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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
[X] Registration statement pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934
or
[ ] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended_____________________
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No fee required]
For the transition period from___________________to__________________
Commission file number__________________
Videoflicks.com Inc.
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(Exact name of registrant as specified in its charter)
Province of Ontario, Canada
___________________________
(Jurisdiction of incorporation or organization)
106 Orenda Road, Brampton, Ontario L6W 3W6
________________________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (905) 459-5471
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Securities registered or to be registered pursuant to Section 12(b) of the Act.
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Title of each class Name of each exchange on which registered
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None
_________________________ _________________________________________
_________________________ _________________________________________
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Securities registered or to be registered pursuant to Section 12(g) of the Act:
Common Shares, no par value
________________________________________________________________________________
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
None
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(Title of Class)
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Indicate the number of outstanding shares of each of the issuer's classes of
capital or common shares as of the close of the period covered by the annual
report - ____________ common shares outstanding.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes . No X .
Indicate by check mark which financial statement item the Registrant has elected
to follow. Item 17 X . Item 18 .
Unless otherwise indicated, all references herein are expressed in U.S. dollars.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Videoflicks.com Inc. ("Videoflicks.com" or the "Company") is engaged in the
business of selling videos and related products through its web site on the
Internet (www.videoflicks.com), utilizing software developed by the Company.
Videos may be searched for on the web site by title, category, or
actor/character. Reviews by professional critics as well as customer reviews are
provided to assist the customer. The web site also provides announcements of
forthcoming releases together with release dates. At the present time the
Company's web site has over 200,000 pages, listing more than 70,000 movies.
Sales to date include more than 23,000 different titles on videocassette and
digital video disc ("DVD") to over 60,000 customers in more than 30 countries.
The web site currently receives more than 1,000,000 visitors per month. The
database not only lists nearly all commercially available videos known to the
Company, but also those announced for forthcoming release, together with the
release date.
The Company offers search and browse features, e-mail services, personalized
shopping services, web- based credit card payment and direct shipping to
customers. The Company intends over time to expand its catalogue into other
information-based products, such as music and video games. The Company has
virtually unlimited "shelf space" and offers customers a vast selection through
a search and retrieval interface.
The Company strives to offer an online shopping experience that involves
discovery and fulfilment for its customers. The Company believes that the sale
of videos and other products and services over the web offers attractive
benefits to consumers, including, without limitation, enhanced selection,
convenience, ease-of-use, competitive pricing, depth of content and information
and personalization. Customers entering the Videoflicks.com web site can, in
addition to ordering videos and other products, purchase gift certificates,
conduct targeted
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searches, browse highlighted selections, video best sellers and other features,
search for videos by subject category, stars, directors, and the like, read and
post reviews, register for personalized services, participate in promotions and
check order status. The key features of the web site include browsing, reviews
and content, online community, recommendations and personalization, and other
unique services, including the availability of multilingual videos.
The web site offers visitors a variety of highlighted subject areas and special
features arranged in a fashion intended to enhance video/movie search, selection
and discovery. In addition, the home page presents a variety of products and
information of topical or current-event interest. To enhance the shopping
experience and increase sales, the Company features a variety of videos on a
rotating basis throughout the site.
A significant feature of the web site is its interactive, searchable catalogue
of more than 70,000 titles, including most of the English language movies
commercially available on video, and a small number of CD's, videos, audiotapes
and other products. The Company provides a selection of search tools to find
videos and other products based on title, subject, star and director.
Utilizing proprietary software, the Company has designed a fully scalable
systems architecture for the Internet shopping marketplace (i.e. the web server
and connection utilized by the Company's web site can be expanded to accommodate
increased web site "traffic"). It has integrated all aspects of retail
transaction processing, including order placement, secure payment verification,
inventory control, order fulfilment and vendor invoicing in one seamless and
automated process. The system's credit card encryption uses state of the art 128
bit technology. The system being used now by the Company to sell videos and
DVD's can be used to sell any other products that the Company chooses to sell.
The employment of this specialized information system by the Company allows its
customers to access an automated marketplace of video movies from the
inventories of a large number of manufacturers and distributors and provides
detailed product descriptions, product availability, delivery times, delivery
status and back-order information. All sales and payments are processed
electronically 24 hours a day, with limited employee involvement.
The Company has established relationships with a number of manufacturers and
distributors who ship their products directly to the Company's customers in
response to orders received through the Company's web site and relayed to such
manufacturers and distributors, thereby reducing handling expense, delivery and
inventory maintenance. The Company also has a Supply Agreement with its
controlling shareholder, Videoflicks Canada Limited, pursuant to which
Videoflicks Canada Limited has agreed to supply videos to the Company at the
wholesale catalogue price charged by wholesalers on an arm's length basis on
videos, plus shipping charges and applicable taxes.
The Company can capture information from orders received through its web site to
develop individual and overall customer profiles with which to focus its
marketing efforts by, for example,
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marketing specific movies or products or offering personalized services to
customers based on such profiles.
BUSINESS PLAN
The Company's business strategy for both its first year and for the long term is
to build strong brand recognition, strengthen customer loyalty and increase
customer traffic to the Videoflicks.com web site, enhance supplier
relationships, maximize repeat purchasers and develop incremental revenue
opportunities, while creating an economic model that is superior to that of the
capital and real estate intensive traditional retailing business. Achieving
increased profitability is dependent upon the Company's continued growth through
its ability to generate and sustain substantially increased revenue levels. The
objective of Company management is to achieve growth in both revenues and
profits in a fiscally responsible and sustainable manner.
To continue this growth, the Company must maintain and increase its customer
base, implement and successfully execute its business and marketing strategy,
continue to develop and upgrade its technology and transaction-processing
systems, improve its web site, provide superior customer service and order
fulfilment, respond to competitive developments and attract, retain and motivate
talented personnel and management experienced in large and fast-growing
organizations.
The Company believes that success will depend on its ability to extend its brand
position, to provide its customers with outstanding value and a superior
shopping experience and the ability to achieve sufficient sales volume to
realize economies of scale.
To date the business of the Company has operated with little or no advertising
support, relying upon word-of-mouth publicity. Notwithstanding the lack of
advertising support, sales generated by the Company's business for the nine
months ended May 31, 1999 increased 100% to $1,240,000 as compared to sales for
the nine months ended May 31, 1998. Repeat customers represent 20 to 25% of
orders. For each of the last 3 fiscal years approximately 75% of the Company's
sales were made to customers in the United States and of the remaining sales, no
more than 5% was concentrated in any one country.
Based on a pilot-program for advertising utilizing on-line media and print
conducted in fiscal 1998, management of the Company is confident that
expenditures for advertising will result in an increase in the number of
visitors to its web site and correspondingly an increase in sales volumes.
Accordingly, the Company intends to focus on marketing and promotion to increase
Videoflicks.com brand awareness. In this regard Management has committed
$600,000 to an initial advertising campaign commencing in August, 1999.
Web site development and operating infrastructure development will also be a
priority. Company management believes that the development of a high volume of
traffic on its web site will be a key element of its success. Therefore, the
satisfactory performance, reliability and availability of the web site,
transaction-processing systems and network infrastructure are critical to the
Company's reputation, and its ability to attract and retain customers and
maintain customer service levels.
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In this regard, during fiscal 1999 the Company hired additional programmers to
develop its web site and additional staff to fulfill orders and ensure timely
product shipments. The Company's web site development group has increased the
efficiency of the data and systems management, thereby streamlining the
order-processing system. The Company plans to continue to implement technology-
driven enhancements to its web site to provide increasingly valuable personal
service programs, make the user-interface as intuitive, engaging and fast as
possible and continuously improve the efficiency of its order fulfillment
activities. To meet the demands of anticipated future growth in traffic on the
Company's web site the Company intends to expand and upgrade its network
infrastructure by adding another T1 transmission line or similar expansion which
will be required if the average number of users per day increases to 1,000,000
from the present rate of approximately 33,000. The web server and connection
used by the web site are fully-scalable and can be expanded as the number of
visitors to the Company's web site increases.
Incidental to the amalgamation which formed the Company on March 23, 1999, the
Company raised $1,200,000. As of the close of business on July 23, 1999, an
aggregate of 1,047,670 Series A Warrants had been exercised from which the
Company realized aggregate gross proceeds of $785,752.50 and an aggregate of
1,047,670 Series B Warrants were issued, of which 11 were exercised, yielding
aggregate gross proceeds of $12.65 to the Company. If all of the remaining
1,047,659 Series B Warrants are exercised, the Company will realize additional
gross proceeds of $1,204,807.80. The Series B Warrants expire on November 23,
1999. The Company also has outstanding and contingent stock options exercisable
to purchase up to 2,240,000 Company common shares at $0.50 per share. The
Company intends to allocate approximately 70%-75% of the funds obtained during
the current fiscal year from the amalgamation and through the exercise of its
Warrants and stock options principally for marketing to increase the Company's
sales and the remaining 25%-30% for hardware and software improvements to the
Company's web site and for general working capital purposes.
The Company views its producers and distributors as customers and seeks to
utilize the substantial structural advantages inherent in its business plan to
build strong relationships with them. In addition, the demographic and
purchasing data accumulated by the Company will enable it to help video studios
target customers for particular product offerings. Through targeted marketing
and virtually unlimited shelf space the Company intends to offer suppliers
enhanced promotional opportunities for new products, new video titles and second
and third tier titles.
The Company intends to leverage its brand, on-line commerce experience,
operating infrastructure and customer base to broaden its presence and develop
additional revenue opportunities. Management of the Company believes that it can
further its growth opportunities through strategic alliances with, for example,
international partners and on-line service providers. The Company will also
consider developing incremental revenue opportunities through affiliated or
related sites, related product areas and acquisition of complementary
businesses, products or technologies. The Company will also consider exploiting
opportunities presented by its customer demographic and substantial web site
traffic to sell advertising.
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CORPORATE HISTORY
The Company was formed on March 23, 1999 by the amalgamation of Mantaur
Petroleum Corporation, 1318780 Ontario Limited and Videoflicks.com Limited, on a
reverse take-over basis, by Articles of Amalgamation issued under the Business
Corporations Act (Ontario). Immediately prior to amalgamation, the operating
assets of the business of the Company were owned by Videoflicks.com Limited, a
private company. 1318780 Ontario Limited, also a private company, had no active
business, no material liabilities and its only material asset was $1.2 million
in cash. Mantaur Petroleum Corporation, a public company having reporting issuer
status under the Securities Act (Ontario), had no active business and no
material assets or liabilities.
The business of the Company has been operating since 1995, initially as a
division of Videoflicks Canada Limited, a private company, which, in
contemplation of the amalgamation transaction, transferred the Internet
business, effective November, 1998, to its wholly-owned subsidiary,
Videoflicks.com Limited, one of the amalgamating companies.
COMPETITIVE ENVIRONMENT
The online commerce market, particularly over the World Wide Web, is new,
rapidly evolving and intensely competitive. In addition, the retail video/music
industry is intensely competitive. The company's current or potential
competitors include (i) various online video sellers and vendors of other
information-based products such as CDs and books, including entrants into narrow
specialty niches, (ii) a number of indirect competitors that specialize in
online commerce, through which retailers other than the Company may offer
products and (iii) publishers, distributors and retail vendors of videos, music
and books, including Amazon.com, Blockbuster Video, Reel.com and other large
specialty videosellers and integrated media corporations. See "Risk Factors
Affecting the Company" for further discussion of competition.
INTELLECTUAL PROPERTY
A trademark registration application was filed with the U.S. Patent and
Trademark Office in January 1999 for the mark "Videoflicks.com". All rights in
respect of the trademark application were acquired by the Company upon
amalgamation. The mark Videoflicks.com was first used in 1995, in connection
with the business of the Company, by Videoflicks Canada Limited from which all
rights in the mark were acquired by Videoflicks.com Limited and subsequently by
the Company upon amalgamation.
HUMAN RESOURCES
On August 10, 1999, the Company had 25 full-time employees and 2 part-time
employees. As the Company encourages share ownership, it has established an
option plan (see "Item 12. - Compensation - Stock Option Plan") to attract,
motivate and retain key employees and
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consultants. The Company's employees are not governed by a collective bargaining
agreement. The Company believes that its employee relations are good.
RISK FACTORS AFFECTING THE COMPANY
The business of the Company entails significant risks, and an investment in the
securities of the Company should be considered highly speculative for a variety
of reasons. An investment in the securities of the Company should only be
undertaken by persons who have sufficient financial resources to enable them to
assume such risks. In addition to the usual risks associated with investment in
a business, the following is a general description of certain significant risk
factors, which should be considered.
COMPETITION
The market for video sales over the Internet is new, rapidly evolving and
intensely competitive, and the Company expects competition to intensify further
in the future. Barriers to entry are relatively low, and current and new
competitors can launch new sites at relatively low cost using commercially
available software. The Company currently or potentially competes with a number
of other companies. At present the Company competes with a number of established
online video sales services, many of which possess significant brand awareness,
sales volume and customer bases, including Amazon.com, Reel.com, Blockbuster
Video and a number of other small online video retailers, including those that
serve specialty markets. The Company also potentially faces competition from
other large online communities and services that have expertise in developing
online commerce and in facilitating online video sales interaction. Other large
companies with strong brand recognition and experience in online commerce, such
as large media companies may also seek to compete in the online video sales
market. Competitive pressures created by any one of these companies, or by the
Company's competitors collectively, could have a material adverse effect on the
Company's business, results of operations and financial condition.
The Company believes that the principal competitive factors in its market are
volume and selection of videos, population of buyers, customer service,
reliability of delivery, brand recognition, web site convenience and
accessibility, price, quality of search tools and system reliability. Many of
the Company's current and potential competitors have larger customer bases,
greater brand recognition and significantly greater financial, marketing,
technical and other resources than the Company. In addition, other online video
sales companies may be acquired by, receive investments from or enter into other
commercial relationships with larger, well-established and well- financed
companies as use of the Internet and other online services increases. Therefore,
certain of the Company's competitors with other revenue sources may be able to
devote greater resources to marketing and promotional campaigns, adopt more
aggressive pricing policies, obtain more favourable terms from manufacturers and
distributors and devote substantially more resources to web site and systems
development than the Company or may try to attract traffic by offering videos at
a lower price.
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The Company expects that competition in the online commerce market will
intensify in the future. For example, as various market segments obtain large,
loyal customer bases, participants in those segments may seek to leverage their
market power to the detriment of participants in other market segments. In
addition, new technologies and the expansion of existing technologies may
increase the competitive pressures on online retailers, including the Company.
For example, "shopping agent" technologies will permit customers to quickly
compare the Company's prices with those of its competitors.
Increased competition may result in reduced operating margins, loss of market
share and diminished value in the Company's brand. There can be no assurance
that the Company will be able to compete successfully against current and future
competitors. Further, as a strategic response to changes in the competitive
environment, the Company may, from time to time, make certain pricing, service
or marketing decisions or acquisitions that could have a material adverse effect
on its business, results of operations, prospects and financial condition. New
technologies and the expansion of existing technologies may increase the
competitive pressures on the Company by enabling the Company's competitors to
offer a lower-cost service. Certain web-based applications that direct Internet
traffic to certain web sites may channel users to trading services that compete
with the Company. In addition, companies that control access to transactions
through network access or web browsers could promote the Company's competitors
or charge the Company substantial fees for inclusion. Any and all of these
events could have a material adverse effect on the Company's business, results
of operations, prospects and financial condition.
RISKS ASSOCIATED WITH BRAND DEVELOPMENT
The Company believes that its historical growth has been largely attributable to
word-of-mouth advertising. Despite this historical organic growth, the Company
believes that continuing to strengthen its brand is critical to achieving
widespread acceptance of Videoflicks.com, particularly in light of the
competitive nature of the Company's market. Promoting and positioning its brand
will depend largely on the success of the Company's marketing efforts and the
ability of the Company to provide high quality services. In order to promote its
brand, the Company will need to increase its marketing budget and otherwise
increase its financial commitment to creating and maintaining brand loyalty
among users. There can be no assurance that brand promotion activities will
yield increased revenues or that any such revenues would offset the expenses
incurred by the Company in building its brand. Further, there can be no
assurance that any new users attracted to Videoflicks.com will conduct
transactions at Videoflicks.com on a regular basis. If the Company fails to
promote and maintain its brand or incurs substantial expenses in an attempt to
promote and maintain its brand or if the Company's existing or future strategic
relationships fail to promote the Company's brand or increase brand awareness,
the Company's business, results of operations and financial condition would be
materially adversely affected.
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RAPID TECHNOLOGICAL CHANGE
The market in which the Company competes is characterized by rapidly changing
technology, evolving industry standards, frequent video additions and deletions,
introductions and enhancements and changing customer demands.
These market characteristics are exacerbated by the emerging nature of the web
and the apparent need of companies from a multitude of industries to offer
web-based products and services. Accordingly, the Company's future success will
depend on its ability to adapt to rapidly changing technologies, to adapt its
services to evolving industry standards and to continually improve the
performance, features and reliability of its service in response to competitive
service and product offerings and evolving demands of the marketplace. The
failure of the Company to adapt to such changes would have a material adverse
effect on the Company's business, results of operations, prospects and financial
condition. In addition, the widespread adoption of new Internet, networking or
telecommunications technologies or other technological changes could require
substantial expenditures by the Company to modify or adapt its services or
infrastructure, which could have a material adverse effect on the Company's
business, results of operations and financial condition.
The Company plans to expand its operations by developing and promoting new or
complementary services, products or transaction formats or expanding the breadth
and depth of services. There can be no assurance that the Company would be able
to expand its operations in a cost-effective or timely manner or that any such
efforts would maintain or increase overall market acceptance. Furthermore, any
new business or service launched by the Company that is not favourably received
by consumers or wholesalers could damage the Company's reputation and diminish
the value of its brand name. Expansion of the Company's operations in this
manner would also require significant additional expenses and development,
operations and other resources and would strain the Company's management,
financial and operational resources. The lack of market acceptance of such
services or the Company's inability to generate satisfactory revenues from such
expanded services to offset their cost could have a material adverse effect on
the Company's business, results of operations, prospects and financial
condition.
RISKS RELATED TO CONSUMER TRENDS
The Company derives substantially all of its revenues from selling video movies.
The Company's future revenues will depend upon continued demand for the types of
goods that are offered by the Company. These trends may also cause significant
fluctuations in the Company's operating results from one quarter to the next.
Any decline in demand for the goods offered through the Company's service as a
result of changes in consumer trends could have a material adverse effect on the
Company's business, results of operations and financial condition.
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ONLINE COMMERCE SECURITY RISKS
A significant barrier to online commerce and communications is the secure
transmission of confidential information over public networks. Currently, a
significant number of the Company's customers authorize direct billing of their
credit card accounts directly for all videos purchased. The Company relies on
encryption and authentication technology licensed from third parties to provide
the security and authentication technology to effect secure transmission of
confidential information, including customer credit card numbers. There can be
no assurance that advances in computer capabilities, new discoveries in the
field of cryptography, or other events or developments will not result in a
compromise or breach of the technology used by the Company to protect customer
transaction data. If any such compromise of the Company's security were to
occur, it could have a material adverse effect on the Company's reputation and,
therefore, on its business, results of operations, prospects and financial
condition. Furthermore, a party who is able to circumvent the Company's security
measures could misappropriate proprietary information or cause interruptions in
the Company's operations. The Company may be required to expend significant
capital and other resources to protect against such security breaches or to
alleviate problems caused by such breaches. Concerns over the security of
transactions conducted on the Internet and other online services and the privacy
of users may also inhibit the growth of the Internet and other online services
generally, and the web in particular, especially as a means of conducting
commercial transactions. To the extent that activities of the Company involve
the storage and transmission of proprietary information, such as credit card
numbers, security breaches could damage the Company's reputation and expose the
Company to a risk of loss or litigation and possible liability. The Company's
insurance policies carry low coverage limits, which may not be adequate to
reimburse the Company for losses caused by security breaches. There can be no
assurance that the Company's security measures will prevent security breaches or
that failure to prevent such security breaches will not have a material adverse
effect on the Company's business, results of operations and financial condition.
RISKS ASSOCIATED WITH ACQUISITIONS
If appropriate opportunities present themselves, the Company intends to acquire
businesses, technologies, services or products that the Company believes are
strategic. There can be no assurance that the Company will be able to identify,
negotiate or finance future acquisitions successfully, or to integrate such
acquisitions with its current business. The process of integrating an acquired
business, technology, service or product into the Company may result in
unforeseen operating difficulties and expenditures and may absorb significant
management attention that would otherwise be available for ongoing development
of the Company's business. Moreover, there can be no assurance that the
anticipated benefits of any acquisition, will be realized. Future acquisitions
could result in potentially dilutive issuances of equity securities, the
incurrence of debt, contingent liabilities and/or amortization expenses related
to goodwill and other intangible assets, which could materially adversely affect
the Company's business, results of operations, prospects and financial
condition. Any such future acquisitions of other businesses, technologies,
services or products might require the Company to obtain additional equity or
debt financing,
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which might not be available on terms favourable to the Company, or at all, and
such financing, if available, might be dilutive.
DEPENDENCE ON THE WEB INFRASTRUCTURE
The success of the Company's service will depend in large part upon the
development and maintenance of the web infrastructure, such as a reliable
network backbone with the necessary speed, data capacity and security, or timely
development of complementary products such as high-speed modems, for providing
reliable web access and services. Because global commerce and the online
exchange of information is new and evolving, it is difficult to predict with any
assurance whether the web will prove to be a viable commercial marketplace in
the long term. The web has experienced, and is expected to continue to
experience, significant growth in the numbers of users and amount of traffic. To
the extent that the web continues to experience increased numbers of users,
frequency of use or increased bandwidth requirements of users, there can be no
assurance that the web infrastructure will continue to be able to support the
demands placed on it by this continued growth or that the performance or
reliability of the web will not be adversely affected.
Furthermore, the web has experienced a variety of outages and other delays as a
result of damage to portions of its infrastructure, and could face such outages
and delays in the future, including outages and delays resulting from the
inability of certain computers or software to distinguish dates in the 21st
century from dates in the 20th century. See "--Year 2000 Implications." These
outages and delays could adversely affect the level of web usage and also the
level of traffic and the processing of selling videos and related products of
the Company. In addition, the web could lose its viability due to delays in the
development or adoption of new standards and protocols to handle increased
levels of activity or due to increased governmental regulation. There can be no
assurance that the infrastructure or complementary products or services
necessary to make the web a viable commercial marketplace for the long term will
be developed or that if they are developed, that the web will become a viable
commercial marketplace for services such as those offered by the Company. If the
necessary infrastructure, standard or protocols or complementary products,
services or facilities are not developed, or if the web does not become a viable
commercial marketplace, the Company's business, results of operations, prospects
and financial condition will be materially and adversely affected. Even if the
infrastructure, standards or protocols or complementary products, services or
facilities are developed and the web becomes a viable commercial marketplace in
the long term, the Company might be required to incur substantial expenditures
in order to adapt its service to changing web technologies, which could have a
material adverse effect on the Company's business, results of operations,
prospects and financial condition.
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RISKS ASSOCIATED WITH INFORMATION DISSEMINATED THROUGH THE COMPANY'S
SERVICE
The law relating to the liability of online services companies for information
carried on or disseminated through their services is currently unsettled. It is
possible that claims could be made against online services companies under both
United States and foreign law for defamation, libel, invasion of privacy,
negligence, copyright or trademark infringement, or other theories based on the
nature and content of the materials disseminated through their services. Several
private lawsuits seeking to impose such liability upon other online services
companies are currently pending. Certain countries and jurisdictions limit or
prohibit the sales of certain videos and other products which the Company sells.
In addition, legislation has been proposed that imposes liability for or
prohibits the transmission over the Internet of certain types of information.
The Company's service features a Movie Review Publication section for each video
it sells, which includes information from users regarding their thoughts about
that movie. Although all such feedback is generated by users and not by the
Company, it is possible that a claim of defamation or other injury could be made
against the Company for content posted in the Movie Review Pages. The imposition
upon the Company and other online services providers of potential liability for
information carried on or disseminated through their services could require the
Company to implement measures to reduce its exposure to such liability, which
may require the Company to expend substantial resources and/or to discontinue
certain service offerings. In addition, the increased attention focussed upon
liability issues as a result of these lawsuits and legislative proposals could
impact the growth of Internet use. While the Company carries liability
insurance, it may not be adequate to fully compensate the Company in the event
the Company becomes liable for information carried on or disseminated through
its service. Any costs not covered by insurance incurred as a result of such
liability or asserted liability could have a material adverse effect on the
Company's business, results of operations and financial condition.
GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES
The Company believes that it is currently in material compliance with Canadian
and United States laws and regulations applicable to access to and commerce on
the Internet, including regulations applicable to businesses generally. However,
due to the increasing popularity and use of the Internet and other online
services, it is possible that a number of laws and regulations may be adopted
with respect to the Internet or other online services covering issues such as
user privacy, freedom of expression, pricing, content and quality of products
and services, taxation, advertising, intellectual property rights and
information security. Although sections of the Communications Decency Act of
1996 (the "CDA") that, among other things, proposed to impose criminal penalties
on anyone distributing "indecent" material to minors over the Internet, were
held to be unconstitutional by the U.S. Supreme Court, there can be no assurance
that similar laws will not be proposed and adopted. Certain members of the U.S.
Congress have recently discussed proposing legislation that would regulate the
distribution of "indecent" material over the Internet in a manner that they
believe would withstand challenge on constitutional grounds. The nature of such
similar legislation and the manner in which it may be interpreted and enforced
cannot be fully determined and, therefore, legislation similar to the CDA could
subject
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the Company and/or its customers to potential liability, which in turn could
have an adverse effect on the Company's business, results of operations,
prospects and financial condition. The adoption of any such laws or regulations
might also decrease the rate of growth of Internet use, which in turn could
decrease the demand for the Company's service or increase the cost of doing
business or in some other manner have a material adverse effect on the Company's
business, results of operations and financial condition. In addition,
applicability to the Internet of existing laws governing issues such as property
ownership, copyrights and other intellectual property issues, taxation, libel,
obscenity and personal privacy is uncertain. The vast majority of such laws were
adopted prior to the advent of the Internet and related technologies and, as a
result, do not contemplate or address the unique issues of the Internet and
related technologies. The Company does not believe that such regulations, which
were adopted prior to the advent of the Internet, govern the operations of the
Company's business nor have any claims been filed by any state implying that the
Company is subject to such legislation. There can be no assurance, however, that
a state, province or other jurisdiction will not attempt to impose these
regulations upon the Company in the future or that such imposition will not have
a material adverse effect on the Company's business, results of operations,
prospects and financial condition.
Several states and provinces have also proposed legislation that would limit the
uses of personal user information gathered online or require online services to
establish privacy policies. The United States Federal Trade Commission has also
initiated action against at least one online service regarding the manner in
which personal information is collected from users and provided to third
parties. Changes to existing laws or the passage of new laws intended to address
these issues, including some recently proposed changes, could create uncertainty
in the marketplace that could reduce demand for the services of the Company or
increase the cost of doing business as a result of litigation costs or increased
service delivery costs, or could in some other manner have a material adverse
effect on the Company's business, results of operations, prospects and financial
condition. In addition, because the Company's services are accessible worldwide,
and the Company sells videos to users worldwide, other jurisdictions may claim
that the Company is required to qualify to do business as a foreign corporation
in a particular state or foreign country. The Company is qualified to do
business in Canada, and failure by the Company to qualify as a foreign
corporation in a jurisdiction where it is required to do so could subject the
Company to taxes and penalties for the failure to qualify and could result in
the inability of the Company to enforce contracts in such jurisdictions. Any
such new legislation or regulation, or the application of laws or regulations
from jurisdictions whose laws do not currently apply to the Company's business,
could have a material adverse effect on the Company's business, results of
operations, prospects and financial condition.
