Exhibit 10.26
EBIZ ENTERPRISES, INC.
15695 NORTH 83RD WAY
SCOTTSDALE, ARIZONA 85260
October 20, 2000
John D. Fern
J.E. Matthew, LLC
600 Central Avenue, Suite 214
Highland Park, Illinois 60035
Re: JEM Ventures EBIZ, LLC ("HOLDER")/$7.1
Million Debenture ("DEBENTURE")
Dear John:
This letter sets forth our understanding related to modification of the
Debenture in connection with your sale of 2,500,000 shares (the "SALE") of Ebiz
stock to The Canopy Group, Inc. ("CANOPY") under the terms of that certain Stock
and Warrant Purchase Agreement dated October 19, 2000 ("PURCHASE AGREEMENT").
1. Ebiz agrees to convert $2,083,500 principal amount of the Debenture in
exchange for 2,500,000 million shares of Ebiz common stock ($0.8334
per share).
2. The $2,083,500 converted amount shall be applied solely to reduce the
outstanding principal of the Debenture. Holder shall reduce the
required balance of the letter of credit securing the Debenture by
$2,083,500 immediately upon the closing of the Sale.
3. Provided Ebiz has obtained net sales in the ordinary course of
business (excluding any inter-company sales) of at least 90% of the
revenues projected on Exhibit A, Holder shall further reduce the
required balance of the letter of credit (a) in the amount of $208,250
upon attainment of the net sales set forth on Exhibit A for November
and (b) in the additional amount of $208,250 upon attainment of the
net sales set forth on Exhibit A for December. Ebiz shall notify
Holder and shall certify the amount of the net sales on or before the
fifth day following the date which is the earlier of the last day of
the applicable month or such earlier time as the required revenues
have been obtained. Holder shall have five business days to confirm
the net revenue amounts upon receipt of the notification. Upon
confirmation by Holder, or upon the sixth business day following
receipt of notification from the Company, Holder shall make the
reductions in the letter of credit requirements specified above. In
the event the revenue requirements for either November or December are
not met, Ebiz and Holder shall reasonably agree on revenue targets for
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succeeding months and the required reduction shall occur upon
attainment of such targets. The balance of the letter of credit may be
reduced by further conversions of the Debenture, but in all events
shall be reduced in the amounts and at the times specified without
regard to any further conversions of the Debenture occurring.
4. Upon the final reduction of the letter of credit as specified in
paragraph 3, the accrued interest on the Debenture shall be added to
principal and the total shall be the restated principal balance of the
Debenture. The ratio of the remaining balance of the letter of credit
to the restated Debenture principal balance shall be the ratio for all
future reductions of the letter of credit for future conversions of
the Debenture. For example, if the restated principal balance of the
Debenture equals $4.5 million and the balance of the letter of credit
equals $1.75 million, the letter of credit requirement will be reduced
by 1.75/4.5 for each $1 of principal converted thereafter.
5. Holder understands that the modification of the Debenture as specified
herein is a disclosure item not set forth in the prospectus that is a
part of the current registration statement covering the shares
issuable upon conversion of the Debenture. Ebiz will commence the
preparation of an amended registration statement within five days of
the closing of the Sale and shall cause such registration statement to
be filed with the Commission as soon as practical thereafter.
6. Ebiz agrees that the conversion price for a total of $416,500
principal amount of the Debenture shall be reduced to the lesser of
$1.00 or the average of the lowest three trade prices of Ebiz stock
for the 15 consecutive days ending on the trading day of submission of
a Conversion Notice (as defined in the Debenture, as amended, and
referred to herein as the "MARKET PRICE"). This concession shall be in
addition to the two previous concessions which are for the reduction
of the conversion price for a total of (a) $264,086.95 principal
amount of the Debenture to the lesser of $1.00 or the Market Price and
(b) $2,332,126.15 principal amount of the Debenture to the lesser of
$3.84 or the Market Price. All concessions are for total conversions
whether related to outstanding principal or interest and shall be
applied in the reverse order of the grant of the concession. All
conversions shall be of principal and the interest related solely to
the principal converted. Upon conversion of the concession amounts,
all remaining principal and interest shall be converted at the prices
specified in the Debenture.
7. The exercise price for the warrants for the purchase of 245,000 shares
granted Holder at the issuance of the Debenture shall be restated to
$4.00 per share. The term of the warrants for the purchase of 125,000
shares granted for a $250,000 advance on the release of funds under
the letter of credit and for 37,500 shares granted for a loan of
$75,000 shall be for three years from the date of the advance and the
loan.
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8. Holder waives all rights of first refusal with respect to the issuance
of warrants to Canopy in connection with the Sale as set forth in the
Purchase Agreement and further agrees that the Company may file a
registration statement with respect to the shares of common stock
underlying such warrants as provided in the Investors' Rights
Agreement delivered under the Purchase Agreement. Holder also agrees
that the Company may file one or more registration statements to
fulfill its obligations as specified in Schedule 7.20 of the Purchase
Agreement and may adopt stock option plans and issue options under
such plans as contemplated in Schedule 2.4(a) of the Purchase
Agreement.
9. The Debenture and the Securities Purchase Agreement dated August 25,
1999 pursuant to which the Debenture was issued and all amendments
thereto shall be modified as specified herein. All terms of the
Debenture and Securities Purchase Agreement, as amended, not modified
hereby shall remain in force and effect.
Please indicate your agreement to the above by execution of a copy of this
letter where indicated below and return of the same, via facsimile and "HARD"
copy via mail to our office.
EBIZ ENTERPRISES, INC.
By: /s/ Stephen C. Herman
------------------------------------
Name: Stephen C. Herman
Title: Chief Operations Officer
Agreed:
JEM VENTURES EBIZ, LLC
By: /s/ David A. White
---------------------------------
Name: David A. White
Title: Member Manager
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EXHIBIT A
MONTH REVENUE
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November 2000 $1,576,000
December 2000 $1,924,000
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