exv10w3



 





Exhibit 10.3



THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “1933 ACT), AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR
IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE, TRANSFER OR DISTRIBUTION MAYBE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A
FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
1933 ACT.




CONVERTIBLE PROMISSORY NOTE




			
	 	 	 
	$                    
	 	                                         , 2006






     For value received, Teknik Digital Arts, Inc., a Nevada corporation (the “Company”),
promises to pay to                                         (the “Holder”), the principal sum of
                                         Dollars ($                    .00). Interest shall accrue from the date of this
Note on the unpaid principal amount at a rate equal to Eight percent (8%) per annum. This Note is
issued pursuant to that certain Convertible Promissory Note Purchase Agreement of even date
herewith (the “Note Purchase Agreement”). This Note is subject to the following terms and
conditions.



     1. Maturity. Unless converted as provided in Section 2, this Note will automatically
mature and be due and payable on June 1, 2008 (the “Maturity Date”). Subject to Section 2
below, interest shall accrue on this Note but shall not be due and payable until the Maturity Date
with all accrued and unpaid interest payable in shares of the Company’s common stock at the
conversion price set forth below. Notwithstanding the foregoing, the entire unpaid principal sum of
this Note, together with accrued and unpaid interest thereon, shall become immediately due and
payable upon the insolvency of the Company, the commission of any act of bankruptcy by the Company,
the execution by the Company of a general assignment for the benefit of creditors, the filing by or
against the Company of a petition in bankruptcy or any petition for relief under the federal
bankruptcy act or the continuation of such petition without dismissal for a period of ninety (90)
days or more, or the appointment of a receiver or trustee to take possession of the property or
assets of the Company.



     2. Conversion.



          (a) Investment by the Holder. The lesser of (i) the entire principal amount of and (at
Holder’s option) accrued interest on this Note, or (ii) $30,000 increments of principal, may be
converted by the Holder at any time into shares of the Company’s common stock, par value $.001 per
share (the “Common Stock”), at a purchase price per share of $.75 (the “Conversion
Price”), subject to adjustment. The number of shares of Common Stock to be




 









 







issued upon such conversion shall be equal to the quotient obtained by dividing (i) the entire
principal amount of this Note plus (if applicable) accrued interest by (ii) $.75, the price per
share of the Common Stock, rounded to the nearest whole share, and the issuance of such shares upon
such conversion shall be upon the terms and subject to the conditions set forth herein and in the
Note Purchase Agreement.




          (b) Mechanics and Effect of Conversion. No fractional shares of the Company’s capital
stock will be issued upon conversion of this Note. In lieu of any fractional share to which the
Holder would otherwise be entitled, the Company will pay to the Holder in cash the amount of the
unconverted principal and interest balance of this Note that would otherwise be converted into such
fractional share. Upon conversion of this Note pursuant to this Section 2, the Holder shall
surrender this Note, duly endorsed, at the principal offices of the Company or any transfer agent
of the Company. At its expense, the Company will, as soon as practicable thereafter, issue and
deliver to such Holder, at such principal office, a certificate or certificates for the number of
shares to which such Holder is entitled upon such conversion, together with any other securities
and property to which the Holder is entitled upon such conversion under the terms of this Note,
including a check payable to the Holder for any cash amounts payable as described herein. Upon
conversion of this Note, the Company will be forever released from all of its obligations and
liabilities under this Note with regard to that portion of the principal amount and accrued
interest being converted including without limitation the obligation to pay such portion of the
principal amount and accrued interest.




          (c) Payment of Interest. Upon conversion of the principal amount of this Note into
shares of the Company’s capital stock, any interest accrued on this Note that is not by reason of
Section 2(a) hereof simultaneously converted into Common Stock shall be immediately paid to the
Holder.




     3. Adjustment to Conversion Price. If at any time subsequent to the date hereof the
Company issues additional shares of Common Stock, or other stock convertible into or exchangeable
for Common Stock (“Additional Common Stock”) for a price per share that is less than the
Conversion Price in effect immediately prior to the time of such issuance or sale, then upon such
issuance or sale the Conversion Price in effect immediately prior to such issuance for which this
Note is convertible to Common Stock will be automatically adjusted to such lower per share price.
No adjustment shall occur with respect to the issuance of Common Stock pursuant to any securities
of the Company outstanding as of the date of this Note or pursuant to any options granted to the
Company’s employees, officers or directors, whether or not such options are existing as of the date
of this Note or granted thereafter. In no event shall the Conversion Price be increased above $.75
per share.



