Securities Purchase Agreement - Ritz Interactive Inc., America Online Inc., Ritz Camera Inc. and David M. Ritz
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is made and entered
into this 27th day of May 2005, between Ritz Interactive, Inc., a Delaware
corporation formerly known as phobo.com, Inc. (the "Company"), America Online,
Inc., a Delaware corporation ("AOL") and, solely for the purposes of SECTION
4.1, Ritz Camera, Inc. and David M. Ritz in their capacity as the "Principal
Shareholders" under the Co-Sale Agreement (defined below). The Company and AOL
are sometimes referred to individually as a "Party" and collectively as the
"Parties."
WHEREAS, pursuant to that certain Securities Purchase Agreement, dated
April 6, 2000, between the Company and AOL (as amended to date, the "Securities
Purchase Agreement"), the Company issued to AOL 1,495,294 shares of the
Company's Series A Preferred Stock (the "Shares");
WHEREAS, in connection with the Securities Purchase Agreement, the Parties
also entered into (i) an Investors' Rights Agreement, dated April 6, 2000 (as
amended to date, the "Investors' Rights Agreement"), and (ii) a Co-Sale
Agreement, dated April 6, 2000, with Ritz Camera, Inc. and David Ritz as
additional parties thereto (as amended to date, the "Co-Sale Agreement" and
collectively with the Securities Purchase Agreement and the Investors' Rights
Agreement, the "Investment Agreements")
WHEREAS, pursuant to the terms of the Certificate of Designations of
Series A Convertible Redeemable Preferred Stock of the Company (as amended to
date, the "Certificate of Designations"), AOL may request the redemption of the
Shares by the Company at any time after April 6, 2005;
WHEREAS, in order to facilitate the Company's anticipated initial public
offering of its common stock, AOL is forbearing enforcement of its redemption
right and is instead agreeing to sell the Shares to the Company on the terms set
forth herein;
WHEREAS, in lieu of requesting a redemption of the Shares, AOL desires to
sell to the Company, and the Company desires to purchase from AOL, the Shares,
as well as to terminate all of the remaining obligations of the Parties to each
other under the Investment Agreements, in each case upon the terms and
conditions set forth herein;
WHEREAS, each Party is making certain representations, warranties, and
covenants herein to induce the other Party to enter into this Agreement.
NOW, THEREFORE, in consideration of the respective representations,
warranties and covenants contained herein and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Parties hereby agree as follows:
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ARTICLE I
PURCHASE AND SALE OF SHARES
SECTION 1.1 Purchase and Sale of the Shares.
(a) On the basis of the representations, warranties and undertakings
set forth in this Agreement, AOL hereby sells, transfers and delivers to the
Company, and the Company hereby purchases, the Shares, free and clear of all
Encumbrances. For purposes of this Agreement, the term "Encumbrances" means
liens, charges, pledges, options, mortgages, deeds of trust, security interests,
claims (by any person or entity), restrictions (whether on voting, sale,
transfer, disposition, or otherwise), easements, defects, irregularities and
other encumbrances of every type and description, whether imposed by law,
agreement, understanding, or otherwise other than such encumbrances created by
or through the Company.
(b) The consideration for the purchase of the Shares and the
termination of the Investment Agreements as provided herein is the issuance of
that certain promissory note, dated as of the date hereof, made by the Company
in favor of AOL in the aggregate principal amount of $10,003,517 (a copy of
which is attached hereto as Exhibit A, the "Promissory Note"), receipt of which
is hereby acknowledged by AOL.
(c) The Company hereby acknowledges receipt of stock certificate
A-1, representing all of the Shares, duly endorsed in blank for transfer.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF AOL
AOL represents and warrants to the Company as follows:
SECTION 2.1 Organization; Good Standing. AOL is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has corporate power and authority to own, lease and operate its
properties and assets and to carry on its business as presently conducted.
SECTION 2.2 Authority. AOL has all requisite corporate power and authority
to execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. AOL has taken all necessary
corporate action to authorize the execution, delivery and performance of this
Agreement.
SECTION 2.3 Enforceability. This Agreement constitutes a legal, valid and
binding obligation of AOL enforceable against AOL in accordance with its terms
when executed and delivered by the Parties.
