EXHIBIT 10.17
JOINT VENTURE AND LIMITED LIABILITY COMPANY AGREEMENT
THIS AGREEMENT is entered into as of October 14, 2004, by and between
Teknik Digital Arts Inc., a Nevada corporation ("Teknik"), and PEP PAD, LLC., a
Delaware Corporation ("Xxxxxx").
W I T N E S S E T H:
WHEREAS, Teknik develops technologies and intellectual properties utilized
on desktop windows, wireless phones, video game consoles and other consumer
electronic devices;
WHEREAS, Xxxxxx provides unique speed training programs for all sports and
is an exclusive licensee of the "SDK" software for performance enhancement
fitness related pressure sensitive mats with connectivity to a personal computer
as well as gaming consoles or a self contained unit having an integrated screen;
WHEREAS, Teknik and Xxxxxx wish to enter into a joint venture (the "JV")
for the purpose of developing, publishing and marketing physically interactive
performance enhanced video games/ pursuant to the licensing rights obtained by
Xxxxxx (the "Business"); and
WHEREAS, Teknik and Xxxxxx desire to form the JV as a limited liability
company under the Arizona Limited Liability Company Act, A.R.S. Sections 29-601,
et seq., as amended from time to time (the "Arizona Act"), to conduct the
Business.
NOW, THEREFORE, in consideration of the covenants and agreements contained
in this Agreement and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Teknik and Xxxxxx agree as
follows:
ARTICLE 1-DEFINITIONS
For purposes of this Agreement:
"ARIZONA ACT" means "The Arizona Limited Liability Company Act," Arizona
Revised Statutes, Sections 29-601, et seq.;
"CAPITAL ACCOUNT" has the meaning set forth in Section 4.5(a);
"CAPITAL EXPENDITURE" means any amount properly incurred by a Member to
purchase or maintain any item of equipment or other capital asset for the JV,
which amount would be recorded as a capital expenditure for GAAP purposes;
"CAPITAL EXPENDITURE DISTRIBUTION AMOUNT" means, with respect to any
Capital Expenditure, ten percent of the amount of such Capital Expenditure in
the fiscal quarter in which such Capital Expenditure is incurred and in each of
the succeeding nine fiscal quarters;
"CHANGE OF CONTROL" means any event (except going public), transaction or
occurrence as a result of which the current shareholders or interestholders of a
Member cease to directly or indirectly own and control 50% or more of the
economic and voting rights of each class of the outstanding capital stock or the
interests of such Member on a fully diluted basis.
"CODE" means the Internal Revenue Code of 1986, as amended:
"COMMON STOCK" means the common stock of Teknik.
"DECEASED SPOUSE" has the meaning set forth in Section 9.1(c);
"DEVELOPMENT ACTIVITIES" means the research, development, manufacture and
sale of the Physically Interactive Video Games using the Xxxxxx PEPPAD,
including the provision of the funding for the acquisition of the Future JV
Licenses and the provision of accounting services.
"DISTRIBUTION ALLOCATION" has the meaning set forth in Section 4.6;
"DIVORCED MEMBER" has the meaning set forth in Section 9.1(d);
"DIVORCED SPOUSE" has the meaning set forth in Section 9.1(d);
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"EXISTING XXXXXX LICENSED PROPERTY" means, collectively, the rights of
Xxxxxx or its affiliates; (i) subject to The Andamiro USA Corp. License, to
publish performance enhancement fitness related Video Games for console and PC
applications, which rights shall be assigned to the JV by Xxxxxx, pursuant to
Section 4.4(a)(i);
"EXISTING XXXXXX LICENSES" means the Andamiro USA Corp. SDK Software
License.
"FISCAL YEAR" has the meaning set forth in Section 3.5;
"FUTURE JV LICENSES" means the rights hereafter acquired by the JV to
publish Physically Interactive Video Games using the Xxxxxx PEPPAD.
"GAAP" means generally accepted accounting practices in the United States,
consistently applied;
"IMPROVEMENTS" means any and all Technology developed by (or on behalf of)
the JV or Teknik, alone or in conjunction with others, or with respect to which
the JV or Teknik acquires intellectual property rights, during the term of this
Agreement;
"INITIATING MEMBER" has the meaning set forth in Section 9.6;
"JV" means "TEKNIK XXXXXX, LLC", or such other name hereafter selected by
the Members, the limited liability company to be formed by the Members pursuant
to Article 3:
"JV FINANCINGS" means short or long term secured or unsecured JV debt, or
private placements or public offerings of JV equity:
"JV LICENSES" means the Existing Xxxxxx Licenses and the Future JV
Licenses;
"KNOW-HOW" means the general and specific knowledge, experience, and
information, not in written or printed form, used by the JV or Teknik and
applicable to the design, development, manufacture, assembly, servicing, or sale
of Video Games;
"LICENSED PROPERTY" means the Exclusive Patent & Copyright License entered
into between Andamiro USA. Inc. and Xxxxxx Sports, Inc. dated June 25, 2003.
