AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY [__], 2002.
REGISTRATION STATEMENT NO. [_______]
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------
PRIVATE CAPITAL INVESTORS, INC.
(to be renamed ZIM CORPORATION)
(Exact name of registrant as specified in its charter)
Florida 6770 65-1036706
(State or jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or Industrial Identification
organization) Classification Code Number)
Number)
511 N.E. 94th Street
Miami Shores, Florida 33138
(305) 758-3738
(Address and telephone number of principal executive offices)
----------------------------
Stuart D. Cooper
President and Chief Executive Officer
Private Capital Investors, Inc.
511 N.E. 94th Street
Miami Shores, Florida 33138
(305) 758-3738
(Name, address and telephone number of agent for service)
Copies to:
Alfred G. Smith, II, Esq. Timothy J. McCunn, Esq.
Shutts & Bowen LLP Borden Ladner Gervais LLP
201 S. Biscayne Boulevard, Suite 1500 1100-100 Queen Street
Miami, Florida 33131 Ottawa, Ontario K1P 1J9
(305) 379-9147 (613) 787-3532
(305) 381-9982 (fax) (613) 230-8842 (fax)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
TITLE OF EACH PROPOSED PROPOSED
CLASS OF MAXIMUM MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
---------------- ------------ -------------- -------------- ----------------
Common Shares 56,640,754 Shares (1) N/A N/A $165.97 (2)
Special Shares 5,163,500 Shares (1) N/A N/A $15.13 (3)
Options to Acquire
Common Shares (4) (4) (4) (4)
(1) The number of common shares and special shares of the
Registrant to be registered pursuant to this Registration Statement is based
upon the number of common shares and special shares of ZIM Technologies
International, Inc. ("ZIM") presently outstanding or reserved for issuance
under outstanding stock options or otherwise expected to be issued pursuant to
the consummation of the proposed transaction to which this Registration
Statement relates, multiplied by the conversion rate of one common share of the
Registrant for each common share of ZIM and one special share of the Registrant
for each special share of ZIM.
(2) Pursuant to Rule 457(f)(2) under the Securities Act, the
registration fee is based on one-third of the stated value of common shares of
ZIM computed as of February 28, 2002 (US$.03185 per share) and computed on the
basis of the estimated maximum number of such shares (56,640,754) that may be
converted into common shares of the Registrant.
(3) Pursuant to Rule 457(f) under the Securities Act, the
registration fee is based on one-third of the stated value of special shares of
ZIM computed as of February 28, 2002 (US$.03185 per share) and computed on the
basis of the estimated maximum number of such shares (5,163,500) that may be
converted into special shares of the Registrant.
ii
(4) This Registration Statement registers the issuance of stock
options by the Registrant to the holders of all outstanding options of ZIM.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
===============================================================================
The information in this management proxy circular/prospectus is not
complete and may be changed. We may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This management proxy circular/prospectus is not an offer to sell
these securities and is not a solicitation of an offer to buy these securities
in any state where the offer or sale is not permitted.
Preliminary management proxy circular/prospectus dated May [__], 2002
iii
- -------------------------------------------------------------------------------
ZIM TECHNOLOGIES INTERNATIONAL INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
- -------------------------------------------------------------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of the shareholders of
ZIM Technologies International Inc. ("ZIM") will be held at 200-20 Colonnade
Road, Ottawa, Ontario, on the day of [__], 2002, at [____] p.m. (Ottawa time)
for the following purposes:
1. to consider and, if desirable, approve the proposed Amalgamation
Agreement between ZIM, Private Capital Investors, Inc. (the "Company")
and a newly organized subsidiary of the Company providing for the
amalgamation of ZIM and the subsidiary as one corporation and the
exchange of common shares and special shares of ZIM for common shares
and special shares of the Company.
2. to transact such further or other business as may properly be brought
before the meeting or any adjournment of the meeting.
Shareholders who are unable to attend the meeting in person are requested to
complete and sign the enclosed form of proxy and return it to ZIM at its
principal office, 200-20 Colonnade Road, Ottawa, Ontario, K2E 7M2. In order to
be represented by proxy at the meeting, you must complete and submit the
enclosed form of proxy or other appropriate form of proxy. Proxies must be
received by ZIM no later than the close of business on the last business day
prior to the meeting.
Additional information concerning the meeting and the special resolution is set
forth in the management proxy circular/prospectus which accompanies this
notice.
A SHAREHOLDER WHO DISSENTS TO THE APPROVAL OF THE SPECIAL RESOLUTION IN
ACCORDANCE WITH SECTION 190 OF THE CANADA BUSINESS CORPORATIONS ACT IS ENTITLED
TO BE PAID THE FAIR VALUE OF HIS OR HER SHARES AS PROVIDED IN THAT SECTION. SEE
"RIGHTS OF DISSENTING SHAREHOLDERS" IN THE ACCOMPANYING MANAGEMENT PROXY
CIRCULAR/PROSPECTUS.
By Order of the Board of Directors
MICHAEL COWPLAND, PRESIDENT
Ottawa, Ontario
[_______], 2002
MANAGEMENT PROXY CIRCULAR OF PROSPECTUS OF
ZIM TECHNOLOGIES PRIVATE CAPITAL
INTERNATIONAL, INC. INVESTORS, INC.
---------
This management proxy circular/prospectus relates to the proposed
acquisition of ZIM Technologies International, Inc. by Private Capital
Investors, Inc.
Private Capital Investors, Inc. will effect the acquisition through
the amalgamation of ZIM Technologies International, Inc. and a wholly-owned
subsidiary of Private Capital Investors, Inc. In this management proxy
circular/prospectus, we will refer to Private Capital Investors, Inc. as the
"Company," "us" or "we," and we will refer to ZIM Technologies International,
Inc. as "ZIM."
In the amalgamation, each of the common shares of ZIM will be
converted into one common share of the Company, and each of the special shares
of ZIM will be converted into one special share of the Company.
This management proxy circular/prospectus is furnished in connection
with the solicitation of proxies by and on behalf of the management of ZIM for
use at the Special Meeting of Shareholders of ZIM to be held on day of
[_______], 2002, at ____ o'clock in the [____] (Ottawa time), at 200-20 Ottawa,
Ontario, for the purposes set out in the accompanying notice of meeting. In
addition to the use of the mails, proxies may be solicited by officers,
directors and regular employees of ZIM personally or by telephone. The cost of
such solicitation will be borne by ZIM.
At the special meeting, you will be asked to consider and vote upon
the amalgamation agreement and the amalgamation.
ZIM's board of directors believes that the amalgamation is in the best
interests of ZIM and its shareholders and encourages you to vote "FOR" approval
of the amalgamation agreement and the amalgamation.
INVESTING IN THE SHARES OF THE COMPANY INVOLVES RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 31. NEITHER THE SECURITIES AND EXCHANGE COMMISSION
NOR ANY CANADIAN, STATE OR PROVINCIAL SECURITIES COMMISSION OR AUTHORITY HAS
APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED IN THE AMALGAMATION OR
DETERMINED IF THIS MANAGEMENT PROXY CIRCULAR/PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The shares of the Company are not listed on any securities exchange or
inter-dealer quotation system. There is no existing public market for the
shares of the Company.
---------
The date of this management proxy circular/prospectus is
[___________], 2002, and it is being mailed or otherwise delivered to ZIM
shareholders on or about that date.
2
No person is authorized to give any information or to make any
representation not contained in this management proxy circular/prospectus. This
management proxy circular/prospectus does not constitute an offer to sell, or a
solicitation of an offer to purchase, any securities, or the solicitation of a
proxy, by any person in any jurisdiction in which such an offer or solicitation
is not authorized or in which the person making such offer or solicitation is
not qualified to do so or to any person to whom it is unlawful to make such an
offer or solicitation of an offer or proxy solicitation.
3
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE AMALGAMATION....................................................................... 8
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS........................................................13
SUMMARY............................................................................................................14
Information regarding the Company and ZIM.................................................................14
Management of Company after the Amalgamation..............................................................17
Request for Assistance....................................................................................19
Currency Presentations and Exchange Rates.................................................................19
UNAUDITED PRO FORMA FINANCIAL INFORMATION..........................................................................21
Unaudited Pro Forma Condensed Combined Balance Sheet......................................................22
Unaudited Pro Forma Condensed Combined Statement of Operations............................................23
Notes to Unaudited Pro Forma Condensed Combining Financial Statements.....................................25
Unaudited Pro Forma Financial Information.................................................................
