INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT (the "Agreement"), dated the 15th day of
September, 2000, by and between Ebiz Enterprises, Inc., a Nevada corporation
(the "Company"), and Caldera Systems, Inc., a Delaware corporation (the
"Holder").
WITNESSETH
WHEREAS, concurrently with the execution of this Agreement, the Company and
the Holder have entered into a Purchase and Sale Agreement (the "Purchase
Agreement") pursuant to the terms of which the Company has agreed to issue
certain shares of its common stock (as more particularly defined herein, the
"Shares"), to the Holder; and
WHEREAS, as a condition to the effectiveness of the obligations of the
Company and the Holder pursuant to the Purchase Agreement, the Company and the
Holder have agreed to enter into this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the following respective meanings:
a. "Commission" shall mean the United States Securities and
Exchange Commission or any other Federal agency at the time
administering the Securities Act.
b. The terms "register", "registered" and "registration" refer to
a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act,
and the declaration or ordering of effectiveness of such registration
statement or document by the Commission.
c. The term "Registrable Stock" means all Shares that are issued
or to be issued to the Holder pursuant to the terms of the Purchase
Agreement and any Common Stock issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which
is issued as) a dividend or other distribution with respect to or in
exchange for or in replacement of, such Shares or any preferred stock
of the Company granted to the Holder pursuant to the terms of this
Agreement or the Purchase Agreement; PROVIDED, HOWEVER, that shares of
Registrable Stock shall cease to be Registrable Stock if they are sold
or transferred pursuant to a registered public offering or other
transaction which does not result in restrictions on resale being
imposed on the transfer by virtue of Federal or state securities laws.
d. "Common Stock" means the common stock of the Company.
e. "Securities Act" shall mean the United States Securities Act
of 1933, as amended, or any successor or other similar Federal
statute, and the rules and regulations of the Commission thereunder
and the forms prescribed thereby, all as the same shall be in effect
at the time. "Exchange Act" shall mean the United States Securities
Exchange Act of 1934, as amended, or any successor or other similar
Federal statute, and the rules and regulations of the Commission
thereunder and the forms prescribed thereby, all as the same shall be
in effect at the time.
1
<PAGE>
f. "Shares" means all the shares of Common Stock or other shares
of capital stock of the Company which are issued or to be issued to
the Holder pursuant to the terms of the Purchase Agreement or this
Agreement.
2. REPRESENTATIONS AND WARRANTIES, ETC.
a. The Holder hereby represents and warrants to, and covenants
with, the Company that:
(i) The Holder will not sell, transfer or otherwise dispose
of the Shares, except upon the conditions specified herein, which
conditions are intended to ensure compliance with the provisions
of the Securities Act.
(ii) The Holder understands and agrees with the Company
that, except as set forth in and subject to the provisions of
this Agreement:
(A) The Company is under no obligation to register the
sale, transfer or other disposition of the Shares or to take
any other action necessary in order to make an exemption
from registration available to the Holder, except to remain
current in its reporting obligations under the Exchange Act
(if applicable).
(B) Stop transfer instructions will be given to the
transfer agent with respect to the Shares.
(iii) The Holder acknowledges that the certificates
representing the Shares, and any substitutions or replacements
thereof, shall bear a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, (THE "ACT")
AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A
VIEW TO THE DISTRIBUTION THEREOF, AND SUCH SECURITIES OR ANY
INTEREST THEREIN MAY NOT BE SOLD OR OFFERED FOR SALE EXCEPT (A)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT,
OR (B) PURSUANT TO AN AVAILABLE EXEMPTION.
b. CERTAIN OTHER MATTERS. It is understood and agreed that the
stop transfer instructions referred to above will be removed as to a
particular Share or block of Shares if (i) a distribution by the
Holder of such Shares has been registered under the Securities Act or
(ii) permitted under the provisions of Rule 144(k) promulgated under
the Securities Act (as then in effect). The Company hereby agrees to
remain current in its reporting requirements under the Exchange Act
(if applicable). The Company agrees, upon the request of the Holder,
to make available to the Holder and to any prospective transferee of
the Registrable Shares of the Holder, information concerning the
Company described in Rule 144A(d)(4) of the Securities Act.
