fractionalization or distribution thereof,
in whole or in part, or as an underwriter or conduit to other beneficial owners
or subsequent purchasers.

 

4.25         Brokers.  Except as set forth on Schedule 4.25,
neither Litmus nor the Shareholders nor the Non-Party Shareholders have
employed any financial advisor, broker, finder, consultant or advisor, and
neither Litmus nor the Shareholders nor the Non-Party Shareholders have
incurred nor will incur any broker’s, finder’s, investment banking, consultant,
advisory or similar fees, commissions or expenses in connection with the
transactions contemplated by this Agreement.

 

4.26         Banks
and Brokerage Accounts.  Schedule
4.26 sets forth (1) a true and complete list of the names and locations of
all banks, trust companies, securities brokers and other financial institutions
at which Litmus or any of its Subsidiaries has an account or safety deposit box
or maintains a banking, custodial, trading or other similar relationship, (2) a
true and complete list and description of each account, safety deposit box and
relationship, indicating in each case the account number, the names of the
respective officers, employees, agents or other similar representatives of
Litmus or any of its Subsidiaries having signatory power with respect thereto
and the current balances in the accounts or safety deposit boxes, and (3) a
list of each debenture, note, and other evidence of indebtedness, stock,
security (including rights to purchase and derivative securities or rights),
interests in joint ventures and general and limited partnerships, mortgage
loans and other investment or portfolio assets owned of record or beneficially
by Litmus, the legal name of the record and beneficial owner thereof, the
location of the certificates, if any, or any of its Subsidiaries therefor, the
maturity date, if any, and any stock or bond powers or other authority for
transfer granted with respect thereto.

 

4.27         Indebtedness
and Liabilities.  On the Closing
Date, Litmus and its Subsidiaries will be free and clear of all material
Indebtedness and Liabilities, including but not limited to Liens, obligations,
claims and encumbrances, actual or contingent, known or unforeseen, including
but not limited to bank loans, shareholder loans, payroll claims, bonus and
commission claims, unpaid payroll taxes, other unpaid taxes, pension
obligations, employment discrimination claims, sexual harassment claims, breach
of contract claims, credit card chargebacks, lawsuits, stock options, stock
warrants, phantom stock plans, stock appreciation rights or plans, deferred
compensation agreements, purchase agreements that cannot be cancelled by Litmus
at any time, consulting agreements, employment agreements (other than the
Employment Agreements referred to in Section 9.1(h)(4)), severance agreements
or “change of control” agreements of any nature, and any other liabilities of
any nature whatsoever (collectively, “Claims of Any Nature”) excepting
only those liabilities shown on the Litmus audited consolidated balance sheet
as of September 30, 2005 included in the Company Financials, as previously
provided by the Shareholders to THK, subject only to minor adjustments in
liability line items incurred in the 

 

29

 

ordinary course of the Business
from September 30, 2005 until the Closing Date (the “Approved Liabilities”).

 

4.28         Contracts.  Schedule 4.28 sets forth a list of all
of the following Contracts to which Litmus or any of its Subsidiaries is a
party:

 

(a)           any Contract (or group
of related Contracts) for the purchase or sale of raw materials, commodities,
supplies, products, or other personal property, or for the furnishing or
receipt of services, not entered into in the ordinary course of business;

 

(b)           any Contract concerning
a partnership, joint venture or limited liability company venture;

 

(c)           any Contract (or group
of related Contracts) under which Litmus or any of its Subsidiaries has
created, incurred, assumed, or guaranteed any Indebtedness for borrowed money,
in excess of $10,000 or pursuant to which a Lien has been placed on any of its
assets, tangible or intangible, in excess of $10,000;

 

(d)           any Contract concerning
confidentiality or non-competition;

 

(e)           any Contract between
the Shareholders or the Non-Party Shareholders or their respective Affiliates
and Litmus of any of its Subsidiaries;

 

(f)            any Contract under
which Litmus or any of its Subsidiaries has advanced or loaned monies to any
director, manager, officer or employee, and any portion of such monies will
remain outstanding and unpaid on the Closing Date;

 

(g)           any Contract which
restricts Litmus or any of its Subsidiaries from engaging in the Business
anywhere in the world;

 

(h)           any settlement or
similar Contract, the performance of which will require Litmus to pay, or
entitles Litmus or any of its Subsidiaries to receive, after the Closing Date
consideration in excess of $10,000;

 

(i)            any Contract relating
to any acquisition, divestiture, merger or similar transaction involving
consideration in excess of $10,000, which contains representations, warranties,
covenants, indemnities or other obligations which are still in effect;

 

(j)            any powers of attorney
(other than a power of attorney given in the ordinary course of business for
routine Tax matters);

 

(k)           any Contract relating
to pending capital expenditures of Litmus or any of its Subsidiaries in excess
of $10,000;

 

(l)            any Contract under
which Litmus of any of its Subsidiaries has advanced or loaned any other Person
amounts in the aggregate exceeding $10,000, where any portion of such sums
remain outstanding and unpaid; and

 

30

 

(m)          any other Contract (or
group of related Contracts) the performance of which involves consideration in
excess of $50,000.

 

Litmus has
delivered, or made available, to THK, a correct and complete copy of each
written Contract listed in Schedule 4.28 (as amended to date) and a
written summary setting forth the material terms and conditions of each oral
Contract, if any, referred to in Schedule 4.28.  Each Contract is the legal, valid, binding
obligation of the parties thereto, enforceable against each party except as
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting creditor rights generally
or by general equity principles (regardless of whether enforcement is sought in
a proceeding in equity or at law).  To
the Knowledge of Litmus and the Shareholders, no party to any Contract is in
breach or default, and no event has occurred that with notice or lapse of time
would constitute a material breach or default, or permit termination,
modification, or acceleration, under the Contract.

 

4.29         Spyware/Adware.  To the Knowledge of Litmus and the
Shareholders after due inquiry with the employees of Litmus and its
Subsidiaries, Litmus and its Subsidiaries have not received any complaints of
Adware or Spyware or “cookie stuffing” arising from or related to the Business
of Litmus and its Subsidiaries.  To the
Knowledge of Litmus and the Shareholders after due inquiry with the employees
of Litmus and its Subsidiaries, Litmus and its Subsidiaries do not engage or
utilize Adware or Spyware or “cookie stuffing” and have taken commercially
reasonable efforts to avoid such practices by their respective employees and
agents. 

 

4.30         Material
Information.  To the Knowledge of
Litmus and the Shareholders, all material information concerning Litmus and its
Subsidiaries has been provided by Litmus and the Shareholders to THK and Litmus
Acquisition Sub.

 

ARTICLE V

 

REPRESENTATIONS
AND WARRANTIES OF

THK AND LITMUS ACQUISITION
SUB

 

In order to induce the Shareholders and Litmus to enter into this
Agreement and to consummate the transactions contemplated hereby, THK and
Litmus Acquisition Sub represent and warrant to the Shareholders and Litmus as
follows:

 

5.1           Organization
and Qualification.  Each of THK and
Litmus Acquisition Sub is a corporation duly organized, validly existing and in
good standing under the laws of its respective state of incorporation with full
power and authority to own, lease and operate its properties and to conduct its
business as now conducted, except where failure to be so organized, existing
and in good standing would not reasonably be expected to have a Material
Adverse Effect on THK or Litmus Acquisition Sub.  Each of THK and Litmus Acquisition Sub is
duly qualified or licensed as a foreign corporation in each of the
jurisdictions listed on Schedule 5.1 which are the only jurisdictions in
which the failure to be so licensed or qualified could have a Material Adverse
Effect on THK and Litmus Acquisition Sub taken as a whole.  Each of THK and Litmus Acquisition Sub has
made available to the Shareholders and Litmus true, complete and correct copies
of its charter documents, as amended to date, including the respective Articles
of Incorporation and By-Laws of each. 
All of the issued and outstanding shares of common stock 

 

31

 

of Litmus Acquisition Sub, or other equity interests in, Litmus
Acquisition Sub are (a) duly authorized, validly issued, fully paid,
non-assessable, (b) owned, directly or indirectly, by THK free and clear of all
Liens, and (c) free of any restriction, including, without limitation, any
restriction which prevents the payment of dividends to THK, or otherwise
restricts the right to vote, sell or otherwise dispose of such ownership
interest other than restrictions under the Securities Act and state securities
laws.

 

5.2           Capital
Structure.  The authorized capital
stock of THK consists of (a) 100,000,000 shares of THK Common Stock and (b)
5,000,000 shares of “blank check” Preferred Stock, 500,000 shares of which have
been designated “Series One Preferred Stock” (“THK Preferred Stock”).  As of February 1, 2006: (1) 41,402,656
shares of THK Common Stock were issued and outstanding, (2) no shares of THK
Preferred Stock were issued or outstanding, (3) 2,500,000 shares of THK Common Stock
were held in the treasury of THK, and (4) 12,144,246 shares of THK Common Stock
were duly reserved for future issuance pursuant to warrants or options issued
or granted by THK.  All outstanding
shares of THK Common Stock are, and all shares of THK Common Stock to be issued
in connection with the consummation of the transactions contemplated by this
Agreement will be, when issued in accordance with the terms hereof, duly
authorized, validly issued, fully paid and non-assessable, and not subject to,
or issued in violation of, any kind of preemptive, subscription or any kind of
similar rights.  There are no bonds,
debentures, notes or other indebtedness of THK having the right to vote (or
convert into securities having the right to vote) on any matters on which
stockholders of THK may vote.  Except as
described on Schedule 5.2(a) hereof, there are no outstanding
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind (contingent or otherwise) to which THK
is a party or bound obligating THK to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock or other voting
securities of THK or obligating THK to issue, grant, extend or enter into any
agreement to issue, grant or extend any security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking.  Except as set forth on Schedule 5.2(b),
neither THK nor Litmus Acquisition Sub is subject to any obligation or
requirement to provide funds for, or to make any investment (in the form of a
loan or capital contribution) to, or in, any Person.  All of the issued and outstanding shares of
THK Common Stock were issued in compliance with all applicable federal and
state securities laws.

 

5.3           Authorization;
Enforceability.  Each of THK and
Litmus Acquisition Sub has the corporate power and authority to execute,
deliver and perform their respective obligations under this Agreement and the
other Documents to which it is or they are a party.  The execution, delivery and performance of
this Agreement and the other Documents to which it is or they are a party and
the consummation of the transactions contemplated herein and therein have been
duly authorized and approved by the board of directors of THK and of Litmus
Acquisition Sub, and no other action by either entity or its equity holders is
necessary to consummate the transactions contemplated by this Agreement and the
other Documents.  This Agreement and each
of the other Documents to be executed and delivered by each of THK and Litmus
Acquisition Sub have been duly executed and delivered by, and constitute the
legal, valid and binding obligations of, each of them, enforceable against each
of them, in accordance with their terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditor rights generally or by general equity
principles (regardless of whether enforcement is sought in a proceeding in
equity or at law).

