Document:

exv10w1

 

Exhibit 10.1

May 17, 2003

Don Mundo

Chief Financial Officer

Teknik Digital Arts

7377 E. Doubletree Ranch Rd.

Scottsdale, AZ 85258

Re: Binding Letter of Intent for Mystic Chat Teaming Agreement

Dear Don:

Following up on the recent conversations between Teknik Digital Arts (“Teknik”)
and Quicksilver Software, Inc. (“Quicksilver”), I am sending this binding
Letter of Intent to confirm the terms of our understanding regarding our joint
roles in developing the “Mystic High” (working title) mobile phone chat
software (“the Product”).

As we discussed, in order for us to be able to provide a deliverable by October
31, 2003, we need to expand the team and move into full production immediately,
which we can do as soon as we have a signature on this Letter of Intent.

Principal Business Terms

The following are the business terms upon which Teknik and Quicksilver are
willing to enter into this arrangement for services related to the Product,
under the terms of a full Teaming Agreement to be negotiated between the
parties:

Relationship:

Software development project to create a mobile phone chat
application, the Product, that can be offered through a number of cellular
phone service providers and can be used by the parties as a technological
base for future products. Full production will begin on May 23, 2003.

The parties intend to establish a long-term mutual product
development relationship for the Product and other products
which they may mutually choose to develop, Major management
decisions will be made by a small “Governing Board” comprised
of members from both organizations. Teknik will provide
financial backing for development costs and ongoing
maintenance; Quicksilver will provide technical expertise and
manpower. The parties will share all revenues derived from
the Product after Direct Expenses in an equitable percentage
as defined in this document.

Teknik shall own the resulting intellectual property.

This arrangement is commonly known as a “Teaming Agreement.”

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Teaming Details:

This section summarizes key details which will be more fully
defined by the Teaming Agreement:

	1.	 	“Net Revenues” will be computed via
the simple deduction of both Teknik’s and Quicksilver’s
“Direct Expenses” (both initial and ongoing) from gross
receipts received from the sale or licensing of the
Product.
	 
	2.	 	In the case of Teknik, its Direct
Expenses will Include costs of directly assigned
personnel and contractors (Corey Comstock, Sherri Cuono,
Bill Volk, etc.)
	 
	3.	 	Quicksilver will compute its Direct
Expenses using a fair and reasonable “direct labor
costing methodology” based on that used in U.S.
Government “cost plus fixed fee” contracts as recently
audited by the Defense Contract Audit Agency at
Quicksilver. This involves the use of an overhead
multiplier on direct labor cost of 72%.
	 
	4.	 	A separate Schedule of Allowable
Deductions for Teknik will be prepared which lists the
expenses to be considered Teknik’s Direct Expenses and
“Ongoing Expenses. Currently, this is expected to
include direct labor, capital equipment purchases, and
hosting costs.
	 
	5.	 	The parties have agreed to a 20-80
split of Net Revenues; Quicksilver will receive 20% and
Teknik 80%. Net Revenues are to be distributed to both
parties in the ratio above, unless mutually agreed
otherwise. This share also applies to any sale or
licensing revenues derived from the IP. Payments will
be made within 15 days of actual receipt of funds by
Teknik.
	 
	6.	 	In the event of a third party making
an offer to purchase either Teknik (as a whole) or the
Product, Teknik reserves the right to purchase all
future Quicksilver revenues from the Product for five
times average annual revenue (based on best year of
revenues) or one million dollars US ($1,000,000),
whichever is greater.
	 
	7.	 	More than one unique product may be
developed under this Letter of Intent and subsequent
Teaming Agreement. Each such project shall be treated
as a separate entity for accounting purposes, so that
expenses and revenues can be readily tracked, both for
ongoing development and for the potential sale or
licensing of the intellectual property. In particular,
this means that the Mystic Chat application and the
Mystic High Game application are considered to be
separate accounting entities, although both are intended
to be covered by the same Teaming Agreement.
	 
	8.	 	The Teaming Agreement contemplated
under this Letter of Intent is intended to be
nonexclusive for Teknik; Teknik may choose, at its

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	 	 	discretion, to engage in other mobile-phone product
development efforts which do not involve Quicksilver and
which are not directly competitive with The Product.
Quicksilver may also choose to engage in other
mobile-phone product development efforts, as long as they
are not directly competitive with The Product.
	 
	9.	 	The parties intend to form a
long-term relationship for the development and
maintenance of the Product and potential future
products. The Agreement will provide for the continued
participation of the parties in the maintenance and
long-term enhancement of the Product, as they deem
appropriate. The parties may decide, at the option of
the Governing Board, to continue developing future
products when an appropriate business plan is presented;
there is no requirement, however, that such continued
development take place.
	 
	10.	 	The Governing Board will consist of
three members: Don Mundo, John Skeel and William
Fisher. The goal is to create a small, focused advisory
group that can make product, production and expense
decisions quickly. If necessary, the Board may
establish committees made up of members of Teknik and
Quicksilver, as appropriate, but a majority of the three
core Board members will make the final determinations.
	 
	11.	 	Teknik shall be deemed the owner of
all IP developed for the Product or other products,
provided that the parties retain all IP rights to
existing IP incorporated into the Product (including,
but not limited to, the Quicksilver Tools). In
addition, Quicksilver shall be granted a license to use
non Product-specific technologies in other
non-competitive products on terms comparable to those
used in Quicksilver’s other commercial software
development efforts (see “Quicksilver Tools” definition
for reference).
	 