     4. Adjustment to Exercise Price. The Exercise Price shall be adjusted to equal (i) the
Conversion Price for which this Note is exercisable prior to the adjustment; (ii) multiplied by a
fraction, (x) the numerator of which is the sum of the number of shares of Common Stock outstanding
immediately prior to the issue or sale plus the number of shares of Common Stock





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which the aggregate consideration, if any, received by the Company upon the issue or sale of
such Additional Common Stock would purchase at the then-current Conversion Price, and (y) the
denominator of which is the number of shares of Common Stock outstanding immediately prior to the
issue or sale plus the number of shares of Additional Common Stock issued.




     5. Payment. All payments shall be made in lawful money of the United States of America
at such place as the Company may from time to time designate in writing to the Holder hereof.
Payment shall be credited first to the accrued interest then due and payable and the remainder
applied to principal. Prepayment of this Note may be made at any time without penalty.



     6. Transfer; Successors and Assigns. The terms and conditions of this Note shall inure
to the benefit of and be binding upon the respective successors and assigns of the parties.
Notwithstanding the foregoing, the Holder may not assign, pledge, or otherwise transfer this Note
without the prior written consent of the Company, except for transfers to affiliates of Holder,
which shall agree in writing to be bound by the terms of this Note and the Note Purchase Agreement.
The Company may withhold its consent in its sole and absolute discretion. Subject to the preceding
sentence, this Note may be transferred only upon surrender of the original Note for registration of
transfer, duly endorsed, or accompanied by a duly executed written instrument of transfer in form
satisfactory to the Company. Thereupon, a new note for the same principal amount and interest will
be issued to, and registered in the name of, the transferee. Interest and principal are payable
only to the registered holder of this Note.



     7. Governing Law. This Note and all acts and transactions pursuant hereto and the
rights and obligations of the parties hereto shall be governed, construed and interpreted in
accordance with the laws of the State of Arizona, without giving effect to principles of conflicts
of law.



     8. Notices. Any notice required or permitted by this Note shall be in writing and
shall be deemed sufficient upon delivery, when delivered personally or by a nationally-recognized
delivery service (such as Federal Express or UPS), or forty-eight (48) hours after being deposited
in the U.S. mail, as certified or registered mail, with postage prepaid, addressed to the party to
be notified at such party’s address as set forth below or as subsequently modified by written
notice.



     9. Amendments and Waivers. Any term of this Note may be amended only with the written
consent of the Company and the Holder. Any amendment or waiver effected in accordance with this
Section 8 shall be binding upon the Company, the Holder and each transferee of the Note.



     10. Action to Collect on Note. If action is instituted to collect on this Note, the
Company promises to pay all costs and expenses, including reasonable attorney’s fees, incurred in
connection with such action.




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	 	 	 	COMPANY:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	TEKNIK DIGITAL ARTS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Address:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

	 	 






	 	 	 	 	 
	AGREED TO AND ACCEPTED:	 	 
	 
	 	 	 	 
	HOLDER:
	 	 	 	 
	 
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	Name:
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	Address:
	 	 	 	 
	 

	 	 

	 	 






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REGISTRATION RIGHTS AGREEMENT




     THIS REGISTRATION RIGHTS AGREEMENT (the “Agreement”) is made and entered into as of
this ___day of ,2006 by and among Teknik Digital Arts, Inc., a corporation incorporated under the
laws of the State of Nevada (the “Company”), and the investors listed on Exhibit A attached to this
Agreement (each an “Investor” and collectively, the “Investors”).



     The parties hereby agree as follows:



     1. Certain Definitions.



     As used in this Agreement, the following terms shall have the following meanings:



     “Affiliate” means, with respect to any person, any other person which directly or
indirectly controls, is controlled by, or is under common control with, such person.



     “Business Day” means a day, other than a Saturday or Sunday, on which banks in New
York City are open for the general transaction of business.



     “Common Stock” means the Company’s common stock, $.001 par value per share, and any
securities into which such shares may hereinafter be reclassified.



     “Convertible Notes” means the Company’s Convertible Promissory Notes dated
                     in the aggregate principal amount of US $                    bearing interest at 8%
per annum payable two years from date of issuance.



     “Investor” means each investors listed on Exhibit A attached to this Agreement
that have lent, in the aggregate, $                     (US) pursuant the Convertible Notes, and
any Affiliate or permitted transferee or transferees of the Investor who is a subsequent holder of
any Registrable Securities.



     “Prospectus” means the prospectus included in any Registration Statement, as amended
or supplemented by any prospectus supplement, with respect to the terms of the offering of any
portion of the Registrable Securities covered by such Registration Statement and by all other
amendments and supplements to the prospectus, including post-effective amendments and all material
incorporated by reference in such prospectus.