"LIENS" means all charges, claims, encumbrances, leases, liens, mortgages,
security interests, and other restrictions of any kind and nature against
personal or real property;
"LIQUIDATING MEMBER" has the meaning set forth in Section 8.3;
"MANAGEMENT COMMITTEE" has the meaning set forth in Section 5.1(a);
"MANAGER" has the meaning set forth in Section 5.4;
"MAXIMUM DRAWDOWN OTHER MEMBER" has the meaning set forth in Section 9.5;
"MEMBER SPOUSE" has the meaning set forth in Section 9.1(c);
"MEMBER REPRESENTATIVES" has the meaning Set forth in Section 5.1(a);
"MEMBERS" has the meaning set forth in Section 3.4;
"MEMBERSHIP INTEREST CONVERSION RIGHT" has the meaning set forth in
Section 10.1;
"NET DISTRIBUTIONS" has the meaning set forth in Section 4.6;
"NET PROFITS" or "NET LOSS" means, as appropriate, the taxable income or
loss of the JV for a designated period for Federal income tax purposes as
determined by the JV's independent public accountants, increased by the amount
of any tax-exempt income of the JV during such period and decreased by the
amount of any Code Section 705(a)(2)(B) expenditures of the JV within the
meaning of Treasury Regulation Section 1.704-I(b)(2)(iv) of the JV;
"OTHER MEMBER" has the meaning set forth in Section 9.5;
"PARTICIPATING INTERESTS" has the meaning set forth in Section 4.1;
"PARTY" or "PARTIES" means an individual or entity that has executed this
Agreement or is an assignee under it;
"XXXXXX" has the meaning set forth in Section 3.4;
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"XXXXXX ASSIGNMENT" has the meaning set forth in Section 4.4(a)(i);
"PROFIT/LOSS ALLOCATION" has the meaning set forth in Section 4.2:
"REIMBURSABLE EXPENSES" means: (i) a Party's direct costs and expenses
incurred after the date hereof relative to the development, fabrication,
manufacture, or distribution of the Video Games for the JV, (ii) a Party's costs
and expenses incurred after the date hereof relative to its corporate overhead,
administration of the JV, promotion of the Video Games, and negotiation for the
JV, which overhead, administrative and general costs that are reasonable and
fairly attributable to the JV shall be determined by mutual agreement of both
Parties, (iii) a Party's out-of-pocket expenses incurred after the date hereof
for the JV in developing the Improvements, and (iv) a Party's out-of-pocket
legal and other expenses incurred in the preparation of this Agreement and the
organization of the JV:
"SUBJECT INTEREST" has the meaning set forth in Section 9.1(a);
"TECHNICAL DATA" means documents containing technical information,
engineering or production data, blueprints, drawings, plans, specifications,
descriptions of assembly and manufacturing procedures, quality and inspection
standards, test records and data, and other written materials owned and used by
the JV or Teknik, and applicable to the design, development, manufacture,
assembly, servicing, or sale of Video Games;
"TECHNOLOGY" means Technical Data in human or machine readable form,
inventions (whether or not patentable), works of authorship, products, Know-How,
manufacturing methods, processes, concepts, designs, computer hardware and
software, models, prototypes, automations, designs, and related information and
things applicable to the design, development, manufacture, assembly, servicing,
or sale of Video Games;
"TEKNIK" has the meaning set forth in Section 3.4;
"TERMS OF SALE" has the meaning set forth in Section 9.5;
"THIRD PARTY EXPENSES" means any amounts owing by the JV or a Party on
behalf of the JV to third parties unaffiliated with a Party;
"UNAUTHORIZED TRANSFER" has the meaning set forth in Section 9.2; and
"VIDEO GAMES" means video games developed and marketed by the JV pursuant
to the JV Licenses;
"WITHDRAWING MEMBER" has the meaning set forth in Section 9.1(a).
ARTICLE 2 - PRELIMINARY MATTERS
2.1 THE EXISTING_PARISI LICENSED_PROPERTY. Concurrent with the execution
of this Agreement as defined in Paragraph 4.4, Xxxxxx and/or its affiliates
shall assign its interest in the Existing Xxxxxx Licensed Property to the JV.
However, should this Agreement be terminated for any reason, the license will
revert back to Xxxxxx Sports, Inc.
ARTICLE 3 - FORMATION OF THE JV
3.1 Name and Address. The name of the JV shall be "Teknik Xxxxxx, LLC", or
such other name hereafter selected by the Members. The principal place of
business of the JV shall be 0000 X. Xxxxxxxxxx Xxxxx Xxxx # 000, Xxxxxxxxxx,
Arizona.
3.2 Registered Office and Registered Agent. Xxxx Xxxx is hereby designated
as the registered agent of the JV for service of process in the State of
Arizona. His office located at 0000 X. Xxxxxxxxx #000, Xxxxxxx, Xxxxxxx 00000 is
designated as the registered office of the JV in the State of Arizona. The JV
may from time to time change its registered agent for service of process, the
location of its registered office within the State of Arizona and the location
of its principal place of business.
3.3 Purpose and Powers of the JV. The purpose of the JV shall be to
develop, manufacture, market, and sell video games for mobile and console
applications, based on licensed television, motion picture, sports, comic book,
celebrity and similar properties. The JV may also engage in other businesses
that are either a direct or indirect outgrowth of or are reasonably related to
the foregoing purpose. In order to carry out its purpose, the JV shall have and
may exercise all powers now or hereafter conferred on limited liability
companies by the Arizona Act and other laws of the State of Arizona and, without
limitation, shall have the authority to execute, acknowledge, and deliver
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instruments, and to do any and all things necessary, appropriate, proper,
advisable, incidental to, or convenient, for the furtherance and accomplishment
of its purpose and for the protection and benefit of the JV.
3.4 Members. The names and the addresses of the initial Members are as
follows:
Name Address
---- -------
Teknik Digital Arts Inc. 0000 X. Xxxxxxxxxx Xxxxx Xxxx #000
Xxxxxxxxxx, Xxxxxxx 00000
Pep Pad, LLC 0-00 Xxxxx Xxxxx,
Xxxx Xxxx, Xxx Xxxxxx 00000
The initial Members may withdraw, be replaced, or be removed from the JV,
and new Members may be added, withdraw, be replaced, or be removed from the JV,
all as provided in this Agreement.
3.5 Fiscal Year. A "Fiscal Year" of the JV shall be a calendar year.
3.6 Liability of Members. The Members shall not have any liability for the
debts, obligations, or liabilities of the JV, except to the extent expressly
provided in the Arizona Act.
3.7 Restrictions on Transfer. Except as provided in Article 9, no Member
shall have the right to sell, assign, pledge, transfer, encumber, or otherwise
dispose of or alienate, all or any part of its Participating Interest in the JV
without the prior written consent of the other Member in its sole discretion.
