PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement") is made and entered
into as of this 15th day of September, 2000 by and between Ebiz Enterprises,
Inc., a Nevada corporation ("Ebiz"), and Caldera Systems, Inc., a Delaware
corporation ("Caldera Systems").
WHEREAS, Caldera Systems has developed a marketing and distribution concept
called Electronic Linux Marketplace ("ELM"); and
WHEREAS, Ebiz desires to acquire all of Caldera Systems' right, title and
interest in and to all of the intellectual property and assets comprising
Caldera Systems' ELM (the "ELM Assets") as such assets are more particularly
described on Exhibit A, attached hereto and made a part hereof; and
WHEREAS, Caldera Systems is willing to sell to Ebiz the ELM Assets on the
terms and conditions set forth in this Agreement; and
WHEREAS, Caldera Systems desires to invest in Ebiz on the condition that
the proceeds of its investment be used solely for development of a viable ELM
Business (as defined below) in Ebiz and Caldera Systems is willing to assist
Ebiz in hiring certain employees of Caldera Systems to assist Ebiz in developing
and operating the ELM Business; and
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements hereinafter set forth, the parties hereto agree as follows:
SECTION 1. PURCHASE AND SALE OF ELM ASSETS AND EBIZ SHARES.
1.1 PURCHASE OF ELM ASSETS.
Ebiz hereby agrees to purchase from Caldera Systems and Caldera Systems
agrees to sell to Ebiz all of the ELM Assets described on Exhibit A, on and
subject to the following terms and conditions:
(a) The purchase price for the ELM Assets shall be the combined total of
the following consideration determined and paid in the following
manner:
(i) Upon the execution of this Agreement, Ebiz shall deliver to
Caldera Systems 1,000,000 shares of Ebiz's common stock.
(ii) Not later than January 15, 2002, Ebiz shall prepare and deliver
to Caldera Systems a written statement (the "Sales Report")
setting forth the total gross revenue received from Ebiz's ELM
operations described on Exhibit B attached hereto and made a part
hereof (the "ELM Operations") during the twelve-month period
commencing on December 15, 2000, and continuing for the twelve
month period thereafter ending December 15, 2001 (the "Earn Out
Period"). Such gross revenues from Ebiz's ELM Operations shall be
calculated in accordance with United States generally accepted
accounting principles ("GAAP") and shall take into account all
revenues from the ELM Operations. Upon receipt of the Sales
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Report, Caldera Systems shall have 30 days in which to review the
Sales Report and during such period of time, Ebiz shall provide
Caldera Systems access to such books, records and employees as
Caldera Systems shall reasonably request in connection with such
review. Caldera Systems may object to the Sales Report by sending
a written notice, explaining in reasonable detail the reasons for
the objection to Ebiz within 10 days following the 30 day review
period. Ebiz and Caldera Systems shall endeavor, in good faith,
to resolve any such objections and reach agreement on the Sales
Report. If Ebiz and Caldera Systems cannot agree on the Sales
Report, each of Ebiz and Caldera Systems shall select an
independent, certified public accounting firm to review the
disputed amounts on the Sales Report in accordance with the
provisions of this Agreement. If the determination of such
accounting firms are less than 10% apart in amount, then the
correct amount shall be deemed to be the average of such
determination. If such determinations are more than 10% apart in
value, then such accounting firms shall select a third,
independent, certified public accounting firm and the correct
revenue shall be deemed to be the average of the determination of
the third accounting firm and the next closest determination. The
determinations made by such accounting firms shall be final and
binding on all parties, absent manifest error. Ebiz and Caldera
Systems shall each bear one-half of the fees and expenses of all
accountants selected under this Section 1.1 to review the
disputed amounts. If Ebiz does not receive a written objection to
the Sales Report from Caldera Systems within 10 days following
the 30 day review period, the Sales Report shall be deemed
accepted by Caldera Systems.
Upon determination of the gross revenues received by Ebiz which
are attributable to its ELM Business, such amount shall be
multiplied by 5 and $1,380,000 shall be subtracted from the
resulting amount and the result, which shall not be less than
zero, shall be deemed to be the base amount (the "Base Amount").
If the result of the foregoing would be less than zero, then the
Base Amount shall be deemed to be zero.
(iii) As additional consideration for the ELM Assets, Ebiz agrees to
deliver additional shares of Ebiz's common stock in the amount
specified in subsection (A) or subsection (B) below, as
applicable:
(A) If Ebiz's shares are not traded or quoted on any national
securities exchange, or quoted on NASDAQ's National Market
System or quoted on the NASDAQ Stock market, or quoted in
the domestic over-the-counter market as reported by the
National Quotation Bureau, Inc., or any similar successor
organization at the time of the calculation of the Base
Amount, then Caldera Systems shall receive one additional
share of Ebiz common stock for each $1.25 of the Base
Amount, not to exceed 4,000,000 shares of additional Ebiz
common stock pursuant to this subsection (iii)(A).
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(B) If the Ebiz shares of common stock are traded and quoted on
any national securities exchange or quoted on NASDAQ's
National Market or quoted on the NASDAQ Stock Market or
quoted in a domestic over-the-counter market as reported by
the National Quotation Bureau, Inc., or any similar
successor organization, then the number of additional shares
to be delivered to Caldera Systems of Ebiz common stock
shall be determined as follows: First, the "fair market
value" of the Ebiz common shares shall be determined. For
purposes of this Agreement, "fair market value" means the
five-day average of the following, as determined for each of
the five business days immediately preceding the final
determination of the Base Amount: (1) the closing sales
price if such security is listed on a national securities
exchange, or if not, (2) the closing sales price reported on
The NASDAQ Stock Market National Market, or if there have
been no sales on any such exchange or The NASDAQ Stock
Market National Market on any day, then (3) the average of
the highest bid and lowest asked prices at the end of such
day, or, (4) if on any day such security is not so listed or
reported, the average of the representative bid and ask
prices quoted on The NASDAQ Stock Market as of 4:00 p.m.,
New York Time, on such day, or, (5) if on any day such
security is not quoted on The NASDAQ Stock Market, the
average of the highest bid and lowest ask prices on such day
in the domestic over-the-counter market as reported by the
National Quotation Bureau, Inc., or any similar successor
organization; provided, that if such security is listed on a
national securities exchange, the term "business days" as
used in this sentence means business days on which such
exchange is open for trading. Once the fair market value of
the Ebiz common shares has been determined, such amount
shall be discounted by 75% (the "Discounted Value"). One
dollar and thirty-eight cents ($1.38) shall then be added to
the Discounted Value and such amount shall be deemed to be
the "Purchase Price Value" of a share of Ebiz common stock.
However, in no event shall Purchase Price Value be less than
$1.38 per share. For example, if by using the formula set
forth above, the fair market value of the Ebiz common shares
is $6.00, the Discounted Value of such shares shall be
deemed to be $1.50 and the Purchase Price Value shall be
deemed to be $2.88 per share. Upon determining the Purchase
Price Value, the Base Amount shall be divided by the
Purchase Price Value and Caldera Systems shall receive an
additional number of Ebiz common shares equal to the Base
Amount divided by the Purchase Price Value, rounded to the
nearest whole share; up to a maximum of 4,000,000 additional
shares of Ebiz common stock pursuant to the terms of this
subsection (iii)(B).
1.2 CALDERA SYSTEMS PURCHASE OF EBIZ COMMON SHARES. Pursuant to the terms of
this Agreement, Caldera Systems hereby agrees to purchase 3,000,000 shares of
the common stock of Ebiz for a cash purchase price of $1.00 per share. Such
shares shall be purchased pursuant to the terms and conditions set forth in this
Agreement. At the Closing, Caldera Systems shall deliver to a bank account (the
"Restricted Account") by wire transfer the amount of $3,000,000. Such $3,000,000
shall be used solely for the purpose of developing and implementing an ELM
Business in Ebiz and it shall be used for no other purpose. The terms and
conditions of such use are as set forth on the Use Restriction Agreement
attached hereto as Exhibit C and incorporated herein by this reference. At the
Closing, Ebiz shall deliver 3,000,000 shares of its common stock to Caldera
Systems in exchange for the $3,000,000 payment by Caldera Systems to the
Restricted Account.