     “Register,” “registered” and “registration” refer to a registration
made by preparing and filing a Registration Statement in compliance with the 1933 Act (as defined
below), and the declaration or ordering of effectiveness of such Registration Statement or
document.



     “Registrable Securities” or “Registrable Security” means the Shares, any other
securities issued or issuable with respect to or in exchange for Registrable Securities; provided,
that, a security shall cease to he a Registrable Security upon (A) sale pursuant to a Registration
Statement or Rule 144 under the 1933 Act, or (B) such security becoming eligible, and the Company’s
confirming such eligibility in writing, for sale by the Investor pursuant to Rule 144(k).



     “Registration Statement” means any registration statement of the Company filed under
the 1933 Act that covers the resale of any of the Registrable Securities pursuant to the provisions
of this Agreement, amendments and supplements to such Registration Statement, including
post-effective amendments, all exhibits and all material incorporated by reference in such
Registration Statement.



 









 





     “Required Investors” means the Investor and others who are affiliates and permitted
transferees of the Investor holding a majority of the Registrable Securities.



     “SEC” means the U.S. Securities and Exchange Commission.



     “Shares” means the shares of Common Stock issued upon conversion of and pursuant to
the Convertible Notes.



     “1933 Act” means the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.



     “1934 Act” means the Securities Exchange Act of I 934, as amended, and the rules and
regulations promulgated thereunder.



     2. Registration.



     (a) Registration Statements.



          (i) Registration Statement on Form SB-1 Promptly following the closing of the
purchase and sale of the Convertible Notes (the “Closing Date”) but no later than ninety (90) days
after the Closing Date (the “Filing Deadline”), the Company shall prepare and file with the SEC one
Registration Statement on Form SB- I (or on such form of registration statement as is then
available to effect a registration for resale of the Registrable Securities), covering the sale of
the Registrable Securities on their issuance in an amount at least equal to the number of Shares
that the Company may issue at the current conversion price of $0.75 per Share. Such Registration
Statement shall include the plan of distribution attached hereto as Exhibit B. Such
Registration Statement also shall cover, to the extent allowable under the 1933 Act and the rules
promulgated thereunder (including Rule 416), such indeterminate number of additional shares of
Common Stock resulting from stock splits, stock dividends or similar transactions with respect to
the Registrable Securities. The Company shall use its reasonable best efforts to obtain from each
person who now has piggyback registration rights a waiver of those rights with respect to the
Registration Statement. If a Registration Statement covering the Registrable Securities is not
filed with the SEC on or prior to the Filing Deadline, the Company will make pro rata payments to
each Investor, as liquidated damages and not as a penalty, in an amount equal to 1.00% of the
aggregate amount invested by such Investor for each 30-day period or pro rata for any portion
thereof following the Filing Deadline for which no Registration Statement is filed with respect to
the Registrable Securities. Such payments shall be made to each Investor in cash. Notwithstanding
the foregoing, such payments shall not constitute the Investor’s exclusive remedy.




          (ii) Registration Statement on Form SB-3. Promptly following the date (the
“Qualification Date”) upon which the Company becomes eligible to use a Registration Statement on
Form SB-3 to register the Registrable Securities or Additional Shares, as applicable, for resale,
but in no event more than sixty (60) days after the Qualification Date (the “Qualification
Deadline”), the Company shall file a registration statement on Form SB-3 covering the Registrable
Securities (or a post-effective amendment on Form S-3 to the registration statement on Form SB-I)
(a “Shelf Registration Statement”) and shall use commercially reasonable efforts to cause such
Shelf Registration Statement to be declared effective as promptly as practicable thereafter.




          
2









 









     (b) Expenses. The Company will pay all expenses associated with each
registration, including filing and printing fees, the Company’s counsel and accounting fees and
expenses, costs associated with clearing the Registrable Securities for sale under applicable state
securities laws, listing fees, and the Investors’ reasonable expenses in connection with the
registration, but excluding the Investors’ legal fees, discounts, commissions, fees of
underwriters, selling brokers, dealer managers or similar securities industry professionals with
respect to the Registrable Securities being sold.



     (c) Effectiveness.



