Exhibit 99.5
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement (the "Agreement"), dated as of March
20, 2003 by and among Bruce Gladstone, an individual residing at 3937 Sumac
Drive, Sherman Oaks, California 91403 ("Gladstone"), Michael Blakey, an
individual residing at 5070 Parkway Calabasas, Calabasas , California 91302
("Blakey" and together with Gladstone, the "Sellers"), and Big Interactive
Group, LLC, a Delaware limited liability company, with its principal place of
business located at 324 North Diamond Bar Boulevard, Diamond Bar, California
91765(the "Purchaser").
RECITALS
WHEREAS, the Sellers collectively own 85,579,160 shares of common stock
(the "Shares") of 2KSounds Corporation, a Nevada corporation (the "Company");
WHEREAS, the Company is in the business of recording, publishing and
distributing music; and
WHEREAS, the Purchaser wishes to purchase from the Sellers and the Sellers
wish to sell to the Purchaser the Shares on the terms and conditions set forth
in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises set forth herein
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto agree as follows:
1. Purchase and Sale.
(a) The Sale of Shares. Upon the execution of this Agreement, the Sellers
shall sell, assign and transfer to the Purchaser and the Purchaser shall
purchase, accept and acquire the number of Shares set forth opposite each
Seller's name on Schedule 1(a) attached hereto, in consideration of the Purchase
Price (as defined hereafter). The date of execution of this Agreement shall be
referred to as the "Closing Date."
(b) Purchase Price. The aggregate purchase price for the Shares is
$171,158.28, which shall be paid as follows:
(i) Upon the execution of this Agreement, the Purchaser shall issue
to each of Gladstone and Blakey two promissory notes in the principal amounts of
$57,052.76 and $28,526.38, respectively, in the form of Exhibit A attached
hereto (the "Share Notes"). The Share Notes shall be for a term of 12 months
from the Closing Date and shall bear simple interest at the rate of 6% per
annum. Interest on the Share Notes shall be payable on a monthly basis and
principal shall be due and payable at maturity. Payment of the Share Notes shall
be personally guaranteed by Carl Harris ("Harris") pursuant to the form of
guaranty attached as an exhibit to the Share Notes. In the event all of the
promissory notes issued by the Company and the Purchaser pursuant to the
transactions contemplated by the Subscription Agreement by and among the
Purchaser and the Company of even date herewith and all of the promissory notes
issued by the Purchaser pursuant to the transactions
contemplated by this Agreement (collectively, the "Notes") are repaid within six
months of the Closing Date, the principal amount due under each of the Notes
shall be reduced by 10%.
(c) Delivery of the Shares and Issuance of the Share Notes. Upon the
execution of this Agreement, the Sellers shall deliver to the Purchaser
certificates representing the Shares which share certificates shall have been
duly endorsed in blank for transfer or accompanied by duly executed stock
powers. Upon the execution of this Agreement, the Purchaser shall deliver duly
executed original copies of the Share Notes to each of Gladstone and Blakey.
2. Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to, and covenants with the Sellers as follows:
(a) The Purchaser is a limited liability company, duly organized, validly
existing and in good standing under the laws of the State of Delaware.
(b) The Purchaser has the power to execute and deliver this Agreement and
the Share Notes and to consummate the transactions contemplated hereby and
thereby. This Agreement and the Share Notes constitute valid and binding
obligations of the Purchaser, enforceable against it in accordance with their
terms.
(c) The Purchaser is not a party to, bound or affected by or subject to
any indenture, mortgage, lease, agreement, instrument, statute, regulation,
order, judgment, decree or law which would be violated, contravened or breached
by, or under which any default would occur, as a result of the execution and
delivery of this Agreement or the consummation of any of the transactions
provided for herein.
(d) The Purchaser is familiar with the business operations and financial
affairs of the Company and acknowledges that the Company files periodic reports
with the Securities and Exchange Commission ("SEC"), which reports are generally
available to the public. The Purchaser has been given reasonable opportunity to
ask questions of, and receive answers from, representatives of the Company
concerning the business prospects and financial condition of the Company, and to
obtain any additional information required by the Purchaser, to the extent
available. As of the date hereof, the Purchaser has received from the Company
all the information that the Purchaser has requested and considers necessary or
appropriate for deciding whether to purchase the Shares.