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1.3 ADDITIONAL AGREEMENTS REGARDING PURCHASE AND SALE.
(A) As further consideration for the purchase by Ebiz of the ELM Assets
from Caldera Systems, Caldera Systems agrees to assist Ebiz in hiring certain of
Caldera Systems' employees which have been engaged in the development of the ELM
concept and Caldera Systems agrees to use reasonable efforts to make such
employees available to Ebiz for hiring by Ebiz for the continued development and
implementation of the ELM concept. Caldera Systems makes no representations or
warranties regarding the availability of such employees or their willingness to
become employees of Ebiz.
(B) Ebiz agrees to enter into an Investor Rights Agreement (providing for
registration rights, rights of first refusal on future equity offerings of Ebiz,
certain information rights and the right to convert Caldera Systems' common into
preferred stock if Ebiz issues preferred to any party after the date of this
Agreement) in substantially the form of the Investor Rights Agreement attached
hereto as Exhibit D and incorporated herein by this reference.
(C) Ebiz, Caldera Systems and certain key shareholders of Ebiz shall enter
into a shareholders agreement (providing for the election of Caldera Systems'
representatives to the board of directors), such Shareholders Agreement to be in
substantially the form attached hereto as Exhibit E, and incorporated herein by
this reference.
(D) Caldera Systems is hereby granted, on a nonexclusive basis, a license
to use, develop, sell and sublicense, the Oracle based database system (the
"Oracle Database") that the ELM Employees participated in designing and creating
on behalf of Caldera Systems prior to the Closing which Oracle Database is
designed to retain customer, accounting, inventory, website, sales and other
information and which Oracle Database Ebiz, through its ELM development
activities, will continue to develop and complete as part of its ELM development
efforts. For purposes of this Subsection (D), the "Oracle Database" shall mean
the structure and design of such database system only, and shall not include any
data that is entered into the Oracle Database by or on behalf of Ebiz for
storage, management or processing. Ebiz will deliver to Caldera Systems in
electronic and hard copy format a copy of the Oracle Database and all software
comprising a part thereof and all embodiments of the Oracle Database as Caldera
Systems shall reasonably request. Caldera Systems' rights to the Oracle Database
shall be to the Oracle Database as it exists through the completion of the
expenditure of the $3,000,000 contained in the Restricted Account. Caldera
Systems shall have no rights to changes or developments with respect to the
Oracle Database occurring after the completion of the expenditure of such
$3,000,000.
(E) As additional consideration for Caldera Systems' investment in Ebiz,
Ebiz hereby agrees that in all future campaigns, outsourcing relationships or
other business relationships between Ebiz and Caldera Systems, Ebiz will: (i) in
all situations involving the sale or providing of Ebiz products or services to
any of its customers, grant to Caldera Systems business terms for such products
or services equivalent the most favorable terms upon which Ebiz provides such
products or services to any of such customers; and (ii) in connection with any
business transaction in which Ebiz is selecting a person or entity to provide
goods or services to it, Ebiz shall, to the extent such good or service is
offered to such customers by Caldera Systems, consider, in good faith, retaining
Caldera Systems to provide the same; provided, however, Ebiz may determine, in
its sole discretion to obtain such good or service from a party other than
Caldera System on any basis, including, without limitation, price, quality,
experience, timeliness etc., that Ebiz, in its sole discretion, considers
relevant to its decision. The foregoing provisions of Section 1.3 shall
terminate at the time when Caldera shall cease to own at least 25% of the Ebiz
common stock issued to it pursuant to this Agreement.
(F) Ebiz further agrees that all Caldera Confidential Information (as
defined below) delivered by Caldera Systems to Ebiz in connection with any
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program, activity, campaign or business transaction between Ebiz and Caldera
shall be kept confidential by Ebiz and shall not be used by Ebiz for any purpose
other than the business transactions between Ebiz and Caldera. Ebiz agrees to
use all commercially reasonable efforts to safeguard and maintain the
confidentiality of Caldera Confidential Information and not to use such
information for any other purpose than to complete the business transaction with
Caldera Systems. For purposes of this Agreement, "Caldera Confidential
Information" shall mean all information that is delivered by Caldera Systems to
Ebiz that is expressly marked or identified as "confidential"; provided,
however, "Caldera Confidential Information" shall not include any information
that (i) is in Ebiz's possession at the time of disclosure; (ii) either before
or after it has been disclosed to Ebiz, is part of the public knowledge or
literature, not as a result of any action or inaction of Ebiz; (iii) is of a
type or nature that could not be claimed by Caldera Systems as being proprietary
or confidential; (iv) is approved for release by written authorization of
Caldera Systems; or (v) is required to be disclosed by Ebiz pursuant to subpoena
or any applicable law or governmental order.
1.4 CLOSING.
The closing of the purchase and sale of the ELM Assets and the Ebiz Shares
contemplated by Sections 1.1, 1.2 and 1.3 above (the "Closing") shall take place
at 10:00 a.m. on the date hereof, or at such other time and date as the parties
hereto mutually agree (the "Closing Date").
SECTION 2. REPRESENTATIONS AND WARRANTIES OF CALDERA SYSTEMS RE: ELM ASSETS
In order to induce Ebiz to enter into this Agreement, Caldera Systems
represents and warrants to Ebiz the following, except as set forth on a Schedule
of Exceptions furnished by Caldera Systems to Ebiz (the "Caldera Schedule of
Exceptions"), specifically identifying the relevant subparagraphs(s) hereof,
which exceptions shall be deemed to be representations and warranties as if made
hereunder:
2.1 ORGANIZATION AND CORPORATE POWER.
Caldera Systems is a corporation duly organized and validly existing under
the laws of the State of Delaware, and is qualified to do business as a foreign
corporation in each jurisdiction in which the failure to be so qualified would
have a material adverse effect on its assets, liabilities, financial condition,
business, or results of operations (a "Material Adverse Effect"). Caldera
Systems has all required corporate power and corporate authority to carry on its
business as presently conducted, to enter into and perform this Agreement and
the agreements contemplated hereby to which it is a party and to carry out the
transactions contemplated hereby and thereby, including the sale of the ELM
Assets and the purchase of the Ebiz common shares.
2.2 AUTHORIZATION AND NON-CONTRAVENTION.
The execution, delivery and performance by Caldera Systems of this
Agreement and each other agreement, document and instrument to be executed and
delivered by Caldera Systems pursuant to or as contemplated by this Agreement,
including, without limitation, the sale of the ELM Assets and the purchase of
the Ebiz Shares, have been duly authorized, by all necessary corporate action on
behalf of Caldera Systems. This Agreement and each such other agreement,
document, and instrument, when executed and delivered, will constitute valid and
binding obligations of Caldera Systems, enforceable in accordance with their
respective terms, except as may be limited by applicable law and public policy
and subject to (i) applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors= rights
generally and (ii) general principles of equity and/or laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies, whether such enforceability is considered in a proceeding in equity or
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at law. The execution and delivery by Caldera Systems of this Agreement and each
other agreement, document and instrument to be executed and delivered by Caldera
Systems pursuant hereto or as contemplated hereby and the performance by Caldera
Systems of the transactions contemplated hereby and thereby, including, without
limitation, the sale of the ELM Assets and the purchase of the Ebiz Shares, do
not and will not: (A) violate, conflict with or result in a default (whether
after the giving of notice, lapse of time or both) under any material contract,
mortgage, indenture, contract, instrument or obligation to which Caldera Systems
is a party or by which it or its assets are bound, or any provision of the
Caldera Systems' Articles of Incorporation or Caldera Systems' Bylaws, or cause
the creation of any material lien, charge or encumbrance upon any of the ELM
Assets; (B) violate or result in a violation of, or constitute a default under,
any provision of any material law, regulation or rule, or any judgment, order,
writ, decree or statute of, or any restriction imposed by, any court or
governmental agency applicable to Caldera Systems; (C) require from Caldera
Systems any notice to, declaration or filing with, or consent or approval of any
governmental authority or third party other than such filings as have been made
or consents which have been obtained prior to the Closing; or (D) accelerate any
obligation under, or give rise to a right of termination, suspension, revocation
or impairment of, any material agreement, permit, license or authorization
applicable to any of Caldera Systems= operations, assets or properties, or by
which Caldera Systems is bound.