          (i) The Company shall use commercially reasonable efforts to have the Registration Statement
declared effective as soon as practicable. The Company shall notify the Investors by facsimile or
e-mail as promptly as practicable, and in any event, within forty-eight (48) hours, after any
Registration Statement is declared effective and shall simultaneously provide the Investors with
copies of any related Prospectus to be used in connection with the sale or other disposition of the
securities covered thereby. If (A)(x) a Registration Statement covering the Registrable Securities
is not declared effective by the SEC prior to the earlier of (i) five (5) Business Days after the
SEC shall have informed the Company that no review of the Registration Statement will be made or
(ii) the 120’” day after the Closing Date or (B) after a Registration Statement has been declared
effective by the SEC, sales of Shares cannot be made pursuant to such Registration Statement for
any reason (including without limitation by reason of a stop order, or the Company’s failure to
update the Registration Statement), but excluding the inability of any Investor to sell the
Registrable Securities covered thereby due to market conditions and except as excused pursuant to
subparagraph (ii) below, then the Company will make pro rata payments to each Investor, as
liquidated damages and not as a penalty, in an amount equal to 1.00% of the aggregate amount
invested by such Investor for each 30-day period or pro rata for any portion thereof following the
date by which such Registration Statement should have been effective (the “Blackout Period”). The
amounts payable as liquidated damages pursuant to this paragraph shall be paid monthly within three
(3) Business Days of the last day of each month following the commencement of the Blackout Period
until the termination of the Blackout Period. Such payments shall be made to each Investor in cash.
Notwithstanding the foregoing, such payments shall not constitute the Investor’s exclusive remedy.




          (ii) For not more than twenty (20) consecutive days or for a total of not more than
forty-five (45) days in any twelve (12) month period, the Company may delay the disclosure of
material non-public information concerning the Company, by suspending the use of any Prospectus
included in any registration contemplated by this Section containing such information, the
disclosure of which at the time is not, in the good faith opinion of the Company, in the best
interests of the Company (an “Allowed Delay”); provided, that the Company shall promptly (a) notify
the Investors in writing of the existence of (but in no event, without the prior written consent of
an Investor, shall the Company disclose to such Investor any of the facts or circumstances
regarding) material non-public information giving rise to an Allowed Delay, (b) advise the
Investors in writing to cease all sales under the Registration Statement until the end of the
Allowed Delay and (c) use commercially reasonable efforts to terminate an Allowed Delay as promptly
as practicable.




     3. Company Obligations. The Company will use commercially reasonable efforts to effect
the registration of the Registrable Securities in accordance with the terms hereof, and pursuant
thereto the Company will, as expeditiously as possible:



          (a) Use commercially reasonable efforts to cause such Registration Statement to become
effective and to remain continuously effective for a period that will terminate upon the earlier of
(i) the date on which all Registrable Securities covered by such Registration Statement as amended
from time to time, have been sold, and (ii) the date on which all Registrable Securities covered by
such Registration




          
3









 








Statement may he sold pursuant to Rule 144(k) (the “Effectiveness Period”) and advise the
Investors in writing when the Effectiveness Period has expired;




     (b) Prepare and file with the SEC such amendments and post-effective amendments to the
Registration Statement and the Prospectus as may be necessary to keep the Registration Statement
effective for the period specified in Section 3(a) and to comply with the provisions of the 1933
Act and the 1934 Act with respect to the distribution of all of the Registrable Securities covered
thereby;



     (c) Provide copies to and permit counsel designated by the Investors to review each
Registration Statement and all amendments and supplements thereto prior to their filing with the
SEC;



     (d) Furnish to the Investors’ legal counsel (i) promptly after the same is prepared and
publicly distributed, filed with the SEC, or received by the Company (but not later than two (2)
Business Days after the filing date, receipt date or sending date, as the case may be) one (I) copy
of any Registration Statement and any amendment thereto, each preliminary prospectus and Prospectus
and each amendment or supplement thereto, and each letter written by or on behalf of the Company to
the SEC or the staff of the SEC. and each item of correspondence from the SEC or the staff of the
SEC, in each case relating to such Registration Statement (other than any portion of any thereof
which contains information for which the Company has sought confidential treatment), and (ii) such
number of copies of a Prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as each Investor may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such Investor that are covered by
the related Registration Statement;



     (e) Use commercially reasonable efforts to (i) prevent the issuance of any stop order or other
suspension of effectiveness and, (ii) if such order is issued, obtain the withdrawal of any such
order at the earliest possible moment;



     (f) Prior to any public offering of Registrable Securities, use commercially reasonable
efforts to register or qualify or cooperate with the Investors and their counsel in connection with
the registration or qualification of such Registrable Securities for offer and sale under the
securities or blue sky laws of such jurisdictions requested by the Investors and do any and all
other commercially reasonable acts or things necessary or advisable to enable the distribution in
such jurisdictions of the Registrable Securities covered by the Registration Statement; provided,
however, that the Company shall not be required in connection therewith or as a condition thereto
to (i) qualify to do business in any jurisdiction where it would not otherwise be required to
qualify but for this Section 3(t), (ii) subject itself to general taxation in any jurisdiction
where it would not otherwise be so subject but for this Section 3(t), or (iii) file a general
consent to service of process in any such jurisdiction;



