Document:

EX-10.2

 

Exhibit 10.2

GIBRALTAR STEEL CORPORATION NON-QUALIFIED

STOCK OPTION PLAN

 

Second Amendment to

Second Amendment and Restatement

 

RECITALS:

     On September 21, 1993, Gibraltar Steel Corporation, a Delaware corporation with offices at
3556 Lake Shore Road, Buffalo, New York 14219 (now known as Gibraltar Industries, Inc. (the
“Company”)) adopted a non-qualified stock option plan known as the “Gibraltar Steel Corporation
Non-Qualified Stock Option Plan” (the “Non-Qualified Option Plan”) to enable the Company to attract
and retain highly qualified individuals as members of the Board of Directors of the Company by
providing the Company a program under which it could grant equity based incentive compensation to
such individuals.

     In connection with the adoption by the Company of the Gibraltar Industries, Inc. 2005 Equity
Incentive Plan, the Company amended the Plan to prohibit the issuance of any additional options
effective as of May 19, 2006.

     The Company now desires to amend the Plan effective as of June 1, 2007 to modify the manner in
which the exercise price payable in connection with the exercise of any options may be paid.

     NOW, THEREFORE, in order to carry into effect the termination of the Non-Qualified Option
Plan, the Company hereby adopts the following as the Second Amendment to the Second Amendment and
Restatement of the Non-Qualified Option Plan effective as of June 15, 2007:

     1. Section 8 of the Plan is hereby amended by deleting the same in its entirety and
substituting therefore a new Section 8 to read as follows:

     “1. Exercise of Option. Options shall be exercised as follows:

          (a) Notice. Each option, or any installment thereof, shall be exercised, whether in
whole or in part, by giving written notice to the Company at its principal office, specifying the
options being exercised (by reference to the date of the grant of the option), the number of shares
to be purchased, the purchase price being paid in connection with the exercise of the option and
the manner of payment of the purchase price elected by the Optionee. Each such notice shall also
contain representations on behalf of the Optionee that he acknowledges that the Company is selling
the shares being acquired by him under a claim of exemption from registration under the Securities
Act of 1933 as amended (the “Act”), as a transaction not involving any public offering; that he
represents and warrants that he is acquiring such shares with a view to “investment” and not with a
view to distribution or resale; and that he agrees not to transfer, encumber or dispose of the
shares unless: (i) a registration statement with respect to the shares

 

 

shall be effective under the Act, together with proof satisfactory to the Company that there has been compliance with
applicable state law; or (ii) the Company shall have received an opinion of counsel in form and
content satisfactory to the Company to the effect that the transfer qualifies under Rule 144 or
some other disclosure exemption from registration and that no violation of the Act or applicable
state laws will be involved in such transfer, and/or such other documentation in connection
therewith as the Company’s counsel may in its sole discretion require.

          (b) Payment. Payment of the purchase price for shares of Common Stock to be acquired
in connection with the exercise of any options granted under this Plan (including specifically,
options granted prior to May 19, 2006) may be made using any of the following payment methods,
whichever is elected by the Optionee in the notice of exercise which is delivered to the Company:
(i) by delivery to the Company of cash or a certified or bank check payable to the order of the
Company in an amount equal to the portion of the purchase price which is payable in connection with
the exercise of such option; (ii) by delivery to the Company of previously acquired shares of the
Company’s Common Stock having an aggregate fair market value equal to the portion of the purchase
price which is payable in connection with the exercise of such option, provided that such
previously acquired shares of Common Stock have been held by the Optionee for such period of time
as may be required by the Committee at the time such shares are delivered to the Company in
connection with the Optionee’s exercise of his/her option hereunder; (iii) to the extent permitted
under applicable law, through any cashless exercise sale and remittance procedure that the
Committee, in its discretion, may from time to time approve; (iv) by a “net exercise” arrangement
pursuant to which the number of shares of Common stock issued to the Optionee in connection with
the Optionee’s exercise of the Option will be reduced by the Company’s retention of a portion of
the shares of the Company’s Common Stock to be issued in connection with the exercise of such
option, which shares of Common Stock have an aggregate fair market value equal to the sum of: (A)
the total exercise price payable for that number of shares of the Company’s Common Stock (including
retained shares) which is to be issued upon the exercise by the Optionee of the number of options
identified by the Optionee in the exercise notice; and (B) the aggregate amount of the statutory
minimum withholding taxes payable in connection with the Optionee’s payment of the purchase price
for the exercise of his options using the “net exercise” arrangement provided for by this Section
8(b)(iii); or (v) any other method of payment as the Committee may, from time to time approve. In
connection with payment by an Optionee of the purchase price due in connection with the exercise of
an option using the “net exercise” arrangement provided for above, the option shall be deemed to
have been exercised by the Optionee with respect to the shares of Common Stock used to pay the
exercise price, the shares of Common Stock used to satisfy the Company’s statutory minimum
withholding tax obligations and the shares of Common Stock issued to the Optionee in connection
with the “net exercise” arrangement. If shares of the Company’s Common Stock are delivered (or
retained by the Company) as payment of the purchase price for shares of Common Stock to be acquired
in connection with the exercise of options granted hereunder, the shares of Common Stock which are
delivered (or retained by the Company) in payment of such purchase price shall be equal in value to
the fair market value (determined in accordance with the principles set forth in Section 6 hereof)
of the Common Stock on the day immediately preceding the day on which such Common Stock is
delivered (or retained by the Company) in connection with the exercise of options granted
hereunder.

          (c) Issuance of Certificates. Certificates representing the shares purchased by the

2

 

Optionee shall be issued as soon as practicable after the Optionee has complied with the provisions
of Section 8(a) hereof.

          (d) Rights as a Stockholder. The Optionee shall have no rights as a stockholder with
respect to the shares of Common Stock purchased until the date of the issuance to him of a
certificate representing such shares.”

     2. Except as otherwise provided in Section 1 above, the terms of the Plan as contained in the
Second Amendment and Restatement of the Plan effective as of February 11, 1997, as amended, by the
First Amendment to the Second Amendment and Restatement of the Plan effective as of May 19, 2006
shall be and remain in full force and effect, without modification or amendment.

     IN WITNESS WHEREOF, Gibraltar Industries, Inc. has caused this Second Amendment to the Second
Amendment and Restatement of the Gibraltar Steel Corporation Non-Qualified Stock Option Plan to be
executed as of this 15th day of June, 2007.

	 	 	 	 	 
	 

	 	GIBRALTAR INDUSTRIES, INC.

 	 
	 	     /s/ David W. Kay
 	 
	 	Name:  	David W. Kay 	 
	 	Title:    Executive Vice President,

Chief Financial Officer and Treasurer 	 

3exv10w21

 

Exhibit 10.21

INVESTMENT AGREEMENT

INVESTMENT AGREEMENT (this “AGREEMENT”), dated as of April 27, 2007 by and between Teknik Digital
Arts, Inc. a Nevada corporation (the “Company”), and Dutchess Private Equities Fund, Ltd, a Cayman
Islands exempted company (the “Investor”).

WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein,
the Investor shall invest up to Ten Million dollars ($10,000,000) to purchase the Company’s Common
Stock, $.001 par value per share (the “Common Stock”);

WHEREAS, such investments will be made in reliance upon the provisions of Section 4(2) under the
Securities Act of 1933, as amended (the “1933 Act”), Rule 506 of Regulation D, and the rules and
regulations promulgated thereunder, and/or upon such other exemption from the registration
requirements of the 1933 Act as may be available with respect to any or all of the investments in
Common Stock to be made hereunder; and

WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties hereto
are executing and delivering a Registration Rights Agreement substantially in the form attached
hereto (the “Registration Rights Agreement”) pursuant to which the Company has agreed to provide
certain registration rights under the 1933 Act, and the rules and regulations promulgated
thereunder, and applicable state securities laws.

NOW THEREFORE, in consideration of the foregoing recitals, which shall be considered an integral
part of this Agreement, the covenants and agreements set forth hereafter, and other good and
valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company
and the Investor hereby agree as follows:

SECTION 1. DEFINITIONS.

     As used in this Agreement, the following terms shall have the following meanings specified or
indicated below, and such meanings shall be equally applicable to the singular and plural forms of
such defined terms.

     “1933 Act” shall have the meaning set forth in the preamble of this agreement.

     “1934 Act” shall mean the Securities Exchange Act of 1934, as it may be amended.

     “Affiliate” shall have the meaning specified in Section 5(H), below.

     “Agreement” shall mean this Investment Agreement.

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     “Best Bid” shall mean the highest posted bid price of the Common Stock during a given
period of time.

     “By-laws” shall have the meaning specified in Section 4(C).

     “Certificate of Incorporation” shall have the meaning specified in Section
4(C).

     “Closing” shall have the meaning specified in Section 2(G).

     “Closing Date” shall mean no more than seven (7) Trading Days following the Put Notice
Date.