Any purported sale, assignment, transfer, or other disposition by a Party of all
or any part of its Participating Interest in the JV without such prior written
consent shall be null and void and of no force and effect.
3.8 Admission of Additional or Substitute Members. No substitute or
additional Member shall be admitted to the JV, except as specifically set forth
in this Agreement.
ARTICLE 4 - CONTRIBUTIONS; CAPITAL ACCOUNTS; DISTRIBUTIONS
4.1 Participating Interests. The "Participating Interests" of the Members
in the ownership of the JV are as follows:
Name Participating Interest
---- ----------------------
Teknik Digital Arts Inc. 50%
PEP PAD, LLC 50%
4.2 Allocation of Net Profits and Net Losses. The Net Profits and Net
Losses of the JV for each Fiscal Year (or other period) shall be allocated to
the Capital Account of each Member in accordance with the following table (the
"Profit/Loss Allocation"):
Allocations attributable to
Video Games published pursuant
Name to License
---- ----------
Teknik Digital Arts Inc. 50%
PEP PAD, LLC 50%
4.3 Initial Capital Contributions. The initial capital contribution of
each Member to the JV in cash or other property shall be as follows:
Name Initial Capital Contribution
---- ----------------------------
Teknik Digital Arts Inc. $1,000
PEP PAD, LLC $ 0.
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4.4 Equalization Transactions.
(a) Xxxxxx shall:
(i) assign to the JV, in a form of assignment mutually
acceptable to each of Teknik and Xxxxxx (the "Xxxxxx
Assignment"), all of Xxxxxx'x right, title, and interest
in and to the Existing Xxxxxx Licensed Property, for the
purposes of engaging in the activities set forth in
Section 3.3; and
(ii) make available for purchase by the JV the right to use
all titles that Xxxxxx hereafter obtains through its
license negotiations; provided, that the purchase by the
JV of such license rights shall be by mutual agreement
of each of Teknik and Xxxxxx.
(b) Teknik shall:
(i) undertake the Development Activities; and
(ii) make certain Capital Expenditures on behalf of the JV,
as more particularly set forth in Section 6.1, and
otherwise contribute, as Reimbursable Expenses, funds
necessary to finance the Development Activities;
provided, that at any time and from time to time, Teknik
may decide not to make such contributions but to rely on
JV Financings negotiated, approved, and executed solely
by Teknik during the term of this Agreement; and if such
JV Financings are not available, Teknik will not be
obligated to make such additional contributions; and
4.5 Capital Account.
(a) There shall be established for each Member on the books of the
JV a capital account (a "Capital Account"). The Capital
Account of a Member shall be: (i) credited with: (x) such
Member's initial capital contribution, (y) allocations of Net
Profits to such Member, and (z) additional capital
contributions made by such Member, including, without
limitation, Capital Expenditures, and (ii) decreased by: (x)
allocations of Net Losses to such Member, and (y)
distributions to such Member of Capital Expenditure
Distribution Amounts or Net Distributions.
(b) Upon the occurrence of any event specified in Treasury
Regulation Section l.704-1(b)(2)(iv)(i), the Management
Committee may cause the Capital Accounts of the Members to be
adjusted to reflect the fair market value of the JV's assets
at such time (as determined by the Management Committee in its
sole discretion) in accordance with such regulation.
4.6 Expenses; Distributions. Subject to Section 4.8, the gross cash
receipts of the JV for a fiscal quarter from all sources, including, without
limitation, cash from operations, JV Financings, or other sources, less reserves
for returns and inventory obsolescence, shall be used: first, to pay Third Party
Expenses incurred in such or prior fiscal quarters; second, to distribute the
sum of the Capital Expenditure Distribution Amounts for such or prior fiscal
quarters to the Member that incurred such Capital Expenditures; and, third, to
pay to the Members the Reimbursable Expenses incurred by each in such or prior
fiscal quarters; provided, that to the extent that the JV fails to pay the full
amount of the sum of the Capital Expenditure Distribution Amounts, the unpaid
balance of such amounts will be carried forward and become payable as an
additional Capital Expenditure Distribution Amount in the next succeeding fiscal
quarter; and provided further, that to the extent that the JV fails to pay the
full amount of the Reimbursable Expenses incurred in such fiscal quarter: (i)
the payments to a Party for Reimbursable Expenses will be made in proportion to
the relative amounts of Reimbursable Expenses owed to each in such fiscal
quarter, and (ii) any remaining amounts of Reimbursable Expenses will be carried
forward and become payable as an additional Reimbursable Expense in the next
succeeding fiscal quarter. Subject to Section 4.8, any amount remaining after
the payments (and after reserves for returns and inventory obsolescence)
provided for in the preceding sentence will be distributed to the Members (the
"Net Distributions") in accordance with the distribution set forth in the
following table (the "Distribution Allocation"):
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Distributions attributable to
Video Games published pursuant to
the
Name License
---- -------
Teknik Digital Arts Inc. 50%
Pep Pad, LLC 50%
4.7 Liabilities. Liabilities shall be determined in accordance with GAAP;
provided, that: (i) the Management Committee, in its sole discretion, may
provide reserves for estimated accrued expenses, liabilities, or contingencies,
whether or not in accordance with GAAP, and (ii) Reimbursable Expenses and
Capital Expenditure Distribution Amounts shall constitute obligations of the JV.
4.8 Limitation of Distributions. Distributions will be subject to the
provision by the JV for: (i) all JV liabilities in accordance with the Arizona
Act, and (ii) reserves for liabilities taken in accordance with Section 4.7. The
unused portion of any reserve shall be distributed after the Management
Committee has determined that the need therefor has ceased.
4.9 Allocation of Income and Loss for `Fax Purposes. The JV's ordinary
income and losses, capital gains, other losses, and other items as determined
for Federal income tax purposes (and each item of income, gain, loss, or
deduction entering into the computation thereof) shall be allocated to the
Members in accordance with the Profit/Loss Allocation set forth in Section 4.2.