2
<PAGE>
3. DEMAND REGISTRATION.
a. Upon the written request of the Holder, the Holder may request
that the Company effect the registration on Form S-1 or Form S-2 of
all or part of its Registrable Stock under the Securities Act
(provided that the number of Shares to be included in such
registration is at least $1,000,000 in then current market value of
such Shares) and in such request, the Holder shall state the then
intended method of disposition by the Holder. The Company shall as
soon as possible use diligent best efforts to prepare and file with
the Commission a registration statement and such other documents,
including an amended or supplemented prospectus, as may be necessary
to permit a public offering and sale of such Registrable Stock in the
United States in compliance with the provisions of the Securities Act,
all to the extent required to permit the disposition (in accordance
with the intended methods thereof as aforesaid) by the Holder of the
Registrable Stock to be so registered. If such sale of Registrable
Stock is to be pursuant to an underwritten public offering, the
underwriter shall be selected by the Holder. The Company shall only be
required to effect two registrations pursuant to this Section 3.
b. The Company shall not be required to effect any registration
under Section 3(a): (i) prior to six months following the date of this
Agreement; or (ii) (A) within nine months after the completion of any
public offering of its securities pursuant to which the Holder was
afforded the right to register as many shares of its Registrable Stock
as requested or (B) within six months after any other public offering
by the Company.
c. The Company shall have the right to include in a registration
statement or post-effective amendment to a registration statement
filed pursuant to this Section 3 other securities of the Company then
proposed to be distributed, except that, to the extent consistent with
the rights of other holders of the Company's securities, if and to the
extent that the underwriter or underwriters acting in connection with
any public offering pursuant to such registration statement reasonably
determine that the inclusion of any such other securities may
substantially prejudice or hinder the offering of Registrable Stock,
the number of such other securities shall be reduced or eliminated
prior to any reduction in the number of shares of Registrable Stock to
be so registered and offered.
d. If, at any time prior to the effectiveness of the registration
statement filed in connection with such registration, the Company
furnishes to the Holder a certificate signed by the President that in
the good faith judgment of the Board of Directors of the Company it
would be seriously detrimental to the Company and its stockholders to
effect such registration at such scheduled time and it is therefore
essential to defer the filing of such registration statement, the
Company may, by delivery of written notice to the Holder, delay the
registration of such Registrable Stock for up to 90 days, provided the
Company may not use this right more than once in any 12 month period.
4. INCIDENTAL REGISTRATION.
If, at any time, the Company proposes to register shares of
Common Stock or securities convertible into or exercisable for Common
Stock under the Securities Act (other than pursuant to a registration
statement on Form S-4 or S-8 or any successor form, or filed in
connection with an exchange offer or an offering of securities solely
to the existing shareholders or employees of the Company), whether for
sale for its own account or for the account of any other person
holding registration rights with respect to the securities of the
Company, then the Company shall give written notice of such proposed
registration to the Holder at least thirty days before the anticipated
filing date of such registration statement which notice shall describe
3
<PAGE>
the material terms of the proposed registration, and such notice shall
offer the Holder the opportunity to register such number of shares of
Registrable Stock as the Holder may request. As promptly as
practicable (but no later than 15 days) after the provision of such
notice, the Holder shall so notify the Company, and the Company shall
use diligent best efforts to cause the managing underwriter or
underwriters of any proposed underwritten offering pursuant to such
registration statement to permit such to include such Registrable
Stock in such offering on the same terms and conditions as any similar
securities of the Company included therein; PROVIDED, HOWEVER, that if
the managing underwriter or underwriters of any such public offering
delivers an opinion to the Holder that the total amount of Registrable
Stock which the Holder proposes to include in the offering when added
to the securities being sold by the Company and any other persons or
entities, in any such public offering, is such as to materially and
adversely affect the success of any such public offering, then the
amount of Registrable Stock to be offered for the account of the
Holder proposed to be included in any such public offering shall be
reduced or limited to the extent necessary to reduce the total amount