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

     “Control” or “Controls” shall have the meaning specified in Section 5(H).

     “Effective Date” shall mean the date the SEC declares effective under the 1933 Act the
Registration Statement covering the Securities.

     “Environmental Laws” shall have the meaning specified in Section 4(M).

     “Equity Line Transaction Documents” shall mean this Agreement, the Registration Rights
Agreement.

     “Execution Date” shall mean the date indicated in the preamble to this Agreement.

     “Indemnities” shall have the meaning specified in Section 11.

     “Indemnified Liabilities” shall have the meaning specified in Section 11.

     “Ineffective Period” shall mean any period of time that the Registration Statement or
any Supplemental Registration Statement (as defined in the Registration Rights Agreement between
the parties) becomes ineffective or unavailable for use for the sale or resale, as applicable, of
any or all of the Registrable Securities (as defined in the Registration Rights Agreement) for any
reason (or in the event the prospectus under either of the above is not current and deliverable)
during any time period required under the Registration Rights Agreement.

     “Investor” shall have the meaning indicated in the preamble of this Agreement.

     “Material Adverse Effect” shall have the meaning specified in Section 4(A).

2

 

     “Maximum Common Stock Issuance” shall have the meaning specified in Section 2(H).

     “Minimum Acceptable Price” with respect to any Put Notice Date shall mean seventy-five
percent (75%) of the lowest closing bid prices for the ten (10) Trading Day period immediately
preceding each Put Notice Date.

     “Open Market Adjustment Amount” shall have the meaning specified in Section 2(1).

     “Open Market Purchase” shall have the meaning specified in Section 2(1)

     “Open Market Share Purchase” shall have the meaning specified in Section 2(1).

     “Open Period” shall mean the period beginning on and including the Trading Day
immediately following the Effective Date and ending on the earlier to occur of (i) the date which
is thirty-six (36) months from the Effective Date; or (ii) termination of the Agreement in
accordance with Section 9, below.

     “Pricing Period” shall mean the period beginning on the Put Notice Date and ending on
and including the date that is five (5) Trading Days after such Put Notice Date.

     “Principal Market” shall mean the American Stock Exchange, Inc., the National Association of
Securities Dealers, Inc. Over-the-Counter Bulletin Board, the NASDAQ National Market System or the
NASDAQ SmallCap Market, whichever is the principal market on which the Common Stock is listed.

     “Prospectus” shall mean the prospectus, preliminary prospectus and supplemental
prospectus used in connection with the Registration Statement.

     “Purchase Amount” shall mean the total amount being paid by the Investor on a
particular Closing Date to purchase the Securities.

     “Purchase Price” shall mean ninety-four percent (94%) of the lowest closing Best Bid
price of the Common Stock during the Pricing Period.

     “Put” shall have the meaning set forth in Section 2(B)(1) hereof.

     “Put Amount” shall have the meaning set forth in Section 2(B)(1) hereof.

     “Put Notice” shall mean a written notice sent to the Investor by the Company stating
the Put Amount in U.S. dollars the Company intends to sell to the Investor pursuant to the terms of
the Agreement and stating the current number of Shares issued and outstanding on such date.

3

 

     “Put Notice Date” shall mean the Trading Day, as set forth below, immediately
following the day on which the Investor receives a Put Notice, however a Put Notice shall be deemed
delivered on (a) the Trading Day it is received by facsimile or otherwise by the Investor if such
notice is received prior to 9:00 am Eastern Time, or (b) the immediately succeeding Trading Day if
it is received by facsimile or otherwise after 9:00 am Eastern Time on a Trading Day. No Put Notice
may be deemed delivered on a day that is not a Trading Day.

     “Put Restriction” shall mean the days between the beginning of the Pricing Period and
Closing Date. During this time, the Company shall not be entitled to deliver another Put Notice.

     “Put Shares Due” shall have the meaning specified in Section 2(1).

     “Registration Period” shall have the meaning specified in Section 5(C), below.

     “Registration Rights Agreement” shall have the meaning set forth in the recitals,
above.

     “Registration Statement” means the registration statement of the Company filed under
the 1933 Act covering the Common Stock issuable hereunder.

     “Related Party” shall have the meaning specified in Section 5(H).

     “Resolution” shall have the meaning specified in Section 8(E).

     “SEC” shall mean the U.S. Securities & Exchange Commission.

     “SEC Documents” shall have the meaning specified in Section 4(F).

     “Securities” shall mean the shares of Common Stock issued pursuant to the terms of the
Agreement.

     “Shares” shall mean the shares of the Company’s Common Stock.

     “Subsidiaries” shall have the meaning specified in Section 4(A).

     “Trading Day” shall mean any day on which the Principal Market for the Common Stock is
open for trading, from the hours of 9:30 am until 4:00 pm.

SECTION 2. PURCHASE AND SALE OF COMMON STOCK.

(A) PURCHASE AND SALE OF COMMON STOCK. Subject to the terms and conditions set forth herein, the
Company shall issue and sell to the Investor, and

4

 

the Investor shall purchase from the Company, up to that number of Shares having an aggregate
Purchase Price of Ten Million dollars ($10,000,000).

(B) DELIVERY OF PUT NOTICES.

(I) Subject to the terms and conditions of the Transaction Documents, and from time to time during
the Open Period, the Company may, in its sole discretion, deliver a Put Notice to the Investor
which states the dollar amount (designated in U.S. Dollars) (the “Put Amount”), which the Company
intends to sell to the Investor on a Closing Date (the “Put”). The Put Notice shall be in the form
attached hereto as Exhibit C and incorporated herein by reference. The amount that the Company
shall be entitled to Put to the Investor (the “Put Amount”) shall be equal to, at the Company’s
election, either: (A) Two Hundred percent (200%) of the average daily volume (U.S. market only) of
the Common Stock for the Ten (10) Trading Days prior to the applicable Put Notice Date, multiplied
by the average of the three (3) daily closing bid prices immediately preceding the Put Date, or (B)
two hundred fifty thousand dollars ($250,000). During the Open Period, the Company shall not be
entitled to submit a Put Notice until after the previous Closing has been completed. The Purchase
Price for the Common Stock identified in the Put Notice shall be equal to ninety-four percent (94%)
of the lowest closing Best Bid price of the Common Stock during the Pricing Period.

(C) COMPANY’S RIGHT TO WITHDRAWAL. The Company shall reserve the right, but not the obligation, to
withdraw that portion of the Put that is below the Minimum Acceptable Price, by submitting to the
Investor, in writing, a notice to cancel that portion of the Put. Any shares above the Minimum
Acceptable price due to the Investor shall be carried out by the Company under the terms of this
Agreement.

(D) INTENTIONALLY OMITTED

(E) CONDITIONS TO INVESTOR’S OBLIGATION TO PURCHASE SHARES. Notwithstanding anything to the
contrary in this Agreement, the Company shall not be entitled to deliver a Put Notice and the
Investor shall not be obligated to purchase any Shares at a Closing (as defined in Section 2(G))
unless each of the following conditions are satisfied:

     (I) a Registration Statement shall have been declared effective and shall remain effective and
available for the resale of all the Registrable Securities (as defined in the Registration Rights
Agreement) at all times until the Closing with respect to the subject Put Notice;

     (II) at all times during the period beginning on the related Put Notice Date and ending on and
including the related Closing Date, the Common Stock shall have been listed on the Principal Market
and shall not have been suspended from trading thereon for a period of two (2) consecutive Trading
Days during the Open Period and the Company shall not have been notified of any pending or

5

 

threatened proceeding or other action to suspend the trading of the Common Stock;

     (III) the Company has complied with its obligations and is otherwise not in breach of or in
default under, this Agreement, the Registration Rights Agreement or any other agreement executed in
connection herewith which has not been cured prior to delivery of the Investor’s Put Notice Date;

     (IV) no injunction shall have been issued and remain in force, or action commenced by a
governmental authority which has not been stayed or abandoned, prohibiting the purchase or the
issuance of the Securities; and

     (V) the issuance of the Securities will not violate any shareholder approval requirements of
the Principal Market.

If any of the events described in clauses (I) through (V) above occurs during a Pricing Period,
then the Investor shall have no obligation to purchase the Put Amount of Common Stock set forth in
the applicable Put Notice.

(F) RESERVED

(G) MECHANICS OF PURCHASE OF SHARES BY INVESTOR. Subject to the satisfaction of the conditions set
forth in Sections 2(E), 7 and 8, the closing of the purchase by the Investor of Shares (a
“Closing”) shall occur on the date which is no later than seven (7) Trading Days following the
applicable Put Notice Date (each a “Closing Date”). Prior to each Closing Date, (I) the Company
shall deliver to the Investor pursuant to this Agreement, certificates representing the Shares to
be issued to the Investor on such date and registered in the ‘name of the Investor; and (II) the
Investor shall deliver to the Company the Purchase Price to be paid for such Shares, determined as
set forth in Section 2(B). In lieu of delivering physical certificates representing the Securities
and provided that the Company’s transfer agent then is participating in The Depository Trust
Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of the Investor,
the Company shall use all commercially reasonable efforts to cause its transfer agent to
electronically transmit the Securities by crediting the account of the Investor’s prime broker (as
specified by the Investor within a reasonably in advance of the Investor’s notice) with DTC through
its Deposit Withdrawal Agent Commission (“DWAC”) system.