     (g) Use commercially reasonable efforts to cause all Registrable Securities covered by a
Registration Statement to be listed on each securities exchange, interdealer quotation system or
other market on which similar securities issued by the Company are then listed;



     (h) Immediately notify the Investors, at any time when a Prospectus relating to Registrable
Securities is required to be delivered under the 1933 Act, upon discovery that, or upon the
happening of any event as a result of which, the Prospectus included in a Registration Statement,
as then in effect, includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing, and at the request of any such holder, promptly prepare
and furnish to such holder a reasonable number of copies of a supplement to or an amendment of such
Prospectus as may be necessary so that, as thereafter delivered to the purchasers of such
Registrable Securities, such Prospectus shall not





4









 




include an untrue statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in light of the
circumstances then existing;




     (i) Otherwise use commercially reasonable efforts to comply with all applicable rules and
regulations of the SEC under the 1933 Act and the 1934 Act, take such other actions as may he
reasonably necessary to facilitate the registration of the Registrable Securities hereunder; and
make available to its security holders, as soon as reasonably practicable, but not later than the
Availability Date (as defined below), an earnings statement covering a period of at least twelve
(12) months, beginning after the effective date of each Registration Statement, which earnings
statement shall satisfy the provisions of Section II(a) of the 1933 Act, including Rule 158
promulgated thereunder (for the purpose of this subsection 3(i), “Availability Date” means the 45th
day following the end of the fourth fiscal quarter that includes the effective date of such
Registration Statement, except that, if such fourth fiscal quarter is the last quarter of the
Company’s fiscal year, “Availability Date” means the 90th day after the end of such fourth fiscal
quarter); and



     (j) With a view to making available to the Investors the benefits of Rule 144 (or its
successor rule) and any other rule or regulation of the SEC that may at any time permit the
Investors to sell shares of Common Stock to the public without registration, the Company covenants
and agrees to: (i) make and keep public information available, as those terms are understood and
defined in Rule 144, until the earlier of (A) six months after such date as all of the Registrable
Securities may be resold pursuant to Rule 144(k) or any other rule of similar effect or (B) such
date as all of the Registrable Securities shall have been resold; (ii) file with the SEC in a
timely manner all reports and other documents required of the Company under the 1934 Act; and (iii)
furnish to each Investor upon request, as long as such Investor owns any Registrable Securities,
(A) a written statement by the Company that it has complied with
the reporting requirements of the 1934 Act, (B) a copy of the Company’s most recent Annual Report on Form IO-KSB or Quarterly Report
on Form IO-QSB, and (C) such other information as may be reasonably requested in order to avail
such Investor of any rule or regulation of the SEC that permits the selling of any such Registrable
Securities without registration.



     4. Due Diligence Review; Information. The Company shall make available, during normal
business hours, for inspection and review by the Investors, advisors to and representatives of the
Investors (who mayor may not be affiliated with the Investors and who are reasonably acceptable to
the Company), all financial and other records, all SEC Filings (as defined in the Convertible
Notes) and other filings with the SEC, and all other corporate documents and properties of the
Company as may be reasonably necessary for the purpose of such review, and cause the Company’s
officers, directors and employees, within a reasonable time period, to supply all such information
reasonably requested by the Investors or any such representative, advisor or underwriter in
connection with such Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them), prior to and from time
to time after the filing and effectiveness of the Registration Statement for the sole purpose of
enabling the Investors and such representatives, advisors and underwriters and their respective
accountants and attorneys to conduct initial and ongoing due diligence with respect to the Company
and the accuracy of such Registration Statement.



     The Company shall not disclose material nonpublic information to the Investors, or to advisors
to or representatives of the Investors, unless prior to disclosure of such information the Company
identifies such information as being material nonpublic information and provides the Investors,
such advisors and representatives with the opportunity to accept or refuse to accept such material
nonpublic information for review and any Investor wishing to obtain such information enters into an
appropriate confidentiality agreement with the Company with respect thereto.





5









 





     5. Obligations of the Investors.



          (a) Each Investor shall furnish in writing to the Company such information regarding itself,
the Registrable Securities held by it and the intended method of disposition of the Registrable
Securities held by it, as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such registration as the
Company may reasonably request. At least five (5) Business Days prior to the first anticipated
filing date of any Registration Statement, the Company shall notify each Investor of the
information the Company requires from such Investor if such Investor elects to have any of the
Registrable Securities included in the Registration Statement. An Investor shall provide such
information to the Company at least two (2) Business Days prior to the first anticipated filing
date of such Registration Statement if such Investor elects to have any of the Registrable
Securities included in the Registration Statement.