	12.	 	The parties intend to establish
criteria by which the ongoing viability of the project
can be evaluated. Although both parties intend to build
the product such that it will be profitable, it is
possible that it will fail to generate sufficient
revenues to justify its ongoing operation. In such a
situation, the Governing Board will evaluate the project
periodically and, if necessary, arrange for the orderly
shutdown of operations.

Production Plan:

Development of the Product will be completed in a
number of incremental stages in order to ensure the
earliest delivery of baseline functionality and
therefore ensure a faster return on the investment.
The first phase, previously authorized by a separate
agreement, is a one-month technical analysis effort
(fixed cost of $34,000), followed immediately by a
second phase involving approximately five calendar
months of main development work (cost $295,000).
This agreement authorizes this second phase. After

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these two initial phases are complete, the parties anticipate engaging in
continued maintenance of the Product.

Quicksilver
Obligations:

Quicksilver will be responsible for providing
technical design, programming, and technical project
management resources for the project.

Quicksilver will be responsible for setup of server hardware
and for the monthly maintenance of the system, costs for
which will be paid by Teknik.

The development team for the Product will include the
following key personnel, plus additional personnel as
appropriate:

Bill Snyder, Server Programmer

Mike Hershberg, Java Programmer

Nate Gross, Game Programmer

William Fisher, Technical Manager

Teknik
Obligations:

Teknik will provide to Quicksilver a current concept
document, user interface designs, artwork and any other
materials which Teknik believes are necessary to clearly
define the desired look and feel of the Product.

Not later than June 1, 2003 the support requirements from
AT&T (or other telco’s) will be determined by both parties.
Teknik will obtain these requirements in a timely manner to
meet the Product’s production requirements.

Final Product specifications will be mutually agreed between
the parties not later than the end of the first month of
production on June 23, 2003.

Not later than June 1, 2003 the parties will agree on product
testing services to be provided by Teknik.

As compensation for Quicksilver’s work on the Product, Teknik
shall compensate Quicksilver for its costs in accordance with
the Payment Schedule attached to this Letter as Exhibit A.
Teknik shall pay the initial installment of $30,000 upon
signing of this Letter, and shall pay Quicksilver upon
presentation and approval of each statement of work detailing
progress on the Product. The total agreed-upon cost of work
to be performed upon signing of this Letter is $295,000,
which shall only be modified upon written approval of the
Governing Board.

Teknik shall be responsible for all costs related to the
hosting of servers required to support the product, including
equipment cost, hosting fees, and ongoing maintenance
following the conclusion of production on the Product. The
parties currently anticipate a need for the purchase of one

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server unit for internal testing approximately at the end of
July (estimated cost $5,000), and additional units (in a
quantity to be determined by the Board) two months prior to
the first commercial deployment of the Product.

Teknik will also be responsible for any sales, marketing, and
customer technical support for the Product.

Technical
Requirements:

The Product will be designed for the J2ME operating
environment, with the intent of ensuring reasonable future
portability to other environments. The Product will not
operate on BREW or Symbian phones unless they support J2ME.

The Product will be designed for use in U.S. English only,
though the internal architecture should be such that future
support for other languages is not precluded.

Intellectual
Property Rights:

For purposes of ownership, the Product shall be deemed a
work-for-hire and, except as otherwise provided in this
section, all right, title and interest to the Product,
including all intellectual property rights, shall belong
solely to Teknik.

A license to Quicksilver’s engine and related tools (the
“Quicksilver Tools”), including but not limited to the Chat
Engine software, will be included as part of Quicksilver’s
development fee for the Product. Quicksilver shall retain
all intellectual property rights to the Quicksilver Tools.
This includes both pre-existing tools and additional Tools
(non Product-specific components) created during the
Product’s development. Teknik shall have the right to
utilize the Quicksilver Tools solely in connection with the
Product. In the event that Teknik wishes to make use of the
Quicksilver Tools for other purposes, the parties shall agree
upon separate terms for licensing of these Tools.

Quicksilver will be providing specific proprietary software,
the Chat Engine and certain portions of the Quicksilver
Tools, that will be included in the product for no additional
charge. This software shall remain the property of
Quicksilver and Teknik shall be granted a license to use this
software in conjunction with the Product.

The MNI/MNA software is already owned by Teknik, and
Quicksilver’s portion is to be included in the Product at no
additional charge. The ownership of this software is covered
by a separate agreement between the parties.

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Confidentiality:

The contents of this Letter shall be subject to the terms of
the pre-existing Mutual Confidentiality Agreement signed by the parties
and shall be incorporated into the final agreement by reference.

This Letter constitutes the entire agreement between the parties with respect
to the Product and supersedes all prior or contemporaneous oral or written
agreements. This Letter may not be assigned or amended except by a written
instrument signed by authorized representatives of both parties. This Letter
does not grant any licenses between the parties, nor does it create any
relationship of agency or representation between the parties. This Letter
shall be governed by and construed in accordance with the laws of the State of
California covering agreements made and to be performed in that State, without
regard to principles of conflict of laws.

Agreed by:

	 	 	 
	

	 	

	Signed

	 	Signed
	 
	 	 
	William C. Fisher
	 	 
	

	 	

	Name

	 	Name
	 
	 	 
	President

	 	

	Title

	 	Title
	 
	 	 
	Quicksilver Software, Inc.

