exv10w1



 







Exhibit 10.1




JOINT VENTURE




AND




LIMITED LIABILITY COMPANY




AGREEMENT




by and among




Teknik Digital Arts, Inc.




and




Powergrid Fitness, Inc.





 









 








TABLE OF CONTENTS




	 	 	 	 	 
	ARTICLE 1 — DEFINITIONS
	 	 	1	 
	ARTICLE 2 — PRELIMINARY MATTERS
	 	 	4	 
	ARTICLE 3 — FORMATION OF THE JV
	 	 	4	 
	ARTICLE 4 — CONTRIBUTIONS; CAPITAL ACCOUNTS; DISTRIBUTIONS
	 	 	5	 
	ARTICLE 5 — MANAGEMENT OF THE JV
	 	 	8	 
	ARTICLE 6 — COVENANTS
	 	 	10	 
	ARTICLE 7 — REPRESENTATIONS AND WARRANTIES
	 	 	11	 
	ARTICLE 8 — TERM AND TERMINATION
	 	 	13	 
	ARTICLE 9 — TRANSFERS OF PARTICIPATING INTERESTS; WITHDRAWAL
	 	 	14	 
	ARTICLE 10 — CONVERSION OF JV INTERESTS
	 	 	16	 
	ARTICLE 11 — MISCELLANEOUS
	 	 	17	 






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JOINT VENTURE AND LIMITED LIABILITY COMPANY AGREEMENT




     THIS AGREEMENT is entered into as of August 1, 2006, by and between Teknik Digital Arts, Inc.,
a Nevada corporation (“Teknik”), and Powergrid Fitness, Inc. a Delaware corporation (“Powergrid”)



W I T N E S S E T H:




     WHEREAS, Teknik develops and publishes technologies and intellectual properties utilized on
personal computers, wireless phones, video game consoles and other consumer electronic devices;



     WHEREAS, Powergrid is a leading developer of technologies and products that promote
effortless wellness, such as the proprietary ISOCORTM technology.



     WHEREAS, Teknik and Powergrid wish to enter into a joint venture (the “JV”) for the purpose of
developing, and marketing Powergrid products and video game league software pursuant to the
licensing rights obtained by the Joint Venture(the “Business”); from Powergrid and



     WHEREAS, Teknik and Powergrid desire to form the JV as a limited liability company under the
Arizona Limited Liability Company Act, A.R.S. §§ 29-601, et seq., as amended from
time to time (the “Arizona Act”), to conduct the Business.



     NOW, THEREFORE, in consideration of the covenants and agreements contained in this Agreement
and other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Teknik and Powergrid agree as follows:



ARTICLE 1 — DEFINITIONS




     For purposes of this Agreement:



     “Arizona Act” means “The Arizona Limited Liability Company Act,” Arizona Revised Statutes, §§
29-601, et seq.;



     “Capital Account” has the meaning set forth in Section 4.5(a);



     “Capital Expenditure” means any amount properly incurred by a Member to purchase or maintain
any item of equipment or other capital asset for the JV, which amount would be recorded as a
capital expenditure for GAAP purposes;



     “Capital Expenditure Distribution Amount” means, with respect to any Capital Expenditure, ten
percent of the amount of such Capital Expenditure in the fiscal quarter in which such Capital
Expenditure is incurred and in each of the succeeding nine fiscal quarters;



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     “Change of Control” means any event (except going public), transaction or occurrence as a
result of which the current shareholders or interestholders of a Member cease to directly or
indirectly own and control 50% or more of the economic and voting rights of each class of the
outstanding capital stock or the interests of such Member on a fully diluted basis.



     “Code” means the Internal Revenue Code of 1986, as amended;



     “Common Stock” means the common stock of Teknik.



     “Deceased Spouse” has the meaning set forth in Section 9.1(c);



     “Development Activities” means the research, development, manufacture and sale of the Video
Games, including the provision of the funding for the acquisition of the Future JV Licenses and the
provision of accounting services.



     “Distribution Allocation” has the meaning set forth in Section 4.6;



     “Divorced Member” has the meaning set forth in Section 9.1(d);



     “Divorced Spouse” has the meaning set forth in Section 9.1(d);



     “Existing Powergrid Products” means, collectively, the rights of Powergrid or its affiliates;
to exclusively develop, manufacture and distribute the consumer game controller concept, product,
design, and invention currently known as Exer-station, which rights shall be assigned to the JV by
Powergrid pursuant to Section 4.4(a)(i);



     “Fiscal Year” has the meaning set forth in Section 3.5;



     “GAAP” means generally accepted accounting practices in the United States, consistently
applied;



     “Improvements” means any and all Technology developed by (or on behalf of) the JV or Teknik,
alone or in conjunction with others, or with respect to which the JV or Teknik acquires
intellectual property rights, during the term of this Agreement;



     “Initiating Member” has the meaning set forth in Section 9.6;



     “JV” means “Teknik-Powergrid JV, LLC”, or such other name hereafter selected by the Members,
the limited liability company to be formed by the Members pursuant to Article 3;



     “JV Financings” means short or long term secured or unsecured JV debt, or private placements
or public offerings of JV equity;



     “JV Licenses” means the Existing Powergrid License and the Future JV Licenses;



     “Know-How” means the general and specific knowledge, experience, and information, not in
written or printed form, used by the JV or Teknik and applicable to the design, development,
manufacture, assembly, servicing, or sale of Video Games related equipment;



     “Liens” means all charges, claims, encumbrances, leases, liens, mortgages, security interests,
and other restrictions of any kind and nature against personal or real property;



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     “Liquidating Member” has the meaning set forth in Section 8.3;



     “Management Committee” has the meaning set forth in Section 5.1(a);



     “Manager” has the meaning set forth in Section 5.4;



     “Maximum Drawdown Other Member” has the meaning set forth in Section 9.5;



     “Member Spouse” has the meaning set forth in Section 9.1(c);



     “Member Representatives” has the meaning set forth in Section 5.1(a);



     “Members” has the meaning set forth in Section 3.4;