SECTION 2.4 Consents and Approvals; No Violation. No consent, approval,
order or authorization of, or registration, qualification, designation,
declaration or filing with, any person or entity, including any governmental
entity or regulatory authority, is required to be obtained by
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AOL in connection with the transactions contemplated by this Agreement. Neither
the execution and delivery of this Agreement, the consummation of the
transactions contemplated hereby, nor the compliance by AOL with any of the
provisions hereof will (a) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, contract, agreement, commitment, bond,
mortgage, indenture, license, lease, pledge agreement or other instrument or
obligation to which AOL is a party or by which AOL or any of its properties or
assets may be bound; (b) give rise to any Encumbrance on any of the Shares; or
(c) violate any law, regulation, judgment, order, writ, injunction or decree
applicable to AOL.
SECTION 2.5 Title to Stock. AOL is the record and beneficial owner and
holder of, and has good, valid record and beneficial title to, the Shares, free
and clear of any Encumbrances. The signature on the endorsement of the
certificate representing the Shares delivered by AOL to the Company pursuant to
SECTION 1.1(c) is valid and genuine.
SECTION 2.6 Acknowledgment and Representation of No Equity Interest in the
Company. AOL represents and warrants to the Company that, upon consummation of
the transactions contemplated by this Agreement, AOL will not own, and will not
have any right (whether contractual or otherwise and whether oral or written) to
acquire, any equity or debt interest (other than the Promissory Note) of any
nature whatsoever in the Company, including, but not limited to, any equity or
debt interest (other than the Promissory Note) evidenced by oral or written
subscriptions, rights, warrants, options, irrevocable proxies, commitments or
agreements of any character.
SECTION 2.7 Brokers and Finders. AOL has not entered into any contract,
arrangement or understanding with any person or entity which may result in the
obligation of the Company or AOL to pay any finder's fees, brokerage or agent
commissions or other like payments in connection with the transactions
contemplated hereby, and AOL has not received any notice of a claim for payment
against the Company or AOL of any finder's fees, brokerage or agent commissions
or other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to AOL as follows:
SECTION 3.1 Organization; Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of State of
Delaware, and has corporate power and authority to own, lease and operate its
properties and assets and to carry on its business as presently conducted.
SECTION 3.2 Authority. The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under this Agreement
and to consummate the
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transactions contemplated hereby. The Company has taken all necessary corporate
action to authorize the execution, delivery and performance of this Agreement.
SECTION 3.3 Enforceability. This Agreement constitutes a legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, when executed and delivered by the Parties.
SECTION 3.4 Consents and Approvals; No Violation. No consent, approval,
order or authorization of, or registration, qualification, designation,
declaration or filing with, any person or entity, including any governmental
entity or regulatory authority, is required to be obtained by the Company in
connection with the transactions contemplated by this Agreement. Neither the
execution and delivery of this Agreement, the consummation of the transactions
contemplated hereby, nor the compliance by the Company with any of the
provisions hereof will (a) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, contract, agreement, commitment, bond,
mortgage, indenture, license, lease, pledge agreement or other instrument or
obligation to which the Company is a party or by which the Company or any of its
respective properties or assets may be bound; (b) give rise to any Encumbrance
on any of the assets of the Company; or (c) violate any law, regulation,
judgment, order, writ, injunction or decree applicable to the Company.
SECTION 3.5 Brokers and Finders. The Company has not entered into any
contract, arrangement or understanding with any person or entity which may
result in the obligation of the Company or AOL to pay any finder's fees,
brokerage or agent commissions or other like payments in connection with the
transactions contemplated hereby, and the Company has not received any notice of
a claim for payment against the Company or AOL of any finder's fees, brokerage
or agent commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
hereby.
SECTION 3.6 Financials. The Company has heretofore delivered to AOL the
unaudited (i) balance sheets of the Company as of December 31, 2004 and March
31, 2005 and (ii) income statement and statement of cash flows for the quarterly
period ending March 31, 2005 and the annual period ending December 31, 2004 (the
"Financial Statements"). The Financial Statements are (a) in accordance with the
books and records of the Company, (b) have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods covered thereby, and (c) accurately present in all material respects the
assets, liabilities (including all reserves) and financial position of the
Company as of the dates thereof and the results of operations and changes in
cash flows for the period then ended. As of the date of the Financial
Statements, there were no liabilities of the Company, which, in accordance with
generally accepted accounting principles, were required to have been set forth
or reserved for in the Financial Statements or the notes thereto, which are not
set forth or reserved for in the Financial Statements or the notes thereto.
