Zorro Capital Inc.
TSX VENTURE : ZOR.P

Zorro Capital Inc.
Kent Imaging Inc.

August 20, 2015 10:58 ET

Zorro to Merge with Kent Imaging as Qualifying Transaction

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Aug. 20, 2015) - Zorro Capital Inc. (TSX VENTURE:ZOR.P) ("Zorro") is pleased to announce details concerning its proposed qualifying transaction involving a proposed business combination with Kent Imaging Inc. ("Kent"). Kent is a private, Calgary based company that has developed breakthrough medical imaging technology that provides real-time information on levels of tissue blood flow and oxygenation; the outputs from Kent's system are intended to provide immediate, objective indications of tissue viability.

Zorro has entered into a letter agreement with Kent dated August 14, 2015 (the "Letter Agreement"), pursuant to which Zorro and Kent intend to complete a business combination (the "Transaction") by way of an amalgamation or such other structure as agreed to by the parties to form a new company ("Newco") called "Kent Imaging Inc." Pursuant to the Transaction, Zorro will combine with Kent to form Newco wherein (i) Kent's common shares ("Kent Common Shares"), Kent's preferred shares ("Kent Preferred Shares") and the common shares issued upon the conversion of Kent's outstanding 10% convertible debentures will be exchanged for an aggregate of approximately 10,600,000 common shares of Newco (the "Newco Common Shares") with a deemed value of $1.00 per share for total deemed consideration of $10.6 million; (ii) the outstanding Kent share purchase warrants will be exchanged for share purchase warrants of Newco; (iii) the outstanding Kent stock options will be exchanged for stock options of Newco; and (iv) each five (5) issued and outstanding Zorro common shares will be exchanged for one (1) Newco Common Share for an aggregate of 1,215,000 Newco Common Shares.

It is intended that the Transaction, when completed, will constitute the qualifying transaction of the Corporation pursuant to Policy 2.4 of the TSX Venture Exchange Inc. (the "TSX Venture") Corporate Finance Manual and Newco will be listed as a Technology issuer. The Transaction is subject to the policies of the TSX Venture relating to qualifying transactions, as well as applicable shareholder approvals of each of Zorro and Kent.

About Kent

Kent is focused on commercializing a breakthrough multispectral imaging technology that obtains and analyzes near-infrared (NIR) data to provide real-time information on levels of tissue blood flow and oxygenation (tissue viability). Quick, easy to use and non-invasive, the technology provides medical practitioners and researchers with detailed, visual diagnostic insight into tissue health. This information is designed to enable improved clinical decision-making and to reduce the instances of incorrect diagnoses, resulting in optimized treatment procedures and reductions in post-procedure corrections. On the whole, Kent's technology is intended to improve patient care and reduce the burden on the health care system.

The Kent imaging device assesses the amount of oxygenated hemoglobin in tissue allowing clinicians to determine whether the tissue is receiving enough blood and oxygen to ensure survival (tissue viability) and thus has many potential applications, including: wound care, surgery (vascular procedures, transplant, cosmetic surgery, cardiovascular surgery), optometry, vascular diseases and diabetes. Additional information is available on Kent's website at www.kentimaging.com.

Kent Corporate History and Structure

Kent was incorporated under the Business Corporations Act (Alberta) on February 7, 2006. The head and registered office of Kent is located at Suite 1440, 720 - 13th Avenue, SW, Calgary, AB T2R 1M5. Kent has no subsidiaries.

Kent currently has 2,695,001 Kent Common Shares and 4,935,692 Kent Preferred Shares issued and outstanding. There are no stock options, warrants, anti-dilution or other rights pursuant to which Kent Common Shares may be issued, other than: (i) 975,231 share purchase warrants exercisable into Kent Common Shares at a price of $1.00 per share; (ii) stock options to acquire 1,640,000 Kent Common Shares held by current or former directors, officers or employees of Kent at various prices ranging from $0.40 to $1.25 per share; and (iii) $330,000 principal amount convertible debentures plus accrued interest which will be converted into an aggregate of approximately 462,800 Kent Common Shares.

The three largest shareholders of Kent are Donald Chapman of Calgary, Alberta; Ernest Wigmore of Cranbrook, British Columbia and William Hews of Calgary, Alberta; who own 22.3%, 16.8% and 12.2%, respectively.

Financial Information of Kent

Based on audited management prepared financial statements for the year ended November 30, 2014, Kent had operating expenses of $851,443 and a net loss of $688,967. In addition, as at November 30, 2014, Kent had working capital of $413,613.