SALES AND OTHER TAXES
The Company does not collect sales or other similar taxes in respect of goods
sold. However, one or more states or provinces may seek to impose sales tax
collection obligations on out-of-state or foreign companies such as the Company
which engage in or facilitate online commerce, and a number of proposals have
been made at the state and local level that would impose additional
<PAGE> 14
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taxes on the sale of goods and services through the Internet. Such proposals, if
adopted, could substantially impair the growth of electronic commerce, and could
adversely affect the Company's opportunity to derive financial benefit from such
activities. Moreover, a successful assertion by one or more states or provinces
or any foreign country that the Company should collect sales or other taxes on
the sale of videos on its system could have a material adverse effect on the
Company's business, results of operations, prospects and financial condition.
Legislation limiting the ability of the states and provinces to impose taxes on
Internet-based transactions has been proposed in the U.S. Congress. There can be
no assurance that this legislation will ultimately be enacted into law or that
the final version of this legislation will not contain a limited time period in
which such tax moratorium will apply. In the event that the tax moratorium is
imposed for a limited time period, there can be no assurance that the
legislation will be renewed at the end of such period. Failure to enact or renew
this legislation could allow various states or provinces to impose taxes on
Internet-based commerce and the imposition of such taxes could have a material
adverse affect on the Company's business, results of operations, prospects and
financial condition.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
A component of the Company's strategy is to expand internationally.
Approximately 75% of the Company's current sales are made to residents of the
United States and Company management believes that the sales of its principal
competitors are also concentrated in the increasingly competitive U.S. market.
Expansion in the international markets will require management attention and
resources. The Company has limited experience in establishing its service in new
local markets, and the Company believes that many of its competitors are also
undertaking expansion into foreign markets. There can be no assurance that the
Company will be successful in expanding into international markets. In addition
to the uncertainty regarding the Company's ability to generate revenues from
foreign operations and expand its international presence, there are certain
risks inherent in doing business on an international basis, including, among
others, regulatory requirements, legal uncertainty regarding liability, tariffs,
and other trade barriers, difficulties in staffing and managing foreign
operations, potentially adverse tax consequences, all of which could adversely
affect the success of the Company's international operations. There can be no
assurance that one or more of the factors discussed above will not have a
material adverse effect on the Company's future international operations and,
consequently, on the Company's business, results of operations, prospects and
financial condition.
PROTECTION AND ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS
The Company regards the protection of its trademark copyright, service marks,
trade dress and trade secrets as critical to its future success and relies on a
combination of trademark registration and copyright, trademark, service mark and
trade secret laws and contractual restrictions to establish and protect its
proprietary rights in products and services. The Company has entered into
confidentiality and invention assignment agreements with its employees and
contractors, and
<PAGE> 15
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nondisclosure agreements with parties with which it conducts business in order
to limit access to and disclosure of its proprietary information. There can be
no assurance that the Company's reliance on trademark registration, contractual
arrangements or applicable laws will prove sufficient to prevent
misappropriation of the Company's technology or to deter independent third-party
development of similar technologies. The Company pursues the registration of its
trademarks and service marks in the U.S. and internationally. Effective
trademark, service mark, copyright and trade secret protection may not be
available in every country in which the Company's services are made available
online. The Company expects that it may license in the future certain of its
proprietary rights, such as trademarks or copyrighted material, to third
parties. While the Company attempts to ensure that the quality of the
Videoflicks.com brand is maintained by such licensees, there can be no assurance
that such licensees will not take actions that might materially adversely affect
the value of the Company's proprietary rights or reputation, which could have a
material adverse effect on the Company's business, results of operations,
prospects and financial condition. The Company also relies on certain
technologies that it has purchased from third parties under shrink-wrap licence
agreements, such as Microsoft and O'Rilieys Web Site, the suppliers of key
database technology, the operating system and specific hardware components from
which the systems for operating the Company's web site have been developed.
There can be no assurance that these third-party technologies will continue to
be available to the Company and on commercially reasonable terms. The loss of
such technologies could require the Company, in the course of upgrading or
changing their systems, to obtain substitute technologies of lower quality or
performance standards or at greater cost, which could materially adversely
affect the Company's business, results of operations, prospects and financial
condition.
To date, the Company has not been notified that its technologies infringe the
proprietary rights of third parties, but there can be no assurance that third
parties will not claim infringement by the Company with respect to past, current
or future technologies. The Company expects that participants in its markets
will be increasingly subject to infringement claims as the number of services
and competitors in the Company's industry segment grows. Any such claim, whether
meritorious or not, could be time-consuming, result in costly litigation, cause
service upgrade delays or require the Company to enter into royalty or licensing
agreements. Such royalty or licensing agreements might not be available on terms
acceptable to the Company or at all. As a result, any such claim could have a
material adverse effect upon the Company's business, results of operations,
prospects and financial condition.
YEAR 2000 IMPLICATIONS
Many current installed computer systems and software products are coded to
accept only two-digit entries in the date code field and cannot reliably
distinguish dates beginning on January 1, 2000 from dates prior to the year
2000. Many companies' software and computer systems may need to be upgraded or
replaced in order to correctly process dates beginning in 2000 and to comply
with the "Year 2000" requirements.
<PAGE> 16
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All of the Company's hardware and software systems used in connection with its
web site, data systems and order processing systems have been purchased during
the past three years and have all been certified by the manufacturers and
developers of same to be Year 2000 compliant. Testing by the Company of such
systems has confirmed that they are Year 2000 compliant. Consequently, the
Company does not believe that it presently has a material Year 2000 compliance
problem and accordingly does not presently anticipate having to incur any
material expenses in connection therewith.
The Company's business plan includes potential expansion through the acquisition
of businesses, technologies, products and services from other businesses. As the
Company continues to expand in this manner throughout calendar 1999, Year 2000
issues could result causing the Company to have to commit resources to address
same.
The Company also relies upon various vendors, utility companies,
telecommunications service companies, delivery service companies and other
service providers who are outside its control. There is no assurance that such
companies will not suffer a Year 2000 business disruption which could harm the
Company's business and financial condition. Furthermore, if third-party
equipment or software the Company uses in its business fails to operate properly
with regard to the Year 2000, it may need to incur significant unanticipated
expenses to remedy any such problems.
Management of the Company believes that if in fact it does encounter any Year
2000 problems, it will be able to quickly remedy same through the purchase
off-the-shelf systems or by switching to other Year 2000 compliant subscribers.
The Company's failure to resolve any Year 2000 issues which may arise with
respect to its products and services could damage its business and revenues and
result in liability on its part for such failure. The Company's business and its
prospects may be permanently affected by either the liability it incurs to third
parties or the negative impact on its business reputation.
LACK OF MARKET FOR COMPANY'S SHARES
Although the common shares of the Company trade on the over the counter market
in Toronto, Ontario (see "Item 5. Nature of Trading Market"), there is no
trading market at present in the United States for the common shares of the
Company and there is no assurance that a liquid market for the common shares of
the Company in the United States will be developed or be sustained. The lack of
a liquid market in the United States for the common shares of the Company could
have a negative impact on the ability of investors to buy and sell the common
shares of the Company and on the value of the shares.
<PAGE> 17
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POSSIBLE VOLATILITY OF SHARE PRICE
The trading price of the common shares is likely to be highly volatile and could
be subject to wide fluctuations in response to factors such as actual or
anticipated variations in the Company's quarterly operating results,
announcements of technological innovations, or new services by the Company or
its competitors, changes in financial estimates by securities analysts,
conditions or trends in the Internet and online commerce industries, changes in
the market valuations of other Internet or online service companies,
announcements by the Company or its competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments, additions or
departures of key personnel, sales of common shares or other securities of the
Company in the open market and other events or factors, many of which are beyond
the Company's control. Further, the stock markets in general, and the NASDAQ
National Market and the market for Internet-related and technology companies in
particular, have experienced extreme price and volume fluctuations that have
often been unrelated or disproportionate to the operating performance of such
companies. The trading prices of many technology companies' stocks are at or
near historical highs and reflect valuations substantially above historical
levels. There can be no assurance that these trading prices and valuations will
be sustained. These broad market and industry factors may materially and
adversely affect the market price of the common shares regardless of the
Company's operating performance. Market fluctuations, as well as general
political and economic conditions such as recession or interest rate or currency
rate fluctuations, may also adversely affect the market price of the common
shares. In the past, following periods of volatility in the market price of a
company's securities, securities class-action litigation has often been
instituted against such company. Such litigation, if instituted, could result in
substantial costs and a diversion of management's attention and resources, which
would have a material adverse effect on the Company's business, results of
operations, prospects and financial condition.
LIQUIDITY AND CAPITAL NEEDS
In order to fund planned expansion, the Company will likely need to raise
additional equity or debt financing. There can be no assurance that additional
funding will be available or, if available, that it will be available on
acceptable terms. The inability of the Company to obtain additional funding
could have a material adverse impact on the business, financial condition and
future prospects of the Company. There can be no assurance that the Company will
be able to raise additional capital if its capital resources are exhausted.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Some of the statements contained in or incorporated by reference in this
registration statement discuss the Company's plans and strategies for our
business or state other forward-looking statements, as this term is defined in
the U.S. Private Securities Litigation Reform Act of 1995. The words
"anticipate", "believe", "estimate", "expect", "plan", "intent", "should",
"seek", "will" and similar expressions are intended to identify these
forward-looking statements, but are not the
<PAGE> 18
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exclusive means of identifying them. These forward-looking statements reflect
the current views of Company management; however, various risks, uncertainties
and contingencies could cause the Company's actual results, performance or
achievements to differ materially from those expressed in, or implied by, these
statements, including the following:
- the success or failure of the Company's efforts to implement its
business strategy;
- the other factors discussed under the heading "Risk Factors" and
elsewhere in this memorandum.
The Company assumes no obligation to update any forward-looking statements
contained in this registration statement whether as a result of new information,
future events or otherwise. For a discussion of important risks of an investment
in the Company's securities, including factors that could cause actual results
to differ materially from results referred to in the forward-looking statements,
see "Risk Factors". You should carefully consider the information set forth
under the caption "Risk Factors". In light of these risks, uncertainties and
assumptions, the forward-looking events discussed in this registration statement
might not occur.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal facility, which is sub-leased from Videoflicks Canada
Limited, is located at 1654 Avenue Road, Toronto, Ontario. The sub-lease expires
on July 30, 2000. The sub-lease covers approximately 1,300 square feet and, if
required, can be expanded to 2,500 square feet at this location. The Company
pays a proportionate amount of the lease obligations of Videoflicks Canada
Limited based on the amount of space covered by the sub-lease relative to the
total floorspace leased by Videoflicks Canada Limited. Management believes that
they will outgrow this capacity in the near future and are looking at
alternative locations to meet the needs of anticipated future growth.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings of a material nature pending or known to be
contemplated against the Company by any party, including any governmental
authorities.
ITEM 4. CONTROL OF REGISTRANT
(a) At August 10, 1999, there were 17,808,954 shares outstanding with an
authorized capital of an unlimited number of shares. To the best of
Management's knowledge, the only person beneficially owning 10% or more of
the Company's outstanding shares as of August 10, 1999 was Videoflicks
Canada Limited which owned 8,000,000 common shares of the Company,
comprising approximately 44.9% of the outstanding common shares of
<PAGE> 19
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the Company. All of the shares of Videoflicks Canada Limited are beneficially
owned by Michael Kavanagh and his spouse, as to 50% each through their
respective holding companies. As a result, Mr. Kavanagh and his spouse, through
their ownership of Videoflicks Canada Limited, also have beneficial ownership of
the shares owned by Videoflicks Canada Limited and have effective voting control
with respect to all matters requiring shareholder approval except for those
matters which pursuant to the Business Corporations Act (Ontario) require
approval by special resolution of shareholders (i.e. a resolution passed by at
least two thirds of the votes cast at a special meeting of shareholders called
for the purpose of considering the resolution).
(b) The following table lists each person who as at August 10, 1999 is known to
the Registrant to be the owner of more than 10% of the Registrant's
outstanding common shares, the only class of voting securities of the
Registrant, and the total amount of common shares owned by the directors
and officers of the Registrant as a group:
<TABLE>
<CAPTION>
Identity of
Person or Group Amount Owned Percent of Class
--------------- ------------ ----------------
<S> <C> <C>
Michael Kavanagh 8,800,000(1) 47.3%
106 Orenda Road
Brampton, Ontario L6W 3W6
Videoflicks Canada Limited 8,000,000 44.9%
106 Orenda Road
Brampton, Ontario L6W 3W6
All directors and others as a 8,800,000(2) 47.3%
group
</TABLE>
(1) Consists of 8,000,000 common shares owned by Videoflicks Canada
Limited, of which Mr. Kavanagh and his spouse each own 50% of the
outstanding capital stock, and presently exercisable options to
purchase 800,000 common shares held by Mr. Kavanagh.
(2) Consists of 8,000,000 common shares owned by Videoflicks Canada
Limited, of which Mr. Kavanagh and his spouse each beneficially own
50% of the outstanding capital stock, and presently exercisable
options to purchase 800,000 common shares held by Mr. Kavanagh.
Options held by the other directors and officers are subject to
vesting requirements none of which are exercisable prior to March,
2000. See "Item 12. Options to Purchase Securities from Registrant or
Subsidiaries - Stock Option Plan".
<PAGE> 20
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At August 10, 1999, officers and directors, as a group, owned no
shares of the Company other than the 8,000,000 common shares of the
Company owned by Videoflicks Canada Inc., all of the shares of which
are beneficially owned by Michael Kavanagh and his spouse, as to 50%
each through their respective holding companies.
(c) There are no arrangements, known to the Company, the operation of
which may at a subsequent date result in a change in control of the
Company.
ITEM 5. NATURE OF TRADING MARKET
The Company's shares commenced trading over-the-counter on The Canadian Dealing
Network Inc., Toronto, Ontario on April 26, 1999. The following is a summary of
trading in the common shares of the Company on The Canadian Dealing Network Inc.
(stated in U.S. dollars):
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Third Quarter (1) $1.80 $0.90
Fourth Quarter(2) $0.95 $0.37
</TABLE>
(1) For quarter ending May 31, 1999, from commencement of trading on April 26,
1999.
(2) For quarter ending August 31, 1999, for trades up to and including August
10, 1999.
The closing sales price of the shares as quoted on The Canadian Dealing Network
Inc. on August 10, 1999 was $0.48 per share.
Although the Company intends to apply to have its common shares quoted on the
NASD (National Association of Securities Dealers) Bulletin Board, there is no
trading market at present in the United States for the common shares of the
Company (see "Item 1, Business of the Company - Risk Factors Affecting the
Company - Lack of Market for Company's Shares").
At August 10, 1999, the Company had 2,961 shareholders of record. At August 10,
1999, there were 2,143 United States shareholders of record, holding 2,700,436
shares, which represented approximately 15.2% of the outstanding shares.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
(a) There are no laws or governmental decrees or regulations in Canada that
restrict the export or import of capital, or affect the remittance of
dividends, interest or other payments to holders of the Company's
securities who are not residents of Canada, other than withholding tax
requirements. Reference is made to "Item 7. Taxation".
<PAGE> 21
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(b) There are no limitations imposed by the laws of Canada, the laws of Ontario
or by the charter or other governing documents of the Company on the right
of a non-resident to hold or vote common shares of the Company, other than
as provided in the Investment Canada Act (the "Investment Act"). The
following summarizes the principal features of the Investment Act for a
non-resident who proposes to acquire common shares. The summary is of a
general nature only and is not intended to be nor is it, a substitute of
independent advice from an investor's own advisor. The summary does not
anticipate statutory or regulatory amendments:
The Investment Act generally prohibits implementation of a reviewable investment
by an individual, government or agency thereof, corporation, partnership, trust
or joint venture that is not a "Canadian" as defined in the Investment Act (a
"non-Canadian"), unless after review, the minister responsible for the
Investment Act (the "Minister") is satisfied that the investment is likely to be
of a net benefit to Canada. Under the Investment Act, a United States citizen
qualifies as a "World Trade Organization Investor." Subject to the restrictions
noted below, an investment in a Canadian business by a World Trade Organization
Investor would be reviewable under the Investment Act only if it is an
investment to acquire control of such Canadian business and the value of the
assets of the Canadian business as shown on its financial statements is not less
than a specified amount, which for 1999 is $184 million. An investment in the
shares of a Canadian business by a non-Canadian other than a "World Trade
Organization Investor" when the Company is not controlled by a World Trade
Organization Investor, would be reviewable under the Investment Act if it is an
investment to acquire control of the Canadian business and the value of the
assets of the Canadian business as shown on its financial statements is CDN$5
million or more, or if an order for review is made by the federal cabinet on the
grounds that the investment relates to Canada's cultural heritage or national
identity.
The acquisition by a World Trade Organization Investor of control of a Canadian
business in any of the following sectors is also subject to review if the value
of the assets of the Canadian business exceeds CDN$5 million (as shown on its
financial statements): uranium, financial services (except insurance),
transportation services and cultural businesses, which include broadcast media
(publication, distribution or sale of books, magazines, periodicals, newspapers,
music, film and video products and the exhibition of film and video products),
television and radio services. As the Company's business falls under the
aforementioned broadcast media sub-category, the acquisition of control of the
Company, in excess of the CDN$5million threshold, by a World Trade Organization
Investor would be subject to such review.
A non-Canadian would acquire control of the Company for purposes of the
Investment Act if the non- Canadian acquired a majority of the common shares.
The acquisition of less than a majority but one-third or more of the common
shares would be presumed to be an acquisition of control of the Company unless
it could be established that, on acquisition, the Company was not controlled in
fact by the acquirer through the ownership of common shares. Notwithstanding the
review provisions, any transaction involving the acquisition of control of a
Canadian business or the establishment of a new business in Canada by a
non-Canadian is a
<PAGE> 22
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notifiable transaction and must be reported to Industry Canada by the
non-Canadian making the investment either before or within thirty (30) days
after the investment.
Certain transactions relating to common shares are exempt from the Investment
Act, including:
(a) an acquisition of common shares by a person in the ordinary course of that
person's business as a trader or dealer in securities;
(b) an acquisition of control of the Company in connection with the realization
of security granted for a loan or other financial assistance and not for a
purpose related to the provisions of the Investment Act; and
(c) an acquisition of control of the Company by reason of an amalgamation,
merger, consolidation or corporate reorganization, following which the
ultimate direct or indirect control in fact of the Company, through the
ownership of common shares, remained unchanged.
COMPETITION ACT REVIEW
Investments giving rise to the acquisition or establishment, directly or
indirectly, by one or more persons of control over, or a significant interest in
the whole or part of a business of a competitor, supplier, customer or other
person are subject to substantive review by Canada's Competition Law Authority,
the Director of Investigation and Research (the "Director"). If or when the
Director concludes that a merger, whether by purchase or lease of shares or
assets, by amalgamation or by combination, or otherwise, prevents or lessens, or
is likely to prevent or lessen competition substantially, he may apply as may be
necessary to eliminate the substantial lessening or prevention of competition.
Such substantive merger review power applies to all mergers, whether or not they
meet limits for pre- notification under the Competition Act.
In addition to substantive merger review, the Competition Act provides for a
pre-notification regime respecting mergers of certain size. The regime applies
in respect of share acquisitions, asset acquisitions, amalgamations and
combinations, for ease of reference. This filing refers specifically to share
acquisition, although the pre-notification regime applies, with the appropriate
modification, to other types of acquisition of control as well.
In order for a share acquisition transaction to be pre-notifiable, the parties
to the transaction (being the person or persons who proposed to acquire shares,
and the Corporation the shares of which are to be acquired), together with their
affiliates (being all firms with a 50% or more voting shares linkage up and down
the chain) must have:
(i) aggregate gross assets in Canada that exceed $400,000,000 in value, as
shown on their audited financial statements for the most recently
completed fiscal year (which must be within the last fifteen (15)
months); or
<PAGE> 23
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(ii) aggregate gross revenue from sales in, from or into Canada that exceed
$400,000,000 for the most recently completed fiscal year shown on the
said financial statements; and
(iii) the party being acquired or corporations controlled by that party must
have gross assets in Canada, or gross revenues from sales in or from
Canada, exceeding $35,000,000 as shown on the said financial statements.
Acquisition of shares carrying up to 20% of the votes of a publicly
traded corporation, or 35% of the votes in a private corporation will
not be subject to pre-notification, regardless of the above thresholds.
However, exceeding the 20% or the 35% threshold, and again exceeding the
50% threshold, gives rise to an obligation of notification if the size
threshold is met.
If a transaction is pre-notifiable, a filing must be made with the Director
containing the prescribed information with respect to the parties, and a waiting
period, (either seven or twenty-one days, depending on whether a long or short
form filing is chosen) must expire prior to closing.
As an alternative to pre-notification, the Director may grant an Advance Ruling
Certificate which exempts the transaction from pre-notification. Advance Ruling
Certificates are granted where the Director concludes, based on the information
provided to him, that he would not have sufficient grounds on which to apply to
the Competition Tribunal to challenge the Merger.
ITEM 7. TAXATION
The following summary describes the principal Canadian federal income tax
considerations generally applicable to a holder of the Company's shares who, for
purposes of the Income Tax Act (Canada) (the "Canadian Tax Act") and the
Canada-United States Income Tax Convention, 1980 (the "Convention") and at all
relevant times is resident in the United States and not resident in Canada,
deals at arm's length with the Company, holds the Company's shares as capital
property, and does not use or hold and is not deemed to use or hold the
Company's shares in or in the course of carrying on business in Canada (a
"United States Holder").
This following summary is based upon the current provisions of the Canadian Tax
Act, the regulations thereunder, all specific proposals to amend the Canadian
Tax Act and the regulations announced by the Minister of Finance (Canada) prior
to the date hereof and the Company's understanding of the published
administrative practices of Revenue Canada, Customs, Excise and Taxation. This
summary does not take into account or anticipate any other changes in the
governing law, whether by judicial, governmental or legislative decision or
action, nor does it take into account the tax legislation or considerations of
any province, territory or non-Canadian (including U.S.) jurisdiction, which
legislation or considerations may differ significantly from those described
herein.
This summary is of a general nature only and is not intended to be, and should
not be interpreted as, legal or tax advice to any prospective purchaser or
holder of the Company's shares and no
<PAGE> 24
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representation with respect to the Canadian federal income tax consequences to
any such prospective purchaser is made. Accordingly, prospective purchasers of
the Company's shares should consult with their own tax advisors with respect to
their individual circumstances.
DIVIDENDS ON THE COMPANY'S SHARES
Generally, dividends paid by Canadian corporations to non-resident shareholders
are subject to a withholding tax of 25% of the gross amount of such dividends.
However, pursuant to the Convention, the withholding tax rate on the gross
amount of dividends paid to residents of the United States is reduced to 15% or,
in the case of a U.S. corporation which owns at least 10% of the voting stock of
the Canadian corporation paying the dividends, to 5% of the gross amount of such
dividends.
Pursuant to the Convention, certain tax-exempt entities resident in the United
States may be exempt from Canadian withholding taxes, including any withholding
taxes levied in respect of dividends received on the Company's shares.
DISPOSITION OF THE COMPANY'S SHARES
In general, a United States shareholder will not be subject to Canadian income
tax on capital gains arising on the disposition of the Company's shares, unless
such shares are "taxable Canadian property" within the meaning of the Canadian
Tax Act and no relief is afforded under any applicable tax treaty. The shares of
the Company would be taxable Canadian property of a non-resident if at any time
during the five year period immediately preceding a disposition by the
non-resident of such shares, not less than 25% of the issued shares of any class
or series of all classes of shares of the Company belonged to the non-resident,
to persons with whom the non-resident did not deal at arm's length, or to the
non-resident and persons with whom the non-resident did not deal at arm's length
for purposes of the Canadian Tax Act. For this purpose, issued shares includes
options to acquire such shares (including conversion rights) held by such
persons. Under the Convention, a capital gain realized by a resident of the
United States will not be subject to Canadian tax unless the value of the shares
of the Company is derived principally from real estate (as defined in the
Convention) situated in Canada.
ITEM 8. SELECTED FINANCIAL DATA
The following selected financial data has been extracted from the financial
statements dated June 15, 1999 for the years ended August 31, 1998, 1997 and
1996 and for the periods ended May 31, 1999 and 1998. This financial data
reflects the carved-out operations of the Internet business of Videoflicks
Canada Limited on a continuity of interest basis.
<PAGE> 25
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VIDEOFLICKS.COM INC.
SELECTED FINANCIAL DATA
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
MAY 31 MAY 31
1999 1998 AUGUST 31 AUGUST 31 AUGUST 31
9 MONTHS 9 MONTHS 1998 1997 1996
(UNAUDITED) (UNAUDITED) 12 MONTHS 12 MONTHS 12 MONTHS
----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Operating Revenues $1,240,000 $ 621,000 $ 820,000 $ 431,000 $ 71,000
Operating Loss $ 356,000 $ 87,000 $ 113,000 $ 69,000 $ 45,000
Loss Per Share $ 0.021 $ 0.005 $ 0.007 $ 0.004 $ 0.003
Total Assets $1,478,000 $ 12,000 $ 12,000 $ 18,000 $ 27,000
Long Term Obligations $ 0 $ 0 $ 0 $ 0 $ 0
Redeemable Preferred $ 0 $ 0 $ 0 $ 0 $ 0
Stock
Cash Dividends Declared $ 0 $ 0 $ 0 $ 0 $ 0
Per Common Share
EXCHANGE RATES
(CDN$ TO US$)
Period End 0.6784 0.6866 0.6396 0.7203 0.7314
Average 0.6602 0.7042 0.6949 0.7310 0.7335
Low 0.6379 0.6809 0.6311 0.7130 0.7212
High 0.6922 0.7307 0.7307 0.7540 0.7535
EXCHANGE RATE @
JULY 21, 1999 - .6673
</TABLE>
The above selected financial data has been prepared in accordance with generally
accepted accounting principles in Canada which conform in all material respects
with accounting principles generally accepted in the United States. In the
preparation of the above selected financial data there were no material issues
requiring reconciliation of Canadian with United States generally accepted
accounting principles.
<PAGE> 26
- 26 -
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto included herein (see "Item 17. Financial
Statements"). The financial statements have been prepared in accordance with
generally accepted accounting principles in Canada which conform in all material
respects with accounting principles generally accepted in the United States. In
addition to historical information, the following discussion and analysis
includes forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ significantly from those expressed in the
forward-looking statements as a result of certain factors, including those
described in "Risk Factors" and elsewhere herein.
OVERVIEW
The Company sells movies on videotape and DVD formats through its Internet web
site at www.videoflicks.com. The Company is in its early stages as a public
company, having been formed as a public company by amalgamation in March, 1999.
Prior thereto the business of the Company was, since 1995, effectively operated
as a division of Videoflicks Canada Limited, a private company which, as its
principal business, owned , operated and franchised video retail outlets.