(e) The Purchaser believes that the purchase of the Shares and an
investment in the Company is suitable for the Purchaser based upon the
Purchaser's investment objectives and financial needs. The Purchaser: (i) has
adequate means of providing for the Purchaser's current financial needs and
personal contingencies; (ii) has no need for liquidity in this investment; (iii)
can afford a complete loss of such investment; and (iv) does not have an overall
commitment to investments which are not readily marketable that is
disproportionate to the Purchaser's net worth, and the Purchaser's purchase of
the Shares will not cause such overall commitment to become excessive.
(f) The Purchaser, in reaching a decision to purchase the Shares, has
knowledge and experience in financial and business matters, is capable of
reading and interpreting financial
2
statements and evaluating the merits and risk of purchasing the Shares, and has
the net worth to undertake such risks.
(g) The Purchaser has obtained, to the extent the Purchaser deems
necessary, the Purchaser's own personal professional advice with respect to the
risks inherent in purchasing the Shares and the suitability of purchasing the
Shares in light of the Purchaser's financial condition and investment needs.
(h) The representations made by the Purchaser herein are true, complete
and correct in all respects as of the date hereof.
(i) The Purchaser acknowledges that the Shares have not been registered
under the Securities Act of 1933, as amended (the "Act") or qualified under any
applicable state securities laws or regulations and that the Shares are being
offered in reliance upon exemptions from the registration requirements of the
Act and such laws and regulations. The Purchaser understands that the Shares are
"restricted securities" under the Act and that, as such, the Shares may not be
resold without registration under the Act and applicable state securities laws
or an applicable exemption therefrom.
(j) Harris is the sole member of the Purchaser and is an "accredited
investor" within the meaning of Rule 501(a) of Regulation D as promulgated under
the Act.
(k) The Purchaser is an "accredited investor" within the meaning of Rule
501(a) of Regulation D as promulgated under the Act.
(l) The Purchaser is purchasing the Shares solely for the Purchaser's own
account, for investment only, and the Shares are not being purchased for the
account of any other person or entity and not with a view to or for sale in
connection with any distribution of all or any part of the Shares. The Purchaser
has no contract, undertaking, agreement or arrangement with any person or entity
to sell, distribute, pledge or transfer to any person or entity all or any
portion of the Shares, and the Purchaser has no present plan to enter into any
such contract, undertaking, agreement or arrangement.
3. Understandings and Acknowledgments of the Purchaser. The Purchaser
understands and acknowledges the following:
(a) The Purchaser recognizes that an investment in the Shares involves a
high degree of risk and is subject to a number of risk factors, including, but
not limited to, the risk factors set forth in the Company's filings of periodic
reports with the SEC.
(b) The Purchaser understands and acknowledges that 2KSounds, Inc., a
wholly-owned subsidiary of the Company ("2KSounds Subsidiary"), and certain of
the Company's former and current officers and directors are defendants in a
lawsuit brought by certain shareholders of the Company (Matt Knudstrup, Daniel
Cimino, Aaron and Lisa Tyler and Mark Lytwyn v. 2KSounds, Inc., Lord John
Guidon, Michael Blakey, Bruce Gladstone, et. al.) pursuant to which the
plaintiffs seek damages in excess of $3,500,000 claiming a breach of fiduciary
duty by the named officers and
3
directors and the improper determination of the value of dissenting shares with
respect to the merger of 2KSounds Subsidiary with and into a subsidiary of the
Company. The Purchaser further understands and acknowledges that a judgment
against 2KSounds Subsidiary and the named officers and directors in such lawsuit
would have a material adverse effect on the Company's business, financial
condition and operations.
(c) The Purchaser understands and acknowledges that 2KSounds Subsidiary is
a defendant in a lawsuit brought by Masters Investors Associates, Ltd. (Masters
Investors Associates, Ltd. v. 2KSounds, Inc.) for breach of the implied covenant
of good faith and fair dealing in connection with the exploitation of the "Patsy
Cline Duets" Album.