Summary of the Proposed Qualifying Transaction

Pursuant to the arm's length Letter Agreement, and subject to the terms and conditions thereof, Zorro and Kent have agreed to complete the Transaction to form Newco.

Under the Letter Agreement, the parties have agreed to use their "commercially reasonable efforts" to cause Kent to complete a private placement (the "Kent Private Placement") of subscription receipts of Kent (the "Subscription Receipts") at a price of $1.00 per Subscription Receipt for gross proceeds of a minimum of $5,000,000 and a maximum of $10,000,000. Each Subscription Receipt will be exchanged into one unit of Kent without further payment or action and then will be automatically exchanged into one Newco Unit concurrent with the completion of the Transaction at no additional cost to the holder. Each Newco Unit will consist of one Newco Common Share and one half of one share purchase warrant of Newco (the "Newco Warrants"). Each whole Newco Warrant shall entitle the holder to purchase one Newco Common Share at a price of $1.50 per share for a period of 24 months from the date of the initial closing of the Private Placement. The parties acknowledge that Kent intends to engage a syndicate of agents (the "Agents") to act as agents on a "commercially reasonable efforts" basis for the Kent Private Placement and in connection therewith intends to pay a cash commission to the Agents in an amount to be determined. The parties agree the net proceeds of the Kent Private Placement will be held in escrow and released concurrent with the completion of the Transaction.

Kent also intends to proceed immediately with a private placement of up to $300,000 pursuant to the issuance of convertible notes which shall be converted into Kent Common Shares immediately prior to the closing of the Transaction at a price per share to be determined (the "Kent Bridge Financing") in order to advance Kent's business prior to closing of the Transaction. Closing of the Kent Bridge Financing is intended to occur prior to August 28, 2015 or such other date as Kent and Zorro shall agree. In conjunction with the Transaction, the Kent Common Shares issuable upon conversion of the Kent Bridge Financing will be exchanged for Newco Common Shares.

Summary of Proposed Directors and Officers

At the shareholders meeting of Zorro to approve the Transaction, Zorro shareholders will be asked to approve a board of directors consisting of five (5) directors, being Donald Chapman, Douglas Ford, William Hews, Larry Van Hatten and Dr. Ernest Wigmore, wherein Messrs. Van Hatten, Wigmore and Hews will be considered independent, provided the TSXV does not object to such nominations and such persons are eligible to act as directors pursuant to the Business Corporations Act (Alberta) and applicable securities laws. The officers of Zorro shall resign at or prior to the closing of the Transaction without payment by or any liability to Zorro or Kent. At or prior to the closing of the Transaction, the officers of Kent shall become the officers of Newco, with the exception that Douglas Ford shall be appointed as the Chief Financial Officer of Newco. Summaries of the proposed directors and officers of Newco are set forth below.

Donald Chapman, President, Chief Executive Officer and Director

Donald Chapman, Age 63, President, Chief Executive Officer and Director; Mr. Chapman is the founder of Kent as well as the President and CEO. He has over 40 years of experience in managing company start-ups and marketing of high technology products. From 1974-1977, Mr. Chapman worked for the Bristol Company of Canada designing and installing pipeline control systems; from 1977-1978 he worked with the Willowglen Company Ltd., also in control systems; and from 1978-1983 he was employed by Sentrol Systems developing international markets for SCADA systems. Mr. Chapman was the Founder and President of Norwood Controls Ltd. From 1983 - 1985 and from 1985-1989 he was the Co-founder and President of Hiltap Fittings Ltd. From 1989-1994, he was the President and Chairman of International Software Systems Inc. which developed 3D CAD design systems selling products into 67 countries. Mr. Chapman was the President and CEO of several companies from 1995 - 2004 including: NTI Newspaper Technologies Inc. software to distribute and account for newspaper distribution (1995-2000), Kanotech Information Systems Inc. GIS software for small municipalities (May 2000 - December 2001), and Castlehill Products Inc. distribution of computer accessory products (June 2002 - June 2004). Prior to starting Kent, Mr. Chapman was the Director of Eric Technologies Corp., which was a medical device start-up measuring ocular pressure in the eye using sound waves.

