1
EXHIBIT 2.1
EMPLOYMENT AGREEMENT
B E T W E E N:
VIDEOFLICKS.COM LIMITED,
a company organized pursuant to the
laws of the Province of Ontario
(hereinafter referred to as "Videoflicks")
OF THE FIRST PART;
- and -
MICHAEL KAVANAGH, an individual
residing in the City of Toronto, in the
Province of Ontario
(hereinafter referred to as the "Employee")
OF THE SECOND PART
WHEREAS Videoflicks and the Employee are desirous of entering into an
employment relationship for their mutual benefit;
AND WHEREAS Videoflicks and the Employee wish to reduce to writing certain
obligations and rights in respect of said employment relationship;
IN CONSIDERATION of the above and in further consideration of the mutual
promises and covenants set forth, this employment agreement (the "Agreement")
witnesses that the parties agree as follows:
1. JOB TITLE
Videoflicks hereby agrees to employ the Employee and to continue to employ
the Employee as President and Chief Executive Officer of Videoflicks, subject to
the terms in this Agreement, who shall perform such duties and exercise such
responsibilities as are assigned from time to time by the Board of Directors and
its Chairman.
2. COMPENSATION
As compensation for all services provided for herein, Videoflicks shall pay
or cause to be paid to the Employee, and the Employee shall accept:
2
- 2 -
(a) A salary at an annual rate of US$1.00 per annum to be paid in regular
installments in accordance with Videoflicks' usual paying practices,
but not less frequently than monthly; and
(b) A bonus, payable annually within sixty (60) days of the end of each
fiscal year equal to two percent (2%) of all revenues of Videoflicks
in respect of each fiscal year of Videoflicks up to US$10,000,000 of
revenues and a further payment equal to one percent (1%) of all such
annual revenues of Videoflicks in excess of US$10,000,000. The
Employee shall qualify for such bonus beginning with the fiscal year
of Videoflicks ending next after the date hereof.
Salary and benefit payments hereunder shall be subject to such deductions
as Videoflicks is from time to time required to make pursuant to law, government
regulations or by consent of the Employee.
3. STOCK OPTIONS
The Employee shall be granted from time to time stock options enabling the
Employee to purchase common shares of Videoflicks in such number and on such
terms as determined by the Board of Directors with the agreement of the
Employee. The terms of such stock options shall include, without limiting the
generality of the foregoing, that one-third (1/3) of all stock options granted
shall vest on each of the first anniversary of the date of grant of such
options, the second anniversary of such date, and the third anniversary of such
date provided that if the Employee is terminated pursuant to subsection 8(b)
herein, any stock options which have not otherwise vested shall immediately vest
and become exercisable.
4. BENEFITS
The Employee shall participate in all benefit plans which Videoflicks
provides to its senior employees, including, without limitation:
a. Disability Insurance
b. Life Insurance
c. Medical Plan
d. Hospitalization Plan
e. Dental Plan
f. If, as and when Videoflicks introduces a company pension plan,
the Employee shall be entitled to participate therein to the
same extent as all other senior employees of Videoflicks.
3
- 3 -
5. EXPENSES
The Employee shall be reimbursed by Videoflicks for all reasonable business
expenses incurred in connection with the employment of the Employee provided for
hereunder. Videoflicks' obligation to so reimburse the Employee for expenses
shall be subject to the presentation to Videoflicks by the Employee of an
itemized monthly account of such expenditures together with supporting vouchers
in accordance with Videoflicks' policies as in effect from time to time.
6. VACATION
The Employee shall be entitled to four (4) weeks' vacation with pay during
each full year of employment and to a pro-rated portion should employment
terminate for any reason or cause before the completion of the year. The
Employee agrees to take not more than two (2) weeks' vacation at any one time.
7. TERM
The term of this Agreement shall be deemed to have commenced on December 1,
1998 and shall extend for a period of one (1) year terminating, subject to the
provisions of Sections 8 and 9 hereof, on November 30, 1999 (the "Termination
Date"). The Company shall have the option of renewing this Agreement for an
additional one year period (under the same terms and conditions as herein
provided excepting the provisions contained in Section 3 hereof), by advising
the Employee in writing of its intention to renew not later than thirty (30)
days prior to the Termination Date.