of Registrable Stock to be included in any such public offering to the
amount recommended by such managing underwriter, provided, no such
reduction may reduce the amount of Registrable Stock being sold by the
Holder to less than the lesser of: (i) twenty percent (20%) of the
shares being sold in such offering by entities other than the Company
or entities exercising demand registration rights; or (ii) the number
of Shares requested to be registered by the Holder. If the Holder
disapproves of the terms of any such underwriting, it may elect to
withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration, and shall not
be transferred in a public distribution prior to ninety (90) days
after the effective date of the registration statement relating
thereto. Notwithstanding the foregoing, if, at any time after giving
written notice of its intention to register Common Stock or other
securities convertible into or exercisable for Common Stock and prior
to the effectiveness of the registration statement filed in connection
with such registration, the Company determines for any reason either
not to effect such registration or to delay such registration, the
Company may, at its election, by delivery of written notice to the
Holder, (i) in the case of a determination not to effect registration,
relieve itself of its obligations to register any Registrable Stock in
connection with such registration, or (ii) in the case of a
determination to delay such registration, delay the registration of
such Registrable Stock for the same period as the delay in the
registration of such other shares of Common Stock or other securities
convertible into or exercisable for Common Stock. The Company agrees
that it shall not grant incidental or "piggyback" registration rights
superior to those held by the Holder, without the consent of the
Holder.
5. REGISTRATION ON FORM S-3; TERMINATION.
a. If the Holder requests that the Company file a registration
statement on Form S-3 (or any successor form to Form S-3) for a public
offering of shares of the Registrable Stock, the reasonably
anticipated aggregate offering price to the public of which, net of
underwriting discounts and commissions would exceed $500,000, and the
Company is a registrant entitled to use Form S-3 to register the
Registrable Stock for such an offering, the Company shall use diligent
best efforts to cause such Registrable Stock to be registered for the
offering on such form; PROVIDED, HOWEVER, that the Company shall not
be required to effect more than one (1) registration pursuant to this
Section 5 in any twelve (12) month period. The Company will as soon as
possible use its diligent best efforts to effect such registration
(including, without limitation, the execution of an undertaking to
file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate
compliance with applicable regulations issued under the Securities Act
and any other governmental requirements or regulations) as may be so
4
<PAGE>
requested and as would permit or facilitate the sale and distribution
of all or such portion of such Registrable Stock as are specified in
such request. The substantive provisions of Section 6 shall be
applicable to each registration initiated under this Section 5.
b. Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to Section 5(a) (i) not
permitted by the Commission; (ii) in any particular jurisdiction in
which the Company would be required to execute a general consent to
service of process in effecting such registration, qualification or
compliance unless the Company is already subject to service in such
jurisdiction and except as may be required by the Securities Act;
(iii) during the period starting with the date sixty (60) days prior
to the filing of, and ending on the earlier of (x) one year after the
date sixty (60) days prior to the Company's date of filing of, or (y)
a date six (6) months following the effective date of, a registration
statement (other than with respect to a registration statement
relating to a Rule 145 transaction, an offering solely to employees or
any other registration which is not appropriate for the registration
of Registrable Securities), PROVIDED that the Company is actively
employing diligent best efforts to cause such registration statement
to become effective; or (iv) if the Company shall furnish to the
Holder a certificate signed by the President of the Company stating
that, in the good faith judgment of the Company's Board of Directors,
it would be seriously detrimental to the Company or its shareholders
for a registration statement to be filed in the near future, then the
Company's obligation to use diligent best efforts to file a
registration statement shall be deferred for a period not to exceed
sixty (60) days after the receipt of the request to file such
registration by the Holder provided, that the Company may not use this
right more than once in any 12 month period.
c. The Holder's rights pursuant to Sections 3, 4 and 5 above
shall expire (a) on the date when all of the Registrable Securities
held by such Holder may be sold in a single ninety (90) day period
pursuant to Rule 144 under the 1933 Act; or (b) upon the date that is
seven years after the effective date of this Agreement.