The Company understands that a delay in the issuance of Securities beyond the Closing Date could
result in economic damage to the Investor. After the Effective Date, as compensation to the
Investor for such loss, the Company agrees to make late payments to the Investor for late issuance
of Securities (delivery of Securities after the applicable Closing Date) in accordance with the
following schedule (where “No. of Days Late” is defined as the number of trading days beyond the
Closing Date, with the Amounts being cumulative.):

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	LATE PAYMENT FOR EACH	 	 
	NO. OF DAYS LATE	 	$10,000 WORTH OF COMMON STOCK
	 
	 	 
	     1

	 	$100 
	     2

	 	$200 
	     3

	 	$300 
	     4

	 	$400 
	     5

	 	$500 
	     6

	 	$600 
	     7

	 	$700 
	     8

	 	$800 
	     9

	 	$900 
	     10

	 	$1,000 
	     Over 10

	 	$1,000 + $200 for each Business Day late beyond 10 days

The Company shall make any payments incurred under this Section in immediately available funds upon
demand by the Investor. Nothing herein shall limit the Investor’s right to pursue actual damages
for the Company’s failure to issue and deliver the Securities to the Investor, except that such
late payments shall offset any such actual damages incurred by the Investor, and any Open Market
Adjustment Amount, as set forth below.

(H) OVERALL LIMIT ON COMMON STOCK ISSUABLE. Notwithstanding anything contained herein to the
contrary, if during the Open Period the Company becomes listed on an exchange that limits the
number of shares of Common Stock that may be issued without shareholder approval, then the number
of Shares issuable by the Company and purchasable by the Investor, shall not exceed that number of
the shares of Common Stock that may be issuable without shareholder approval (the “Maximum Common
Stock Issuance”). If such issuance of shares of Common Stock could cause a delisting on the
Principal Market, then the Maximum Common Stock Issuance shall first be approved by the Company’s
shareholders in accordance with applicable law and the By-laws and Amended and Restated Certificate
of Incorporation of the Company, if such issuance of shares of Common Stock could cause a delisting
on the Principal Market. The parties understand and agree that the Company’s failure to seek or
obtain such shareholder approval shall in no way adversely affect the validity and due
authorization of the issuance and sale of Securities or the Investor’s obligation in accordance
with the terms and conditions hereof to purchase a number of Shares in the aggregate up to the
Maximum Common Stock Issuance limitation, and that such approval pertains only to the applicability
of the Maximum Common Stock Issuance limitation provided in this Section 2(H).

(I) If, by the third (3rd) business day after the Closing Date, the Company fails to deliver any
portion of the shares of the Put to the Investor (the “Put Shares Due”) and the Investor purchases,
in an open market transaction or otherwise, shares of Common Stock necessary to make delivery of
shares which would have been delivered if the full amount of the shares to be delivered to the
Investor by the Company (the “Open Market Share Purchase”) , then the Company shall pay to

7

 

the Investor, in addition to any other amounts due to Investor pursuant to the Put, and not in lieu
thereof, the Open Market Adjustment Amount (as defined below). The “Open Market Adjustment Amount”
is the amount equal to the excess, if any, of (x) the Investor’s total purchase price (including
brokerage commissions, if any) for the Open Market Share Purchase minus (y) the net proceeds (after
brokerage commissions, if any) received by the Investor from the sale of the Put Shares Due. The
Company shall pay the Open Market Adjustment Amount to the Investor in immediately available funds
within five (5) business days of written demand by the Investor. By way of illustration and not in
limitation of the foregoing, if the Investor purchases shares of Common Stock having a total
purchase price (including brokerage commissions) of $11,000 to cover an Open Market Purchase with
respect to shares of Common Stock it sold for net proceeds of $10,000, the Open Market Purchase
Adjustment Amount which the Company will be required to pay to the Investor will be $1,000.

(J) LIMITATION ON AMOUNT OF OWNERSHIP. Notwithstanding anything to the contrary in this Agreement,
in no event shall the Investor be entitled to purchase that number of Shares, which when added to
the sum of the number of shares of Common Stock beneficially owned (as such term is defined under
Section 13(d) and Rule 13d-3 of the 1934 Act), by the Investor, would exceed 4.99% of the number of
shares of Common Stock outstanding on the Closing Date, as determined in accordance with Rule 13d-1
U) of the 1934 Act.

SECTION 3. INVESTOR’S REPRESENTATIONS, WARRANTIES AND COVENANTS.

The Investor represents and warrants to the Company, and covenants, that:

(A) SOPHISTICATED INVESTOR. The Investor has, by reason of its business and financial experience,
such knowledge, sophistication and experience in financial and business matters and in making
investment decisions of this type that it is capable of (I) evaluating the merits and risks of an
investment in the Securities and making an informed investment decision; (II) protecting its own
interest; and (III) bearing the economic risk of such investment for an indefinite period of time.

(B) AUTHORIZATION; ENFORCEMENT. This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Investor and is a valid and binding agreement of the Investor
enforceable against the Investor in accordance with its terms, subject as to enforceability to
general principles of equity and to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the enforcement of
applicable creditors’ rights and remedies.

8

 

(C) SECTION 9 OF THE 1934 ACT. During the term of this Agreement, the Investor will comply with the
provisions of Section 9 of the 1934 Act, and the rules promulgated thereunder, with respect to
transactions involving the Common Stock. The Investor agrees not to sell the Company’s stock short,
either directly or indirectly through its affiliates, principals or advisors, the Company’s common
stock during the term of this Agreement.

(D) ACCREDITED INVESTOR. Investor is an “Accredited Investor” as that term is defined in Rule 501
(a) of Regulation D of the 1933 Act.

(E) NO CONFLICTS. The execution, delivery and performance of the Transaction Documents by the
Investor and the consummation by the Investor of the transactions contemplated hereby and thereby
will not result in a violation of Partnership Agreement or other organizational documents of the
Investor.

(F) OPPORTUNITY TO DISCUSS. The Investor has received all materials relating to the Company’s
business, finance and operations which it has requested. The Investor has had an opportunity to
discuss the business, management and financial affairs of the Company with the Company’s
management.

(G) INVESTMENT PURPOSES. The Investor is purchasing the Securities for its own account for
investment purposes and not with a view towards distribution and agrees to resell or otherwise
dispose of the Securities solely in accordance with the registration provisions of the 1933 Act (or
pursuant to an exemption from such registration provisions).

(H) NO REGISTRATION AS A DEALER. The Investor is not and will not be required to be registered as a
“dealer” under the 1934 Act, either as a result of its execution and performance of its obligations
under this Agreement or otherwise.

(I) GOOD STANDING. The Investor is a Limited Partnership, duly organized, validly existing and in
good standing in the State of Delaware.

(J) TAX LIABILITIES. The Investor understands that it is liable for its own tax liabilities.

(K) REGULATION M. The Investor will comply with Regulation M under the 1934 Act, if applicable.

SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

Except as set forth in the Schedules attached hereto, or as disclosed on the Company’s SEC
Documents, the Company represents and warrants to the Investor that:

9

 

(A) ORGANIZATION AND QUALIFICATION. The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of Nevada, and has the requisite corporate
power and authorization to own its properties and to carry on its business as now being conducted.
Both the Company and the companies it owns or controls (“Subsidiaries”) are duly qualified to do
business and are in good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary, except to the extent
that the failure to be so qualified or be in good standing would not have a Material Adverse
Effect. As used in this Agreement, “Material Adverse Effect” means any material adverse effect on
the business, properties, assets, operations, results of operations, financial condition or
prospects of the Company and its Subsidiaries, if any, taken as a whole, or on the transactions
contemplated hereby or by the agreements and instruments to be entered into in connection herewith,
or on the authority or ability of the Company to perform its obligations under the Transaction
Documents (as defined in Section 1 and 4(B), below).

(B) AUTHORIZATION; ENFORCEMENT; COMPLIANCE WITH OTHER INSTRUMENTS.

(I) The Company has the requisite corporate power and authority to enter into and perform this
Agreement and the Registration Rights Agreement (collectively, the “Transaction Documents”), and to
issue the Securities in accordance with the terms hereof and thereof.

(II) The execution and delivery of the Transaction Documents by the Company and the consummation by
it of the transactions contemplated hereby and thereby, including without limitation the
reservation for issuance and the issuance of the Securities pursuant to this Agreement, have been
duly and validly authorized by the Company’s Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors, or its shareholders.