8. TERMINATION
This Agreement may be terminated in the following manner in the specified
circumstances:
(a) By the Employee on giving eight (8) weeks' notice in writing to
Videoflicks. Videoflicks may waive the notice, in whole or in part. If
the Employee terminates this Agreement pursuant to this subsection
during the initial three year term of this Agreement all Videoflicks
stock options granted to the Employee which have vested as of such
date of termination may be exercised by the Employee for a period of
six (6) months following such date of termination and any such stock
options which have not so vested shall expire immediately upon such
termination.
(b) Subject to Section 9 hereof, by Videoflicks, in the event there is no
Just Cause (as hereinafter defined) therefor, by paying the equivalent
of two (2) times the bonus amount paid, or accruing to, the Employee
pursuant to subsection 2(b) herein in respect of the last completed
fiscal year to the Employee in accordance with its
4
- 4 -
normal employee pay procedures, such payment to be subject to the
Employee's ability in securing alternate gainful employment in which
case, the compensation earned by the Employee from such alternate
employment shall be deducted from payment due to the Employee
hereunder. If this Agreement is terminated by Videoflicks in
circumstances where there is no Just Cause all Videoflicks stock
options granted to the Employee shall immediately vest and the
Employee shall be entitled to exercise all Videoflicks stock options
granted to him for a period of six (6) months thereafter, upon the
expiry of which such options shall lapse and be cancelled.
(c) By Videoflicks, at any time, for Just Cause. If Videoflicks terminates
this Agreement pursuant to this subsection during the initial three
year term of this Agreement all Videoflicks stock options granted to
the Employee which have vested as of such date of termination may be
exercised by the Employee for a period of six (6) months following
such date of termination and any such stock options which have not so
vested shall expire immediately upon such termination.
(d) "Just Cause" is defined to mean conduct of the Employee which
includes:
(i) a material breach of the provisions of the Agreement;
(ii) Conviction of the Employee of a criminal offence punishable by
indictment where cause is not prohibited by law; or
(iii) the absence of the Employee from the performance of his duties
for any reason other than for authorized vacation for a period in
excess of forty (40) working days in any six (6) month period.
9. CHANGE OF CONTROL
Notwithstanding subsection 8(b) hereof, and except for the proposed
amalgamation of Videoflicks with Mantaur Petroleum Corporation and 1318780
Ontario Limited, in the event that a transaction or series of transactions
resulting in the de facto change in control of Videoflicks, including its
successor corporation, occurs during the term of the Agreement, including, inter
alia:
(a) The acquisition by any person beneficially, directly or indirectly, of
more than 50% of the voting shares of Videoflicks;
(b) The amalgamation, consolidation or merger with another body corporate
resulting in at least 50% of the voting shares of the surviving body
corporate being controlled by a new acquirer; or
5
- 5 -
(c) The winding-up or sale of substantially all of the assets of
Videoflicks to a third party; then Videoflicks shall be obliged to pay
to the Employee, within thirty (30) days of the closing of the
above-noted transaction, a lump sum payment equal to three times the
bonus amount paid, or accruing to, the Employee pursuant to subsection
2(b) herein in respect of the most recently completed fiscal year,
such obligation being expressly subject to the following conditions:
(i) The Employee is not an equity partner of the group or entity
acquiring control; and
(ii) The acquirer extends the term of this Agreement with the Employer
for not less than an additional three (3) year period from the
date on which the change of control occurs on the same terms and
conditions as any renewal hereunder. Upon the payments
contemplated by this Section 9 being made, there shall be no
further obligation by each party to the other.