2.3 PERMITS.
Caldera Systems has all franchises, permits, licenses, and any similar
authority necessary for the conduct of its business as now being conducted by
it, the lack of which could have a Material Adverse Affect the business,
properties, prospects or financial condition of Caldera Systems. Caldera Systems
is not in default in any material respect under any of such franchises, permits,
licenses or other similar authority.
2.4 LITIGATION.
There is no action, suit, proceeding or investigation pending or, to the
best of Caldera Systems' knowledge, currently threatened against Caldera Systems
that questions the validity of this Agreement, or the right of Caldera Systems
to enter into this Agreement, or to consummate the transactions contemplated
hereby, or that might result, either individually or in the aggregate, in any
material adverse change in the assets, business, properties, prospects, or
financial condition of Caldera Systems, or in any material impact on the ELM
Assets.
2.5 TITLE TO PROPERTY AND ASSETS; LEASES.
Caldera Systems has good and marketable title to the ELM Assets free and
clear of all mortgages, liens, claims and encumbrances and upon consummation of
the transactions contemplated hereby, Ebiz will acquire the ELM Assets free of
any liens, encumbrances or third-party rights, subject to the qualifications set
forth in Section 2.6 hereof.
2.6 INTELLECTUAL PROPERTY.
To the best of Caldera Systems' knowledge, the ELM Assets have not
infringed and do not infringe the copyrights of any third party. To the best of
Caldera Systems' knowledge, Caldera Systems has not misappropriated and is not
misappropriating any trade secrets or proprietary confidential information of
any third party with respect to the ELM Assets, and the ELM Assets do not
include or embody any trade secret or proprietary confidential information
misappropriated by Caldera Systems from any third party. To the best of Caldera
Systems' knowledge, the ELM Assets have not infringed and do not infringe any
patents, trademarks, service marks, or trade names of any third party. Each item
of Intellectual Property constituting part of the ELM Assets owned by or
licensed to Caldera Systems immediately prior to the Closing hereunder will be
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owned by or licensed by Ebiz on identical terms and conditions immediately
subsequent to the Closing hereunder (i.e., identical to any applicable terms and
conditions immediately prior to the Closing).
(i) To the best of Caldera Systems' knowledge, none of Caldera
Systems and its directors and officers (and employees with
responsibility for Intellectual Property matters) has ever received
any charge, complaint, claim, demand, or notice alleging any such
infringement, misappropriation, or violation by Caldera Systems of
Intellectual Property related to the ELM Assets (including any claim
that Caldera Systems must license or refrain from using any ELM
Asset). Exhibit A sets forth a description of each item of
Intellectual Property constituting part of the ELM Assets. To the best
of Caldera Systems' knowledge and the knowledge of directors and
officers (and employees with responsibility for Intellectual Property
matters) of Caldera Systems, no third party has infringed,
misappropriated, or otherwise violated any ELM Intellectual Property
rights of Caldera Systems.
(ii) Exhibit A identifies (a) each patent which has been issued
or assigned to Caldera Systems related to the ELM Assets, (b) each
pending patent application which has been filed by or for Caldera
Systems related to the ELM Assets, (c) each trademark or service ▇▇▇▇
registration issued or assigned to Caldera Systems related to the ELM
Assets, (d) each pending trademark or service ▇▇▇▇ application which
has been filed by or for Caldera Systems related to the ELM Assets,
(e) each copyright registration issued or assigned to Caldera Systems
related to the ELM Assets, (f) each pending copyright application
which has been filed by or for Caldera Systems related to the ELM
Assets, and (g) each license which Caldera Systems has granted to any
third party with respect to any of Caldera Systems' ELM Intellectual
Property. Caldera Systems will deliver to Ebiz correct and complete
copies of all such patents, registrations, applications, and licenses
(as amended to date). Exhibit A also identifies each trade name and
each unregistered trademark or service ▇▇▇▇ owned or claimed by
Caldera Systems in connection with the ELM Assets. With respect to
each patent, application, and registration (each an "IP item")
identified on Exhibit A:
(A) Caldera Systems possess all right, title, and interest
in and to the IP item, free and clear of any mortgage, lien,
claim, license, or other encumbrance;
(B) to the best of Caldera Systems' knowledge, the IP item
is not subject to any outstanding injunction, judgment, order,
decree, ruling, or charge;
(C) to the best of Caldera Systems' knowledge, no action,
suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand is pending or, to the best of Caldera Systems'
knowledge, and the knowledge of the directors and officers (and
employees with responsibility for Intellectual Property matters)
of Caldera Systems is threatened which challenges the legality,
validity, enforceability, use, or ownership of the IP item; and
(D) Caldera Systems has never agreed to indemnify any Person
for or against any interference, infringement, misappropriation,
or other conflict with respect to the IP item.
(iii) Exhibit A identifies each item of Intellectual Property
that any third party owns and licenses to Caldera Systems, excluding
licenses to commercially available software products (e.g., Windows,
Microsoft Office, etc.) used by Caldera Systems as an end user and
which is used in connection with the ELM Assets. Caldera Systems will
deliver to Ebiz at the Closing correct and complete copies of all
agreements applicable to such licenses (as amended to date). The term
"license" is intended to include "sublicense." With respect to each
such license and agreement required to be identified on Exhibit A, to
the best of Caldera Systems' knowledge;
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(A) each such license and agreement are legal, valid,
binding, enforceable, and in full force and effect;
(B) the license and agreement will continue to be legal,
valid, binding, enforceable, and in full force and effect on
identical terms on the day immediately following the Closing;
(C) no party to such license or agreement is in breach or
default, and to the knowledge of Caldera Systems, no event has
occurred which with notice or lapse of time would constitute a
breach or default or permit termination, modification, or
acceleration thereunder;
(D) no party to such license or agreement has repudiated any
provision thereof;
(E) such license or agreement is not subject to any
outstanding injunction, judgment, order, decree, ruling, or
charge; and
(F) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or is threatened
which challenges the legality, validity, or enforceability of
such license or agreement; and
(G) no consent to the assignment of any of the ELM Assets is
required.
(iv) To the best of Caldera Systems' knowledge and to the
knowledge of the directors and officers (and employees with
responsibility for Intellectual Property matters) of Caldera Systems,
neither Ebiz nor Caldera Systems will infringe, misappropriate, or
otherwise violate any Intellectual Property rights of third parties as
a result of the continued operation by Ebiz of the ELM Operations
contemplated by Exhibit B.
2.7 MANUFACTURING AND MARKETING RIGHTS.
Except as set forth on the Caldera Systems Schedule of Exceptions, Caldera
Systems has not granted rights to manufacture, produce, assemble, license,
market or sell any products or rights related to the ELM Business to any other
person and is not bound by any agreement that affects Caldera Systems' right to
develop, manufacture, assemble, distribute, market or sell products or services
in its ELM Business.
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2.8 EMPLOYEES; EMPLOYEE COMPENSATION.