Notwithstanding the foregoing sentence, Federal income tax items relating to any
Section 704(c) property shall be allocated among the Members in accordance with
Section 704(c) of the Code and Treasury Regulation Section 1.704-1(b)(2)(iv)(g)
to take into account the difference between the fair market value and the tax
basis of such Section 704(c) property as of the date of its revaluation pursuant
to Section 4.5(b) hereof. Items described in this Section 4.9 shall neither be
credited nor charged to the Members' Capital Accounts.
4.10 Determination by the Management Committee of Certain Matters. All
matters concerning valuations and the allocation of taxable income, deductions,
credits, Net Profits, and Net Losses among the Members including taxes thereon
and accounting procedures, not expressly provided for by the terms of this
Agreement shall be equitably determined in good faith by the Management
Committee, whose determination shall be final, conclusive, and binding as to all
of the Members.
ARTICLE 5 - MANAGEMENT OF THE JV
5.1 Management of the JV.
(a) Management Committee. The business and affairs of the JV shall
be governed in all respects by a committee (the "Management
Committee") composed of two individuals (the "Member
Representatives"), one of whom shall be appointed by each
Member. The Management Committee shall be responsible for: (i)
formulating the policy of the JV, (ii) determining initial and
annual capital and operating budgets, (iv) authorizing
individuals to carry out all material decisions regarding JV
activities and operations, including decisions regarding
material capital expenditures and investments, and (iii)
monitoring the efforts and progress of such individuals to
determine that such decisions are being properly implemented.
In these regards, each of the Members agrees to devote the
time and to exercise his best reasonable efforts to cause the
JV to achieve its purposes, as set forth in Section 3.3.
(b) Meetings.
(i) The Management Committee shall meet at least once every
month, or more or less frequently as determined by the
Member Representatives. Management Committee meetings
may be held in person, by telephone conference, or by
use of similar communications equipment. Any action
required or permitted to be taken by the Management
Committee may be taken without a meeting if all of the
Member Representatives consent in writing.
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(ii) Special meetings of the Management Committee may be held
upon the call of any Member Representative for any
purpose. Written notice of each regular and special
meeting shall be sent to each Member Representative not
less than twenty-four hours before such meeting. Notice
of any meeting need not be given to any Member
Representative who shall submit, either before or after
the meeting, a signed waiver of notice or who shall
attend the meeting.
(c) Term of Member Representatives. Each Member Representative
shall hold office until his death, resignation, retirement, or
removal by the Member that appointed him. If a vacancy shall
occur in the Management Committee, the Member that appointed
such vacating Member Representative may appoint his successor
by giving written notice thereof to the other Member.
Similarly, if either Member desires to replace its appointee,
such Member may remove and replace such appointee at any time
by giving written notice thereof to the other Member.
(d) Compensation. Member Representatives shall not receive any
salaries, fees, or other compensation or expense reimbursement
from the JV in respect of their service on the Management
Committee; any such compensation and reimbursement shall be
the obligation of the Member designating the particular Member
Representative.
(e) Quorum. The presence, by proxy, in person, or by telephone, of
both Member Representatives at any regular or special meeting
of the Management Committee shall be necessary to constitute a
quorum.
(f) Vote. Each Member Representative shall vote the Participating
Interest of the Member that appointed him.
5.2 Actions of the Management Committee. At any meeting at which a quorum
is present, the Management Committee shall act, except as otherwise provided
herein, upon the vote of both Member Representatives, and such action shall be
binding upon the Members and the JV.
5.3 Unanimous Consent Matters. The JV shall not take, and the Management
Committee shall not cause the JV to take, any of the following actions without
the consent in favor thereof of both Members:
(a) waive any provision of this Agreement;
(b) sell, transfer, or encumber a material part of the assets of
the JV, or cause the JV to merge or consolidate with any other
person or entity;
(c) admit any additional Members or issue any additional ownership
interests in the JV, except as permitted in Section
4.4(b)(ii);
(d) enter into a joint venture, partnership, or similar
arrangement with any person or entity other than sales,
distribution, and license agreements entered into in the
ordinary course of business of the JV:
(e) enter into any transaction with, or make or incur any
obligation to make any payment to, a Member or an affiliate of
a Member, other than as expressly provided in this Agreement;
(f) merge, reorganize, or restructure the JV, or register any
securities in the JV pursuant to any provision of any
applicable securities laws, except as permitted in Section
4.4(b)(ii); or
(g) file a petition in voluntary bankruptcy; make an assignment
for the benefit of creditors; consent to the appointment of a
receiver or receivers of a material part of the property of
the JV; or file a petition or answer seeking reorganization
under the federal bankruptcy laws or any other applicable law
or statute of the United States or any State thereof or any
similar laws of any other jurisdiction,
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5.4 Management. The day-to-day operations of the JV, including
manufacturing, marketing, and sales decisions, shall be managed by Teknik.
Teknik shall report regularly to the Management Committee. Teknik shall select a
general manager (the "Manager") reasonably satisfactory to the other Member and
shall establish such other management positions as Teknik shall deem appropriate
from time to time. The Manager shall be under a fiduciary duty to conduct the
affairs of the JV in the best interests of the JV and its Members, including the
safekeeping of all JV property and the use thereof for the exclusive benefit of
the JV. The Manager may be removed by either Member for "good cause", which for
purposes of this Agreement shall be limited to an act relating to the business
of the JV which constitutes fraud, gross negligence, a willful violation of
fiduciary duty, a willful usurpation of an opportunity of the JV, willful
misconduct, or a willful failure to follow directions of the Management
Committee. The removal of a Manager shall be effective upon written notice from
either Member. Following removal of a Manager, a new Manager may be appointed by
Teknik subject to Xxxxxx'x reasonable satisfaction. At any time when there is no
Manager, the Manager's responsibilities shall be vested in Teknik. The Manager
shall devote such time and effort as is necessary for the management of the JV
and the conduct of its business in an efficient, thorough, and businesslike
manner, devoting appropriate attention to all matters affecting the conduct of
the JV's business.