 

32

 

5.4           No
Violation or Conflict.  None of (a)
the execution and delivery by THK and Litmus Acquisition Sub of this Agreement
and the other Documents to be executed and delivered by each of THK and Litmus
Acquisition Sub, (b) consummation by each of THK and Litmus Acquisition Sub of
the transactions contemplated by this Agreement and the other Documents, or (c)
the performance of this Agreement and the other Documents required by this
Agreement to be executed and delivered by each of THK and Litmus Acquisition
Sub at the Closing, will (1) conflict with or violate the charter documents of
any of them, (2) to the Knowledge of THK and Litmus Acquisition Sub, conflict
with or violate any Law, Order or Permit applicable to any of them or by which
their properties are bound or affected, or (3) result in any breach or
violation of or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or impair the rights of THK or Litmus
Acquisition Sub or alter the rights or obligations of any third party under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of any Lien on any of the properties
or assets of either THK or Litmus Acquisition Sub pursuant to, any Contract,
Permit or other instrument or obligation to which THX or Litmus Acquisition Sub
is a party or by which THX or Litmus Acquisition Sub or its properties are
bound or affected except, in the case of clause (2) or (3) above, for any
conflict, breach, violation, default or other occurrence that would not
individually or the aggregate, have a Material Adverse Effect on THK and Litmus
Acquisition Sub taken as a whole.

 

5.5           Governmental
Consents and Approvals.  Except as
set forth on Schedule 5.5, the execution, delivery and performance of
this Agreement and the other Documents by each of THK and Litmus Acquisition
Sub do not and will not require any consent, approval, authorization, Permit or
other order of, action by, filing with or notification to, any Governmental
Authority.

 

5.6           Litigation.  Except as set forth on Schedule 5.6,
there are no Actions pending or, to the Knowledge of THK, threatened, against
THK or Litmus Acquisition Sub, which, if adversely determined, would have a
Material Adverse Effect on THK and Litmus Acquisition Sub taken as a whole.

 

5.7           Interim Operations.  Litmus Acquisition Sub was formed solely for
the purpose of engaging in the transactions contemplated by this Agreement, and
has engaged in no other business activities and has conducted its operations
only as contemplated in this Agreement.

 

5.8           Brokers.  Neither THK nor Litmus Acquisition Sub has
employed any financial advisor, broker or finder, and neither THK nor Litmus
Acquisition Sub has incurred and will not incur any broker’s, finder’s,
investment banking or similar fees, commissions or expenses in connection with
the transactions contemplated by this Agreement.

 

5.9           Material
Information.  Except as set forth on
or referred to in Schedule 5.9, to the Knowledge of THK, all material
information concerning THK and Litmus Acquisition Sub has been made available
to the Shareholders, the Non-Party Shareholders and Litmus.

 

33

 

ARTICLE VI

 

COVENANTS

 

6.1           Performance.  Subject to the terms and conditions provided
in this Agreement, each of the Parties shall use commercially reasonable
efforts in good faith to take or cause to be taken as promptly as practicable
all reasonable actions that are within its power to cause to be performed and
fulfilled those of the conditions precedent to its obligations to consummate
the transactions contemplated by this Agreement that are dependent upon its
actions, including obtaining all necessary approvals, to the end that the
transactions contemplated hereby will be fully and timely consummated.

 

6.2           Regulatory
and Other Authorizations; Notices and Consents.

 

(a)           Each of the Parties
will use its commercially reasonable efforts to obtain all authorizations, consents,
orders and approvals of all Governmental Authorities and officials that may be
or become necessary for its execution and delivery of, and the performance of
its obligations pursuant to, this Agreement and the other Documents and will
cooperate fully with each of the Parties in promptly seeking to obtain all such
authorizations, consents, orders and approvals.

 

(b)           Each of the Parties
shall give promptly such notices to third parties and use its commercially
reasonable efforts to obtain such third party consents and estoppel
certificates as the Parties may reasonably deem necessary or desirable in
connection with the consummation of the transactions contemplated by this
Agreement and the other Documents.  The
Parties shall cooperate with each other and use all reasonable efforts to
assist in giving such notices and obtaining such consents and estoppel
certificates.

 

6.3           Notification.  From the date hereof until the Closing, each
Party to this Agreement shall promptly notify the other Parties in writing of
the occurrence, or pending or threatened occurrence, of (a) any event that
would constitute a breach or violation of this Agreement by any Party or that
could reasonably be anticipated to cause any representation or warranty made by
the notifying Party in this Agreement to be materially false or misleading in
any respect (including without limitation, any event or circumstance which
would have been required to be disclosed on the applicable disclosure Schedule
if such event or circumstance occurred or existed on or prior to the date of
this Agreement), and (b) all other material developments affecting the assets,
Liabilities, business, financial condition, operations, results of operations,
customer or supplier relations, employee relations, projections or prospects of
such Party, it being agreed that any filing made by THK with the SEC during
such period shall be deemed to have been delivered by THK to Litmus and the
Shareholders and such delivery shall be deemed to satisfy the obligations of
THK and Litmus Acquisition Sub under this Section 6.3(b) with respect to the
items subject to such filings.  Any such
notification shall limit and amend or alter any of the representations,
warranties or covenants of the Parties set forth in this Agreement to which the
notification applies, provided however that the Party receiving such
notification may treat such limitation, amendment or alteration as a breach of
Section 9.1(a) if it meets the conditions thereof.

 

34

 

6.4           Conduct
of Business Pending Closing.

 

(a)           At all times prior to
the Closing Date, Litmus covenants and agrees that it shall conduct the
Business only in the ordinary course consistent with past practices, and Litmus
shall use its commercially reasonable efforts consistent with past practices to
preserve intact the Business and to keep available satisfactory relationships
with suppliers, customers and others having business relationships with it; provided
that the Shareholders shall be permitted to cause Litmus to transfer, assign,
release or otherwise dispose of cash in excess of that required for Litmus to
comply with Section 9.1(j).

 

(b)           Except as provided in
Section 6.4(a) above and Section 9.1(j), from the date of this Agreement until
the Closing Date there shall not be any increases or decreases in compensation,
capital expenditures, asset sales or affiliate transactions involving Litmus
and/or the Shareholders, nor shall there be any unusual cash withdrawals,
unusual payments, unusual Contracts or contract provisions, or other unusual
transactions or business practices involving Litmus and/or the Shareholders.

 

(c)           At all times prior to
the Closing Date, except as otherwise set forth in this Agreement, Litmus
Acquisition Sub covenants and agrees that it will not, directly or indirectly,
conduct any business or incur any Liabilities (contingent or otherwise).

 

(d)           Litmus and the
Shareholders agree that during the period from the date hereof until the
earlier of the Closing Date or the date this Agreement is terminated pursuant
to Article XI, Litmus and the Shareholders shall refrain from entering into,
participating in, or responding to any negotiations, discussions, Contracts,
letters of intent, or other arrangements of any nature with any third parties
(other than THK) regarding a disposition of all or substantially all of
Litmus’s Business or assets, the sale of the capital stock of Litmus or any
actions which might have the effect of impeding, delaying or making more costly
the Merger.

 

6.5           Post
Closing Bonus Pool.  In the event the
Shareholders are entitled to any Earnout Payments pursuant to Article VIII, THK
shall cause additional capital to be contributed to Litmus Surviving Company to
create a bonus pool (the “Bonus Pool”). 
The Bonus Pool shall be used to pay bonuses to the pre-merger employees
of Litmus identified in Schedule 6.5 (the “Pre Merger Employees”).  The amount of additional capital to be
contributed by THK to the Bonus Pool shall be (i) $150,000 upon the payment of
the First Earnout Payment, (ii) $300,000 upon the payment of the Second Earnout
Payment, (iii) $300,000 upon the payment of the Third Earnout Payment, and (iv)
$300,000 upon the payment of the Fourth Earnout Payment.  Distribution of the Bonus Pool among the Pre
Merger Employees shall be determined by agreement between Linden and Teeter, if
and when the Bonus Pool payments are made. 
The obligations of THK under this Section shall survive the Closing.

 

35

 

ARTICLE VII

 

EMPLOYMENT MATTERS

 

7.1           Current
Employees.  The aggregate annual base
salary of each person employed by Litmus Surviving Company shall initially be
as set forth in the Employee Salaries Letter.

 

7.2           Management
of Surviving Corporation.

 

(a)           From and after the
Effective Time, until his respective successor is duly elected and qualified,
Linden shall serve as the President of Litmus Surviving Company pursuant to the
Linden Employment Agreement, with authority and responsibility to manage and
control the day-to-day operations of Litmus Surviving Company pursuant to the
Articles of Incorporation and Bylaws of Litmus Surviving Company and subject to
the overall control of the board of directors of Litmus Surviving Company and
THK.

 

(b)           Notwithstanding the
provisions of clause (a) above, any of the following actions of Litmus
Surviving Company or any of its Subsidiaries shall require the prior express
approving vote of the board of directors of Litmus Surviving Company and THK,
respectively:

 

(1)           amend
the Articles of Incorporation or Bylaws of Litmus Surviving Company;

 

(2)           wind-up,
liquidate, dissolve or reorganize Litmus Surviving Company, or adopt a plan or
proposal contemplating any of the foregoing;

 

(3)           approve
the annual budget of Litmus Surviving Company for any fiscal year, or approve
any course of action which is likely to cause Litmus Surviving Company to incur
expenses or to make capital expenditures in amounts materially different from
the amounts set forth in the relevant budget;

 

(4)           elect
or remove corporate officers of Litmus Surviving Company;

 

(5)           change
the base or bonus compensation structure of any of the senior management level
employees of Litmus Surviving Company, including the senior management level
employees named on Schedule 7.1;

 

(6)           enter
into, modify or terminate any employment agreements, severance agreements,
profit sharing plans, pension plans, or similar agreements with any senior
management employee of, or consultant to, Litmus Surviving Company;

 

(7)           issue
securities of Litmus Surviving Company, including debt or equity securities,
options, rights or warrants, or any other securities which are convertible into
or exchangeable for common stock or other equity interests of Litmus Surviving
Company;

(8)           register
any securities of Litmus Surviving Company;

 

36

 

(9)           merge,
consolidate or combine Litmus Surviving Company with any other corporation,
partnership or other entity;

 

(10)         sell
assets of Litmus Surviving Company, other than in the ordinary course of
business;

 

(11)         purchase,
sell, lease, acquire or dispose of stock or assets valued at $25,000 or more,
including acquiring another company, division or line of business (other than
as provided for in the annual budget of Litmus Surviving Company and its
Subsidiaries approved in accordance with this Section 7.2);

 

(12)         declare
or pay any dividends or any other distribution in respect of any securities of
Litmus Surviving Company, or redeem, acquire or retire any securities;

 

(13)         make,
or commit to make, during any fiscal year capital expenditures or enter into
capital leases (other than capital expenditures and capital leases provided for
in the annual budget of Litmus Surviving Company and its Subsidiaries approved
in accordance with this Section 7.2) which, in the aggregate, exceed $25,000;

 

(14)         enter
into any Contract, commitment or arrangement of any nature with any
corporation, partnership or other entity directly or indirectly owned or
controlled by, or an Affiliate of, any employee of Litmus Surviving Company;

 

(15)         borrow,
issue bonds or notes, or otherwise incur debt or guarantee any debt (other than
accounts payable incurred in the ordinary course of business, and any
borrowing, issuance of bonds or notes, or other debt or guarantees of any debt
provided for in Litmus Surviving Company’s annual budget approved in accordance
with this Section 7.2);

 

(16)         mortgage,
pledge, grant a security interest, or otherwise encumber the assets of Litmus
Surviving Company (other than any mortgage, pledge, grant of security interest,
or other encumbrance provided for in the annual budget of Litmus Surviving
Company and its Subsidiaries approved in accordance with this Section 7.2);

 

(17)         initiate
or settle any lawsuit or arbitration proceeding involving Litmus Surviving
Company, other than actions to collect debts owed to Litmus Surviving Company;

 

(18)         retain
independent certified public accountants to audit the books and financial
records of Litmus Surviving Company;

 

(19)         create
or change any committee of the Board of Directors of Litmus Surviving Company;

 

(19)         issue
any press release of any type without the prior written approval of the chief
executive officer of THK; or

 

(20)         take
any action referred to in clauses (1) through (19) above, inclusive, relating
to any Subsidiary of Litmus Surviving Company.