To the best of Caldera Systems' knowledge, the relationships between
Caldera Systems and the employees who are being made available to be hired by
Ebiz (the "ELM Employees") are good and no labor dispute or claims are pending
or threatened. None of the ELM Employees belong to any union or collective
bargaining unit. Caldera Systems has complied in all material respects with all
applicable state and federal laws related to employment of the ELM Employees. To
the best of Caldera Systems' knowledge, none of the ELM Employees is or will be
in violation of any judgment, decree or order, or any term of any employment
contract, patent disclosure agreement, or other contract or agreement relating
to the relationship of any such employee with Caldera Systems, or any other
party because of the nature of the business conducted or presently proposed to
be conducted by Caldera Systems or to the use by such employee of his or her
best efforts with respect to such business. Subject to general principles
related to wrongful termination of employees, the employment of each ELM
Employee is terminable at the will of Caldera Systems. Attached as Exhibit E is
a list of each of the ELM Employees and their current compensation.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF EBIZ
In order to induce Caldera Systems to enter into this Agreement, Ebiz
represents and warrants to Caldera Systems the following, except as set forth on
a Schedule of Exceptions furnished by Ebiz to Caldera Systems (the "Ebiz
Schedule of Exceptions"), specifically identifying the relevant subparagraph(s)
hereof, which exceptions shall be deemed to be representations and warranties as
if made hereunder:
3.1 ORGANIZATION AND CORPORATE POWER.
Ebiz is a corporation duly organized and validly existing under the laws of
the State of Nevada and is qualified to own and operate its properties and
assets, to do business as a foreign corporation in each jurisdiction in which
the failure to be so qualified would have a Material Adverse Effect. Each
Subsidiary of Ebiz is a corporation duly organized and validly existing under
its state of incorporation and is qualified to own and operate its properties
and assets, to do business as a foreign corporation in each jurisdiction in
which the failure to be so qualified would have a Material Adverse Effect. Each
of Ebiz and its Subsidiaries has all required corporate power and corporate
authority to carry on its business as presently conducted, to enter into and
perform this Agreement and the agreements contemplated hereby to which it is a
party and to carry out the transactions contemplated hereby and thereby,
including the issuance of the Ebiz common shares to be issued to Caldera Systems
hereunder (the "Ebiz Shares"). Ebiz is not in violation of any term of its
Articles of Incorporation, as amended as of the date hereof (the "Ebiz Articles
of Incorporation"), or Bylaws, as amended as of the date hereof (the "Ebiz
Bylaws"), the effect of which would be to have a Material Adverse Effect on
Ebiz.
3.2 AUTHORIZATION AND NON-CONTRAVENTION.
The execution, delivery and performance by Ebiz of this Agreement and each
other agreement, document and instrument to be executed and delivered by Ebiz
pursuant to or as contemplated by this Agreement, including, without limitation,
the issuance and delivery of the Ebiz Shares, have been duly authorized, by all
necessary corporate action on behalf of Ebiz. This Agreement and each such other
agreement, document, and instrument, when executed and delivered, will
constitute valid and binding obligations of Ebiz, enforceable in accordance with
their respective terms, except as may be limited by applicable law and public
policy and subject to (i) applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally and (ii) general principles of equity and/or laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies, whether such enforceability is considered in a proceeding in
equity or at law. The execution and delivery by Ebiz of this Agreement and each
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other agreement, document and instrument to be executed and delivered by Ebiz
pursuant hereto or as contemplated hereby and the performance by Ebiz of the
transactions contemplated hereby and thereby, including, without limitation, the
offer, sale, issuance and delivery of the Ebiz Shares, do not and will not: (A)
violate, conflict with or result in a default (whether after the giving of
notice, lapse of time or both) under any material contract, mortgage, indenture,
contract, instrument or obligation to which Ebiz or any of its Subsidiaries is a
party or by which it or its assets are bound, or any provision of the Ebiz
Articles of Incorporation or Ebiz Bylaws, or cause the creation of any material
lien, charge or encumbrance upon any of the assets of Ebiz or any of its
Subsidiaries; (B) to Ebiz's knowledge, violate or result in a violation of, or
constitute a default under, any provision of any material law, regulation or
rule, or any judgment, order, writ, decree or statute of, or any restriction
imposed by, any court or governmental agency applicable to Ebiz or any of its
Subsidiaries; (C) require from Ebiz any notice to, declaration or filing with,
or consent or approval of any governmental authority or third party other than
such filings as have been made prior to the Closing and/or as may be required to
secure an exemption from qualification of the offer and sale of the Ebiz Shares
under the Securities Act of 1933 (the "Securities Act"), and applicable state
securities and blue sky laws; or (D) accelerate any obligation under, or give
rise to a right of termination, suspension, revocation or impairment of, any
material agreement, permit, license or authorization applicable to any of
Ebiz's, or any of its Subsidiaries', business, operations, assets or properties,
to which Ebiz, or any of its Subsidiaries, is a party or by which Ebiz is bound.
3.3 CAPITALIZATION.
(A) For purposes of this Section 3.3, "Merger Agreement" shall mean that
certain Agreement and Plan of Merger, including all appendices and exhibits
thereto, dated August 7, 2000, by and between Ebiz, Linux Mall Acquisition, Inc.
("Merger Sub") and ▇▇▇▇▇▇▇▇▇.▇▇▇, Inc. ("LinuxMall"); "Merger" shall mean the
contemplated merger between Merger Sub and LinuxMall described in the Merger
Agreement; "Merger Consideration" shall mean all shares of common stock of Ebiz
that Ebiz is required to issue pursuant to Section 1.3 of the Merger Agreement;
and "Merger Related Shares" shall mean all shares of preferred or common stock
of Ebiz, other than the Merger Consideration, that Ebiz is or may be obligated
to issue pursuant to any agreement that, pursuant to the Merger Agreement, Ebiz
is expressly required to enter into in connection with the closing of the
Merger.
(B) As of the Closing, without giving effect to the transactions
contemplated hereby, the authorized capital stock of Ebiz consists of 70,000,000
shares of common stock of which 8,737,566 shares are issued and outstanding and
5,000,000 shares of preferred stock of which 7,590 shares are issued and
outstanding. As of the Closing, other than the shares described in the preceding
sentence, and currently outstanding options to purchase 1,152,000 shares of the
common stock of Ebiz, warrants to purchase 382,513 shares of the common stock of
Ebiz, debentures convertible into 3,496,647 shares of the common stock of Ebiz
(based on an assumed price of $2.00 per share; the conversion rate with respect
to these debentures is based upon the per share market price of Ebiz common
stock at the time of conversion), the Merger Consideration and the Merger
Related Shares, Ebiz has not issued any warrants, options, rights (including,
without limitation, conversion or preemptive rights and rights of first
refusal), proxy or stockholder agreements or agreements of any kind for the
purchase or acquisition from Ebiz, or any of its Subsidiaries, of any shares of
its, or any of its Subsidiaries', capital stock or other securities, including,
without limitation, any securities convertible into or exercisable or
exchangeable for such shares or any warrants, options or other rights to acquire
any such convertible securities. As of the Closing, and after giving effect to
the transactions contemplated hereby, all of the outstanding shares of capital
stock of Ebiz and each of its Subsidiaries will have been duly and validly
authorized and issued, fully paid and nonassessable and not subject to any
preemptive rights and will have been offered, issued, sold and delivered in
compliance with applicable federal and state securities laws. Except as set
forth in the Ebiz Articles of Incorporation, there are no preemptive rights,
rights of first refusal, put or call rights or obligations or anti-dilution
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rights with respect to the issuance, sale or redemption of Ebiz's capital stock
or other securities. Except for the Merger Agreement, Ebiz is not a party or
subject to any agreement or understanding, and, to the best of Ebiz's knowledge,
there is no agreement or understanding between any persons that affects or
relates to the voting or giving of written consents with respect to any security
or the voting by a director of Ebiz. Upon the Closing of the transactions
contemplated hereby, the 4,000,000 shares of common stock of Ebiz to be owned by
Caldera Systems represents not less than 21.70% of Ebiz's total capital stock on
a fully diluted basis (after giving effect to all outstanding warrants and
options and any unallocated stock option pool of 348,000 shares and after giving
consideration to the conversion of any preferred stock or debentures into common
stock of Ebiz).