	 	Teknik Digital Arts

	Organization

	 	Organization
	 
	 	 
	

	 	

	Date

	 	Date

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Exhibit A

Payment Schedule: Production Phase

     Teknik agrees to pay Quicksilver in accordance with the following Payment
Schedule:

	 	 	 	 	 	 	 	 	 	 	 
	#
	 	Title
	 	Date
	 	Amount
	 	Deliverable Description

	1
	 	Startup	 	5/22/03	 	$	30,000	 	 	Project Startup
	2
	 	Design Complete	 	6/15/03	 	 	40,000	 	 	Design Documentation, Including:
	 
	 	 	 	 	 	 	 	 	 	-Gameplay Design Document
	 
	 	 	 	 	 	 	 	 	 	-Technical Design Document
	 
	 	 	 	 	 	 	 	 	 	-Updated Milestone List, with Production milestone details
	3
	 	Production 1	 	7/15/03	 	 	40,000	 	 	First Production deliverable;
	 
	 	 	 	 	 	 	 	 	 	details TBD during Design Phase
	4
	 	Production 2	 	8/15/03	 	 	45,000	 	 	Second Production deliverable;
	 
	 	 	 	 	 	 	 	 	 	details TBD during Design Phase
	5
	 	First Playable	 	9/15/03	 	 	45,000	 	 	First Playable Release: all
	 
	 	 	 	 	 	 	 	 	 	primary functionality
	 
	 	 	 	 	 	 	 	 	 	implemented.  Known bugs may
	 
	 	 	 	 	 	 	 	 	 	cause crashes, and not all
	 
	 	 	 	 	 	 	 	 	 	assets will be incorporated.
	6
	 	Beta	 	10/15/03	 	 	45,000	 	 	Beta Release: all functionality
	 
	 	 	 	 	 	 	 	 	 	implemented and ready for
	 
	 	 	 	 	 	 	 	 	 	quality assurance testing.
	 
	 	 	 	 	 	 	 	 	 	Final or placeholder versions
	 
	 	 	 	 	 	 	 	 	 	of all critical assets
	 
	 	 	 	 	 	 	 	 	 	incorporated.
	7
	 	Final	 	10/31/03	 	 	25,000	 	 	Final Release: same as Beta,
	 
	 	 	 	 	 	 	 	 	 	plus any aesthetic changes or
	 
	 	 	 	 	 	 	 	 	 	final bug fixes agreed upon by
	 
	 	 	 	 	 	 	 	 	 	the parties as essential for
	 
	 	 	 	 	 	 	 	 	 	release.
	 
	 	 	 	On Final Acceptance	 	 	25,000	 	 	Final Acceptance by Teknik.
	 	 		 		 	 	
	 	 	
	 
	 	 	 	 	 	$	295,000	 	 	 

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Exhibit B

Statement of Work: Production Phase

The core feature set of the main Mystic Chat application has been outlined in
detail by the parties previously and will be adjusted, if necessary, during the
first month of Production (May 22 to June 22). The Board will sign off an the
final feature set at the end of this time period.

Key components currently planned to be in the product are as follows:

	 	 	Adaptive Input Module

Core J2ME Engine and Shell Application

Scripting Engine, Quicksilver Tasks

Authentication Module

Pictogram Selection Module

Avatar Display and Control Module

WhoAmI Screen

Buddy List Screen

Message Screen

One-on-One Chat Screen

Multiuser Chat Screen

Simple Maze Game

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EXHIBIT C

QUICKSILVER TOOLS

     1. Quicksilver’s Tools

          1.01 Definition of “Quicksilver Tools”. The Quicksilver Tools consist of
certain asset editing/compiling tools, data formats or compression methods,
format conversion tools, 2D and 3D graphics and animation routines, artificial
intelligence, sound/music and interface routines and the software architecture
into which they are integrated, together with artificial intelligence
methodologies, gameplay representation methodologies, and programming practices
(the “Quicksilver Tools”), which have been developed or are now being developed
by Quicksilver and/or its contractors, and which will be included in or used in
the creation of the Product in order to expedite its development. Teknik
understands that (i) the Quicksilver Tools consist of internal portions of
program code which provide the overall structure for the code or which instruct
the computer to display any image, reproduce any sound, or manipulate any data
which it may have in a particular portion of computer memory in a particular
fashion; (ii) enhancements made to the Quicksilver Tools in the course of
development of the Work are included in the definition of Quicksilver Tools;
and (iii) the Quicksilver Tools are now or will be included in this manner by
Quicksilver in other works. Quicksilver reserves all rights to the Quicksilver
Tools not explicitly granted to Teknik in this Agreement. For the purposes of
this Section 1.01, the Quicksilver Tools include but are not limited to:

                    (a) Any code which interfaces directly with the operating system (e.g.,
Windows 95 or MacOS) or the hardware, and any code which requires the inclusion
of header files specific to a given operating system or hardware platform; and

                    (b) Any data type designed to support such code which interfaces directly
with the operating system or the hardware (all elements defined in this
paragraph together comprising the “System-Specific Data”); and

                    (c) Any code designed solely to cause the display, transmission, or
manipulation of System-Specific Data, e.g. various network-related operations;
and

                    (d) All artwork, sounds, text, 3D-model “assets” (and compiled variants of
same) produced by Quicksilver Which are not specific to the Work, e.g.
Quicksilver logo and related animation sequences; and

                    (e) Dialog box layouts, user interface designs, and code designed solely
to support Quicksilver Tools user interlace features which are not specific to
any game, e.g. generic network lobby services or operating system option
selection; and

                    (f) Internal logic such as generic frameworks for artificial intelligence,
game character modeling, gameplay implementation, asset management, and plot
flow, e.g., hierarchical decision making code for game strategy planning or
code supporting various levels of emotional intensity in character speech; and

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	(g)

	 	Specific generic functions common to
most typical software titles,
 e.g., Memory management,

Timing/scheduling infrastructure (thinking, threads),

User inputs (keyboard, mouse, joystick, etc.),

Rendering 2D or voxel sprites, text, primitives (all generic imaging

tasks),

Texture mapping, lighting, clipping, transforms and other 3D
 engine
primitives,

Shape algebra,

Asset loading and tracking, and “WAD” file operations,

Sound/music playback,

Operating system “glue” code,

File Input/Output,

Network layer (packet transport),

Multiplayer libraries,

Math libraries,

String package, and

Debug support.
	 