 

37

 

If the board of directors of Litmus Surviving
Company and THK disagree on any of the foregoing matters, then the decision of
the THK board of directors shall control.

ARTICLE VIII

 

EARNOUT

 

8.1           Earnout.  Following the
Closing Date, the Shareholders and the Non-Party Shareholders shall be eligible
to receive Deferred Cash Consideration and Deferred Stock Consideration
(collectively, the “Deferred Consideration”), payable in up to four
payments (each an “Earnout Payment” and collectively the “Earnout
Payments”) based on the Aggregate First Twelve Calendar Quarters
Pre-Tax Earnings.  Such Deferred
Consideration, if any, shall be calculated as indicated below based upon the
earnings target reached as set forth below:

(a)           If
the Aggregate First Twelve Calendar Quarters Pre-Tax Earnings is less than
$10,000,000, then no Deferred Consideration shall be payable to the
shareholders and no Earnout Payment shall be paid to Shareholders and the
Non-Party Shareholders;

 

(b)           At
such time as the Aggregate First Twelve Calendar Quarters Pre-Tax Earnings is
equal to at least $10,000,000, then Deferred Consideration in the amount of
$2,850,000 shall be payable to the Shareholders and the Non-Party Shareholders
and the first Earnout Payment (the “First Earnout Payment”) shall be
paid to the Shareholders and the Non-Party Shareholders.  The First Earnout Payment shall be paid as
follows:  (i)  $1,350,000 of Deferred Cash Consideration,
and (ii) Deferred Stock Consideration of THK Common Stock having an aggregate
value of $1,500,000, such stock to be valued at the average closing price per
share of THK Common Stock on the last thirty (30) trading days prior to the end
of the last calendar quarter prior to such Earnout Payment;

 

(c)           At
such time as the Aggregate First Twelve Calendar Quarters Pre-Tax Earnings is
equal to at least $15,000,000, then Deferred Consideration in the amount of
$5,700,000 shall be payable to the Shareholders and the Non-Party Shareholders
and the second Earnout Payment (the “Second Earnout Payment”) shall be
paid to the Shareholders and the Non-Party Shareholders.  The Second Earnout Payment shall be paid as
follows:  (i)  $2,700,000 of Deferred Cash Consideration,
and (ii) Deferred Stock Consideration of THK Common Stock having an aggregate
value of $3,000,000, such stock to be valued at the average closing price per
share of THK Common Stock on the last thirty (30) trading days prior to the end
of the last calendar quarter prior to such Earnout Payment;

 

(d)           At
such time as the Aggregate First Twelve Calendar Quarters Pre-Tax Earnings is
equal to at least $20,000,000, then Deferred Consideration in the amount of
$5,700,000 shall be payable to the Shareholders and the Non-Party Shareholders
and the third Earnout Payment (the “Third Earnout Payment”) shall be
paid to the Shareholders and the Non-Party Shareholders.  The Third Earnout Payment shall be paid as
follows:  (i)  $2,700,000 of Deferred Cash Consideration,
and (ii) Deferred Stock Consideration of THK Common Stock having an aggregate
value of $3,000,000, such stock to be valued at the average closing price per
share of THK Common Stock on the last thirty (30) trading days prior to the end
of the last calendar quarter prior to such Earnout Payment;

 

38

 

(e)           At
such time as the Aggregate First Twelve Calendar Quarters Pre-Tax Earnings is
equal to at least $25,000,000, then Deferred Consideration in the amount of
$5,700,000 shall be payable to the Shareholders and the Non-Party Shareholders
and the fourth Earnout Payment (the “Fourth Earnout Payment”) shall be
paid to the Shareholders and the Non-Party Shareholders.  The Fourth Earnout Payment shall be paid as follows:  (i) 
$2,700,000 of Deferred Cash Consideration, and (ii) Deferred Stock
Consideration of THK Common Stock having an aggregate value of $3,000,000, such
stock to be valued at the average closing price per share of THK Common Stock
on the last thirty (30) trading days prior to the end of the last calendar
quarter prior to such Earnout Payment.

 

(f)            In
no event shall the aggregate amount of the Deferred Consideration exceed
Nineteen Million Nine Hundred Fifty Thousand Dollars ($19,950,000).  If more than one of clauses (b), (c), (d) and
(e) above are satisfied as of the end of the same calendar quarter, the Earnout
Payments for each such threshold shall be due and payable at the same
time.  If it is determined that the
Shareholders and the Non-Party Shareholders are entitled to Deferred
Consideration for any completed calendar quarter, THK shall be irrevocably
obligated to make the related Earnout Payment, even if the Aggregate First
Twelve Calendar Quarters Pre-Tax Earnings for calendar quarters ending after
such calendar quarter falls below the applicable threshold triggering such
Deferred Consideration for the prior calendar quarter.  In no event shall any shareholder or
Non-Party Shareholder be obligated to return, repay, waive or rescind any
Deferred Consideration which THK is obligated to pay under any circumstances,
including a subsequent decline in the Aggregate First Twelve Calendar Quarter
Pre-Tax Earnings below the applicable threshold triggering such Deferred
Consideration at the end of any Subsequent Calendar Quarter.

 

(g)           Notwithstanding
any provision to the contrary in this Agreement, THK, in its sole discretion,
shall be permitted to pay to the Shareholders and the Non-Party Shareholders
any portion of the Deferred Stock Consideration that is required to be paid
hereunder in cash in lieu of shares of THK Common Stock to the extent that such
portion of the Deferred Stock Consideration would cause the total Stock
Consideration to be paid by THK pursuant to this Agreement to exceed 20% of the
shares of THK Common Stock issued and outstanding immediately prior to the
Effective Time.  THK covenants and agrees
that it will seek approval from its shareholders for the issuance of the
Deferred Stock Consideration to the extent it does or will exceed 20% of the
outstanding shares of THK Common Stock at the next annual or special meeting of
its shareholders held after the annual meeting scheduled for March 14, 2006 or
any postponements or adjournments thereof. 
The rights set forth in the first sentence of this paragraph (g) shall
terminate if such shareholder approval is obtained.

 

8.2           Timing
of Earnout Payments.  The Earnout
Payments, if required to be delivered by THK to the Shareholders and the
Non-Party Shareholders as described above, shall be delivered by THK to the
Shareholders and the Non-Party Shareholders within thirty (30) days following
the receipt by THK from the THK Accountants of the calculations of the
Aggregate First Twelve Calendar Quarters Pre-Tax Earnings for the applicable
calendar quarter.  THK will use good
faith efforts to cause the THK Accountants to deliver such calculations to THK
and each Shareholder as promptly as practicable following the end of each
calendar quarter, but in no event later than the date on which THK files its
applicable SEC report for such calendar quarter.

 

39

 

Subject to Section 2.6, each
Earnout Payment shall be delivered to each Shareholder and Non-Party
Shareholder who received the Initial Cash Consideration and Initial Stock
Consideration in the same proportion as such initial distributions.

 

8.3           Calculation
of Aggregate First Twelve Calendar Quarters Pre-Tax Earnings.  Following the end of each calendar quarter
included in the First Twelve Quarters, the THK Accountant shall calculate the
Aggregate First Twelve Calendar Quarters Pre-Tax Earning using GAAP
consistently applied for each period. 
When calculating the Aggregate First Twelve Calendar Quarter Pre-Tax
Earnings for any period, any expenses for taxes and amortization of goodwill
and other assets arising from the consummation of the transactions contemplated
by this Agreement shall not be included. 
Any payments made from the Bonus Pool created pursuant to Section 6.5
shall not be included when calculating the First Twelve Quarters Pre-Tax
Earnings for any period.  Further, unless
THK and the Shareholders mutually agree, no charge against the earnings of
Litmus Surviving Company shall be allowed for any expenses of THK in the nature
of overhead, management fee or otherwise, when calculating the Aggregate First
Twelve Quarter Pre-Tax Earnings for any period, other than (i) expenses
incurred by THK but allocated and charged to Litmus Surviving Company and
directly related to preparing the financial statements of Litmus Surviving
Company and its Subsidiaries or to determining or certifying the Aggregate
First Twelve Quarters Pre-Tax Earnings for any period and (ii) expenses or
other charges incurred by THK and arising from or related to any claim asserted
by or against Litmus Surviving Company.

 

ARTICLE IX

 

CONDITIONS PRECEDENT TO CLOSING

 

9.1           Conditions
Precedent to the Obligations of the Parties.  The obligation of each of the Parties to
consummate the transactions described in this Agreement shall be subject to the
fulfillment on or before the Closing of the following conditions
precedent.  Any failure of Litmus or the
Shareholders to fulfill any of the conditions precedent set forth below in
subsections (a), (c), (e), (f), (g), (h), (j) and (k) on or before the Closing
may be waived in writing by THK, in whole or in part, in THK’s sole
discretion.  Any failure of THK or Litmus
Acquisition Sub to fulfill any of the conditions precedent set forth below in
subsections (b), (d), (e), (f), (g) and (i) on or before the Closing may be
waived in writing by the Shareholders, in whole or in part, in the
Shareholders’ sole discretion.

 

(a)           Representations,
Warranties and Covenants of the Shareholders and Litmus.  The representations and warranties of the
Shareholders and Litmus contained in this Agreement shall have been true and
correct when made and shall be true and correct in all material respects as of
the Closing, with the same force and effect as if made as of the Closing Date,
other than such representations and warranties that are expressly made as of
another date (which shall be true and correct in all material respects as of
the date when made), and the covenants and agreements contained in this
Agreement to be complied with by the Shareholders and Litmus on or before the
Closing shall have been complied with, and THK and Litmus Acquisition Sub shall
have received a certificate from the Shareholders and Litmus to such effects
signed by the Shareholders and by a duly authorized officer of Litmus.

 

40

 

(b)           Representations,
Warranties and Covenants of THK and Litmus Acquisition Sub.  The representations and warranties of each of
THK and Litmus Acquisition Sub contained in this Agreement shall have been true
and correct when made and shall be true and correct in all material respects as
of the Closing, with the same force and effect as if made as of the Closing
Date, other than such representations and warranties that are expressly made as
of another date (which shall be true and correct in all material respects as of
the date when made), and the covenants and agreements contained in this
Agreement to be complied with by THK and Litmus Acquisition Sub on or before
the Closing shall have been complied with, and Litmus shall have received a
certificate to such effects signed by a duly authorized officer of THK and
Litmus Acquisition Sub.

 

(c)           No
Adverse Change of Litmus.  No events
or conditions shall have occurred which, individually or in the aggregate, have
had, or may reasonably be anticipated to give rise to, any Material Adverse
Effect on Litmus and its Subsidiaries taken as a whole.

 

(d)           No
Adverse Change of THK or Litmus Acquisition Sub.  No events or conditions shall have occurred
which, individually or in the aggregate, have had, or may reasonably be
anticipated to give rise to, any Material Adverse Effect on THK and Litmus
Acquisition Sub taken as a whole.

 

(e)           Governmental
Approvals.  Any and all approvals
from Governmental Authorities required for the lawful consummation of the
transactions contemplated by this Agreement and the other Documents shall have
been obtained.  The Articles of Merger
shall have been filed with the Secretary of State of the State of Missouri.

