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Private and Confidential
June 21, 2001
Mr. Stuart Chip
President
New Tech Distributors Corp.
20 Burnaby Street
Burnaby, B.C.
V7V 2R3
Dear Stuart:
This letter will set out the terms of a proposed financing of New Tech
Distributors Corp. (New Tech). Buffet Capital Corp., (Buffet) will provide
$600,000 of capital on the terms provided herein:
1. On or before July 21, 2001 (the Closing) which date can be extended with
mutual agreement of New Tech and Buffet, Buffet and New Tech would enter into
a financing agreement whereby Buffet would purchase $600,000
(Canadian) worth of common shares (the Shares) from treasury of New Tech
representing 40% common voting interest of New Tech. This 40% interest
shall be non-dilutive to New Tech except in the
event of a share offering:
(a) pursuant to a prospectus, registration statement or similar offering
having gross proceeds of greater than $4.5 million; or
(b) where the per share price at which the common shares are offered is equal
to or greater than the per share price at which the common shares are issued
by New Tech to Buffet.
2. New Tech will use the share proceeds to fund its
expansion program including its new computer module production line and
marketing campaign.
3. Buffet and the existing shareholders of New Tech shall enter into a
shareholder agreement (Shareholder Agreement),
which shall provide inter alia that:
(a) Buffet will be entitled to nominate and have
elected at least two persons as a director of the company's board of
directors. The board will have no more than six directors.
(b) Buffet will be entitled to receive, within specified periods,
unaudited interim financial statements for each of
the three-month, six-month and nine-month periods in each financial year
and audited annual financial statements in respect of each financial year.
(c) Buffet will have a 45-day right of first
refusal to participate in any additional equity financing of New Tech
pro rata to its shareholding on identical terms where such financing is other
than conventional bank financing. Buffet will give its indication whether it
will participate in additional financing within the first 10 days of the
45-day period.
(d) The following
matters require Buffet's prior approval, which shall
not be unreasonably withheld and be acted upon within 10 business days:
(i) establishment of dividend policy;
(ii) any material increase in the total compensation of any of the "key
employees" (provided that any increase which is less than or equal to 15%
shall be deemed not to be material) ("key employees" as defined in
Schedule A);
(iii) any non-arm's length transactions over $25,000;
(iv) the appointment of any new persons to any of the top four "key
positions" within the company; and
(v) any material change in accounting policy.
(e) The following matters require Buffet's prior approval, which shall be
acted upon within 10 days:
(i) any material change of business;
(ii) the sale of business; and
(iii) any appointment of a new president.
(f) Where any one or more of the shareholders (the Seller) desires to sell
common shares to a purchaser or group of purchasers other than other
shareholders (the Buyer) and, as a result, the Buyer would, together with
its other holdings, hold at least 45% of the common shares, such sale (the
Sale) will be permitted only if the Buyer concurrently makes an irrevocable
offer (the Tag-Along Offer) to Buffet to purchase at the same price and upon
the same terms and conditions all the common shares held by Buffet.
(g) A satisfactory employee stock option plan shall be put in place within six
months of closing. It shall allocate not more than 10% nor less than 5% of
the New Tech stock to key employees.
(h) No shares of New Tech may be assigned or pledged without the prior
approval of the board of directors.
(i) The board of directors shall periodically review acquisition opportunities
to encourage growth in revenues and net income.
(j) New Tech shall state its current intention to
complete an initial public offering of its common shares by December 2004
(subject to consideration of all relevant factors at the time, including those
factors relating to New Tech's business, conditions of the financial
markets and the valuation of New Tech and its securities at such time).
(k) The Shareholder Agreement shall terminate on the completion of an issuance
of securities pursuant to a prospectus, registration statement or similar
offering having gross proceeds of greater than $4.5 million.
4. This offer is subject to the following conditions being satisfied prior to
or on Closing except for 4(c):
(a) That there shall have been no material adverse change to the business
activities of New Tech.
(b) That New Tech and Buffet's boards of directors shall each have approved
the terms of this proposed financing on or before June 30, 2001.
(c) Stuart Chip and other key employees shall each have entered into a
satisfactory employment agreement with New Tech to
the sole satisfaction of Buffet which agreement shall include non-competition
positions.
(d) Formal documentation satisfactory to Buffet and New Tech and their
respective counsel shall have been completed.
5. New Tech shall be responsible for payment of all solicitors' fees and other
professional fees related to the transaction contemplated herein. In addition,
New Tech shall pay Buffet an earnest fee of $25,000 upon acceptance of this
proposal. Reimbursement of such professional fees shall only be required to be
made, and such payment to Buffet shall only be refundable in the event that
Buffet chooses not to proceed to Closing based on the terms as outlined in
this letter through no fault of New Tech (it being understood that in the event
that New Tech and Buffet are unable to reach agreement on the terms and entitled
to have such earnest fee refunded in full and shall not be liable to reimburse
Buffet for payment of its professional fees).
6. Buffet will receive an aggregate director's fee not to exceed $12,000 per
annum unless New Tech should otherwise agree.
7. This offer is open for acceptance until the close of business July 21, 2001.
Yours truly,
Walter Buffet
Buffet Capital Corp.
AGREED AND ACCEPTED TO THIS ________ DAY OF________ 2001
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