	 	 
	(h)

	 	Support tools used in the creation of the Work, e.g.

Macromedia Director data file reader

Excel spreadsheet data file reader

Custom exporters for 3D modeling tools

Voxel “tank” renderer

Testing frameworks for software modules

Preprocessors and related tool performance enhancers

          1.02 Definition and Use of “Tool Folders”. Quicksilver shall place all
elements of the Work to which the terms of Section 1.01 of this Exhibit apply,
including but not limited to source code, object code, appropriate design notes
and documentation, header files, libraries, and audiovisual resources, into a
folder or folders in its source code control system which are specifically
designated only for such elements (the “Tool Folders”). The presence of a
given element in a Tool Folder at the time of delivery of the final source code
for the product to Teknik shall be deemed sufficient notice from Quicksilver to
Teknik that the given element is a part of the Quicksilver Tools for purposes
of this Agreement, provided the element otherwise falls within the definition
of Quicksilver Tools.

2. Teknik’s Rights

          2.01 Definition of “Teknik Property”. The Teknik Property consists of all
elements of the Work which are game-specific, as defined in this Exhibit (the
“Teknik Property”). For the purposes of this Section 2.01, the Teknik Property
includes but is not limited to:

                    (a) Any data type or code specific to a game, e.g., data structures
representing game unit characteristics, combat characteristics, and the like
(all elements defined in this paragraph together comprising the “Game-Specific
Data”); and

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                    (b) Any code making direct reference to such types or code; and

                    (c) Any code designed solely to cause the display, transmission, or
manipulation of Game-Specific Data, e.g., the logic underlying the display of
player scores and timing data; and

                    (d) Any code supplied by Teknik for inclusion, whether developed by Teknik
or a third party; and

                    (e) All artwork, sounds, text, 3D-model “assets” (and compiled variants of
same) produced by Teknik for inclusion in the Work; and

                    (f) Dialog box layouts, user interface designs, and code designed solely
to support these specific implementations of the user interface; and

                    (g) Internal logic such as rule sets for artificial intelligence, game
character modeling, plot flow, and scoring specifically related to the Work;
and

                    (h) Any code designed solely to implement character motion/appearance
planning, e.g., starship navigation and motion calculations.

          2.02 Definition and Use of “Teknik Folders”. Quicksilver shall place all
elements of the Work to which the terms of Section 2.01 of this Exhibit apply,
including but not limited to source code, object code, appropriate design notes
and documentation, header files, libraries, and audiovisual resources, into a
folder or folders in its source code control system which are specifically
designated only for such elements (the “Teknik Folders”). The presence of a
given element in a Teknik Folder at the time of delivery of the final source
code for the product to Teknik shall be deemed sufficient notice from
Quicksilver to Teknik that the given element is a part of the Teknik Property
for purposes of this Agreement, provided the element otherwise falls within the
definition of Teknik Property.

Page 11exv10w2

 

Exhibit 10.2

EXCHANGE AGREEMENT

     This EXCHANGE AGREEMENT (this “Agreement”) is made as of December 31,
2003, by and between TEKNIK DIGITAL ARTS, INC., a Nevada corporation (the
“Company”), and CODEFIRE ACQUISITION CORP., a California corporation (“CAC”).
Except as otherwise indicated herein, capitalized terms used herein are defined
in Article VII hereof.

RECITALS

     WHEREAS, CAC has provided a line of credit to Teknik in the aggregate
principal amount of $500,000, which financial accommodations are evidenced by
that certain $500,000 promissory note, dated as of December 31, 2003, made
payable by Teknik to CAC (the “Note”); and

     WHEREAS, subject to terms and conditions set forth herein, CAC desires to
acquire from Teknik, and Teknik desires to issue to CAC, 1,000,000 shares of
common stock, par value $0.50 per share, of Teknik (the “Shares”), in exchange
for the cancellation of the indebtedness underlying the Note, including all
unpaid principal and accrued interest thereunder as of the date of this
Agreement.

     NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in this Agreement, the parties
hereto agree as follows:

ARTICLE I

EXCHANGE OF THE SECURITIES

     1.1 Exchange. On the terms and subject to the conditions of this
Agreement, at the Closing:

     (a) CAC shall surrender to Teknik the original Note, marked cancelled and
paid in full.

     (b) Teknik shall issue to CAC a certificate evidencing the Shares, duly
registered in the name of CAC, which Shares shall be duly authorized, validly
issued, fully paid and nonassessable.

     1.2 Closing. The closing of the transaction contemplated by this
Agreement (the “Closing”) will take place at the offices of Squire, Sanders &
Dempsey L.L.P., Two Renaissance Square, 40 North Central Avenue, Suite 2700,
Phoenix, Arizona 85004 on December 31, 2003 (the “Closing Date”) (so long as
all conditions to the obligations of the parties to consummate the transaction
contemplated hereby have been satisfied or waived), or at such other time and
location as is mutually agreed upon by Teknik and CAC.