Management of Videoflicks Canada Limited, recognizing the potential of the
Internet as a retail medium, determined that it was essential to the success of
its Internet business that it have access to the public financial markets to
raise the necessary funds for advertising and web site development. Effective
November 30, 1998 Videoflicks Canada Limited completed a 'spin-out' of its
Internet business, transferring it to its wholly-owned subsidiary,
Videoflicks.com Limited which, in March, 1999 amalgamated with two other
companies to form the Company. Incidental to the amalgamation in March 1999, the
Company obtained $1,200,000 which had been raised by 1318780 Ontario Limited,
one of the amalgamating companies, in contemplation of the amalgamation.
The historical financial statements presented herein for the fiscal years ended
August 31, 1998, 1997, and 1996 reflect the carved-out operations of the
Internet business of Videoflicks Canada Limited on a continuity of interest
basis.
RESULTS OF OPERATIONS
The net loss for the period ended May 31, 1999 of $356,000 was comprised mostly
of the $221,000 charge for investor relations. The balance of $135,000 loss is
made up of increased costs of order processing, systems upgrades and preparing
for expansion in the near future.
Sales are recognized when products are shipped to customers and are net of any
allowances for returns. Sales figures include sale of product and shipping
revenue. For the periods 1995 through 1999 the average selling price of the
products has remained consistent. In 1999 a decision was made to reduce the
shipping charges to customers to a level that competitive companies were
<PAGE> 27
- 27 -
charging. Sales increased 100% for the nine months ending May 31, 1999 in
comparison to the same period ending 1998. This sales growth has been achieved
without the aid of advertising and is achieved due to competitive product
pricing, high customer service and prompt delivery meeting customers' needs.
Repeat customers represent 20% to 25% of orders.
The Company includes in cost of sales all products purchased and shipped to
customers, discounts from credit card purchases and costs of shipping.
The decrease in the gross profit for the nine-month period ended May 31, 1999
was due to management's decision to reduce shipping charges to competitor's
rate, as mentioned above, and to the implementation of partial shipments which
increased the shipping costs with no increase in revenues. This change has
reduced the margin on the gross profit figures in 1999.
The Company made significant investments in assets of computer hardware and
software to upgrade the web site and increase capacity for the future. The
Company believes that the continued development of its software and systems to
allow the consumer to purchase product more easily, to increase their selection
of product and to make the shopping experience more personalized and enjoyable
will increase its sales and customer base over the coming periods.
The increased prepaid expenses account includes retainers paid to an advertising
company and to an investor relations company. These prepaid items will be
expensed prior to the end of calendar 1999.
Advertising expenses include all marketing and advertising expenses. The Company
incurred no significant advertising expenses for the periods covered by the
financial statements herein. The figures shown in 1998 reflect an initial
on-line media buy and print purchase to see if advertising has an effect on the
number of visitors to the Internet site and an increase in sales. The results
indicated there is an increase that has led management to commit $600,000 of the
funds raised in March of 1999 for an initial advertising campaign to begin in
August of 1999.
The investor relations expenses, incurred shortly after the Company's shares
became publicly traded, relate to advertising the Company to the investment
community to increase the awareness of the stock. Management believes these
costs should be expensed when they are incurred instead of amortizing them over
a period of time, as the residual factor of the value after the advertising
cannot be determined.
Inventory of product for sale increased as the Company purchased hard to find
and specialized products for inventory. The Company has entered into an
agreement with Videoflicks Canada Limited to purchase product for sale at prices
that are the same as those purchased from a third party vendor. This agreement
allows the Company to purchase product from a secure source without having to
set up terms with suppliers or maintain a sizeable inventory. The advances from
Videoflicks Canada Limited reflect the accounts payable owed to it for these
purchases.
<PAGE> 28
- 28 -
Depreciation of capital assets has increased in 1999 over 1998 due to the
increase in asset purchases.
Site operating expenses include all costs associated with maintaining the
Internet web server. These costs include rental of the T1 transmission line,
hardware maintenance and software upgrade costs. The web server and connection
are fully scalable; they can be expanded if there is any increase in the number
of visitors to the Company's Internet web site. Future expansion of the web site
to the point where visitors increase from an average of approximately 33,000
users per day to 100,000 users per day will require the additional installation
of another T1 line or similar expansion.
Wages increased significantly between 1999 and 1998 as a result of increased
business activity. Due primarily to the increase in sales volumes, additional
staff were hired to fulfill orders and ship product in a timely manner. Since
this time, Company management has invested in streamlining the order processing
system by increasing efficiencies in data management and systems management. As
a result, management believes that future increases in sales will not lead to
corresponding increases in personnel to process orders and that the average
shipping costs per order will decrease. The increase in wages also reflects the
hiring of programmers in fiscal 1999 to enhance the web site and program better
tracking of customers products from ordering product through to the shipping
stages.
Increased administration costs, which include all office wages and general
expenses needed to run the Company, also reflect the increased business
activity; however these are not expected to significantly increase in the near
future.
The Company's operating premises currently comprise a total of 1,300 square
feet. If required, the Company can expand to 2,500 square feet at this location.
This includes no space for warehousing. Management believes that they will
outgrow this capacity in the near future and are looking at alternative
locations to meet the needs of anticipated future growth.
LIQUIDITY AND CAPITAL RESOURCES
Supplementary to the $1,200,000 raised in connection with the amalgamation, an
aggregate of 610,900 Series A Warrants of the Company were exercised up to May
31, 1999 from which the Company realized aggregate gross proceeds of $458,175
and subsequent to May 31, 1999 an additional 436,770 Series A Warrants of the
Company were exercised from which the Company realized aggregate gross proceeds
of $327,577.50; in total 1,047,670 Series A Warrants were exercised up to July
23, 1999, the date of expiry of the Series A Warrants, yielding aggregate gross
proceeds of $785,752.50. Pursuant to the exercise of the aforementioned Series A
Warrants an aggregate of 1,047,670 Series B Warrants were issued, of which 11
have been exercised, yielding aggregate gross proceeds of $12.65 to the Company.
Each Series B Warrant is exercisable to purchase one common share of the Company
at the price of $1.15 per share on or before November 23, 1999. If all of the
remaining 1,047,659 outstanding Series B Warrants are
<PAGE> 29
- 29 -
exercised, the Company will realize additional gross proceeds of $1,204,807.80.
The Company also has outstanding and contingent stock options exercisable to
purchase up to 2,240,000 Company common shares at $0.50 per share. The Company
has no short term or long term debt. Management believes cash on hand together
with cash flow from operations will be sufficient to fund operations and planned
capital expenditures for the current fiscal year and for the next twelve months.
In order to fund planned expansion, the Company will likely need to raise
additional equity or debt financing. There can be no assurance that additional
funding will be available or, if available, that it will be available on
acceptable terms. The inability of the Company to obtain additional funding
could have an adverse impact on the business, financial condition and future
prospects of the Company.
YEAR 2000
All of the Company's hardware and software systems used in connection with its
web site, data systems and order processing systems have been purchased during
the past three years and have all been certified by the manufacturers and
developers of same to be Year 2000 compliant. Testing by the Company of such
systems has confirmed that they are Year 2000 compliant. Consequently, the
Company does not believe that it presently has a material Year 2000 compliance
problem and accordingly does not presently anticipate having to incur any
material expenses in connection therewith.
The Company's business plan includes potential expansion through the acquisition
of businesses, technologies, products and services from other businesses. As the
Company continues to expand in this manner throughout calendar 1999, Year 2000
issues could result causing the Company to have to commit resources to address
same.
The Company also relies upon various vendors, utility companies,
telecommunications service companies, delivery service companies and other
service providers who are outside its control. There is no assurance that such
companies will not suffer a Year 2000 business disruption which could harm the
Company's business and financial condition. Furthermore, if third-party
equipment or software the Company uses in its business fails to operate properly
with regard to the Year 2000, it may need to incur significant unanticipated
expenses to remedy any such problems.
Management of the Company believes that if it does encounter any Year 2000
problems, it will be able to quickly remedy same through the purchase
off-the-shelf systems or by switching to other Year 2000 compliant subscribers.
The Company's failure to resolve any Year 2000 issues which may arise with
respect to its products and services could damage its business and revenues and
result in liability on its part for such failure. The Company's business and its
prospects may be permanently affected by either the liability it incurs to third
parties or the negative impact on its business reputation.
<PAGE> 30
- 30 -
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
The following table outlines the names and municipalities of residence of each
of the directors and officers of the Company and their principal occupations.
All persons have served in these capacities since the inception of the Company.
Each director is expected to hold these positions until the next Annual General
Meeting of shareholders.
<TABLE>
<CAPTION>
Name and Municipality
of Residence Office
--------------------- ------
<S> <C>
Michael P. Kavanagh Director, President and
Toronto, Ontario Chief Executive Officer
John Waddell Director, Vice-President
Toronto, Ontario Information Technology
Robert Bray* Director, Secretary-Treasurer,
Toronto, Ontario Chief Financial Officer
Allen Karp* Director
Toronto, Ontario
</TABLE>
[FN]
Notes:
1. * denotes a member of the Audit Committee of the Board of Directors.
2. The Company does not have an executive committee of the Board of Directors.
</FN>
DIRECTORS AND OFFICERS
Michael P. Kavanagh is the President and a director of Videoflicks Canada
Limited which he founded in 1981. Videoflicks Canada Limited presently has 35
video rental/sales stores of which 31 are franchised. Mr. Kavanagh is also Chief
Executive Officer of MSO Construction Co., a private company with 300 employees
and CDN$25 million in annual sales, and T.J. Pounder (Ontario) Ltd., a private
family manufacturing company.
John Waddell has been chief programmer in charge of information technology for
Videoflicks Canada Limited since 1983. Mr. Waddell has developed many
proprietary systems for tracking and processing sales and managing inventory and
is responsible for developing and maintaining the computerized data base and
hardware requirements for systems management. He functions as the chief
programmer for the Videoflicks.com web site. Mr. Waddell received his Masters of
Science degree from the University of Guelph, Ontario in 1973.
<PAGE> 31
- 31 -
Robert Bray is the chief financial officer of Videoflicks Canada Limited since
1989, during the course of which he has designed and implemented accounting
systems and related corporate structures. Mr. Bray holds an MBA degree from the
University of Toronto, an Honours BA in Economics from York University, and is a
Certified General Accountant.
Allen Karp, Q.C. is Chairman and Chief Executive Officer of Cineplex Odeon
Corporation, the Canadian subsidiary of Loews Cineplex Entertainment Corporation
and a Director of Loews Cineplex Entertainment Corporation. For the past eight
years, Mr. Karp has served as President and Chief Executive Officer of Cineplex
Odeon. Mr. Karp practised corporate law, ultimately as a senior partner with the
law firm of Goodman and Carr, Toronto, from 1966 until 1986, the year in which
he also received his appointment as Queen's Counsel. During his career as a
business lawyer, he became a Director and senior legal advisor to many Canadian
and U.S. corporations, both private and public. Mr. Karp is also the author of a
variety of legal articles and papers and lectured extensively in the fields of
taxation, corporate and commercial law and, his primary specialty, the field of
franchising and licensing. In addition to the Board of Cineplex Odeon
Corporation, Mr. Karp sits on the Boards of Loews Cineplex Entertainment
Corporation, Speedy Muffler King Inc., Alliance/Atlantis Communications Inc.,
Teknion Corporation. He is also involved in various community activities
including the Boards of Canadian Film Centre, for which he is Chair of the "Fast
Forward" Capital Campaign, the Toronto International Film Festival/Cinematheque
Ontario, for which he is Chairman, the Motion Picture Pioneers and the Council
for Canadian Unity. As well, Mr. Karp is a member of the Canadian Civil
Liberties Association.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
EMPLOYMENT CONTRACTS
The Company is party to Employment Agreements with each of Michael Kavanagh,
Chief Executive Officer, President and a director, John Waddell, Vice-President,
Information Technology and a director, and Robert Bray, Secretary-Treasurer,
Chief Financial Officer and director, pursuant to which, respectively:
(a) Michael Kavanagh is entitled to an annual salary of $1.00 and an annual
bonus equal to 2% of annual revenues up to $10 million and 1% of annual
revenues in excess of $10 million. In the event of a change of control of
the Company he will receive a lump sum payment equal to three (3) times the
amount of the last annual bonus paid, or will have his employment is
extended for a further three (3) year period on the same terms and
conditions. If his employment is terminated without cause, at any time he
will receive a lump sum payment equal to two (2) times the most recent
annual bonus paid to him.
<PAGE> 32
- 32 -
(b) John Waddell is entitled to an annual salary CDN$125,000 per annum and in
the event that his employment is terminated without cause prior to the end
of its one year term, or any renewal thereof, a lump sum payment equal to
two (2) years' annual salary.
(c) Robert Bray is entitled to an annual salary of CDN$75,000 per annum and in
the event that his employment is terminated without cause prior to the end
of its one year term, or any renewal thereof, a lump sum payment equal to
two (2) years' annual salary.
COMPENSATION OF DIRECTORS
No amount has been set aside or accrued by the Company for the current fiscal
year of the Company to provide pension, retirement or similar benefits for
directors and officers of the Company, pursuant to any existing plan provided or
contributed to by the Company.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
WARRANTS
Upon the amalgamation forming the Company on March 23, 1999, the Company issued
an aggregate of 4,180,200 Series A Warrants. Each Series A Warrant was
exercisable on or before July 23, 1999 at the exercise price of $0.75 to acquire
one (1) common share and one (1) Series B Warrant of the Company. As of the date
hereof, 1,047,670 Series A Warrants and 11 Series B Warrants have been
exercised. As of August 10, 1999 there were 1,047,659 Series B Warrants issued
and outstanding. Each Series B Warrant is exercisable on or before November 23,
1999 to acquire one (1) common share of the Company for $1.15 per share. None of
the Series A Warrants of the Company were, and none of the Series B Warrants
are, beneficially owned by directors or officers of the Company.
STOCK OPTION PLAN
The Company maintains a stock option plan pursuant to which the Board of
Directors of the Company may grant options exercisable to purchase up to a
maximum of 4,000,000 common shares of the Company to executive officers,
directors, employees and consultants of the Company in such numbers, for such
periods of time and at the exercise prices as the Board may approve and
according to the rules and regulations of any stock exchange or over-the-counter
market on which the common shares may be listed or quoted for trading from time
to time.
The following table sets out information relating to options to purchase common
shares granted by the Company under its stock option plan that are outstanding
as at the date hereof with the number of persons in each category shown in
parentheses:
<PAGE> 33
- 33 -
<TABLE>
<CAPTION>
Number of
Common Exercise
Shares Price Expiry
Optioned /Share Date
-------- ------ ----
<S> <C> <C> <C>
Directors and 1,600,000 $0.50 March 23, 2004
Officers 300,000 $0.50 April 22, 2004
---------
1,900,000
All Other Option 140,000(1) $0.50 April 22, 2004
Holders
Total 2,040,000(1)(2)
</TABLE>
[FN]
(1) Options to acquire an additional 200,000 common shares at $0.50 per share
on or before April 22, 2004 have been granted subject to compliance of such
grant with applicable securities legislation.
(2) All Options vest as to one third thereof on each of the first, second and
third anniversaries of their date of grant except for 800,000 Options
granted to Michael Kavanagh, Director, President and Chief Executive
Officer, all of which vest immediately.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
(a) Upon amalgamation, the Company succeeded to the following agreements:
1) A Supply Agreement which was made between Videoflicks Canada
Limited, a Company of which Michael Kavanagh and his spouse
together beneficially own 100% of equity shares, and its
wholly-owned subsidiary, Videoflicks.com Limited, under which
Videoflicks Canada Limited agreed to sell videos to
Videoflicks.com Limited at the wholesale catalogue price charged
by arm's length wholesalers of videos, plus shipping and
applicable taxes;
2) A Sub-Lease Agreement made between Videoflicks Canada Limited and
Videoflicks.com Limited pursuant to which the Company sub-leases
15% of the space leased by Videoflicks Canada Limited at 1654
Avenue Road, Toronto, Ontario; and
3) Employment Agreements made between Videoflicks.com Limited and
each of Michael Kavanagh, John Waddell and Robert Bray as
described in more detail under "Employment Contracts" under Item
11 hereof.
<PAGE> 34
- 34 -
Subsequent to the amalgamation the Company entered into stock option agreements
with its directors and officers pursuant to which the Company granted options to
purchase up to 1,900,000 common shares of the Company at $0.50 per share, as
described under "Stock Option Plan" above.
(b) None of the officers or directors of the Company or any of their
associates are currently indebted to the Company or has been so
indebted at any time in the last three years.
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
The holders of the common shares ("Common Shares") of the Company shall be
entitled to vote at all meetings of shareholders except meetings at which only
holders of a specified class of shares are entitled to vote, and holders of
common shares shall be entitled to one vote for each Common Share held and,
subject to the rights, privileges, restrictions and conditions attaching to any
other class of shares of the Company, to receive the remaining property of the
Company upon the dissolution of the Company. Holders of the Common Shares shall
not have pre-emptive rights or any liability for further calls or assessments by
the Company. Holders of Common Shares have no right to receive dividends unless
same are declared by the board of directors to be payable in respect of the
Common Shares. The Common Shares are not redeemable by the Company.
ITEM 17. FINANCIAL STATEMENTS
Audited balance sheet as at August 31, 1998 and August 31, 1997 and the audited
statements of operations, deficit and cash flow for the years ended August 31,
1998, August 31, 1997 and August 31, 1996, which are reported on by BDO Dunwoody
LLP. Also included are unaudited balance sheet and statements of operations,
deficit and cash flow for period ended May 31, 1999 and May 31, 1998 which have
not been reported on by BDO Dunwoody LLP. The historical financial statements
for the years ended August 31, 1998, 1997 and 1996 reflects the carved-out
operations of the Internet business of Videoflicks Canada Limited on a
continuity of interest basis. The financial statements have been prepared by
management of the Company in accordance with generally accepted accounting
principles in Canada which are not materially different from generally accepted
accounting principles in the United States. In the preparation of the financial
statements there were no material issues requiring reconciliation of Canadian
with United States generally accepted accounting principles.
<PAGE> 35
- 35 -
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements
Audited balance sheet as at August 31, 1998 and August 31, 1997 and the audited
statements of operations, deficit and cash flow for the years ended August 31,
1998, August 31, 1997 and August 31, 1996, reported on by BDO Dunwoody LLP. Also
included are unaudited balance sheet and statements of operations, deficit and
cash flow for the periods ended May 31, 1999 and May 31, 1998 which have not
been reported on by BDO Dunwoody LLP. The historical financial statements for
the years ended August 31, 1998, 1997 and 1996 reflects the carved-out
operations of the Internet business of Videoflicks Canada Limited on a
continuity of interest basis. The financial statements have been prepared by
management of the Company in accordance with generally accepted accounting
principles in Canada which are not materially different from generally accepted
accounting principles in the United States. In the preparation of the financial
statements there were no material issues requiring reconciliation of Canadian
with United States generally accepted accounting principles.
(2) Exhibits
None of the following Exhibits have been previously filed with the
Securities and Exchange Commission
1. Articles of Amalgamation and By-laws
2. Material Agreements
2.1 Employment Agreement with Michael Kavanagh
2.2 Employment Agreement with Robert Bray
2.3 Employment Agreement with John Waddell
2.4 Supply Agreement with Videoflicks Canada Limited
2.5 Sub-lease Agreement with Videoflicks Canada Limited
2.6 Stock Option Agreement with Michael Kavanagh
2.7 Stock Option Agreement with Robert Bray
2.8 Stock Option Agreement with John Waddell
2.9 Stock Option Agreement with Alan Karp
<PAGE> 36
- 36 -
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
VIDEOFLICKS.COM INC.
By: /s/ MICHAEL KAVANAGH
-------------------------------
Michael P. Kavanagh,
President and
Chief Executive Officer
August 20, 1999
<PAGE> 37
VIDEOFLICKS.COM INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
AND FOR THE PERIODS ENDED MAY 31, 1999 AND 1998
[LOGO]
[BDO Dunwoody LLP]
<PAGE> 38
VIDEOFLICKS.COM INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
AND FOR THE PERIODS ENDED MAY 31, 1999 AND 1998
<TABLE>
<CAPTION>
CONTENTS
--------
<S> <C>
AUDITOR'S REPORT 2
Financial Statements
Balance Sheet 3
Statement of Deficit 4
Statements of Operations 5
Statements of Cash Flows 6
Summary of Significant Accounting Policies 7 to 8
Notes to Financial Statements 9 to 14
</TABLE>
<PAGE> 39
[LOGO]
[BDO Dunwoody LLP]
AUDITOR'S REPORT
TO THE DIRECTORS OF
VIDEOFLICKS.COM INC.
We have audited the balance sheet of Videoflicks.com Inc. as at August 31, 1998
and August 31, 1997 and the statements of operations, deficit and cash flow for
the years ended August 31, 1998, August 31, 1997 and August 31, 1996. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at August 31, 1998 and August
31, 1997 and the results of its operations and its cash flows for the years
ended August 31, 1998, August 31, 1997 and August 31, 1996 in accordance with
Canadian generally accepted accounting principles.
BDO Dunwoody LLP
Chartered Accountants
Owen Sound, Ontario
June 15, 1999
<PAGE> 40
VIDEOFLICKS.COM INC.
BALANCE SHEET
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
MAY 31, AUGUST 31, August 31
1999 1998 1997
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT
Cash $ 944,000 $ - $ -
Accounts receivable 35,000 - -
Inventory 33,000 - -
Prepaid expenses and deposits 354,000 - -
---------- ---------- -----------
1,366,000 - -
CAPITAL ASSETS (Note 4) 112,000 12,000 18,000
---------- ---------- -----------
$1,478,000 $ 12,000 $ 18,000
========== ========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities $ 136,000 $ - $ 6,000
Due to related company (Note 5) 220,000 - -
---------- ---------- -----------
356,000 - 6,000
---------- ---------- -----------
SHAREHOLDERS' EQUITY
Share capital (Note 3) 1,471,000 - -
Net assets (deficit) (Page 4) (349,000) 12,000 12,000
---------- ---------- -----------
1,122,000 12,000 12,000
---------- ---------- -----------
$1,478,000 $ 12,000 $ 18,000
========== ========== ===========
</TABLE>
Approved by:
/s/ Michael Kavanagh
- ----------------------------------------------Director
/s/ Robert Bray
- ----------------------------------------------Director
THE ACCOMPANYING SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NOTES ARE AN
INTREGAL PART OF THESE FINANCIAL STATEMENTS.
3
<PAGE> 41
VIDEOFLICKS.COM INC.
STATEMENT OF DEFICIT
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
FOR THE NINE FOR THE YEAR For the year
MONTHS ENDED ENDED ended
MAY 31, AUGUST 31, August 31
1999 1998 1997
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
NET ASSETS, beginning of the period $ 12,000 $ 12,000 $ 12,000
NET LOSS FOR THE PERIOD (Page 5) (356,000) (113,000) (69,000)
CAPITAL CONTRIBUTION TO INTERNET OPERATIONS PRIOR TO
ACQUISITION (Note 7) 7,000 113,000 69,000
RECLASSIFICATION OF NET ASSETS ACQUIRED OF INTERNET
OPERATIONS TO SHARE CAPITAL (12,000) - -
----------- ----------- -----------
NET ASSETS (DEFICIT), end of the period $ (349,000) $ 12,000 $ 12,000
=========== =========== ===========
</TABLE>
THE ACCOMPANYING SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NOTES ARE AN
INTREGAL PART OF THESE FINANCIAL STATEMENTS.
4
<PAGE> 42
VIDEOFLICKS.COM INC.
STATEMENT OF OPERATIONS
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
MAY 1999 May 1998 AUGUST 1998 August 1997 August 1996
9 MONTHS 9 months 12 MONTHS 12 months 12 months
-------- -------- --------- --------- ---------
FOR THE PERIODS ENDED (UNAUDITED) (Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUE $ 1,240,000 $ 621,000 $ 820,000 $ 431,000 $ 71,000
COST OF SALES 893,000 419,000 553,000 290,000 54,000
------------- ----------- ----------- ----------- ----------
GROSS PROFIT 347,000 202,000 267,000 141,000 17,000
------------- ----------- ----------- ----------- ----------
EXPENSES
Advertising 4,000 23,000 23,000 - -
Site operating 51,000 71,000 88,000 26,000 15,000
Wages and benefits 231,000 86,000 124,000 89,000 10,000
Information Technology
Department wages 102,000 52,000 69,000 39,000 -
Rent 15,000 16,000 21,000 22,000 21,000
Administration 66,000 37,000 49,000 26,000 7,000
Amortization on capital
assets 13,000 4,000 6,000 8,000 9,000
Investor relations 221,000 - - - -
------------- ----------- ----------- ----------- ----------
703,000 289,000 380,000 210,000 62,000
------------- ----------- ----------- ----------- ----------
OPERATING LOSS FOR PERIOD $ (356,000) $ (87,000) $ (113,000) $ (69,000) $ (45,000)
============= =========== ========== =========== ==========
LOSS PER SHARE (NOTE 6) $ (0.021) $ (0.005) $ (0.007) $ (0.004) $ (0.003)
============= =========== ========== =========== ==========
</TABLE>
THE ACCOMPANYING SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NOTES ARE AN
INTREGAL PART OF THESE FINANCIAL STATEMENTS.
5
<PAGE> 43
VIDEOFLICKS.COM INC.
STATEMENT OF CASH FLOWS
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
MAY 1999 May 1998 AUGUST 1998 August 1997 August 1996
9 MONTHS 9 months 12 MONTHS 12 months 12 months
-------- -------- --------- --------- ---------
FOR THE PERIODS ENDED (UNAUDITED) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net loss for the period $ (356,000) $ (87,000) $ (113,000) $ (69,000) $ (45,000)
Amortization of capital
assets 13,000 4,000 6,000 8,000 9,000
Accounts receivable (35,000) - - - -
Inventory (33,000) - - - -
Prepaid expenses (354,000) - - - -
Accounts payable 136,000 (4,000) (6,000) (8,000) (9,000)
----------- ----------- ----------- ----------- -----------
(629,000) (87,000) (113,000) (69,000) (45,000)
----------- ----------- ----------- ----------- -----------
INVESTING ACTIVITIES
Purchase of capital assets (113,000) - - - -
Cash acquired upon
amalgamation (note 2(b)) 1,200,000 - - - -
----------- ----------- ----------- ----------- -----------
1,087,000 - - - -
----------- ----------- ----------- ----------- -----------
FINANCING ACTIVITIES
Advances (to) from Videoflicks
Canada Limited 220,000 - - - -
Proceeds from Series A
warrants 458,000 - - - -
Capital contribution to
internet operations
prior to acquisition (Note 7) 7,000 87,000 113,000 69,000 45,000
Net issue costs (199,000) - - - -
----------- ----------- ----------- ----------- -----------
486,000 87,000 113,000 69,000 45,000
----------- ----------- ----------- ----------- -----------
INCREASE IN CASH
DURING THE PERIOD 944,000 - - - -
CASH, beginning of period - - - - -
----------- ----------- ----------- ----------- -----------
CASH, end of period $ 944,000 $ - $ - $ - $ -
=========== ========== ========= =========== ===========
</TABLE>
THE ACCOMPANYING SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NOTES ARE AN
INTREGAL PART OF THESE FINANCIAL STATEMENTS.