 

(f)            Consents.  Any and all required consents and approvals
from third parties for the consummation of the transactions contemplated by
this Agreement and the other Documents shall have been obtained.

 

(g)           No
Actions, Suits or Proceedings.  No
Order of any Court or Governmental Authority shall have been issued
restraining, prohibiting, restricting or delaying the consummation of the
transactions contemplated by this Agreement and the other Documents. No
Litigation shall be pending or, to the Knowledge of the Parties to this
Agreement, threatened, before any Court or Governmental Authority to restrain,
prohibit, restrict or delay, or to obtain damages or a discovery order in
respect of this Agreement or the consummation of the transactions contemplated
hereby.  No insolvency proceeding of any
character including without limitation, bankruptcy, receivership,
reorganization, dissolution or arrangement with creditors, voluntary or
involuntary, of Litmus or THK shall be pending, and neither THK nor Litmus
shall have taken any action in contemplation of, or which would constitute the
basis for, the institution of any such proceedings.

 

(h)           Litmus/Shareholders
Deliveries.  At the Closing, Litmus
and the Shareholders, to the extent applicable, shall, and shall cause the
Non-Party Shareholders to, take the following actions:

 

41

 

(1)           Each
of the Shareholders shall, and shall cause the Non-Party Shareholders to,
deliver to THK, in a form reasonably satisfactory to THK, an affidavit executed
by such Shareholder and Non-Party Shareholders issued pursuant to and in
compliance with Treasury Regulations Section 1.1445-2(b)(2) and dated as of the
Closing Date, certifying that such Shareholder and Non-Party Shareholder is not
a foreign person;

 

(2)           The
Shareholders shall, and shall cause the Non-Party Shareholders to, convey,
give, grant, assign and transfer to Litmus Surviving Company any and all
rights, titles and interests of any nature whatsoever that the Shareholders and
the Non-Party Shareholders may have in, or to, the ownership or use of any and
all Intellectual Property used in or associated with Litmus or its Subsidiaries
or the Business and not otherwise transferred to Litmus or the applicable
Subsidiary prior to the Closing;

 

(3)           The
Shareholders shall, and shall cause the Non-Party Shareholders to, convey,
give, grant, assign and transfer to Litmus Surviving Company any and all
rights, titles and interests of any nature whatsoever, legal or beneficial,
active or passive, that the Shareholders and the Non-Party Shareholders may
have in, any other Person, business or “website” involving the sale or
provision of information, goods or services over the Internet;

 

(4)           Linden
shall execute and deliver an employment agreement substantially in the form of Exhibit
B-1 attached hereto (the “Linden Employment Agreement”); and Teeter
shall execute and deliver an employment agreement substantially in the form of Exhibit
B-2 attached hereto (the “Teeter Employment Agreement”).

 

(5)           The
Shareholders and the Non-Party Shareholders shall execute and deliver a
registration rights agreement substantially in the form set forth in Exhibit
C attached hereto (the “Registration Rights Agreement”);

 

(6)           The
Shareholders and the Non-Party Shareholders shall have delivered Litmus
Certificates evidencing all of the Litmus Common Stock to THK.

 

(7)           Litmus
shall deliver to THK the Audited Financials prepared in accordance with GAAP,
accompanied by a signed, unqualified opinion of Blackman Kallick Bartelstein
LLP, all reasonably acceptable to THK.

 

(8)           Litmus
shall deliver a certificate, with supporting bank statements, stating the
amount of cash on deposit on the Closing Date in unrestricted accounts
maintained by Litmus and its Subsidiaries;

 

(9)           Each
holder of any option, warrant, or other contractual right to acquire any equity
interest of Litmus, if any, shall deliver the executed “Option Cancellation
Agreement” set forth on Schedule 9.1(h)(9) hereto;

 

(10)         Litmus
shall deliver all minute books and corporate records of Litmus and its
Subsidiaries to THK;

 

42

 

(11)         Litmus
shall deliver a copy of the resolutions duly, validly and unanimously adopted
by the directors and shareholders of Litmus, certified by the secretary,
authorizing and approving the execution, delivery and performance of this
Agreement and the other Documents and the transactions contemplated hereby and
thereby; and

 

(12)         Litmus
and the Shareholders shall, and shall cause the Non-Party Shareholders to,
deliver such other Documents and instruments as THK or its counsel may
reasonably request.

 

(i)            THK/Litmus
Acquisition Sub Deliveries.  At the
Closing, THK and the Litmus Acquisition Sub, to the extent applicable, shall
take the following action:

 

(1)           THK
shall have delivered the Initial Cash Consideration to the Shareholders and the
Non-Party Shareholders and a signed irrevocable letter to THK’s stock transfer
agent to deliver the Initial Stock Consideration to the Shareholders and the
Non-Party Shareholders in accordance with Section 2.6.

 

(2)           THK
shall cause Litmus Surviving Company to execute and deliver the Linden
Employment Agreement and the Teeter Employment Agreement;

 

(3)           THK
shall execute and deliver the Registration Rights Agreement;

 

(4)           THK
and Litmus Acquisition Sub shall deliver a copy of the resolutions duly,
validly and unanimously adopted by the board of directors of THK and of Litmus
Acquisition Sub and by the shareholders of Litmus Acquisition Sub certified by
their respective officers authorizing and approving the execution, delivery and
performance of this Agreement and the other Documents and the transactions
contemplated hereby and thereby;

 

(5)           THK
shall execute and deliver to the Shareholders warrants to purchase THK Common
Stock pursuant to warrant agreements substantially in the form attached hereto
as Exhibit D (the “Shareholder Warrant Agreements”); and

 

(6)           THK
shall have established a pool of warrants to purchase up to 40,000 shares of
THK Common Stock to be issued to persons who are employees of Litmus on the Closing
Date and who remain employees of Litmus Surviving Company (other than Linden
and Teeter), which warrants shall be allocated among such employees by THK with
input from Linden and Teeter and shall be the same terms and conditions as the
Shareholder Warrant Agreements.

 

(j)            Elimination
of Long-Term Debt; Receivables; Cash in Excess of Liabilities. Litmus shall
demonstrate to THK and Litmus Acquisition Sub that, as of the date of this
Agreement, (i) the aggregate cash in the checking and savings accounts of
Litmus and its Subsidiaries equals or exceeds Two Hundred Thousand Dollars
($200,000), and (ii) the Receivables of Litmus and its Subsidiaries with an age
of less than sixty (60) days exceed the Liabilities of Litmus and its
Subsidiaries by at least $1.00.  The
foregoing notwithstanding, THK and Acquisition Sub expressly agree that Litmus
may, at its election, distribute cash dividends to its shareholders prior to
the Closing Date in an amount equal to the amount by which the cash in 

 

43

 

the checking and savings accounts of Litmus
and its Subsidiaries on the date of this Agreement exceeds $200,000 (the “Pre-Closing
Dividend”).  Litmus shall demonstrate
on the Closing Date that the Receivables of Litmus and its Subsidiaries with an
age less than sixty (60) days exceeds the Liabilities of Litmus and its
Subsidiaries by $1.00 plus the amount, if any, by which the cash in the
checking and savings accounts of Litmus and its Subsidiaries on the Closing
Date is less than $200,000; provided, that on the Closing Date,
Litmus and its Subsidiaries shall not have any liability for amounts owing any
advisor or agent retained by THK, Litmus Acquisition Sub, Litmus or the
Shareholders in connection with the transactions contemplated by this
Agreement.    Other than the Pre-Closing
Dividend, any Receivables or other cash collected after the date of this
Agreement shall be retained by Litmus and shall not be distributed to the
Shareholders or Non-Party Shareholders or other employees or third parties,
other than (1) payments to employees and third parties in the ordinary course
of business, and (2) payments to advisors or agents retained by Litmus or the
Shareholders in connection with the transactions contemplated by this Agreement
in an aggregate amount not to exceed $50,000.

 

(k)           Due
Diligence.  THK shall have completed
its due diligence investigation of Litmus and its Subsidiaries (including
without limitation an examination of corporate books and records, financials,
historical operations, management, business practices, computer systems,
prospects, legal, tax, ERISA and other matters).  The results of such investigation shall be
satisfactory to THK in its reasonable discretion.  THK acknowledges that, as of the date of execution
of this Agreement, such investigation have been completed and the results of
such investigation are satisfactory to THK in its reasonable discretion.

 

(l)            Financing.  THK shall have successfully raised the Six
Million Five Hundred Thousand Dollars ($6,500,000) for the Initial Cash
Consideration on terms and conditions acceptable to THK in its reasonable
discretion.

 

9.2           Closing.  Unless this Agreement shall have been
terminated pursuant to Article XI and subject to the satisfaction or waiver of
the conditions set forth in Section 9.1, the Closing shall occur as soon as
possible and in no event later than two (2) business days following the last to
occur of the following:

 

(a)           THK
shall have satisfied the financing contingency set forth in Section 9.1(l).

 

(b)           The
AMEX shall have approved the listing of the shares of THK common stock to be
issued under the Merger Agreement within the applicable timeframe for AMEX
review of the Merger Agreement, or

 

(c)           March
1, 2006.

 

44

 

ARTICLE X

 

INDEMNIFICATION

 

10.1         Survival
of Representations, Warranties and Covenants.

 

(a)           No
representations or warranties of Litmus and the Shareholders contained herein
shall survive beyond the Effective Time except that (i) the representations and
warranties contained in Sections 4.1, 4.6, 4.18, and 4.16 hereof shall survive
for three (3) years from the Closing Date (the “Three Year Claims”),
(ii) the representations and warranties of Litmus and the Shareholders
contained in Section 4.15 shall survive until the expiration of the relevant
statute of limitations applicable thereto (“Tax Claims”), (iii) the
representations and warranties of Litmus and the Shareholders contained in
Section 4.22 shall survive until October 27, 2010 (“Section 4.22 Claims”)
and (iv) all other representations and warranties of Litmus and the
Shareholders as set forth in Article IV hereof shall survive for eighteen (18)
months from the Closing Date (“General Claims”).

 

(b)           No
representations or warranties of THK and Litmus Acquisition Sub contained in
this Agreement shall survive beyond the Effective Time except that (i) the
representations and warranties contained in Sections 5.1 and 5.5 hereof shall
survive for three (3) years from the Closing Date (the “THK Three Year
Claims”) and (ii) all other representations and warranties of THK and
Litmus Acquisition Sub as set forth in Article V hereof shall survive for
eighteen (18) months from the Closing Date (“THK General Claims”).

 

(c)           All
covenants and agreements contained in this Agreement (and in the corresponding
covenants and agreements set forth in any of the Documents) shall survive the
Closing and continue in full force until fully performed in accordance with
their terms.

 

(d)           A
Party shall have no claim for indemnity or other cause of action or claim
arising from a breach of a representation or warranty unless such Party gives
written notice to the other Party of such claim, specifying with particularity
which representation or warranty has been breached and the factual basis for
such claim, prior to the expiration of the applicable survival period.