 

 

ARTICLE II

CONDITIONS TO CLOSING

     2.1 Conditions to CAC’s Obligations. The obligation of CAC to consummate
the transaction contemplated by this Agreement is subject to the satisfaction
of the following conditions precedent on or before the Closing Date:

     (a) the representations and warranties set forth in Article III herein
will be true and correct in all material respects at and as of the Closing Date
as though then made and as though references to the Closing Date were
substituted for references to the date of this Agreement throughout such
representations and warranties;

     (b) prior to the Closing, Teknik will have performed and complied in all
material respects with each of the covenants and agreements required to be
performed by it under this Agreement;

     (c) all proceedings to be taken by Teknik in connection with the
consummation of the transaction contemplated hereby and all certificates,
opinions, instruments and other documents, including customary representations,
warranties, covenants, conditions and remedies for breach, required to be
delivered by Teknik to effect the transaction contemplated hereby will be
reasonably satisfactory in form and substance to CAC; and

     (d) all governmental filings, authorizations and approvals that are
required for the consummation of the transaction contemplated hereby, if any,
with the exception of a Form D with the SEC, will have been duly made and
obtained other than those filings, authorizations or approvals the absence of
which would not, individually or in the aggregate, have a Material Adverse
Effect.

     Any condition to the obligations of CAC specified in this Section 2.1 may
be waived by CAC in its sole discretion.

     2.2 Conditions to Teknik’s Obligations. The obligation of Teknik to
consummate the transaction contemplated by this Agreement is subject to the
satisfaction of the following conditions precedent on or before the Closing
Date:

     (a) the representations and warranties set forth in Article IV hereof and
in any writing delivered by CAC pursuant hereto will be true and correct in all
material respects at and as of the Closing Date as though then made and as
though the Closing Date were substituted for the date of this Agreement
throughout such representations and warranties;

     (b) CAC will have performed and complied in all material respects with all
of the covenants and agreements required to be performed by it under this
Agreement prior to the Closing;

     (c) all consents and waivers by third parties that are required for the
consummation of the transactions contemplated hereby including, without
limitation, any consents that are required in order that the transactions contemplated
hereby do not constitute a breach of or a default under or a termination or
modification of any agreement to which CAC is a

 

 

party or to which any material
property of CAC is subject, will have been obtained on terms reasonably
satisfactory to Teknik; and

     (d) all governmental filings, authorizations and approvals that are
required for the consummation of the transaction contemplated hereby, if any,
will have been duly made and obtained other than those filings, authorizations
or approvals the absence of which would not, individually or in the aggregate,
have a Material Adverse Effect.

     The conditions specified in this Section 2.2 may be waived by Teknik, in
its sole discretion.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF TEKNIK

     As a material inducement to CAC to enter into this Agreement, Teknik
hereby represents and warrants to CAC that:

     3.1 Corporate Existence; Good Standing; Compliance with Law. Teknik (a)
is a corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation; (b) is duly qualified to conduct
business and is in good standing in each other jurisdiction where its ownership
or lease of property or the conduct of its business requires such
qualification, except where the failure to be so qualified would not have a
Material Adverse Effect; (c) has the requisite corporate power and authority
and the legal right to own, pledge, mortgage or otherwise encumber and operate
its properties, to lease the property it operates under lease and to conduct
its business as now, heretofore and proposed to be conducted; (d) subject to
specific representations regarding environmental laws, has all licenses,
permits, consents or approvals from or by, and has made all filings with, and
has given all notices to, all governmental authorities having jurisdiction, to
the extent required for such ownership, operation and conduct; (e) is in
compliance with its charter and bylaws; and (f) is in compliance with all
applicable provisions of law, except where the failure to comply, individually
or in the aggregate, could not reasonably be expected to have a Material
Adverse Effect. Teknik has furnished to counsel for CAC true and correct
copies of its Certificate of Incorporation, as amended, and bylaws, as
presently in effect.

     3.2 Corporate Power, Authorization, Enforceable Obligations. The
execution, delivery and performance by Teknik of this Agreement, the other
agreements and documents required to be executed hereby and the transactions
contemplated hereby and the issuance of the Shares: (a) are within Teknik’s
corporate power; (b) have been duly authorized by all necessary or proper
corporate action; (c) do not contravene any provision of Teknik’s Certificate
of Incorporation or bylaws or any corporate restriction of or applicable to
Teknik; (d) do not violate any law, statute, rule or regulation, or any
judgment, order or decree of any court or governmental authority or agency
applicable to Teknik; (e) do not conflict with or result in the breach or termination of, with or without notice or the lapse of time
constitute a default under or accelerate or permit the acceleration of any
performance required by, or result in any material modification of the terms
of, any indenture, mortgage, deed of trust, lease, agreement, contract,
obligation, commitment or other instrument to which Teknik is a party or by
which Teknik or any of its property is bound; (f) do not result in the creation
or imposition of any lien, charge or

 

 

encumbrance of any nature upon any of the
property or assets of Teknik; and (g) do not require the consent or approval of
any governmental authority or any other person, except those that have been
obtained, made or complied with as of the Closing. No other corporate
proceedings on the part of Teknik are necessary to approve and authorize the
execution and delivery of this Agreement and consummation of the transaction
contemplated hereby and the filing of a Form D with the SEC. This Agreement
has been duly executed and delivered by Teknik and constitutes a legal, valid
and binding obligation of Teknik enforceable against it in accordance with its
terms, except as enforceability thereof may be limited by bankruptcy,
insolvency, reorganization or other similar laws relating to the enforcement of
creditor’s rights generally and by general principles of equity.