6
<PAGE> 44
VIDEOFLICKS.COM INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(EXPRESSED IN UNITED STATES DOLLARS)
AUGUST 31, 1998, 1997 AND 1996 AND MAY 31, 1999 AND 1998 (UNAUDITED)
NATURE OF BUSINESS Videoflicks.com Inc. ("The Company") was
amalgamated under the laws of Ontario March
23, 1999. The company is engaged in the
business of selling pre-recorded video/movie
cassettes through an internet world wide site.
BASIS OF FINANCIAL STATEMENTS The financial statements are stated in United
States dollars "the reporting currency". The
transactions of the company have been recorded
during the period in Canadian dollars, "the
functional currency". The translation of
Canadian dollars into United States dollars
have been made at the period end exchange rate
for balance sheet items and the average
exchange rate for the period for revenues,
expenses, gains and losses. Translation
adjustments for the periods presented are not
material.
These financial statements have been prepared
by management in accordance with generally
accepted accounting principles in Canada,
which are not materially different from
generally accepted accounting principles in
the United States.
REVENUE RECOGNITION Revenue is recognized when the order is
shipped and payment has been confirmed.
ACCOUNTING ESTIMATES The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make
estimates and assumptions that affect the
reported amounts of assets and liabilities and
disclosure of contingent assets and
liabilities at the date of the financial
statements and the reported amounts of
revenues and expenses during the reporting
period. Actual results could differ from those
estimated.
INVENTORY Inventory is stated at the lower of cost and
net realizable value.
CAPITAL ASSETS Management reviews long-lived assets for
impairment whenever events or changes in
circumstances indicate that the carrying
amount of an asset may not be recoverable,
and, if deemed impaired, measurement and
recording of an impairment loss is based on
the fair value of the asset.
Capital assets are recorded at cost less
accumulated amortization. Office equipment is
being amortized over three years on a straight
line basis.
Furniture and fixtures - 20% declining balance
Computer equipment - 30% declining balance
Computer software - 30% declining balance
7
<PAGE> 45
VIDEOFLICKS.COM INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(EXPRESSED IN UNITED STATES DOLLARS)
AUGUST 31, 1998, 1997 AND 1996 AND MAY 31, 1999 AND 1998 (UNAUDITED)
INCOME TAXES The company accounts for income taxes under
the assets and liability method. Under the
assets and liability method, deferred income
taxes are recognized for the tax consequences
of temporary differences by applying enacted
tax rates applicable to future years to
differences between the financial statement
carrying amounts and tax bases of existing
assets and liabilities.
FINANCIAL INSTRUMENTS The carrying amounts of financial instruments
of the company approximate their fair value
because of their short maturity.
8
<PAGE> 46
VIDEOFLICKS.COM INC.
NOTES TO FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
AUGUST 31, 1998, 1997 AND 1996 AND MAY 31, 1999 AND 1998 (UNAUDITED)
1. UNAUDITED INFORMATION
The financial statements include the unaudited balance sheet as of May 31,
1999 and the related statements of operations, deficit and cash flows for
the nine months ended May 31, 1998 and 1999. This unaudited information has
been prepared by the Company on the same basis as the audited statements
and, in management's opinion, reflect all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the
financial information, in accordance with Canadian generally accepted
accounting principles, for the periods presented. Results for interim
periods are not necessarily indicative of the results to be expected for
the entire year.
2. BUSINESS COMBINATIONS AND BASIS OF ACCOUNTING
(a) INCORPORATION AND BUSINESS ACQUISITION
Videoflicks.com Limited was incorporated under the laws of Ontario on
July 4, 1997 and issued 100 common shares for $100.
Effective November 30, 1998, the Company acquired from Videoflicks
Canada Limited the business of selling pre-recorded video/movie
cassettes through an internet world wide web site (the "Business") in
exchange for 7,999,900 common shares. For purposes of the exchange the
Business acquired was valued at $5,148,000, however for accounting
purposes the assets acquired are valued at their carrying values and
goodwill of $5,136,000 is not recorded because the companies were
under common control.
The net assets acquired at carrying values as at November 30, 1998
were as follows:
<TABLE>
<S> <C>
Computer equipment $ 11,000
Software 1,000
----------
Total consideration attributed to shares of
Videoflicks.com Limited $ 12,000
----------
</TABLE>
The historical financial statements for the years ended August 31,
1998, 1997 and 1996 reflect the carved-out operations of the internet
business of Videoflicks Canada Limited on a continuity of interest
basis.
(b) AMALGAMATION AND REVERSE TAKE OVER
Pursuant to an amalgamation agreement effective March 23, 1999, the
company was amalgamated with Mantaur Petroleum Corporation (Mantaur)
and 1318780 Ontario Limited (Ontco). The Amalgamated Company continues
under Videoflicks.com Inc.
Upon amalgamation all issued common shares of Mantaur and Ontco were
exchanged for units of Videoflicks.com Inc., each unit consisting of
one common share and one-half Series A Share Purchase Warrant. The
transaction results in the former shareholders of Videoflicks.com
Limited owning 47.7% of Amalgamated Videoflicks. If all of the Series
A Warrants referred to in Note 3(iii) are exercised the former
shareholders' holdings will be diluted to 38.2%. The former
shareholders of Videoflicks.com Limited will still own the controlling
block of shares and will have the majority representation on the Board
of Directors of Amalgamated Videoflicks therefore the amalgamation has
been treated for accounting purposes as an acquisition of Mantaur (the
acquirer for legal purposes) and Ontco by Videoflicks (the acquirer
for accounting purposes), referred to as a "reverse take-over".
Application of "reverse take-over" accounting results in the
following:
9
<PAGE> 47
VIDEOFLICKS.COM INC.
NOTES TO FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
AUGUST 31, 1998, 1997 AND 1996 AND MAY 31, 1999 AND 1998 (UNAUDITED)
2. BUSINESS COMBINATIONS AND BASIS OF ACCOUNTING (CONTINUED)
(i) Videoflicks is deemed to be the acquirer for accounting purposes; its
assets and liabilities are included in the balance sheet at their
carrying values.
(ii) The acquisition of Mantaur and Ontco is accounted for under the
purchase method. The net assets acquired at fair value as at March 23,
1999 were as follows:
<TABLE>
<CAPTION>
ONTCO MANTAUR
----- -------
<S> <C> <C>
Cash $1,200,000 $ -
Capital assets - 6,000
---------- ----------
1,200,000 6,000
---------- ----------
Less: Liabilities assumed
Accounts payable - 83,000
---------- ----------
Total consideration attributed to shares
of Amalgamated Videoflicks $1,200,000 $ (77,000)
========== ==========
</TABLE>
The deficit of Mantaur was recorded as a cost of issue
3. SHARE CAPITAL
(i) AUTHORIZED
Unlimited number of common shares
(ii) ISSUED
<TABLE>
<S> <C> <C>
Videoflicks.com Limited
Issued on incorporation 100 $ -
Shares issued upon purchase
of "Business" (Note 2(a)) 7,999,900 12,000
Mantaur Petroleum Corporation shareholders 5,960,462 -
1318780 Ontario shareholders 2,400,000 1,200,000
Advisory services fees 400,000 200,000
Cost of issue - (399,000)
---------- ----------
16,760,462 1,013,000
Series A Warrants exercised 610,900 458,000
---------- ----------
17,371,362 $1,471,000
========== ==========
</TABLE>
10
<PAGE> 48
VIDEOFLICKS.COM INC.
NOTES TO FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
AUGUST 31, 1998, 1997 AND 1996 AND MAY 31, 1999 AND 1998 (UNAUDITED)
3. SHARE CAPITAL (CONTINUED)
(iii) WARRANTS
Videoflicks.com Inc has the following warrants to issue common shares
outstanding:
<TABLE>
<CAPTION>
<C> <C>
SERIES A SERIES B
--------- --------
Warrants issued on amalgamation 4,180,200 -
Warrants exercised during the period (610,900) -
Warrants issued during the period - 610,900
--------- --------
Unexercised warrants at May 31, 1999 3,569,300 610,900
========= ========
</TABLE>
Series A Warrants are exercisable at $0.75 per warrant until four (4)
months following the effective date of the amalgamation to purchase
one Class B Unit; each Class B Unit consists of one Videoflicks.com
Inc. common share and one Videoflicks.com Inc. Series B Warrant. Each
Series B Warrant will enable the holder to subscribe for one
Videoflicks.com Inc. common share at $1.15 until eight (8) months
following the effective date of the amalgamation.
Subsequent to May 31, 1999 an additional 436,770 Series A Warrants
were exercised. The remaining 3,132,530 Series A Warrants expired on
July 23, 1999. A total of 1,047,670 Series B Warrants were issued and
11 were exercised by July 23, 1999.
(iv) STOCK OPTION PLAN
Videoflicks.com Inc. has established a directors, officers, eligible
employees and consultants stock option plan (the "Plan"). The maximum
number of common shares that may be reserved for issuance under the
Plan is limited to 4,000,000 common shares.
Subsequent to the Amalgamation on March 23, 1999, options were
granted to purchase 2,040,000 common shares at an exercise price of
$0.50 per share expiring in March and April, 2004. All options vest
as to one third thereof on each of the first, second and third
anniversaries of their date of grant except for 800,000 options
granted to one director, all of which vest immediately. Options to
acquire an additional 200,000 common shares at $0.50 per share on or
before April 22, 2004 have been granted subject to compliance of such
grant with applicable securities legislation.
11
<PAGE> 49
VIDEOFLICKS.COM INC.
NOTES TO FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
AUGUST 31, 1998, 1997 AND 1996 AND MAY 31, 1999 AND 1998 (UNAUDITED)
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
MAY 1999 AUGUST 1998
(UNAUDITED)
ACCUMULATED ACCUMULATED
COST AMORTIZATION COST AMORTIZATION
---- ------------ ---- ------------
<S> <C> <C> <C> <C>
Furniture and fixtures $ 18,000 $ 5,000 $ - $ -
Computer equipment 117,000 32,000 31,000 20,000
Computer software 17,000 3,000 2,000 1,000
---------- ---------- ---------- ----------
$ 152,000 $ 40,000 $ 33,000 $ 21,000
========== ========== ========== ==========
Net book value $ 112,000 $ 12,000
========== ==========
</TABLE>
5. RELATED PARTY TRANSACTIONS
Amounts due to related parties are as follows:
<TABLE>
<CAPTION>
MAY 1999 AUGUST 1998 August 1997
-------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Videoflicks Canada Limited $ 220,000 $ - $ -
</TABLE>
The company has entered into the following transactions with a related
party, Videoflicks Canada Limited. Videoflicks Canada Limited owns the
controlling block of shares of the Company.
<TABLE>
<CAPTION>
MAY 31, 1999
9 MONTHS
(UNAUDITED)
<S> <C>
Purchases and freight $ 708,000
Wages and benefits 106,000
Information Technology
Department wages 40,000
Rent 11,000
Administration 28,000
----------
$ 893,000
==========
</TABLE>
Cost of sales and operating expenses do not include any mark up from the
costs of Videoflicks Canada Limited.
Wages include a 15% mark-up on actual wages for payroll taxes and benefits.
Rent reflects the actual cost of the space maintained specifically for the
Internet Operations.
Administration expense is recorded at 15% of other operating expenses for
the period December 1, 1998 to March 23, 1999. This charge to Internet
Operations reflects an allocation of overhead costs including management,
administration, accounting services and office costs.
12
<PAGE> 50
VIDEOFLICKS.COM INC.
NOTES TO FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
AUGUST 31, 1998, 1997 AND 1996 AND MAY 31, 1999 AND 1998 (UNAUDITED)
6. LOSS PER SHARE
Loss per share has been calculated based on the weighted average number of
shares outstanding for each period. For the years ended August 31, 1998,
1997 and 1996 and the period ending May 31, 1998, the weighted number is
16,760,462 and represents the shares outstanding after the recapitalization
of the operating company and the amalgamation (see note 2). For the period
ended May 31, 1999 the weighted average number of shares is 16,829,822.
The Company had losses for all the periods presented, therefore the
exercise of the warrants and employee stock options would have an
antidilutive effect on loss per share.
7. CAPITAL CONTRIBUTION TO INTERNET OPERATIONS PRIOR TO ACQUISITION
The statements of operations represent the results of operations of the
internet operations on a continuity of interest basis. All losses incurred
prior to the acquisition on November 30, 1998 are losses of Videoflicks
Canada Limited which operated the internet operations. The capital
contributions, net of the losses, are presented as the assets of the
internet division.
8. INCOME TAXES
The reconciliation of income taxes calculated at the effective rate of
44.5% to the total tax provision as follows:
<TABLE>
<CAPTION>
FOR THE 9
MONTHS ENDED
MAY 31, 1999
(UNAUDITED)
-----------
<S> <C>
Income taxes (recovery) at statutory rates $ 155,000
Adjustment to valuation adjustment (155,000)
------------
$ -
============
Tax losses avaiable to reduce taxable income of future years $ 155,000
Less: Deferred tax assets valuation allowance (155,000)
------------
Net tax assets $ -
============
</TABLE>
The Company has net operation loss carry-forwards to reduce taxable income
of approximately $349,000 which expire during 2006.
13
<PAGE> 51
VIDEOFLICKS.COM INC.
NOTES TO FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
AUGUST 31, 1998, 1997 AND 1996 AND MAY 31, 1999 AND 1998 (UNAUDITED)
9. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000.
If the Year 2000 Issue is not addressed by the company and its major
customers, suppliers and other third party business associates, the impact
on the company's operations and financial reporting may range from minor
errors to significant systems failure which could affect the company's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the company,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
10. SEGMENTED INFORMATION
Approximately 75% of the Company's sales are to the United States with the
remaining 25% having no more than 5% concentrated in any one country. The
assets of the company are in Canada.
14
<PAGE> 1
EXHIBIT 1.
For Ministry Use Only Ontario Corporation Number
A l'usage exclusif du ministere Numero de la compagnie en Ontario
1346834
[ONTARIO LOGO]
Ministry of Ministere de
Consumer and Commercial la Consommation
Relations et du Commerce
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie que las presents
articles are effective on statuts entrent en vigueur la
MARCH 23, 1999 23 MARS, 1999
/s/ Carol D. Kirsh
-----------------------------
Director/Directeur
Business Corporations Act/Loi sur les societes par actions
- --------------------------------------------------------------------------------
ARTICLES OF AMALGAMATION
STATUS DE FUSION
1. The name of the Denomination sociale de la
amalgamated corporation is: compagnie issue de la fusion:
VIDEOFLICKS.COM INC.
- --------------------
2. The address of the registered Adresse du siege social:
office is:
106 Orenda Road
- --------------------------------------------------------------------------------
(Street & Number or R.R. Number & if Multi-Office Building give Room No.)
(Rue et numero, ou numero de la R.R. et, s'il s'agit
edifice a bureaux, numero du bureau)
Brampton, Ontario L6W 3W6
- --------------------------------------------------------------------------------
(Name of Municipality or Post Office) (Postal Code/
(Nom de la municipalite ou du bureau de poste) Code postal)
3. Number (or minimum and Nombre (ou nombres minimal et
maximum number) of maximal) d'administrateurs:
directors is:
A minimum of 3 and a maximum of 15
4. The director(s) is/are: Administrateur(s):
<TABLE>
<CAPTION>
Resident
Address for service, giving Street & No. or R.R. No., Canadian State
First Name, initials and surname Municipality and Postal code Yes or No
Domicile elu, y compris la rue et le numero, le numero Resident Canadien
Prenom, initiales et nom de familie de la R.R., ou le nom de la municipalite et le code postal Oui/Non
- ----------------------------------- ---------------------------------------------------------- -----------------
<S> <C> <C>
Michael P. Kavanagh 41 Old Forest Hill Rd., Toronto, Ont. M5P 2P8 Yes
John Waddell 386 Brookdale Ave., Toronto, Ont. M5M 3Y3 Yes
Robert Bray R.R. #2, Tottenham, Ont. L0G 1W0 Yes
Garfield J. Last 1 Highland Avenue, Toronto, Ont. M4W 2A2 Yes
Stephen R. Dattels 1 Chestnut Park Rd., Courtyard, Toronto, Ontario, M4W 1W4 Yes
</TABLE>
<PAGE> 2
CHECK A OR B
COCHER A OU B
5. [X] (A) The amalgamation agreement has been duly adopted by the
shareholders of each of the amalgamating corporations as required
by subsection 176(4) of the Business Corporations Act on the date
set out below.
(A) Les actionnaires de chaque compagnie qui fusionne ont dument adopte
la convention de fusion conformement au paragraphe 176(4) de la Loi
sur les compagnies a la date mentionnee ci-dessous.
[ ] (B) The amalgamation has been approved by the directors of each
amalgamating corporation by a resolution as required by section 177
of the Business Corporations Act on the date set out below.
The articles of amalgamation in substance contain the provisions of
the articles of incorporation of
(B) Les administrateurs de chaque compagnie qui fusionne ont approuve
la fusion par voie de resolution conformement a l'article 177 de la
Loi sur les compagnies a la date mentionnee ci-dessous.
Les statuts de fusion reprennent essentiellement les dispositions
des statuts constitutifs de
- --------------------------------------------------------------------------------
and are more particularly set out in these articles.
et sont enonces textuellement aux presents statuts.
<TABLE>
<CAPTION>
Names of amalgamating corporations Ontario Corporation Number Date of Adoption/Approval
Denomination sociale des
compagnies qui fusionnent Numero de la compagnie en Ontario Date d'adoption ou d'approbation
- ---------------------------------- --------------------------------- --------------------------------
<S> <C> <C>
Mantaur Petroleum Corporation 63514 March 17, 1999
1318780 Ontario Limited 1318780 March 17, 1999
Videoflicks.com Limited 1245146 February 1, 1999
</TABLE>
<PAGE> 3
6. Restrictions, if any, on business the corporation may carry on or on powers
the corporation may exercise.
Limites, s'il y a lieu, imposees aux activites commerciales ou aux pouvoirs
de la compagnie.
None.
7. The classes and any maximum number of shares that the corporation is
authorized to issue:
Categories et nombre maximal, s'il y a lieu, d'actions que la compagnie
est autorisee a emettre:
An unlimited number of common shares and an unlimited number of preference
shares issuable in series, both without nominal or par value.
<PAGE> 4
8. Rights, privileges, restrictions and conditions (if any) attaching to each
class of shares and directors authority with respect to any class of shares
which may be issued in series:
Droits, privileges, restrictions et conditions, s'il y a lieu, rattaches a
chaque categorie d'actions et pouvoirs des administrateurs relatifs a chaque
categorie d'actions qui peut etre emise en serie:
(a) The common and preference shares shall be without nominal or par value;
(b) The holders of the common shares shall be entitled to vote at all
meetings of shareholders except meeting at which only holders of a specified
class of shares are entitled to vote, and holders of common shares shall be
entitled to one vote for each common share held and, subject to the rights,
privileges, restrictions and conditions attaching to any other class of shares
of the Corporation, to receive the remaining property of the Corporation upon
the dissolution of the Amalgamated Corporation;
(c) The rights, privileges, restrictions and conditions attaching to the
preference shares as a class are as follows:
(i) The preference shares may from time to time be issued in one or
more series and, subject to the following provisions, and subject to the
issuance by the Director appointed under the Business Corporations Act, or
appropriate official designated by successive legislation as amended from
time to time, of a Certificate of Amendment of Articles in respect thereof,
the directors may by resolution fix from time to time before such issue the
number of shares which is to comprise each series and the designation,
rights, privileges, restrictions and conditions attaching to each series of
preference shares including, without limiting the generality of the
foregoing, the rate or amount of dividends or the method of calculating
dividends, whether cumulative or non-cumulative, the date(s) and place(s) of
payment thereof, the redemption, purchase for cancellation and/or conversion
prices and terms and conditions of redemption, purchase and/or conversion
(if any), any share purchase plan or sinking fund or other provisions and
the restrictions (if any) respecting payment of dividends on any shares
ranking junior to the preference shares.
(ii) The preference shares of each series shall, with respect to the
priority in payment of dividends and the distribution of assets or return of
capital in the event of liquidation, dissolution or winding-up of the
Amalgamated Corporation, whether voluntary or involuntary, or any other
return of capital or distribution of the assets of the Corporation among its
shareholders for the purpose of winding-up its affairs, rank a parity with
the preference shares of every other series of the same class and be
entitled to preference over the common shares and over any other shares of
the Corporation ranking junior to the preference shares. The preference
shares of any series may also be given such other preferences, not
inconsistent with these Articles, over the common shares and any other
shares of the Corporation ranking junior to such preference shares as may be
determined by the directors.
(iii) If any cumulative dividends, whether or not earned or declared,
declared non-cumulative dividends, or amounts payable on the return of
capital in respect of a series of preference shares are not paid in full,
all preference shares of other series of the same class shall participate
rateably in respect of accumulated cumulative dividends, declared
non-cumulative dividends, and amounts payable on return of capital.
(iv) The preference shares of any series may be made convertible into
common shares.
(v) The holders of the preference shares shall be entitled to receive
copies of the annual financial statements of the Corporation and the
auditors' report thereon to be submitted to the shareholders of the
Corporation at annual meetings and the holders of each series of preference
shares shall have such rights to attend and vote at meetings of shareholders
by restrictions on attendances or voting rights thereat as may be determined
by resolution of the board of directors; and
<PAGE> 5
(d) The holders of shares of a class or series shall not be entitled to
vote separately as a class or series or to dissent upon a proposal to amend the
Articles of the Corporation to:
(i) increase or decrease any maximum number of authorized shares of
such class, or increase any maximum number of authorized shares of a class
having rights or privileges equal or superior to the shares of such class;
(ii) effect an exchange, reclassification or cancellation of all or
part of the shares of such class; or
(iii) create a new class of shares equal or superior to the shares
of such class.
<PAGE> 6
9. The issue, transfer or ownership of shares is/is not restricted and the
restrictions (if any) are as follows:
L'emission, le transfert ou la propriete d'actions est/n'est pas restreinte.
Les restrictions, s'il y a lieu, sont les suivantes:
No restrictions.
10. Other provisions, (if any):
Autres dispositions, s'il y a lieu:
Nil.
11. The statements required by subsection 178(2) of the Business Corporations
Act are attached as Schedule "A".
Les declarations exigees aux termes du paragraphe 178(2) de la Loi sur les
compagnies constituent l'annexe "A".
12. A copy of the amalgamation agreement or directors resolutions (as the case
may be) is/are attached as Schedule "B".
Une copie de la convention de fusion ou les resolutions des administrateurs
(selon le cas) constitue(nt) l'annexe "B".
<PAGE> 7
These articles are signed in duplicate.
Les presents statuts sont signes en double exemplaire.
Names of the amalgamating corporations and signatures and descriptions of office
of their proper officers.
Denomination sociale des compagnies qui fusionnent, signature et fonction de
leurs dirigeants regulierement designes.
Mantaur Petroleum Corporation 1318780 Ontario Limited
/s/ Garfield J. Last /s/ Garfield J. Last
- ----------------------------- -----------------------
President President
Videoflicks.com Limited
/s/ Michael P. Kavanagh
- -----------------------------
President
<PAGE> 8
STATEMENT OF DIRECTOR
I, GARFIELD J. LAST, state that:
1. I am a Director of MANTAUR PETROLEUM CORPORATION one of the amalgamating
corporations (hereinafter called the "Corporation").
2. I have conducted such examinations of the books and records of the
Corporation and have made such inquiries and investigations as are necessary
to enable me to make this declaration.
3. I have satisfied myself that there are reasonable grounds for believing
that:
(a) the Corporation is and the amalgamating corporation will be able to pay
its liabilities as they become due;
(b) the realizable value of the assets of the amalgamated corporation will
not be less than the aggregate of its liabilities and stated capital of
all classes;
(c) no creditor of the corporation will be prejudiced by the amalgamation;
(d) adequate notice has been given to all known creditors of the
amalgamating corporations; and
(e) no creditor objects to the amalgamation.
DATED this 17th day of March, 1999
/s/ Garfield J. Last
- -----------------------------
GARFIELD J. LAST
<PAGE> 9
STATEMENT OF DIRECTOR
I, GARFIELD J. LAST, state that:
1. I am a Director of 1318780 ONTARIO LIMITED one of the amalgamating
corporations (hereinafter called the "Corporation").
2. I have conducted such examinations of the books and records of the
Corporation and have made such inquiries and investigations as are necessary
to enable me to make this declaration.
3. I have satisfied myself that there are reasonable grounds for believing
that:
(a) the Corporation is and the amalgamating corporation will be able to pay
its liabilities as they become due;
(b) the realizable value of the assets of the amalgamated corporation will
not be less than the aggregate of its liabilities and stated capital of
all classes;
(c) no creditor of the corporation will be prejudiced by the amalgamation;
(d) adequate notice has been given to all known creditors of the
amalgamating corporations; and
(e) no creditor objects to the amalgamation.
DATED this 17th day of March, 1999
/s/ Garfield J. Last
- -----------------------------
GARFIELD J. LAST
<PAGE> 10
STATEMENT OF DIRECTOR
I, MICHAEL KAVANAGH, state that:
1. I am a Director of VIDEOFLICKS.COM LIMITED one of the amalgamating
corporations (hereinafter called the "Corporation").
2. I have conducted such examinations of the books and records of the
Corporation and have made such inquiries and investigations as are necessary
to enable me to make this declaration.
3. I have satisfied myself that there are reasonable grounds for believing
that:
(a) the Corporation is and the amalgamating corporation will be able to pay
its liabilities as they become due;
(b) the realizable value of the assets of the amalgamated corporation will
not be less than the aggregate of its liabilities and stated capital of
all classes;
(c) no creditor of the corporation will be prejudiced by the amalgamation;
(d) adequate notice has been given to all known creditors of the
amalgamating corporations; and
(e) no creditor objects to the amalgamation.
DATED this 17th day of March, 1999
/s/ Michael Kavanagh
- -----------------------------
MICHAEL KAVANAGH
<PAGE> 11
SCHEDULE "B"
AMALGAMATION AGREEMENT
THIS AMALGAMATION AGREEMENT dated as of the 2nd day of February, 1999
B E T W E E N:
MANTAUR PETROLEUM CORPORATION, a corporation incorporated under
the laws of the Province of Ontario,
(hereinafter referred to as "MANTAUR")
OF THE FIRST PART;
- and -
VIDEOFLICKS.COM LIMITED, a corporation incorporated under the
laws of the Province of Ontario,
(hereinafter referred to as "VIDEOFLICKS")
OF THE SECOND PART;
- and -
1318780 ONTARIO LIMITED, a corporation incorporated under the
laws of the Province of Ontario,
(hereinafter referred to as "ONTCO")
OF THE THIRD PART;
WHEREAS Mantaur, Videoflicks and Ontco have agreed to amalgamate to form
one continuing corporation under the name Videoflicks.com Inc., pursuant to the
laws of the Province of Ontario.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
premises and the covenants, warranties, representations and conditions
hereinafter set forth and provided for, the parties hereto covenant and agree as
follows:
ARTICLE I
INTERPRETATION
1.1 DEFINITIONS
In this agreement, unless there is something in the subject matter or
context inconsistent
<PAGE> 12
- 2 -
therewith, the words and phrases set forth below shall have the meanings
ascribed thereto, namely:
(a) "AGREEMENT" means this Amalgamation Agreement;
(b) "AMALGAMATED CORPORATION" or "AMALCO" means the continuing corporation
constituted upon the Amalgamation becoming effective and the
Amalgamating Corporations amalgamating;
(c) "AMALCO COMMON SHARES" means the Common Shares without par value of
the Amalgamated Corporation;
(d) "AMALCO SERIES A WARRANT" means a warrant enabling the purchase of one
Amalco Common Share and one Amalco Series B Warrant at the price of
U.S. $0.75 until midnight four months next following the Effective
Date;
(e) "AMALCO SERIES B WARRANT" means a warrant enabling the purchase of one
Amalco Common Share at the price of U.S. $1.15 until midnight eight
months next following the Effective Date;
(f) "AMALGAMATING CORPORATIONS" means Mantaur, Videoflicks and Ontco;
(g) "CERTIFICATE OF AMALGAMATION" means the certificate provided for in
subsection 178(4) of the OBCA;
(h) "EFFECTIVE DATE" means the effective date set forth in the Certificate
of Amalgamation issued pursuant to the OBCA with respect to the
Amalgamation;
(i) "OBCA" means the Business Corporations Act, RSO 1990, c. B. 16,
including the regulations promulgated thereunder, both as amended from
time to time;
(j) "ONTCO CLASS A SHARES means the Class A Shares in the capital of
Ontco;
(k) "ONTCO COMMON SHARES" means the Common Shares in the capital of Ontco;
(k) "VIDEOFLICKS SHARES" means the Common Shares in the capital of
Videoflicks;
ARTICLE II
CONDITIONS PRECEDENT
2.1 This Agreement shall have no force and effect whatsoever and shall be null
and void unless:
(a) The holders of Mantaur Common Shares shall have approved this
Agreement, with or without amendment, in accordance with the requisite
majority of votes cast at the meeting convened to consider the same.