SECTION 3.7 Disclosure. The Company has, in connection with the repurchase
by the Company of the Shares hereto, complied in all material respects with
Section 10b-5 of the
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Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
SECTION 3.8 Debt. Except as set forth on Schedule 3.8 to this Agreement,
the Company has no outstanding (i) indebtedness for borrowed money, (ii)
obligations for the deferred purchase price of property or services other than
trade payables not overdue by more than sixty (60) days incurred in the ordinary
course of business, (iii) obligations evidenced by notes, bonds, debentures or
other similar instruments, (iv) obligations, contingent or otherwise in respect
of letters of credit or similar extensions of credit, (v) debt of others
guarantied by the Company.
SECTION 3.9 Liens. There are no liens, security interests or other charges
or encumbrances of any kind on or with respect to the properties of the Company
other than (i) liens for taxes, assessments and governmental charges, (ii) liens
imposed by law and other similar liens arising in the ordinary course of
business securing obligations that are not overdue for a period of more than
thirty (30) days, (iii) pledges or deposits to secure public or statutory
obligations and (iv) easements, rights of way and other encumbrances on title to
real property that do not render title to the property encumbered thereby
unmarketable or materially adversely affect the use of such property for its
present purposes.
ARTICLE IV
ADDITIONAL AGREEMENTS
SECTION 4.1 Termination of Investment Agreements. Effective as of the date
hereof, each of the Investment Agreements is hereby terminated and of no further
force or effect, including but not limited to any provisions of the Investment
Agreements that are expressly stated in the Investment Agreements to survive
termination.
SECTION 4.2 Certificate of Elimination. AOL acknowledges that effective as
of the date hereof, any rights that it may have had under the Certificate of
Designations are terminated. AOL further acknowledges that the Company intends
to file a Certificate of Elimination with the Delaware Secretary of State to
eliminate the Certificate of Designations.
SECTION 4.3 Indemnification by the Company. The Company shall indemnify
AOL for any losses, damages and expenses that AOL may incur as a result of a
breach by the Company of any of its representations and warranties in ARTICLE
III (collectively, the "Damages"), provided however that (i) the Damages shall
be deemed to be zero if the Company pays the principal and interest obligations
pursuant to the Promissory Note in full on or before December 31, 2006, and (ii)
AOL may only seek recovery of Damages from the Company after AOL has incurred
Damages in excess of $50,000 in the aggregate.
SECTION 4.4 Further Assurances. Each Party, at the reasonable request of
the other Party, shall execute and deliver such other instruments and do and
perform such other acts and things as may be reasonably necessary or desirable
for effecting completely the consummation of this Agreement and the transactions
contemplated hereby.
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ARTICLE V
MISCELLANEOUS
SECTION 5.1 Expenses. Each Party to this Agreement will pay its own
expenses in connection with the preparation, execution and performance of this
Agreement and the transactions contemplated hereby, including but not limited
to, all legal fees, professional fees and other transaction costs.
SECTION 5.2 Interpretation. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the interpretation
of this Agreement. No provision of this Agreement shall be interpreted or
construed under any rule of construction against any Party solely because such
Party or its legal counsel drafted such provision. On the contrary, this
Agreement has been reviewed by each of the Parties and their respective counsel
and shall be construed and interpreted according to the ordinary meaning of the
words used so as to accomplish the purposes and intentions of all Parties
hereto.
SECTION 5.3 Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF DELAWARE WITHOUT
REGARD TO CONFLICTS OF LAWS PRINCIPLES.
SECTION 5.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same Agreement.
SECTION 5.5 Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
SECTION 5.6 Entire Agreement. This Agreement and the exhibit hereto
contain the entire agreement and understanding between the Parties with respect
to the subject matter hereof and supersede all prior agreements and
understandings relating to such subject matter.