     “Membership Interest Conversion Right” has the meaning set forth in Section 10.1;



     “Net Distributions” has the meaning set forth in Section 4.6;



     “Net Profits” or “Net Loss” means, as appropriate, the taxable income or loss of the JV for a
designated period for Federal income tax purposes as determined by the JV’s independent public
accountants, increased by the amount of any tax-exempt income of the JV during such period and
decreased by the amount of any Code Section 705(a)(2)(B) expenditures of the JV within the meaning
of Treasury Regulation Section 1.704-1(b)(2)(iv) of the JV;



     “Other Member” has the meaning set forth in Section 9.5;



     “Participating Interests” has the meaning set forth in Section 4.1;



     “Party” or “Parties” means an individual or entity that has executed this Agreement or is an
assignee under it;



     “Powergrid” has the meaning set forth in Section 3.4;



     “Powergrid License Agreement” has the meaning set forth in Section 4.4(a)(i);



     “Profit/Loss Allocation” has the meaning set forth in Section 4.2;



     “Reimbursable Expenses” means: (i) a Party’s direct costs and expenses incurred after the date
hereof relative to the development, fabrication, manufacture, or distribution of the Powergrid
products and related Video Game League for the JV, (ii) a Party’s costs and expenses incurred
after the date hereof relative to its corporate overhead, administration of the JV, promotion of
the Powergrid Products and Video Game league software , and negotiation for the JV, which overhead,
administrative and general costs that are reasonable and fairly attributable to the JV shall be
determined by mutual agreement of both Parties, (iii) a Party’s out-of-pocket expenses incurred
after the date hereof for the JV in developing the Improvements, and (iv) a Party’s out-of-pocket
legal and other expenses incurred in the preparation of this Agreement and the organization of the
JV;



     “Subject Interest” has the meaning set forth in Section 9.1(a);



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     “Technical Data” means documents containing technical information, engineering or production
data, blueprints, drawings, plans, specifications, descriptions of assembly and manufacturing
procedures, quality and inspection standards, test records and data, and other written materials
owned and used by the JV or Teknik, and applicable to the design, development, manufacture,
assembly, servicing, or sale of Powergrid products Video Game league software;



     “Technology” means Technical Data in human or machine readable form, inventions (whether or
not patentable), works of authorship, products, Know-How, manufacturing methods, processes,
concepts, designs, computer hardware and software, models, prototypes, automations, designs, and
related information and things applicable to the design, development, manufacture, assembly,
servicing, or sale of the Powergrid products Video Game league software;



     “Teknik” has the meaning set forth in Section 3.4;



     “Terms of Sale” has the meaning set forth in Section 9.5;



     “Third Party Expenses” means any amounts owing by the JV or a Party on behalf of the JV to
third parties unaffiliated with a Party;



     “Unauthorized Transfer” has the meaning set forth in Section 9.2; and



     “Video Game League Software” means the video games and/or subscription-based organized
community for computer games developed by JV;



     “Withdrawing Member” has the meaning set forth in Section 9.1(a).



ARTICLE 2 — PRELIMINARY MATTERS




     2.1. THE EXISTING POWERGRID PRODUCTS. Concurrent with the execution of this Agreement
as defined in Paragraph 4.4, Powergrid and/or its affiliates shall execute an exclusive license
agreement its interest in the Existing Powergrid Products with the JV.



ARTICLE 3 — FORMATION OF THE JV




     3.1 Name and Address. The name of the JV shall be “Teknik Powergrid, LLC”, or such
other name hereafter selected by the Members. The principal place of business of the JV shall be
7518 Elbow Bend Road, B-9, Carefree, Arizona.



     3.2 Registered Office and Registered Agent. John Ward is hereby designated as the
registered agent of the JV for service of process in the State of Arizona. His office located at
3104 E. Camelback #509, Phoenix, Arizona 85016 is designated as the registered office of the JV in
the State of Arizona. The JV may from time to time change its registered agent for service of
process, the location of its registered office within the State of Arizona and the location of its
principal place of business.



     3.3 Purpose and Powers of the JV. The purpose of the JV shall be to develop,
manufacture, market, and sell Powergrid products and’ Video Game League for personal computer and
console applications. The JV may also engage in other businesses that are either a direct or
indirect outgrowth of or are reasonably related to the foregoing purpose. In order to carry out
its purpose, the JV shall have and may exercise all powers now or hereafter conferred on limited
liability companies by the Arizona Act and other laws of the State of Arizona and, without
limitation, shall have the authority to execute, acknowledge, and deliver instruments, and to do
any and all things necessary, appropriate, proper,



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advisable, incidental to, or convenient, for the furtherance and accomplishment of its purpose
and for the protection and benefit of the JV.



     3.4 Members. The names and the addresses of the initial Members are as
follows:



	 	 	 
	Name	 	Address
	Teknik Digital Arts, Inc.

	 	7518 Elbow Bend Road, B-9

Carefree, Arizona. 85377
	 
	 	 
	Powergrid Fitness, Inc.

	 	8681 Cherry Lane

Laurel, Maryland 20707






     The initial Members may withdraw, be replaced, or be removed from the JV, and new Members
may be added, withdraw, be replaced, or be removed from the JV, all as provided in this Agreement.



     3.5 Fiscal Year. A “Fiscal Year” of the JV shall be a calendar year.



     3.6 Liability of Members. The Members shall not have any liability for the debts,
obligations, or liabilities of the JV, except to the extent expressly provided in the Arizona Act.



     3.7 Restrictions on Transfer. Except as provided in Article 9, no Member shall have
the right to sell, assign, pledge, transfer, encumber, or otherwise dispose of or alienate, all or
any part of its Participating Interest in the JV without the prior written consent of the other
Member in its sole discretion. Any purported sale, assignment, transfer, or other disposition by a
Party of all or any part of its Participating Interest in the JV without such prior written consent
shall be null and void and of no force and effect.



     3.8 Admission of Additional or Substitute Members. No substitute or additional Member
shall be admitted to the JV, except as specifically set forth in this Agreement.