Douglas Ford, Chief Financial Officer and Director

Douglas Ford, Age 52, Chief Financial Officer and Director; Mr. Ford has been the General Manager of Dockside Capital Group Inc., a private merchant banking and venture capital firm specializing in providing services to, and arranging funding for, emerging growth companies from 1987 to the present. Mr. Ford is the Chief Financial Officer of Avanti Energy Inc., Rockridge Capital Corp. and Bama Gold Corp. Mr. Ford has been a director and/or officer of a number of public companies including Rockgate Capital Corp. from its inception as a CPC until its takeover by Denison Mines Corp. He holds a Bachelor of Arts degree from the University of British Columbia.

William Hews, Director

William Hews, Age 60, Director; Mr. Hews is President of Fideliter Inc., a private consulting and investment company with interests in information technology, medical technology and oil and gas. Mr. Hews serves as Executive Chairman of IntelliView Technologies Inc., a private technology company and has previously served on boards of private and public (TSX and TSXV) listed companies in various roles. He currently is a director of Arsenal Energy Inc., a TSX listed company. He holds an Engineering degree from the University of Toronto and a MBA from the University of Western Ontario. Mr. Hews has been a Board member of Kent since 2009.

Ernest Wigmore MD, Director

Ernest Wigmore, Age 77, Director; Dr. Wigmore has been a member of Kent's Board of Directors since 2011. Dr. Wigmore had a Medical Practice in Churchill Manitoba from 1966 - 1968 and in Cranbrook B.C. from 1968 - 2011. In addition to his medical practice, from 1974 -2012 Dr. Wigmore was the owner of Wigmore Farms Ltd., a 48,000 acre grain and pulse crop farm located near Regina. He was also an owner of National Medical Solutions from 1996 - 2006. Dr. Wigmore is presently a board member for Alzheimer's Innovation Institute; a company that developed a cognitive training program for dementia patients. He has previously served on the Board of Directors for several companies including: QHR, a publicly listed medical company (2007 - 2015), Samaritans Purse Canada (1991 - 2006) and Billy Graham Ministries Canada (2001 - 2006). In 1961, Dr. Wigmore received his Bachelor of Agriculture Science and Bachelor of Commerce from the University of Saskatchewan, and in 1965, Dr. Wigmore received his M.D. from the University of Saskatchewan.

Larry Van Hatten, Director

Larry Van Hatten, Age 65, Director; Mr. Van Hatten was a partner of Ernst & Young LLP, from May 2005 to June 2010, leading its Vancouver assurance practice until announcing his retirement in June, 2010. Prior to May 2005, he was the managing partner of Ellis Foster, chartered accountants, a Vancouver-based firm that merged into Ernst & Young LLP in May 2005. From June 2002 to May 2006, Mr. Van Hatten was a director of Saxon Oil Company, an international oil and gas company engaged in the acquisition, development and production of oil and natural gas reserves. He served on the board of the B.C. Children's Hospital Foundation, which he chaired from 1996 to 1999, and is currently a director of Vanoil Energy Ltd. and PNG Gold Corp. Mr. Van Hatten received his chartered accountant designation in 1975 and his fellow chartered accountant designation in 2009. In 2010, he completed the academic requirements for the director's education program.

Chris Wolfenberg, Corporate Secretary

Chris Wolfenberg, Age 42, Corporate Secretary; is a partner with Fasken Martineau DuMoulin LLP where he practices business law, focusing on public and private corporate and securities transactions in energy, mining and technology for both issuers and dealers. He has acted as a director and officer of a number for public, private and not-for-profit entities. Chris regularly teaches law and lectures at a number of industry events. Prior to joining Fasken Martineau, Chris was a partner of a prominent international firm. Mr. Wolfenberg holds a Bachelor of Social Sciences from the University of Ottawa, a Bachelor of Laws from Queen's University and a Master of Laws from Cornell Law School. Mr. Wolfenberg is a member of the Law Society of Alberta.

Darrell Barnhart, BSc, Manager of Clinical and Regulatory Affairs

Mr. Barnhart has over 15 years of experience working in the medical device industry, specializing in regulatory affairs and quality management systems. From 2007 to 2011 he provided Kent with advisory services and assistance consulting on regulatory, quality, clinical, and manufacturing issues while also working as the director of engineering at JTECH Medical, a Salt Lake City based firm that created multiple medical devices for worldwide distribution. In 2011 Mr. Barnhart joined Kent on a full time basis and was instrumental in the efforts to receive FDA market clearance on the current imaging device. Mr. Barnhart served as the Director of Engineering of A.R.C. Laser, a company that designed and developed medical laser systems for use in ophthalmology and dermatology.