(d) The Purchaser understands and acknowledges that the Company and
certain of the Company's officers and shareholders have been threatened with
litigation by J. Michael Nixon ("Nixon"), a former director of the Company, for
claims of fraud arising from Nixon's investment in the Company.
(e) The Purchaser understands and acknowledges that the Company is a
plaintiff in an action pending in Los Angeles Superior Court against Virgin
Records America (2Ksounds Corporation v. Virgin Records America) for breach of
contract and fraud arising from Virgin's failure to return to the Company
certain master recordings of Brooke Allison.
(f) The Purchaser understands and acknowledges that the Company filed a
claim against Lord John Guidon ("Guidon"), the Company's former Chief Executive
Officer and Chief Financial Officer and a current director, for damages arising
from the breach of the Credit Facility Agreement between the Company and Guidon
pursuant to which Guidon was obligated to loan $700,000 to the Company. On
February 27, 2003, the Company dismissed the lawsuit without prejudice.
(g) The Purchaser understands and acknowledges that on January 9, 2003,
the Company terminated the employment of Guidon for cause, and that there can be
no assurance that Guidon will not bring a wrongful termination claim against the
Company.
(h) The Purchaser understands and acknowledges that the Company has, as of
February 28, 2003, an accumulated deficit of approximately $6,459,434 (based on
unaudited financial statements), and losses, for the year ended December 31,
2002, of approximately $4,453,843 (based on unaudtied financial statements) and
that there can be no assurance that the Company will be able to generate
revenues in the future. The Purchaser further understands and acknowledges that
as of the Closing Date, the Company will have approximately $144,460 in cash or
cash equivalents, of which $55,133.27 is required to be set aside to secure the
payment of the Company's commercial lease.
(i) The Purchaser understands and acknowledges that the Sellers make no
representations or warranties to the Purchaser other than those representations
and warranties made by the Sellers in Section 6 of this Agreement.
4
4. Indemnification by the Purchaser. The Purchaser shall indemnify and hold
harmless each of the Sellers and their assigns from and against all losses,
damages, liabilities and actual expenses (including, without limitation,
reasonable attorneys' fees), as and when incurred, due to or arising out of, in
whole or in part, any breach of any representation or warranty made by the
Purchaser set forth herein or arising out of the resale or distribution by the
Purchaser of the Shares, or any portion thereof, in violation of the Act or any
applicable state securities laws or arising out of or in connection with the
transactions contemplated by this Agreement; provided that such breach does not
arise out of or result from a breach of the Sellers' representations, warranties
or covenants set forth herein.
5. Indemnification by the Sellers. The Sellers shall jointly and severally
indemnify and hold harmless each of the Purchaser and the Company, and their
respective employees, officers, directors, affiliates, agents, successors and
assigns from and against all losses, damages, liabilities and actual expenses
(including, without limitation, reasonable attorneys' fees), as and when
incurred, due to or arising out of, in whole or in part, any breach of any
representation, warranty or covenant made by the Sellers set forth herein;
provided that such breach does not arise out of or result from a breach of the
Purchaser's representations, warranties or covenants set forth herein.
6. Representations and Warranties of the Sellers. The Sellers hereby represent
and warrant, and covenant with the Purchaser as follows:
(a) Each of the Sellers has the power to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. This Agreement
constitutes the valid and binding obligation of each of the Sellers, enforceable
against each of them in accordance with its terms.
(b) Each of the Sellers (i) is the sole and beneficial owner of their
respective amount of Shares, (ii) has the exclusive right to dispose of their
Shares as herein provided and such disposition will not violate, contravene,
breach or offend against or result in any default under any indenture, mortgage,
lease, agreement, instrument, decree or law to which the Sellers or by which the
Sellers are bound or affected, (iii) is the holder of record of their Shares,
free and clear of encumbrances or rights of others (other than the rights of the
Purchaser hereunder) and no person (other than the Purchaser hereunder) has any
agreement, option or any rights capable of becoming an agreement or option for
the acquisition of the Shares, and (iv) upon transfer to the Purchaser of
certificates representing such Shares, the Purchaser shall receive full title to
the Shares free and clear of all encumbrances.