ARTICLE 4 — CONTRIBUTIONS; CAPITAL ACCOUNTS; DISTRIBUTIONS




     4.1 Participating Interests. The “Participating Interests” of the Members in the
ownership of the JV are as follows:



	 	 	 	 	 
	Name	 	Participating Interest
	Teknik Digital Arts, Inc.

	 	 	50	%
	Powergrid Fitness, Inc.

	 	 	50	%






     4.2 Allocation of Net Profits and Net Losses. The Net Profits and Net Losses of the
JV for each Fiscal Year (or other period) shall be allocated to the Capital Account of each Member
in accordance with the following table (the “Profit/Loss Allocation”):



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	Name	 	 	 	 
	Teknik Digital Arts, Inc.

	 	 	50	%
	 
	 	 	 	 
	Powergrid Fitness, Inc.

	 	 	50	%






     4.3 Initial Capital Contributions. The initial capital contribution of each Member to
the JV in cash or other property shall be as follows:



	 	 	 	 	 
	Name	 	Initial Capital Contribution
	Teknik Digital Arts, Inc.

	 	$	50,000.00	 
	Powergrid Fitness, Inc.

	 	$100.00 (License)







     4.4 Equalization Transactions.




	 	(a)	 	Powergrid shall:






	 	(i)	 	License to the JV, in a form of a license
mutually acceptable to each of Teknik and Powergrid (the “Powergrid
Agreement”), a License to all of Powergrid’s right, title, and
interest in and to the Existing Powergrid Products, for the purposes
of engaging in the activities set forth in Section 3.3; and
	 
	 	(ii)	 	Refer all investors to Teknik to raise
additional capital for the JV. 50% of all Powergrid referral funds
invested shall be paid to Powergrid as a research and development fee
unless otherwise agreed by both members of the JV.






	 	(b)	 	Teknik shall:






	 	(i)	 	Assign to the JV, all of Teknik’s right, title,
and interest in and to the Video Game League, for the purposes of
engaging in the activities set forth in Section 3.3; and
	 
	 	(ii)	 	undertake the Development Activities; and
	 
	 	(iii)	 	make certain Capital Expenditures on behalf of
the JV, as more particularly set forth in Section 6.1, and otherwise
contribute, as Reimbursable Expenses, funds necessary to finance the
Development Activities; and
	 
	 	(iv)	 	Provide an investment vehicle for Powergrid
referral investors to invest in Teknik, with the proceeds to be used
exclusively by the JV.





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     4.5 Capital Account.




	 	(a)	 	There shall be established for each Member on the books of the
JV a capital account (a “Capital Account”). The Capital Account of a Member
shall be: (i) credited with: (x) such Member’s initial capital contribution,
(y) allocations of Net Profits to such Member, and (z) additional capital
contributions made by such Member, including, without limitation, Capital
Expenditures, and (ii) decreased by: (x) allocations of Net Losses to such
Member, and (y) distributions to such Member of Capital Expenditure
Distribution Amounts or Net Distributions.
	 
	 	(b)	 	Upon the occurrence of any event specified in Treasury
Regulation Section 1.704-1(b)(2)(iv)(i), the Management Committee may cause the
Capital Accounts of the Members to be adjusted to reflect the fair market value
of the JV’s assets at such time (as determined by the Management Committee in
its sole discretion) in accordance with such regulation.





     4.6 Expenses; Distributions. Subject to Section 4.8, the gross cash receipts of the
JV for a fiscal quarter from all sources, including, without limitation, cash from operations, JV
Financings, or other sources, less reserves for returns and inventory obsolescence, shall be used:
first, to pay Third Party Expenses incurred in such or prior fiscal quarters; second, to distribute
the sum of the Capital Expenditure Distribution Amounts for such or prior fiscal quarters to the
Member that incurred such Capital Expenditures; and, third, to pay to the Members the Reimbursable
Expenses incurred by each in such or prior fiscal quarters; provided, that to the extent that the
JV fails to pay the full amount of the sum of the Capital Expenditure Distribution Amounts, the
unpaid balance of such amounts will be carried forward and become payable as an additional Capital
Expenditure Distribution Amount in the next succeeding fiscal quarter; and provided further, that
to the extent that the JV fails to pay the full amount of the Reimbursable Expenses incurred in
such fiscal quarter: (i) the payments to a Party for Reimbursable Expenses will be made in
proportion to the relative amounts of Reimbursable Expenses owed to each in such fiscal quarter,
and (ii) any remaining amounts of Reimbursable Expenses will be carried forward and become payable
as an additional Reimbursable Expense in the next succeeding fiscal quarter. Subject to Section
4.8, any amount remaining after the payments (and after reserves for returns and inventory
obsolescence) provided for in the preceding sentence will be distributed to the Members (the “Net
Distributions”) in accordance with the distribution set forth in the following table (the
“Distribution Allocation”):



	 	 	 	 	 
	Teknik Digital Arts, Inc.

	 	 	50	%
	Powergrid Fitness, Inc.

	 	 	50	%






     4.7 Liabilities. Liabilities shall be determined in accordance with GAAP; provided,
that: (i) the Management Committee, in its sole discretion, may provide reserves for estimated
accrued expenses, liabilities, or contingencies, whether or not in accordance with GAAP, and (ii)
Reimbursable Expenses and Capital Expenditure Distribution Amounts shall constitute obligations of
the JV.



     4.8 Limitation of Distributions. Distributions will be subject to the provision by
the JV for: (i) all JV liabilities in accordance with the Arizona Act, and (ii) reserves for
liabilities taken in accordance



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with Section 4.7. The unused portion of any reserve shall be distributed after the Management
Committee has determined that the need therefor has ceased.