(III) The Transaction Documents have been duly and validly executed and delivered by the Company.

(IV) The Transaction Documents constitute the valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as such enforceability may
be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of
creditors’ rights and remedies.

(C) CAPITALIZATION. As of the date hereof, the authorized capital stock of the Company consists of
50,000,000 shares of Common Stock, $.001 par value per share, of which as of the date hereof,
14,489,704 shares are issued and outstanding; no shares of Preferred Stock authorized with no
shares issued or

10

 

outstanding; as of June 30, 2006, and no shares reserved for issuance pursuant to options, warrants
and other convertible securities. All of such outstanding shares have been, or upon issuance will
be, validly issued and are fully paid and nonassessable.

Except as disclosed in the Company’s publicly available filings with the SEC:

(I) no shares of the Company’s capital stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company; (II) there are no
outstanding debt securities; (III) there are no outstanding shares of capital stock, options,
warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating
to, or securities or rights convertible into, any shares of capital stock of the Company or any of
its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or
any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the
Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries; (IV) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to register the sale
of any of their securities under the 1933 Act (except the Registration Rights Agreement); (V) there
are no outstanding securities of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a
security of the Company or any of its Subsidiaries; (VI) there are no securities or instruments
containing antidilution or similar provisions that will be triggered by the issuance of the
Securities as described in this Agreement; (VII) the Company does not have any stock appreciation
rights or “phantom stock” plans or agreements or any similar plan or agreement; and (VIII) there is
no dispute as to the classification of any shares of the Company’s capital stock.

The Company has furnished to the Investor, or the Investor has had access through EDGAR to, true
and correct copies of the Company’s Amended and Restated Certificate of Incorporation, as in effect
on the date hereof (the “Certificate of Incorporation”), and the Company’s By-laws, as in effect on
the date hereof (the “By-laws”), and the terms of all securities convertible into or exercisable
for Common Stock and the material rights of the holders thereof in respect thereto.

(D) ISSUANCE OF SHARES. The Company has reserved 12,500,000 Shares for issuance pursuant to this
Agreement, which have been duly authorized and reserved those Shares for issuance (subject to
adjustment pursuant to the Company’s covenant set forth in Section 5(F) below) pursuant to this
Agreement. Upon issuance in accordance with this Agreement, the Securities will be validly issued,
fully paid for and non-assessable and free from all taxes, liens and

11

 

charges with respect to the issue thereof. In the event the Company cannot register a sufficient
number of Shares for issuance pursuant to this Agreement, the Company will use its best efforts to
authorize and reserve for issuance the number of Shares required for the Company to perform its
obligations hereunder as soon as reasonably practicable.

(E) NO CONFLICTS. The execution, delivery and performance of the Equity Line Transaction Documents
by the Company and the consummation by the Company of the transactions contemplated hereby and
thereby will not (I) result in a violation of the Certificate of Incorporation, any Certificate of
Designations, Preferences and Rights of any outstanding series of preferred stock of the Company or
the By-laws; or (II) conflict with, or constitute a material default (or an event which with notice
or lapse of time or both would become a material default) under; or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement, contract,
indenture mortgage, indebtedness or instrument to which the Company or any of its Subsidiaries is a
party, or to the Company’s knowledge result in a violation of any law, rule, regulation, order,
judgment or decree (including United States federal and state securities laws and regulations and
the rules and regulations of the Principal Market or principal securities exchange or trading
market on which the Common Stock is traded or listed) applicable to the Company or any of its
Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound
or affected. Except as disclosed in Schedule 4(e), neither the Company nor its Subsidiaries is in
violation of any term of, or in default under, the Certificate of Incorporation, any Certificate of
Designations, Preferences and Rights of any outstanding series of preferred stock of the Company or
the Bylaws or their organizational charter or by-laws, respectively, or any contract, agreement,
mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its Subsidiaries, except for possible conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations that would not individually
or in the aggregate have or constitute a Material Adverse Effect. The business of the Company and
its Subsidiaries is not being conducted, and shall not be conducted, in violation of any law,
statute, ordinance, rule, order or regulation of any governmental authority or agency, regulatory
or self-regulatory agency, or court, except for possible violations the sanctions for which either
individually or in the aggregate would not have a Material Adverse Effect. Except as specifically
contemplated by this Agreement and as required under the 1933 Act or any securities laws of any
states, to the Company’s knowledge, the Company is not required to obtain any consent,
authorization, permit or order of, or make any filing or registration (except the filing of a
registration statement as outlined in the Registration Rights Agreement between the Parties) with,
any court, governmental authority or agency, regulatory or self-regulatory agency or other third
party in order for it to execute, deliver or perform any of its obligations under, or contemplated
by, the Transaction Documents in accordance with the terms hereof or thereof. All consents,
authorizations, permits, orders, filings and registrations which the Company is required to obtain
pursuant to the preceding

12

 

sentence have been obtained or effected on or prior to the date hereof and are in full force and
effect as of the date hereof. Except as disclosed in Schedule 4(e), the Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to any of the
foregoing. The Company is not, and will not be, in violation of the listing requirements of the
Principal Market as in effect on the date hereof and on each of the Closing Dates and is not aware
of any facts which would reasonably lead to delisting of the Common Stock by the Principal Market
in the foreseeable future.

(F) SEC DOCUMENTS; FINANCIAL STATEMENTS. As of the date hereof, the Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the 1934 Act (all of the foregoing filed prior to the date hereof
and all exhibits included therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the “SEC Documents”). The
Company has delivered to the Investor or its representatives, or they have had access through EDGAR
to, true and complete copies of the SEC Documents. As of their respective filing dates, the SEC
Documents complied in all material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made, not misleading. As of
their respective dates, the financial statements of the Company included in the SEC Documents
complied as to form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such financial statements have
been prepared in accordance with generally accepted accounting principles, by a firm that is a
member of the Public Companies Accounting Oversight Board (“PCAOB”) consistently applied, during
the periods involved (except (I) as may be otherwise indicated in such financial statements or the
notes thereto, or (II) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all material respects
the financial position of the Company as of the dates thereof and the results of its operations and
cash flows for the periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). No other written information provided by or on behalf of the Company
to the Investor which is not included in the SEC Documents, including, without limitation,
information referred to in Section 4(0) of this Agreement, contains any untrue statement of a
material fact or omits to state any material fact necessary to make the statements therein, in the
light of the circumstance under which they are or were made, not misleading. Neither the Company
nor any of its Subsidiaries or any of their officers, directors, employees or agents have provided
the Investor with any material, non public information which was not publicly disclosed prior to
the date hereof and any material, nonpublic information provided to the Investor by the Company or
its Subsidiaries or any of

13

 

their officers, directors, employees or agents prior to any Closing Date shall be publicly
disclosed by the Company prior to such Closing Date.

(G) ABSENCE OF CERTAIN CHANGES. Except as otherwise set forth in the SEC Documents, the Company
does not intend to change the business operations of the Company in any material way. The Company
has not taken any steps, and does not currently expect to take any steps, to seek protection
pursuant to any bankruptcy law nor does the Company or its Subsidiaries have any knowledge or
reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings.

(H) ABSENCE OF LITIGATION AND/OR REGULATORY PROCEEDINGS. Except as set forth in the SEC Documents,
there is no action, suit, proceeding, inquiry or investigation before or by any court, public
board, government agency, self-regulatory organization or body pending or, to the knowledge of the
executive officers of Company or any of its Subsidiaries, threatened against or affecting the
Company, the Common Stock or any of the Company’s Subsidiaries or any of the Company’s or the
Company’s Subsidiaries’ officers or directors in their capacities as such, in which an adverse
decision could have a Material Adverse Effect.

(I) ACKNOWLEDGMENT REGARDING INVESTOR’S PURCHASE OF SHARES. The Company acknowledges and agrees
that the Investor is acting solely in the capacity of an arm’s length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby and thereby. The Company further
acknowledges that the Investor is not acting as a financial advisor or fiduciary of the Company (or
in any similar capacity) with respect to the Equity Line Transaction Documents and the transactions
contemplated hereby and thereby and any advice given by the Investor or any of its respective
representatives or agents in connection with the Equity Line Transaction Documents and the
transactions contemplated hereby and thereby is merely incidental to the Investor’s purchase of the
Securities, and is not being relied on by the Company. The Company further represents to the
Investor that the Company’s decision to enter into the Equity Line Transaction Documents has been
based solely on the independent evaluation by the Company and its representatives.

(J) NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES. Except as set forth in the
SEC Documents, as of the date hereof, no event, liability, development or circumstance has occurred
or exists, or to the Company’s knowledge is contemplated to occur, with respect to the Company or
its Subsidiaries or their respective business, properties, assets, prospects, operations or
financial condition, that would be required to be disclosed by the Company under applicable
securities laws on a registration statement filed with the SEC relating to an issuance and sale by
the Company of its Common Stock and which has not been publicly announced.