Matt Cervi, BSc, Manager of R&D and Product Commercialization

Mr. Cervi is the Design Engineer/ Project Manager for Touch-To-Go Technologies, a Calgary based company that developed a touchscreen system for elevators. From 2002 to 2007 Mr. Cervi worked at Vault Technologies, initially serving as a Manager of Product Development. Prior to 2002 Mr. Cervi served as a Hardware Design Engineer for Wi-LAN Inc. from 2000 until 2002 and for Nortel Networks from 1999 to 2000. Mr. Cervi joined Kent in 2008 and has been instrumental in the design and engineering of Kent's product. In 1999, Mr. Cervi received his Bachelor of Applied Science from the University of Waterloo.

Elizabeth Dickin, BSc, MBT, Manager of Marketing and Corporate Communications

Ms. Dickin received her Master of Biomedical Technology from the University of Calgary in 2013 and she also holds a Bachelor of Science from Simon Fraser University. Since joining Kent in 2013, M.s Dickin has assisted product development by providing market analysis and gathering customer feedback.

Information Concerning Zorro

Zorro is a capital pool company that completed its initial public offering and the Zorro Common Shares are listed for trading on the TSX Venture. Zorro currently has 5,550,000 Zorro Common Shares outstanding, and stock options outstanding to acquire 525,000 Zorro Common Shares at a price of $0.10 per share until February 25, 2023. As of May 31, 2015, Zorro had current and other assets, net of liabilities, of approximately $265,411. The Letter Agreement anticipates that the Zorro Options will be fully exercised concurrent with closing of the Transaction.

Other Matters Concerning the Qualifying Transaction

The completion of the Transaction is subject to the approval of TSX Venture and all other necessary regulatory approval. The completion of the Transaction is also subject to additional conditions precedent, including completion of the Private Placement for gross proceeds of a minimum of $5.0 million, negotiation and execution of a definitive agreement in respect of the Transaction, shareholder approval of Zorro and Kent, satisfactory completion of due diligence reviews by the parties, board of directors approval of Zorro and Kent and certain other standard conditions.

A comprehensive press release will be issued announcing further details of the Kent Private Placement, the Transaction and the Kent financial information.

The Transaction will be an arm's length transaction as none of the directors, officers or insiders of Zorro own any interest in Kent.

Zorro will apply to the TSX Venture for an exemption from the sponsorship requirements in connection with the Qualifying Transaction. There is no assurance that such exemption will be granted. If such exemption is not granted, Zorro will be required to engage a sponsor for the Transaction.

Trading of the Zorro Common Shares will not resume until all documents required by the TSX Venture have been filed. Zorro will issue a further news release when the TSX Venture has received the necessary documentation and trading of the Zorro Common Shares is to resume.

As indicated above, completion of the Transaction is subject to a number of conditions, including but not limited to, negotiation and execution of a definitive agreement in respect of the Transaction, TSX Venture approval and applicable shareholder approval. The Transaction cannot close until the required shareholder approval is obtained. There can be no assurance that the Transaction will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the information circular to be prepared in connection with the Transaction, any information released or received with respect to the Transaction may not be accurate or complete and should not be relied upon. Trading in the securities of Zorro should be considered highly speculative.

The TSX Venture Exchange Inc. has in no way passed upon the merits of the proposed transaction and has neither approved nor disapproved the contents of this press release.

This news release may contain certain forward-looking information and statements, including without limitation, statements pertaining to the completion of the Transaction and the Private Placement including Zorro's ability to obtain necessary approvals from the TSX Venture. Except for historical information contained herein, this news release contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially. Neither Kent nor Zorro will update these forward-looking statements to reflect events or circumstances after the date hereof unless required by applicable securities laws. More detailed information about the assumptions used to develop such forward-looking information and a description of the factors that may cause actual results to differ materially from the forward-looking information is included in the documents filed from time to time with the Canadian securities regulatory authorities by Zorro.

The securities of Zorro being offered have not been, nor will be, registered under the United States Securities Act of 1933, as amended, and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons absent U.S. registration or an applicable exemption from U.S. registration requirements. This release does not constitute an offer for sale of securities in the United States.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this news release.

Contact Information

  • Zorro Capital Inc.
    Douglas Ford
    Secretary
    (604) 973-2200

    Kent Imaging Inc.
    Donald Chapman
    Chief Executive Officer
    (403) 455-7610