          (b) Each Investor, by its acceptance of the Registrable Securities agrees to cooperate with
the Company as reasonably requested by the Company in connection with the preparation and filing of
a Registration Statement hereunder, unless such Investor has notified the Company in writing of its
election to exclude all of its Registrable Securities from such Registration Statement.




          (c) Each Investor agrees that, upon receipt of any notice from the Company of either (i) the
commencement of an Allowed Delay pursuant to Section 2(c)(ii) or (ii) the happening of an event
pursuant to Section 3(h) hereof, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such Registrable Securities,
until the Investor’s receipt of the copies of the supplemented or amended prospectus filed with the
SEC and until any related post-effective amendment is declared effective and, if so directed by the
Company, the Investor shall deliver to the Company (at the expense of the Company) or destroy (and
deliver to the Company a certificate of destruction) all copies in the Investor’s possession of the
Prospectus covering the Registrable Securities current at the time of receipt of such notice.




     6. Indemnification.



          (a) Indemnification by the Company. The Company will indemnify and hold harmless each
Investor and its officers, directors, members, limited partners, employees and agents, successors
and assigns, and each other person, if any, who controls such Investor within the meaning of the
1.933 Act, against any losses, claims, damages or liabilities, joint or several, to which they may
become subject under the 1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of any material fact contained in any Registration Statement,
any preliminary prospectus or final prospectus contained therein, or any amendment or supplement
thereof; (ii) any blue sky application or other document executed by the Company specifically for
that purpose or based upon written information furnished by the Company filed in any state or other
jurisdiction in order to qualify any or all of the Registrable Securities under the securities laws
thereof (any such application, document or information herein called a “Blue Sky Application”);
(iii) the omission or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; (iv) any violation by the
Company or its agents of any rule or regulation promulgated under the 1933 Act applicable to the
Company or its agents and relating to action or inaction required of the Company in connection with
such registration; or (v) any failure to register or qualify the Registrable Securities included in
any such Registration in any state where the Company or its agents has affirmatively undertaken or
agreed in writing that the Company will undertake such registration or qualification on an
Investor’s behalf and will reimburse such Investor, and each such officer, director or member and
each such controlling person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the






6









 







Company will not be liable in any such case if and to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission so made in conformity with information furnished by such Investor or
any such controlling person in writing specifically for use in such Registration Statement or
Prospectus.




          (b) Indemnification by the Investors. Each Investor agrees, severally but not jointly,
to indemnify and hold harmless, to the fullest extent permitted by law, the Company, its directors,
officers, employees, stockholders and each person who controls the Company (within the meaning of
the 1933 Act) against any losses, claims, damages, liabilities and expense (including reasonable
attorney fees) resulting from any untrue statement of a material fact or any omission of a material
fact required to be stated in the Registration Statement or Prospectus or preliminary prospectus or
amendment or supplement thereto or necessary to make the statements therein not misleading, to the
extent, but only to the extent that such untrue statement or omission is contained in any
information furnished in writing by such Investor to the Company specifically for inclusion in such
Registration Statement or Prospectus or amendment or supplement thereto. In no event shall the
liability of an Investor be greater in amount than the dollar amount of the proceeds (net of all
expense paid by such Investor in connection with any claim relating to this Section 6 and the
amount of any damages such Investor has otherwise been required to pay by reason of such untrue
statement or omission) received by such investor upon the sale of the Registrable Securities ·
included in the Registration Statement giving rise to such indemnification obligation.




          (c) Conduct of Indemnification Proceedings. Any person entitled to indemnification
hereunder shall (i) give prompt notice to the indemnifying party of any claim with respect to which
it seeks indemnification and (ii) permit such indemnifying party to assume the defense of such
claim with counsel reasonably satisfactory to the indemnified party; provided that any
person entitled to indemnification hereunder shall have the right to employ separate counsel and to
participate in the defense of such claim, but the fees and expenses of such counsel shall be at the
expense of such person unless (a) the indemnifying party has agreed to pay such fees or expenses,
or (b) the indemnifying party shall have failed to assume the defense of such claim and employ
counsel reasonably satisfactory to such person or (c) in the reasonable judgment of any such
person, based upon written advice of its counsel, a conflict of interest exists between such person
and the indemnifying party with respect to such claims (in which case, if the person notifies the
indemnifying party in writing that such person elects to employ separate counsel at the expense of
the indemnifying party, the indemnifying party shall not have the right to assume the defense of
such claim on behalf of such person); and provided, further, that the failure of
any indemnified party to give notice as provided herein shall not relieve the indemnifying party of
its obligations hereunder, except to the extent that such failure to give notice shall materially
adversely affect the indemnifying party in the defense of any such claim or litigation, it is
understood that the indemnifying party shall not, in connection with any proceeding in the same
jurisdiction, be liable for fees or expenses of more than one separate firm of attorneys at any
time for all such indemnified parties. No indemnifying party will, except with the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or litigation.