5.5 Communications. The Members shall promptly advise and inform each
other of any transaction, notice, event, or proposal, other than in the ordinary
course of business of the JV, of which they become aware that directly relates
to the management and operation of the JV or to any assets of the JV, to the
extent any such matter does or could materially affect, either adversely or
favorably, the JV, its business, or its assets.
ARTICLE 6 - COVENANTS
6.1 Capital Expenditures.
(a) Teknik shall devote adequate resources to the JV, subject to
its right to rely on JV Financings as provided in Section
4.4(b), to engage in such Development Activities as are needed
or desirable for the JV to achieve its purposes set forth in
Section 3.3.
(b) Consistent with capital budgets approved by the Management
Committee, Teknik shall have the exclusive authority to commit
to and make Capital Expenditures on behalf of the JV;
provided, that a Capital Expenditure in excess of $100,000.00
shall require the prior written consent of Xxxxxx, such
consent not to be unreasonably withheld. Any equipment or
capital assets purchased by Teknik on behalf of the JV shall
be the property of the JV.
6.2 Improvements; Protection of Rights in Improvements.
(a) The JV shall devote adequate resources to the Development
Activities in the furtherance of the development of the Video
Games and to the research and development of Improvements to
maximize the exploitation by the JV of the JV Licenses. Teknik
shall present such Improvements to the JV and shall provide
all information regarding such Improvements reasonably
necessary for the JV to determine whether or not to endeavor
to have patent letters issued for such Improvements. Such
improvements are the intellectual property of the JV and the
JV will have sole and exclusive control of any and all matters
pertaining to said Improvements.
(b) Xxxxxx shall promptly consult with Teknik on any actions or
events that could materially impact the value of the Existing
Xxxxxx Licenses assigned to the JV, including litigation.
ARTICLE 7 - REPRESENTATIONS AND WARRANTIES
7.1 Xxxxxx Representations and Warranties. Xxxxxx hereby represents and
warrants to Teknik as follows:
(a) Due Organization and Good Standing. Xxxxxx is a corporation
duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its organization and has full
power and authority to own its assets and properties and to
carry on its business as now conducted. Xxxxxx is duly
qualified as a foreign corporation to transact business, and
is in good standing, in each jurisdiction where the character
of its properties, owned
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or leased, or the nature of its activities makes such
qualification necessary, except where the failure to be so
qualified would not have an adverse effect material to Xxxxxx,
(b) Authorization and Validity of Agreements. Xxxxxx has the full
corporate power and authority to enter into, execute, and
deliver this Agreement and the Xxxxxx Assignment and to
perform fully its obligations hereunder and thereunder. The
execution, delivery, and performance of this Agreement and the
Xxxxxx Assignment, and the consummation of the transactions
contemplated hereby and thereby, have been duly authorized by
all necessary action on the part of Xxxxxx. No other action is
necessary for the authorization, execution, delivery, and
performance by Xxxxxx of this Agreement and the Xxxxxx
Assignment and the consummation by Xxxxxx of the transactions
contemplated hereby and thereby. This Agreement and the Xxxxxx
Assignment have been duly executed and delivered by Xxxxxx and
constitute valid and legally binding obligations of Xxxxxx
enforceable against it in accordance with their terms.
(c) No Governmental Approvals or Notices. Neither the execution
and delivery by Xxxxxx of this Agreement and the Xxxxxx
Assignment, the performance by Xxxxxx of its obligations
hereunder and thereunder, nor the performance by Xxxxxx of any
action contemplated hereby or thereby requires any consent,
approval, order, or authorization of, or registration or
filing with, or the giving of notice to, any governmental or
public body or authority.
(d) No Conflict. Neither the execution and delivery by Xxxxxx of
this Agreement and the Xxxxxx Assignment, the performance by
Xxxxxx of its obligations hereunder and thereunder, nor the
performance by Xxxxxx of any action contemplated hereby or
thereby will: (i) violate (with or without the giving of
notice or the lapse of time or both) any law, rule,
regulation, order, judgment, or decree, or (ii) conflict with
or result in the breach or violation of, or constitute (or
with or without the giving of notice or the lapse of time, or
both, would constitute) a default under: (x) the partnership
agreement of Xxxxxx, or (y) any instrument, contract, or other
agreement to which Xxxxxx is a party or by or to which its
assets or properties are bound or subject, including without
limitation the License.
7.2 Teknik Representations and Warranties. Teknik hereby represents and
warrants to Xxxxxx as follows:
(a) Due Organization and Good Standing. Teknik Digital Arts Inc.
is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its
organization and has full power and authority to own its
assets and properties and to carry on its business as now
conducted. Teknik is duly qualified as a foreign corporation
to transact business, and is in good standing, in each
jurisdiction where the character of its properties, owned or
leased, or the nature of its activities makes such
qualification necessary, except where the failure to be so
qualified would not have an adverse effect material to Teknik.
(b) Authorization and Validity of Agreements. Teknik has the full
authority to enter into, execute, and deliver this Agreement
and to perform fully its obligations hereunder. No other
action is necessary for: (i) the authorization, execution,
delivery, and performance by Teknik of this Agreement, or (ii)
the consummation by Teknik of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by
Teknik and constitutes a valid and legally binding obligation
of Teknik enforceable against it in accordance with its terms.
(c) No Governmental Approvals or Notices. Neither the execution
and delivery by Teknik of this Agreement, the performance by
Teknik of its obligations hereunder, nor the performance by
Teknik of any action contemplated hereby, requires any
consent, approval, order, or authorization of, or registration
or filing with, or the giving of notice to, any governmental
or public body or authority.