Unaudited Pro Forma Condensed Combined Balance Sheet......................................................
Unaudited Pro Forma Condensed Combined Statement of Operations............................................
Notes to Unaudited Pro Forma Condensed Combining Financial Statements.....................................
RISK FACTORS.......................................................................................................28
FORWARD-LOOKING STATEMENTS.........................................................................................36
ZIM SPECIAL MEETING................................................................................................37
Record Date...............................................................................................37
Proxies...................................................................................................37
Vote Required.............................................................................................38
Recommendation of Board of Directors......................................................................38
Fees and Expenses.........................................................................................38
THE AMALGAMATION...................................................................................................39
Background of the Amalgamation............................................................................39
Related Transactions......................................................................................40
ZIM's Reasons for the Amalgamation .......................................................................40
The Company's Reasons For the Amalgamation................................................................42
Effective Date of the Amalgamation........................................................................42
Distribution of the Company Stock Certificates............................................................42
Exchange of ZIM Options...................................................................................43
U.S. Federal Income Tax Consequences......................................................................43
Canadian Tax Consequences.................................................................................45
Management after the Amalgamation.........................................................................47
Beneficial Ownership After the Amalgamation...............................................................47
Interests of Certain Persons in the Amalgamation..........................................................47
Agreement with Cooper Consultants, Inc....................................................................48
4
Resale of the Company's Shares under US Securities Laws...................................................48
Resale of Company's Shares under Canadian Securities Laws.................................................48
RIGHTS OF DISSENTING SHAREHOLDERS..................................................................................50
Summary of Section 190 of the CBCA........................................................................50
Address for Notices.......................................................................................51
Ceasing of Rights as a Shareholder........................................................................51
Strict Compliance with Dissent Provisions Required........................................................51
TERMS OF THE ACQUISITION AGREEMENT AND THE AMALGAMATION AGREEMENT..................................................52
The Amalgamation..........................................................................................52
Adjustments to Reflect Changes in ZIM's Capitalization....................................................53
Lockup Agreement With Certain Company Shareholders........................................................53
Representations and Warranties of ZIM.....................................................................54
Representations and Warranties of the Company.............................................................55
Additional Representations and Warranties of Certain Company Shareholders.................................56
Covenants of ZIM..........................................................................................56
Covenants of the Company..................................................................................57
Access to Information.....................................................................................57
Confidentiality...........................................................................................57
Reasonable Efforts Covenant...............................................................................58
Non-Solicitation Covenant of ZIM..........................................................................58
Fees and Expenses.........................................................................................58
Joint Conditions to the Completion of the Amalgamation....................................................58
Conditions to the Obligations of the Company..............................................................59
Conditions of Obligations of ZIM..........................................................................59
Survival of Representations and Warranties................................................................60
Indemnification...........................................................................................60
Termination...............................................................................................60
Effect of Termination.....................................................................................61
Governing Law.............................................................................................61
DESCRIPTION OF THE COMPANY'S SHARE CAPITAL.........................................................................62
Common Shares.............................................................................................62
Special Shares............................................................................................62
Preferred Shares..........................................................................................64
Transfer Agent and Registrar..............................................................................65
COMPARISON OF SHAREHOLDER RIGHTS...................................................................................66
INFORMATION CONCERNING THE COMPANY.................................................................................67
General...................................................................................................67
Strategy..................................................................................................67
Facilities................................................................................................67
Employees.................................................................................................67
Legal Proceedings.........................................................................................67
5
Management of the Company.................................................................................68
Management Compensation...................................................................................68
Certain Relationships and Related Transactions ...........................................................68
Securities Ownership of Certain Beneficial Owners and
Management of the Company.................................................................................69
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY...............71
INFORMATION CONCERNING ZIM.........................................................................................72
Overview..................................................................................................72
Industry Background.......................................................................................72
Strategy..................................................................................................74
History...................................................................................................75
Products..................................................................................................75
Strategic Alliances.......................................................................................78
Marketing and Sales.......................................................................................78
Market Objective..........................................................................................79
Market Strategy...........................................................................................79
Competition...............................................................................................80
Employees.................................................................................................80
Intellectual Property.....................................................................................81
Subsidiaries..............................................................................................81
Facilities of ZIM.........................................................................................81
Management of ZIM.........................................................................................81
Legal Proceedings Involving Mr. Cowpland..................................................................83
Management Compensation of ZIM............................................................................85
Transactions with Affiliates..............................................................................85
Stock Option Plan.........................................................................................86
Security Ownership of ZIM.................................................................................87
Information About Shares..................................................................................89
Dividends.................................................................................................89
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION OF ZIM............................................................................90
Overview..................................................................................................90
Operating Results for the Fiscal Years Ended May 31, 1999, 2000 and 2001..................................90
Revenues..................................................................................................90
Operating Expenses .......................................................................................91
Liquidity and Capital Resources...........................................................................92
Operating Results for the Nine Months Ended February 28, 2002 and 2001....................................92
Operating Expenses........................................................................................93
Liquidity and Capital Resources...........................................................................93
LEGAL MATTERS......................................................................................................96
6
EXPERTS............................................................................................................96
OTHER MATTERS......................................................................................................96
WHERE YOU CAN FIND MORE INFORMATION................................................................................97
EXHIBITS:
Exhibit A -- Acquisition Agreement
Exhibit B -- Form of Amalgamation Agreement
Exhibit C -- Financial Statements of Private Capital Investors, Inc.
Exhibit D -- Consolidated Financial Statements of ZIM Technologies
International, Inc.
Exhibit E -- Dissent Right Provisions of Canada Business Corporations Act
7
QUESTIONS AND ANSWERS ABOUT THE AMALGAMATION
Q: WHAT AM I BEING ASKED TO VOTE ON?
A: You are being asked to vote to approve the amalgamation of ZIM and a
wholly-owned subsidiary of the Company. After the amalgamation is
completed, the amalgamated company will be a wholly owned subsidiary
of the Company.
Q. WHO IS THE COMPANY?
A. The Company is a "shell" company. It has conducted virtually no
business operations since its organization. The Company was formed for
the purpose of effecting a business combination with a target
business, such as ZIM, which desires to acquire its shareholder base
and utilize its status as a reporting company under the Securities
Exchange Act of 1934.
Q: WHAT WILL I RECEIVE IN THE AMALGAMATION?
A: If the amalgamation is completed, each common share of ZIM will be
exchanged into one common share of the Company and each special share
of ZIM will be exchanged into one special share of the Company.
Q: DOES ZIM'S BOARD SUPPORT THE AMALGAMATION?
A: Yes. ZIM's Board of Directors has unanimously determined that the
amalgamation is in the best interest of ZIM and its shareholders and
recommends that ZIM's shareholders vote for approval of the
amalgamation agreement. The directors and executive officers of ZIM
have indicated that they intend to vote for the approval of the
amalgamation agreement.
Q. WHY HAS ZIM AGREED TO BE ACQUIRED BY THE COMPANY?
A. After the amalgamation, the common shares of the Company will be
registered under Section 12(g) of the Securities Exchange Act of 1934.
The board of directors of ZIM believes that this registration will
provide potential benefits to ZIM and its shareholders, including the
ability to issue shares in a reporting company to potential merger and
acquisition candidates and to potential investors. At the present
time, ZIM has not identified any potential merger and acquisition
candidates. The board of directors of ZIM also believes that the
registration will enhance the ability of ZIM's current shareholders to
resell their shares in the future. However, most ZIM shareholders will
not be able to resell the shares they receive in the amalgamation
until 12 months after the amalgamation due to restrictions under
Canadian securities laws.
To review the reasons for the amalgamation in greater detail, see "The
Amalgamation - Reasons for the Amalgamation" on page 40.
8
Q: WHEN AND WHERE IS THE SPECIAL MEETING OF SHAREHOLDERS?