 

10.2         Indemnification.

 

(a)           The
Shareholders jointly and severally agree to indemnify and hold harmless THK and
Litmus Acquisition Sub, and each of their respective successors and assigns,
together with all of their officers and directors (collectively, the “THK
Indemnitees”), from and against any and all losses, damages, liabilities,
obligations, costs or expenses (any one such item being herein called a “Loss”
and all such items being herein collectively called “Losses”), which are
caused by or arise out of (1) any material breach or default in the performance
by the Shareholders or Litmus of any covenant or agreement of the Shareholders
or Litmus contained in this Agreement; (2) any material breach of warranty
or materially inaccurate or erroneous representation made by the Shareholders
or Litmus herein or in any Schedule delivered to THK or Litmus Acquisition Sub
pursuant hereto or in any certificate or other instrument delivered by 

 

45

 

or on behalf of the Shareholders or Litmus
pursuant hereto; and (3) any and all actions, suits, proceedings, claims,
demands, judgments, costs and expenses (including reasonable legal fees)
arising out of the foregoing.  Without
limiting the generality of the immediately preceding sentence, the
Shareholders, jointly and severally, shall indemnify and hold harmless the THK
Indemnitees from and against Claims of Any Nature regarding Litmus and its
Subsidiaries created or incurred prior to the Closing other than Approved
Liabilities (“Unapproved Liabilities”) arising and for which notice is
given within eighteen (18) months after the Closing Date.  The foregoing notwithstanding, a Shareholder’s
obligation with respect to any Loss arising from the material breach in the
performance of any agreement or covenant incorporated herein by reference
(e.g., pursuant to the Registration Rights Agreement or the applicable
Shareholder Employment Agreement) shall be limited to that Shareholder’s breach
and shall not extend to a breach by the other Shareholder.  For purposes of this Agreement, any “Losses”
or liability for Unapproved Liabilities, shall be limited to those amounts for
which the THK Indemnitees do not receive coverage under any applicable
insurance policy and shall be net of any tax benefit received by the THK
Indemnitees as a result of such Loss.

 

(b)           THK
and Litmus Acquisition Sub jointly and severally agree to indemnify and hold
harmless the Shareholders, and their respective successors and assigns, from
and against any and all Losses which are caused by or arise out of (1) any
material breach or default in the performance by THK or Litmus Acquisition Sub
of any covenant or agreement of THK or Litmus Acquisition Sub contained in this
Agreement; (2) any material breach of warranty or materially inaccurate or
erroneous representation made by THK or Litmus Acquisition Sub herein or in any
Schedule delivered to the Shareholders or Litmus pursuant hereto or in any
certificate or other instrument delivered by or on behalf of THK or Litmus
Acquisition Sub pursuant hereto; and (3) any and all actions, suits,
proceedings, claims, demands, judgments, costs and expenses (including
reasonable legal fees) arising out of the foregoing.

 

(c)           Any
indemnified party seeking indemnification hereunder shall give to the party
obligated to provide indemnification to such indemnified party a notice
describing in reasonable detail the facts giving rise to any claim for
indemnification hereunder and shall include in such notice the amount or the
method of computation of the amount of such claim, and a reference to the
provision of this Agreement or any other agreement, document or instrument
executed pursuant hereto or in connection herewith upon which such claim is
based.  After the giving of any notice
pursuant hereto, the amount of indemnification to which an indemnified party
shall be entitled under this Article X shall be determined by the written
agreement between the indemnified party and the indemnifying party or by a
final judgment or decree of any Court of competent jurisdiction.

 

10.3         Third
Party Claim.  If any third person
asserts a claim against an indemnified party hereunder that, if successful,
might result in a claim for indemnification against any indemnifying party
hereunder, the indemnifying party shall be given prompt written notice thereof
and shall have the right (a) to participate in the defense thereof and be
represented, at indemnifying party’s own expense, by advisory counsel selected
by it, and (b) to approve any settlement if the indemnifying party is, or
will be, required to pay any amounts in connection therewith. Notwithstanding
the foregoing, if within ten (10) Business Days after delivery of the
indemnified party’s notice described above, the indemnifying party indicates in
writing to the

 

46

 

indemnified party that, as between such parties, such claims shall be
fully indemnified for by the indemnifying party as provided herein, then the
indemnifying party shall have the right to control the defense of such claim,
provided that the indemnified party shall have the right (1) to
participate in the defense thereof and be represented, at his or its own
expenses, by advisory counsel selected by it, and (2) to approve any
settlement if the indemnified party’s interests are, or would be, affected
thereby, which approval shall not be unreasonably withheld, conditioned or
delayed.

 

10.4         Set-Off.  Subject to the limits set forth below, THK
shall have the right to set-off the amount of any of THK’s Losses which are
indemnifiable by the Shareholders pursuant to this Article X against any
Earnout Payment that is or may be due and owing to the Shareholders pursuant to
Article VIII of this Agreement (the “Set-Off”).  Any Set-Off shall be in equal parts against
the Deferred Cash Consideration and Deferred Stock Consideration.  If THK intends to apply or offset any Earnout
Payments prior to the time when the amount of any indemnification which an
indemnified party is claiming it is entitled to is determined either by written
agreement between the indemnifying party and the indemnified party or by final
judgment or decree of a Court of competent jurisdiction, then THK shall deposit
the Set-Off amount with the escrow agent under the escrow agreement (the “Set-Off
Escrow Agreement”) attached as Exhibit E, to be held and disbursed
in accordance with the Set-Off Escrow Agreement.  Any such Set-Off shall be pro rata among the
Shareholders based on their existing share ownership of Litmus (not taking into
account shares owned by the Non-Party Shareholders).  The Shareholders shall remain liable for the
amount of all THK Losses in excess of the Set-Off, if any, as limited below.

 

10.5         Limitations
on Indemnity.

 

(a)           Basket
for Indemnification Claims by THK Indemnitees.  Except as, set forth in Section 10.5(d), the
THK Indemnitees shall not seek recourse against, and shall not recover from the
Shareholders under Section 10.1(a) for any Losses until, and then only to the
extent that, the aggregate amount of all Losses exceeds Fifty Thousand Dollars
($50,000).

 

(b)           Basket
for Indemnification Claims by Shareholders. 
The Shareholders shall not seek recourse against, and shall not recover
from THK and Litmus Acquisition Sub under Section 10.1(b) for any Losses until,
and then only to the extent that, the aggregate amount of all Losses exceeds
Fifty Thousand Dollars ($50,000).

 

(c)           Cap
on Liability.  Except as set forth in
Section 10.5(d), the maximum aggregate liability of the Shareholders, on the
one hand, and THK and Litmus Acquisition Sub, on the other hand, for
indemnification under Sections 10.1(a) and 10.1(b), respectively, shall not
exceed the sum of (i) $5,924,100 plus (ii) an amount equal to the value
of the shares of THK Common Stock issued to the Shareholders as the Initial
Stock Consideration (whether or not the Shareholders still own such THK Common
Stock) determined using the closing price (in U.S. Dollars) per share of the
THK Common Stock on the date when the Losses in question are sought to be
collected from or are paid by the Shareholders.

 

47

 

(d)           Violations
or Breaches of Adknowledge Release Agreement.  The Shareholders shall be liable for any
Losses suffered or incurred by any THK Indemnitees which are caused by or arise
out of any breach or violation of the Adknowledge Release Agreement by Litmus
Surviving Company or the Shareholders, including but not limited to any breach
of the representations and warranties set forth in Section 4.22 hereof, without
regard to the basket or cap set forth in Sections 10.5(a) and 10.5(c); provided,
that each Shareholder shall not be liable for violations of the Adknowledge
Release Agreement by the other Shareholder. 
The Shareholders shall keep THK appraised of any claims or notices
received or given by Litmus Surviving Company, the Shareholders, the Non-Party
Shareholders or Melissa Linden under or relating to the Adknowledge Release
Agreement.  THK shall not be liable or
responsible for any losses or damages arising under or resulting from the
Adknowledge Release Agreement, including any damages payable under Sections
16-18 of the Adknowledge Release Agreement, other than any losses or damages
caused by THK’s own actions.  In
addition, THK shall not be liable or responsible for any losses or damages if
Linden is not permitted to work for Litmus Surviving Company as a result of the
Adknowledge Release Agreement, including loss of any severance payments under
the Linden Employment Agreement or termination of the unvested warrants under
the applicable Warrant Agreement with Linden in connection with termination of
his employment.

 

ARTICLE XI

 

TERMINATION

 

11.1         Termination.

 

(a)           Litmus
and the Shareholders, on the one hand, and THK and Litmus Acquisition Sub, on
the other hand, shall have the right to terminate this Agreement in the event
that one of the conditions precedent to Closing set forth in Section 9.1 cannot
be met (other than as a result of a breach of or failure to perform under this
Agreement by the Party seeking to terminate this Agreement).

 

(b)           This
Agreement shall terminate if the Closing does not occur by March 20, 2006,
unless such date is extended by mutual agreement of the Parties.

 

11.2         Effect
of Termination.

 

(a)           In
the event of termination of this Agreement as provided in Section 11.1,
this Agreement shall forthwith become void and have no effect, without any
liability or obligation on the part of any party, except to the extent that
such termination results from the willful and material breach by a party of any
of its representations, warranties, covenants or other agreements set forth in
this Agreement, or as set forth in Section 11.2(b), below.

 

(b)           If
THK, on the one hand, or Litmus and the Shareholders, on the other hand, fail
or refuse to close the Merger on the terms contemplated by the Letter of Intent
dated December 7, 2005 among Litmus, the Shareholders and THK, and such failure
or refusal cannot be justified by (i) in the case of THK, the results of THK’s
due diligence investigation of Litmus,

 

48

 

(ii) the failure of THK, on the one hand, or
Litmus and the Shareholders, on the other hand, to agree upon the Definitive
Documents (as defined in the Letter of Intent), or (iii) failure of any of the
conditions of closing in Article IX to be satisfied notwithstanding the
parties’ commercially reasonable efforts, then and in such event the breaching
party shall pay the other party a breakup fee of $100,000 as liquidated damages
for such failure or refusal.

 

ARTICLE XII

 

TAX
MATTERS

 

12.1         Tax Returns.

 

(a)           The
Shareholders shall prepare and file or cause to be filed when due (taking into
account all extensions properly obtained) all Tax Returns that are required to
be filed by or with respect to Litmus for taxable years or periods ending on or
before the Closing Date, and the Shareholders shall remit or cause to be
remitted any Taxes due in respect of such Tax Returns except that, to the
extent such Taxes were reflected on the Audited Closing Date Balance Sheet as
Liabilities and Litmus satisfied the conditions of closing set forth in Section
9.1(j), such amounts shall be paid by Litmus Surviving Company.  THK shall prepare and file or cause to be
filed when due (taking into account all extensions properly obtained) all Tax
Returns that are required to be filed by or with respect to Litmus Surviving
Company for taxable years or periods ending after the Closing Date and THK shall
remit or cause to be remitted any Taxes due in respect of such Tax Returns.

 

(b)           From
and after the Closing, and subject to Section 12.1(a), the Shareholders shall
indemnify THK, pursuant to Article X, for all (1) Taxes imposed on Litmus for
any taxable year or period, or portion thereof, that ends on or before the
Closing Date and (2) Taxes of any Person (other than Litmus) imposed on Litmus
as a transferee or successor, by contract or pursuant to any requirement of
laws, which Taxes relate to an event or transaction occurring before the
Closing Date.  In the case of a Straddle
Period, the Taxes of Litmus (or Taxes for which Litmus is liable) for the
portion of the period ending on the Closing Date (for which the Shareholders is
liable) shall be determined based on an interim closing of the books as of the
close of business on the Closing Date (and for such purpose, the taxable period
of any partnership or other pass-through entity in which Litmus holds a
beneficial interest shall be deemed to terminate at such time), except that the
amount of any such Taxes that are imposed on a periodic basis and are not based
on or measured by income or receipts shall be determined by reference to the
percentage that the number of days in the portion of such period ending on the
Closing Date bears to the total number of days in such period beginning after
the Closing Date.