6. OBLIGATIONS OF THE COMPANY. Whenever required under this Agreement
to effect the registration of any Registrable Stock, the Company shall, as
expeditiously as is possible:
a. Prepare and file with the Commission a registration statement
or post-effective amendment with respect to such Registrable Stock
that complies with the requirements of the Securities Act and use its
diligent best efforts to cause such registration statement or
post-effective amendment to become and, during the distribution of
such Registrable Stock, to remain effective; PROVIDED, HOWEVER, that
such registration statement or post-effective amendment shall not be
required to remain effective for a period of more than twelve months.
b. Prepare and file with the Commission such amendments and
supplements to such registration statement and prospectus used in
connection with such registration statement and any and all such
documents as may be necessary to keep such registration statement
effective during the distribution of such Registrable Stock (subject
to the proviso in subsection (a) above) and to comply with the
provisions of the Securities Act with respect to the disposition of
all securities covered by such registration statement or
post-effective amendment thereto and to cause such registration
statement to become and remain (subject to the proviso in subsection
(a) above) effective under the Securities Act.
c. Furnish to the Holder such numbers of copies of such
registration statement and the form of prospectus included therein and
any amendments or supplements thereto, including a preliminary
prospectus, in conformity with the requirements of the Securities Act,
5
<PAGE>
and such other documents as the Holder may reasonably request in order
to facilitate the disposition of Registrable Stock owned by the Holder
thereof in compliance with all applicable laws and regulations.
d. Use its best efforts to (i) register and qualify the
Registrable Stock covered by such registration statement under such
other securities or blue sky or other similar laws of such
jurisdictions as shall be reasonably requested by the Holder, and (ii)
to keep such registration or qualification effective during the
distribution of such securities (subject to the proviso in subsection
(a) above); and do any and all other acts and things necessary or
desirable to enable the Holder to consummate the disposition of the
Registrable Stock; provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any
such states or jurisdictions. Anything in this Agreement to the
contrary notwithstanding with respect to the bearing of expenses, if
any jurisdiction in which the securities shall be qualified shall
require that expenses incurred in connection with the qualification of
the securities in that jurisdiction be borne by selling shareholders,
then such expenses shall be payable by the Holder of Registrable Stock
to the extent required by such jurisdiction.
e. In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement with
respect to such offering, in usual and customary form, with the
managing underwriter of such offering. The Holder shall also enter
into and perform its respective obligations under such an agreement.
f. Notify the Holder during any period that a prospectus relating
to Registrable Stock covered by such registration statement is
required to be delivered under the Securities Act of the happening of
any event or the existence of any circumstances as a result of which
the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances then existing.
g. Furnish to the Holder, on the date that shares of Registrable
Stock are delivered to the underwriters for sale in connection with a
registration pursuant to this Agreement, if such securities are being
sold by or through underwriters, or, on the date that the registration
statement with respect to such securities becomes effective, (i) an
opinion, dated such date, of counsel representing the Company for the
purposes of such registration, in form and substance as is customarily
given to underwriters in an underwritten public offering, addressed to
the underwriters, if any, and to the Holder and (ii) a letter dated
such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public
offering, addressed to the underwriters, and to the Holder.
7. FURNISH INFORMATION. The Holder shall furnish to the Company such
reasonable information regarding the Holder, the Registrable Stock, and the
intended method of disposition of such securities as shall be reasonably
requested by the Company to effect the registration of Registrable Stock as
to which the Holder has requested registration.
8. EXPENSES OF REGISTRATION. All expenses incident to the Company's
performance of or compliance with this Agreement including, without
limitation, all registration and filing fees, fees and expenses of
complying with the state securities or blue sky laws, printing expenses,
listing fees, fees of the National Association of Securities Dealers, Inc.,
transfer taxes, fees of transfer agents, registrars and depositories, and
fees and disbursements of counsel for the Company and of independent public
6
<PAGE>
accountants (including the expense of any special audit), but excluding
underwriting commissions and discounts of any such underwriter and the fees
and disbursements of counsel for the Holder, shall be borne by the Company.