SECTION 5.7 Amendments; Waiver. This Agreement may be amended, modified,
superseded or canceled, and any of the terms, covenants, representations,
warranties or conditions hereof may be waived, only by a written instrument
executed by each of the Parties hereto. The failure of any Party at any time or
times to require performance of any provisions hereof shall in no manner affect
the right at a later time to enforce the same. No waiver by any Party of any
condition, or of any breach of any term, covenant, representation or warranty
contained in this Agreement, in any one or more instances, shall be deemed to be
or construed as a further or continuing waiver of any such condition or breach
or a waiver of any other condition or of any breach of any other term, covenant,
representation or warranty.
SECTION 5.8 Notices. Any notice, demand or other communication required or
permitted under the terms of this Agreement shall be in writing and shall be
made by telegram,
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telex or electronic transmitter (including, without limitation, facsimile) or
certified or registered mail, return receipt requested, and shall be deemed to
be received by the addressee on the date delivery is confirmed, if sent by
Federal Express, Express Mail, or other similar overnight delivery service, the
date of electronic confirmation of receipt, if sent by telegram, telex, telecopy
or electronic transmitter, and three (3) business days after mailing, if sent by
certified or registered mail, with postage prepaid, and properly addressed.
Notices shall be addressed as provided below:
(a) If to AOL: America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166
Facsimile: (703) 265-3001
Attention: Senior Vice President - Corporate Finance
With copy to: Facsimile: (703) 265-3992
Attention: General Counsel
(b) If to the Company: Ritz Interactive, Inc.
2010 Main Street, Suite 400
Irvine, California 92614
Facsimile: (949) 255-1560
Attention: Scott Neamand
With a copy to: O'Melveny & Myers, LLP
114 Pacifica, Suite 100
Irvine, California 92618
Facsimile: (949) 737-2300
Attention: J. Jay Herron, Esq.
Any party may change its address for this purpose by giving a written notice
thereof as herein provided.
SECTION 5.9 Successors and Assigns. This Agreement shall be binding upon
the Parties and their respective permitted successors and assigns. No Party
shall assign all or any part of this Agreement without the prior written consent
of the other Party, provided, however, that AOL shall be permitted to assign
this Agreement to any entity controlling, controlled by or under common control
with AOL.
[Signature Page Follows]
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IN WITNESS WHEREOF, each of the Parties has executed this Agreement as of
the date first above written.
RITZ INTERACTIVE, INC. AMERICA ONLINE, INC.
By: /s/ Fred H. Lerner By: /s/ Arthur Minson
------------------------- -------------------------
Name: Fred H. Lerner Name: Arthur Minson
Title: President Title: SVP, Corporate Finance
ACKNOWLEDGED AND AGREED TO, SOLELY FOR PURPOSES OF SECTION 4.1, AND ONLY IN
THEIR CAPACITY AS THE PRINCIPAL SHAREHOLDERS UNDER THE CO-SALE AGREEMENT:
RITZ CAMERA CENTERS, INC.
By: /s/ David M. Ritz
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Name: David M. Ritz
Title: Chief Executive Officer
/s/ David M. Ritz
-----------------------
DAVID M. RITZ
S-1
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EXHIBIT A
PROMISSORY NOTE
[See Exhibit 10.19]
A-1
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SCHEDULE 3.8
1. In March 2002, the Company entered into an agreement with Photoalley, Inc.
and CMA Business Credit Services to purchase the inventory, any rights to the
URL/internet sites and internet related assets, which includes customer email
lists, of Photoalley, Inc. Under the terms of the agreement, the Company is
obligated to make monthly payments equal to a percentage of net revenues
generated from the internet sites for the period of five years.
2. In May 2002, the Company entered into an agreement with CameraWorld.com,
Inc. and NACM-Oregon Service Company to purchase any rights to the URL/internet
sites and internet related assets, which includes customer email lists, of
CameraWorld.com. Under the terms of the agreement, the Company is obligated to
make monthly payments equal to a percentage of net revenues generated from the
internet sites for the period of five years.
3. In August 2004, the Company entered into an agreement with eAngler, Inc.
to purchase any rights to the URL/internet sites and internet related assets,
which includes customer email lists, of eAngler.com. Under the terms of the
agreement, the Company is obligated to make monthly payments equal to a
percentage of net revenues generated from the internet sites for the period of
three years, provided that no payments are required to be made unless and until
gross revenues from the internet sites exceed approximately $1.4 million. In
addition, the Company is obligated to make a payment of up to $25,000 in 2006.