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(d) No Conflict. Neither the execution and delivery by Teknik of
this Agreement, the performance by Teknik of its obligations
hereunder, nor the performance by Teknik of any action
contemplated hereby will: (i) violate (with or without the
giving of notice or the lapse of time or both) any law, rule,
regulation, order, judgment, or decree, or (ii) conflict with
or result in the breach or violation of, or constitute (or
with or without the giving of notice or the lapse of time, or
both, would constitute) a default under any instrument,
contract, or other agreement to which Teknik is a party or by
or to which his assets or properties are bound or subject.
ARTICLE 8 - TERM AND TERMINATION
8.1 Term. The JV shall continue to operate for an initial term of ten
years (the "Initial Term"), subject to earlier termination as set forth herein.
If not terminated during or at the end of the Initial Term, the JV shall
continue to operate for successive additional five year terms ("Additional
Terms") unless a party notifies the other party in writing within one hundred
eighty (180) days of the renewal date that it wishes to terminate the JV.
8.2 Termination. The JV shall be dissolved as set forth below:
(a) by the mutual agreement of both Members;
(b) by the remaining Member, in the event the JV is required by a
court of competent jurisdiction to recognize an Unauthorized
Transfer, as set forth under Article 9.2 hereof;
(c) by the remaining Member, in the event the other Member
withdraws, pursuant to Article 9.4 hereof;
(d) upon a Change of Control of Teknik;
(e) upon the exercise by Xxxxxx of its Membership Interest
Conversion Rights under Article 10 of this Agreement; or
(f) upon the giving of at least ninety days' prior written notice:
(i) by either of the Members, effective at the end of the
Initial Term or any Additional Term,
(ii) by either Member in the event the other Member has
materially breached its obligations under this Agreement
and fails to cure such breach within thirty days of
receipt of written notice from the non-breaching Member
of such breach.
(iii) by either Member at any time following the end of the
first year of the Initial Term if the JV does not secure
JV Financing adequate to fund the activities of JV, but
only if Teknik is not funding the Reimbursable Expenses
of the JV, or
(iv) by either Member in the event the other Member is in
bankruptcy proceedings or has entered into an assignment
for the distribution of assets to creditors.
8.3 Dissolution. In the event the JV is dissolved, Xxxxxx shall serve as
the managing Member over such dissolution (the "Liquidating Member") for the JV:
(i) to liquidate all inventory, and (ii) to sell any equipment and other assets
owned by the JV. Upon the dissolution of the JV, the Liquidating Member shall
pay out of JV assets, first the expenses of winding up, liquidation, and
dissolution of the JV, and thereafter all of the remaining assets of the JV
shall be distributed in the following order:
(a) to creditors, including the Members, in the order of priority
as provided by law; provided, that repayment of Capital
Expenditure Distribution Amounts and Reimbursable Expenses to
Members shall be made in accordance with the Distribution
Allocation, as set forth in Section 4.6; and provided further,
that the excess of the amount of any Capital Expenditure over
the prior distributions of Capital Expenditure Distribution
Amounts made with respect to such Capital Expenditure shall be
deemed to be a Capital Expenditure Distribution Amount for
purposes of this Section 8.3(a); and
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(b) to each Member in an amount equal to such Member's Capital
Account and thereafter in accordance with their respective
Distribution Allocation, as set forth in Section 4.6. Any gain
or loss attributable to the termination of the JV shall be
allocated among the Members in accordance with their
respective Profit/Loss Allocation, as set forth in Section
4,2.
ARTICLE 9 - TRANSFERS OF PARTICIPATING INTERESTS; WITHDRAWAL
9.1 Transfers of Participating Interests.
(a) Death, Divorce, or Bankruptcy of a Member.
(i) In the event of the death of a Member (which for
purposes of this Section 9.1 shall be deemed to cover
the death, divorce, or bankruptcy of an individual
owning a controlling interest in a Member that is a
business entity), where the Participating Interest owned
by the bankrupt or divorcing Member is or would be
transferred in any manner to any other person as a
result of the death, divorce, or bankruptcy of the
Member (the deceased, divorcing, or bankrupt Member is
referred to as the "Withdrawing Member"), the JV shall
have the option to purchase and acquire from the estate
of the Withdrawing Member, the Member, or any other
person, all of the Participating Interest which the
Withdrawing Member owned at the time of his death,
divorce, or bankruptcy at the price and upon the terms
and conditions set forth herein. Such purchase shall be
closed within thirty days following the death of the
Withdrawing Member or the agreement or order authorizing
or compelling the transfer of the Member's Participating
Interest as a result of the divorce or bankruptcy of the
Withdrawing Member. The Participating Interest subject
to the obligations set forth in the preceding sentence
shall be referred to herein as the "Subject Interest."
In the event that the JV shall be prohibited by law from
purchasing the Subject Interest, or any portion thereof
or elect not to purchase the Subject Interest, or any
portion thereof, the remaining Member of the JV shall
have the option to purchase and acquire the Subject
Interest or the portion thereof which the JV does not
purchase at the same price and upon the same terms and
conditions applicable to the purchase thereof by the JV.
Upon the occurrence of any of the foregoing, the
Withdrawing Member or the personal representative of the
Member shall be obligated to sell and convey the Subject
Interest to the JV or the remaining Member at such price
and upon the terms and conditions hereinafter Set forth.
(ii) The purchase price for the Subject Interest shall be
that price agreed to by the Withdrawing Member, the
personal representative of the Withdrawing Member, or
any other legal representative of the Withdrawing
Member, as applicable, and the JV or the remaining
Member, as applicable.
(b) Death of a Member's Spouse.