The Holder shall bear all underwriting commissions and discounts incurred
in connection with any offering of Registrable Stock with respect to a
registration pursuant to this Agreement, as well as its fees and
disbursements of counsel if the Holder has counsel separate from counsel
for the Company.
9. INDEMNIFICATION AND CONTRIBUTION. In the event any shares of
Registrable Stock are included in a registration statement under Sections
3, 4, and 5 hereof:
a. To the extent permitted by law, the Company will indemnify and
hold harmless the Holder, each of its directors and officers and any
underwriter (to the extent provided in any underwriting agreement),
any other person or entity selling Registrable stock in such
registration statement, and each director and officer of, any person,
if any, who controls the Holder or any such underwriter or such other
person or entity within the meaning of the Securities Act or the
Exchange Act, against any losses, claims, damages, liabilities (joint
or several) or expenses (including legal fees) to which they may
become subject under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) arise out of
or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or
alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto,
(ii) the omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by
the Company of the Securities Act, the Exchange Act, any federal or
state securities or other similar law or any rule or regulations
promulgated under the Securities Act, the Exchange Act or any federal
or state securities or other similar law; PROVIDED, HOWEVER, that the
indemnity agreement contained in this subsection shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall
the Company be liable to the Holder or any other person described
above as an indemnitee in any such case for any such loss, claim,
damage, liability, or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection
with such registration by, or which results from the bad faith or
gross negligence of, the Holder, any underwriter for the Company or
controlling person of the Holder.
b. To the extent permitted by law, the Holder will indemnify and
hold harmless the Company, each of its directors, and its officers,
each person, if any, who controls the Company within the meaning of
the Securities Act, any underwriter (to the extent provided in any
underwriting agreement), any other person or entity selling securities
in such registration statement, and each director and officer of, any
person, if any, who controls such underwriter or such other person or
entity, against any losses, claims, damages, liabilities (joint or
several) or expenses (including legal fees) to which the Company or
any such director, officer, controlling person, or underwriter or
controlling person, or such other person or entity or director,
officer or controlling person may become subject, under the Securities
Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages, liabilities or expenses (or actions in
respect thereto) arise out of or are based upon any Violation, in each
case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished
by the Holder expressly for use and used in any such registration
statement, and in connection with such registration of securities of
7
<PAGE>
the Holder pursuant to this Agreement or results from the bad faith or
gross negligence of the Holder, or any underwriter for the Holder in
connection with any such registration; PROVIDED, HOWEVER, that the
indemnity agreement contained in this subsection (b) shall not apply
to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld, and
provided further, that the obligations of the Holder shall be limited
to an amount equal to the proceeds to the Holder of the Registrable
Stock sold in connection with such registration.
c. Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action (including any
governmental action), such indemnified party will deliver to each
indemnifying party a written notice of the commencement thereof and
the indemnifying party shall have the right to participate in, and, to
the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly notified, to assume the defense thereof
with counsel mutually satisfactory to the parties. An indemnified
party shall have the right to retain its own counsel; however, the
fees and expenses of such counsel shall be borne by such indemnified
party, unless representation of such indemnified party by the
indemnifying party's counsel would be inappropriate due to actual or
potential conflicts of interest. The failure to deliver written notice
to the indemnifying party within a reasonable time of the commencement
of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than
under this Section.
d. If an indemnification event shall occur that is indemnifiable
under subsections (a) and (b) of this Section, and both the Company
and the Holder have indemnifiable liability therefore, then each
indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of any losses, claims, damages,
liabilities or expenses (including legal fees) or actions in such
proportion as is appropriate to reflect the relative fault of the
Company, on the one hand, and the Holder, on the other, in connection
with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses or actions as well as any
other relevant equitable considerations, including the failure to give
the notice required under such subsections. The relative fault shall
be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact relates to information
supplied by the Company on the one hand, or the Holder, on the other
hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The Company and the Holder agree that it would not be just
and equitable if contribution pursuant to this subsection (d) were
determined by PRO RATA allocation or by any other method of allocation
which did not take account of the equitable considerations referred to
above in this subsection. No person guilty of fraudulent
misrepresentations (within the meaning of Section 11(f) of the
Securities Act), shall be entitled to contribution from any person who
is not guilty of such fraudulent misrepresentation.
e. The obligations of the Company and the Holder or Holders of
Registrable Stock under this Section shall survive the completion of
any offering of Registrable Stock in a registration statement under
this Agreement.