A: The special meeting will take place on _______, _______ 2002, at ___
a.m., local time, at the offices of ZIM located at 200-20 Colonnade
Road, Ottawa, Ontario.
Q: WHO CAN VOTE AT THE ZIM SPECIAL MEETING OF SHAREHOLDERS?
A: ZIM's board of directors has established [__________], 2002 as the
record date for the special meeting. You can vote at the special
meeting if you own common shares or special shares of ZIM at the close
of business on [__________], 2002. As of the close of business on that
date, approximately 33,183,921 common shares of ZIM and 5,163,500
special shares of ZIM were outstanding.
Q: WHAT VOTE IS REQUIRED TO APPROVE THE AMALGAMATION?
A: Approval of the amalgamation requires the affirmative vote of
two-thirds of the votes cast at the meeting in person or by proxy by
the holders of ZIM's common shares and ZIM's special shares, each
voting separately as a class. Shareholders will have one vote for each
share of ZIM owned by them.
Q: DOES THE CONSUMMATION OF THE AMALGAMATION REQUIRE THE APPROVAL OF THE
COMPANY SHAREHOLDERS?
A: No. The Company's shareholders are not required to approve the
consummation of the amalgamation.
Q: WHAT DO I NEED TO DO NOW?
A: Either attend the special meeting in person or indicate on your proxy
form how you want to vote. Sign and return the proxy form in the
enclosed prepaid return envelope marked "Proxy" as soon as possible,
so that your shares may be represented and voted at the special
meeting to be held on [________], 2002.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER
VOTE MY SHARES FOR ME?
A: No. Your broker will not be able to vote your shares without
instructions from you. You should instruct your broker to vote your
shares, following the directions provided by your broker. If you fail
to instruct your broker to vote your shares, your shares will not be
counted at the meeting.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY FORM?
A: Yes. There are three ways in which you may revoke your proxy and
change your vote. First, you may send a written notice to the Chief
Financial Officer of ZIM stating that you would like to revoke your
proxy. Second, you may complete and submit a new proxy form provided
9
that it is received by ZIM before the close of business on the last
business day before the special meeting. Third, you may attend the
special meeting and vote in person. Simply attending the special
meeting, however, will not revoke your proxy.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the amalgamation is completed, the Company will send you
written instructions explaining how you should exchange your stock
certificates.
Q: WHEN DO YOU EXPECT THE AMALGAMATION TO BE COMPLETED?
A: The Company and ZIM expect the amalgamation to be completed during the
fall 2002. The Company is working towards completing the amalgamation
as quickly as possible. To do so, the shareholders of ZIM must approve
the amalgamation.
Q: CAN I EXERCISE DISSENT RIGHTS IN CONNECTION WITH THE AMALGAMATION?
A: Yes. The shareholders of ZIM have the right to dissent to the
amalgamation under the Canada Business Corporations Act. To exercise
your dissent rights, you must comply with the procedures described on
page 50 of this management proxy circular/prospectus.
You should be aware that the amalgamation agreement provides that
ZIM's Board of Directors may terminate the amalgamation agreement if
any ZIM shareholder exercises dissent rights.
Q. ARE THERE ANY CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND ZIM TO
COMPLETE THE AMALGAMATION?
A. The obligation of the Company and ZIM to complete the amalgamation is
subject to several conditions, including the following:
- None of the holders of any ZIM shares shall have exercised
their dissent rights under the Canada Business Corporations
Act. The board of ZIM has the right to waive this condition.
- The Company must have continued under the Canada Business
Corporations Act.
- The Company must have changed its name from Private Capital
Investors, Inc. to ZIM Corporation.
- One of the Company's principal shareholders, Global
Intermatch Corp., must have distributed 90,000 common shares
to its shareholders.
- The parties must fulfill other customary conditions set forth
in the acquisition agreement.
10
At the present time, the Company believes that all the conditions to
the closing of the amalgamation will be satisfied.
Q. WHAT PERCENTAGE OF THE COMPANY WILL BE OWNED BY FORMER SHAREHOLDERS OF
ZIM?
A. Assuming the amalgamation is completed, the former shareholders of ZIM
would own 33,183,921 common shares of the Company, representing 95.58%
of the total common shares outstanding, and 5,163,500 special shares
of the Company, representing 100% of the special shares outstanding.
The former ZIM shareholders would own collectively 96.15% of the total
shares outstanding.
Q. WHO WILL MANAGE THE COMPANY AND ZIM AFTER THE AMALGAMATION?
A. At the closing of the amalgamation, the five current directors of ZIM
will become the directors of the Company and the Company's current
directors will resign. Additionally, most of the current executive
officers of ZIM will be appointed as executive officers of the Company
and the current executive officers of the Company will resign.
The persons who will serve as directors and executive officers of the
Company after the amalgamation are listed under "Summary - Management
of the Company After the Amalgamation" on page 17. More detailed
information on these directors and executive officers is provided in
"Information Concerning ZIM - Management" on page 81.
Q. WHERE WILL THE COMPANY HAVE ITS DOMICILE?
A. After the amalgamation, the registered office and legal headquarters
of the Company will be located in Ottawa, Canada.
Q. WHAT WILL HAPPEN TO ZIM'S OUTSTANDING STOCK OPTIONS?
A. Prior to the effective date of the amalgamation, the Company will
offer to issue new options in exchange for all outstanding options of
ZIM. The Company's new options will have the same terms and conditions
as the outstanding ZIM options, except that they will provide for the
purchase of common shares of the Company in lieu of common shares of
ZIM. The completion of the exchange will be contingent on the
completion of the amalgamation.
Q. IF I AM A CANADIAN RESIDENT, WILL I BE TAXED ON THE COMPANY SHARES
THAT I RECEIVE IN THE AMALGAMATION?
A. Each shareholder of ZIM who is a resident of Canada and who receives
common or special shares as a result of the amalgamation will be
considered to have disposed of his or her ZIM shares for proceeds
equal to their cost amount and will be considered to have acquired the
shares of the Company at that same cost amount. As a result, a
Canadian resident should not be subject to any Canadian income taxes
in connection with the amalgamation.
11
Q. IF I AM A U.S. RESIDENT, WILL I BE TAXED ON THE COMPANY SHARES THAT I
RECEIVE IN THE AMALGAMATION?
A. No. U.S. resident shareholders should not be required to recognize any
income for U.S. federal income tax purposes in connection with the
amalgamation, except for U.S. resident shareholders who own, directly
or indirectly, 5% or more of both the total voting power and total
value of the stock of either the Company or ZIM.
Shareholders of ZIM who are residents of jurisdictions other than
Canada or the United States should consult with their own independent
tax advisors for advice with respect to the income tax consequences to
them in regard to their own particular circumstances.
Q. WHAT WILL BE THE ACCOUNTING TREATMENT OF THE AMALGAMATION?
A. The transaction will be treated as a reverse takeover of the Company by
ZIM and accounted for using the purchase method as provided by Canadian
generally accepted accounting principles. Under reverse takeover
accounting, the financial statements of the amalgamated entity are
considered a continuation of ZIM. As such, the net assets of ZIM will
remain at their carrying values and the net assets of the Company will
be recorded at their fair values which, in the Company's case, are
equal to their carrying values. For a more detailed description of the
accounting treatment, see "Summary -- Accounting Treatment" on page 18.
Q. WHO CAN HELP ANSWER MY QUESTIONS?
A. If you have more questions about the amalgamation, you should contact
Kathy Aubrey-Moore, Chief Financial Officer, at ZIM. Her telephone
number is (613) 727-1397.
12
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS
The Company and ZIM are corporations organized under the Canada
Business Corporations Act. Additionally, most of the executive officers and
directors of ZIM, as well as some of the experts named in this management proxy
circular/prospectus, are not citizens or residents of the United States and all
or a substantial part of the assets of these persons may be located outside of
the United States. As a result, it may be difficult for you to effect service
of process within the United States upon these individuals or to realize
against them or the Company within the United States upon judgments of courts
of the United States predicated upon civil liabilities under the Securities Act
of 1933. Borden Ladner Gervais LLP, counsel for ZIM, has advised the Company,
however, that the civil liability provisions of that act may be enforced in
original actions taken in the Province of Ontario against the Company, ZIM or
any such individual, but a judgment of a US court predicated on such provisions
will not be enforceable by an action in the Province of Ontario unless all of
the following conditions are met:
- It is a judgment of a court of competent jurisdiction
(according to Canadian Rules of Conflicts of Laws) that is
final and conclusive as between the parties so as to make it
res judicia between the parties.