     4.9 Allocation of Income and Loss for Tax Purposes. The JV’s ordinary income and
losses, capital gains, other losses, and other items as determined for Federal income tax purposes
(and each item of income, gain, loss, or deduction entering into the computation thereof) shall be
allocated to the Members in accordance with the Profit/Loss Allocation set forth in Section 4.2.
Notwithstanding the foregoing sentence, Federal income tax items relating to any Section 704(c)
property shall be allocated among the Members in accordance with Section 704(c) of the Code and
Treasury Regulation Section 1.704-1(b)(2)(iv)(g) to take into account the difference between the
fair market value and the tax basis of such Section 704(c) property as of the date of its
revaluation pursuant to Section 4.5(b) hereof. Items described in this Section 4.9 shall neither
be credited nor charged to the Members’ Capital Accounts.



     4.10 Determination by the Management Committee of Certain Matters. All matters
concerning valuations and the allocation of taxable income, deductions, credits, Net Profits, and
Net Losses among the Members including taxes thereon and accounting procedures, not expressly
provided for by the terms of this Agreement shall be equitably determined in good faith by the
Management Committee, whose determination shall be final, conclusive, and binding as to all of the
Members.



ARTICLE 5 — MANAGEMENT OF THE JV




     5.1 Management of the JV.




	 	(a)	 	Management Committee. The business and affairs of the
JV shall be governed in all respects by a committee (the “Management
Committee”) composed of two individuals (the “Member Representatives”), one of
whom shall be appointed by each Member. The Management Committee shall be
responsible for: (i) formulating the policy of the JV, (ii) determining initial
and annual capital and operating budgets, (iv) authorizing individuals to carry
out all material decisions regarding JV activities and operations, including
decisions regarding material capital expenditures and investments, and (iii)
monitoring the efforts and progress of such individuals to determine that such
decisions are being properly implemented. In these regards, each of the
Members agrees to devote the time and to exercise best reasonable efforts to
cause the JV to achieve its purposes, as set forth in Section 3.3.
	 
	 	(b)	 	Meetings.






	 	(i)	 	The Management Committee shall meet at least
once every month, or more or less frequently as determined by the
Member Representatives. Management Committee meetings may be held in
person, by telephone conference, or by use of similar communications
equipment. Any action required or permitted to be taken by the
Management Committee may be taken without a meeting if all of the
Member Representatives consent in writing.
	 
	 	(ii)	 	Special meetings of the Management Committee
may be held upon the call of any Member Representative for any purpose.
Written notice of each regular and special meeting shall be sent to
each Member Representative not less than twenty-four hours before such
meeting. Notice of any meeting need not be given to any Member
Representative




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	 	 	 	who shall submit, either before or after the meeting, a signed waiver
of notice or who shall attend the meeting.






	 	(c)	 	Term of Member Representatives. Each Member
Representative shall hold office until his death, resignation, retirement, or
removal by the Member that appointed him. If a vacancy shall occur in the
Management Committee, the Member that appointed such vacating Member
Representative may appoint his successor by giving written notice thereof to
the other Member. Similarly, if either Member desires to replace its
appointee, such Member may remove and replace such appointee at any time by
giving written notice thereof to the other Member.
	 
	 	(d)	 	Compensation. Member Representatives shall not receive
any salaries, fees, or other compensation or expense reimbursement from the JV
in respect of their service on the Management Committee; any such compensation
and reimbursement shall be the obligation of the Member designating the
particular Member Representative.
	 
	 	(e)	 	Quorum. The presence, by proxy, in person, or by
telephone, of both Member Representatives at any regular or special meeting of
the Management Committee shall be necessary to constitute a quorum.
	 
	 	(f)	 	Vote. Each Member Representative shall vote the
Participating Interest of the Member that appointed him.





     5.2 Actions of the Management Committee. At any meeting at which a quorum is present,
the Management Committee shall act, except as otherwise provided herein, upon the vote of both
Member Representatives, and such action shall be binding upon the Members and the JV.



     5.3 Unanimous Consent Matters. The JV shall not take, and the Management Committee
shall not cause the JV to take, any of the following actions without the consent in favor thereof
of both Members:




	 	(a)	 	waive any provision of this Agreement;
	 
	 	(b)	 	sell, transfer, or encumber a material part of the assets of
the JV, or cause the JV to merge or consolidate with any other person or
entity;
	 
	 	(c)	 	admit any additional Members or issue any additional ownership
interests in the JV, except as permitted in Section 4.4(b)(ii);
	 
	 	(d)	 	enter into a joint venture, partnership, or similar arrangement
with any person or entity other than sales, distribution, and license
agreements entered into in the ordinary course of business of the JV;
	 
	 	(e)	 	enter into any transaction with, or make or incur any
obligation to make any payment to, a Member or an affiliate of a Member, other
than as expressly provided in this Agreement;




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	 	(f)	 	merge, reorganize, or restructure the JV, or register any
securities in the JV pursuant to any provision of any applicable securities
laws, except as permitted in Section 4.4(b)(ii); or
	 
	 	(g)	 	file a petition in voluntary bankruptcy; make an assignment for
the benefit of creditors; consent to the appointment of a receiver or receivers
of a material part of the property of the JV; or file a petition or answer
seeking reorganization under the federal bankruptcy laws or any other
applicable law or statute of the United States or any State thereof or any
similar laws of any other jurisdiction.





     5.4 Management. The day-to-day operations of the JV, including financial reporting,
shall be managed by Teknik, including the development, marketing, and sales of the Video game
software league at a cost of $50,000 a month. The JV shall contract Powergrid to provide
equipment manufacturing management, engineering management, marketing, and sales management to the
JV for $100,000 per month starting August 1, 2006. Teknik shall report regularly to the
Management Committee. Teknik shall select a general manager (the “Manager”) reasonably
satisfactory to the other Member and shall establish such other management positions as Teknik
shall deem appropriate from time to time. The Manager shall be under a fiduciary duty to conduct
the affairs of the JV in the best interests of the JV and its Members, including the safekeeping of
all JV property and the use thereof for the exclusive benefit of the JV. The Manager may be
removed by either Member for “good cause”, which for purposes of this Agreement shall be limited to
an act relating to the business of the JV which constitutes fraud, gross negligence, a willful
violation of fiduciary duty, a willful usurpation of an opportunity of the JV, willful misconduct,
or a willful failure to follow directions of the Management Committee. The removal of a Manager
shall be effective upon written notice from either Member. Following removal of a Manager, a new
Manager may be appointed by Teknik subject to Powergrid’s reasonable satisfaction. At any time
when there is no Manager, the Manager’s responsibilities shall be vested in Teknik. The Manager
shall devote such time and effort as is necessary for the management of the JV and the conduct of
its business in an efficient, thorough, and businesslike manner, devoting appropriate attention to
all matters affecting the conduct of the JV’s business.