10. SUCCESSORS AND ASSIGNS. The registration rights provided herein
may be transferred by the Holder, provided that (a) the Company is given
written notice thereof, (b) the transfer (i) is in connection with a
transfer of all securities of the Company held by the Holder, or (ii)
involves a transfer of at least 200,000 shares of Registrable Stock (as
8
<PAGE>
appropriately adjusted for stock splits and the like), or (iii) is to
constituent partners or shareholders of the Holder who agree to act through
a single representative and (c) the transferee enters into a counterpart of
this Agreement and agrees to be bound by the provisions hereof. This
Agreement shall inure to the benefit of and be enforceable at any time and
from time to time by any Holder or Holders of any Registrable Stock,
whether so expressed in this Agreement or not, provided that the
termination of registration rights in respect of any shares of Registrable
Stock by reason of the terms of this Agreement shall be binding upon any
transferee of such shares, and, in the event such termination applies to
only a portion of the shares of Registrable Stock at the time held by any
Holder thereof, in the absence of contrary agreement between the Holder and
any transferee of such shares, upon the transfer of less than all of the
shares by the Holder after such termination, such termination shall apply
PRO RATA to the shares so transferred and the shares retained by the
Holder, or any subsequent transferee. Upon the request of any the Holder,
the Company will confirm in writing to any transferee of the Holder's
Registrable Stock the Company's continuing obligation to afford such
transferee the benefits of the Company's covenants contained in this
Agreement, but no failure of the Company to confirm such obligations shall
in any way impair such transferee's rights under this Agreement.
11. AMENDMENTS AND WAIVERS. This Agreement may be amended, and the
Company may take any action herein prohibited or omit to perform any act
herein required to be performed by it, only if the Company shall have
obtained the written consent of each Holder to such amendment, action or
omission to act. Any amendment to this Agreement shall be in writing signed
by all the parties hereto.
12. NOMINEES FOR BENEFICIAL OWNERS. In the event that any Registrable
Stock is held by a nominee for the beneficial owner thereof, the beneficial
owner thereof may, at its election, be treated as the Holder of such
Registrable Stock for purposes of any request or other action by the Holder
pursuant to this Investor Rights Agreement. If the beneficial owner of any
Registrable Stock elects to be treated as the Holder for such purposes, the
Company may require assurances reasonably satisfactory to it of such
owner's beneficial ownership of such Registrable Stock.
13. RIGHT TO PARTICIPATE IN CERTAIN SALES OF ADDITIONAL Securities.
(a) The Company agrees that it will not sell or issue any shares
of capital stock of the Company, or other securities convertible into
or exchangeable for capital stock of the Company, or options, warrants
or rights carrying any rights to purchase capital stock of the Company
(the "Offered Securities") unless the Company first submits written
notice (the "Preemptive Rights Notice") to the Holder identifying the
terms of the proposed sale (including price, number or aggregate
principal amount of securities and all other material terms), and
offers to the Holder the opportunity to purchase its Pro Rata
Allotment (as hereinafter defined) of the securities on terms and
conditions, including price, not less favorable than those on which
the Company proposes to sell such securities to a third party or
parties. The Company's offer to the Holder shall remain open and
irrevocable for a period of thirty (30) days during which time the
Holder may accept such offer by written notice to the Company setting
forth the maximum number of shares or other securities to be purchased
by the Holder. Any securities so offered which are not purchased by
the Holder pursuant to such offer may be sold by the Company, but only
on the terms and conditions set forth in the initial offer to the
Holder at any time within 120 days following the termination of the
above-referenced 30-day period. The closing of the sale of the
securities to the Holder shall be subject to the closing of the sale
of the remaining Offered Securities. For purposes of this Agreement,
the Holder's Pro Rata Allotment with respect to Offered Securities
shall be equal to the total number of such Offered Securities proposed
to be issued by the Company multiplied by a fraction, the numerator of
which is the number of Shares (determined on an as-converted basis
into the Company's Common Stock) owned by the Holder immediately prior
9
<PAGE>
to the issuance of such Offered Securities, and the denominator of
which is the total number of Shares of Common Stock outstanding
immediately prior to the issuance of such Offered Securities.