14

 

(K) EMPLOYEE RELATIONS. Neither the Company nor any of its Subsidiaries is involved in any union
labor dispute nor, to the knowledge of the Company or any of its Subsidiaries, is any such dispute
threatened. Neither the Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that relations with their employees are
good. No executive officer (as defined in Rule 501 (I) of the 1933 Act) has notified the Company
that such officer intends to leave the Company’s employ or otherwise terminate such officer’s
employment with the Company.

(l) INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own or possess adequate rights
or licenses to use all trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective businesses as now
conducted. Except as set forth in the SEC Documents, none of the Company’s trademarks, trade names,
service marks, service mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, government authorizations, trade secrets or other intellectual
property rights necessary to conduct its business as now or as proposed to be conducted have
expired or terminated, or are expected to expire or terminate within two (2) years from the date of
this Agreement. The Company and its Subsidiaries do not have any knowledge of any infringement by
the Company or its Subsidiaries of trademark, trade name rights, patents, patent rights,
copyrights, inventions, licenses, service names, service marks, service mark registrations, trade
secret or other similar rights of others, or of any such development of similar or identical trade
secrets or technical information by others and, except as set forth in the SEC Documents, there is
no claim, action or proceeding being made or brought against, or to the Company’s knowledge, being
threatened against, the Company or its Subsidiaries regarding trademark, trade name, patents,
patent rights, invention, copyright, license, service names, service marks, service mark
registrations, trade secret or other infringement; and the Company and its Subsidiaries are unaware
of any facts or circumstances which might give rise to any of the foregoing. The Company and its
Subsidiaries have taken commercially reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties.

(M) ENVIRONMENTAL LAWS. The Company and its Subsidiaries (I) are, to the knowledge of the
management and directors of the Company and its Subsidiaries, in compliance with any and all
applicable foreign, federal, state and local laws and regulations relating to the protection of
human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or
contaminants (“Environmental laws”); (II) have, to the knowledge of the management and directors of
the Company, received all permits, licenses or other approvals required of them under applicable
Environmental laws to conduct their respective businesses; and (III) are in compliance, to the
knowledge of the management and directors of the Company, with all terms and conditions of any such
permit, license or approval where, in each of the three (3)

15

 

foregoing cases, the failure to so comply would have, individually or in the aggregate, a Material
Adverse Effect.

(N) TITLE. The Company and its Subsidiaries have good and marketable title to all personal property
owned by them which is material to the business of the Company and its Subsidiaries, in each case
free and clear of all liens, encumbrances and defects except such as are described in the SEC
Documents or such as do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company or any of its Subsidiaries.
Any real property and facilities held under lease by the Company or any of its Subsidiaries are
held by them under valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such property and
buildings by the Company and its Subsidiaries.

(0) INSURANCE. Each of the Company’s Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as management of the Company
reasonably believes to be prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any of its Subsidiaries has been refused any
insurance coverage sought or applied for and neither the Company nor its Subsidiaries has any
reason to believe that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not have a Material Adverse Effect.

(P) REGULATORY PERMITS. The Company and its Subsidiaries have in full force and effect all
certificates, approvals, authorizations and permits from the appropriate federal, state, local or
foreign regulatory authorities and comparable foreign regulatory agencies, necessary to own, lease
or operate their respective properties and assets and conduct their respective businesses, and
neither the Company nor any such Subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, approval, authorization or permit, except for
such certificates, approvals, authorizations or permits which if not obtained, or such revocations
or modifications which, would not have a Material Adverse Effect.

(Q) INTERNAL ACCOUNTING CONTROLS. The Company and each of its Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (I) transactions are
executed in accordance with management’s general or specific authorizations; (II) transactions are
recorded as necessary to permit preparation of financial statements in conformity with generally
accepted accounting principles by a firm with membership to the PCAOB and to maintain asset
accountability; (III) access to assets is permitted only in accordance with management’s general or
specific authorization; and (IV) the recorded accountability for assets is compared with the
existing assets at

16

 

reasonable intervals and appropriate action is taken with respect to any differences.

(R) NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company nor any of its Subsidiaries is
subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule
or regulation which in the judgment of the Company’s officers has or is expected in the future to
have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to any
contract or agreement which in the judgment of the Company’s officers has or is expected to have a
Material Adverse Effect.

(S) TAX STATUS. The Company and each of its Subsidiaries has made or filed all United States
federal and state income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the Company and each of its
Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all
unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges
that are material in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the periods to which
such returns, reports or declarations apply. There are no unpaid taxes in any material amount
claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know
of no basis for any such claim.

(T) CERTAIN TRANSACTIONS. Except as set forth in the SEC Documents filed at least ten (10) days
prior to the date hereof and except for arm’s length transactions pursuant to which the Company
makes payments in the ordinary course of business upon terms no less favorable than the Company
could obtain from disinterested third parties and other than the grant of stock options disclosed
in the SEC Documents, none of the officers, directors, or employees of the Company is presently a
party to any transaction with the Company or any of its Subsidiaries (other than for services as
employees, officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity
in which any officer, director, or any such employee has a substantial interest or is an officer,
director, trustee or partner.

(U) DILUTIVE EFFECT. The Company understands and acknowledges that the number of shares of Common
Stock issuable upon purchases pursuant to this Agreement will increase in certain circumstances
including, but not necessarily limited to, the circumstance wherein the trading price of the Common
Stock declines during the period between the Effective Date and the end of the Open Period. The
Company’s executive officers and directors have studied and fully understand the nature of the
transactions contemplated by this Agreement and

17

 

recognize that they have a potential dilutive effect on the shareholders of the Company. The Board
of Directors of the Company has concluded, in its good faith business judgment, and with full
understanding of the implications, that such issuance is in the best interests of the Company. The
Company specifically acknowledges that, subject to such limitations as are expressly set forth in
the Equity Line Transaction Documents, its obligation to issue shares of Common Stock upon
purchases pursuant to this Agreement is absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other shareholders of the Company.

(V) LOCK-UP. The Company shall cause its officers, insiders, directors, and affiliates or other
related parties under control of the Company, to refrain from selling Common Stock during each
Pricing Period.

(W) NO GENERAL SOLICITATION. Neither the Company, nor any of its affiliates, nor any person acting
on its behalf, has engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D) in connection with the offer or sale of the Common Stock to be offered as
set forth in this Agreement.

(X) NO BROKERS, FINDERS OR FINANCIAL ADVISORY FEES OR COMMISSIONS. No brokers, finders or financial
advisory fees or commissions will be payable by the Company, it’s agents or Subsidiaries, with
respect to the transactions contemplated by this Agreement, except as otherwise disclosed in this
Agreement.

SECTION 5. COVENANTS OF THE COMPANY

(A) BEST EFFORTS. The Company shall use all commercially reasonable efforts to timely satisfy each
of the conditions set forth in Section 7 of this Agreement.

(B) BLUE SKY. The Company shall, at its sole cost and expense, on or before each of the Closing
Dates, take such action as the Company shall reasonably determine is necessary to qualify the
Securities for, or obtain exemption for the Securities for, sale to the Investor at each of the
Closings pursuant to this Agreement under applicable securities or “Blue Sky” laws of such states
of the United States, as reasonably specified by the Investor, and shall provide evidence of any
such action so taken to the Investor on or prior to the Closing Date.

(C) REPORTING STATUS. Until one of the following occurs, the Company shall file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its
status, or take an action or fail to take any action, which would terminate its status as a
reporting company under the 1934 Act: (i) this Agreement terminates pursuant to Section 9 and the
Investor has the right to sell all of the Securities without restrictions pursuant to Rule 144(k)
promulgated under the 1933 Act, or such other exemption (ii) the date on which

18

 

the Investor has sold all the Securities and this Agreement has been terminated pursuant to Section
9.

(D) USE OF PROCEEDS. The Company will use the proceeds from the sale of the Shares (excluding
amounts paid by the Company for fees as set forth in the Transaction Documents) for general
corporate and working capital purposes and acquisitions or assets, businesses or operations or for
other purposes that the Board of Directors, in its good faith deem to be in the best interest of
the Company.

(E) FINANCIAL INFORMATION. During the Open Period, the Company agrees to make available to the
Investor via EDGAR or other electronic means the following documents and information on the forms
set forth: (I) within five (5) Trading Days after the filing thereof with the SEC, a copy of its
Annual Reports on Form 10-KSB, its Quarterly Reports on Form 10-QSB, any Current Reports on Form
8-K and any Registration Statements or amendments filed pursuant to the 1933 Act; (II) copies of
any notices and other information made available or given to the shareholders of the Company
generally, contemporaneously with the making available or giving thereof to the shareholders; and
(III) within two (2) calendar days of filing or delivery thereof, copies of all documents filed
with, and all correspondence sent to, the Principal Market, any securities exchange or market, or
the National Association of Securities Dealers, Inc., unless such information is material nonpublic
information.