<PAGE> 13
- 3 -
(b) The holders of Ontco Common Shares and the holders of Videoflicks
Common Shares shall each have approved this Agreement, in writing or
in accordance with the requisite majority of votes cast at the meeting
convened to consider the same.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 The representations and warranties of each of the parties as set out in a
Pre-Amalgamation Agreement of even date herewith made between the parties
hereto, and Videoflicks Canada Limited (the "Pre-Amalgamation Agreement"), are
hereby incorporated by adoptions and such representations and warranties of each
of such party are hereby confirmed by each of the parties which made such
representations and warranties in the Pre-Amalgamation Agreement as being true
and correct as provided in the Pre-Amalgamation Agreement.
ARTICLE IV
AMENDMENT AND TERMINATION
4.1 This Agreement may, at any time and from time to time before and after the
holding of the meeting of Mantaur shareholders and after confirmation of this
Agreement by the Videoflicks, and Ontco shareholders, but not later than the
Effective Date, be amended by written agreement of all of Mantaur, Videoflicks
and Ontco without, subject to applicable law, further notice, to or
authorization of, the part of the shareholders of Mantaur, Videoflicks and
Ontco;
4.2 This Agreement may be terminated by any one of Mantaur, Videoflicks and
Ontco at any time prior to the issue of a Certificate of Amalgamation without
the further approval of the shareholders of Mantaur, Videoflicks and Ontco;
ARTICLE V
AMALGAMATION
5.1 The Amalgamating Corporations hereby agree to amalgamate pursuant to the
provisions of the OBCA and to continue as one corporation on the terms and
conditions set forth in this Agreement.
5.2 Mantaur shall call and hold a meeting of the holders of Mantaur Common
Shares to approve this Agreement.
5.3 Videoflicks shall call and hold a meeting of the holders of Videoflicks
Shares to approve this Agreement or obtain their unanimous written approval
thereof.
5.4 Ontco shall call and hold a meeting of the holders of Ontco Shares to
approve this Agreement or obtain their unanimous written approval thereof.
<PAGE> 14
- 4 -
5.5 On the Effective Date, the amalgamation of the Amalgamating Corporations and
their continuance as one corporation shall become effective; the property of
each Amalgamating Corporation shall continue to be the property of the
Amalgamated Corporation; the Amalgamated Corporation shall continue to be liable
for the obligations of each Amalgamating Corporation; any existing cause of
action, claim or liability to prosecution shall be unaffected; any civil,
criminal or administrative action or proceeding pending by or against an
Amalgamating Corporation may be continued to be prosecuted by or against the
Amalgamating Corporation; any conviction against, or ruling under a judgement in
favour of or against, an Amalgamating Corporation may be enforced by or against
the Amalgamated Corporation; and the Articles of Amalgamation with respect to
the Amalgamation shall be deemed to be the Articles of Incorporation of the
Amalgamated Corporation.
ARTICLE VI
AMALGAMATED CORPORATION
6.1 The name of the Amalgamated Corporation shall be Videoflicks.com Inc. or
such other name as may be approved by the Director appointed under the OBCA.
6.2 There shall be no restriction on the business which the Amalgamated
Corporation is authorized to carry on.
6.3 The registered office of the Amalgamated Corporation shall be in the City of
Brampton, in the Province of Ontario. Until changed by the board of directors,
the address of the registered office of the Amalgamated Corporation in the City
of Brampton, in the Province of Ontario, shall be 106 Orenda Road, Brampton,
Ontario, L6W 3W6.
6.4 (a) The Amalgamated Corporation shall be authorized to issue an unlimited
number of common shares and an unlimited number of preference shares
issuable in series, both without nominal or par value;
(b) The holders of the common shares shall be entitled to vote at all
meetings of shareholders except meeting at which only holders of a
specified class of shares are entitled to vote, and holders of common
shares shall be entitled to one vote for each common share held and,
subject to the rights, privileges, restrictions and conditions
attaching to any other class of shares of the Amalgamated Corporation,
to receive the remaining property of the Amalgamated Corporation upon
the dissolution of the Amalgamated Corporation;
(c) The rights, privileges, restrictions and conditions attaching to the
preference shares as a class are as follows:
(i) The preference shares may from time to time be issued in one or
more series and, subject to the following provisions, and subject
to the issuance by the Director appointed under the OBCA, or
appropriate official designated by successive legislation as
amended from time to time, of a Certificate of Amendment of
Articles in respect thereof, the directors may by resolution fix
from time to time before such issue the number of shares which is
to comprise
<PAGE> 15
- 5 -
each series and the designation, rights, privileges, restrictions
and conditions attaching to each series of preference shares
including, without limiting the generality of the foregoing, the
rate or amount of dividends or the method of calculating
dividends, whether cumulative or non-cumulative, the date(s) and
place(s) of payment thereof, the redemption, purchase for
cancellation and/or conversion prices and terms and conditions of
redemption, purchase and/or conversion (if any), any share
purchase plan or sinking fund or other provisions and the
restrictions (if any) respecting payment of dividends on any
shares ranking junior to the preference shares.
(ii) The preference shares of each series shall, with respect to the
priority in payment of dividends and the distribution of assets
or return of capital in the event of liquidation, dissolution or
winding-up of the Amalgamated Corporation, whether voluntary or
involuntary, or any other return of capital or distribution of
the assets of the Amalgamated Corporation among its shareholders
for the purpose of winding-up its affairs, rank a parity with the
preference shares of every other series of the same class and be
entitled to preference over the common shares and over any other
shares of the Amalgamated Corporation ranking junior to the
preference shares. The preference shares of any series may also
be given such other preferences, not inconsistent with these
Articles, over the common shares and any other shares of the
Amalgamated Corporation ranking junior to such preference shares
as may be determined by the directors.
(iii) If any cumulative dividends, whether or not earned or declared,
declared non-cumulative dividends, or amounts payable on the
return of capital in respect of a series of preference shares are
not paid in full, all preference shares of other series of the
same class shall participate rateably in respect of accumulated
cumulative dividends, declared non-cumulative dividends, and
amounts payable on return of capital.
(iv) The preference shares of any series may be made convertible into
common shares.
(v) The holders of the preference shares shall be entitled to receive
copies of the annual financial statements of the Amalgamated
Corporation and the auditors' report thereon to be submitted to
the shareholders of the Amalgamated Corporation at annual
meetings and the holders of each series of preference shares
shall have such rights to attend and vote at meetings of
shareholders or restrictions on attendances or voting rights
thereat as may be determined by resolutions of the board of
directors; and
(d) The holders of shares of a class or series shall not be entitled to
vote separately as a class or series or to dissent upon a proposal to
amend the Articles of the Amalgamated Corporation to:
(i) increase or decrease any maximum number of authorized shares of
such class, or increase any maximum number of authorized shares
of a class having rights or privileges equal or superior to the
shares of such class;
<PAGE> 16
- 6 -
(ii) effect an exchange, reclassification or cancellation of all or
part of the shares of such class; or
(iii) create a new class of shares equal or superior to the shares of
such class.
6.5 There shall be no restrictions on the issue, transfer or ownership of shares
in the capital of the Amalgamated Corporation.
6.6 The board of directors of the Amalgamated Corporation shall, until otherwise
changed in accordance with the Act, consist of a minimum of three and a maximum
of eleven directors, the number of which the directors shall be empowered to fix
from time to time.
6.7 On the Effective Date, the number of directors shall be five (5). The first
directors of the Amalgamated Corporation shall be the persons whose names and
addresses appear below:
<TABLE>
<CAPTION>
FULL NAME RESIDENCE ADDRESS
<S> <C>
Michael P. Kavanagh 41 Old Forest Hill Road, Toronto, Ontario, M5P 2P8
John Waddell 386 Brookdale Avenue, Toronto, Ontario, M5M 3Y3
Robert Bray R.R. #2 Tottenham, Ontario, L0G 1W0
Garfield J. Last 1 Highland Avenue, Toronto, Ontario, M4W 2A2
Stephen R. Dattels 1 Chestnut Park Road, Courtyard, Toronto, Ontario, M4W 1W4
</TABLE>
Each of the foregoing is a resident of Canada.
Such directors shall hold office until the first annual meeting of the
Amalgamated Corporation or until their successors are duly elected or appointed.
6.8 The by-laws of the Amalgamated Corporation until repealed, amended or
altered shall be the by-laws of Mantaur.
6.9 Without limiting the borrowing powers of the Amalgamated Corporation as set
forth in the OBCA, as amended from time to time, the Amalgamated Corporation
may, from time to time, with or without the authority of any by-laws or the
authorization of the shareholders:
(a) Borrow money upon the credit of the Amalgamated Corporation including
by way of overdraft;
(b) Issue, reissue, sell or pledge bonds, debentures, notes or other
evidences of indebtedness or guarantees of the Amalgamated Corporation
whether secured or unsecured;
(c) Charge, mortgage, hypothecate, pledge or otherwise create a security
interest in the undertaking or in all or any currently owned or
subsequently acquired real or personal, movable or immovable property
of the Amalgamated Corporation, including book debts, rights, powers
and franchises, to secure any such bonds, debentures, notes or other
evidences or indebtedness or guarantees or any other present or future
indebtedness or liability of the Amalgamated Corporation; and
(d) For the purpose of the Special Corporate Powers Act of the Province of
Quebec, and
<PAGE> 17
- 7 -
without in any way limiting the powers conferred upon the Amalgamated
Corporation and its directors by section 184 or any other provisions
of the OBCA, the Amalgamated Corporation, for the purpose of securing
any bonds, debentures or debenture stock which it is by law entitled
to issue, may hypothecate, mortgage or pledge, and cede and transfer,
any property, movable or immovable, present or future, which it may
own in the Province of Quebec.
The foregoing powers or any of them may be exercised from time to time by
the directors of the Amalgamated Corporation and may be delegated from time to
time by them to any one or more persons whether or not directors or officers of
the Amalgamated Corporation with or without the authority of any by-law to that
effect.
6.10 The auditors of the Amalgamated Corporation shall be BDO Dunwoody LLP,
Chartered Accountants.
6.11 The Registrar and Transfer Agent of the Amalgamated Corporation shall be
Equity Transfer Services Inc.
ARTICLE VII
EXCHANGE OF SECURITIES
7.1 The shares in the capital of the Amalgamating Corporations which are issued
and outstanding immediately prior to the Effective Date shall, on and from the
Effective Date, be converted into issued and outstanding securities in the
capital of the Amalgamated Corporation as follows:
(a) Every five issued and outstanding Mantaur Common Shares shall be
converted into one issued and fully-paid Amalco Common Share, and
one-half of one Amalco Series A Warrant;
(b) Every one issued and outstanding Videoflicks Common Share shall be
converted into one issued and fully paid Amalco Common Share;
(c) Every one issued and outstanding Ontco Common Share shall be converted
into one issued and fully paid Amalco Common Share, and one-half of
one Amalco Series A Warrant;
(d) Every one issued and outstanding Ontco Class A Shares shall be
converted into one issued and fully paid Amalco Common Share.
7.2 The stated capital of Mantaur shall be reduced to the aggregate sum of
$1.00. The stated capital of the Amalgamated Corporation shall be equal to the
aggregate of the stated capitals of the Amalgamating Corporations immediately
prior to the Amalgamation becoming effective, (after giving effect to the
reduction in Mantaur's stated capital as aforesaid).
7.3 Where fractions of a share of a Series A Warrant result from the conversions
referred to in section 7.1, no fractional Shares will be issued and, instead
thereof, one whole share and one
<PAGE> 18
- 8 -
whole Series A Warrant shall be issued to the holders of Amalco Common or Amalco
Series A Warrants who would otherwise be entitled to receive a fraction of an
Amalco Common Share or an Amalco Series A Warrant.
ARTICLE VIII
SHARE CERTIFICATES
8.1 Dissenting shareholders who:
(a) ultimately are entitled to be paid fair value for their Mantaur Common
Shares shall be deemed to have had their Mantaur Common Shares
cancelled on the Effective Date and the Amalgamated Corporation shall
not be required to recognize such holders as shareholders of the
Amalgamated Corporation from and after the Effective Date and the
names of such holders shall be deleted from the register of holders of
Shares of the Amalgamated Corporation from and after the Effective
Date; and
(b) ultimately are not entitled to be paid fair value, for any reason, for
their Mantaur Common Shares which shall be deemed to have been
cancelled on the Effective Date, shall be deemed to have been issued
Amalgamated Shares for their Mantaur Common Shares on the Effective
Date as provided in section 7.1 hereof.
ARTICLE IX
TERMINATION OF AMALGAMATION AGREEMENT
9.1 Notwithstanding any other provision hereof, this Agreement may, prior to the
issuance of a Certificate of Amalgamation, be terminated by the board of
directors of any of Mantaur, Videoflicks or Ontco.
ARTICLE X
ARTICLES OF AMALGAMATION
10.1 Subject to section 9.1 hereof, after this Agreement has been approved in
accordance with the OBCA and all other terms and conditions contained in section
2.1 hereof have been fulfilled, the Amalgamating Corporations shall, on such day
as the directors of Mantaur, Videoflicks and Ontco may select, jointly file with
the Director under the OBCA, Articles of Amalgamation and such other documents
as may be required to complete their amalgamation.
ARTICLE XI
GENERAL
11.1 This Agreement may be executed in counterparts all of which taken together
shall constitute this Agreement.
<PAGE> 19
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11.2 Necessary changes in gender required to make this Agreement apply to either
corporations or individuals, males or females, will in all instances be assumed
as though in each case fully expressed.
11.3 This Agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario.
IN WITNESS WHEREOF this Agreement has been executed by the parties hereto.
MANTAUR PETROLEUM CORPORATION
By: /s/ GARFIELD J. LAST
---------------------------------------
GARFIELD J. LAST, President
VIDEOFLICKS.COM LIMITED
By: /s/ MICHAEL P. KAVANAGH
---------------------------------------
MICHAEL P. KAVANAGH, President
1318780 ONTARIO LIMITED
By: /s/ GARFIELD J. LAST
---------------------------------------
GARFIELD J. LAST, President
<PAGE> 20
1
BY-LAW NO. 1A
OF
MANTAUR PETROLEUM CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
ARTICLE 1 INTERPRETATION
1
ARTICLE 2 SEAL, REGISTERED OFFICE AND
FINANCIAL YEAR
2.1 Seal 1
2.2 Registered Office 2
2.3 Financial Year 2
ARTICLE 3 DIRECTORS
3.1 Power of Directors 2
3.2 Number and Quorum 2
3.3 Qualification 2
3.4 Resident Canadians 2
3.5 Election and Term 2
3.6 Removal of Directors 2
3.7 Vacancies 2
3.8 Vacation of Office 2
3.9 Committee of Directors 3
3.10 Transaction of Business 3
3.11 Procedure 3
3.12 Remuneration of Directors 3
3.13 Disclosure of Interest 3
ARTICLE 4 MEETING OF DIRECTORS
4.1 Notice of Meeting 3
4.2 First Meeting of New Board 3
4.3 Place of Meeting 4
4.4 Meetings by Telephone 4
4.5 Voting 4
4.6 Chairman 4
4.7 Transaction of Business by Signature 4
ARTICLE 5 OFFICERS
5.1 Appointment 4
5.2 Remuneration and Removal 4
5.3 Chairman of the Board 5
5.4 Managing Director 5
5.5 President 5
5.6 Vice-President 5
5.7 Secretary 5
</TABLE>
<PAGE> 21
2
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
5.8 Treasurer 5
5.9 Other Officers 5
5.10 Variation of Powers and Duties 5
5.11 Term of Office 6
ARTICLE 6 PROTECTION OF DIRECTORS AND OFFICERS AND OTHERS
6.1 Limitation of Liability 6
6.2 Indemnity 6
6.3 Insurance 6
ARTICLE 7 MEETINGS OF SHAREHOLDERS
7.1 Annual Meeting 6
7.2 Special Meetings 7
7.3 Place of Meetings 7
7.4 Notice 7
7.5 Omission of Notice 7
7.6 List of Shareholders Entitled to Notice 7
7.7 Record Date for Notice 7
7.8 Chairman, Secretary and Scrutineers 8
7.9 Persons Entitled to be Present 8
7.10 Quorum 8
7.11 Right to Vote 8
7.12 Representatives 8
7.13 Proxies 8
7.14 Time for Deposit of Proxies 9
7.15 Joint Shareholders 9
7.16 Votes to Govern 9
7.17 Show of Hands 9
7.18 Polls 9
7.19 Adjournment 9
7.20 Resolution in Writing 9
ARTICLE 8 SHARES AND TRANSFERS
8.1 Allotment and Issue 10
8.2 Payment of commissions 10
8.3 Registration of Transfer 10
8.4 Share Certificates 10
8.5 Transfer Agent and Registrar 10
8.6 Surrender of Certificates 11
8.7 Lien for Indebtedness 11
8.8 Enforcement of Lien 11
8.9 Non-Recognition of Trusts 11
8.10 Lost Certificates 11
8.11 Joint Shareholders 11
8.12 Deceased Shareholders 11
ARTICLE 9 VOTING SHARES IN OTHER COMPANIES 12
</TABLE>
<PAGE> 22
3
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
ARTICLE 10 INFORMATION AVAILABLE TO SHAREHOLDERS
10.1 Discovery of Information 12
10.2 Inspection of Records 12
ARTICLE 11 DIVIDENDS
11.1 Declaration 12
11.2 Payment 12
11.3 Non-Receipt of Cheques 13
11.4 Record Date for Dividends and Rights 13
11.5 Unclaimed Dividends 13
ARTICLE 12 NOTICES
12.1 Service 13
12.2 Shares Registered in Several Names 13
12.3 Entitlement by Operation of Law 13
12.4 Notice Deceased Shareholders 14
12.5 Signature to Notices 14
12.6 Computation of Time 14
12.7 Undelivered Notices 14
12.8 Omissions and Errors 14
12.9 Proof of Service 14
12.10 Waiver of Notice 14
ARTICLES 13 CUSTODY OF SECURITIES
13.1 Safekeeping 15
13.2 Nominees 15
ARTICLE 14 EXECUTION OF INSTRUMENTS
14.1 Cheques, Drafts and Notes 15
14.2 Contracts, Documents or Other Instrument 15
14.3 Sealing of Contracts 16
</TABLE>
<PAGE> 23
BY-LAW NO. 1A
a by-law relating generally
to the conduct of the affairs of
MANTAUR PETROLEUM CORPORATION
the "Corporation")
ARTICLE 1
INTERPRETATION
1.1 In this by-law and all other by-laws of the Corporation, unless the context
otherwise specifies or requires:
(i) "ACT" means the Business Corporations Act, R.S.O. 1990, c.
B.16 as from time to time amended and every statute that may
be substituted therefor;
(ii) "REGULATIONS" means the Regulations made under the Act as
from time to time amended and every regulation that may be
substituted therefor;
(iii) "BOARD" means the board of directors of the Corporation;
(iv) all terms which are used in this or any other by-law of the
Corporation and which are defined in the Act or the
Regulations shall have the meanings given to them in the Act
or the Regulations;
(v) words importing the singular number include the plural and
vice versa;
(vi) words importing the masculine gender include the feminine
and neuter genders; and
(vii) the word "person" includes individuals, bodies corporate,
corporations, companies, partnerships, syndicates, trusts
and unincorporated organizations.
ARTICLE 2
SEAL, REGISTERED OFFICE AND FINANCIAL YEAR
2.1 SEAL - The Corporation may but need not have a corporate seal. Any corporate
seal adopted for the Corporation shall be such as the board of directors may
from time to time approve by resolution.
<PAGE> 24
2
2.2 REGISTERED OFFICE - The shareholders may from time to time by special
resolution fix the municipality or geographic township in Ontario in which the
Corporation's registered office is located. The directors may from time to time
by resolution fix the location of the registered office within such municipality
or geographic township.
2.3 FINANCIAL YEAR - The financial year of the Corporation shall terminate on
such date in each year as the directors may from time to time by resolution
determine.
ARTICLE 3
DIRECTORS
3.1 POWER OF DIRECTORS - Subject to any unanimous shareholder agreement, the
directors shall manage or supervise the management of the business and affairs
of the Corporation.
3.2 NUMBER AND QUORUM - The board of directors shall consist of the number of
directors set out in the articles of the Corporation or, where a minimum and
maximum number is provided for in the articles, such number of directors as
shall be determined from time to time by special resolution or, if the special
resolution empowers the directors to determine the number, by resolution of the
directors. The quorum for the transaction of business at any meeting of the
board shall consist of two-fifths of the number of directors.
3.3 QUALIFICATION - Each director shall be eighteen (18) or more years of age
and no person who is not an individual, who has the status of a bankrupt or who
is of unsound mind and has been so found by a court in Canada or elsewhere shall
be a director. A director need not be a shareholder.
3.4 RESIDENT CANADIANS - A majority of the directors shall be resident
Canadians.
3.5 ELECTION AND TERM - The election of directors shall take place at each
annual meeting of shareholders and all the directors then in office shall retire
but, if qualified, shall be eligible for re-election. The number of directors to
be elected at any such meeting shall be the number of directors then in office
unless the directors or shareholders shall have otherwise determined in
accordance with the Act. If an election of directors is not held at the proper
time, the incumbent directors shall continue in office until their successors
are elected.
3.6 REMOVAL OF DIRECTORS - Subject to the provisions of the Act, the
shareholders may by ordinary resolution passed at an annual or special meeting
of shareholders, remove any director or directors from office before the
expiration of his term of office and the vacancy created by such removal may be
filled at the same meeting failing which it may be filled by the directors.
3.7 VACANCIES - Vacancies among the directors shall be filled in compliance with
the Act.
3.8 VACATION OF OFFICE - The office of a director shall ipso facto be vacated:
(a) if he dies; (b) if he becomes bankrupt or suspends payment of his debts
generally or compounds with his creditors or makes an authorized assignment or
is declared insolvent; (c) if he is found to be of unsound mind or a mentally
incompetent person; or (d) subject to the provisions of the Act if by notice in
writing to the Corporation he resigns his office. Any such resignation shall be
<PAGE> 25
3
effective at the time it is sent to the Corporation or at the time specified in
the notice, whichever is later.
3.9 COMMITTEE OF DIRECTORS - The directors may appoint from among their number a
committee of directors and, subject to the provisions of the Act, may delegate
to such committee any of the powers of the directors. A majority of the
directors of any such committee must be resident Canadians.
3.10 TRANSACTION OF BUSINESS - The powers of a committee of directors may be
exercised by a meeting at which a quorum is present or by resolution in writing
signed by all the members of such committee who would have been entitled to vote
on that resolution at a meeting of the committee. Meetings of such committee may
be held at any place within or outside Ontario.
3.11 PROCEDURE - Unless otherwise determined by the board, each committee shall
have the power to fix its quorum at not less than a majority of its members, to
elect its chairman and to regulate its procedure.
3.12 REMUNERATION OF DIRECTORS - The remuneration to be paid to the directors
shall be such as the Board shall from time to time determine and such
remuneration shall be in addition to the salary paid to any officer or employee
of the Corporation who is also a member of the Board. The directors may also
award special remuneration to any director undertaking any special services on
the Corporation's behalf other than the routine work ordinarily required of a
director by the Corporation and the confirmation of any such resolution or
resolutions by the shareholders shall not be required. The directors shall also
be entitled to be paid their travelling and other expenses properly incurred by
them in connection with the affairs of the Corporation.
3.13 DISCLOSURE OF INTEREST - Every director or officer of the Corporation who
is a party to a material contract or a proposed material contract with the
Corporation or who is the director or an officer of, or has a material interest
in, any person who is a party to a material contract, or a proposed material
contract, with the Corporation shall disclose the nature and extent of his
interest at the time and in the manner provided by the Act.
ARTICLE 4
MEETINGS OF DIRECTORS
4.1 NOTICE OF MEETING - Meetings of the Board shall be held from time to time at
such place, at such time and on such day as the Chairman of the Board, if any,
the President or any two directors may determine, and the Secretary shall call
meetings when so directed or so authorized. Notice of every meeting so called
shall be delivered or mailed or sent by telegram, telex, facsimile or other
electronic means to each director not less than forty-eight (48) hours before
the time when the meeting is to be held. No notice of a meeting shall be
necessary if all the directors are present or if those absent have waived notice
of or have otherwise signified their consent to the holding of such meeting.
4.2 FIRST MEETING OF NEW BOARD - For the first meeting of the Board to be held
immediately following the election of directors by the shareholders or for a
meeting of the Board at which a director is appointed to fill a vacancy in the
Board, no notice of such meeting shall be
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4
necessary to the newly elected or appointed director or directors in order to
legally constitute the meeting, provided that a quorum of the directors is
present.
4.3 PLACE OF MEETING - Meetings of the Board and of a committee of directors may
be held at any place within or outside of Ontario and in any financial year of
the Corporation a majority of the meetings of the board of directors of the
Corporation need not be held within Canada.
4.4 MEETINGS BY TELEPHONE - If all the directors present at or participating in
a meeting consent, a meeting of the directors or of a committee of directors may
be held by means of such telephone, electronic or other communication facilities
as permit all persons participating in the meeting to communicate with each
other simultaneously and instantaneously, and a director participating in such a
meeting by such means shall be deemed to be present at the meeting. Any such
consent shall be effective whether given before or after the meeting to which it
relates. Any such consent shall be effective whether given before or after the
meeting to which it relates and may be given with respect to all meetings of the
board and of committees of the board held while a director holds office.
4.5 VOTING - At all meetings of the Board, every question shall be decided by a
majority of the votes cast. In case of an equality of votes the chairman of the
meeting shall be entitled to a second or casting vote in addition to his
original vote.
4.6 CHAIRMAN - The Chairman of the Board, if elected and present, and otherwise
the President, shall be chairman of any meeting of the Board. If no such officer
is present the directors present shall choose one of their members to be
chairman.