(b) Notwithstanding the foregoing, the right to purchase shall be
inapplicable with respect to any issuance or proposed issuance by the
Company of (i) shares of Common Stock issued to officers, directors,
employees or consultants of the Company pursuant to any Company
incentive plan or upon the exercise of options or other rights issued
to such officers, directors, employees or consultants pursuant to any
Company incentive plan or any successor plan thereto, (ii) Common
Stock issued upon conversion of any preferred stock or convertible
debentures issued by the Company, and existing as of the date of this
Agreement, (iii) securities as a result of any stock split, stock
dividend, reclassification or reorganization of the Company's stock,
and (iv) Common Stock issued upon conversion of any options or
warrants existing as of the date of this Agreement.
(c) The rights of the Holder set forth in this Section 13 are
transferable to each transferee of Shares of capital stock of the
Company hereunder. Each such subsequent holder of such Shares must
consent in writing to be bound by the terms and conditions of this
Agreement in order to acquire the rights granted hereunder.
14. INFORMATION AND PROTECTIVE COVENANTS.
(a) The Company will maintain a comparative system of accounts in
accordance with generally accepted accounting principles, keep full
and complete financial records and furnish to the Holder the following
reports: (i) within 120 days after the end of each fiscal year, a copy
of the consolidated balance sheet of the Company as at the end of such
year, together with a consolidated statement of income and retained
earnings of the Company for such year, audited and certified by
independent public accountants of recognized national standing
reasonably satisfactory to the Holder, prepared in accordance with
generally accepted accounting principles consistently applied; (ii)
within 45 days after the end of each quarter commencing with the
quarter ending December 31, 2000, a consolidated unaudited balance
sheet of the Company as at the end of such quarter and a consolidated
unaudited statement of income and retained earnings for the Company
for such quarter and for the year to date; (iii) within 30 days after
the end of each month commencing with the month ending October 31,
2000, a consolidated unaudited balance sheet of the Company as at the
end of such month and an unaudited statement of income and retained
earnings for the Company for such month and for the year to date, each
of the foregoing balance sheets and statements of income and retained
earnings to set forth in comparative form the corresponding figures
for the prior fiscal period and the fiscal year end budget and to
include a brief written discussion and analysis by management of such
annual financial statements; and (iv) such other financial information
as the Holder may reasonably request, including, without limitation,
certificates of the principal financial officer of the Company
concerning compliance with the covenants of the Company under this
Section 14.
(b) All transactions by and between the Company and any officer,
employee, director or stockholder of the Company or persons
controlling, controlled by, under common control with or otherwise
affiliated with such officer, employee, director or stockholder shall
be conducted on an arm's-length basis, and shall be on terms and
conditions no less favorable to the Company than could be obtained
from nonrelated persons.
(c) The Company shall, upon the written request of the Holder,
provide to the Holder and to any prospective institutional transferee
of any shares designated by the Holder, such financial and other
10
<PAGE>
information as is available to the Company or can be obtained by the
Company without material expense and as such Holder may reasonably
determine is required to permit such transfer to comply with the
requirements of Rule 144A promulgated under the Act.
(d) The Company will ensure that meetings of the Board of
Directors are held at least twice each year at intervals of not more
than six months. The Company shall pay such Directors for their
reasonable travel and other reasonable expenses incurred in connection
with attending such meetings. The Company's Articles of Incorporation
and By-Laws will provide for exculpation and indemnification of the
directors and limitations on the liability of the directors to the
fullest extent permitted under applicable state law.