     3.3 Capitalization. (a) The authorized, issued and outstanding capital
stock of Teknik is as set forth on Schedule 3.3. All of the presently
outstanding shares of capital stock of Teknik have been duly and validly
authorized and issued, and are fully paid and non-assessable. There are no
restrictions on the transfer of Teknik’s capital stock other than those arising
from federal and state securities laws or arising from this Agreement or the
documents executed in connection herewith.

     (b) Upon the issuance and delivery of the Shares in accordance with this
Agreement, (i) the Shares will be duly authorized, validly issued, fully paid
and nonassessable; and (ii) CAC will acquire, subject to federal and state
securities laws, good, valid and marketable title to the Preferred Stock, free
and clear of all liens, claims, preemptive rights, options, warrants, rights,
commitments, charges, encumbrances, equities, proxies or voting or other
agreements whatsoever.

     3.4 Closing Date. All the representations and warranties contained in
this Article III and made by or on behalf of Teknik elsewhere in this Agreement
and all information delivered in any schedule, attachment, or exhibits hereto
are true and correct in all material respects on the date of this Agreement and
will be true and correct in all material respects on the Closing Date unless
waived by CAC.

     Solely for the purposes of this Article III, “knowledge” and “best of
knowledge” shall mean actual knowledge without any special investigation or
inquiry.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF CAC

     As a material inducement to Teknik to enter into this Agreement, CAC
hereby represents and warrants to Teknik that:

     4.1 Organization and Power. CAC is a corporation duly organized, validly
existing and in good standing under the laws of the state of its jurisdiction
of incorporation, with full corporate power and authority to enter into this
Agreement and perform its obligations hereunder.

     4.2 Authorization. The execution, delivery and performance of this
Agreement by CAC and the consummation of the transaction contemplated hereby
have been duly and validly authorized by all requisite corporate action on the
part of CAC, and no other

 

 

corporate proceedings on its part are necessary to
authorize the execution, delivery or performance of this Agreement. This
Agreement has been duly executed and delivered by CAC and constitutes a legal,
valid and binding obligation of CAC, enforceable against it in accordance with
its terms, except as enforceability thereof may be limited by bankruptcy,
insolvency, reorganization or other similar laws relating the enforcement of
creditor’s rights generally and by general principles of equity.

     4.3 Absence of Conflicts. The execution, delivery and performance of this
Agreement and the consummation of the transaction contemplated hereby do not
and will not (a) conflict with or result in a breach of any of the provisions
of, (b) constitute a default under, (c) result in a violation of, or (d)
require any authorization, consent, approval, exemption or other action by or
notice to any court or other governmental body under, the provisions of the
certificate of incorporation or bylaws of CAC or any agreement or instrument to
which CAC is bound or by which CAC is affected, or any applicable law, statute,
rule or regulation or any judgment, order or decree to which CAC is subject.

     4.4 Title. CAC has good and marketable title to the Note and has the
authority (legal and otherwise) to exchange the Note for the Shares and hereby
acknowledges that such exchange shall be for full and final payment of all
amounts whatsoever due under the Note.

     4.5 Closing Date. The representations and warranties contained in this
Article IV and made by CAC elsewhere in this Agreement are true and correct in
all material respects on the date of this Agreement and will be true and
correct in all material respects on the Closing Date, unless waived by Teknik.

ARTICLE V

TERMINATION

     5.1 Termination. This Agreement may be terminated at any time prior to
the Closing:

     (a) by mutual written consent of CAC and Teknik;

     (b) by CAC or Teknik if there has been a material misrepresentation or
breach on the part of the other party or parties in the representations and
warranties set forth in this Agreement if such breach is not cured within 10
days after the terminating party first notifies the other party of such breach,
or if events have occurred which have made it impossible to satisfy a condition
precedent to the terminating party’s or parties’ obligations to consummate the
transaction contemplated hereby, unless such terminating party’s or
parties’ willful breach of this Agreement has caused the condition to be
unsatisfied; or

     (c) by CAC or Teknik if the Closing has not occurred on or prior to
December 31, 2003; and provided that neither CAC nor Teknik may terminate this
Agreement pursuant to this Section 5.1(c) if such person’s willful breach of
this Agreement has prevented the consummation of the transaction contemplated
hereby at or prior to such time.

 

 

     5.2 Effect of Termination. In the event of termination of this Agreement
by either CAC or Teknik as provided above, this Agreement will forthwith become
void and there will be no liability on the part of any party hereto to any
other party hereto or its shareholders or directors or officers in respect
hereof, except for the obligations of the parties pursuant to Sections 6.2 and
6.5 and except that nothing herein will relieve any party from liability
resulting from any breach of this Agreement prior to such termination,
including, without limitation, any breach of Section 6.7.

ARTICLE VI

ADDITIONAL AGREEMENTS

     6.1 Survival. Notwithstanding any examination made for or on behalf of
CAC, the knowledge of any of its officers, directors, stockholders, employees
or agents, or the acceptance of any certificate or opinion, all
representations, warranties, covenants and agreements set forth in this
Agreement or in any writing delivered in connection with this Agreement shall
survive the Closing and shall be fully effective and enforceable until the
termination of any statute of limitation applicable to the rights of the
parties hereunder.