4.7 TRANSACTION OF BUSINESS BY SIGNATURE - A resolution in writing signed by all
the directors entitled to vote on that resolution at a meeting of directors or a
committee of directors is as valid as if it had been passed at a meeting of
directors or a committee of directors.
ARTICLE 5
OFFICERS
5.1 APPOINTMENT - The Board shall annually or more often as may be necessary,
appoint a President and a Secretary and, if deemed advisable, may annually or
more often as may be necessary, appoint a Chairman of the Board, a Managing
Director, one or more Vice-Presidents, a Treasurer and such other officers as
the Board may determine including one or more assistants to any of the officers
so appointed. None of the said officers, except the Chairman of the Board and
the Managing Director, need be a director. Any two of the said offices may be
held by the same person. If the same person holds the office of Secretary and
Treasurer, he may, but need not, be known as the Secretary-Treasurer. The Board
may from time to time appoint such other officers and agents as it shall deem
necessary who shall have such authority and shall perform such duties as may
from time to time be determined by the Board.
5.2 REMUNERATION AND REMOVAL - The terms of employment and remuneration of all
officers appointed by the Board (including the President) shall be determined,
or the manner of determination thereof provided for, from time to time by
resolution of the Board. The fact that any officer or employee is a director or
shareholder of the Corporation shall not disqualify him from receiving such
remuneration as may be determined. All officers, in the absence of agreement to
the contrary, shall be subject to removal by resolution of the Board at any
time, with or without cause.
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5.3 CHAIRMAN OF THE BOARD - From time to time the Board may appoint a Chairman
of the Board who shall be a director. If so appointed, the Chairman of the Board
shall, if present, preside at all meetings of the Board and at all meetings of
shareholders. In addition, the Board may assign to him any of the powers and
duties that are by any provisions of this by-law assigned to the President, and
he shall have such other powers and duties as the Board may prescribe. During
the absence or disability of the Chairman of the Board, his duties shall be
performed and his powers exercised by the managing director, if any, or by the
president.
5.4 MANAGING DIRECTOR - The Managing Director shall, if appointed, be a resident
Canadian and shall exercise such powers and have such authority as may be
delegated to him by the Board in accordance with the provisions of the Act.
During the absence or disability of the president, or if no president has been
appointed, the managing director shall also have the powers and duties of that
office.
5.5 PRESIDENT - The President shall be the chief executive officer of the
Corporation unless otherwise determined by resolution of the Board and shall
have responsibility for the general management and direction of the business and
affairs of the Corporation, subject to the authority of the Board. During the
absence or disability of the managing director, or if no managing director has
been appointed, the president shall also have the powers and duties of that
office.
5.6 VICE-PRESIDENT - A Vice-President shall perform such duties and exercise
such powers as the President may from time to time delegate to him or as the
Board may prescribe.
5.7 SECRETARY - The Secretary shall give, or cause to be given, all notices
required to be given to shareholders, directors, auditors and members of
committees. He shall attend all meetings of the directors and of the
shareholders and shall enter or cause to be entered in books kept for that
purpose minutes of all proceedings at such meetings. He shall be the custodian
of all books, papers, records, documents and other instruments belonging to the
Corporation. He shall perform such other duties as may from time to time be
prescribed by the Board or the chief executive officer.
5.8 TREASURER - The Treasurer shall ensure that adequate accounting records are
prepared and maintained and shall keep, or cause to be kept, full and accurate
books of account in which shall be recorded all receipts and disbursements of
the Corporation and, subject to the direction of the Board, shall control the
deposit of money, the safekeeping of securities and the disbursement of funds of
the Corporation. He shall provide to the Board whenever required of him an
account of all his transactions as Treasurer and of the financial position of
the Corporation and he shall perform such other duties as may from time to time
be prescribed by the Board or the chief executive officer.
5.9 OTHER OFFICERS - The duties of all other officers of the Corporation shall
be such as the terms of their engagement call for or the Board requires of them.
Any of the powers and duties of an officer to whom an assistant has been
appointed may be exercised and performed by such assistant, unless the Board
otherwise directs.
5.10 VARIATION OF POWERS AND DUTIES - The board may from time to time and
subject to the provisions of the Act, vary, add to or limit the powers and
duties of any officer.
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5.11 TERM OF OFFICE - The board, in its discretion, may remove any officer of
the Corporation, without prejudice to such officer's rights under any employment
contract. Otherwise each officer appointed by the board shall hold office until
his successor is appointed.
ARTICLE 6
PROTECTION OF DIRECTORS AND OFFICERS AND OTHERS
6.1 LIMITATION OF LIABILITY - No director or officer shall be liable for the
acts, receipts, neglects or defaults of any other director or officer or
employee, or for joining in any receipt or other act for conformity, or for any
loss, damage or expense happening to the Corporation through the insufficiency
or deficiency of title to any property acquired for or on behalf of the
Corporation, or for the insufficiency or deficiency of any security in or upon
which any of the moneys of the Corporation shall be invested, or for any loss or
damage arising from the bankruptcy, insolvency or tortious acts of any person
with whom any of the moneys, securities or effects of the Corporation shall be
deposited, or for any loss occasioned by any error of judgment or oversight on
his part, or for any other loss, damage or misfortune whatever which shall
happen in the execution of the duties of his office or in relation thereto,
unless the same are occasioned by his own wilful neglect or default; providing
that nothing herein shall relieve any director or officer from the duty to act
in accordance with the Act and the regulations thereunder or from liability for
any breach thereof.
6.2 INDEMNITY - Subject to the limitations contained in the Act, the Corporation
shall indemnify a director or officer, a former director or officer, or a person
who acts or acted at the Corporation's request as a director or officer of a
body corporate of which the Corporation is or was a shareholder or creditor (or
a person who undertakes or has undertaken any liability on behalf of the
Corporation or any such body corporate) and his heirs and legal representatives,
against all costs, charges and expenses, including an amount paid to settle an
action or satisfy a judgment, reasonably incurred by him in respect of any
civil, criminal or administrative action or proceeding to which he is made a
party by reason of being or having been a director or officer of the Corporation
or such body corporate, if
a) he acted honestly and in good faith with a view to the best
interests of the Corporation; and
b) in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, he had reasonable grounds
for believing that his conduct was lawful.
6.3 INSURANCE - Subject to the limitations contained in the Act, the Corporation
may purchase and maintain such insurance for the benefit of its directors and
officers as such, as the board may from time to time determine.
ARTICLE 7
MEETINGS OF SHAREHOLDERS
7.1 ANNUAL MEETING - The annual meeting of shareholders shall be held on such
day in each year and at such time and place in or outside Ontario as the
directors may determine for the purpose of hearing and receiving the reports and
statements required by the Act to be placed before the shareholders at any
annual meeting, electing directors, appointing an auditor and fixing or
authorizing the board of directors to fix his remuneration and for the
transaction of such other business as may properly be brought before the
meeting.
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7.2 SPECIAL MEETINGS - The Board, the Chairman of the Board, the Managing
Director, the President or a Vice-President who is a director shall have the
power at any time to call a special meeting of the shareholders of the
Corporation to be held at any time and place in or outside Ontario.
The phrase "meeting of shareholders" wherever it occurs in this by-law
shall mean and include an annual meeting of shareholders, a special meeting of
shareholders and any meeting of any class or classes of shareholders.
7.3 PLACE OF MEETINGS. Meetings of shareholders shall be held at the registered
office of the Corporation or elsewhere in the municipality in which the
registered office is situate or, if the board shall so determine, at some other
place in or outside Canada.
7.4 NOTICE - Notice of the time and place of each meeting of shareholders shall
be given not less than twenty-one (21) nor more than fifty (50) days before the
day on which the meeting is to be held, to the auditor, the directors and to
each shareholder entitled to vote at the meeting. Notice of a special meeting of
shareholders shall state the nature of the business to be transacted in
sufficient detail to permit the shareholders to form a reasoned judgment and
shall state the text of any special resolution to be submitted to the meeting. A
meeting of shareholders may be held at any time without notice if all of the
shareholders entitled to vote thereat are present or represented by proxy and do
not object to the holding of the meeting or those not so present or represented
by proxy have waived notice, if the auditor and the directors are present or
have waived notice of or otherwise consent to such meeting being held.
7.5 OMISSION OF NOTICE - The accidental omission to give notice of any meeting
or the non- receipt of any notice by any shareholder or shareholders, by any
director or directors or by the auditor of the Corporation shall not invalidate
any resolution passed or any proceedings taken at any meeting of shareholders.
7.6 LIST OF SHAREHOLDERS ENTITLED TO NOTICE - For every meeting of shareholders,
the Corporation shall prepare a list of shareholders entitled to receive notice
of the meeting, arranged in alphabetical order and showing the number of shares
entitled to vote at the meeting held by each shareholder. If a record date for
the meeting is fixed pursuant to section 7.7, the shareholders listed shall be
those registered at the close of business on a day not later than ten (10) days
after such record date. If no record date is fixed, the shareholders listed
shall be those registered at the close of business on the day immediately
preceding the day on which notice of the meeting is given, or where no such
notice is given, the day on which the meeting is held. The list shall be
available for examination by any shareholder during usual business hours at the
registered office of the Corporation or at the place where the securities
register is kept and at the place where the meeting is held.
7.7 RECORD DATE FOR NOTICE - The board may fix in advance a record date,
preceding the date of any meeting of shareholders by not more than fifty (50)
days and not less than twenty-one (21) days, for the determination of the
shareholders entitled to notice of the meeting, provided that notice of any such
record date is given not less than seven (7) days before such record date, by
newspaper advertisement in the manner provided in the Act. If no record date is
so fixed, the record date for the determination of the shareholders entitled to
notice of the meeting shall be the close of business on the day immediately
preceding the day on which the notice is given.
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7.8 CHAIRMAN, SECRETARY AND SCRUTINEERS - The chairman of any meeting of
shareholders shall be the first mentioned of such of the following officers as
have been appointed and who is present at the meeting; chairman of the board,
president, managing director, or a vice-president who is a shareholder. If no
such officer is present within fifteen (15) minutes from the time fixed for
holding the meeting, the persons present and entitled to vote shall choose one
of their number to be chairman. Notwithstanding the aforegoing, the person
designated to act as chairman of a meeting of shareholders pursuant to the first
sentence of this section 7.8 shall have the right to appoint any person, who
need not be a shareholder, to act as chairman of such meeting in his place and
stead. If the secretary of the Corporation is absent, the chairman shall appoint
some person, who need not be a shareholder, to act as secretary of the meeting.
If desired, one or more scrutineers, who need not be shareholders, may be
appointed by a resolution or by the chairman with the consent of the meeting.
7.9 PERSONS ENTITLED TO BE PRESENT - The only persons entitled to attend a
meeting of shareholders shall be those entitled to vote thereat, the directors
of the Corporation, the auditor of the Corporation and others who although not
entitled to vote are entitled or required under the provisions of the Act or
by-laws of the Corporation to be present at the meeting. Any other person may be
admitted only on the invitation of the Chairman of the meeting or with the
consent of the meeting.
7.10 QUORUM - A quorum for the transaction of business at any meeting of
shareholders shall be two (2) persons present in person, each being a
shareholder entitled to vote thereat or a duly appointed proxy for an absent
shareholder so entitled.
7.11 RIGHT TO VOTE - Subject to the provisions of the Act as to authorized
representatives of any other body corporate, at any meeting of shareholders in
respect of which the Corporation has prepared the list referred to in section
7.6, every person who is named in such list shall be entitled to vote the shares
shown thereon opposite his name except, where the Corporation has fixed a record
date in respect of such meeting pursuant to section 7.7, to the extent that such
person has transferred any of his shares after such record date and the
transferee, upon producing properly endorsed certificates evidencing such shares
or otherwise establishing that he owns such shares, demands not later than ten
(10) days before the meeting that his name be included to vote the transferred
shares at the meeting. In the absence of a list prepared as aforesaid in respect
of a meeting of shareholders, every person shall be entitled to vote at the
meeting who at the time is entered in the securities register as the holder of
one or more shares carrying the right to vote at such meeting.
7.12 REPRESENTATIVES - An executor, administrator, committee of a mentally
incompetent person, guardian or trustee and where a corporation is such
executor, administrator, committee of a mentally incompetent person, guardian or
trustee, any person duly appointed a proxy for such corporation, upon filing
with the secretary of the meeting sufficient proof of his appointment, shall
represent the shares in his or its hands at all meetings of the shareholders of
the Corporation and may vote accordingly as a shareholder in the same manner and
to the same extent as the shareholder of record.
7.13 PROXIES - Every shareholder entitled to vote at a meeting of shareholders
may appoint a proxyholder, or one or more alternate proxyholders, who need not
be shareholders, to attend and act at the meeting in the manner and to the
extent authorized and with the authority conferred by the proxy. A proxy shall
be in writing executed by the shareholder or his attorney and shall conform with
the requirements of the Act.
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7.14 TIME FOR DEPOSIT OF PROXIES - The board may specify in a notice calling a
meeting of shareholders a time, preceding the time of such meeting by not more
than forty-eight (48) hours exclusive of Saturdays and holidays, before which
time proxies to be used at such meeting must be deposited. A proxy shall be
acted upon only if, prior to the time so specified, it shall have been deposited
with the Corporation or an agent thereof specified in such notice or, if no such
time is specified in such notice, unless it has been received by the secretary
of the Corporation or by the chairman of the meeting or any adjournment thereof
prior to the time of voting.
7.15 JOINT SHAREHOLDERS - If two (2) or more persons hold shares jointly, any
one of them present in person or represented by proxy at a meeting of
shareholders may, in the absence of the other or others, vote the shares; but if
two (2) or more of those persons are present in person or represented by proxy
and vote, they shall vote as one on the shares jointly held by them.
7.16 VOTES TO GOVERN At all meetings of shareholders every question shall be
determined by a majority of the votes cast on the question, unless otherwise
required by the articles or by-laws or by the Act. In the case of an equality of
votes at any meeting of shareholders, either upon a show of hands or upon a
poll, the chairman of the meeting shall be entitled to a second or casting vote
in addition to the vote or votes to which he may be entitled as a shareholder.
7.17 SHOW OF HANDS - Subject to the provisions of the Act, any question at a
meeting of shareholders shall be decided by a show of hands unless a poll
thereon is required or demanded. Upon a show of hands, every shareholder present
in person or represented by proxy and entitled to vote shall have one vote.
Whenever the vote by show of hands shall have been taken upon a question, a
declaration by the chairman of the meeting that the vote upon the question has
been carried or carried by a particular majority or not carried and an entry to
that effect in the minutes of the meeting shall be prima facie evidence of the
fact without proof of the number or proportion of the votes recorded in favour
of or against any resolution or other proceedings in respect of the question and
the result of the vote so taken shall be the decision of the shareholders upon
the said question.
7.18 POLLS - If a poll is required by the chairman of the meeting, or is
demanded by any shareholder who is present in person or represented by proxy and
entitled to vote on the question (whether the poll is required or demanded
either before or after a vote has been taken upon the question by a show of
hands), and such requirement or demand is not withdrawn, a poll upon the
question shall be taken by ballot or in such other manner as the chairman of the
meeting may direct. Upon a poll, each shareholder who is present or represented
by proxy shall (subject to the provisions, if any, of the articles of the
Corporation) be entitled to one vote for each share in respect of which he is
entitled to vote on the question. A demand for a poll may be withdrawn.
7.19 ADJOURNMENT - The Chairman at a meeting of the shareholders may, with the
consent of the meeting and subject to such conditions as the meeting may decide,
adjourn the meeting from time to time to a fixed time and place. If a meeting of
shareholders is adjourned for less than thirty (30) days no notice of the
adjourned meeting need be given to the shareholders. If a meeting of
shareholders is adjourned by one or more adjournments for thirty (30) days or
more, notice of the adjourned meeting shall be given as for an original meeting.
7.20 RESOLUTION IN WRITING - Subject to the provisions of the Act, a resolution
in writing signed by all the shareholders entitled to vote on that resolution at
a meeting of shareholders is as valid and effective as if passed at a meeting of
the shareholders duly called, constituted and held for that purpose.
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ARTICLE 8
SHARES AND TRANSFERS
8.1 ALLOTMENT AND ISSUE - Subject to the provisions of the Act, shares in the
capital of the Corporation may be allotted and issued by resolution of the Board
at such times and on such terms and conditions and to such persons or class of
persons as the Board determines.
8.2 PAYMENT OF COMMISSIONS - The Board may authorize the Corporation to pay a
commission to any persons in consideration of their purchasing or agreeing to
purchase shares of the Corporation, or procuring or agreeing to procure
purchasers for such shares.
8.3 REGISTRATION OF TRANSFER - Subject to the provisions of the Act, no transfer
of shares shall be registered in a securities register except upon presentation
of the certificate representing such shares with a transfer endorsed thereon or
delivered therewith duly executed by the registered holder or by his attorney or
successor duly appointed, together with such reasonable assurance or evidence of
signature, identification and authority to transfer as the board may from time
to time prescribe, upon payment of all applicable taxes and any fees prescribed
by the board, upon compliance with such restrictions on transfer as are
authorized by the articles and upon satisfaction of any lien referred to in
section 8.7.
8.4 SHARE CERTIFICATES - Every holder of one or more shares of the Corporation
shall be entitled, at his option, to a share certificate, or to a
non-transferable written acknowledgement of his right to obtain a share
certificate, stating the number and class or series of shares held by him as
shown on the securities register. Share certificates and acknowledgements of a
shareholder's right to a share certificate, respectively, shall be in such form
as the board shall from time to time approve. Any share certificate shall be
signed in accordance with section 14.2; provided that, unless the board
otherwise determines, certificates representing shares in respect of which a
transfer agent and/or registrar has been appointed shall not be valid unless
countersigned by or on behalf of such transfer agent and/or registrar. A share
certificate shall be signed manually by at least one director or officer of the
Corporation or by or on behalf of the transfer agent and/or registrar. Any
additional signatures required may be printed or otherwise mechanically
reproduced. A share certificate executed as aforesaid shall be valid
notwithstanding that any of the directors or officers whose facsimile signature
appears thereon no longer holds office at the date of issue of the certificate.
8.5 TRANSFER AGENT AND REGISTRAR - The directors may from time to time by
resolution appoint or remove one or more transfer agents and/or branch transfer
agents and/or registrars and/or branch registrars (which may or may not be the
same individual or body corporate) for the securities issued by the Corporation
in registered form (or for such securities of any class or classes) and may
provide for the registration of transfers of such securities (or such securities
of any class or classes) in one or more places and such transfer agents and/or
branch transfer agents and/or registrars and/or branch registrars shall keep all
necessary books and registers of the Corporation for the registering of such
securities (or such securities of the class or classes in respect of which any
such appointment has been made). In the event of any such appointment in respect
of the shares (or the shares of any class or classes) of the Corporation, all
share certificates issued by the Corporation in respect of the shares (or the
shares of the class or classes in respect of which any such appointment has been
made) of the Corporation shall be countersigned by or on behalf of one of the
said transfer agents and/or branch transfer agents or by or on behalf of one of
the said registrars and/or branch registrars, if any.
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8.6 SURRENDER OF CERTIFICATES - No transfer of shares shall be recorded or
registered unless or until the certificate representing the shares to be
transferred has been surrendered and cancelled.
8.7 LIEN FOR INDEBTEDNESS - The Corporation has a lien on a share registered in
the name of a shareholder or his legal representative for a debt of that
shareholder to the Corporation.
8.8 ENFORCEMENT OF LIEN - The lien referred to in the preceding section may be
enforced by any means permitted by law and:
(a) where the share or shares are redeemable pursuant to the articles
of the Corporation by redeeming such share or shares and applying
the redemption price to the debt;
(b) subject to the Act, by purchasing the share or shares for
cancellation for a price equal to the book value of such share or
shares and applying the proceeds to the debt;
(c) by selling the share or shares to any third party whether or not
such party is at arms length to the Corporation, and including,
without limitation, any officer or director of the Corporation
for the best price which the directors consider to be obtainable
for such share or shares; or
(d) by refusing to register a transfer of such share or shares until
the debt is paid.
8.9 NON-RECOGNITION OF TRUSTS - The Corporation shall be entitled to treat the
registered holder of any share as the absolute owner thereof and accordingly
shall not, except as ordered by a court of competent jurisdiction or as required
by statute, be bound to see to the execution-of any trust, whether express,
implied or constructive, in respect of any share or to recognize any such claim
to or interest in such share on the part of any person other than the registered
holder thereof.
8.10 LOST CERTIFICATES - The Board or any officer or agent designated by the
Board may in its or his discretion direct the issue of a new share certificate
in lieu of and upon cancellation of a share certificate that has been mutilated
or in substitution for a share certificate that has been lost, apparently
destroyed or wrongfully taken on payment of such fee, not exceeding $3.00, and
on such terms as to indemnity, reimbursement of expenses and evidence of loss
and of title as the Board may from time to time prescribe, whether generally or
in any particular case.
8.11 JOINT SHAREHOLDERS - If two (2) or more persons are registered as joint
holders of any share, the Corporation shall not be bound to issue more than one
certificate in respect thereof, and delivery of such certificate to one of such
persons shall be sufficient delivery to all of them. Any one of such persons may
give effectual receipts for the certificate issued in respect thereof or for any
dividend, bonus, return of capital or other money payable or warrant issuable in
respect of such share.
8.12 DECEASED SHAREHOLDERS - In the event of the death of a holder of any share,
the Corporation shall not be required to make any entry in the register of
shareholders in respect thereof or to make payment of any dividends thereon
except upon production of all such documents as may be required by law and upon
compliance with the reasonable requirements of the Corporation and its
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transfer agent. Where shares are issued to joint holders, upon satisfactory
proof of the death of one joint holder, the Corporation may treat the surviving
joint/holder or holders as the issuer of the shares.
ARTICLE 9
VOTING SHARES IN OTHER COMPANIES
9.1 All of the shares or other securities carrying voting rights of any other
body corporate held from time to time by the Corporation may be voted at any and
all meetings of shareholders, bondholders, debenture holders or holders of other
securities (as the case may be) of such other body corporate and in such manner
and by such person or persons as the Board shall from time to time determine.
The proper signing officers of the Corporation may also from time to time
execute and deliver for and on behalf of the Corporation proxies and/or arrange
for the issuance of voting certificates and/or other evidence of the right to
vote in such names as they may determine without the necessity of a resolution
or other action by the Board.
ARTICLE 10
INFORMATION AVAILABLE TO SHAREHOLDERS
10.1 DISCOVERY OF INFORMATION - Except as provided by the Act, no shareholder
shall be entitled to discovery of any information respecting any details of
conduct of the Corporation's business which in the opinion of the directors it
would be inexpedient in the interests of the Corporation to communicate to the
public.
10.2 INSPECTION OF RECORDS - The directors may from time to time, subject to
rights conferred by the Act, determine whether and to what extent and at what
time and place and under what conditions or regulations the documents, books and
registers and accounting records of the Corporation or any of them shall be open
to the inspection of shareholders and no shareholder shall have any right to
inspect any document or book or register or accounting record of the Corporation
except as conferred by statute or authorized by the Board or by a resolution of
the shareholders.
ARTICLE 11
DIVIDENDS
11.1 DECLARATION - Subject to the provisions of the Act, the board may from time
to time declare dividends payable to the shareholders according to their
respective rights and interests in the Corporation. Dividends may be paid in
money or property or by issuing fully paid shares of the Corporation.
11.2 PAYMENT - A dividend payable in cash shall be paid by cheque drawn on the
Corporation's bankers or one of them to the order of each registered holder of
shares of the class in respect of which it has been declared, and delivered or
mailed by ordinary mail postage prepaid to such registered holder at his last
address appearing on the records of the Corporation. In the case of joint
holders the cheque shall, unless such joint holders otherwise direct, be made
payable to the order of all of such joint holders and if more than one address
appears on the books of the Corporation in respect of such joint holding the
cheque shall be mailed to the first address so appearing. The mailing of such
cheque as aforesaid shall satisfy and discharge all liability for the dividend
to the extent of the sum represented thereby, unless such cheque is not paid on
presentation.
<PAGE> 35
13
11.3 NON-RECEIPT OF CHEQUES - In the event of non-receipt of any dividend cheque
by the person to whom it is sent as aforesaid, the Corporation shall issue to
such person a replacement cheque for a like amount on such terms as to
indemnity, reimbursement of expenses and evidence of non-receipt and of title as
the board may from time to time prescribe, whether generally or in any
particular case.
11.4 RECORD DATE FOR DIVIDENDS AND RIGHTS - The board may fix in advance a date,
preceding by not more than fifty (50) days the date for the payment of any
dividend or the date for the issue of any warrant or other evidence of right to
subscribe for securities of the Corporation, as a record date for the
determination of the persons entitled to receive payment of such dividend or to
exercise the right to subscribe for such securities, provided that notice of any
such record date is given, not less than fourteen (14) days before such record
date, by newspaper advertisement in the manner provided in the Act. Where no
record date is fixed in advance as aforesaid, the record date for the
determination of the persons entitled to receive payment of any dividend or to
exercise the right to subscribe for securities of the Corporation shall be at
the close of business on the day on which the resolution relating to such
dividend or right to subscribe is passed by the board.
11.5 UNCLAIMED DIVIDENDS - Any dividend unclaimed after a period of six (6)
years from the date on which the same has been declared to be payable shall be
forfeited and shall revert to the Corporation.
ARTICLE 12
NOTICES
12.1 SERVICE - Any notice (which term includes any communication or document) to
be given (which term includes sent, delivered or served) pursuant to the Act,
the regulations thereunder, the articles, the by-laws or otherwise to a
shareholder, director, officer, auditor or member of a committee of the board
shall be sufficiently given if delivered personally to the person to whom it is
to be given or if delivered to his recorded address or if mailed to him at his
recorded address by prepaid ordinary or air mail or if sent to him at his
recorded address by any means of prepaid transmitted or recorded communications.
A notice so delivered shall be deemed to have been given when it is delivered
personally or to the recorded address as aforesaid; a notice so mailed shall be
deemed to have been given when deposited in a post office or public letter box;
and a notice so sent by any means of transmitted or recorded communication shall
be deemed to have been given when dispatched or delivered to the appropriate
communication company or agency or its representative for dispatch. The
secretary may change or cause to be changed the recorded address of any
shareholder, director, officer, auditor or member of a committee of the board in
accordance with any information believed by him to be reliable. The recorded
address of a director shall be his latest address as shown in the records of the
Corporation or in the most recent notice filed under the Corporations
Information Act, whichever is the more current.
12.2 SHARES REGISTERED IN SEVERAL NAMES - All notices or other documents with
respect to any shares registered in more than one name shall be given to
whichever of such persons is named first in the records of the Corporation and
any notice or other document so given shall be sufficient notice to all the
holders of such shares.
12.3 ENTITLEMENT BY OPERATION OF LAW - Subject to the provisions of the Act,
every person who by operation of law, transfer or by any other means whatsoever
shall become entitled to any share or shares shall be bound by every notice or
other document in respect of such
<PAGE> 36
14
share or shares which previous to his name and address being entered on the
books of the Corporation shall be duly given to the person or persons from whom
he derives his title to such share or shares.