(C) If the Merger is consummated, giving effect to the issuance of the
Merger Consideration and the 4,000,000 shares of common stock of Ebiz to be
issued to Caldera Systems in connection with the Closing, but not giving effect
to any other shares of common or preferred stock of Ebiz that may be authorized
or issued after the Closing and assuming that none of the LinuxMall shareholders
exercise their dissenter's rights in connection with the Merger, the authorized
capital stock of Ebiz will consist of 70,000,000 shares of common stock of which
21,499,716 shares will be issued and outstanding and 5,000,000 shares of
preferred stock of which no shares will be issued and outstanding.
3.4 VALID ISSUANCE OF EBIZ SHARES.
The Ebiz Shares, when issued, sold and delivered in accordance with the
terms of this Agreement for the consideration expressed herein, will be duly and
validly issued, fully paid and non-assessable, and will be free of restrictions
on transfer other than restrictions on transfer under this Agreement and under
applicable state and federal securities laws.
3.5 SUBSIDIARIES.
Except as set forth in the Ebiz Schedule of Exceptions, Ebiz does not own
or control, directly or indirectly, any interest in any other corporation,
partnership, limited liability company, association or other business entity.
Ebiz is not a participant in any joint venture, partnership or similar
arrangement.
3.6 CONTRACTS AND OTHER COMMITMENTS.
Neither Ebiz nor any of its Subsidiaries has and/or is bound by any
contract, agreement, lease, commitment, or proposed transaction, judgment,
order, writ or decree, written or oral, absolute or contingent, other than
contracts entered into in the ordinary course of business. For the purpose of
this paragraph, employment and consulting contracts and license agreements and
any other agreements relating to Ebiz's or any of its Subsidiary's acquisition
or disposition of Intellectual Property (other than standard end-user license
agreements) shall not be considered to be contracts entered into in the ordinary
course of business.
3.7 RELATED-PARTY TRANSACTIONS.
No employee, officer, stockholder or director of Ebiz or any of its
Subsidiaries or member of his or her immediate family is indebted to Ebiz, nor
is Ebiz or any Subsidiary indebted (or committed to make loans or extend or
guarantee credit) to any of them, other than (i) for payment of salary for
services rendered, (ii) reimbursement for reasonable expenses incurred on behalf
of Ebiz or such Subsidiary, and (iii) for other standard employee benefits made
generally available to all employees (including stock option agreements
outstanding under any stock option plan approved by the Board of Directors of
Ebiz or such Subsidiary). To the best of Ebiz's or such Subsidiary's knowledge,
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none of such persons has any direct or indirect ownership interest in any firm
or corporation with which Ebiz or such Subsidiary is affiliated or with which
Ebiz or such Subsidiary has a business relationship, or any firm or corporation
that competes with Ebiz or such Subsidiary, except that employees, stockholders,
officers or directors of Ebiz or such Subsidiary and members of their immediate
families may own stock in publicly-traded companies that may compete with Ebiz
or such Subsidiary. To the best of Ebiz's or such Subsidiary's knowledge, no
officer, director or stockholder or any member of their immediate families is,
directly or indirectly, interested in any material contract with Ebiz or such
Subsidiary (other than such contracts as relate to any such person's ownership
of capital stock or other securities of Ebiz or such Subsidiary).
3.8 REGISTRATION RIGHTS.
Except as set forth in the Caldera Systems Investor Rights Agreement, Ebiz
is presently not under any obligation and has not granted any rights to register
under the Securities Act any of its presently outstanding securities or any of
its securities that may subsequently be issued.
3.9 PERMITS.
Each of Ebiz and its Subsidiaries has all franchises, permits, licenses,
and any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects or financial condition of Ebiz or any such
Subsidiary, and believes it can obtain, without undue burden or expense, any
similar authority for the conduct of its business as presently planned to be
conducted. Neither Ebiz nor any Subsidiary is in default in any material respect
under any of such franchises, permits, licenses or other similar authority.
3.10 LITIGATION.
There is no action, suit, proceeding or investigation pending or, to the
best of Ebiz's or any of its Subsidiary's knowledge, currently threatened
against Ebiz or any of its Subsidiaries that questions the validity of this
Agreement, or the right of Ebiz to enter into this Agreement, or to consummate
the transactions contemplated hereby, or that might result, either individually
or in the aggregate, in any material adverse change in the assets, business,
properties, prospects, or financial condition of Ebiz or any of its
Subsidiaries, or in any material change in the current equity ownership of Ebiz
or any of its Subsidiaries.
3.11 RETURNS AND COMPLAINTS.
Neither Ebiz nor any of its Subsidiaries has received any customer
complaints concerning alleged defects in its products (or the design thereof)
that, if true, would materially adversely affect the operations or financial
condition of Ebiz or any of its Subsidiaries.
3.12 DISCLOSURE.
Ebiz has provided Caldera Systems with all the information reasonably
available to it without undue expense that Caldera Systems has requested in
writing for deciding whether to purchase the Ebiz Shares and all information
that Ebiz believes is reasonably necessary to enable Caldera Systems to make an
informed investment decision. The foregoing representation is limited to
specific information regarding Ebiz and is not intended to extend to such
matters as general economic conditions or industry-wide type risks.
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3.13 OFFERING.
Subject, in part, to the truth and accuracy of Caldera Systems'
representations set forth in this Agreement, the offer, sale and issuance of the
Ebiz Shares as contemplated by this Agreement are exempt from the registration
requirements of the Securities Act, and neither Ebiz, any of its Subsidiaries,
nor any authorized agent acting on its behalf will take any action hereafter
that would cause the loss of such exemption.
3.14 TITLE TO PROPERTY AND ASSETS; LEASES.
Except (i) as reflected in the Ebiz Financial Statements (defined in
paragraph 3.15), (ii) for liens for current taxes not yet delinquent, (iii) for
liens imposed by law and incurred in the ordinary course of business for
obligations not past due to carriers, warehousemen, laborers, materialmen and
the like, (iv) for liens in respect of pledges or deposits under workers'
compensation laws or similar legislation or (v) for minor defects in title, none
of which, individually or in the aggregate, materially interferes with the use
of such property, each of Ebiz and its Subsidiaries has good and marketable
title to its property and assets free and clear of all mortgages, liens, claims
and encumbrances. With respect to the property and assets it leases, each of
Ebiz and its Subsidiaries is in compliance with such leases and, to the best of
its knowledge, holds a valid leasehold interest free of any liens, claims or
encumbrances, subject to clauses (i)-(v) above.
3.15 FINANCIAL STATEMENTS.
Ebiz has delivered to Caldera Systems its unaudited financial statements
(balance sheet and profit and loss statement, statement of stockholders' equity
and statement of cash flows, including notes thereto) at June 30, 2000 and for
the fiscal year then ended (the "Ebiz Financial Statements"). The Ebiz Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated. The
Ebiz Financial Statements fairly present the financial condition and operating
results of Ebiz as of the dates, and for the periods, indicated therein. Except
as set forth in the Ebiz Financial Statements, neither Ebiz nor any of its
Subsidiaries has any material liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to June
30, 2000 and (ii) obligations under contracts and commitments incurred in the
ordinary course of business and not required under generally accepted accounting
principles to be reflected in the Ebiz Financial Statements, which in both
cases, individually or in the aggregate, are not material to the financial
condition or operating results of Ebiz or any of its Subsidiaries. Except as
disclosed in the Ebiz Financial Statements, neither Ebiz nor any of its
Subsidiaries is a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation. Ebiz and each of its Subsidiaries maintains and
will continue to maintain a standard system of accounting established and
administered in accordance with GAAP.