 

(c)           THK
shall promptly cause Litmus Surviving Company to prepare and provide to the
Shareholders a package of Tax information materials, including, without
limitation, schedules and work papers (the “Tax Package”) required by
the Shareholders to enable the Shareholders to prepare and file all Tax Returns
required to be prepared and filed by the Shareholders pursuant to Section
12.1(a).  The Tax Package shall be
completed in accordance with past practice, including past practice as to
providing such information and as to the method of computation of separate
taxable income or other relevant measure of income of Litmus.  THK 

 

49

 

and Litmus Surviving Company shall cause the
Tax Package to be delivered to the Shareholders within 60 days after the
Closing Date.

 

12.2         Contest Provisions.

 

(a)           THK
shall promptly notify the Shareholders in writing upon receipt by THK, Litmus
Surviving Company or any of their respective Affiliates of notice of any
pending or threatened federal, state, local or foreign Tax audits, examinations
or assessments which might affect the Tax liabilities for which the
Shareholders may be liable pursuant to Section 12.1 and Article X.

 

(b)           The
Shareholders shall have the right to represent Litmus’ interests in any Tax
audit or administrative or Court proceeding relating to taxable periods ending
on or before the Closing Date, and to employ counsel of its choice at its
expense; provided, however, that the Shareholders shall have no
right to represent Litmus’ interests in any Tax audit or administrative or
Court proceeding unless the Shareholders shall have first notified THK in
writing of the Shareholders’ intention to do so and shall have agreed with THK
in writing that, as between THK and the Shareholders, the Shareholders shall be
liable for any Taxes that result from any audit or proceeding.  Litmus Surviving Company and its
representatives shall have the right to fully participate at their expense in
any audit or proceeding and to consent to any settlement which affects a Tax
period or Straddle Period ending after the Closing Date.  THK shall have the sole right to defend
Litmus with respect to any issue arising with respect to any Tax audit or
administrative or court proceeding relating to taxable periods ending on or
before the Closing Date to the extent THK shall have agreed in writing to
forego any indemnification under this Agreement with respect to the issue.  Notwithstanding the foregoing, the
Shareholders shall not be entitled to settle, either administratively or after
the commencement of Litigation, any claim for Taxes which could adversely affect
the liability for Taxes of THK, Litmus or any Affiliate thereof for any period
after the Closing Date to any extent (including, but not limited to, the
imposition of income Tax deficiencies, the reduction of asset basis or cost
adjustments, the lengthening of any amortization or depreciation periods, the
denial of amortization or depreciation deductions, or the reduction of loss or
credit carryforwards) without the prior written consent of THK, which consent
may be withheld in the sole discretion of THK unless the Shareholders has
indemnified THK in a manner acceptable to THK against the effects of any such
settlement.

 

12.3         Assistance
and Cooperation.  After the Closing
Date, the Shareholders and THK shall (and shall cause their respective
Affiliates to):

 

(a)           assist the other party
in preparing any Tax Returns which such other party is responsible for
preparing and filing in accordance with Section 12.1;

 

(b)           cooperate fully in
preparing for any audits of, or disputes with taxing authorities regarding, any
Tax Returns of Litmus;

 

(c)           make available to the
other and to any taxing authority as reasonably requested all information,
records, and documents relating to Taxes of Litmus;

 

50

 

(d)           provide timely notice
to the other in writing of any pending or threatened Tax audits or assessments
of Litmus for taxable periods for which the other may have a liability under
this Article XII;

 

(e)           furnish
the other with copies of all correspondence received from any taxing authority
in connection with any Tax audit or information request with respect to any
such taxable period;

 

(f)            timely
sign and deliver such certificates or forms as may be necessary or appropriate
to establish an exemption from (or otherwise reduce), or file Tax Returns or
other reports with respect to, Taxes relating to sales, transfer and similar
Taxes;

 

(g)           timely
provide to the other powers of attorney or similar authorizations necessary to
carry out the purposes of this Article XII;

 

(h)           retain
all books and records with respect to Tax matters pertinent to Litmus relating
to any taxable period beginning before the Closing Date until the expiration of
the statute of limitations (and, to the extent notified by the other party, any
extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority; and

 

(i)            give
the other party reasonable written notice prior to transferring, destroying or
discarding any such books and records and, if the other party so requests, allow
the other party to take possession of such books and records or obtain copies
of same.

ARTICLE XIII

 

MISCELLANEOUS

 

13.1         Notices.  All notices, requests, consents and other
communications hereunder shall be in writing, shall be addressed to the receiving
Party’s address set forth below or to such other address as a Party may
designate by notice hereunder, and shall be either (a) delivered by hand,
(b) made by facsimile transmission, (c) sent by recognized overnight courier,
or (d) sent by certified mail, return receipt requested, postage prepaid. 

 

	
  If to THK or

  Litmus Acquisition Sub to:

  	
   

  	
  CGI Holding Corporation

  d/b/a Think Partnership Inc.

  5 Revere Drive, Suite 510

  Northbrook, IL 60062

  Attn:Gerard M. Jacobs

  Fax: 847-562-0178

  

 

	
  If to Litmus or

  the Shareholders, to:

  	
   

  	
  Litmus Media, Inc.

  310 Armour Road

  Suite 203

  North Kansas City, MO 64116

  

 

51

 

	
  With a copy to:

  	
   

  	
  Shughart Thomson & Kilroy, P.C.

  120 W. 12th Street, Suite 1600

  Kansas City, Missouri 64105

  Attn: Jacob W. Bayer, Jr.

  Fax: 816-374-0509

  
	
   

  	
   

  	
  and

  John Linden

  6365 N Hickory Ct.

  Parkville, Missouri 64151

  
	
   

  	
   

  	
  and

  Tobias Teeter

  613 1/2 S. Main Street

  Joplin, Missouri 64801

  

 

All notices, requests, consents and other
communications hereunder shall be deemed to have been delivered (1) if by
hand, at the time of the delivery thereof to the receiving party at the address
of such party set forth above, (2) if sent by facsimile transmission, at the
time receipt has been acknowledged by electronic confirmation or otherwise,
(3) if sent by overnight courier, on the next Business Day following the
day such notice is delivered to the courier service, or (4) if sent by
certified mail, on the fifth (5th) Business Day following the day such mailing
is made.

 

13.2         Entire
Agreement.  This Agreement and the
other Documents embody the entire agreement and understanding between the
Parties with respect to the subject matter hereof and supersede all prior oral
or written agreements and understandings relating to the subject matter
hereof.  No statement, representation,
warranty, covenant or agreement of any kind not expressly set forth in the
Documents shall affect, or be used to interpret, change or restrict, the
express terms and provisions of this Agreement.

 

13.3         Binding
Effect.  This Agreement shall be
binding upon and inure to the benefit of the Parties and their respective
successors, heirs, personal representatives, legal representatives, and
permitted assigns.

 

13.4         
Assignment.  Neither this
Agreement, nor any right hereunder, may be assigned by any of the Parties
without the prior written consent of the other Parties.

 

13.5         Modifications
and Amendments.  The terms and
provisions of this Agreement may be modified or amended only by written
agreement executed by all Parties hereto.

 

13.6         Waivers.  The terms and provisions of this Agreement
may be waived, or consent for the departure therefrom granted, only by written
document executed by the Party entitled to the benefits of such terms or
provisions.  No such waiver or consent
shall be deemed to be or 

 

52

 

shall constitute a waiver or
consent with respect to any other terms or provisions of this Agreement,
whether or not similar.  Each such waiver
or consent shall be effective only in the specific instance and for the purpose
for which it was given, and shall not constitute a continuing waiver or
consent.  No failure or delay by a Party
in exercising any right, power or remedy under this Agreement, and no course of
dealing between the Parties hereto, shall operate as a waiver of any such
right, power or remedy of the Party.  No
single or partial exercise of any right, power or remedy under this Agreement
by a Party, nor any abandonment or discontinuance of steps to enforce any such
right, power or remedy, shall preclude such Party from any other or further
exercise thereof or the exercise of any other right, power or remedy
hereunder.  The election of any remedy by
a Party shall not constitute a waiver of the right of such Party to pursue
other available remedies.  No notice to
or demand on a Party not expressly required under this Agreement shall entitle
the party receiving such notice or demand to any other or further notice or
demand in similar or other circumstances or constitute a waiver of the rights
of the Party giving such notice or demand to any other or further action in any
circumstances without such notice or demand.

 

13.7         No
Third Party Beneficiary.  Nothing
expressed or implied in this Agreement is intended, or shall be construed, to
confer upon or give any Person other than the Parties and their respective
heirs, personal representatives, legal representatives, successors and
permitted assigns, any rights or remedies under or by reason of this Agreement.  Notwithstanding the foregoing, the
indemnified entities and persons referred to in Article X are expressly
acknowledged to be third party beneficiaries of this Agreement.

 

13.8         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 adverse to any party.  Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the Parties 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.

 

13.9         Publicity.  Neither Litmus nor the Shareholders shall
make, or cause to be made, any press release or public announcement in respect
of this Agreement or the transactions contemplated hereby or otherwise
communicate with any news media without the prior written consent of THK,
except as may be required by Law. 
Neither THK or Litmus Surviving Company shall make, or cause to be made,
any press release or public announcement in respect of this Agreement or the
transactions contemplated hereby or otherwise communicate with any news media
without the prior written consent of the Shareholders, except as THK is advised
by its securities counsel in its discretion. 
THK and the Shareholders shall cooperate in regard to the timing and
contents of any press release or public announcement which THK and Litmus shall
decide to make.

 

53

 

13.10       Governing
Law.  This Agreement and the rights
and obligations of the parties hereunder shall be construed in accordance with
and governed by the Law of the State of Illinois without giving effect to the
conflict of law principles thereof.

 

13.11       Counterparts;
Facsimile Signatures.  This Agreement
may be executed in any number of counterparts, either manually or via facsimile
transmission of signatures, each of which shall be deemed an original but all
of which together shall constitute one and the same agreement.

 

13.12       Headings.  The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.

 

13.13       Expenses.  Except as otherwise specified in this
Agreement, all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the transactions contemplated hereby shall
be paid by the Party incurring such costs and expenses, whether or not the
Closing shall have occurred.

 

13.14       Further
Assurances.  At any time and from
time to time after the Closing Date each Party shall execute and deliver such
other instruments of sale, transfer, conveyance, assignment and confirmation as
may be reasonably requested in order to more effectively carry forth the terms
and conditions of this Agreement and the Documents.

 

13.15       Arbitration.  Any controversy, dispute or claim arising out
of or in connection with this Agreement shall be settled by final and binding
arbitration to be conducted by an arbitration tribunal in Chicago, Illinois,
pursuant to the rules of the American Arbitration Association.  The arbitration tribunal shall consist of one
arbitrator.  If the parties cannot agree
on the arbitrator, the office of the American Arbitration Association in
Chicago, Illinois shall make the necessary appointment.  The decision or award of the arbitrator shall
be final, and judgment upon such decision or award may be entered in any
competent court or application may be made to any competent court for judicial
acceptance of such decision or award and an order of enforcement.  In the event of any procedural matter not
covered by the aforesaid rules, the procedural law of the State of Illinois
shall govern.  Notwithstanding the
agreement to arbitrate contained in this Section 13.15, any party may apply to
any court having jurisdiction to enforce this Agreement to seek provisional
injunctive relief so as to maintain the status quo until the arbitration award
is rendered or the dispute is otherwise resolved.