12.4 NOTICE DECEASED SHAREHOLDERS - Any notice or other document delivered or
sent by post or left at the address of any shareholder as the same appears in
the records of the Corporation shall, notwithstanding that such shareholder be
then deceased, and whether or not the Corporation has notice of his decease, be
deemed to have been duly served in respect of the shares held by such
shareholder (whether held solely or with any other person or persons) until some
other person be entered in his stead in the records of the Corporation as the
holder or one of the holders thereof and such service shall for all purposes be
deemed a sufficient service of such notice or document on his heirs, executors
or administrators and on all persons, if any, interested through him or with him
in such shares.
12.5 SIGNATURE TO NOTICES - The signature of any director or officer of the
Corporation to any notice or document to be given by the Corporation may be
written, stamped, typewritten or printed or partly written, stamped, typewritten
or printed.
12.6 COMPUTATION OF TIME - In computing the date when notice must be given under
any provision requiring a specified number of days notice of any meeting or
other event, the date of giving the notice shall be included and the date of the
meeting or other event shall also be included.
12.7 UNDELIVERED NOTICES - If any notice given to a shareholder pursuant to
section 7.4 is returned on three (3) consecutive occasions because he cannot be
found, the Corporation shall not be required to give any further notices to such
shareholder until he informs the Corporation in writing of his new address.
12.8 OMISSIONS AND ERRORS - The accidental omission to give any notice to any
shareholder, director, officer, auditor or member of a committee of the board or
the non-receipt of any notice by any such person or any error in any notice not
affecting the substance thereof shall not invalidate any action taken at any
meeting held pursuant to such notice or otherwise founded thereon.
12.9 PROOF OF SERVICE - With respect to every notice or other document sent by
post it shall be sufficient to prove that the envelope or wrapper containing the
notice or other document was properly addressed as provided in this by-law and
put into a Post Office or into a public letter box. A certificate of an officer
of the Corporation in office at the time of the making of the certificate or an
officer of any transfer agent or branch transfer agent of shares of any class of
the Corporation as to the facts in relation to the mailing or delivery of any
notice or other document to any shareholder, director, officer or auditor or
publication of any notice or other document shall be conclusive evidence thereof
and shall be binding on every shareholder, director, officer or auditor of the
Corporation as the case may be.
12.10 WAIVER OF NOTICE - Any shareholder (or his duly appointed proxyholder),
director, officer, auditor or member of a committee of the board may at any time
waive any notice, or waive or abridge the time for any notice, required to be
given to him under any provisions of the Act, the regulations thereunder, the
articles, the by-laws or otherwise and such waiver or abridgement shall cure any
default in the giving or in the time of such notice, as the case may be. Any
such waiver or abridgement shall be in writing except a waiver of notice of a
meeting of shareholders or of the board which may be given in any manner.
<PAGE> 37
15
ARTICLE 13
CUSTODY OF SECURITIES
13.1 SAFEKEEPING - All shares and securities owned by the Corporation shall be
lodged (in the name of the Corporation) with a chartered bank or a trust company
or in a safety deposit box or, if so authorized by resolution of the Board, with
such other depositories or in such other manner as may be determined from time
to time by the Board.
13.2 NOMINEES - All share certificates, bonds, debentures, notes or other
obligations or securities belonging to the Corporation may be issued or held in
the name of a nominee or nominees of the Corporation (and if issued or held in
the names of more than one nominee shall be held in the names of the nominees
jointly with the right of survivorship) and may be endorsed in blank with
endorsement guaranteed in order to enable transfer to be completed and
registration to be effected.
ARTICLE 14
EXECUTION OF INSTRUMENTS
14.1 CHEQUES, DRAFTS AND NOTES - All cheques, drafts or orders for the payment
of money and all notes and acceptances and bills of exchange shall be signed by
such officer or officers or person or persons, whether or not officers of the
Corporation, and in such manner as the Board may from time to time designate by
resolution.
14.2 CONTRACTS, DOCUMENTS OR OTHER INSTRUMENTS - Contracts, documents or
instruments in writing requiring the signature of the Corporation may be signed
by (a) the Chairman of the Board, if any, or the President or a Vice-President
and the Secretary or the Treasurer or (b) any two directors and all contracts,
documents and instruments in writing so signed shall be binding upon the
Corporation without any further authorization or formality. The Board shall have
power from time to time by resolution to appoint any officer or officers or any
person or persons on behalf of the Corporation either to sign contracts,
documents and instruments in writing generally or to sign specific contracts,
documents or instruments in writing.
In particular, without limiting the generality of the foregoing, the
officer or officers or the person or persons hereinbefore set out shall have
authority to sell, assign, transfer, exchange, convert or convey any and all
shares, stocks, bonds, debentures, rights, warrants or other securities owned by
or registered in the name of the Corporation and to sign and execute (under the
seal of the Corporation or otherwise) all assignments, transfers, conveyances,
powers of attorney and other instruments that may be necessary for the purpose
of selling, assigning, transferring, exchanging, converting or conveying any
such shares, stocks, bonds, debentures, rights, warrants or other securities.
The term "contracts, documents or instruments in writing" as used in this
by-law shall include deeds, mortgages, hypothecs, charges, conveyances,
transfers and assignments of property, real or personal, immovable or movable,
agreements, releases, receipts and discharges for the payment of money or other
obligations, conveyances, transfers and assignments of shares, share warrants,
stocks, bonds, debentures or other securities and all paper writings.
<PAGE> 38
16
14.3 SEALING OF CONTRACTS - The seal (if any) of the Corporation may when
required be affixed to contracts, documents and instruments in writing signed as
aforesaid or by any officer or officers, person or persons, appointed as
aforesaid by resolution by the Board.
ENACTED the 10th day of February, 1999.
/s/ GARFIELD J. LAST /s/ IRWIN SINGER
- -------------------------------- ----------------------------------
PRESIDENT - GARFIELD J. LAST SECRETARY - IRWIN SINGER
<PAGE> 39
BY-LAW NO. 2A
A By-law respecting the borrowing of money, the issuing of securities and
the securing of liabilities by .
MANTAUR PETROLEUM CORPORATION
1. Without limiting the borrowing powers of the Corporation as set forth in
the Business Corporations Act (the "Act"), but subject to the articles and
any unanimous shareholder agreement, the board may from time to time on
behalf of the Corporation, without authorization of the shareholders:
(a) borrow money on the credit of the Corporation;
(b) issue, reissue, sell or pledge bonds, debentures, notes or
other evidences of indebtedness or guarantee of the
Corporation, whether secured or unsecured;
(c) to the extent permitted by the Act, give directly or
indirectly financial assistance to any persons by means of a
loan, guarantee on behalf of the Corporation to secure
performance of any present or future indebtedness, liability
or obligation of any person, or otherwise; and
(d) mortgage, hypothecate, pledge or otherwise create a security
interest in all or any currently owned or subsequently
acquired real or personal, movable or immovable, property of
the Corporation, including book debts, rights, powers,
franchises and undertakings, to secure any such bonds,
debentures, notes or other evidences of indebtedness or
guarantee or any other present or future indebtedness,
liability or obligation of the Corporation.
Nothing in this section limits or restricts the borrowing of money by the
Corporation on bills of exchange or promissory notes made, drawn, accepted
or endorsed by or on behalf of the Corporation.
2. The board may from time to time delegate to a committee of the board, a
director or an officer of the Corporation, or any other person designated
by the board, all or any of the powers conferred on the board by section 1
above or by the Act to such extent and in such manner as the board may
determine at the time of delegation.
ENACTED this 10th day of February, 1999.
/s/ GARFIELD J. LAST /s/ IRWIN SINGER
- ----------------------------- -----------------------------
GARFIELD J. LAST, President IRWIN SINGER, Secretary
<PAGE> 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:
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 1
EXHIBIT 2.2
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 -
ROBERT BRAY, an individual
residing in Tottenham, 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 Chief Financial 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 a salary at
an annual rate of $75,000 to be
<PAGE> 2
- 2 -
paid in regular installments in accordance with Videoflicks' usual paying
practices, but not less frequently than monthly.
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.
5. EXPENSES
5.1 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.
<PAGE> 3
- 3 -
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) By Videoflicks, in the event there is no Just Cause (as hereinafter
defined) therefor, by paying the equivalent of two (2) year's salary
(the "Notice Period") to the Employee in accordance with its 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 payments 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, and which have vested as
of such date of termination, for a period of six (6) months
thereafter, upon the expiry of which such options shall lapse and be
cancelled.
<PAGE> 4
- 4 -
(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. 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.
10. NON-SOLICITATION
The Employee 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.
11. DUTIES AND EVALUATION
(1) (i) The Employee's duties to Videoflicks hereunder shall include, without
limitation, acting as Chief Financial Officer (CFO) of Videoflicks
with responsibility for financial management of Videoflicks and
investor relations. The Employee agrees
<PAGE> 5
- 5 -
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.
12. 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.
13. GOVERNING LAW
This Agreement shall be governed by, and construed in accordance with, the
laws of the Province of Ontario.
14. 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.
<PAGE> 6
- 6 -
15. 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.
16. 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: Robert Bray, RR#2, Tottenham, Ontario,
L0G 1W0.
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/ ROBERT BRAY
- ------------------------------- ) --------------------------------------
) ROBERT BRAY
<PAGE> 1
EXHIBIT 2.3
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 -
JOHN WADDELL, 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 Vice-President, Information Technology, 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 a salary at
an annual rate of $125,000 to be
<PAGE> 2
- 2 -
paid in regular installments in accordance with Videoflicks' usual paying
practices, but not less frequently than monthly.
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.
5. EXPENSES
5.1 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.
<PAGE> 3
- 3 -
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) By Videoflicks, in the event there is no Just Cause (as hereinafter
defined) therefor, by paying the equivalent of two (2) year's salary
(the "Notice Period") to the Employee in accordance with its 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 payments 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.
<PAGE> 4
- 4 -
(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. 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.
10. 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.
<PAGE> 5
- 5 -
11. INTELLECTUAL PROPERTY RIGHTS
The Employee acknowledges and agrees that all right, title and interest in
and to any intellectual property, including, without limitation, any copyrights,
trade secrets, trademarks and patents, made or conceived by the Employee during
his employment by Videoflicks and relating to the business of Videoflicks,
including, without limitation the Videoflicks Web Site and the computer
software, source code and enhancements thereto utilized in connection with the
operation of the Web Site, shall belong to Videoflicks. In connection with the
foregoing the Employee agrees to execute any assignments and acknowledgements as
may be reasonably requested by the board of directors of Videoflicks from time
to time.
12. DUTIES AND EVALUATION
(1) (i) The Employee's duties to Videoflicks hereunder shall include, without
limitation, acting as Videoflicks' Manager, Information Technology
(IT). 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.
<PAGE> 6
- 6 -
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.
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: John Waddell, 386 Brookdale Avenue,
Toronto, Ontario M5M 3Y3.
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/ JOHN WADDELL
- ------------------------------- ) -------------------------------
) JOHN WADDELL
<PAGE> 1
EXHIBIT 2.4
THIS AGREEMENT made as of the 1st day of February, 1999.
B E T W E E N:
VIDEOFLICKS CANADA LIMITED,
(the "Seller")
- and -
VIDEOFLICKS.COM LIMITED,
(the "Buyer").
WHEREAS:
1. The Seller maintains a warehoused inventory of movies on videotape
cassette ("Videos");
2. The Buyer carries on the business of selling Videos via its web site on
the internet;
3. The Buyer requires a supply of Videos to meet its requirements for its
business;
4. The Buyer wishes to purchase and the Seller wishes to sell Videos, for
the consideration and on and subject to the terms and conditions contained in
this Agreement;
IN CONSIDERATION of the mutual covenants and agreements contained in this
Agreement, it is agreed by and between the parties as follow:
1. AGREEMENT TO BUY AND TO SUPPLY
The Buyer agrees to purchase Videos from the Seller to meet its
requirements during the term of this Agreement, and the Seller agrees to supply
Videos to the Buyer to meet those requirements, on the terms and in the manner
set forth in this Agreement.
2. PURCHASE PRICE
The Buyer agrees to pay to the Seller, for orders accepted for delivery in
the period during the term of this Agreement, for the supply of Videos, the
prices quoted for such Videos as the wholesale catalogue price by the arm's
length wholesale company, Video One Canada Ltd., plus the Buyer's shipping
charges or those of a third party retained by the Buyer, plus applicable taxes.
<PAGE> 2
2
3. PAYMENT OF PURCHASE PRICE
The Seller shall invoice the Buyer for each shipment of Videos and the
Buyer shall make payment to the Seller not later than thirty days following
receipt of the invoice. In the event the invoice is not paid within the
thirty-day period, all overdue amounts shall collect interest at the rate of 2%
per month.
4. TERM OF AGREEMENT AND TERMINATION
The term of this Agreement shall be deemed to have commenced on December 1,
1998 and terminate in the event that the Seller no longer maintains a warehoused
inventory of Videos, in respect of which the Seller shall provide the Buyer with
not less than thirty (30) days prior written notice.
5. DEFECTIVE VIDEOS
If any of the Videos which are delivered by the Seller to the Buyer or as
directed by the Buyer pursuant to this Agreement are defective in respect of
workmanship or materials, the Seller shall replace those items with others which
are not defective.
6. CANCELLATION FOR BREACH
Failure of the Seller to deliver Videos, which the Seller has indicated it
has in its inventory and has committed to supply to the Buyer, to or to the
direction of the Buyer, or of the Buyer to pay for the Videos on the due date
for payment, shall entitle the other party in each case to treat this Agreement
as repudiated, but without prejudice to any rights accruing due in either party
at that date.
7. NON-ASSIGNMENT
The Seller may not assign or delegate its obligations under this Agreement
without the Buyer's prior written consent, consent not to be unreasonably
withheld. This Agreement shall enure to the benefit of and be binding on the
parties and their respective heirs, executors, administrators, personal
representatives, successors and permitted assigns.
8. GOVERNING LAW
This Agreement is to be construed according to the laws of the Province of
Ontario and the laws of Canada applicable therein.
9. TIME
Time shall be of the essence in the herein Agreement.
<PAGE> 3
3
10. SEVERABILITY
If any term of this Agreement is invalid or unenforceable under any
statute, regulation, ordinance, order or other rule of law, that term shall be
deemed modified or deleted, but only to the extent necessary to comply with the
statute, regulation, ordinance, order or rule, and the remaining provisions of
this Agreement shall remain in full force and effect.
11. NO IMPLIED WAIVER
The failure of either party at any time to require performance by the other
party of any provision of this Agreement shall in no way affect the right to
require performance at any time thereafter, nor shall the waiver of either party
of a breach of any provision of this Agreement constitute a waiver of any
succeeding breach of the same or any other provision.
12. NOTICE
Any notice or other writing required or permitted to be given under this
Agreement or for the purposes of it to any party, shall be sufficiently given if
delivered personally, or if sent by prepaid registered mail or if transmitted by
telex, telefax or other form of recorded communication to that party:
(a) in the case of a notice to the Buyer at :
1654 Avenue Road
Toronto, Ontario, M5M 3Y1
Fax (416) 782-4430
and
(b) in the case of a notice to the Seller at:
106 Orenda Road
Brampton, Ontario, L6W 3W6
Fax (905) 459-4343
or at any other address as the party to whom the writing is to be given shall
have last notified the other party. Any notice delivered to the party to whom it
is addressed shall be deemed to have been given and received on the day it is
delivered at that address, provided that if that day is not a business day then
the notice shall be deemed to have been given and received on the first business
day next following that day. Any notice mailed shall be deemed to have been
given and received on the third business day next following the date of its
mailing. Any notice transmitted by telex, telefax or other form of recorded
communication shall be deemed given and received on the first business day after
its transmission.
<PAGE> 4
4
13. ENTIRE AGREEMENT
This Agreement, together with the attachments, documents or schedules
specifically referenced in the Agreement, constitutes the entire agreement
between the Seller and the Buyer with respect to the matter contained herein and
supersedes all prior oral or written representations and agreements. This
Agreement may only be modified by a written agreement duly executed by the
Seller and the Buyer.
IN WITNESS WHEREOF the parties have executed this Agreement on the date
first written.
VIDEOFLICKS CANADA LIMITED
Per:
/s/ MICHAEL KAVANAGH
------------------------------------------
A.S.O.
VIDEOFLICKS.COM LIMITED
Per:
/s/ MICHAEL KAVANAGH
------------------------------------------
A.S.O.
<PAGE> 1
EXHIBIT 2.5
THIS SUBLEASE made as of the 1st day of February, 1999
B E T W E E N:
VIDEOFLICKS CANADA LIMITED
(the "Headtenant")
- and -
VIDEOFLICKS.COM LIMITED
(the "Subtenant")
WHEREAS:
1. By lease dated the 17th day of July, 1985, as amended by agreement made
August 1, 1990 and as further amended by agreement made as of May 1, 1996,
(collectively, the "Head Lease"), 1650 Avenue Road Inc. leased to the Headtenant
the premises known as 1654 Avenue Road, Toronto, Ontario, M5M 3Y1 (the
"Premises") for a term which terminates on July 31, 2000 ;
2. The Subtenant has requested the Headtenant to sublease to him 15% of the
area, in square feet, comprising the Premises (the "Subpremises"), as designated
by the Headtenant in its sole discretion and the Headtenant has agreed to grant
a sublease (the "Sublease") on the terms set out in this agreement:
NOW THEREFORE, in consideration of the rents, covenants and conditions herein to
be paid, observed and performed by the Subtenant, the Headtenant leases the
Subpremises to the Subtenant for a term commencing on the date hereof and
terminating on the day immediately prior to the date of termination of the Head
Lease, at the rent of $28,680 per year payable monthly as to $2,390 per month in
advance on the first day of each month during the term of the Sublease, the
first payment of rent hereunder to be made effective the first day of December,
1998.
1. The Subtenant covenants with the Headtenant:
(a) To pay to the Headtenant the rent reserved at the times and in the
manner provided herein without deduction or abatement;
(b) To well and sufficiently repair and maintain the Subpremises in good
and substantial repair and all buildings, fixtures and chattels
belonging thereto
<PAGE> 2
- 2 -
or which shall be erected therein or thereon, reasonable wear and tear
and damage by fire, lightning and tempest only excepted and to keep
the Subpremises clean;
(c) That the Headtenant and his servants and agents shall have the right
at all reasonable times to enter the Subpremises to examine the
condition of them and that if any want of repair shall be found and
notice be given to the Tenant, the Tenant shall, as soon as it is
reasonably possible to do so, sufficiently repair in accordance with
the notice;
(d) That the Subtenant shall use the Subpremises in connection with the
business of selling video/movie cassettes and related products to the
public and for no other purpose;
(e) not to use the outer walls or windows of the Premises for any notice
or name plate nor to exhibit its name, except in such form and
character as approved by the Headtenant on the directory board in the
entrance hallway to the Premises and on the glass of the outer doors
of the Premises only
(f) To perform and observe all of the covenants on the part of the
Headtenant in the Head Lease other than the covenant to pay rent
thereunder and other than covenants relating to the Premises other
than the Subpremises, and to indemnify the Headtenant against all
actions, expenses, claims and demands in respect of such covenants.
2. The Headtenant covenants with the Subtenant:
(a) For quiet enjoyment;
(b) The Headtenant shall throughout the term of the lease keep the
Subpremises insured for loss and damage by fire and shall pay when due
all premiums necessary for the above purpose provided that the
Headtenant's obligation under this covenant shall immediately cease if
the insurance covenanted for shall be rendered void by any act or
default of the Subtenant;
(c) The Headtenant shall if the Subpremises are damaged by fire reinstate
the Subpremises at his sole expense, with all reasonable speed;
(d) If the Subpremises or any part of them are damaged by fire during the
term of this Sublease, with the result that they are rendered unfit
for the conduct of the business of the Subtenant therefrom, then the
rent reserved by this lease or a fair proportion thereof in accordance
with the nature and extent of the damage shall be suspended until the
Subpremises are sufficiently repaired such that the subtenant can
conduct its business therefrom;
(e) To pay the rent reserved by the Head Lease;
(f) To perform and observe the covenants on the part of the Headtenant
contained in the Head Lease with respect to the Premises, including
the Subpremises, so far as such covenants are not required to be
performed and observed by the Subtenant; and
<PAGE> 3
- 3 -
(g) To at all times keep the Subtenant indemnified against all actions,
expenses, claims, and demands on account of the non-performance of the
covenants of the Headtenant in the Head Lease.
3. Provided that:
(a) The Subtenant may remove its fixtures from the Subpremises at any time
and from time to time; and
(c) The Headtenant may re-enter the Subpremises if rent shall be in
arrears for ten (10) days or upon breach by Subtenant of any of its
covenants hereunder or on the bankruptcy of the Subtenant. In addition
to the foregoing, in respect of the Subtenant, the Headtenant shall
have all of the rights of re-entry available to the lessor under the
Head Lease, a copy of which is annexed hereto, as if the Subtenant
were the lessee under the Head Lease.
4. The Subtenant from time to time may request to sublease additional space
within the Premises and the Headtenant may, in its sole discretion, increase the
area comprising the Subpremises, in which case the amount of rent payable by the
Subtenant shall increase in proportion to the increase in size of the
Subpremises and the parties hereto shall accordingly execute a written amendment
to the Sublease to reflect such changes.
WITNESS our hands and seals the day, month and year as first written above.
VIDEOFLICKS CANADA LIMITED
Per:
/s/ MICHAEL KAVANAGH
----------------------------------
A.S.O.
VIDEOFLICKS.COM LIMITED
Per:
/s/ MICHAEL KAVANAGH
----------------------------------
A.S.O.
<PAGE> 1
STOCK OPTION AGREEMENT
THIS AGREEMENT made as of the 22nd day of April, 1999.
B E T W E E N :
VIDEOFLICKS.COM INC., a corporation
governed by the laws of the Province of Ontario,
(hereinafter called the "Corporation")
OF THE FIRST PART
- and -
MICHAEL KAVANAGH, of the Province of Ontario,
(hereinafter called the "Optionee")
OF THE SECOND PART
WHEREAS the Optionee is a director, officer and employee of the
Corporation;
AND WHEREAS the Board of Directors (the "Board") of the Corporation believe
that it is in the best interests of the Corporation to afford the Optionee an
opportunity to acquire common shares in the capital of the Corporation in
accordance with the terms and conditions of this Agreement and the terms and
conditions of the Corporation's Stock Option Plan ("Plan");
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of good and
valuable consideration and the sum of ONE ($1.00) DOLLAR now paid by each of the
Optionee and the Corporation to the other, (the receipt and sufficiency of which
is acknowledged by each party), it is agreed by and between the parties as
follows:
1. The Corporation hereby grants to the Optionee, subject to the terms of this
Agreement and of the Plan, a non-transferable and non-assignable option
("Option") to purchase up to 800,000 common shares in the capital of the
Corporation (the "Optioned Shares") at the price of US$0.50 per Optioned
Share; provided, however, such Option may be assigned in accordance with
the provisions of the Plan.
<PAGE> 2
- 2 -
2. All Optioned Shares shall vest in the Optionee upon due excercise thereof
unless otherwise provided herein. For the purpose of the foregoing "vest"
shall mean ownership of the Option or portion thereof, with the ability to
exercise the Option or portion thereof without any conditions, save for
those contained herein and in the Plan.
3. The Optionee shall have the right to exercise the Option as provided herein
from and after the date hereof until March 23, 2004 (the"Option Period"),
subject to earlier termination in accordance with section 5 hereof. Except
as set forth in section 5 hereof, no Option may be exercised by the
Optionee unless the Optionee is, at the time of such exercise, any of a
director, officer or employee of the Corporation and shall have been
continuously any of a director, officer or employee of the Corporation
since the grant of his Option.
4. Neither the Optionee nor his legal representatives or legatees will be, or
will be deemed to be, a holder of any Optioned Shares unless and until the
Option is exercised and a certificate for such Optioned Shares is issued
under the terms of the Plan.
5. (a) If the Optionee shall die while the Optionee's Option is still
outstanding, any Option held by the Optionee at the date of death
shall become exercisable, in whole or in part, but only by the person
or persons to whom the Optionee's rights under the Option shall pass
by the Optionee's will or the laws of descent and distribution. All
such Options shall be exercisable only to the extent that the Optionee
was entitled to exercise the Option at the date of his or her death
and only for the balance of the Option Period.
(b) If the tenure of the Optionee as an officer or the employment of the
Optionee by the Company is terminated ("Termination"), for cause no
Option held by the Optionee may be exercised following the date upon
which Termination occurred. If Termination occurs for any reason other
than cause, then any Option held by the Optionee shall be exercisable,
in whole or in part, for a period of six months after such
Termination, such right being subject to the provisions of sections 2
and 3 hereof.
6. The Optionee represents and warrants that his execution of this Agreement
and participation in the plan is voluntary and he is not being induced to
execute this Agreement or participate in the Plan by expectation of his
appointment as an officer or employment by the Corporation or his continued
appointment as an officer or employment by the Corporation and the
Corporation hereby represents and warrants that it has not required that
the Optionee execute this Agreement or participate in the Plan upon
expectation of the Optionee's appointment as an officer or employment by
the Corporation or his continued appointment as an officer or employment by
the Corporation.
<PAGE> 3
- 3 -
7. If the Corporation amalgamates, consolidates with, or merges with or into
another corporation, any shares receivable on the exercise of an Option
shall be converted into the securities, property or cash, which the
Optionee would have received upon such amalgamation, consolidation or
merger if the Optionee had exercised his Option immediately prior to the
record date applicable to such amalgamation, consolidation or merger, and
the option price shall be adjusted by the Board and such adjustment shall
be binding for all purposes of the Plan.
8. If there is any change in the common shares of the Corporation through, or
by means of a declaration of stock dividend of shares other than in the
ordinary course, or consolidations, subdivisions or reclassifications of
the common shares of the Corporation or otherwise, the number of common
shares of the Corporation available under the Plan, the Optioned Shares and
the purchase price thereof shall be adjusted appropriately by the Board and
such adjustments shall be effective and binding for all purposes of the
Plan.
9. Nothing contained in this agreement or the Plan shall confer upon any
Optionee any right with respect to the Optionees appointment as an officer
or employment by the Corporation or his continued appointment as an officer
or employment by the Corporation, or interfere in any way with the right of
the Corporation to determine the Optionee's engagement at any time.
10. The Board is authorized to interpret the Plan from time to time, to adopt,
amend and rescind rules and regulations for carrying out the Plan and to
amend, modify or terminate the Plan at any time if and when it is advisable
in the absolute discretion of the Board. However, any amendment of the Plan
which could at any time:
(a) materially increase the benefits under the Plan; or
(b) result in the increase of the number of shares of the Corporation
which would be issued under the Plan (except any increase resulting
automatically from an increase in the number of the issued and
outstanding shares of the Corporation); or,
(c) materially modify the requirement as to the eligibility for
participation in such Plan;
shall be effective only upon the approval of the shareholders of the
Corporation. Any amendment to any provision of such Plan shall be
subject to approval, if required by any regulatory body having
jurisdiction over the securities of the Corporation.
The interpretation and construction of any provision of the Plan by
the Board shall be final and conclusive. Administration of the Plan
shall be the responsibility of the appropriate officers of the
Corporation and all costs thereof shall be paid by the Corporation.
<PAGE> 4
- 4 -
11. The Corporation makes no representations or warranties as to the future
market value of any Optioned Shares issued in accordance with the Plan.
12. The Plan will be governed by, and construed in accordance with, the laws of
the Province of Ontario and the laws of Canada applicable therein.