(e) The Company will furnish to the Holder, upon reasonable
notice, reasonable information regarding its business and, at all
reasonable times during the Company's normal business hours and upon
reasonable notice and as often as the Holder shall reasonably request,
permit any authorized representative designated by the Holder to visit
and inspect any of its properties, including its books and records
(and to make copies and extracts therefrom), and to discuss their
affairs, finances and accounts with their officers.
(f) The Company agrees that it will not enter into or amend any
agreement, contract, commitment or understanding which would restrict
or prohibit the exercise by the Holder of any of the Holder's rights
under this Agreement or any of the other documents, agreements or
instruments contemplated hereunder.
15. CONVERSION TO PREFERRED STOCK. If, at any time after the date of
this Agreement, the Company shall issue any series of preferred stock to
any person or entity, then the Holder shall immediately have the right to
elect to convert all or any part of its shares of the Company's common
stock into shares of preferred stock of the same series and on the same
terms and conditions as the Company proposes to issue preferred stock to
any other person or entity. The Company shall give the Holder not less than
30 days advance notice prior to the time that it shall issue any preferred
stock to any party and the Holders may at any time during such 30-day
period elect to convert all or any portion of its Shares into shares of
preferred stock upon the terms and conditions which the Company proposes to
issue preferred stock to any other person or entity. This right shall be a
continuing right in the Holder and shall apply to all future series of
preferred shares which the Company proposes to issue so long as the Holder
shall own any of the shares issued or to be issued in connection with the
Purchase Agreement. For purposes of the conversion, the Holder's shares
shall be valued based upon the fair market value of the Company's common
stock at the time of the issuance of the preferred stock into which such
shares will be converted.
16. NOTICES. Notices and other communications under this Agreement
shall be in writing and shall be sent by registered mail, postage prepaid,
addressed
a. If to the Holder, at the address shown on the stock or warrant
transfer books of the Company unless the Holder has advised the
Company in writing of a different address as to which notices shall be
sent under this Investor Rights Agreement, and
b. If to the Company, at 15695 North 83rd Way, Scottsdale,
Arizona 85260 to the attention of the President, or to such other
address as the Company shall have furnished to each Holder.
Any such notices of change in address of any Holder or the
Company shall be given in accordance with this Agreement.
11
<PAGE>
17. MISCELLANEOUS.
a. ENTIRE AGREEMENT. This Agreement, together with the Purchase
Agreement and the other agreements and documents contemplated thereby,
embodies the entire agreement and understanding between the Company
and the other parties hereto with respect to the subject matter hereof
and supersedes all prior and contemporaneous agreements, negotiations,
correspondence, undertakings, communications and understandings
relating to the subject matter hereof.
b. GOVERNING LAW. This Agreement and all questions relating to
its validity, interpretation, performance and enforcement shall be
construed in accordance with Utah law.
c. HEADINGS. The headings in this Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning
hereof.
d. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, with the same force
and effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party
hereto shall have received counterparts hereof signed by the other
parties hereto; provided, however, that the Company's agreement with
each of the Holders in this Agreement is a separate agreement and is
not contingent upon the execution hereof by other parties. This
Agreement may be executed by facsimile signatures, each of which will
be deemed an original.
e. ATTORNEYS' FEES. In the event that any action, suit,
litigation, arbitration, or proceeding is brought by any party under
this Agreement to enforce or construe any of the terms, the party that
prevails by enforcing this Agreement shall be entitled to recover, in
addition to all other amounts and relief, its reasonable costs and
attorneys' fees incurred in connection with such action, suit,
litigation, arbitration, claim or proceeding.
12
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
Ebiz Enterprises Inc.
a Nevada corporation
By: /s/ Jeffrey I. Rassas
------------------------------------
Its: Chief Executive Officer
-----------------------------------
Caldera Systems, Inc.,
a Delaware corporation
By: /s/ Ransom H. Love
------------------------------------
Its: Chief Executive Officer
-----------------------------------
13