3.16 CHANGES.
Since June 30, 2000 there has not been any event or condition of any type
that has materially and adversely affected the business, properties or financial
condition of Ebiz or any of its Subsidiaries.
3.17 INTELLECTUAL PROPERTY.
To the best of Ebiz's and its Subsidiaries' knowledge, Ebiz, its
Subsidiaries and their products have not infringed and do not infringe the
copyrights of any third party. To the best of Ebiz's and its Subsidiaries'
knowledge, neither Ebiz nor its Subsidiaries has misappropriated or is
misappropriating any trade secrets or proprietary confidential information of
any third party, and the products of Ebiz and its Subsidiaries do not include or
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embody any trade secret or proprietary confidential information misappropriated
by Ebiz or its Subsidiaries from any third party. To the best of Ebiz's and its
Subsidiaries' knowledge, each of Ebiz and its Subsidiaries and their respective
products have not infringed and do not infringe any patents, trademarks, service
marks, or trade names of any third party. Each item of Intellectual Property
owned by or licensed to Ebiz and its Subsidiaries immediately prior to the
Closing hereunder will be owned by or licensed to Ebiz and the Subsidiary on
identical terms and conditions immediately subsequent to the Closing hereunder
(i.e., identical to any applicable terms and conditions immediately prior to the
Closing).
(i) To the best of Ebiz's and its Subsidiaries' knowledge, none
of Ebiz or its Subsidiaries or their directors and officers (and
employees with responsibility for Intellectual Property matters) has
ever received any charge, complaint, claim, demand, or notice alleging
any such infringement, misappropriation, or violation by Ebiz or its
Subsidiaries of Intellectual Property (including any claim that Ebiz
and its Subsidiaries must license or refrain from using any
Intellectual Property rights of any third party). To the best of
Ebiz's and its Subsidiaries' knowledge and the knowledge of directors
and officers (and employees with responsibility for Intellectual
Property matters) of Ebiz and its Subsidiaries, no third party has
infringed, misappropriated, or otherwise violated any Intellectual
Property rights of Ebiz and its Subsidiaries.
(ii) The Ebiz Schedule of Exceptions identifies (a) each patent
which has been issued or assigned to Ebiz or any of its Subsidiaries,
(b) each pending patent application which has been filed by or for
Ebiz or any of its Subsidiaries, (c) each trademark or service ▇▇▇▇
registration issued or assigned to Ebiz or any of its Subsidiaries,
(d) each pending trademark or service ▇▇▇▇ application which has been
filed by or for Ebiz or any its Subsidiaries, (e) each copyright
registration issued or assigned to Ebiz or any of its Subsidiaries,
(f) each pending copyright application which has been filed by or for
Ebiz or any of its Subsidiaries, and (g) each license which Ebiz and
its Subsidiaries has granted to any third party with respect to any of
Ebiz's Intellectual Property excluding licenses to end users of
Company products granted in the ordinary course of business. Ebiz has
delivered to Caldera Systems correct and complete copies of all such
patents, registrations, applications, and licenses (as amended to
date). The Ebiz Schedule of Exceptions also identifies each trade name
and each unregistered trademark or service ▇▇▇▇ owned or claimed by
any of Ebiz and its Subsidiaries in connection with any of their
businesses. With respect to each IP item identified in the Ebiz
Schedule of Exceptions:
(A) Ebiz and its Subsidiaries possess all right, title, and
interest in and to the IP item, free and clear of any mortgage,
lien, claim, license, or other encumbrance;
(B) to the best of Ebiz's and its Subsidiaries' knowledge,
the IP item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(C) to the best of Ebiz's or its Subsidiaries' knowledge, no
action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the best of Ebiz's
or its Subsidiaries' knowledge, and the knowledge of the
directors and officers (and employees with responsibility for
Intellectual Property matters) of Ebiz and its Subsidiaries, is
threatened which challenges the legality, validity,
enforceability, use, or ownership of the IP item; and
(D) none of Ebiz and its Subsidiaries has ever agreed to
indemnify any Person for or against any interference,
infringement, misappropriation, or other conflict with respect to
the IP item.
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(iii) The Ebiz Schedule of Exceptions identifies each item of
Intellectual Property that any third party owns and licenses to any of
Ebiz and its Subsidiaries, excluding licenses to commercially
available software products (e.g., Windows, Microsoft Office, etc.)
used by any of Ebiz and its Subsidiaries as an end user. The term
"license" is intended to include "sublicense." With respect to each
such license and agreement required to be identified in the Ebiz
Schedule of Exceptions, to the best of Ebiz's or its Subsidiaries'
knowledge;
(A) such license and agreement are legal, valid, binding,
enforceable, and in full force and effect;
(B) such license and agreement will continue to be legal,
valid, binding, enforceable, and in full force and effect on
identical terms on the day immediately following the Closing;
(C) no party to such license or agreement is in breach or
default, and no event has occurred which with notice or lapse of
time would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(D) no party to such license or agreement has repudiated any
provision thereof;
(E) such license or agreement is not subject to any
outstanding injunction, judgment, order, decree, ruling, or
charge; and
(F) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or is threatened
which challenges the legality, validity, or enforceability of the
license or agreement.
(iv) To the best of Ebiz's and its Subsidiaries' knowledge and to
the knowledge of the directors and officers (and employees with
responsibility for Intellectual Property matters) of Ebiz and its
Subsidiaries, neither Ebiz nor any of its Subsidiaries will infringe,
misappropriate, or otherwise violate any Intellectual Property rights
of third parties as a result of the continued operation of its
businesses as presently conducted and as presently proposed to be
conducted.
3.18 MANUFACTURING AND MARKETING RIGHTS.
Except as set forth on the Ebiz Schedule of Exceptions, neither Ebiz nor
any of its Subsidiaries has granted rights to manufacture, produce, assemble,
license, market or sell its products to any other person and is not bound by any
agreement that affects Ebiz's or such Subsidiary's exclusive right to develop,
manufacture, assemble, distribute, market or sell its products.
3.19 EMPLOYEES; EMPLOYEE COMPENSATION.
To the best of Ebiz's and its Subsidiary's knowledge, the relationships
between Ebiz and its Subsidiaries and their respective employees are good and no
labor dispute or claims are pending or threatened. None of Ebiz's or any of its
Subsidiary's employees belongs to any union or collective bargaining unit. To
the best of Ebiz's and its Subsidiaries' knowledge, Ebiz and each of its
Subsidiaries has complied in all material respects with all applicable state and
federal laws related to employment. To the best of Ebiz's and it Subsidiary's
knowledge, no employee of Ebiz or any such Subsidiary is or will be in violation
of any judgment, decree or order, or any term of any employment contract, patent
disclosure agreement, or other contract or agreement relating to the
relationship of any such employee with Ebiz, any of its Subsidiaries, or any
other party because of the nature of the business conducted or presently
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proposed to be conducted by Ebiz or any of its Subsidiaries or to the use by the
employee of his or her best efforts with respect to such business. Neither Ebiz
nor any of its Subsidiaries is aware that any officer or key employee, or that
any group of key employees, intends to terminate their employment with Ebiz or
any of its Subsidiaries, nor does Ebiz or any of its Subsidiaries have a present
intention to terminate the employment of any of the foregoing. Subject to
general principles related to wrongful termination of employees, the employment
of each officer and employee of Ebiz and each of its Subsidiaries is terminable
at the will of Ebiz or such Subsidiary, as applicable.