13. The Option granted hereunder may be exercised subject to the terms and
conditions of this Agreement from time to time, by the delivery to the
Corporation at its head office of a written notice of exercise specifying
the number of Optioned Shares with respect to which the Option has been
exercised and accompanied by payment in full for the purchase price of the
Optioned Shares then being purchased by way of cash or certified cheque in
favour of the Corporation as well as an instrument in writing, in form
satisfactory to the Corporation, electing to forthwith exercise the Option.
Such notice shall contain the Optionee's agreement to comply, to the
satisfaction of the Corporation and its counsel, to all applicable
requirements of any stock exchange or exchange upon which any securities at
the Corporation are as listed and the applicable regulatory authorities.
Upon any such exercise of Option as aforesaid, the Corporation shall cause
the transfer agent and registrar of the Corporation to deliver to the
Optionee or his legal and personal representatives, a certificate or
certificates in the name of the Optionee or his legal and personal
representatives representing the aggregate of number of Optioned Shares as
the Optionee or his legal and personal representative shall have then paid
for.
For greater certainty the obligation of the Corporation to issue and
deliver the Optioned Shares pursuant to the exercise of the Option is
subject to any approvals which may be required from any regulatory
authority having jurisdiction over the Optioned Shares and the Corporation
and the Optionee hereby agree to amend the terms of this Agreement, if
necessary, to the extent required in order to obtain such approvals. If any
such approvals cannot be obtained then the obligation of the Corporation to
issue such Optioned Shares shall terminate and any purchase price paid in
connection with the exercise of the Option shall be returned to the
Optionee.
14. The Optionee hereby authorizes the Corporation to withhold from any
remuneration otherwise payable to the Optionee any amounts required by any
taxing authority to be withheld for taxes of any kind as a consequence of
the Optionee's participation in the Plan.
15. For the purposes of this Agreement, the singular shall include the plural,
and the plural the singular whenever the context so requires, and the
masculine, the feminine and the neuter genders shall be mutually inclusive.
16. Time shall be the essence of this Agreement.
<PAGE> 5
- 5 -
17. This Agreement shall enure to the benefit of, and be binding upon the
Corporation and its successors and assigns and the Optionee and its legal
personal representatives to the extent provided herein. This Agreement
shall not be transferrable or assignable by the Optionee or his legal
personal representatives save as provided herein.
IN WITNESS WHEREOF this Agreement has been duly executed by the parties
hereto as of the day and year first above written.
VIDEOFLICKS.COM INC.
Per: /s/ ROBERT BRAY
-------------------------------------
Robert Bray
Secretary
/s/ MICHAEL KAVANAGH
- ----------------------------- ------------------------------------------
Witness MICHAEL KAVANAGH
<PAGE> 1
EXHIBIT 2.7
STOCK OPTION AGREEMENT
THIS AGREEMENT made as of the 22nd day of April, 1999.
B E T W E E N :
VIDEOFLICKS.COM INC., a corporation governed
by the laws of the Province of Ontario,
(hereinafter called the "Corporation")
OF THE FIRST PART
- and -
ROBERT BRAY, of the Province of Ontario,
(hereinafter called the "Optionee")
OF THE SECOND PART
WHEREAS the Optionee is a director, officer and employee of the
Corporation;
AND WHEREAS the Board of Directors (the "Board") of the Corporation believe
that it is in the best interests of the Corporation to afford the Optionee an
opportunity to acquire common shares in the capital of the Corporation in
accordance with the terms and conditions of this Agreement and the terms and
conditions of the Corporation's Stock Option Plan ("Plan");
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of good and
valuable consideration and the sum of ONE ($1.00) DOLLAR now paid by each of the
Optionee and the Corporation to the other, (the receipt and sufficiency of which
is acknowledged by each party), it is agreed by and between the parties as
follows:
1. The Corporation hereby grants to the Optionee, subject to the terms of this
Agreement and of the Plan, a non-transferable and non-assignable option
("Option") to purchase up to 400,000 common shares in the capital of the
Corporation (the "Optioned Shares") at the price of US$0.50 per Optioned
Share; provided, however, such Option may be assigned in accordance with
the provisions of the Plan.
<PAGE> 2
- 2 -
2. The Option granted in respect of the Optioned Shares shall vest as to
one-third thereof on each of the first, second and third anniversaries of
the date of this Agreement. For the purpose of the foregoing "vest" shall
mean ownership of the Option or portion thereof, with the ability to
exercise the Option or portion thereof without any conditions, save for
those contained herein and in the Plan.
3. The Optionee shall have the right to exercise the vested portion of the
Option as provided herein from and after the date hereof until March 23,
2004 (the"Option Period"), subject to earlier termination in accordance
with section 5 hereof. Except as set forth in section 5 hereof, no Option
may be exercised by the Optionee unless the Optionee is, at the time of
such exercise, any of a director, officer or employee of the Corporation
and shall have been continuously any of a director, officer or employee of
the Corporation since the grant of his Option.
4. Neither the Optionee nor his legal representatives or legatees will be, or
will be deemed to be, a holder of any Optioned Shares unless and until the
Option is exercised and a certificate for such Optioned Shares is issued
under the terms of the Plan.
5. (a) If the Optionee shall die while the Optionee's Option is still
outstanding, any Option held by the Optionee at the date of death
shall become exercisable, in whole or in part, but only by the person
or persons to whom the Optionee's rights under the Option shall pass
by the Optionee's will or the laws of descent and distribution. All
such Options shall be exercisable only to the extent that the Optionee
was entitled to exercise the Option at the date of his or her death
and only for the balance of the Option Period.
(b) If the tenure of the Optionee as an officer or the employment of the
Optionee by the Company is terminated ("Termination"), for cause no
Option held by the Optionee may be exercised following the date upon
which Termination occurred. If Termination occurs for any reason other
than cause, then any Option held by the Optionee shall be exercisable,
in whole or in part, for a period of six months after such
Termination, such right being subject to the provisions of sections 2
and 3 hereof.
6. The Optionee represents and warrants that his execution of this Agreement
and participation in the plan is voluntary and he is not being induced to
execute this Agreement or participate in the Plan by expectation of his
appointment as an officer or employment by the Corporation or his continued
appointment as an officer or employment by the Corporation and the
Corporation hereby represents and warrants that it has not required that
the Optionee execute this Agreement or participate in the Plan upon
expectation of the Optionee's appointment as an officer or employment by
the Corporation or his continued appointment as an officer or employment by
the Corporation.
<PAGE> 3
- 3 -
7. If the Corporation amalgamates, consolidates with, or merges with or into
another corporation, any shares receivable on the exercise of an Option
shall be converted into the securities, property or cash, which the
Optionee would have received upon such amalgamation, consolidation or
merger if the Optionee had exercised his Option immediately prior to the
record date applicable to such amalgamation, consolidation or merger, and
the option price shall be adjusted by the Board and such adjustment shall
be binding for all purposes of the Plan.
8. If there is any change in the common shares of the Corporation through, or
by means of a declaration of stock dividend of shares other than in the
ordinary course, or consolidations, subdivisions or reclassifications of
the common shares of the Corporation or otherwise, the number of common
shares of the Corporation available under the Plan, the Optioned Shares and
the purchase price thereof shall be adjusted appropriately by the Board and
such adjustments shall be effective and binding for all purposes of the
Plan.
9. Nothing contained in this agreement or the Plan shall confer upon any
Optionee any right with respect to the Optionees appointment as an officer
or employment by the Corporation or his continued appointment as an officer
or employment by the Corporation, or interfere in any way with the right of
the Corporation to determine the Optionee's engagement at any time.
10. The Board is authorized to interpret the Plan from time to time, to adopt,
amend and rescind rules and regulations for carrying out the Plan and to
amend, modify or terminate the Plan at any time if and when it is advisable
in the absolute discretion of the Board. However, any amendment of the Plan
which could at any time:
(a) materially increase the benefits under the Plan; or
(b) result in the increase of the number of shares of the Corporation which
would be issued under the Plan (except any increase resulting automatically
from an increase in the number of the issued and outstanding shares of the
Corporation); or,
(c) materially modify the requirement as to the eligibility for
participation in such Plan;
shall be effective only upon the approval of the shareholders of the
Corporation. Any amendment to any provision of such Plan shall be subject
to approval, if required by any regulatory body having jurisdiction over
the securities of the Corporation.
The interpretation and construction of any provision of the Plan by the
Board shall be final and conclusive. Administration of the Plan shall be
the responsibility of the
<PAGE> 4
- 4 -
appropriate officers of the Corporation and all costs thereof shall be paid
by the Corporation.
11. The Corporation makes no representations or warranties as to the future
market value of any Optioned Shares issued in accordance with the Plan.
12. The Plan will be governed by, and construed in accordance with, the laws of
the Province of Ontario and the laws of Canada applicable therein.
13. The Option granted hereunder may be exercised subject to the terms and
conditions of this Agreement from time to time, by the delivery to the
Corporation at its head office of a written notice of exercise specifying
the number of Optioned Shares with respect to which the Option has been
exercised and accompanied by payment in full for the purchase price of the
Optioned Shares then being purchased by way of cash or certified cheque in
favour of the Corporation as well as an instrument in writing, in form
satisfactory to the Corporation, electing to forthwith exercise the Option.
Such notice shall contain the Optionee's agreement to comply, to the
satisfaction of the Corporation and its counsel, to all applicable
requirements of any stock exchange or exchange upon which any securities at
the Corporation are as listed and the applicable regulatory authorities.
Upon any such exercise of Option as aforesaid, the Corporation shall cause
the transfer agent and registrar of the Corporation to deliver to the
Optionee or his legal and personal representatives, a certificate or
certificates in the name of the Optionee or his legal and personal
representatives representing the aggregate of number of Optioned Shares as
the Optionee or his legal and personal representative shall have then paid
for.
For greater certainty the obligation of the Corporation to issue and
deliver the Optioned Shares pursuant to the exercise of the Option is
subject to any approvals which may be required from any regulatory
authority having jurisdiction over the Optioned Shares and the Corporation
and the Optionee hereby agree to amend the terms of this Agreement, if
necessary, to the extent required in order to obtain such approvals. If any
such approvals cannot be obtained then the obligation of the Corporation to
issue such Optioned Shares shall terminate and any purchase price paid in
connection with the exercise of the Option shall be returned to the
Optionee.
14. The Optionee hereby authorizes the Corporation to withhold from any
remuneration otherwise payable to the Optionee any amounts required by any
taxing authority to be withheld for taxes of any kind as a consequence of
the Optionee's participation in the Plan.
15. For the purposes of this Agreement, the singular shall include the plural,
and the plural the singular whenever the context so requires, and the
masculine, the feminine and the neuter genders shall be mutually inclusive.
<PAGE> 5
- 5 -
16. Time shall be the essence of this Agreement.
17. This Agreement shall enure to the benefit of, and be binding upon the
Corporation and its successors and assigns and the Optionee and its legal
personal representatives to the extent provided herein. This Agreement
shall not be transferrable or assignable by the Optionee or his legal
personal representatives save as provided herein.
IN WITNESS WHEREOF this Agreement has been duly executed by the parties
hereto as of the day and year first above written.
VIDEOFLICKS.COM INC.
/s/ MICHAEL KAVANAGH
Per:
--------------------------------------
Michael Kavanagh
President
/s/ ROBERT BRAY
- ---------------------------- ------------------------------------------
Witness ROBERT BRAY
<PAGE> 1
EXHIBIT 2.8
STOCK OPTION AGREEMENT
THIS AGREEMENT made as of the 22nd day of April, 1999.
B E T W E E N :
VIDEOFLICKS.COM INC., a corporation
governed by the laws of the Province of Ontario,
(hereinafter called the "Corporation")
OF THE FIRST PART
- and -
JOHN WADDELL, of the Province of Ontario,
(hereinafter called the "Optionee")
OF THE SECOND PART
WHEREAS the Optionee is a director, officer and employee of the
Corporation;
AND WHEREAS the Board of Directors (the "Board") of the Corporation believe
that it is in the best interests of the Corporation to afford the Optionee an
opportunity to acquire common shares in the capital of the Corporation in
accordance with the terms and conditions of this Agreement and the terms and
conditions of the Corporation's Stock Option Plan ("Plan");
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of good and
valuable consideration and the sum of ONE ($1.00) DOLLAR now paid by each of the
Optionee and the Corporation to the other, (the receipt and sufficiency of which
is acknowledged by each party), it is agreed by and between the parties as
follows:
1. The Corporation hereby grants to the Optionee, subject to the terms of this
Agreement and of the Plan, a non-transferable and non-assignable option
("Option") to purchase up to 400,000 common shares in the capital of the
Corporation (the "Optioned Shares") at the price of US$0.50 per Optioned
Share; provided, however, such Option may be assigned in accordance with
the provisions of the Plan.
<PAGE> 2
- 2 -
2. The Option granted in respect of the Optioned Shares shall vest as to
one-third thereof on each of the first, second and third anniversaries of
the date of this Agreement. For the purpose of the foregoing "vest" shall
mean ownership of the Option or portion thereof, with the ability to
exercise the Option or portion thereof without any conditions, save for
those contained herein and in the Plan.
3. The Optionee shall have the right to exercise the vested portion of the
Option as provided herein from and after the date hereof until March 23,
2004 (the"Option Period"), subject to earlier termination in accordance
with section 5 hereof. Except as set forth in section 5 hereof, no Option
may be exercised by the Optionee unless the Optionee is, at the time of
such exercise, any of a director, officer or employee of the Corporation
and shall have been continuously any of a director, officer or employee of
the Corporation since the grant of his Option.
4. Neither the Optionee nor his legal representatives or legatees will be, or
will be deemed to be, a holder of any Optioned Shares unless and until the
Option is exercised and a certificate for such Optioned Shares is issued
under the terms of the Plan.
5. (a) If the Optionee shall die while the Optionee's Option is still
outstanding, any Option held by the Optionee at the date of death
shall become exercisable, in whole or in part, but only by the person
or persons to whom the Optionee's rights under the Option shall pass
by the Optionee's will or the laws of descent and distribution. All
such Options shall be exercisable only to the extent that the Optionee
was entitled to exercise the Option at the date of his or her death
and only for the balance of the Option Period.
(b) If the tenure of the Optionee as an officer or the employment of the
Optionee by the Company is terminated ("Termination"), for cause no
Option held by the Optionee may be exercised following the date upon
which Termination occurred. If Termination occurs for any reason other
than cause, then any Option held by the Optionee shall be exercisable,
in whole or in part, for a period of six months after such
Termination, such right being subject to the provisions of sections 2
and 3 hereof.
6. The Optionee represents and warrants that his execution of this Agreement
and participation in the plan is voluntary and he is not being induced to
execute this Agreement or participate in the Plan by expectation of his
appointment as an officer or employment by the Corporation or his continued
appointment as an officer or employment by the Corporation and the
Corporation hereby represents and warrants that it has not required that
the Optionee execute this Agreement or participate in the Plan upon
expectation of the Optionee's appointment as an officer or employment by
the Corporation or his continued appointment as an officer or employment by
the Corporation.
<PAGE> 3
- 3 -
7. If the Corporation amalgamates, consolidates with, or merges with or into
another corporation, any shares receivable on the exercise of an Option
shall be converted into the securities, property or cash, which the
Optionee would have received upon such amalgamation, consolidation or
merger if the Optionee had exercised his Option immediately prior to the
record date applicable to such amalgamation, consolidation or merger, and
the option price shall be adjusted by the Board and such adjustment shall
be binding for all purposes of the Plan.
8. If there is any change in the common shares of the Corporation through, or
by means of a declaration of stock dividend of shares other than in the
ordinary course, or consolidations, subdivisions or reclassifications of
the common shares of the Corporation or otherwise, the number of common
shares of the Corporation available under the Plan, the Optioned Shares and
the purchase price thereof shall be adjusted appropriately by the Board and
such adjustments shall be effective and binding for all purposes of the
Plan.
9. Nothing contained in this agreement or the Plan shall confer upon any
Optionee any right with respect to the Optionees appointment as an officer
or employment by the Corporation or his continued appointment as an officer
or employment by the Corporation, or interfere in any way with the right of
the Corporation to determine the Optionee's engagement at any time.
10. The Board is authorized to interpret the Plan from time to time, to adopt,
amend and rescind rules and regulations for carrying out the Plan and to
amend, modify or terminate the Plan at any time if and when it is advisable
in the absolute discretion of the Board. However, any amendment of the Plan
which could at any time:
(a) materially increase the benefits under the Plan; or
(b) result in the increase of the number of shares of the Corporation which
would be issued under the Plan (except any increase resulting automatically
from an increase in the number of the issued and outstanding shares of the
Corporation); or,
(c) materially modify the requirement as to the eligibility for
participation in such Plan;
shall be effective only upon the approval of the shareholders of the
Corporation. Any amendment to any provision of such Plan shall be subject
to approval, if required by any regulatory body having jurisdiction over
the securities of the Corporation.
The interpretation and construction of any provision of the Plan by the
Board shall be final and conclusive. Administration of the Plan shall be
the responsibility of the
<PAGE> 4
- 4 -
appropriate officers of the Corporation and all costs thereof shall be paid
by the Corporation.
11. The Corporation makes no representations or warranties as to the future
market value of any Optioned Shares issued in accordance with the Plan.
12. The Plan will be governed by, and construed in accordance with, the laws of
the Province of Ontario and the laws of Canada applicable therein.
13. The Option granted hereunder may be exercised subject to the terms and
conditions of this Agreement from time to time, by the delivery to the
Corporation at its head office of a written notice of exercise specifying
the number of Optioned Shares with respect to which the Option has been
exercised and accompanied by payment in full for the purchase price of the
Optioned Shares then being purchased by way of cash or certified cheque in
favour of the Corporation as well as an instrument in writing, in form
satisfactory to the Corporation, electing to forthwith exercise the Option.
Such notice shall contain the Optionee's agreement to comply, to the
satisfaction of the Corporation and its counsel, to all applicable
requirements of any stock exchange or exchange upon which any securities at
the Corporation are as listed and the applicable regulatory authorities.
Upon any such exercise of Option as aforesaid, the Corporation shall cause
the transfer agent and registrar of the Corporation to deliver to the
Optionee or his legal and personal representatives, a certificate or
certificates in the name of the Optionee or his legal and personal
representatives representing the aggregate of number of Optioned Shares as
the Optionee or his legal and personal representative shall have then paid
for.
For greater certainty the obligation of the Corporation to issue and
deliver the Optioned Shares pursuant to the exercise of the Option is
subject to any approvals which may be required from any regulatory
authority having jurisdiction over the Optioned Shares and the Corporation
and the Optionee hereby agree to amend the terms of this Agreement, if
necessary, to the extent required in order to obtain such approvals. If any
such approvals cannot be obtained then the obligation of the Corporation to
issue such Optioned Shares shall terminate and any purchase price paid in
connection with the exercise of the Option shall be returned to the
Optionee.
14. The Optionee hereby authorizes the Corporation to withhold from any
remuneration otherwise payable to the Optionee any amounts required by any
taxing authority to be withheld for taxes of any kind as a consequence of
the Optionee's participation in the Plan.
15. For the purposes of this Agreement, the singular shall include the plural,
and the plural the singular whenever the context so requires, and the
masculine, the feminine and the neuter genders shall be mutually inclusive.
<PAGE> 5
- 5 -
16. Time shall be the essence of this Agreement.
17. This Agreement shall enure to the benefit of, and be binding upon the
Corporation and its successors and assigns and the Optionee and its legal
personal representatives to the extent provided herein. This Agreement
shall not be transferrable or assignable by the Optionee or his legal
personal representatives save as provided herein.
IN WITNESS WHEREOF this Agreement has been duly executed by the parties
hereto as of the day and year first above written.
VIDEOFLICKS.COM INC.
/s/ MICHAEL KAVANAGH
Per:
------------------------------------
Michael Kavanagh
President
/s/ JOHN WADDELL
- -------------------------------- -----------------------------------------
Witness JOHN WADDELL
<PAGE> 1
EXHIBIT 2.9
STOCK OPTION AGREEMENT
THIS AGREEMENT made as of the 22nd day of April, 1999.
B E T W E E N :
VIDEOFLICKS.COM INC., a corporation
governed by the laws of the Province of Ontario,
(hereinafter called the "Corporation")
OF THE FIRST PART
- and -
ALAN KARP, of the Province of Ontario,
(hereinafter called the "Optionee")
OF THE SECOND PART
WHEREAS the Optionee is a director of the Corporation;
AND WHEREAS the Board of Directors (the "Board") of the Corporation believe
that it is in the best interests of the Corporation to afford the Optionee an
opportunity to acquire common shares in the capital of the Corporation in
accordance with the terms and conditions of this Agreement and the terms and
conditions of the Corporation's Stock Option Plan ("Plan");
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of good and
valuable consideration and the sum of ONE ($1.00) DOLLAR now paid by each of the
Optionee and the Corporation to the other, (the receipt and sufficiency of which
is acknowledged by each party), it is agreed by and between the parties as
follows:
1. The Corporation hereby grants to the Optionee, subject to the terms of this
Agreement and of the Plan, a non-transferable and non-assignable option
("Option") to purchase up to 300,000 common shares in the capital of the
Corporation (the "Optioned Shares") at the price of US$0.50 per Optioned
Share; provided, however, such Option may be assigned in accordance with
the provisions of the Plan.
2. The Option granted in respect of the Optioned Shares shall vest as to
one-third thereof on each of the date of this Agreement, and the first and
second anniversaries of the date
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of this Agreement. For the purpose of the foregoing "vest" shall mean
ownership of the Option or portion thereof, with the ability to exercise
the Option or portion thereof without any conditions, save for those
contained herein and in the Plan.
3. The Optionee shall have the right to exercise the vested portion of the
Option as provided herein from and after the date hereof until March 23,
2004 (the"Option Period"), subject to earlier termination in accordance
with section 5 hereof. Except as set forth in section 5 hereof, no Option
may be exercised by the Optionee unless the Optionee is, at the time of
such exercise, a director of the Corporation and shall have been
continuously a director of the Corporation since the grant of his Option.
4. Neither the Optionee nor his legal representatives or legatees will be, or
will be deemed to be, a holder of any Optioned Shares unless and until the
Option is exercised and a certificate for such Optioned Shares is issued
under the terms of the Plan.
5. (a) If the Optionee shall die while the Optionee's Option is still
outstanding, any Option held by the Optionee at the date of death
shall become exercisable, in whole or in part, but only by the person
or persons to whom the Optionee's rights under the Option shall pass
by the Optionee's will or the laws of descent and distribution. All
such Options shall be exercisable only to the extent that the Optionee
was entitled to exercise the Option at the date of his death and only
for the balance of the Option Period.
(b) In the event that the Optionee resigns or fails to be re-elected as a
director of the Company, then any Option held by the Optionee shall
only be exercisable, in whole or in part, for a period of six months
after such resignation or failure to be re-elected, such right being
subject to the provisions of sections 2 and 3 hereof.
6. If the Corporation amalgamates, consolidates with, or merges with or into
another corporation, any shares receivable on the exercise of an Option
shall be converted into the securities, property or cash, which the
Optionee would have received upon such amalgamation, consolidation or
merger if the Optionee had exercised his Option immediately prior to the
record date applicable to such amalgamation, consolidation or merger, and
the option price shall be adjusted by the Board and such adjustment shall
be binding for all purposes of the Plan.
7. If there is any change in the common shares of the Corporation through, or
by means of a declaration of stock dividend of shares other than in the
ordinary course, or consolidations, subdivisions or reclassifications of
the common shares of the Corporation or otherwise, the number of common
shares of the Corporation available under the Plan, the Optioned Shares and
the purchase price thereof shall be adjusted appropriately by the Board and
such adjustments shall be effective and binding for all purposes of the
Plan.
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8. The Board is authorized to interpret the Plan from time to time, to adopt,
amend and rescind rules and regulations for carrying out the Plan and to
amend, modify or terminate the Plan at any time if and when it is advisable
in the absolute discretion of the Board. However, any amendment of the Plan
which could at any time:
(a) materially increase the benefits under the Plan; or
(b) result in the increase of the number of shares of the Corporation which
would be issued under the Plan (except any increase resulting automatically
from an increase in the number of the issued and outstanding shares of the
Corporation); or,
(c) materially modify the requirement as to the eligibility for
participation in such Plan;
shall be effective only upon the approval of the shareholders of the
Corporation. Any amendment to any provision of such Plan shall be subject
to approval, if required by any regulatory body having jurisdiction over
the securities of the Corporation.
The interpretation and construction of any provision of the Plan by the
Board shall be final and conclusive. Administration of the Plan shall be
the responsibility of the appropriate officers of the Corporation and all
costs thereof shall be paid by the Corporation.
9. The Corporation makes no representations or warranties as to the future
market value of any Optioned Shares issued in accordance with the Plan.
10. The Plan will be governed by, and construed in accordance with, the laws of
the Province of Ontario and the laws of Canada applicable therein.
11. The Option granted hereunder may be exercised subject to the terms and
conditions of this Agreement from time to time, by the delivery to the
Corporation at its head office of a written notice of exercise specifying
the number of Optioned Shares with respect to which the Option has been
exercised and accompanied by payment in full for the purchase price of the
Optioned Shares then being purchased by way of cash or certified cheque in
favour of the Corporation as well as an instrument in writing, in form
satisfactory to the Corporation, electing to forthwith exercise the Option.
Such notice shall contain the Optionee's agreement to comply, to the
satisfaction of the Corporation and its counsel, with all applicable
requirements of any stock exchange or exchange upon which any securities at
the Corporation are as listed and the applicable regulatory authorities.
Upon any such exercise of Option as aforesaid, the Corporation shall cause
the transfer agent and registrar of the Corporation to deliver to the
Optionee or his legal and personal representatives, a certificate or
certificates in the name of the Optionee or his legal and
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personal representatives representing the aggregate of number of Optioned
Shares as the Optionee or his legal and personal representative shall have
then paid for.
For greater certainty the obligation of the Corporation to issue and
deliver the Optioned Shares pursuant to the exercise of the Option is
subject to any approvals which may be required from any regulatory
authority having jurisdiction over the Optioned Shares and the Corporation
and the Optionee hereby agree to amend the terms of this Agreement, if
necessary, to the extent required in order to obtain such approvals. If any
such approvals cannot be obtained then the obligation of the Corporation to
issue such Optioned Shares shall terminate and any purchase price paid in
connection with the exercise of the Option shall be returned to the
Optionee.
12. The Optionee hereby authorizes the Corporation to withhold from any
remuneration otherwise payable to the Optionee any amounts required by any
taxing authority to be withheld for taxes of any kind as a consequence of
the Optionee's participation in the Plan.
13. For the purposes of this Agreement, the singular shall include the plural,
and the plural the singular whenever the context so requires, and the
masculine, the feminine and the neuter genders shall be mutually inclusive.
14. Time shall be the essence of this Agreement.
15. This Agreement shall enure to the benefit of, and be binding upon the
Corporation and its successors and assigns and the Optionee and its legal
personal representatives to the extent provided herein. This Agreement
shall not be transferrable or assignable by the Optionee or his legal
personal representatives save as provided herein.
IN WITNESS WHEREOF this Agreement has been duly executed by the parties
hereto as of the day and year first above written.
VIDEOFLICKS.COM INC.
/s/ MICHAEL KAVANAGH
Per:
---------------------------------
Michael Kavanagh
President
/s/ ALAN KARP
- ---------------------------------- -------------------------------------
Witness ALAN KARP