- The proceedings in which the judgment was obtained were not
contrary to natural justice.
- The enforcement of the foreign judgment would not be contrary
to public policy in the Province of Ontario.
- The judgment was not obtained by fraud.
13
SUMMARY
This summary highlights selected information from this management
proxy circular/prospectus. It does not contain all of the information that is
important to you. Each item in this summary refers to the page where that
subject is discussed in more detail. You should carefully read the entire
management proxy circular/prospectus and the other documents to which we refer
to understand fully the amalgamation. See "Where You Can Find More Information"
on page 97 on how to obtain copies of those documents. In addition, the
acquisition agreement and the proposed amalgamation agreement are attached as
exhibits to this management proxy circular/prospectus. We encourage you to read
these agreements because they are the legal documents that will govern the
amalgamation.
INFORMATION REGARDING THE COMPANY AND ZIM
PRIVATE CAPITAL INVESTORS, INC.
511 N.E. 94th Street
Miami Shores, Florida 33138
(305) 758-3738
The Company was originally incorporated under the laws of the State of
Florida on August 6, 1999. The Company is a "shell" company which has conducted
virtually no business activities since its organization. It was created to
effect a business combination with a target business, such as ZIM, which
desires to acquire its shareholder base and to utilize the Company's status as
a reporting company under the U.S. Securities Exchange Act of 1934. Prior to
the completion of the amalgamation, the Company will become a Canadian
corporation by filing articles of continuation under the Canada Business
Corporations Act.
For more information regarding the Company, see "Information
Concerning the Company" starting on page 67.
ZIM TECHNOLOGIES INTERNATIONAL, INC.
200-20 Colonnade Road
Ottawa, Ontario K2E 7M2
(613) 727-1397
ZIM is a corporation organized in 1997 under the Canada Business
Corporations Act. Since 1997, ZIM has offered enterprise software for
designing, developing and manipulating database systems and applications. ZIM
is also a developer of software for wireless applications which enables users
to engage in mobile communications and decision-making based on real-time
interactive data communications and transactions.
For more information regarding ZIM, see "Information Concerning ZIM"
starting on page 72.
14
YOU WILL RECEIVE ONE COMPANY SHARE FOR EACH ZIM SHARE
When the amalgamation is completed, each of your common shares of ZIM
will be converted into one common share of the Company and each of your special
shares of ZIM will be converted into one special share of the Company.
For example, if you hold 1,000 common shares of ZIM, then you will
received 1,000 common shares of the Company.
SHARE INFORMATION AND MARKET PRICES OF THE COMPANY'S SHARES
The Company's shares are not traded on any securities exchange or
public market. To the best of the Company's knowledge, there has been no
secondary trading in the Company's shares.
GENERALLY, THE AMALGAMATION WILL BE A TAX FREE TRANSACTION FOR ZIM SHAREHOLDERS
WHO ARE CANADIAN RESIDENTS (SEE PAGE 45)
The Company expects that for Canadian tax purposes, most Canadian
residents will not recognize any gain or loss in the amalgamation, unless they
exercise their dissent rights.
GENERALLY, THE AMALGAMATION WILL BE A TAX-FREE TRANSACTION FOR ZIM SHAREHOLDERS
WHO ARE U.S. RESIDENTS (SEE PAGE 43)
The Company expects for that U. S. federal income tax purposes, U. S.
residents of ZIM will not recognize any gain or loss in the amalgamation,
unless they exercise dissent rights or they own 5% or more of both the total
voting power and total value of the stock of either the Company or ZIM. The
holding period for the Company shares received in the amalgamation, which
determines how any gain or loss should be treated for U.S. federal income tax
purposes upon future sales of the Company shares, generally will include the
shareholder's holding period for the ZIM shares exchanged in the amalgamation.
ZIM AND THE COMPANY HAVE RECEIVED LEGAL OPINIONS THAT THE CANADIAN AND U.S.
INCOME TAX TREATMENT WILL BE AS DESCRIBED IN THIS DOCUMENT. (SEE PAGES 43
AND 45)
This tax treatment may not apply to certain ZIM shareholders,
including shareholders who are dealers in securities or shareholders who are
treated as owning at least 5% of both the total voting power and the total
value of the stock of either the Company or ZIM. Determining the actual tax
consequences of the amalgamation to you may be complex and will depend on your
specific situation and on variables not within the Company's control. You
should consult your own tax advisor for a full understanding of the
amalgamation's tax consequences to you.
ZIM BOARD UNANIMOUSLY RECOMMENDS THAT YOU APPROVE THE AMALGAMATION AGREEMENT
AND THE AMALGAMATION (SEE PAGE 39)
The ZIM board believes that the amalgamation is in your best interests
and has unanimously approved the amalgamation agreement. The ZIM board of
directors recommends that you vote
15
"FOR" approval of the amalgamation agreement and the amalgamation. The
directors and executive officers of ZIM have indicated that they intend to vote
for the approval of the amalgamation agreement and the amalgamation.
SPECIAL MEETING WILL BE HELD ON [_______], 2002 (SEE PAGE 37)
The special meeting of ZIM shareholders will be held at ____ p.m. on
________, 2002, at 200-20 Colonnade Road, Ottawa, Ontario. At the special
meeting, you will be asked to consider and vote to approve the amalgamation
agreement and the amalgamation.
RECORD DATE HAS BEEN SET AT _________, 2002; TWO-THIRDS VOTE OF EACH CLASS OF
SHARES IS REQUIRED TO APPROVE AMALGAMATION (SEE PAGES 37 AND 38)
You can vote at the special meeting if you owned ZIM shares at the
close of business on ______________, 2002. As of that date, there were
33,183,921 common shares of ZIM and 5,163,500 special shares issued and
outstanding and entitled to be voted at the special meeting. The affirmative
vote of the holders of two-thirds of the common shares and special shares
present at the meeting or voting by proxy, each voting separately as a class,
is required to approve the amalgamation.
The directors and executive officers of ZIM beneficially owned, as of
the record date, and are entitled to vote 17,033,657 of the outstanding common
shares of ZIM and 2,700,000 special shares of ZIM, which represents
approximately 51.3% of the outstanding common shares and 52.3% of the
outstanding special shares. The ZIM directors and executive officers have
indicated that they intend to vote their shares for the approval of the
amalgamation agreement.
THE COMPANY WILL OFFER TO ISSUE COMPANY OPTIONS IN EXCHANGE OF ALL ZIM OPTIONS
(SEE PAGE 43)
Prior to the amalgamation, the Company will offer to issue Company
options in exchange for the outstanding ZIM options. The Company options will
have the same exercise price, terms and conditions as the ZIM options. As of
the date of this management proxy circular/prospectus, ZIM had issued options
covering 15,358,915 common shares. The completion of the exchange will be
contingent on the completion of the amalgamation.
ZIM SHAREHOLDERS HAVE DISSENT RIGHTS (SEE PAGE 50)
Under the Canada Business Corporations Act, if you do not vote for the
amalgamation agreement and you properly and timely exercise your rights to
dissent to the amalgamation, you may demand a cash payment for the "fair value"
of your ZIM shares. To exercise these rights, you must comply with all
procedural requirements of the Canada Business Corporations Act, the relevant
sections of which are attached to this document as Exhibit E.
Under the terms of the acquisition agreement, the board of directors
of ZIM has the right to terminate the agreement and cancel the proposed
amalgamation if any ZIM shareholders elect to exercise their dissent rights.
The board of directors of ZIM intends to review the number of dissenters
following the special meeting to determine whether it should waive this
condition. In
16
considering this matter, the board of directors of ZIM intends to review ZIM's
then current financial condition and liquidity resources in light of the number
of shares for which dissent rights have been exercised. If the anticipated
payment to dissenters is not significant in light of ZIM's cash resources, then
ZIM's board of directors expects that it would waive this condition.