3.20 TAX RETURNS, PAYMENTS, AND ELECTIONS.
Ebiz and each of its Subsidiaries has timely filed all tax returns and
reports (federal, state and local) as required by law. These returns and reports
are true and correct in all material respects. Ebiz and each of its Subsidiaries
has paid all taxes and other assessments due, except those contested by it in
good faith. Neither Ebiz nor any of its Subsidiaries has elected pursuant to the
Code, to be treated as an S corporation or a collapsible corporation pursuant to
Section 1362(a) or Section 341(f) of the Code, nor has it made any other
elections pursuant to the Code (other than elections that relate solely to
methods of accounting, depreciation or amortization) that would have a material
effect on the business, properties, prospects or financial condition of Ebiz or
any of its Subsidiaries. Neither Ebiz nor any of its Subsidiaries has ever had
any tax deficiency proposed or assessed against it and has not executed any
waiver of any statute of limitations on the assessment or collection of any tax
or governmental charge. None of Ebiz's or any Subsidiary's income tax returns
(federal or otherwise) and none of its state income or franchise tax or sales or
use tax returns has ever been audited by governmental authorities. Ebiz and each
of its Subsidiaries has made adequate provisions on its books of account for all
taxes, assessments and governmental charges with respect to its business,
properties and operations for such period. Ebiz and each of its Subsidiaries has
withheld or collected from each payment made to each of its employees, the
amount of all taxes, including, but not limited to, federal income taxes,
Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act taxes
required to be withheld or collected therefrom, and has paid the same to the
proper tax receiving officers or authorized depositaries.
3.21 ENVIRONMENTAL AND SAFETY LAWS.
Neither Ebiz nor any of its Subsidiaries is in violation of any applicable
statute, law or regulation relating to the environment or occupational health
and safety except to the extent that the effect of which would not have a
Material Adverse Effect on Ebiz, and no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
SECTION 4. ADDITIONAL REPRESENTATIONS AND WARRANTIES OF CALDERA SYSTEMS
(A) Caldera Systems represents to Ebiz that (i) it has such knowledge and
experience in financial and business matters and in private placement
transactions of securities of companies in a similar stage of development as
Ebiz that it is capable of evaluating the merits and risks of the investment
contemplated by such purchasing party under this Agreement and making an
informed investment decision with respect thereto, (ii) it is able to bear the
economic risk of such investment and can afford to sustain a substantial loss on
such investment, (iii) it is an "accredited investor" as such term is defined in
Rule 501 under the Securities Act, (iv) it is purchasing the securities
purchased by it hereunder for its own account, for investment only and not with
a view to, or any present intention of, effecting a resale or distribution of or
selling or granting any participation in such securities or any part thereof,
(v) it realizes that the basis for any exemption pursuant to which the
securities such party is purchasing hereunder have been issued may not be
present if, notwithstanding the representations made by such party hereunder,
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such party has in mind merely acquiring the securities is purchasing hereunder
for a fixed or determinable period in the future, or for a market rise, or for
sale if the market does not rise and (vi) it does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to such
securities. Caldera Systems acknowledges that the securities purchased by it
hereunder have not been registered under the Securities Act or the securities
laws of any state or other jurisdiction in reliance on an exemption from
registration thereunder and reliance on such exemption by the issuer of such
securities is predicated on the representations and warranties set forth in this
Agreement. Furthermore, Caldera Systems acknowledges that such securities cannot
be disposed of unless they are subsequently registered under the Securities Act
and any applicable state laws or an exemption from such registration is
available.
(B) Caldera Systems understands that the securities have not been
registered under the Securities Act. In particular, Caldera Systems is aware
that the securities purchased by it hereunder may not be sold pursuant to Rule
144 promulgated under the Securities Act unless all of the conditions of that
Rule are met.
(C) Caldera Systems represents that it has had an opportunity to ask
questions and receive answers from Ebiz regarding the terms and conditions of
the offering of such securities and the business, properties, prospects and
financial condition of Ebiz and to obtain additional information (to the extent
Ebiz possessed such information or could acquire it without unreasonable effort
or expense) necessary to verify the accuracy of any information furnished to
Caldera Systems or to which Caldera Systems had access. The foregoing, however,
does not limit or modify the representations and warranties of Ebiz in Section 3
of this Agreement or the right of Caldera Systems to rely thereon.
SECTION 5. CLOSING
5.1 CLOSING. Upon the execution of this Agreement, a Closing shall be held.
At the Closing, the following shall occur:
(a) DELIVERIES BY CALDERA SYSTEMS. At the Closing, Caldera Systems
shall deliver to Ebiz the following:
(i) An assignment or other instrument of transfer assigning to
Ebiz all of Caldera Systems' right, title and interest in
and to the ELM Assets;
(ii) $3,000,000 by wire transfer to the Restricted Account;
(iii) An executed copy of the Use Restriction Agreement;
(iv) An executed copy of the Investor Rights Agreement;
(v) An executed copy of the Shareholders Agreement;
(vi) An Assignment and ▇▇▇▇ of Sale transferring the ELM Assets
to Ebiz; and
(vii) Such other documents and instruments as Ebiz shall, in its
reasonable discretion, require to close and consummate the
transactions contemplated hereby; such documents to be in
form and substance reasonably satisfactory to Caldera
Systems.
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(b) DELIVERIES BY EBIZ. At the Closing, Ebiz shall deliver to Caldera
Systems the following:
(i) A copy of instructions sent to Ebiz's Transfer Agent
instructing the Transfer Agent to deliver to Caldera Systems
share certificates for 4,000,000 shares of the common stock
of Ebiz. Ebiz covenants and agrees that such share
certificates will be delivered to Caldera Systems within
seven (7) days of the Closing;
(ii) An executed copy of the Use Restriction Agreement;
(iii) An executed copy of the Investor Rights Agreement;
(iv) An executed copy of the Shareholders Agreement executed by
Ebiz and the key shareholders of Ebiz who are required to
execute such agreement; and
(v) Such other documents and instruments as Caldera Systems
shall, in its reasonable discretion, require to close and
consummate the transactions contemplated hereby; such
documents to be in form and substance reasonably
satisfactory to Ebiz.
SECTION 6. POST CLOSING COVENANTS
6.1 DEVELOPMENT OF ELM BUSINESS.
During the twelve month period following the Closing, Ebiz agrees to use
its good faith and commercially-reasonable efforts to develop the ELM Business
and to generate revenue from such business during the fifteen month period
following the Closing.
6.2 LOCATION OF ELM BUSINESS.
In order to facilitate the transition of the ELM Employees from Caldera
Systems to Ebiz, Ebiz agrees that during the longer of: (i) the one year period
of time following the Closing; or (ii) until all of the funds in the Restricted
Account have been spent, Ebiz will conduct its ELM Business operations in the
Utah County, Utah area during the period specified above and agrees not to
require any ELM Employee to transfer out of such area as a condition of
continuing employment.
6.3 NONCOMPETE.
For a period of three (3) years following the date hereof, Caldera Systems
shall not: (i) directly or indirectly compete with Ebiz or any of its successors
or assigns, with respect to any aspect of the ELM Business; (ii) directly or
indirectly engage in or conduct any business operations the same as or similar
to the ELM Business or any material aspect thereof; or (iii) directly or
indirectly assist any person or entity in connection with any activity or matter
described in the immediately preceding clause (i) or (ii). Notwithstanding
anything in this Section 6.3 to the contrary, Caldera Systems shall be entitled
to make investments in any entity it chooses so long as in connection with such
investment Caldera Systems does not actively assist such entity in competing
with Ebiz in the ELM Business, and such investment shall not be deemed a
violation of this Agreement unless Caldera Systems shall acquire a controlling
interest in such entity. Nothing in this Section 6.3 shall be construed as
permitting Caldera Systems to infringe upon or violate any intellectual property
right of Ebiz at any time, whether prior to or after the expiration of such
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three (3) year period. Caldera Systems acknowledges and agrees that the terms of
this Section 6.3 are reasonable as to duration and scope and that because of the
intangible nature of most or all of the ELM Assets, Caldera Systems compliance
with the provisions of this Section 6.3 is reasonably necessary to permit Ebiz
to realize the benefits intended to be conferred upon it pursuant to this
Agreement and by the ELM Assets. The parties understand and agree that money
damages may not be a sufficient remedy for any breach of this Section 6.3 by
Caldera Systems and that Ebiz shall be entitled to injunctive relief as a remedy
for any such breach.