In the event of the death of a spouse (the "Deceased Spouse")
of a Member (the "Member Spouse") under circumstances in which
by the will of the Deceased Spouse or by the laws of intestate
succession the community interest of the Deceased Spouse in
any Member's Participating Interest would pass to or vest in a
person other than the Member Spouse, either legally or
beneficially, the Member Spouse shall have the option to
purchase from such other person or the estate of the Deceased
Spouse the community interest of the Deceased Spouse in such
Participating Interest, and such other person and/or the
estate of such Deceased Spouse shall sell any Member's
Participating Interest to the Member Spouse, at the price
determined in accordance with Section 9.1(a)(ii).
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(c) Divorce of a Member.
In the event of the divorce of a person that has ownership in,
or contractual rights to control, a Member (the "Divorced
Member") under circumstances in which such person's spouse
(the "Divorced Spouse") has or receives any interest in or to
any Member's Participating Interest by community property
rights or otherwise, the Divorced Member shall have the option
to purchase from the Divorced Spouse any and all interest of
the Divorced Spouse in or to any Member's Participating
Interest, and the Divorced Spouse shall sell any such interest
in and to such Member's Participating Interest to the Divorced
Member, at the price determined in accordance with Section
9.1(a)(ii).
(d) Liens and Security Interests.
No Member shall pledge, mortgage, hypothecate, or grant (or
permit or suffer to attach) any lien or security interest in
his or her Participating Interest without the prior written
consent of the other Member, which approval shall not be
unreasonably withheld.
(e) Parties Bound.
The provisions of this Section 9.1 shall be binding on each
Member of the JV, and on the spouses, heirs, executors,
administrators, successors, and assigns of each such Member.
9.2 Unauthorized Transfers. Any purported transfer of any Member's
Participating Interest which does not comply with the conditions set forth in
Section 9.1 (an "Unauthorized Transfer") shall be null and void and of no force
or effect whatsoever; provided, that if the JV is required by a court of
competent jurisdiction to recognize an Unauthorized Transfer, then the person to
whom such Participating Interest is transferred shall have only the rights of an
assignee with respect to such Interest, and the remaining Member may terminate
this Agreement pursuant to Section 8.2. Any distributions with respect to such
transferred Participating Interest may be applied (without limiting any other
legal or equitable rights of the JV) towards the satisfaction of any debts,
obligations, or liabilities for damages that the transferor or transferee of
such transferred Participating Interest may have to the JV.
9.3 Rights of Assignee. An assignee under Section 9.2 shall be entitled to
distributions pursuant to Article 4 with respect to the Participating Interest
transferred to such assignee. An assignee, in such capacity: (a) shall have no
right to vote or otherwise participate in JV matters, (b) shall take no part in
the management of the JV's business and affairs or transact any business on
behalf of the JV, (c) shall have no right to any notices provided hereunder, (d)
shall have no power to sign on behalf of, or to bind, the JV, (e) shall have no
right to any information or accounting of the affairs of the JV, (f) shall not
be entitled to inspect the books or records of the JV, and (g) shall not have
any other rights of a Member under the Arizona Act or this Agreement, other than
those described in the first sentence of this Section 9.3.
9.4 Withdrawal of Members. Except as provided herein, a Member shall have
the right to withdraw from the JV, but shall have no right to withdraw capital
from the JV. Upon the written notice of a Member to withdraw, the remaining
Member may terminate this Agreement pursuant to Section 8.2. Upon the written
notice of a Member to withdraw and the continuation of the JV by the remaining
Member, the withdrawn Member shall not receive any distribution for its
Participating Interest, shall no longer be obligated to make additional capital
contributions, shall remain obligated for liabilities and obligations incurred
or accrued hereunder or by the JV prior to such withdrawal, and shall have (or
may exercise) only those rights, if any, determined by the remaining Member.
ARTICLE 10 - CONVERSION OF JV INTERESTS
10.1 Membership Interest Conversion Right. Commencing one year after the
date of this Agreement, Xxxxxx shall have the right (the "Membership Interest
Conversion Right"), at its option at any time, to convert its Membership
interest (except that upon any liquidation of the JV the right of conversion
shall terminate at the close of business on the business day fixed for payment
of the amount distributable to the Members) into such number of fully paid and
nonassessable shares of Common Stock obtained by dividing the value of Xxxxxx'x
Membership Interest (the "Membership Interest Conversion Value") by the prior 90
day average market price per share of the Common Stock on a recognized stock
exchange at the time of conversion if Teknik is a publicly traded company, or if
private, as determined in good faith by the Board of Directors of Teknik. For
purposes of this Article 10, the Membership Interest Conversion Value shall be,
but not to exceed one million shares of Teknik common stock:
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(a) ten (10) times the share of the net pre-tax earnings of the JV
for the most recent Fiscal Year allocated to Xxxxxx; and
Such right of conversion shall be exercised by Xxxxxx by giving written notice
to Teknik of its election to convert its Membership Interest into Common Stock
at any time during Teknik's usual business hours on the date set forth in such
notice, together with a statement of the name or names (with address) in which
the certificate or certificates for shares of Common Stock shall he issued.
10.2 Issuance of Certificates; Time Conversion Effected. Promptly after
the receipt of the written notice referred to in Section 10.1 of the Membership
Interest to be converted, Teknik shall issue and deliver, or cause to be issued
and delivered, to Xxxxxx, registered in such name or names as Xxxxxx may direct,
a certificate or certificates for the number of whole shares of Common Stock
issuable upon the conversion of the Membership Interest. To the extent permitted
by law, such conversion shall be deemed to have been effected and the Membership
interest Conversion Value and the per share value of the Common Stock shall be
determined as of the close of business on the date on which such written notice
shall have been received by Teknik, and at such time the rights of Xxxxxx in
respect of the JV shall cease, and the person or persons in whose name or names
any certificate or certificates for shares of Common Stock shall be issuable
upon such conversion shall be deemed to have become the holder or holders of
record of the shares of Common Stock represented thereby.