CERTAIN PERSONS HAVE INTERESTS IN THE AMALGAMATION (SEE PAGE 47)
Some of ZIM's directors and officers have interests in the
amalgamation that are different from, or in addition to, their interests as
shareholders of ZIM.
Certain of the directors and executive officers of ZIM hold stock
options which entitle them to purchase, in the aggregate, up to 8,113,332
common shares of ZIM. Under the terms of the acquisition agreement, the Company
will offer to exchange these options for Company options.
Upon the consummation of the amalgamation, the current directors of
ZIM will become the directors of the Company and the current officers of ZIM
will become the officers of the Company.
The board of ZIM was aware of these interests and took them into
account in approving the amalgamation.
THE COMPANY SHARES ISSUED IN THE AMALGAMATION WILL BE FREELY TRANSFERABLE UNDER
U.S. SECURITIES LAWS BY NON-AFFILIATES OF ZIM. HOWEVER, ALL OF THE COMPANY
SHARES WILL BE SUBJECT TO RESALE RESTRICTIONS UNDER CANADIAN SECURITIES LAWS.
(SEE PAGE 48)
The common shares and special shares of the Company issued in the
amalgamation will be freely transferable under U.S. securities laws by any
person who is not an affiliate of ZIM. Generally, "affiliates" include
directors, certain executive officers and 10% or greater shareholders.
After the amalgamation, the Company intends to file a prospectus in
appropriate provinces in Canada to become a reporting issuer in these
provinces. Once the Company becomes a reporting issuer in these provinces, the
special shares will immediately convert into common shares and such common
shares will be freely tradable in the Canadian provinces in which the Company
is a reporting issuer. Additionally, all of the common shares issued in the
amalgamation will become freely tradable after a period of 12 months. In both
cases, however, principals of ZIM will be subject to escrow requirements. Under
these requirements, the ZIM principals will not be able to publicly sell their
escrowed securities until certain escrow periods expire.
MANAGEMENT OF COMPANY AFTER THE AMALGAMATION (SEE PAGE 81)
At the closing of the amalgamation, the current directors and
executive officers of ZIM will be appointed as directors and executive officers
of the Company and the current directors and executive officers of the Company
will resign. The persons who will serve as directors and executive officers of
the Company after the closing are listed below:
17
NAME PROPOSED POSITION WITH COMPANY CURRENT POSITION WITH ZIM
Dr. Michael Cowpland President, Chief Executive President, Chief Executive Officer
Officer and Director and Director
Steven Houck Director Director
Gene Rheaume Director Director
Charles Saikaley Director Director
James Stechyson Chairman Chairman
Tony Davidson Chief Technology Officer Chief Technology Officer
Kathy Aubrey-Moore Chief Financial Officer Chief Financial Officer
The background of these individuals is described in "Description of
ZIM - Management" on page 81.
COMPARISON OF RIGHTS OF ZIM SHAREHOLDERS AND THE COMPANY SHAREHOLDERS (SEE PAGE
66)
You will receive Company shares if the amalgamation is completed. The
rights of the shareholders of ZIM and the rights of the shareholders of the
Company are substantially the same because prior to the amalgamation the
Company will become a corporation governed by the Canada Business Corporations
Act and will adopt articles and bylaws which are identical to the articles and
bylaws of ZIM.
ACCOUNTING TREATMENT
Assuming that the amalgamation is completed, the existing shareholders
of the Company and the former shareholders of ZIM will own 3.85% and 96.15%
respectively of the outstanding shares in the Company. Moreover, the board of
directors of the Company will be comprised exclusively of representatives
appointed by ZIM. Accordingly, from an accounting point of view, ZIM will be
considered to be the acquirer. Therefore, the transaction will be treated as a
reverse takeover of the Company and accounted for using the purchase method as
provided by Canadian generally accepted accounting principles. Under reverse
takeover accounting, the financial statements of the amalgamated entity are
considered a continuation of ZIM. As such, the net assets of ZIM will remain at
their carrying value and the net assets of the Company will be recorded at
their fair values which, in the Company's case, are equal to their carrying
values.
The transaction will be accounted for as a recapitalization under US
GAAP. The accounting treatment would not differ from that under Canadian GAAP.
18
TERMINATION OF THE ACQUISITION AGREEMENT (SEE PAGE 19)
ZIM and the Company can mutually agree at any time to abandon the
amalgamation and terminate the acquisition agreement at any time prior to the
closing. Also, ZIM and the Company can decide, without the consent of the
other, to abandon the amalgamation if any of the following occur:
- The amalgamation has not been completed by June 15, 2003.
- If either party has materially breached the acquisition
agreement and such breach cannot be cured within ten days of
written notice of the breach.
- A court of competent jurisdiction has issued a final
non-appealable order preventing the consummation of the
amalgamation.
- Any shareholders of ZIM exercise dissent rights.
- A governmental entity has taken action which would make the
amalgamation illegal or otherwise render the parties unable
to complete the amalgamation.
REQUEST FOR ASSISTANCE
If you have questions or want copies of additional documents, you may
contact Kathy Aubrey-Moore at (613) 727-1397.
CURRENCY PRESENTATIONS AND EXCHANGE RATES
In this management proxy circular/prospectus, unless otherwise
specified, all references to "US$" or "$" are to U.S. dollars and all
references to "CDN$" are to Canadian dollars.
The following table sets out, for the periods and dates indicated,
certain information concerning the rates of exchange for CDN$ per US$ based on
the noon buying rate in the City of New York for cable transfers as certified
for custom purposes by the Federal Reserve Bank of New York.
Fiscal Years Ended May 31,
-------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
At End of Year CDN$1.5461 CDN$1.4977 CDN$1.4578 CDN$1.4571 CDN$1.3798
Average(1) CDN$1.5170 CDN$1.4730 CDN$1.5120 CDN$1.4520 CDN$1.3671
High CDN$1.5788 CDN$1.5135 CDN$1.5770 CDN$1.4637 CDN$1.3994
Low CDN$1.4653 CDN$1.4350 CDN$1.4530 CDN$1.3690 CDN$1.3310
19
Nine Months Ended
February 28, 2002
--------------------------------------
At End of Year CDN$1.6049
Average CDN$1.5666
High CDN$1.6112
Low CDN$1.5175
(1) The average of the noon buying rates for CDN$ on the last
business day of each month during the relevant period.
On ___________, 2002, the noon buying rate in New York as certified
for customs purposes by the Federal Reserve Bank of New York was CDN$____ per
U.S. dollar. No representation is made that the Canadian dollar amounts could
have been or could in the future be so converted at any particular rate or at
all.
20
UNAUDITED PRO FORMA FINANCIAL INFORMATION
(CANADIAN DOLLARS)
The following Unaudited Pro Forma Condensed Combined Statements of
Operations combine the Company's and ZIM's historical statements of operations
for the following periods:
o the years ended July 31, 2001 and May 31, 2001, respectively; and
o the nine months ended April 30, 2002 and February 28, 2002,
respectively.
The Unaudited Pro Forma Condensed Combined Statements of Operations
give effect to the amalgamation of ZIM and the Company as if it had occurred on
June 1, 2000.
The following Unaudited Pro Forma Condensed Combined Balance Sheet
combines the Company's and ZIM's historical balance sheets as of April 30, 2002
and February 28, 2002, respectively, giving effect to the amalgamation of ZIM
and the Company as if it had occurred on February 28, 2002.
The historical financial information of ZIM has been derived from the
audited financial statements for the year ended May 31, 2001 and the unaudited
financial statements for the nine months ended February 28, 2002 which are
included in Exhibit D to this management proxy circular/prospectus and should be
read in conjunction with such financial information and the notes thereto.
The historical financial information of the Company has been derived
from the audited financial statements for the year ended July 31, 2001 and the
unaudited financial statements for the nine months ended April 30, 2002 which
are included in Exhibit C to this management proxy circular/prospectus and
should be read in conjunction with such financial information and the notes
thereto.
The Unaudited Pro Forma Condensed Combined Financial Statements reflect
the amalgamation of the Company and ZIM. The financial statements of the Company
have been converted into Canadian dollars. There are no material differences
between Canadian GAAP and US GAAP as it relates to the financial statements of
the Company.