(c) Except as set forth in this Agreement, to the knowledge of Sellers,
there is no suit, action or proceeding pending, threatened or appealable against
the Company (or, to the knowledge of the Sellers, pending, threatened or
appealable against any of the current or former officers, directors or employees
of the Company with respect to their activities in such capacities) before any
court, arbitrator, or before any governmental department, commission, board,
agency, or instrumentality that seeks (A) more than $10,000 in monetary damages,
or (B) any material injunctive relief, and the Company has not received any
written notice that any such suit, action or proceeding is threatened. The
Company (i) is not subject to any judgment, order or decree of any court,
arbitrator, or governmental entity, and (ii) has not received any written
opinion or memorandum or legal advice from their legal counsel to the effect
that the Company is exposed, from a legal standpoint, to any
5
liability which would be material to the Company's business.
(d) The representations made by the Sellers herein are true, complete and
correct in all respects as of the date hereof.
7. SEC Filings; Preparation of Audited Financials. After the Closing Date, the
Sellers agree to cooperate with Purchaser and the Company in connection with the
preparation of filings (including signing such filings, as required) as required
under the Act and or the Securities Exchange Act of 1934, including the
preparation and filing of the Company's Form 10-K for the fiscal year ended
December 31, 2002. The Sellers agree to cooperate with the Purchaser and the
Company in connection with the preparation of the Company's audited balance
sheet as of December 31, 2002. The Sellers further agree to cooperate with
Purchaser and the Company regarding the preparation and filing of any filings
required in connection with the transactions contemplated hereby, including, if
necessary, the filing of a form 8-K.
8. Further Assurances. The parties agree to execute such further instruments
and to take such further action as may reasonably be necessary to carry out the
intent of this Agreement.
9. Waiver. The rights and remedies of the parties to this Agreement are
cumulative and not alternative, and shall be in addition to every other remedy
given hereunder, under any of the agreements referred to herein or now or
hereafter existing at law or in equity or by statute or otherwise. Neither the
failure nor any delay by any party in exercising any right, power, or privilege
under this Agreement or any of the agreements and documents referred to in this
Agreement will operate as a waiver of such right, power, or privilege, and no
single or partial exercise of any such right, power, or privilege will preclude
any other or further exercise of such right, power, or privilege or the exercise
of any other right, power, or privilege.
10. Irrevocability; Assignability. This Agreement is irrevocable and may not be
withdrawn, and upon the signing of this Agreement, the Purchaser is obligated to
purchase the Shares from the Sellers for the amount of consideration set forth
above. The Purchaser shall not assign this Agreement or any of the Purchaser's
rights or delegate any of the Purchaser's obligations under this Agreement
without the prior written consent of the Sellers, which consent will not be
unreasonably withheld or delayed.
11. Entire Agreement; Modification. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and may be amended only by a writing executed by all of the parties. This
Agreement may not be amended except by written agreement executed by the parties
hereto.
12. Governing Law. This Agreement shall be construed in accordance with and be
governed by the laws of the State of California.
13. Counterparts; Facsimile Signatures. This Agreement may be executed in two
or more counterparts, each of which, when taken together, shall constitute one
and the same instrument. The
6
instrument may be executed by facsimile, and upon such execution, shall have the
same force and effect as an original.
[Signatures on the following page]
7
IN WITNESS WHEREOF, the undersigned do hereby execute this Common Stock
Purchase Agreement as of the date and year first set forth above.
THE SELLERS:
BRUCE GLADSTONE MICHAEL BLAKEY
By: /s/ Bruce Gladstone By: /s/ Michael Blakey
---------------------------- ----------------------------
THE PURCHASER:
BIG INTERACTIVE GROUP, LLC
By: /s/ Carl Harris
------------------------------
Carl Harris, Managing Member
8
Schedule 1(a)
- --------------------------------------------------------------------------------
Shareholder Number of Shares of Common Stock
- --------------------------------------------------------------------------------
Bruce Gladstone 15,080,180
- --------------------------------------------------------------------------------
Michael Blakey 70,498,980
- --------------------------------------------------------------------------------