     5.5 Communications. The Members shall promptly advise and inform each other of any
transaction, notice, event, or proposal, other than in the ordinary course of business of the JV,
of which they become aware that directly relates to the management and operation of the JV or to
any assets of the JV, to the extent any such matter does or could materially affect, either
adversely or favorably, the JV, its business, or its assets.



ARTICLE 6 — COVENANTS




     6.1 Capital Expenditures.




	 	(a)	 	Teknik shall devote adequate resources to the JV, subject to
its right to rely on JV Financings as provided in Section 4.4(b), to engage in
such Development Activities as are needed or desirable for the JV to achieve
its purposes set forth in Section 3.3.
	 
	 	(b)	 	Consistent with capital budgets approved by the Management
Committee, Teknik shall have the exclusive authority to commit to and make
Capital Expenditures on behalf of the JV; provided, that a Capital Expenditure
in excess of $10,000.00 in any one or series of transactions shall require the
prior written consent of both members, such consent not to be unreasonably
withheld. Any equipment or




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	 	 	 	capital assets purchased by Teknik on behalf of the JV shall be the property
of the JV.





     6.2 Improvements; Protection of Rights in Improvements.




	 	(a)	 	The JV shall devote adequate resources to the manufacture,
development and marketing of Powergrid products and Development Activities in
the furtherance of the development of the Video Game League Software and to the
research and development of Improvements to maximize the exploitation by the JV
of the JV Licenses. Teknik shall present such Improvements to the JV and shall
provide all information regarding such Improvements reasonably necessary for
the JV to determine whether or not to endeavor to have patent letters issued
for such Improvements.
	 
	 	(b)	 	Powergrid shall promptly consult with Teknik on any actions or
events that could materially impact the value of the Powergrid Product License
to the JV, including litigation.





ARTICLE 7 — REPRESENTATIONS AND WARRANTIES




     7.1 Powergrid Representations and Warranties. Powergrid hereby represents and
warrants to Teknik as follows:




	 	(a)	 	Due Organization and Good Standing. Powergrid is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its organization and has full power and authority
to own its assets and properties and to carry on its business as now conducted.
Powergrid is duly qualified as a corporation to transact business, and is in
good standing, in each jurisdiction where the character of its properties,
owned or leased, or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified would not have an
adverse effect material to Powergrid.
	 
	 	(b)	 	Authorization and Validity of Agreements. Powergrid
has the full corporate power and authority to enter into, execute, and deliver
this Agreement and the Powergrid License and to perform fully its obligations
hereunder and thereunder. The execution, delivery, and performance of this
Agreement and the Powergrid License, and the consummation of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
action on the part of Powergrid. No other action is necessary for the
authorization, execution, delivery, and performance by Powergrid of this
Agreement and the Powergrid License and the consummation by Powergrid of the
transactions contemplated hereby and thereby. This Agreement and the Powergrid
License have been duly executed and delivered by Powergrid and constitute valid
and legally binding obligations of Powergrid enforceable against it in
accordance with their terms.
	 
	 	(c)	 	No Governmental Approvals or Notices. Neither the
execution and delivery by Powergrid of this Agreement and the Powergrid
License, the performance by Powergrid of its obligations hereunder and
thereunder, nor the performance by Powergrid of any action contemplated hereby
or thereby requires any consent,




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	 	 	 	approval, order, or authorization of, or registration or filing with, or the
giving of notice to, any governmental or public body or authority.






	 	(d)	 	No Conflict. Neither the execution and delivery by
Powergrid of this Agreement and the Powergrid License, the performance by
Powergrid of its obligations hereunder and thereunder, nor the performance by
Powergrid of any action contemplated hereby or thereby will: (i) violate (with
or without the giving of notice or the lapse of time or both) any law, rule,
regulation, order, judgment, or decree, or to which its assets or properties
are bound or subject, including Teknik 
	 
	 	(e)	 	Representations and Warranties. Teknik hereby
represents and warrants to Powergrid as follows:
	 
	 	(a)	 	Due Organization and Good Standing. Teknik is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its organization and has full power and authority
to own its assets and properties and to carry on its business as now conducted.
Teknik is duly qualified as a foreign limited liability partnership to
transact business, and is in good standing, in each jurisdiction where the
character of its properties, owned or leased, or the nature of its activities
makes such qualification necessary, except where the failure to be so qualified
would not have an adverse effect material to Teknik.
	 
	 	(b)	 	Authorization and Validity of Agreements. Teknik has
the full authority to enter into, execute, and deliver this Agreement and to
perform fully its obligations hereunder. No other action is necessary for: (i)
the authorization, execution, delivery, and performance by Teknik of this
Agreement, or (ii) the consummation by Teknik of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by Teknik and
constitutes a valid and legally binding obligation of Teknik enforceable
against it in accordance with its terms.
	 
	 	(c)	 	No Governmental Approvals or Notices. Neither the
execution and delivery by Teknik of this Agreement, the performance by Teknik
of its obligations hereunder, nor the performance by Teknik of any action
contemplated hereby, requires any consent, approval, order, or authorization
of, or registration or filing with, or the giving of notice to, any
governmental or public body or authority.
	 