The unaudited information presented below is provided for information
purposes only and is not necessarily indicative of the combined financial
position or results of operation which actually would have occurred if the
transaction had been consummated at the date and for the periods indicated or
which may be obtained in the future.
The Unaudited Pro Forma Condensed Combined Financial Statements should be read
in conjunction with the description of the transaction and the financial
statements of and notes thereto of the Company and ZIM included elsewhere in
this document.
21
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET (CDN$)
The following unaudited pro forma condensed combined balance sheet reflects the
consolidated balance sheet of ZIM as of February 28, 2002, after giving effect
to the proposed amalgamation of the Company and ZIM on that date. The
amalgamation will be treated as a reverse takeover of the Company by ZIM and
accounted for using the purchase method of accounting as required by Canadian
generally accepted accounting principles. The unaudited information presented
below should be read in conjunction with the separate consolidated financial
statements and notes thereto of the Company and ZIM and the respective
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company and ZIM included elsewhere in this management proxy
circular/prospectus.
COMPANY ZIM
----------- ------------
APRIL 30, FEBRUARY 28, PRO FORMA PRO FORMA
2002 2002 ADJUSTMENTS COMBINED
----------- ------------ ------------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(CDN$) (CDN$) (CDN$) (CDN$)
(NOTE 2) (NOTE 3)
Assets
Cash and cash equivalents $ 963 $ 499,766 -- $ 500,729
Accounts receivable -- 879,266 -- 879,266
Investment tax credits receivable -- 409,104 -- 409,104
Prepaid expenses -- 62,031 -- 62,031
------------ ------------ -------- ------------
963 1,850,167 -- 1,851,130
Property and equipment -- 620,532 -- 620,532
Other assets -- 323,873 -- 323,873
------------ ------------ -------- ------------
Total Assets $ 963 $ 2,794,572 -- $ 2,795,535
============ ============ ======== ============
Liabilities
Accounts payable $ -- $ 185,150 $ -- $ 185,150
Accrued liabilities -- 529,508 -- 529,508
Deferred revenue -- 614,317 -- 614,317
Current portion of capital lease
obligations -- 52,343 -- 52,343
------------ ------------ -------- ------------
-- 1,381,318 -- 1,381,318
Capital lease obligations -- 29,312 -- 29,312
Stockholders equity
Common stock and additional paid-
in capital 15,008 11,741,720 (15,008)(a) 11,742,683
963(a)
Contributed surplus -- 1,503,157 1,503,157
Accumulated other comprehensive
income - foreign currency
translation (206) 24,599 206(a) 24,599
Deficit (13,839) (11,885,534) 13,839(a) (11,885,534)
------------ ------------ -------- ------------
Total stockholders equity 963 1,383,942 -- 1,384,905
------------ ------------ -------- ------------
Total liabilities and stockholders equity $ 963 $ 2,794,572 -- $ 2,795,535
============ ============ ======== ============
22
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (CDN$)
The following unaudited pro forma condensed combined statements of operations
reflect the results of operations of ZIM for the year ended May 31, 2001 and
for the nine months ended February 28, 2002, after giving effect to the proposed
amalgamation of the Company and ZIM as though the amalgamation had occurred on
June 1, 2000. The unaudited information presented below should be read in
conjunction with the separate consolidated financial statements and notes
thereto of the Company and ZIM and the respective Management's Discussion and
Analysis of Financial Condition and Results of Operations of the Company and ZIM
included elsewhere in this management proxy circular/prospectus.
COMPANY ZIM
------------- ------------
YEAR ENDED YEAR ENDED
JULY 31, 2001 MAY 31, 2001 ADJUSTMENTS PRO FORMA
------------- ------------ ----------- ---------
(CDN$) (CDN$) (CDN$) (CDN$)
(NOTE 2) (NOTE 3)
Revenues -- $ 1,572,092 -- $ 1,572,092
Costs and expenses (income):
Selling, general and
administrative -- 5,062,395 -- 5,062,395
Research and
development -- 653,229 -- 653,229
Depreciation -- 198,552 -- 198,552
Cost of software revenues -- 177,520 -- 177,520
Interest -- 61,741 -- 61,741
Foreign exchange gain -- (26,891) -- (26,891)
Other -- (100,797) -- (100,797)
------------ ------------ ----------- ------------
-- 6,025,749 -- 6,025,749
------------ ------------ ----------- ------------
Net loss -- (4,453,657) -- (4,453,657)
============ ============ =========== ============
Loss per share - basic and
diluted (4) $ -- $ (0.31) -- $ (0.27)
============ ============ =========== ============
Weighted average number of
shares outstanding 1,535,455 14,497,588 -- 16,033,043
============ ============ =========== ============
23
COMPANY ZIM
----------------- -------------------
NINE MONTHS ENDED NINE MONTHS ENDED
APRIL 30, 2002 FEBRUARY 28, 2002 ADJUSTMENTS PRO FORMA
----------------- ------------------- ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(CDN$) (CDN$) (CDN$) (CDN$)
(NOTE 2) (NOTE 3)
Revenues -- $ 2,475,819 -- $ 2,475,819
Costs and expenses (income):
Selling, general and
administrative -- 3,883,034 -- 3,883,034
Research and
development -- 3,113,867 -- 3,113,867
Depreciation -- 183,294 -- 183,294
Cost of software revenues -- 109,572 -- 109,572
Interest -- 22,224 -- 22,224
Foreign exchange gain -- (42,401) -- (42,401)
---------- ------------ ---------- ------------
-- 7,269,590 -- 7,269,590
---------- ------------ ---------- ------------
Net loss before income
taxes -- (4,793,771) -- (4,793,771)
---------- ------------ ---------- ------------
Income taxes -- 86,000 -- 86,000
---------- ------------ ---------- ------------
Net loss -- $ (4,879,771) -- $ (4,879,771)
========== ============ ========== ============
Loss per share - basic and
diluted (4) -- $ (0.15) -- $ (0.14)
========== ============ ========== ============
Weighted average number of
shares outstanding 1,535,455 33,204,811 -- 34,740,266
========== ============ ========== ============
24
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
For the purpose of the unaudited pro forma combined condensed balance sheet and
unaudited pro forma combined condensed statement of operations, the historical
financial statements of the Company have been translated into Canadian dollars
(see Note 2). The unaudited pro forma combined condensed statement of operations
assumes that the proposed amalgamation of the Company and ZIM occurred on June
1, 2000. The amalgamation has been treated as a reverse takeover of the Company
by ZIM and accounted for using the purchase method of accounting. Under reverse
takeover accounting, the combined financial statements of the amalgamated entity
are considered a continuation of the financial statements of ZIM. As such, the
net assets of ZIM have remained at their carrying values and the net assets of
the Company have been recorded at their fair values, which is equal to their
carrying values.
The Unaudited Pro Forma Condensed Combined Statements of Operations combine the
Company's and ZIM's historical statements of operations for the following
periods:
o the years ended July 31, 2001 and May 31, 2001, respectively; and
o the nine months ended April 30, 2002 and February 28, 2002,
respectively.
The Unaudited Pro Forma Condensed Combined Balance Sheet combines the Company's
and ZIM's historical balance sheets as of April 30, 2002 and February 28, 2002,
respectively, giving effect to the amalgamation of ZIM and the Company as if it
had occurred on February 28, 2002.
The historical financial information of ZIM has been derived from the audited
financial statements for the year ended May 31, 2001 and the unaudited financial
statements for the nine months ended February 28, 2002.
The historical financial information of the Company has been derived from the
audited financial statements for the year ended July 31, 2001 and the unaudited
financial statements for the nine months ended April 30, 2002.
The Unaudited Pro Forma Condensed Combined Financial Statements should be read
in conjunction with the description of the transaction and the financial
statements of and notes thereto of the Company and ZIM included elsewhere in
this document.