(F) RESERVATION OF SHARES. The Company shall take all action necessary to at all times have
authorized, and reserved for the purpose of issuance, a sufficient number of shares of Common Stock
to provide for the issuance of the Securities to the Investor as required hereunder. In the event
that the Company determines that it does not have a sufficient number of authorized shares of
Common Stock to reserve and keep available for issuance as described in this Section 5(F), the
Company shall use all commercially reasonable efforts to increase the number of authorized shares
of Common Stock by seeking shareholder approval for the authorization of such additional shares.

(G) LISTING. The Company shall promptly secure and maintain the listing of all of the Registrable
Securities (as defined in the Registration Rights Agreement) on the Principal Market and each other
national securities exchange and automated quotation system, if any, upon which shares of Common
Stock are then listed (subject to official notice of issuance) and shall maintain, such listing of
all Registrable Securities from time to time issuable under the terms of the Equity Line
Transaction Documents. Neither the Company nor any of its Subsidiaries shall take any action which
would be reasonably expected to result in the delisting or suspension of the Common Stock on the
Principal Market (excluding suspensions of not more than one (1) trading day resulting from
business announcements by the Company). The Company shall promptly provide to the Investor copies
of any notices it receives from the Principal Market regarding the continued eligibility of the
Common Stock for listing on such

19

 

automated quotation system or securities exchange. The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 5(G).

(H) TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall cause each of its Subsidiaries
not to, enter into, amend, modify or supplement, or permit any Subsidiary to enter into, amend,
modify or supplement, any agreement, transaction, commitment or arrangement with any of its or any
Subsidiary’s officers, directors, persons who were officers or directors at any time during the
previous two (2) years, shareholders who beneficially own 5% or more of the Common Stock, or
Affiliates or with any individual related by blood, marriage or adoption to any such individual or
with any entity in which any such entity or individual owns a 5% or more beneficial interest (each
a “Related Party”), except for (I) customary employment arrangements and benefit programs on
reasonable terms, (II) any agreement, transaction, commitment or arrangement on an arms-length
basis on terms no less favorable than terms which would have been obtainable from a disinterested
third party other than such Related Party, or (III) any agreement, transaction, commitment or
arrangement which is approved by a majority of the disinterested directors of the Company. For
purposes hereof, any director who is also an officer of the Company or any Subsidiary of the
Company shall not be a disinterested director with respect to any such agreement, transaction,
commitment or arrangement. “Affiliate” for purposes hereof means, with respect to any person or
entity, another person or entity that, directly or indirectly, (I) has a 5% or more equity interest
in that person or entity, (II) has 5% or more common ownership with that person or entity, (III)
controls that person or entity, or (IV) is under common control with that person or entity.
“Control” or “Controls” for purposes hereof means that a person or entity has the power, directly
or indirectly, to conduct or govern the policies of another person or entity.

(I) FILING OF FORM 8-K. On or before the date which is four (4) Trading Days after the Execution
Date, the Company shall file a Current Report on Form 8-K with the SEC describing the terms of the
transaction contemplated by the Equity Line Transaction Documents in the form required by the 1934
Act, if such filing is required.

(J) CORPORATE EXISTENCE. The Company shall use all commercially reasonable efforts to preserve and
continue the corporate existence of the Company.

(K) NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF RIGHT TO MAKE A PUT. The Company
shall promptly notify the Investor upon the occurrence of any of the following events in respect of
a Registration Statement or related prospectus in respect of an offering of the Securities: (I)
receipt of any request for additional information by the SEC or any other federal or state
governmental authority during the period of effectiveness of the Registration Statement for
amendments or supplements to the Registration

20

 

Statement or related prospectus; (II) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of any Registration Statement
or the initiation of any proceedings for that purpose; (III) receipt of any notification with
respect to the suspension of the qualification or exemption from qualification of any of the
Securities for sale in any jurisdiction or the initiation or notice of any proceeding for such
purpose; (IV) the happening of any event that makes any statement made in such Registration
Statement or related prospectus or any document incorporated or deemed to be incorporated therein
by reference untrue in any material respect or that requires the making of any changes in the
Registration Statement, related prospectus or documents so that, in the case of a Registration
Statement, it will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements therein not
misleading, and that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances under which they were
made, not misleading; and (V) the Company’s reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate, and the Company shall promptly make
available to Investor any such supplement or amendment to the related prospectus. The Company shall
not deliver to Investor any Put Notice during the continuation of any of the foregoing events in
this Section 5(K).

(L) REIMBURSEMENT. If (I) the Investor becomes involved in any capacity in any action, proceeding
or investigation brought by any shareholder of the Company, in connection with or as a result of
the consummation of the transactions contemplated by the Equity Line Transaction Documents, or if
the Investor is impleaded in any such action, proceeding or investigation by any person (other than
as a result of a breach of the Investor’s representations and warranties set forth in this
Agreement); or (II) the Investor becomes involved in any capacity in any action, proceeding or
investigation brought by the SEC against or involving the Company or in connection with or as a
result of the consummation of the transactions contemplated by the Equity Line Transaction
Documents (other than as a result of a breach of the Investor’s representations and warranties set
forth in this Agreement), or if this Investor is impleaded in any such action, proceeding or
investigation by any person, then in any such case, the Company will reimburse the Investor for its
reasonable legal and other expenses (including the cost of any investigation and preparation)
incurred in connection therewith, as such expenses are incurred. In addition, other than with
respect to any matter in which the Investor is a named party, the Company will pay to the Investor
the charges, as reasonably determined by the Investor, for the time of any officers or employees of
the Investor devoted to appearing and preparing to appear as witnesses, assisting in preparation
for hearings, trials or pretrial matters, or otherwise with respect to inquiries, hearing, trials,
and other proceedings relating to the subject matter of this Agreement. The reimbursement
obligations of the Company under this section shall be in addition to any liability which the
Company may otherwise have, shall extend upon the same terms and conditions to any affiliates of
the Investor that are actually named in such action, proceeding or investigation, and partners,
directors, agents, employees, attorneys, accountants, auditors and controlling persons (if any), as
the case may be, of Investor

21

 

and any such affiliate, and shall be binding upon and inure to the benefit of any successors of the
Company, the Investor and any such affiliate and any such person.

(M) TRANSFER AGENT. Upon effectiveness of the Registration Statement, and for so long as the
Registration Statement is effective, the Company shall deliver instructions to its transfer agent
to issue Shares to the Investor that are covered for resale by the Registration Statement free of
restrictive legends.

SECTION 6. INTENTIONALLY OMITTED

SECTION 7. CONDITIONS OF THE COMPANY’S OBLIGATION TO SELL.

The obligation hereunder of the Company to issue and sell the Securities to the Investor is further
subject to the satisfaction, at or before each Closing Date, of each of the following conditions
set forth below. These conditions are for the Company’s sole benefit and may be waived by the
Company at any time in its sole discretion.

(A) The Investor shall have executed this Agreement and the Registration Rights Agreement and
delivered the same to the Company.

(B) The Investor shall have delivered to the Company the Purchase Price for the Securities being
purchased by the Investor between the end of the Pricing Period and the Closing Date via a Put
Settlement Sheet (hereto attached as Exhibit D). After receipt of confirmation of delivery of such
Securities to the Investor, the Investor, by wire transfer of immediately available funds pursuant
to the wire instructions provided by the Company will disburse the funds constituting the Purchase
Amount.

(C) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions contemplated by this
Agreement.

SECTION 8. FURTHER CONDITIONS OF THE INVESTOR’S OBLIGATION TO PURCHASE.

The obligation of the Investor hereunder to purchase Shares is subject to the satisfaction, on or
before each Closing Date, of each of the following conditions set forth below.

(A) The Company shall have executed the Equity Line Transaction Documents and delivered the same to
the Investor.

22

 

(B) The Common Stock shall be authorized for quotation on the Principal Market and trading in the
Common Stock shall not have been suspended by the Principal Market or the SEC, at any time
beginning on the date hereof and through and including the respective Closing Date (excluding
suspensions of not more than one (1) Trading Day resulting from business announcements by the
Company, provided that such suspensions occur prior to the Company’s delivery of the Put Notice
related to such Closing).

(C) The representations and warranties of the Company shall be true and correct as of the date when
made and as of the applicable Closing Date as though made at that time and the Company shall have
performed, satisfied and complied with the covenants, agreements and conditions required by the
Equity Line Transaction Documents to be performed, satisfied or complied with by the Company on or
before such Closing Date. The Investor may request an update as of such Closing Date regarding the
representation contained in Section 4(C) above.

(D) The Company shall have executed and delivered to the Investor the certificates representing, or
have executed electronic book-entry transfer of, the Securities (in such denominations as the
Investor shall request) being purchased by the Investor at such Closing.