     6.2 Indemnification. (a) Each party agrees to indemnify and hold
harmless the other party, including each of its Affiliates, and the directors,
officers, agents, employees, accountants and attorneys thereof (such party and
each such other Person, an “Indemnified Party”) from and against any losses,
claims, damages, judgments, assessments, costs and other liabilities
(collectively “Liabilities”), and will reimburse each Indemnified Party for all
fees and expenses (including the reasonable fees and expenses of outside
counsel) (collectively, “Expenses”) as they are incurred in investigating,
preparing or defending any claim, action, proceeding or investigation, whether
or not in connection with pending or threatened litigation or arbitration and
to which any Indemnified Party is a party (collectively, “Actions”), arising
out of (i) any breach of any of the representations or warranties made by a
party in this Agreement or any of the agreements or certificates, documents or
other writings contemplated hereby or delivered in connection herewith, (ii)
any breach or violation of or failure to perform fully any covenant, agreement
or obligation of a party in this Agreement or any of the agreements
contemplated hereby, or (iii) any Action by any third party arising out of or
in connection with the transactions contemplated by this Agreement; provided,
however, that neither party shall indemnify any Indemnified Party from
Liabilities or reimburse Expenses incurred by such party to the extent they
arise out of the willful misconduct, gross negligence or bad faith (as finally
determined by a court of competent jurisdiction) of such party. If multiple
claims are brought against an Indemnified Party (including in an arbitration),
with respect to at
least one of which indemnification is permitted under applicable law and
provided for under this Agreement, each party agrees that any award shall be
conclusively deemed to be based on claims as to which indemnification is
permitted and provided for, except to the extent the award expressly states
that the award, or any portion thereof, is based solely on a claim as to which
indemnification is not available.

     (b) The indemnification provisions of this Section 6.2 are in addition to,
and not in derogation of, any statutory or common law remedy any party may have
for misrepresentation, breach of warranty or breach of covenant.

 

 

     6.3 Further Transfers. Each party (at its own expense) will execute and
deliver such further instruments of conveyance and transfer and take such
additional action as the requesting party may reasonably request to effect,
consummate, confirm or evidence the issuance to CAC of the Shares on the other
hand, and the transfer of the Note (marked cancelled and paid in full) on the
other hand.

     6.4 Investigation. Prior to the Closing Date, CAC and its representatives
may make or cause to be made such investigation of the business and properties
of Teknik as each deems reasonably necessary or advisable and Teknik shall
furnish and disclose promptly to CAC all information concerning its business,
properties and personnel as CAC or its representatives reasonably request.
Upon reasonable notice, Teknik agrees to permit, prior to the Closing Date, CAC
and its authorized representatives to have access during business hours to
Teknik’s and each of its Subsidiaries’ books, records, facilities, key
personnel, officers, directors, customers (upon prior consultation with
Teknik), independent accountants, and legal counsel (without waiver of
privilege) in a manner that will not unreasonably interfere with the normal
business of Teknik and its Subsidiaries.

     6.5 Transfer of Securities. The Shares are transferable only pursuant to
(i) public offerings registered under the Securities Act, (ii) Rule 144 or Rule
144A of the Securities Act (or any similar rule or rules then in force) if such
rule is available or (iii) subject to the conditions specified in Section 6.6
below, any other legally available means of transfer such that the Securities
are registered or exempt from registration.

     6.6 CAC Representations. CAC represents that it is an “Accredited
Investor” within the meaning of Regulation D under the Securities Act. CAC
understands that the Securities constitute “restricted securities” within the
meaning of Rule 144 under the Securities Act. CAC hereby represents that it is
acquiring the restricted securities purchased hereunder or acquired pursuant
hereto for its own account with the present intention of holding such
securities for purposes of investment, and that it has no intention of selling
such securities in a public distribution in violation of the federal securities
laws or any applicable state securities laws; provided, that nothing contained
herein shall prevent CAC and subsequent holders of restricted securities from
transferring such securities in compliance with the provisions of Section 6.6.
CAC understands that the restricted securities are being offered and sold in
reliance on exemptions from the registration requirements of federal and state
securities laws and that Teknik is relying upon the truth and accuracy of CAC’s
representations, warranties, agreements, acknowledgments and understandings set
forth herein to determine its suitability to acquire the restricted securities. Each
instrument or certificate for restricted securities shall be imprinted with a
legend in substantially the following form:

     “THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON
DECEMBER 31, 2003 AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS. THE TRANSFER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE IS RESTRICTED UNDER FEDERAL AND
STATE SECURITIES LAWS AND FURTHER IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE
EXCHANGE AGREEMENT, DATED AS OF DECEMBER 31, 2003 BETWEEN THE ISSUER (“TEKNIK”)
AND CODEFIRE ACQUISITION CORP., AND TEKNIK RESERVES THE

 

 

RIGHT TO REFUSE THE
TRANSFER OF SUCH SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH
RESPECT TO SUCH TRANSFER. A COPY OF SUCH CONDITIONS SHALL BE FURNISHED BY
TEKNIK TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE.”

ARTICLE VII

DEFINITIONS

     “Actions” shall have the meaning set forth in Section 6.2.