          (d) Contribution. If for any reason the indemnification provided for in the preceding
paragraphs (a) and (b) is unavailable to an indemnified party or insufficient to hold it harmless,
other than as expressly specified therein, then the indemnifying party shall contribute to the
amount paid or payable by the indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect the relative fault of the indemnified
party and the indemnifying party, as well as any other relevant equitable considerations. No person
guilty offraudulent misrepresentation within the meaning of Section 11(f) of the 1933 Act shall be
entitled to contribution from any person not guilty of such fraudulent misrepresentation. In no
event shall the contribution obligation of a holder of Registrable Securities be greater in amount
than the dollar amount of the proceeds (net of all expenses paid by such




          
7









 








holder in connection with any claim relating to this Section 6 and the amount of any damages such
holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission) received by it upon the sale of the Registrable Securities giving
rise to such contribution obligation.




7. Miscellaneous.




          (a) Amendments and Waivers. This Agreement may be amended only by a writing signed by
the Company and the Required Investors. The Company may take any action herein prohibited, or omit
to perform any act herein required to be performed by it, only if the Company shall have obtained
the written consent to such amendment, action or omission to act, of the Required Investors.




          (b) Notices. All notices and other communications provided for or permitted hereunder
shall be made as set forth in Section 7 of the Convertible Notes.




          (c) Assignments and Transfers by Investors. The provisions of this Agreement shall be
binding upon and inure to the benefit of the Investors and their respective successors and assigns.
An Investor may transfer or assign, in whole or from time to time in part, to one or more persons
its rights hereunder in connection with the transfer of Registrable Securities by such Investor to
such person, provided that such Investor complies with all laws applicable thereto and provides
written notice of assignment to the Company promptly after such assignment is effected.




          (d) Assignments and Transfers by the Company. This Agreement may not be assigned by
the Company (whether by operation of law or otherwise) without the prior written consent of the
Required Investors, provided, however, that the Company may assign its rights and delegate its
duties hereunder to any surviving or successor corporation in connection with a merger or
consolidation of the Company with another corporation, or a sale, transfer or other disposition of
all or substantially all of the Company’s assets to another corporation, without the prior written
consent of the Required Investors, after notice duly given by the Company to each Investor.




          (e) Benefits of the Agreement. The terms and conditions of this Agreement shall inure
to the benefit of and be binding upon the respective permitted successors and assigns of the
parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as expressly provided in
this Agreement.




          (f) Counterparts and Facsimile Signatures. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. This Agreement may also be executed via facsimile, which
shall he deemed an original.




          (g) Titles and Subtitles. The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this Agreement.




          (h) Severabilitv. Any provision of this Agreement that is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions hereof but shall he
interpreted as if it were written so as to be enforceable to the maximum extent permitted by
applicable law, and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the






8









 







parties hereby waive any provision of law which renders any provisions hereof prohibited or
unenforceable in any respect.




          (i) Further Assurances. The parties shall execute and deliver all such further
instruments and documents and take all such other actions as may reasonably be required to carry
out the transactions contemplated hereby and to evidence the fulfillment of the agreements herein
contained.




          (j) Entire Agreement. This Agreement is intended by the parties as a final expression
of their agreement and intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained herein. This
Agreement supersedes all prior agreements and understandings between the parties with respect to
such subject matter.




          (k) Governing Law Consent to Jurisdiction; Waiver of Jury Trial. This Agreement shall
be governed by, and construed in accordance with, the internal laws of the State of Arizona without
regard to the choice of law principles thereof. Each of the parties hereto irrevocably submits to
the exclusive jurisdiction of the courts of the State of Arizona located in Maricopa County for the
purpose of any suit, action, proceeding or judgment relating to or arising out of this Agreement
and the transactions contemplated hereby. Each of the parties hereto irrevocably consents to the
jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in
such court. Each party hereto irrevocably waives any objection to the laying of venue of any such
suit, action or proceeding brought in such courts and irrevocably waives any claim that any such
suit, action or proceeding brought in any such court has been brought in an inconvenient forum.
EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH
RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS
WAIVER.




[Remainder of Page Intentionally Blank; Signature Page Follows]






9









 








     IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement or
caused their duly authorized officers to execute this Agreement as of the date first above written.