 

13.16       Incorporation
by Reference.  Each Exhibit and
Schedule to this Agreement is hereby incorporated into this Agreement by
reference thereto, with the same legally binding force and effect as if such
Exhibit or Schedule were fully set forth herein.

 

[Remainder of
page intentionally left blank.]

 

54

 

IN WITNESS WHEREOF, the parties hereto have
each executed and delivered this Agreement as of the day and year first above
written.

 

	
   

  	
  CGI HOLDING CORPORATION, d/b/a THINK 

  PARTNERSHIP INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Gerard M. Jacobs

  
	
   

  	
  Name:

  	
  Gerard M. Jacobs

  
	
   

  	
  Title:

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  LITMUS ACQUISITION SUB, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Gerard M. Jacobs

  
	
   

  	
  Name:

  	
  Gerard M. Jacobs

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  LITMUS MEDIA, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Tobias Teeter

  
	
   

  	
  Name:

  	
  Tobias Teeter

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ John Linden

  
	
   

  	
  JOHN LINDEN

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Tobias Teeter

  
	
   

  	
  TOBIAS TEETER

  

 

55

 

JOINDER

 

Dylan DePrenger and Jeff McReynolds each join
in the foregoing Agreement dated February 17, 2006 (the “Agreement”) by and
among CGI Holding Corporation d/b/a Think Partnership, Litmus Acquisition Sub,
Inc., Litmus Media, Inc., John Linden and Tobias Teeter for the following
limited purposes:

 

1.             Each
of DePrenger and McReynolds make the representations and warranties set forth
in Section 4.24 of the Agreement (other than sub-clause (x) of clause (b) of
Section 4.24) as if the references to “Shareholders” therein referred to him.

 

2.             Each
of DePrenger and McReynolds make the representations and warranties set forth
in the last sentence of Section 4.7 of the Agreement.

 

This Joinder may be signed in counterparts.

 

 

	
   

  	
  /s/ Dylan DePrenger

  
	
   

  	
  Dylan DePrenger

  
	
   

  	
  Date: February 17, 2006

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Jeff McReynolds

  
	
   

  	
  Jeff McReynolds

  
	
   

  	
  Date: February 17, 2006

  

 

1Exhibit 10.20

 

RETENTION
AGREEMENT

 

This RETENTION AGREEMENT (this “Agreement”) is
made as of the         day of               ,
2006 by and between REAL MEX RESTAURANTS, INC., a Delaware corporation
(the “Company”), and                                    
(“Executive”).

 

WHEREAS, Executive serves the Company in a position of
substantial authority and responsibility; and

 

WHEREAS, the Company and Executive wish to establish
protections for Executive in the event of certain cessations of his employment
with the Company following a change of control of the Company.

 

NOW THEREFORE, in consideration of these premises and
intending to be legally bound hereby, the parties agree as follows:

 

SECTION 1.                            Severance
Benefits.

 

1.1.                              Executive’s
Entitlement. If on or after the effective date of a Change of Control (the “Effective
Date”) and prior to the end of the 18 month period beginning upon such
Change in Control, Executive’s employment with the Company ceases due to a
termination by the Company without Cause or a resignation by Executive with
Good Reason, Executive will be entitled to:

 

1.1.1.                     payment of all accrued and unpaid
base salary through the date of cessation;

 

1.1.2.                     payment for all accrued but unused
vacation days;

 

1.1.3.                     payment of any annual bonus earned
but unpaid with respect to the fiscal year of the Company ending prior to the
fiscal year of the Company in which such cessation occurred;

 

1.1.4.                     waiver of the applicable premium
otherwise payable for COBRA continuation coverage for Executive (and, to the
extent covered immediately prior to the date of Executive’s cessation, his
spouse and dependents) to the extent such premium exceeds the employee
contribution required for such coverage (as in effect immediately prior to
cessation of employment) for a period equal to the Severance Period;

 

1.1.5.                     continuation of his
Company-provided group term life insurance at no cost to executive (at a level
equal to the lower of $500,000, or two times Executive’s annual base rate of
pay immediately prior to cessation of employment), or if group coverage is not
permitted, reimbursement of the premiums that Executive pays for substantially
equivalent replacement coverage, for a period equal to the Severance Period;

 

1.1.6.                     continuation of his car and car
operating allowance of $       /month (or
such greater amount as in effect immediately prior to cessation of employment)
for a period equal to the Severance Period; and

 

 

1.1.7.                     monthly payments for a period
equal to the Severance Period, each equal to one-twelfth of Executive’s annual
base rate of salary (as in effect immediately prior to his cessation or, if
that cessation is due to a resignation for Good Reason described in Section 1.2.3(ii),
then at the rate in effect immediately prior to such reduction).

 

Notwithstanding the
foregoing, no amount will be paid or benefit or right provided under this
Agreement unless Executive executes and delivers to the Company, in a form satisfactory
to the Company, a release substantially identical to that attached hereto as Exhibit A
in a manner consistent with the requirements of the Older Workers Benefit
Protection Act and all other applicable laws (the “Release”). The
severance benefits described in this Section 1.1 will be paid (or,
in the case of the benefits described in

Sections 1.1.4 – 1.1.7, will begin to be paid or provided) as soon as
administratively practicable following the date the Release becomes irrevocable.
The payments, benefits and rights described in this Section 1.1
will be offset by severance benefits due under any employment agreement,
severance plan or similar arrangement maintained by the Company.

 

1.2.                              Definitions.
For purposes of this Agreement:

 

1.2.1.                     “Cause” means, with respect
to Executive: (i) conviction of, or the entry of a plea of guilty or no
contest to, a felony or any other conduct that causes the Company or its
affiliates public disgrace or disrepute, (ii) gross negligence or willful
misconduct with respect to the Company or any of its affiliates (including,
without limitation fraud, embezzlement, theft or proven dishonesty in the
course of employment); (iii) alcohol abuse or use of controlled drugs
other than in accordance with a physician’s prescription; (iv) refusal,
failure or inability to substantially perform the duties of his position,
which failure, refusal or inability (if curable) is not cured within ten days
after delivery of notice thereof; (v) material breach of any agreement
with, policy of or duty owed to the Company or any of its affiliates, which
breach (if curable) is not cured within ten days after delivery of notice
thereof; or (vi) poor work performance. Notwithstanding the foregoing, if
Executive and the Company (or any of its affiliates) have entered into an
employment, consulting or other similar agreement that specifically defines “cause”
or any substantially similar concept, “Cause” will have the meaning of such
term as defined in that agreement. For avoidance of doubt, a cessation of
employment due to (a) a mental or physical condition entitling Executive
to benefits under any Company-maintained or provided disability plan or policy
or (b) death, will not constitute a termination by the Company “without
Cause.”

 

1.2.2.                     “Change in Control” means
the first occurrence of any of the following after the Effective Date (whether
in one transaction or a series of related transactions): (i) the
sale, transfer, assignment or other disposition (including by merger or
consolidation, but excluding any sales by stockholders made as part of an
underwritten public offering of common stock) by stockholders of the Company of
more than 50% of the voting power represented by the then outstanding capital
stock of the Company, (ii) the sale of substantially all the assets of the
Company (other than a transfer of financial assets made in the ordinary course
of business for the purpose of securitization), or (iii) the liquidation
or dissolution of the Company.

 

1.2.3.                     “Good Reason” means (i) reassignment
of Executive to a position with authority, duties or responsibilities that are
substantially inferior to those of his existing position, 

 

2

 

(ii) a reduction in Executive’s annual base salary, or (iii) a
relocation of Executive’s principal worksite to a location more than twenty
(20) miles from his existing worksite or residence; provided,
however, that none of the foregoing events or conditions will
constitute “Good Reason” unless: (x)  Executive provides the Company with
written objection to the event or condition within 90 days following the
occurrence thereof, (y) the Company does not reverse or otherwise cure the
event or condition within fifteen (15) days of receiving that written
objection, and (z) Executive resigns his employment within thirty (30) days
following the expiration of that cure period; and provided
further, that notwithstanding the foregoing, if Executive and the
Company (or any of its affiliates) have entered into an employment, consulting
or other similar agreement that specifically defines “good reason,” “constructive
discharge” or any substantially similar concept, “Good Reason” will have the
meaning of such term as defined in that agreement.

 

1.2.4.                     “Severance Period” means 18
months reduced by the number of full or partial months (if any) transpired
since the occurrence of a Change in Control.

 

SECTION 2.                            Avoidance
of Golden Parachute Excise Taxes. Notwithstanding any other provision
of this Agreement, to the extent that any payment, right and/or benefit
otherwise due hereunder (when added to all other payments, rights and benefits
due to Executive from the Company and its affiliates)(collectively, the “Payments”
and each, a “Payment”) will constitute an “excess parachute payment”
under Section 280G of the Internal Revenue Code (the “Code”) or any
successor provision, that Payment will not be paid or provided unless approved
by the stockholders of the Company in a manner, and at a time, consistent with
the requirements of Section 280G(b)(5)(B) of the Code and the
regulations promulgated thereunder. The Company agrees that, if the foregoing
sentence is implicated, it will timely submit the excess Payments to its
stockholders for their approval, will recommend that its stockholders vote in
favor of those Payments and will otherwise exercise reasonable efforts to
encourage the approval of those Payments in a manner consistent with the
requirements of Section 280G(b)(5)(B) of the Code.

 

SECTION 3.                            Miscellaneous.

 

3.1.                              No
Mitigation; No Offset. Following any cessation of Executive’s employment
with the Company, Executive will be under no obligation to seek other
employment and there will be no offset against amounts due to Executive
hereunder on account of remuneration attributable to subsequent employment of
Executive by a third party.

 

3.2.                              No
Liability of Officers and Directors for Severance Upon Insolvency. Notwithstanding
any other provision of this Agreement and intending to be bound by this
provision, Executive hereby (a) waives any right to claim payment of
amounts owed to him or her, now or in the future, pursuant to this Agreement from
directors or officers of the Company if the Company becomes insolvent, and (b) fully
and forever releases and discharges the Company’s officers and directors from
any and all claims, demands, liens, actions, suits, causes of action or
judgments arising out of any present or future claim for such amounts.

 

3.3.                              Successors
and Assigns. This Agreement will inure to the benefit of and be binding
upon the Company and Executive and their respective successors, executors,
administrators and heirs. The Company may assign this Agreement to any
direct or indirect 

 

3

 

subsidiary of Company, or any successor to all or substantially all of
its assets and business by means of liquidation, dissolution, merger, consolidation,
transfer of assets, sale of stock or otherwise. The rights and obligations of
Executive hereunder are personal to Executive and may not be assigned by
him.

 

3.4.                              Notice.
Any notice or communication required or permitted under this Agreement shall be
made in writing and (a) sent by overnight courier, (b) mailed by
certified or registered mail, return receipt requested or (c) sent by
telecopier, addressed as follows:

 

If to
Executive, to the address set forth in his personnel file.

 

If
to Company:

 

Real
Mex Restaurants, Inc.

5660 Katella Avenue

Suite 100

Cypress, CA 90630

Attention: Chairman of the Board

Facsimile No.: (562) 346-1465

 

or to such other address as either party may from
time to time specify by notice given to the other party in the manner described
above.

 

3.5.                              Entire
Agreement; Amendments. This Agreement contains the entire agreement and
understanding of the parties hereto relating to the subject matter hereof, and
merges and supersedes all prior and contemporaneous discussions, agreements and
understandings of every nature relating to the subject matter hereof, except as
otherwise specifically provided for herein. This Agreement may not be
changed or modified, except by an Agreement in writing signed by each of the
parties hereto.