10.3 No Fractional Shares. No fractional shares shall be issued upon
conversion of the Membership Interest into Common Stock. If any fractional share
of Common Stock would, except for the provisions of the first sentence of this
Section 10.3, be delivered upon such conversion, Teknik, in lieu of delivering
such fractional share, shall pay to Xxxxxx upon conversion an amount in cash
equal to the current market price of such fractional share as determined in good
faith by the Board of Directors of Teknik.
10.4 Change of Control of Teknik. Upon a Change of Control of Teknik,
Xxxxxx shall have the right to exercise its Membership Interest Conversion Right
under this Article 10 following the Change of Control but prior to the
dissolution of the JV.
ARTICLE 11 - MISCELLANEOUS
11.1 Confidentiality. Each Member agrees that it shall not, directly or
indirectly, without the prior written consent of the other Member, use for its
own benefit (except as a Member) or disclose to any person any information,
trade secrets, confidential customer information, patents, patent rights,
Technical Data, or Know-How relating to the products, processes, methods,
equipment, or business practices of the JV or the other Member, except: (a) to
the extent the Member can clearly show any of the foregoing is, or has become,
available to the public other than as a result of disclosure by such Member or
any of its affiliates or the directors, officers, employees, agents, advisors,
and controlling persons of it or any of its affiliates, (b) as may be required
by law, (c) as a Member may disclose to its business, financial, and legal
advisors (under confidentiality agreements, as appropriate or necessary), or (d)
to the extent the Member can clearly show any of the foregoing is received by
such Member in a non-confidential manner from a third party having the right to
disclose such information, or was already in such Member's possession prior to
negotiations related to this Agreement. If a Member is required by applicable
law or regulation or by legal process to disclose any of the foregoing, it will
provide the other Member with prompt notice thereof, to the extent practicable
under the circumstances, to enable it to seek an appropriate protective order.
In the event the JV is dissolved, each Member shall return to the other Member
all confidential documents (and all copies thereof) in its possession, or will
certify to the others that all such documents not returned have been destroyed.
This confidentiality provision shall survive the expiration or termination of
this Agreement for a period of five years.
11.2 Public Announcements. Except as may otherwise be required by law,
neither Member shall make any public announcement with respect to the JV or any
of the transactions contemplated by this Agreement or the agreements entered
into in connection herewith without the prior consent of the other Member,
11.3 Affiliate Transactions. The Members shall not cause or permit the JV
to enter into any agreement or arrangement with a Member or any affiliate
thereof, other than on commercially reasonable arms-length terms,
11.4 Books and Records. The books and records of the JV shall be
maintained by Teknik at the principal offices of the JV. Xxxxxx shall have the
right to inspect, audit, and copy said books and records upon reasonable notice
and at reasonable times. Within forty-five days after the close of each fiscal
quarter, Teknik or the
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Manager shall provide each Member with a balance sheet, income statement, and
statement of sources and uses of cash for the month then ended, together with a
comparison of actual and budgeted results. Within ninety days following the end
of each fiscal year, Teknik or the Manager shall provide each Member with the
statements required above for the year then ended, together with a comparison of
actual and budgeted results. The Manager shall provide the Members with such
additional reports and information relating to the JV as the Members may
reasonably request from time to time in writing.
11.5 Tax Matters; Accountants. The accountants for the JV shall be the
accounting firm selected by the Management Committee. All tax returns of the JV
shall be prepared by such accounting firm. As soon as practicable after the end
of each year, the Manager or the Accountants shall provide all Members with all
information necessary to complete the income tax returns for the JV and the
Member's taxable income or loss, deductions, and other items relating to the
operating results of the JV. The Manager or the Accountants shall cause all
income tax returns for the JV to be prepared and timely filed, and shall furnish
a copy thereof to each Member promptly after the filing thereof. The Members
intend that the JV be treated as a partnership for Federal income tax purposes.
The JV shall maintain a capital account for each Member in accordance with
Treasury Regulation Section 1.704-1(b). The JV's taxable income and tax losses
shall be allocated pro rata based on Participating Interests. Teknik shall be
designated to act as the "Tax Matters Partner" within the meaning of Section
623(a)(7) of the Internal Revenue Code of 1986, as amended. Distributions made
in connection with a sale of all or substantially all of the JV's assets or a
liquidation of the JV shall be made in accordance with the Capital Account
balances of the Members within the time period set forth in Treasury Regulation
Section 1.704-1(b)(2)(ii)(B)(3).
11.6 Benefits of Agreement. None of the provisions of this Agreement shall
be for the benefit of or enforceable by any creditor of the JV or of any Member.
11.7 Integration. This Agreement constitutes the entire agreement among
the parties hereto pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements and understandings of the parties in
connection therewith.
11.8 Headings. The headings in this Agreement are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
11.9 Counterparts. This Agreement may be executed by the parties hereto in
counterparts, each of which shall be considered an original, and all of which
shall together constitute but one and the same instrument.
11.10 Notices. All notices or other communications relating to this
Agreement shall be in writing and shall he deemed to have been duly given upon
receipt by personal delivery, facsimile transmission, or by registered,
certified, or express mail, postage prepaid, addressed as set forth in Section
3.4. Any party may change the address to which such notices are to be sent by
giving written notice of such change in the manner provided herein for giving
notice
11.11 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Arizona, without giving effect to the
conflicts of law principles of such State.
11.12 Tax Code References. References to sections of the U.S. Tax Code or
Treasury Regulations shall be deemed to be references to any amendments or
substitutions thereof.
11.13 Amendments. This Agreement may be amended only by unanimous vote of
the Management Committee.
IN WITNESS WHEREOF, the undersigned have duly executed this Joint Venture
and Limited Liability Company Agreement as of the date first written above.
MEMBERS:
TEKNIK DIGITAL ARTS, INC. PEP PAD, LLC.
By: /s/ Xxxx Xxxx By: /s/ Xxxx Xxxxxx
----------------------------- -------------------------------
Name: Xxxx Xxxx Name: Xxxx Xxxxxx
Title: Chairman Title: Managing Member
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