25
NOTE 2 - CONVERSION OF THE COMPANY TO CANADIAN DOLLARS
The historical financial statements of ZIM were prepared under Canadian GAAP and
in Canadian dollars. The historical financial statements of the Company were
prepared under US GAAP and in US dollars. There are no material differences
between Canadian GAAP and US GAAP as it relates the financial statements of the
Company. For the purposes of these unaudited pro forma combined condensed
financial statements, the assets of the Company have been converted to Canadian
dollars using the exchange rates at February 28, 2002 of CDN $1.6049. Common
stock and additional paid-in capital have been converted to Canadian dollars
using the historical exchange rate of CDN $1.50080 and the deficit has been
converted at an average exchange rate for the period during which it occurred of
CDN $1.47219. There were no operations for the nine months ended February 28,
2002 or for the year ended July 31, 2001 and therefore no statement of
operations has been presented.
The financial statement of the Company in US dollars and their conversion into
Canadian dollars is as follows:
COMPANY COMPANY
--------- ---------
APRIL 30, APRIL 30,
2002 2002
--------- ---------
UNAUDITED UNAUDITED
(US$) (CDN$)
Assets
Current assets $ 600 $ 963
-------- --------
Total assets $ 600 $ 963
======== ========
Liabilities -- --
Stockholders equity (Deficit)
Common stock and additional paid-in capital 10,000 15,008
Accumulated other comprehensive income -
foreign currency translation -- (206)
Deficit (9,400) (13,839)
-------- --------
Total stockholders equity 600 963
-------- --------
Total liabilities and stockholders equity $ 600 $ 963
======== ========
NOTE 3 - PRO FORMA ADJUSTMENTS
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET - FEBRUARY 28, 2002
(a) To eliminate the stockholders' equity of Private Capital Investors,
Inc. and record the shares issued on amalgamation with ZIM.
26
NOTE 4 - PER SHARE INFORMATION
The historical loss per share - basic is computed by dividing the net loss by
the weighted average shares outstanding prior to the amalgamation. The unaudited
pro forma loss per share - basic is computed by dividing the pro forma net loss
by the pro forma weighted average shares outstanding after giving effect to the
shares outstanding after the amalgamation. Outstanding stock options have not
been considered since their effect on loss per share would be anti-dilutive.
27
RISK FACTORS
The following risk factors apply to the amalgamation, the Company and
ZIM. You should carefully consider the factors set forth below together with
the information contained in this management proxy circular/prospectus
relating to the Company and ZIM before making a decision regarding the
amalgamation.
RISKS ASSOCIATED WITH AMALGAMATION AND THE COMPANY
ZIM AND ITS SHAREHOLDERS MAY NOT RECEIVE THE PERCEIVED BENEFITS OF BEING A
PUBLIC COMPANY.
The board of directors of ZIM believes that ZIM and its shareholders
will benefit from being a public company. The board believes that these
benefits would include the ability to issue shares in a reporting company to
potential merger and amalgamation candidates and to potential investors.
Although the Company will be a reporting company following the completion of
the acquisition, there can be no assurance that potential merger and
acquisition candidates and potential investors will, in fact, find the
Company's status as a reporting company to be attractive.
The attractiveness of the Company as a reporting company depends in
part on whether a secondary market in the shares of the Company is created
following the completion of the amalgamation. The Company plans to seek the
quotation of its common shares on the OTC Bulletin Board following the
completion of the amalgamation. The quotation of the Company shares on the OTC
Bulletin Board requires a registered broker-dealer to make a filing with the
National Association of Securities Dealers, Inc. in which the broker-dealer
seeks approval to act as a market maker for the Company's shares. The NASD will
review the Company's securities filings, as well as the likelihood that a
secondary market would develop in the shares, before permitting the shares to
be quoted on the OTC Bulletin Board. As a result, it is possible that the
Company's shares may not be quoted on the OTC Bulletin Board.
Even if the Company's shares are admitted to the OTC Bulletin Board,
it does not mean that secondary trading in the Company's shares will develop or
that such trading will be material. Furthermore, the trading in the Company's
common shares may be adversely affected if the Company's shares are treated as
a "penny stock" under the rules of the US Securities Exchange Commission. See
"Risk Factors - The Company may be subject to the penny stock rules of the SEC
after the amalgamation" on page 29.
In light of the foregoing, there can be no assurance that the Company
will obtain the perceived benefits of being a public company.
YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AFTER THE AMALGAMATION.
The ability of the former shareholders of ZIM to resell their shares
following the completion of the amalgamation will be subject to limitations
under US and Canadian securities laws.
Under US securities laws, the former affiliates of ZIM will be subject
to limitations on the number of shares which they may sell for a period of at
least one year following the amalgamation.
28
Additionally, under Canadian securities laws, all of the Company shares issued
pursuant to the amalgamation will be subject to resale restrictions under
Canadian securities laws.
After the amalgamation, the Company intends to file a prospectus in
appropriate provinces in Canada to become a reporting issuer in these
provinces. Once the Company becomes a reporting issuer in these provinces, the
special shares will immediately convert into common shares and such common
shares will be freely tradable in the Canadian provinces in which the Company
is a reporting issuer. Additionally, all of the common shares issued in the
amalgamation will become freely tradable in these provinces after a period of
12 months. In both cases, however, principals of ZIM will be subject to escrow
requirements. Under these requirements, the ZIM principals will not be able to
publicly sell their escrowed securities until certain escrow periods expire.
In addition to restrictions under US and Canadian securities laws, the
ability of the former shareholders of ZIM to sell their shares after the
amalgamation will depend on whether a secondary market in the common shares of
the Company develops following the completion of the amalgamation. As discussed
above, there can be no assurance that a secondary market will develop.
YOU WILL SUFFER AN IMMEDIATE DILUTION OF 3.85% OF YOUR STOCK VALUE AS A RESULT
OF THE AMALGAMATION.
The current shareholders of the Company will retain 3.85% of the common
and special shares of the Company to be outstanding following the completion of
the amalgamation. As a result, each of the shareholders of ZIM will effectively
suffer a dilution of 3.85% of their stock value as a result of the amalgamation.
The Company will have almost no assets at the time of the amalgamation.
THE COMPANY MAY BE SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AFTER THE
AMALGAMATION WHICH MAY ADVERSELY AFFECT THE MARKET FOR THE COMPANY'S COMMON
SHARES.
The SEC has adopted regulations which generally defined a "penny
stock" to be any equity security that has a market price less than US$5.00 per
share, subject to certain exceptions. The Company's securities may be covered
by the penny stock rules, which imposes additional sales practice requirements
on broker/dealers who sell such securities to persons other than established
customers and accredited investors (generally institutions with assets in
excess of US$5,000,000 or individuals with a net worth in excess of
US$1,000,000 or annual income exceeding US$200,000 or US$300,000 jointly with
their spouse). For transactions covered by the rule, the broker/dealer must
make a special suitability determination for the purchase and receive the
purchaser's written agreement to the transaction prior to the sale.
Consequently, if the rules apply to the Company, the ability of the Company's
shareholders to sell their shares in the secondary market would be adversely
affected.
THE COMPANY'S STOCK PRICE, LIKE THAT OF MANY TECHNOLOGY COMPANIES, MAY BE
VOLATILE.
If a secondary market for the Company's common shares develops, the
market value of the Company's shares after the amalgamation is likely to be
highly volatile. The Company through its ownership of ZIM will be involved in a
rapidly evolving industry. Stock prices in this industry have risen and fallen
in response to a variety of factors, including:
29
- announcements of new mobile data enabling technologies,
mobile data software services or mobile data infrastructure;
- acquisitions of or strategic alliances among providers of
mobile data enabling technologies, mobile data software and
services and mobile data infrastructure;
- changes in recommendations by securities analysts regarding
the results or prospects of providers of mobile data enabling
technologies, mobile data software and services and mobile
data infrastructure; and
- changes in investor perceptions of the acceptance or
profitability of mobile data enabling technologies, mobile
data software and services and mobile data infrastructure.
RISKS ASSOCIATED WITH ZIM
ZIM HAS HISTORICALLY INCURRED SIGNIFICANT LOSSES AND MAY NEVER ACHIEVE
PROFITABILITY.
ZIM reported net losses of CDN$4,880,000 for the nine months ended
February 28, 2002, and CDN$4,454,000, CDN$1,647,000 and CDN$851,000 for the
fiscal years ended May 31, 2001, 2000 and 1999. ZIM also expects to incur
losses for at least six more months.