 

3.6.                              Waiver.
Any waiver by either party of any breach of any term or condition in this
Agreement shall not operate as a waiver of any other breach of such term or
condition or of any other term or condition, nor shall any failure to enforce
any provision hereof operate as a waiver of such provision or of any other
provision hereof or constitute or be deemed a waiver or release of any other
rights, in law or in equity.

 

3.7.                              Governing
Law. This Agreement shall be governed by, and enforced in accordance with,
the laws of the State of California, without regard to the application of the
principles of conflicts of laws.

 

3.8.                              Severability.
Whenever possible, each provision of this Agreement will be interpreted in such
manner as to be effective and valid under applicable law. However, if any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability will not affect
any other provision, and this Agreement will be reformed, construed and enforced
as though the invalid, illegal or unenforceable provision had never been herein
contained.

 

4

 

3.9.                              Section Headings.
The section headings in this Agreement are for convenience only; they form no
part of this Agreement and shall not affect its interpretation.

 

3.10.                        Withholding. Any
payments due to Executive hereunder will be subject to withholding for all
taxes or other amounts required to be withheld pursuant to applicable law.

 

3.11.                        Compliance with Section 409A.
Notwithstanding any other provision of this Agreement, all payments to be made
hereunder shall be structured, both as to amount and time of payment, to the
maximum extent possible, to comply with section 409A of the Code as
interpreted in good faith and in accordance with guidance on the application of
section 409A published by the Internal Revenue Service (“Section 409A”).
Unless and until precluded by final guidance issued under Section 409A,
the Company and the Executive agree to negotiate in good faith to restructure
any payments to be made under this Agreement to the extent reasonably necessary
to comply with the requirements of Section 409A.

 

3.12.                        Counterparts and Facsimiles.
This Agreement may be executed, including execution by facsimile signature,
in one or more counterparts, each of which shall be deemed an original and all
of which together will be deemed to be one and the same instrument.

 

3.13.                        Termination. This
Agreement shall terminate and be of no force or effect if the Effective Date
has not occurred within one year after the date hereof.

 

IN WITNESS WHEREOF, the Company has caused this
Agreement to be executed by its duly authorized officer, and Executive has
executed this Agreement, in each case as of the date first above written.

 

	
   

  	
  REAL
  MEX RESTAURANTS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name &
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  EXECUTIVE

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
							

 

5

 

Exhibit A

 

GENERAL
RELEASE AND NON-DISPARAGEMENT AGREEMENT

 

THIS GENERAL RELEASE AND NON-DISPARAGEMENT AGREEMENT
(this “Release”) is made as of the        
day of               ,
              
by and between                      
(“Executive”) and REAL MEX RESTAURANTS, INC. (the “Company”).

 

WHEREAS, Executive’s employment by the Company has
terminated; and

 

WHEREAS, pursuant to Section 1.1 of the Retention Agreement by and between the Company and
Executive dated as of               ,
2006 (the “Retention Agreement”), the Company has agreed to pay
Executive certain amounts and to provide Executive with certain benefits,
subject to the execution of this Release.

 

NOW THEREFORE, in consideration of these premises and
the mutual promises contained herein, and intending to be legally bound hereby,
the parties agree as follows:

 

SECTION 1.                            Consideration.
Executive acknowledges that: (i) the payments and benefits set forth
in Section 1.1 of the Retention Agreement constitute full
settlement of all his rights under the Retention Agreement, and (ii) [except
as otherwise provided specifically in this Release,] he has no entitlement
under any other severance or similar arrangement maintained by the Company, and
(iii) except as otherwise provided specifically in this Release, the
Company does not and will not have any other liability or obligation to him. Executive
further acknowledges that, in the absence of his execution of this Release, the
severance benefits specified in Section 1.1 of the Retention
Agreement would not otherwise be due to him.

 

SECTION 2.                            General
Release and Covenant Not to Sue.

 

2.1.                              Executive
hereby fully and forever releases and discharges the Company and its parents,
affiliates and subsidiaries, including all predecessors and successors,
assigns, officers, directors, trustees, employees, agents and attorneys, past
and present (each, a “Released Person”), from any and all claims,
demands, liens, agreements, contracts, covenants, actions, suits, causes of
action, obligations, controversies, debts, costs, expenses, damages, judgments,
orders and liabilities, of whatever kind or nature, direct or indirect, in law,
equity or otherwise, whether known or unknown, arising at any time, up to and
including the date of this Release. This general release covers and includes,
and therefore releases (without limitation) all claims arising from or relating
to the Employee’s employment with the Company, the termination of his/her
employment with the Company, or any act or omission provided for or authorized
by this Release. Among the specific claims that the Employee is releasing by
signing this Release are (without limitation) the following: all claims arising
under (i) any law prohibiting discrimination on the basis of any protected
characteristic (such as age, race, sex, national origin, religion, and
disability status), including (but not limited to) all claims arising under the
Age Discrimination in Employment Act (“ADEA”), Title VII of the Civil Rights
Act of 1964, the Americans with Disabilities Act, and any similar state and
local laws, including (but not limited to) the California Fair Employment and
Housing Act; (ii) any law governing the payment of wages or the provision
of employee benefits, including (but not limited to) the Employee Retirement
Income Security Act, the California Labor Code, and the California Workers’
Compensation Act; (iii) the 

 

A-1

 

common law of any jurisdiction, including (but not limited to) all
claims for breach of contract, wrongful termination or discharge, infliction of
emotional distress, fraud, negligence, and defamation; and (iv) any other
law (or cause of action), whether federal, state, or local, governing the
employment relationship, including (without limitation) the Family and Medical
Leave Act.”

 

2.2.                              Executive
expressly represents that he has not filed a lawsuit or initiated any other
proceeding against any Released Person and that he has not assigned any claim
against a Released Person to any other person or entity. Executive further
promises not to initiate, join, or accept any relief in a lawsuit or any other
proceeding against any Released Person asserting any claims released by this
Release.

 

2.3.                              This
Release will not prevent Executive from filing a charge with the Equal
Employment Opportunity Commission or participating in any investigation
conducted by the Equal Employment Opportunity Commission; provided, however,
that any claims by Executive for personal relief in connection with such a
charge or investigation (such as reinstatement or monetary damages) would be
barred.

 

2.4.                              Executive
acknowledges that he is familiar with and expressly waives all rights afforded
by Section 1542 of the Civil Code of the State of California (“Section 1542”).
Section 1542 reads substantially as follows:

 

A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor.

 

Notwithstanding the provisions of Section 1542, and for the
purpose of implementing a full and complete release, Executive understands and
agrees that this Release is intended to include all claims described above that
he may have, even if not now known or suspected, and that this Release
extinguishes all such claims.

 

2.5.                              The
forgoing will not be deemed to release the Company from (a)  claims solely
to enforce Section 1.1 of the Retention Agreement, (b) claims
for indemnification under the Company’s By-Laws, [or] (c) claims solely to
enforce the terms of any equity incentive award agreement between Executive and
the Company[, or (d) claims for amounts due under Section 2.4(d) of
that certain Executive Employment Agreement between Executive and the Company
dated August 2, 2004].(1)

 

(1) For Fred Wolfe
only.

 

A-2

 

SECTION 3.                            Non-Disparagement.
Executive will not disparage any Released Person or otherwise take any
action which could reasonably be expected to adversely affect the personal or
professional reputation of any Released Person. Similarly, the Company
(meaning, solely for this purpose, the Company’s directors, executive officers
and other individuals authorized to make official communications on Company’s
behalf) will not disparage Executive or otherwise take any action which could
reasonably be expected to adversely affect Executive’s personal or professional
reputation.

 

SECTION 4.                            Cooperation.
Executive further agrees that, subject to reimbursement of his reasonable
expenses, he will cooperate fully with the Company and its counsel with respect
to any matter (including litigation, investigations, or governmental
proceedings) which relates to matters with which he was involved during his
employment with Company. Executive will render such cooperation in a timely
manner on reasonable notice from the Company.

 

SECTION 5.                            Rescission
Right. Executive expressly acknowledges and recites that (a) he has
read and understands this Release in its entirety, (b) he has entered into
this Release knowingly and voluntarily, without any duress or coercion; (c) he
has been advised orally and is hereby advised in writing to consult with an
attorney with respect to this Release before signing it; (d) he was
provided 21 calendar days after receipt of the Release to consider its terms
before signing it; and (e) he is provided seven calendar days from the
date of signing to terminate and revoke this Release, in which case this
Release shall be unenforceable, null and void. Executive may revoke this
Release during those seven days by providing written notice of revocation to
the Company at the address specified in Section 3.4 of the
Retention Agreement.

 

SECTION 6.                            Challenge.
If Executive violates or challenges the enforceability of any provision of
this Release, no further payments, rights or benefits under Section 1.1
of the Retention Agreement will be due to Executive. While this Release will
serve to release any ADEA claims referenced above in Section 2, this Section 6
will not apply to any claims challenging the validity of this Agreement under
the ADEA.

 

SECTION 7.                            Miscellaneous.

 

7.1.                              No
Admission of Liability. This Release is not to be construed as an admission
of any violation of any federal, state or local statute, ordinance or
regulation or of any duty owed by the Company to Executive. There have been no
such violations and the Company specifically denies any such violations.

 

7.2.                              No
Reinstatement. Executive agrees that he will not apply for reinstatement
with the Company or seek in any way to be reinstated, re-employed or hired by
the Company in the future. Executive (i) agrees that, if he does seek such
reinstatement, then the denial of such shall be considered legitimate, proper,
and non-discriminatory for all purposes, as well as an exercise of the Company’s
rights under this section; and (ii) releases the Company and the other
Released Persons from all claims arising from exercise of their rights under
this Section 7.2 (including the claims referenced above in Section 2).

 

A-3

 

7.3.                              Successors
and Assigns. This Release shall inure to the benefit of and be binding upon
the Company and Executive and their respective successors, executors,
administrators and heirs. Executive may not make any assignment of this
Release or any interest herein, by operation of law or otherwise. The Company may assign
this Release to any successor to all or substantially all of its assets and
business by means of liquidation, dissolution, transfer of assets, or
otherwise.

 

7.4.                              Severability.
Whenever possible, each provision of this Release will be interpreted in such
manner as to be effective and valid under applicable law. However, if any
provision of this Release is held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability will not affect
any other provision, and this Release will be reformed, construed and enforced
as though the invalid, illegal or unenforceable provision had never been herein
contained.

 

7.5.                              Entire
Agreement; Amendments. Except as otherwise provided herein, this Release
contains the entire agreement and understanding of the parties hereto relating
to the subject matter hereof, and merges and supersedes all prior and
contemporaneous discussions, agreements and understandings of every nature
relating to the subject matter hereof, except as otherwise specifically
provided for herein. This Release may not be changed or modified, except
by an Agreement in writing signed by each of the parties hereto.

 

7.6.                              Governing
Law. This Release shall be governed by, and enforced in accordance with,
the laws of the State of California without regard to the application of the
principles of conflicts of laws.

 

7.7.                              Counterparts
and Facsimiles. This Release may be executed, including execution by
facsimile signature, in one or more counterparts, each of which shall be deemed
an original, and all of which together shall be deemed to be one and the same
instrument.

 

IN WITNESS WHEREOF, the Company has caused this
Release to be executed by its duly authorized officer, and Executive has
executed this Release, in each case as of the date first above written.

 

 

	
   

  	
  REAL
  MEX RESTAURANTS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name &
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  EXECUTIVE

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
							

 

A-4

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