     “Affiliate” means, with respect to any Person, (i) each other Person that,
directly or indirectly, owns or controls, whether beneficially, or as a
trustee, guardian or other fiduciary, ten percent (10%) or more of the Stock
having ordinary voting power in the election of directors of such Person, (ii)
each Person that directly or indirectly controls, is controlled by or is under
common control with such Person or any Affiliate of such Person, (iii) each of
such Person’s officers, directors, joint ventures and partners, and, (iv) the
spouse, each sibling and each lineal descendant and ascendant of any such
specified Person or any Affiliate of such specified Person. For the purpose of
this definition, “control” of a Person shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of its management or
policies, whether through the ownership of voting securities, by contract or
otherwise.

     “Agreement” shall have the meaning set forth in the preamble of this
Agreement.

     “Closing” shall have the meaning set forth in Section 1.2.

     “Closing Date” shall have the meaning set forth in Section 1.2.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     “Expenses” shall have the meaning set forth in Section 6.2.

     “CAC” shall have the meaning set forth in the preamble to this Agreement.

     “Indemnified Party” shall have the meaning set forth in Section 6.2.

     “Liabilities” shall have the meaning set forth in Section 6.2.

     “Material Adverse Effect” shall mean (i) a material adverse change in the
business, assets, earnings, operations, prospects, or customer, supplier,
employee or sales representative relations, or financial or other condition of
Teknik.

     “Person” means any individual, sole proprietorship, partnership (including
a limited partnership), joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, limited
liability company, joint stock company, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof) or other
business entity.

 

 

     “SEC” means the United States Securities and Exchange Commission and any
successor to the functions thereof.

     “Securities Act” means the Securities Exchange Act of 1933, as amended.

ARTICLE VIII

MISCELLANEOUS

     8.1 Amendment and Waiver. This Agreement may be amended and any provision
of this Agreement may be waived, provided that, subject to the last sentence of
Section 2.1 and the last sentence of Section 2.2, any such amendment or waiver
will be binding upon a party only if such amendment or waiver is set forth in a
writing executed by each of Teknik and CAC. No course of dealing between or
among any persons having any interest in this Agreement will be deemed
effective to modify, amend or discharge any part of this Agreement or any
rights or obligations of any party under or by reason of this Agreement.

     8.2 Notices. All notices, demands and other communications given or
delivered under this Agreement will be in writing and shall be made by hand
delivery, overnight courier, first-class mail, or telecopier and will be deemed
to have been given when personally delivered, four business days after being
mailed by first class mail, return receipt requested, or delivered by express
courier service or telecopied (subject to receipt of written confirmation).
Notices, demands and communications to Teknik and CAC will, unless another
address is specified in writing, be sent to the addresses indicated below:

     Notices to Teknik:

          Teknik Digital Arts, Inc.

          4299 MacArthur Blvd., #105

          Newport Beach, California 92660

          Attention: John R. Ward

          Telecopy No.: (949) 474-1510

 

 

          With
copies to:

          Squire, Sanders & Dempsey L.L.P.

          Two Renaissance Square

          40 North Central Avenue

          Suite 2700

          Phoenix, Arizona 85004

          Attention: Gregory R. Hall, Esq.

          Telecopy
No.: (602) 253-8129

Notices
to CAC:

          CodeFire Acquisition Corp.

          7377 E. Doubletree Ranch Road

          Suite 270

          Scottsdale, Arizona 85258

          Attention: John Ward

          Telecopy No.: (480) 443-3879

     8.3 Binding Agreement; Assignment. This Agreement and all of the
provisions hereof will be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns.

     8.4 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of such provisions or the remaining provisions of this Agreement.

     8.5 No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any person.

     8.6 Headings; Interpretation. The headings used in this Agreement are for
convenience of reference only and do not constitute a part of this Agreement
and will not be deemed to limit, characterize or in any way affect any
provision of this Agreement, and all provisions of this Agreement will be
enforced and construed as if no caption had been used in this Agreement.
Whenever the term “including” is used in this Agreement (whether or not that
term is followed by the phrase “but not limited to” or “without limitation” or
words of similar effect) in connection with a listing of one or more items or
matters, that listing will be interpreted to be illustrative only and will not
be interpreted as a limitation on, or an exclusive listing of, such items or
matters.

     8.7 Entire Agreement. This Agreement and the documents referred to herein
contain the entire agreement between the parties
and supersede any prior understandings, agreements or representations by
or between the parties, written or oral, which may have related to the subject
matter hereof in any way.

 

 

     8.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which taken
together will constitute one and the same instrument.

     8.9 Governing Law. THIS AGREEMENT AND THE EXHIBITS AND SCHEDULES HERETO
SHALL BE GOVERNED BY THE INTERNAL LAW OF THE STATE OF ARIZONA, WITHOUT GIVING
EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF
THE STATE OF ARIZONA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE
APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF ARIZONA.

     8.10 Parties in Interest. Nothing in this Agreement, express or implied,
is intended to confer on any person other than the parties and their respective
successors and assigns any rights or remedies under or by virtue of this
Agreement.

[Signature page to follow.]

 

 

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.

	 	 	 	 	 
	 	 	TEKNIK DIGITAL ARTS, INC.,
	 	 	a Nevada corporation
	 
	 	 	 	 
	

	 	By:	 	 
	 	 	 	

	

	 	Name:    John R. Ward

	

	 	Title:      Chief Executive Officer

	 	 	 	 	 
	 	 	CODEFIRE ACQUISITION CORP.,
	 	 	a California corporation
	 
	 	 	 	 
	

	 	By:	 	 
	 	 	 	

	

	 	Name:
	 	John R. Ward
	

	 	Title:
	 	President

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