	 	(d)	 	No Conflict. Neither the execution and delivery by
Teknik of this Agreement, the performance by Teknik of its obligations
hereunder, nor the performance by Teknik of any action contemplated hereby
will: (i) violate (with or without the giving of notice or the lapse of time or
both) any law, rule, regulation, order, judgment, or decree, or (ii) conflict
with or result in the breach or violation of, or constitute (or with or without
the giving of notice or the lapse of time, or both, would constitute) a default
under any instrument, contract, or other agreement to which Teknik is a party
or by or to which his assets or properties are bound or subject.





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ARTICLE 8 — TERM AND TERMINATION




     8.1 Term. The JV shall continue to operate for an initial term of ten years (the
“Initial Term”), subject to earlier termination as set forth herein. If not terminated during or
at the end of the Initial Term, the JV shall continue to operate for additional five year terms
(“Additional Terms”).



     8.2 Termination. The JV shall be dissolved as set forth below:




	 	(a)	 	by the mutual agreement of both Members;
	 
	 	(b)	 	by the remaining Member, in the event the JV is required by a
court of competent jurisdiction to recognize an Unauthorized Transfer, as set
forth under Article 9.2 hereof;
	 
	 	(c)	 	by the remaining Member, in the event the other Member
withdraws, pursuant to Article 9.4 hereof;
	 
	 	(d)	 	upon a Change of Control of Teknik;
	 
	 	(e)	 	upon the exercise by Powergrid of its Membership Interest
Conversion Rights under Article 10 of this Agreement; or
	 
	 	(f)	 	upon the giving of at least thirty days’ prior written notice:






	 	(i)	 	by either of the Members, effective at the end
of the Initial Term or any Additional Term,
	 
	 	(ii)	 	by either Member in the event the other Member
has materially breached its obligations under this Agreement and fails
to cure such breach within thirty days of receipt of notice from the
non-breaching Member of such breach,
	 
	 	(iii)	 	by either Member at any time following the end
of the first year of the Initial Term if the JV does not secure
Financing adequate to fund the activities of JV, but only if Teknik is
not funding the Reimbursable Expenses of the JV, or
	 
	 	(iv)	 	by either Member in the event the other Member
is in bankruptcy proceedings or has entered into an assignment for the
distribution of assets to creditors.
	 
	 	(v)	 	If JV fails to pay Powergrid the agreed upon
monthly management fee.





     8.3 Dissolution. In the event the JV is dissolved, Powergrid shall serve as the
managing Member over such dissolution (the “Liquidating Member”) for the JV: (i) to liquidate all
inventory, and (ii) to sell any equipment and other assets owned by the JV. Upon the dissolution
of the JV, the Liquidating Member shall pay out of JV assets, first the expenses of winding up,
liquidation, and dissolution of the JV, and thereafter all of the remaining assets of the JV shall
be distributed in the following order:



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     (a) to creditors, including the Members, in the order of priority as provided by law;
provided, that repayment of Capital Expenditure Distribution Amounts and Reimbursable Expenses to
Members shall be made in accordance with the Distribution Allocation, as set forth in Section 4.6;
and provided further, that the excess of the amount of any Capital Expenditure over the prior
distributions of Capital Expenditure Distribution Amounts made with respect to such Capital
Expenditure shall be deemed to be a Capital Expenditure Distribution Amount for purposes of this
Section 8.3(a); and



     (b) to each Member in an amount equal to such Member’s Capital Account and thereafter in
accordance with their respective Distribution Allocation, as set forth in Section 4.6. Any gain or
loss attributable to the termination of the JV shall be allocated among the Members in accordance
with their respective Profit/Loss Allocation, as set forth in Section 4.2.



ARTICLE 9 — TRANSFERS OF PARTICIPATING INTERESTS; WITHDRAWAL 




     9.1 Transfers of Participating Interests.




	 	(a)	 	Death, Divorce, or Bankruptcy of a Member.






	 	(i)	 	In the event of the death of a Member (which
for purposes of this Section 9.1 shall be deemed to cover the death,
divorce, or bankruptcy of an individual owning a controlling interest
in a Member that is a business entity), where the Participating
Interest owned by the bankrupt or divorcing Member is or would be
transferred in any manner to any other person as a result of the death,
divorce, or bankruptcy of the Member (the deceased, divorcing, or
bankrupt Member is referred to as the “Withdrawing Member”), the JV
shall have the option to purchase and acquire from the estate of the
Withdrawing Member, the Member, or any other person, all of the
Participating Interest which the Withdrawing Member owned at the time
of his death, divorce, or bankruptcy at the price and upon the terms
and conditions set forth herein. Such purchase shall be closed within
thirty days following the death of the Withdrawing Member or the
agreement or order authorizing or compelling the transfer of the
Member’s Participating Interest as a result of the divorce or
bankruptcy of the Withdrawing Member. The Participating Interest
subject to the obligations set forth in the preceding sentence shall be
referred to herein as the “Subject Interest.” In the event that the JV
shall be prohibited by law from purchasing the Subject Interest, or any
portion thereof or elect not to purchase the Subject Interest, or any
portion thereof, the remaining Member of the JV shall have the option
to purchase and acquire the Subject Interest or the portion thereof
which the JV does not purchase at the same price and upon the same
terms and conditions applicable to the purchase thereof by the JV.
Upon the occurrence of any of the foregoing, the Withdrawing Member or
the personal representative of the Member shall be obligated to sell
and convey the Subject Interest to the JV or the remaining Member at
such price and upon the terms and conditions hereinafter set forth.
	 
	 	(ii)	 	The purchase price for the Subject Interest
shall be that price agreed to by the Withdrawing Member, the personal
representative of the Withdrawing Member, or any other legal
representative of the




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	 	 	 	Withdrawing Member, as applicable, and the JV or the remaining
Member, as applicable.






	 	(b)	 	Death of a Member’s Spouse.
	 
	 	 	 	In the event of the death of a spouse (the “Deceased Spouse”) of a Member
(the “Member Spouse”) under circumstances in which by the will of the
Deceased Spouse or by the laws of intestate succession the community
interest of the Deceased Spouse in any Member’s Participating Interest would
pass to or vest in a person other than the Member Spouse, either legally or
beneficially, the Member Spouse shall have the option to purchase from such
other person or the estate of the Deceased Spouse the community interest of
the Deceased Spouse in such Participating Interest, and such other person
and/or the estate of such Deceased Spouse shall sell any Member’s
Participating Interest to the Member Spouse, at the price determined in
accordance with Section 9.1(a)(ii).
	 