	 	 	 	 	 
	The Company: 	TEKNIK DIGITAL ARTS, INC.

 	 
	 	By:  	 	 
	 	 	John Ward 	 
	 	 	Chief Executive Officer 	 
	 



	 	 	 	 	 
	 

	 	 	 	 
	The Investor(s):
	 	 	 	 
	 
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 





 









 






Exhibit A




INVESTORS




 









 





Exhibit B




PLAN OF DISTRIBUTION




     The selling stockholder(s), which as used herein includes donees, pledgees, transferees or
other successors-in-interest selling shares of common stock or interests in shares of common stock
received after the date of this prospectus from a selling stockholder as a gift, pledge,
partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise
dispose of any or all of their shares of common stock or interests in shares of common stock on any
stock exchange, market or trading facility on which the shares are traded or in private
transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of
sale, at prices related to the prevailing market price, at varying prices determined at the time of
sale, or at negotiated prices.



     The selling stockholder(s) may use anyone or more of the following methods when disposing of
shares or interests therein:



     - Ordinary brokerage transactions and transactions in which the broker-dealer solicits
purchasers;



     - Block trades in which the broker-dealer will attempt to sell the shares as agent, but may
position and resell a portion of the block as principal to facilitate the transaction;



     - Purchases by a broker-dealer as principal and resale by the broker-dealer for its account;



     - An exchange distribution in accordance with the rules of the applicable exchange;



     - Privately negotiated transactions;



     - Through the writing or settlement of options or other hedging transactions, whether through
an options exchange or otherwise;



     - Broker-dealers may agree with the selling stockholders to sell a specified number or such
shares at a stipulated price per share; and



     - A combination of any such methods of sale.



     -



     The selling stockholder(s) may, from time to time, pledge or grant a security interest in some
or all of the shares of common stock owned by them and, if they default in the performance of their
secured obligations, the pledgees or secured parties may offer and sell the shares of common stock,
from time to time, under this prospectus, or under an amendment to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest as selling
stockholders under this prospectus. The selling stockholders also may transfer the shares of common
stock in other circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus.



     The aggregate proceeds to the selling stockholders from the sale of the common stock offered
by them will he the purchase price of the common stock less discounts or commissions, if any. Each
of the selling stockholders reserves the right to accept and, together with their agents from time
to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly
or through agents. We will not receive any of the proceeds from this offering. Upon any exercise of
the warrants by payment of cash, however, we will receive the exercise price of the warrants.




 









 








     The selling stockholders also may resell all or a portion of the shares in open market
transactions in reliance upon Rule 144 under the Securities Act of 1933, provided that they meet
the criteria and conform to the requirements of that rule.



     The selling stockholders and any underwriters, broker-dealers or agents that participate in
the sale of the common stock or interests therein may be underwriters within the meaning of Section
2( 11) of the Securities Act. Any discounts, commissions, concessions or profit they earn on any
resale of the shares may be underwriting discounts and commissions under the Securities Act.
Selling stockholders who are ‘underwriters’ within the meaning of Section 2(11) of the Securities
Act will be subject to the prospectus delivery requirements of the Securities Act.



     To the extent required, the shares of our common stock to he sold, the names of the selling
stockholders, the respective purchase prices and public offering prices, the names of any agents,
dealer or underwriter, any applicable commissions or discounts with respect to a particular offer
will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this prospectus.



     In order to comply with the securities laws of some states, if applicable, the common stock
may be sold in these jurisdictions only through registered or licensed brokers or dealers. In
addition, in some states the common stock may not be sold unless it has been registered or
qualified for sale or an exemption from registration or qualification requirements is available and
is complied with.



     We have advised the selling stockholders that the anti-manipulation rules of Regulation M
under the Exchange Act may apply to sales of shares in the market and to the activities of the
selling stockholders and their affiliates. In addition, we will make copies of this prospectus (as
it may he supplemented or amended from time to time) available to the selling stockholders for the
purpose of satisfying the prospectus delivery requirements of the Securities Act. The selling
stockholders may indemnify any broker-dealer that participates in transactions involving the sale
of the shares against certain liabilities, including liabilities arising under the Securities Act.



     We have agreed to indemnify the selling stockholders against liabilities, including
liabilities under the Securities Act and state securities laws, relating to the registration of the
shares offered by this prospectus.



     We have agreed with the selling stockholders to keep the registration statement of which this
prospectus constitutes a part effective until the earlier of (1) such time as all of the shares
covered by this prospectus have been disposed of pursuant to and in accordance with the
registration statement or (2) the date on which the shares may be sold pursuant to Rule 144(k) of
the Securities Act.