(E) The Board of Directors of the Company shall have adopted resolutions consistent with Section
4(B)(II) above (the “Resolutions”) and such Resolutions shall not have been amended or rescinded
prior to such Closing Date.

(F) Reserved

(G) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions contemplated by this
Agreement.

(H) The Registration Statement shall be effective on each Closing Date and no stop order suspending
the effectiveness of the Registration statement shall be in effect or to the Company’s knowledge
shall be pending or threatened. Furthermore, on each Closing Date (I) neither the Company nor the
Investor shall have received notice that the SEC has issued or intends to issue a stop order with
respect to such Registration Statement or that the SEC otherwise has suspended or withdrawn the
effectiveness of such Registration Statement, either temporarily or permanently, or intends or has
threatened to do so (unless the SEC’s concerns have been addressed and Investor is reasonably
satisfied that the SEC no longer is considering or intends to take such action), and (II) no other
suspension of the use or withdrawal of the effectiveness of such Registration Statement or related
prospectus shall exist.

23

 

(I) At the time of each Closing, the Registration Statement (including information or documents
incorporated by reference therein) and any amendments or supplements thereto shall not contain any
untrue statement of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or which would require public
disclosure or an update supplement to the prospectus.

(J) If applicable, the shareholders of the Company shall have approved the issuance of any Shares
in excess of the Maximum Common Stock Issuance in accordance with Section 2(H) or the Company shall
have obtained appropriate approval pursuant to the requirements of Nevada law and the Company’s
Articles of Incorporation and By-laws.

(K) The conditions to such Closing set forth in Section 2(E) shall have been satisfied on or before
such Closing Date.

(L) The Company shall have certified to the Investor the number of Shares of Common Stock
outstanding when a Put Notice is given to the Investor. The Company’s delivery of a Put Notice to
the Investor constitutes the Company’s certification of the existence of the necessary number of
shares of Common Stock reserved for issuance.

SECTION 9. TERMINATION. This Agreement shall terminate upon any of the following events:

(I) when the Investor has purchased an aggregate of Ten Million dollars ($10,000,000) in the Common
Stock of the Company pursuant to this Agreement;

or,

(II) on the date which is thirty-six (36) months after the Effective Date.

SECTION 10. SUSPENSION

This Agreement shall be suspended upon any of the following events, and shall remain suspended until such event is rectified:

(I) the trading of the Common Stock is suspended by the SEC, the Principal Market or the NASD for a period of two (2) consecutive Trading Days during the Open Period; or,

(II) The Common Stock ceases to be registered under the 1934 Act or listed or traded on the Principal Market. Immediately upon the occurrence of one of the above-described events, the Company shall send written notice of such event to the Investor.

SECTION 11. INDEMNIFICATION.

24

 

In consideration of the parties mutual obligations set forth in the Transaction Documents, each of
the parties (in such capacity, an “Indemnitor”) shall defend, protect, indemnify and hold harmless
the other and all of the other party’s shareholders, officers, directors, employees, counsel, and
direct or indirect investors and any of the foregoing person’s agents or other representatives
(including, without limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the “Indemnitees”) from and against any and all actions, causes of
action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and reasonable
expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the
action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and
disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or
arising out of, or relating to (I) any misrepresentation or breach of any representation or
warranty made by the Indemnitor or any other certificate, instrument or document contemplated
hereby or thereby; (II) any breach of any covenant, agreement or obligation of the Indemnitor
contained in the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby; or (III) any cause of action, suit or claim brought or made against
such Indemnitee by a third party and arising out of or resulting from the execution, delivery,
performance or enforcement of the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, except insofar as any such misrepresentation, breach or
any untrue statement, alleged untrue statement, omission or alleged omission is made in reliance
upon and in conformity with information furnished to Indemnitor which is specifically intended for
use in the preparation of any such Registration Statement, preliminary prospectus, prospectus or
amendments to the prospectus. To the extent that the foregoing undertaking by the Indemnitor may be
unenforceable for any reason, the Indemnitor shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. The
indemnity provisions contained herein shall be in addition to any cause of action or similar rights
Indemnitor may have, and any liabilities the Indemnitor or the Indemnitees may be subject to.

SECTION 12. GOVERNING LAW; DISPUTES SUBMITTED TO ARBITRATION.

     All disputes arising under this agreement shall be governed by and interpreted in accordance
with the laws of the Commonwealth of Massachusetts, without regard to principles of conflict of
laws. The parties to this agreement will submit all disputes arising under this agreement to
arbitration in Boston, Massachusetts before a single arbitrator of the American Arbitration
Association (“AAA”). The arbitrator shall be selected by application of the rules of the AAA, or by
mutual agreement of the parties, except that such arbitrator shall be an attorney admitted to
practice law in the Commonwealth of Massachusetts. No party to this agreement will challenge the
jurisdiction or venue provisions as provided in this section. No party to this agreement will
challenge the jurisdiction or venue provisions as provided in this section. Nothing contained
herein shall prevent the party from obtaining an injunction.

25

 

(B) LEGAL FEES; AND MISCELLANEOUS FEES. Except as otherwise set forth in the Transaction Documents,
each party shall pay the fees and expenses of its advisers, counsel, the accountants and other
experts, if any, and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. Any attorneys’ fees and
expenses incurred by either the Company or the Investor in connection with the preparation,
negotiation, execution and delivery of any amendments to this Agreement or relating to the
enforcement of the rights of any party, after the occurrence of any breach of the terms of this
Agreement by another party or any default by another party in respect of the transactions
contemplated hereunder, shall be paid on demand by the party which breached the Agreement and/or
defaulted, as the case may be. The Company shall pay all stamp and other taxes and duties levied in
connection with the issuance of any Securities.

(C) COUNTERPARTS. This Agreement may be executed in two or more identical counterparts, all of
which shall be considered one and the same agreement and shall become effective when counterparts
have been signed by each party and delivered to the other party; provided that a facsimile
signature shall be considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original signature.

(D) HEADINGS; SINGULAR/PLURAL. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement. Whenever required by the
context of this Agreement, the singular shall include the plural and masculine shall include the
feminine.

(E) SEVERABILITY. If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability
of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any
provision of this Agreement in any other jurisdiction.

(F) ENTIRE AGREEMENT; AMENDMENTS. This Agreement is the FINAL AGREEMENT between the Company and the
Investor with respect to the terms and conditions set forth herein, and, the terms of this
Agreement may not be contradicted by evidence of prior, contemporaneous, or subsequent oral
agreements of the Parties. No provision of this Agreement may be amended other than by an
instrument in writing signed by the Company and the Investor, and no provision hereof may be waived
other than by an instrument in writing signed by the party against whom enforcement is sought. The
execution and delivery of the Equity Line Transaction Documents shall not alter the force and
effect of any other agreements between the Parties, and the obligations under those agreements.

(G) NOTICES. Any notices or other communications required or permitted to be given under the terms
of this Agreement must be in writing and will be deemed to

26

 

have been delivered (I) upon receipt, when delivered personally; (II) upon receipt, when sent by
facsimile (provided confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (III) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:

If to the Company:

Teknik Digital Arts, Inc.

P.O. Box 2800-314 Carefree, AZ 85377

Telephone: (480)443-1488

Facsimile: (480)443-3879

If to the Investor:

Dutchess Private Equities Fund, LTD.,

50 Commonwealth Avenue, Suite 2

Boston, MA 02116

Telephone: 617-301-4700

Facsimile: 617-249-0947

Each party shall provide five (5) days prior written notice to the other party of any change in
address or facsimile number.

(H) NO ASSIGNMENT. This Agreement may not be assigned.

(I) NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the parties hereto
and is not for the benefit of, nor may any provision hereof be enforced by, any other person,
except that the Company acknowledges that the rights of the Investor may be enforced by its general
partner.

(J) SURVIVAL. The representations and warranties of the Company and the Investor contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4 and 5, and the
indemnification provisions set forth in Section 11, shall survive each of the Closings and the
termination of this Agreement.

(K) PUBLICITY. The Company and the Investor shall consult with each other in issuing any press
releases or otherwise making public statements with respect to the transactions contemplated hereby
and no party shall issue any such press release or otherwise make any such public statement without
the prior consent of the other party, which consent shall not be unreasonably withheld or delayed,
except that no prior consent shall be required if such disclosure is required by law, in which such
case the disclosing party shall provide the other party with

27

 

prior notice of such public statement. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of the Investor without the prior consent of the Investor, except to the
extent required by law. The Investor acknowledges that this Agreement and all or part of the
Transaction Documents may be deemed to be “material contracts” as that term is defined by Item 601
(b)(1 0) of Regulation S-B, and that the Company may therefore be required to file such documents
as exhibits to reports or registration statements filed under the 1933 Act or the 1934 Act. The
Investor further agrees that the status of such documents and materials as material contracts shall
be determined solely by the Company, in consultation with its counsel.