	 	(c)	 	Divorce of a Member.
	 
	 	 	 	In the event of the divorce of a person that has ownership in, or
contractual rights to control, a Member (the “Divorced Member”) under
circumstances in which such person’s spouse (the “Divorced Spouse”) has or
receives any interest in or to any Member’s Participating Interest by
community property rights or otherwise, the Divorced Member shall have the
option to purchase from the Divorced Spouse any and all interest of the
Divorced Spouse in or to any Member’s Participating Interest, and the
Divorced Spouse shall sell any such interest in and to such Member’s
Participating Interest to the Divorced Member, at the price determined in
accordance with Section 9.1(a)(ii).
	 
	 	(d)	 	Liens and Security Interests.
	 
	 	 	 	No Member shall pledge, mortgage, hypothecate, or grant (or permit or suffer
to attach) any lien or security interest in his or her Participating
Interest without the prior written consent of the other Member, which
approval shall not be unreasonably withheld.
	 
	 	(e)	 	Parties Bound.
	 
	 	 	 	The provisions of this Section 9.1 shall be binding on each Member of the
JV, and on the spouses, heirs, executors, administrators, successors, and
assigns of each such Member.





     9.2 Unauthorized Transfers. Any purported transfer of any Member’s Participating
Interest which does not comply with the conditions set forth in Section 9.1 (an “Unauthorized
Transfer”) shall be null and void and of no force or effect whatsoever; provided, that if the JV is
required by a court of competent jurisdiction to recognize an Unauthorized Transfer, then the
person to whom such Participating Interest is transferred shall have only the rights of an assignee
with respect to such Interest, and the remaining Member may terminate this Agreement pursuant to
Section 8.2. Any distributions with respect to such transferred Participating Interest may be
applied (without limiting any other legal or equitable rights of the JV) towards the satisfaction
of any debts, obligations, or liabilities for damages that the transferor or transferee of such
transferred Participating Interest may have to the JV.



15









 





     9.3 Rights of Assignee. An assignee under Section 9.2 shall be entitled to
distributions pursuant to Article 4 with respect to the Participating Interest transferred to such
assignee. An assignee, in such capacity: (a) shall have no right to vote or otherwise participate
in JV matters, (b) shall take no part in the management of the JV’s business and affairs or
transact any business on behalf of the JV, (c) shall have no right to any notices provided
hereunder, (d) shall have no power to sign on behalf of, or to bind, the JV, (e) shall have no
right to any information or accounting of the affairs of the JV, (f) shall not be entitled to
inspect the books or records of the JV, and (g) shall not have any other rights of a Member under
the Arizona Act or this Agreement, other than those described in the first sentence of this Section
9.3.



     9.4 Withdrawal of Members. Except as provided herein, a Member shall have the right
to withdraw from the JV, but shall have no right to withdraw capital from the JV. Upon the written
notice of a Member to withdraw, the remaining Member may terminate this Agreement pursuant to
Section 8.2. Upon the written notice of a Member to withdraw and the continuation of the JV by the
remaining Member, the withdrawn Member shall not receive any distribution for its Participating
Interest, shall no longer be obligated to make additional capital contributions, shall remain
obligated for liabilities and obligations incurred or accrued hereunder or by the JV prior to such
withdrawal, and shall have (or may exercise) only those rights, if any, determined by the remaining
Member.



ARTICLE 10 — CONVERSION OF JV INTERESTS




     10.1 Membership Interest Conversion Right. Commencing one year after the date of
this Agreement, and when the JV is profitable, Powergrid shall have the right (the “Membership
Interest Conversion Right”), at its option at any time, to convert its Membership Interest (except
that upon any liquidation of the JV the right of conversion shall terminate at the close of
business on the business day fixed for payment of the amount distributable to the Members) into
such number of fully paid and nonassessable shares of Common Stock obtained by dividing the value
of Powergrid’s Membership Interest (the “Membership Interest Conversion Value”) by the prior 90
day average market price per share of the Common Stock on a recognized stock exchange at the time
of conversion if Teknik is a publicly traded company, or if private, as determined in good faith
by the Board of Directors of Teknik. For purposes of this Article 10, the Membership Interest
Conversion Value shall be the greater of, but not to exceed 50% of the outstanding common stock:




	 	(a)	 	Ten (10) times the share of the net pre-tax earnings of the JV
for the most recent Fiscal Year allocated to Powergrid; and




Such right of conversion shall be exercised by Powergrid by giving written notice to Teknik of its
election to convert its Membership Interest into Common Stock at any time during Teknik’s usual
business hours on the date set forth in such notice, together with a statement of the name or names
(with address) in which the certificate or certificates for shares of Common Stock shall be issued.




     10.2 Issuance of Certificates; Time Conversion Effected. Promptly after the receipt
of the written notice referred to in Section 10.1 of the Membership Interest to be converted,
Teknik shall issue and deliver, or cause to be issued and delivered, to Powergrid, registered in
such name or names as Powergrid may direct, a certificate or certificates for the number of whole
shares of Common Stock issuable upon the conversion of the Membership Interest. To the extent
permitted by law, such conversion shall be deemed to have been effected and the Membership Interest
Conversion Value and the per share value of the Common Stock shall be determined as of the close of
business on the date on which such written notice shall have been received by Teknik, and at such
time the rights of Powergrid in respect of the JV shall cease, and the person or persons in whose
name or names any certificate or



16









 







certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed
to have become the holder or holders of record of the shares of Common Stock represented thereby.



     10.3 No Fractional Shares. No fractional shares shall be issued upon conversion of the
Membership Interest into Common Stock. If any fractional share of Common Stock would, except for
the provisions of the first sentence of this Section 10.3, be delivered upon such conversion,
Teknik, in lieu of delivering such fractional share, shall pay to Powergrid upon conversion an
amount in cash equal to the current market price of such fractional share as determined in good
faith by the Board of Directors of Teknik.