6.4 SHAREHOLDERS AGREEMENT.
Within twenty-one (21) days of the Closing, or seven (7) days following the
merger of Ebiz and ▇▇▇▇▇▇▇▇▇.▇▇▇, whichever shall be later, Ebiz shall obtain
and deliver to Caldera Systems an amendment to the Shareholders Agreement
whereby shareholders holding a majority of the Ebiz voting shares following the
merger shall have agreed to be bound by the terms of the Shareholders Agreement.
SECTION 7. GENERAL
7.1 AMENDMENTS, WAIVERS AND CONSENTS.
For the purposes of this Agreement and all agreements executed pursuant
hereto, no course of dealing between or among any of the parties hereto and no
delay on the part of any party hereto in exercising any rights hereunder or
thereunder shall operate as a waiver of the rights hereof and thereof. No
covenant or other provision hereof may be waived otherwise than by a written
instrument signed by the party or parties so waiving such covenant or other
provision. No amendment to this Agreement may be made without the written
consent of all of the parties hereto.
7.2 LEGEND ON SECURITIES.
The parties acknowledge and agree that the following legend shall be typed
on each certificate evidencing any of the securities issued hereunder:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS
AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE
ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH
SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE
EXEMPTION FROM REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES
AND BLUE SKY LAWS RELATING TO THE DISPOSITION OF SECURITIES, PROVIDED THAT AN
OPINION OF COUNSEL TO SUCH EFFECT IS PROVIDED TO THE ISSUER OF SUCH SECURITIES,
IN FORM SATISFACTORY TO SUCH ISSUER, IN CONNECTION THEREWITH.
7.3 GOVERNING LAW.
This Agreement shall be deemed to be a contract made under, and shall be
construed in accordance with, the laws of the State of Utah, as applied to
agreements among Utah residents entered into and to be performed entirely within
Utah, without giving effect to conflict of laws principles thereof and each
party hereby expressly submits themselves to the exclusive, personal
jurisdiction of the courts situate in the State of Utah, with respect to any and
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all claims, demands and/or causes of action asserted or filed by any party in
any way relating to, or arising out of, this Agreement or the subject matter
hereof.
7.4 SECTION HEADINGS.
The descriptive headings in this Agreement have been inserted for
convenience only and shall not be deemed to limit or otherwise affect the
construction or interpretation of any provision thereof or hereof.
7.5 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which
when so executed and delivered shall be taken to be an original; but such
counterparts shall together constitute but one and the same document. This
Agreement may be executed by facsimile signatures, each of which will be deemed
an original.
7.6 ENTIRE AGREEMENT.
This Agreement, including the exhibits, documents and instruments referred
to herein or therein, constitutes the entire agreement, and supersedes all other
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof.
7.7 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
The warranties, representations and covenants of Ebiz and Caldera Systems
contained in or made pursuant to this Agreement shall survive the execution and
delivery of this Agreement and the Closing.
7.8 SUCCESSORS AND ASSIGNS.
Except as otherwise provided herein, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties (including permitted transferees of any
securities issued hereunder). Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
7.9 NOTICES.
Unless otherwise provided, all notices and other communications required or
permitted under this Agreement shall be in writing and shall be mailed by United
States first-class mail, postage prepaid, sent by facsimile or delivered
personally by hand or by a nationally recognized courier addressed to the party
to be notified at the address or facsimile number indicated for such person at
the address set forth below, or at such other address or facsimile number as
such party may designate by ten (10) days' advance written notice to the other
parties hereto:
If to Caldera Systems: Caldera Systems, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: President
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with a copy to:
Caldera Systems, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇, General Counsel
If to Ebiz: Ebiz Enterprises Inc.
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
with copies to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇ and ▇▇▇▇ LLP
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Holme
▇▇▇▇▇▇▇ & ▇▇▇▇, LLP ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
All such notices and other written communications shall be effective on the date
of mailing, confirmed facsimile transfer or delivery.
7.10 ATTORNEYS' FEES.
If any action at law or in equity is necessary to enforce or interpret the
terms of this Agreement, the prevailing party shall be entitled to be reimbursed
by the non-prevailing party for reasonable attorneys' fees, costs and
disbursements, in addition to any other relief to which such party may be
entitled.
7.11 SEVERABILITY.
If one or more provisions of this Agreement are held to be unenforceable
under applicable law, such provision shall be excluded from this Agreement and
the balance of the Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
SECTION 8 DEFINITIONS
For the purposes of this Agreement, each of the following terms shall have
the meaning set forth opposite such term below:
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"ELM Business" means a web-based business to business (b2b) entity creating
revenue through information/knowledge exchange, product sales commission,
advertising, membership and channel development fees.
"knowledge" of a person shall mean actual knowledge of such person after
(i) with respect to representations, warranties and statements made by or with
respect to Caldera Systems, inquiry of the officers and directors of Caldera
Systems and those management-level employees of Caldera Systems who have
responsibility for the area of inquiry and (ii) with respect to representations,
warranties and statements made by or with respect to Ebiz inquiry of the
officers and directors of Ebiz and those management-level employees of Ebiz who
have responsibility for the area of inquiry.
"Intellectual Property" shall mean (a) all inventions (whether patentable
or unpatentable and whether or not reduced to practice), all improvements
thereto, and all patents, patent applications, and patent disclosures, together
with all reissuances, continuations, continuations-in-part, revisions,
extensions, and reexaminations thereof, (b) all trademarks, service marks, trade
dress, logos, trade names, and corporate names, together with all translations,
adaptations, derivations, and combinations thereof and including all goodwill
associated therewith, and all applications, registrations, and renewals in
connection therewith, (c) all copyrightable works, all copyrights, and all
applications, registrations, and renewals in connection therewith, (d) all mask
works and all applications, registrations, and renewals in connection therewith,
(e) all trade secrets and confidential business information (including ideas,
research and development, know-how, formulas, compositions, manufacturing and
production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information, and
business and marketing plans and proposals), (f) all computer software
(including data and related documentation), (g) all other proprietary rights,
and (h) all copies and tangible embodiments thereof (in whatever form or
medium).
"Subsidiary" shall mean any corporation with respect to which a specified
party (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors. "Subsidiaries" shall mean, for purposes of this Agreement,
each Subsidiary of a party, collectively and individually.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
Ebiz Enterprises Inc.
a Nevada corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
Its: Chief Executive Officer
-----------------------------------
Caldera Systems, Inc.,
a Delaware corporation
By: /s/ Ransom H. Love
------------------------------------
Its: Chief Executive Officer
-----------------------------------
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SCHEDULE OF EXHIBITS
Exhibit A Description of ELM Assets
Exhibit B ELM Business Operations
Exhibit C Use Restriction Agreement
Exhibit D Investor Rights Agreement
Exhibit E Shareholders Agreement
Exhibit F List of ELM Employees and Compensation
EXHIBIT A
ELM ASSETS
The Elm Assets consist of the following:
1. All of Caldera Systems' right, title and interest in the ideas and concepts
which it has developed to the date of this Agreement which are part of the ELM
Business concept which Caldera Systems is transferring to Ebiz pursuant to the
Agreement.
2. All of the personal property described on Schedule I, attached hereto and
made a part hereof.