(L) FURTHER ASSURANCES. Each party shall do and perform, or cause to be done and performed, all
such further acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party may reasonably request in order to
carry out the intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

(M) PLACEMENT AGENT. The Company agrees to pay a registered broker dealer an placement agent fee as
required by the SEC. The Investor shall have no obligation with respect to any fees or with respect
to any claims made by or on behalf of other persons or entities for fees of a type contemplated in
this Section that may be due in connection with the transactions contemplated by the Transaction
Documents. The Company shall indemnify and hold harmless the Investor, their employees, officers,
directors, agents, and partners, and their respective affiliates, from and against all claims,
losses, damages, costs (including the costs of preparation and attorney’s fees) and expenses
incurred in respect of any such claimed or existing fees, as such fees and expenses are incurred.

(N) NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rules of strict construction will be
applied against any party, as the parties mutually agree that each has had a full and fair
opportunity to review this Agreement and seek the advice of counsel on it.

(0) REMEDIES. The Investor shall have all rights and remedies set forth in this Agreement and the
Registration Rights Agreement and all rights and remedies which such holders have been granted at
any time under any other agreement or contract and all of the rights which the Investor has by law.
Any person having any rights under any provision of this Agreement shall be entitled to enforce
such rights specifically (without posting a bond or other security), to recover damages by reason
of any default or breach of any provision of this Agreement, including the recovery of reasonable
attorneys fees and costs, and to exercise all other rights granted by law.

28

 

(P) PAYMENT SET ASIDE. To the extent that the Company makes a payment or payments to the Investor
hereunder or under the Registration Rights Agreement or the Investor enforces or exercises its
rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or
otherwise restored to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full force and effect as if
such payment had not been made or such enforcement or setoff had not occurred.

(Q) PRICING OF COMMON STOCK. For purposes of this Agreement, the bid price of the Common Stock
shall be as reported on Bloomberg.

SECTION 13. NON-DISCLOSURE OF NON-PUBLIC INFORMATION.

(a) The Company shall not disclose non-public information to the Investor, its advisors, or its
representatives.

(b) Nothing herein shall require the Company to disclose non-public information to the Investor or
its advisors or representatives, and the Company represents that it does not disseminate non-public
information to any investors who purchase stock in the Company in a public offering, to money
managers or to securities analysts, provided, however, that notwithstanding anything herein to the
contrary, the Company will, as hereinabove provided, immediately notify the advisors and
representatives of the Investor and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or circumstance) of which it
becomes aware, constituting nonpublic information (whether or not requested of the Company
specifically or generally during the course of due diligence by such persons or entities), which,
if not disclosed in the prospectus included in the Registration Statement would cause such
prospectus to include a material misstatement or to omit a material fact required to be stated
therein in order to make the statements, therein, in light of the circumstances in which they were
made, not misleading. Nothing contained in this Section 13 shall be construed to mean that such
persons or entities other than the Investor (without the written consent of the Investor prior to
disclosure of such information) may not obtain non-public information in the course of conducting
due diligence in accordance with the terms of this Agreement and nothing herein shall prevent any
such persons or entities from notifying the Company of their opinion that based on such due
diligence by such persons or entities, that the Registration Statement contains an untrue statement
of material fact or omits a material fact required to be stated in the Registration Statement or
necessary to make the statements contained therein, in light of the circumstances in which they
were made, not misleading.

29

 

SIGNATURE PAGE OF INVESTMENT AGREEMENT

Your signature on this Signature Page evidences your agreement to be bound by the terms and
conditions of the Investment Agreement and the Registration Rights Agreement as of the date first
written above.

The undersigned signatory hereby certifies that he has read and understands the Investment
Agreement, and the representations made by the undersigned in this Investment Agreement are true
and accurate, and agrees to be bound by its terms.

DUTCHESS PRIVATE EQUITIES FUND, LTD

By: _

Douglas H. Leighton, Director

TEKNIK DIGITAL ARTS, INC.

By _

John Ward, Chief Executive Officer

30

 

LIST OF EXHIBITS

Exhibit A            Registration Rights Agreement

Exhibit B            Opinion of Company’s Counsel

Exhibit C            Put Notice

Exhibit D            Put Settlement Sheet

31

 

LIST OF SCHEDULES 

Schedule 4(a) Subsidiaries

32

 

EXHIBIT A

33

 

EXHIBIT B

FORM OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

Date: —          

[TRANSFER AGENT]

			
	     Re:	 	Teknik Digital Arts, Inc. 

Ladies and Gentlemen:

     We are counsel to Teknik Digital Arts, Inc., a Nevada corporation (the “Company”), and have
represented the Company in connection with that certain Investment Agreement (the “Investment
Agreement”) entered into by and among the Company and (the “Investor”) pursuant to which the
Company has agreed to issue to the Investor shares of the Company’s common stock, $.00 I par value
per share (the “Common Stock”) on the terms and conditions set forth in the Investment Agreement.
Pursuant to the Investment Agreement, the Company also has entered into a Registration Rights
Agreement with the Investor (the “Registration Rights Agreement”) pursuant to which the Company
agreed, among other things, to register the Registrable Securities (as defined in the Registration
Rights Agreement), including the shares of Common Stock issued or issuable under the Investment
Agreement under the Securities Act of 1933, as amended (the “1933 Act”). In connection with the
Company’s obligations under the Registration Rights Agreement, on                     , 2007, the Company
filed a Registration Statement on Form S- ___(File No. 333- ) (the “Registration Statement”) with
the Securities and Exchange Commission (the “SEC”) relating to the Registrable Securities which
names the Investor as a selling shareholder thereunder.

     In connection with the foregoing, we advise you that La member of the SEC’s staff has advised
us by telephone that the SEC has entered an order declaring the Registration Statement effective]
[the Registration Statement has become effective] under the 1933 Act at [enter the time of
effectiveness] on [enter the date of effectiveness] and to the best of our knowledge, after
telephonic inquiry of a member of the SEC’s staff, no stop order suspending its effectiveness has
been issued and no proceedings for that purpose are pending before, or threatened by, the SEC and
the Registrable Securities are available for resale under the 1933 Act pursuant to the Registration
Statement.

Very truly yours,

[Company Counsel]

34

 

EXHIBIT C

Date:

RE: Put Notice Number

Dear Mr. Leighton,

This is to inform you that as of today, Teknik Digital Arts, Inc., a Nevada corporation (the
“Company”), hereby elects to exercise its right pursuant to the Investment Agreement to require
Dutchess Private Equities Fund, LP to purchase shares of its common stock. The Company hereby
certifies that:

The amount of this put is $                     

The Pricing Period runs from                      until                     .

The current number of shares issued and outstanding as of the Company are:

 

The number of shares currently available for issuance on the 8B-2 for the Equity Line are:

 

Regards,

                                        

John Ward, CEO

Teknik Digital Arts, Inc.

35

 

EXHIBIT D

PUT SETTLEMENT SHEET

Date:

Dear Mr. Ward,

Pursuant to the Put given by Teknik Digital Arts, Inc. to Dutchess Private Equities
Fund, L.P. on                     200     , we are now submitting the amount of
common shares for you to issue to Dutchess.

Please have a certificate bearing no restrictive legend totaling                     shares issued to
Dutchess Private Equities Fund, LTD. immediately and send via DWAC to the following account:

XXXXXX

If not DWAC eligible, please send Fed Ex Priority Overnight to:

xxxxxx

Once these shares are received by us, we will have the funds wired to the Company.

Regards,

Douglas H. Leighton

36

 

	 	 	 
	DATE:

	 	PRICE
	 
	 	 
	Date of Day 1

	 	Closing Bid of Day 1
	Date of Day 2

	 	Closing Bid of Day 2
	Date of Day 3

	 	Closing Bid of Day 3
	Date of Day 4

	 	Closing Bid of Day 4
	Date of Day 5

	 	Closing Bid of Day 5

LOWEST 1 (ONE) CLOSING BID IN PRICING PERIOD

 

PUT AMOUNT

 

AMOUNT WIRED TO COMPANY

 

PURCHASE PRICE (94)% (NINETY-FOUR PERCENT)

 

AMOUNT OF SHARES DUE

 

The undersigned has completed this Put as of this                      day of                     , 200     .

TEKNIK DIGITAL ARTS INC.

JOHN WARD, CEO

37

 

SCHEDULE 4(c) CAPITALIZATION

38

 

SCHEDULE 4(e) CONFLICTS

39

 

SCHEDULE 4(g) MATERIAL CHANGES

40

 

SCHEDULE 4(h) LITIGATION

41

 

SCHEDULE 4(1) INTELLECTUAL PROPERTY

42

 

SCHEDULE 4(n) LIENS

43

 

SCHEDULE 4(t) CERTAIN TRANSACTIONS

44

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