10. CONFIDENTIALITY
The Employee acknowledges that while employed by Videoflicks he will
acquire information about certain matters which are confidential in nature and
which are, and shall remain, the property of Videoflicks. Such information
includes, but is not limited to, customer lists, customer information, training
manuals, business practices, marketing plans, pricing policies, technical
proprietary and nonproprietary information, financial information, personnel
matters and the like. The Employee agrees to treat such information as
confidential and agrees not to directly or indirectly disclose it to any third
party either during his employment except to the extent necessary to perform his
duties and without exception following the termination of this Agreement unless
it is otherwise in the public domain.
11. NON-COMPETITION AND NON-SOLICITATION
Upon the termination of the Employee's employment with Videoflicks, the
Employee shall not engage in a similar business to that of Videoflicks for a
period of three (3) months, either directly or indirectly as a principal, agent,
shareholder, partner or employee. The Employee further agrees that he shall
assist any person, firm, corporation or other entity, either directly or
indirectly, in soliciting the customers of Videoflicks following his termination
from Videoflicks. The Employee also agrees that he will not, directly or
indirectly, hire or induce any employee of Videoflicks to resign his or her
employment with Videoflicks or to assist any other person in doing so.
12. DUTIES AND EVALUATION
(1) (i) The Employee's duties to Videoflicks hereunder shall include, without
limitation, the management, direction and supervision of all aspects
of the day-to-day
6
- 6 -
operations of Videoflicks ensuring the effective carriage of its
business. The Employee agrees that he will at all times perform these
duties faithfully, industriously and to the best of his skill,
ability, experience and talents. The Employee will perform his duties
in a manner which is in the best interests of Videoflicks and in
accordance with Videoflicks' current and long-term objectives and
procedures, as such may be amended from time to time by the Board of
Directors of Videoflicks.
(ii) Videoflicks acknowledges that it is aware that the Employee has, and
may have from time to time, ongoing part-time employment commitments
to companies affiliated with Videoflicks and that the Employee shall
be at liberty to continue such employment relationships provided that,
although the Employee shall not be obligated to devote the whole of
his time and attention to the business of Videoflicks, the Employee
shall devote such portion of his time to the affairs of Videoflicks as
may be required in the discharge of the Employee's duties hereunder on
a basis which does not impair the activities and business interests of
Videoflicks.
(2) The Board of Directors of Videoflicks and the Employee shall establish a
performance appraisal process which will establish the criteria against
which the Employee will be evaluated. Evaluations of the Employee shall be
conducted either semi-annually or annually (as determined by the
Videoflicks Board of Directors) and the results of such evaluation shall be
communicated in writing or otherwise to the Employee.
13. SEVERABILITY
In the event that any provision of the Agreement is determined to be void
or unenforceable in whole or in part, it shall not be deemed to affect or impair
the validity of any other provision of the Agreement.
14. GOVERNING LAW
This Agreement shall be governed by, and construed in accordance with, the
laws of the Province of Ontario.
15. WHOLE AGREEMENT
The terms and conditions set out above represent the entire Agreement
between the parties. Any modification to this Agreement must be in writing and
signed by the parties hereto or it shall be void and of no effect.
7
- 7 -
16. INDEPENDENT LEGAL ADVICE
The Employee acknowledges that he has obtained or has had an opportunity to
obtain independent legal advice in connection with this Agreement and further
acknowledges that he has read, understands and agrees to be bound by all of the
terms and conditions herein contained.
17. NOTICE
Any notice or other communication required or permitted to be given under
this Agreement shall be in writing and may be delivered personally or by prepaid
registered mail, addressed in the case of Videoflicks to: Chairman of the Board
of Directors, Videoflicks.com Limited, 106 Orenda Road, Brampton, Ontario L5W
3W6; and in the case of the Employee to: Michael Kavanagh, 41 Old Forest Hill
Road, Toronto, Ontario M5P 2P8.
DATED as of the 1st day of February, 1999.
VIDEOFLICKS.COM LIMITED
Per:
/s/ MICHAEL KAVANAGH
----------------------------------
A.S.O.
SIGNED, SEALED AND DELIVERED )
IN THE PRESENCE OF: )
)
) /s/ MICHAEL KAVANAGH
- ---------------------------------- ) ----------------------------------
) MICHAEL KAVANAGH