     10.4 Change of Control of Teknik. Upon a Change of Control of Teknik, Powergrid shall
have the right to exercise its Membership Interest Conversion Right under this Article 10 following
the Change of Control but prior to the dissolution of the JV.



ARTICLE 11 — MISCELLANEOUS




     11.1 Confidentiality. Each Member agrees that it shall not, directly or indirectly,
without the prior written consent of the other Member, use for its own benefit (except as a Member)
or disclose to any person any information, trade secrets, confidential customer information,
patents, patent rights, Technical Data, or Know-How relating to the products, processes, methods,
equipment, or business practices of the JV or the other Member, except: (a) to the extent the
Member can clearly show any of the foregoing is, or has become, available to the public other than
as a result of disclosure by such Member or any of its affiliates or the directors, officers,
employees, agents, advisors, and controlling persons of it or any of its affiliates, (b) as may be
required by law, (c) as a Member may disclose to its business, financial, and legal advisors (under
confidentiality agreements, as appropriate or necessary), or (d) to the extent the Member can
clearly show any of the foregoing is received by such Member in a non-confidential manner from a
third party having the right to disclose such information, or was already in such Member’s
possession prior to negotiations related to this Agreement. If a Member is required by applicable
law or regulation or by legal process to disclose any of the foregoing, it will provide the other
Member with prompt notice thereof, to the extent practicable under the circumstances, to enable it
to seek an appropriate protective order. In the event the JV is dissolved, each Member shall
return to the other Member all confidential documents (and all copies thereof) in its possession,
or will certify to the others that all such documents not returned have been destroyed. This
confidentiality provision shall survive the expiration or termination of this Agreement for a
period of five years.



     11.2 Public Announcements. Except as may otherwise be required by law, neither Member
shall make any public announcement with respect to the JV or any of the transactions contemplated
by this Agreement or the agreements entered into in connection herewith without the prior consent
of the other Member.



     11.3 Affiliate Transactions. The Members shall not cause or permit the JV to enter
into any agreement or arrangement with a Member or any affiliate thereof, other than on
commercially reasonable arms-length terms.



     11.4 Books and Records. The books and records of the JV shall be maintained by Teknik
at the principal offices of the JV. Powergrid shall have the right to inspect, audit, and copy
said books and records upon reasonable notice and at reasonable times. Within forty-five days
after the close of each fiscal quarter, Teknik or the Manager shall file appropriate reports with
the SEC and make them available to each Member with a balance sheet, income statement, and
statement of sources and uses of cash for the month then ended.. Within ninety days following the
end of each fiscal year, Teknik or the Manager shall provide each Member with the statements
required above for the year then ended.. The Manager shall



17









 







provide the Members with such additional reports and information relating to the JV as the
Members may reasonably request from time to time in writing.



     11.5 Tax Matters; Accountants. The accountants for the JV shall be the accounting
firm selected by the Management Committee. All tax returns of the JV shall be prepared by such
accounting firm. As soon as practicable after the end of each year, the Manager or the Accountants
shall provide all Members with all information necessary to complete the income tax returns for the
JV and the Member’s taxable income or loss, deductions, and other items relating to the operating
results of the JV. The Manger or the Accountants shall cause all income tax returns for the JV to
be prepared and timely filed, and shall furnish a copy thereof to each Member promptly after the
filing thereof. The Members intend that the JV be treated as a partnership for Federal income tax
purposes. The JV shall maintain a capital account for each Member in accordance with Treasury
Regulation Section 1.704-1(b). The JV’s taxable income and tax losses shall be allocated
pro rata based on Participating Interests. Teknik shall be designated to act as
the “Tax Matters Partner” within the meaning of Section 623(a)(7) of the Internal Revenue Code of
1986, as amended. Distributions made in connection with a sale of all or substantially all of the
JV’s assets or a liquidation of the JV shall be made in accordance with the Capital Account
balances of the Members within the time period set forth in Treasury Regulation Section
1.704-1(b)(2)(ii)(B)(3).



     11.6 Benefits of Agreement. None of the provisions of this Agreement shall be for the
benefit of or enforceable by any creditor of the JV or of any Member.



     11.7 Integration. This Agreement constitutes the entire agreement among the parties
hereto pertaining to the subject matter hereof and supersedes all prior and contemporaneous
agreements and understandings of the parties in connection therewith



     11.8 Headings. The headings in this Agreement are for reference purposes only and
shall not in any way affect the meaning or interpretation of this Agreement.



     11.9 Counterparts. This Agreement may be executed by the parties hereto in
counterparts, each of which shall be considered an original, and all of which shall together
constitute but one and the same instrument.



     11.10 Notices. All notices or other communications relating to this Agreement shall
be in writing and shall be deemed to have been duly given upon receipt by personal delivery,
facsimile transmission, or by registered, certified, or express mail, postage prepaid, addressed as
set forth in Section 3.4. Any party may change the address to which such notices are to be sent by
giving written notice of such change in the manner provided herein for giving notice



     11.11 Governing Law. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Arizona, without giving effect to the conflicts of law principles of
such State.



     11.12 Tax Code References. References to sections of the U.S. Tax Code or Treasury
Regulations shall be deemed to be references to any amendments or substitutions thereof.



     11.13 Amendments. This Agreement may be amended only by unanimous vote of the
Management Committee.



18









 





     IN WITNESS WHEREOF, the undersigned have duly executed this Joint Venture and Limited
Liability Company Agreement as of the date first written above.



	 	 	 	 	 	 	 	 	 	 	 
	MEMBERS:
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	TEKNIK DIGITAL ARTS, INC.	 	POWERGRID FITNESS, INC.
	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	 	 	By:	 	 	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	Name:

	 	John Ward
	 	Name:
	 	Greg Merril	 	 	 	 
	Title:

	 	President
	 	Title:
	 	President	 	 	 	 







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