ZIM's losses in the 2001 and 2002 fiscal years are attributable to the
expense of developing and introducing its new line of software products for the
mobile data industry. To date, ZIM has generated almost no revenues from these
new products and its ability to generate revenues from these products in the
future is subject to substantial uncertainty. Additionally, ZIM expects to
continue to develop new products on an ongoing basis in the future and to incur
substantial expenses in connection with the development of these products. The
development of new software products frequently involves substantial losses due
to these expenses and the long sales cycle for sophisticated software products.
In light of these factors, there is a significant risk that ZIM may
never achieve profitable operations.
ZIM WILL NEED ADDITIONAL FINANCING TO FUND ITS ANTICIPATED LOSSES AND WORKING
CAPITAL REQUIREMENTS. IF ZIM CANNOT OBTAIN THIS FINANCING, ZIM COULD BE FORCED
TO DISCONTINUE OPERATIONS.
ZIM will need additional financing in order to fund its losses and
other requirements for the next 12 months. ZIM does not have any bank credit
facility or other working capital credit line under which ZIM may borrow funds.
As a result, ZIM will need to raise these funds from third party investors or
its existing shareholders. ZIM currently expects to obtain financing through
the sale of its securities to investors and existing shareholders.
If funds are raised through the issuance of equity securities, the
percentage ownership of the then current stockholders may be reduced and the
holders of new equity securities may have rights, preferences or privileges
senior to those of the holders of the Company's common shares. If additional
funds are raised through the issuance of debt securities, the holders of this
debt would
30
have rights senior to the rights of the holders of the Company's shares and the
terms of this indebtedness could impose restrictions on ZIM's operations.
ZIM has not received any commitments from any third parties to provide
additional financing. Unless such additional financing is received, ZIM will be
unable to continue in operation in light of its significant operating losses.
REVENUES FROM ZIM'S PRINCIPAL SOFTWARE PRODUCT HAVE DECLINED SIGNIFICANTLY OVER
THE PAST THREE YEARS.
ZIM's principal software product is a sophisticated software database
and development tool known as the ZIM Integrated Development Environment or ZIM
IDE.
Since its organization in 1997, ZIM has generated substantially all of
its revenues from the licensing of ZIM IDE and related maintenance and
consulting fees. The revenues from this product have declined from
CDN$1,231,000 for the 9 months ended February 28, 2002, and CDN$999,000,
CDN$2,116,000 and CDN $2,656,000 for the fiscal years ending May 31, 2001, 2000
and 1999 respectively. ZIM believes that this decline in sales was due to a
poorly executed marketing plan and inconsistent product support. ZIM's new
management believes that it has taken appropriate steps to address these issues
and that revenues from this product will increase in the future. Nevertheless,
ZIM does not expect that these revenues will be sufficient to make ZIM
profitable. Furthermore, there can be no assurance that the actions taken by
ZIM's new management will in fact result in a significant increase in the sales
of this product.
ZIM WILL NOT ACHIEVE PROFITABILITY UNLESS ZIM IS ABLE TO COMPLETE THE
DEVELOPMENT AND SUCCESSFULLY MARKET ITS NEW PRODUCTS.
ZIM's business prospects depend on its ability to complete the
development of its new line of mobile data software and to develop new products
in the future. One of ZIM's principal new products, the ZIM SMS Scenario
Server, has only recently been introduced to the market. As a result, ZIM has
not yet established that the product will be able to perform in accordance with
customer requirements or that it will compete successfully with other products
available on the market. ZIM's other proposed products are still in development
and ZIM is uncertain as to when these products will be available for the
general market. Furthermore, the market acceptance for such products is
unproven.
In light of the foregoing, there is substantial uncertainty that ZIM's
new line of data software will ever generate substantial revenues. If ZIM
cannot effectively develop and introduce its new products, ZIM may never become
profitable.
ZIM'S SOFTWARE MAY CONTAIN DEFECTS OR ERRORS, AND ZIM'S SALES COULD GO DOWN IF
THIS INJURES ZIM'S REPUTATION OR DELAYS SHIPMENTS OF ZIM'S SOFTWARE.
ZIM's software products are complex and must meet the stringent
technical requirements of ZIM's customers. Software as complex as ZIM's is
likely to contain undetected errors or defects, especially when first
introduced or when new versions are released. ZIM's software may not be free
from errors or defects after delivery to customers has begun, which could
result in the rejection of
31
ZIM's software, damage to ZIM's reputation, lost revenue, diverted development
resources and increased service and warranty costs.
IF ZIM DOES NOT RESPOND EFFECTIVELY AND ON A TIMELY BASIS TO RAPID
TECHNOLOGICAL CHANGE, ZIM'S PRODUCTS MAY BECOME OBSOLETE AND ZIM MAY LOSE
SALES.
The mobile enterprise software industry is characterized by rapidly
changing technologies, industry standards, customer needs and competition, as
well as by the frequent introduction of new products and services. ZIM's
products and services must be compatible with computer systems of customers and
the data networks of wireless carriers. ZIM must respond to technological
changes affecting ZIM's customers, suppliers and carriers. ZIM may not be
successful in developing and marketing new products that respond to
technological changes, evolving industry standards or changing customer
requirements. ZIM's ability to grow and achieve profitability will depend, in
part, on ZIM's ability to accomplish all of the following in a timely and
cost-effective manner:
- effectively use and integrate new wireless and data
technologies;
- continue to develop ZIM's technical expertise; and
- influence and respond to emerging industry standards and
other changes.
ZIM DEPENDS ON THIRD PARTIES FOR THE MARKETING AND SALES OF ZIM'S PRODUCTS. IF
THE MARKETING EFFORTS OF THESE THIRD PARTIES ARE NOT EFFECTIVE, ZIM MAY NOT
ACHIEVE A PROFITABLE LEVEL OF SALES.
ZIM relies substantially on the efforts of others to market and sell
its products, particularly systems integrators, value added resellers,
information technology consultants and OEM technology partners. ZIM cannot
control the level of effort these third parties will devote ZIM's products. If
these third parties fail to market ZIM's services or their efforts fail to
result in new customers, ZIM may be unable to attract new customers and ZIM may
not achieve profitability.
ZIM MAY FAIL TO SUPPORT ITS ANTICIPATED GROWTH IN OPERATIONS, WHICH COULD
REDUCE DEMAND FOR ZIM'S PRODUCTS AND MATERIALLY ADVERSELY AFFECT ZIM'S REVENUE.
ZIM's business strategy is based on the assumption that ZIM's revenues
will grow significantly over the next few years. ZIM must continue to develop
and expand ZIM's systems and operations to accommodate this growth. The
expansion of ZIM's operations will require substantial financial, operational
and management resources. ZIM may be unable to expand ZIM's operations for one
or more of the following reasons:
- ZIM may not have sufficient financial resources to fund the
expense of developing and expanding the management systems
necessary to accommodate the anticipated growth.
- ZIM may not be able to hire qualified engineers and other
employees necessary for ZIM's business plan.
- ZIM may be unable to provide the customer support necessary
to meet customer expectations.
32
The ability of ZIM's systems and operations to manage a substantially
larger number of customers while maintaining a higher level of performance is
unknown. Any failure on ZIM's part to manage these issues could significantly
reduce demand for ZIM's products and adversely affect ZIM's revenues.
ZIM DEPENDS ON RECRUITING AND RETAINING KEY MANAGEMENT AND TECHNICAL PERSONNEL
WITH WIRELESS DATA AND SOFTWARE EXPERIENCE AND ZIM MAY NOT BE ABLE TO DEVELOP
NEW PRODUCTS OR SUPPORT EXISTING PRODUCTS IF ZIM CANNOT HIRE OR RETAIN
QUALIFIED EMPLOYEES.
Because of the technical nature of ZIM's products, ZIM's performance
depends on attracting and retaining key employees. Competition for qualified
personnel in the mobile data and enterprise software industries is significant
and finding qualified personnel with experience in both industries is
difficult. ZIM believes there are only a limited number of individuals with the
requisite skills in the field of mobile enterprise data, and it is difficult to
hire and retain these persons. Competitors and others have in the past
attempted, and may in the future attempt, to recruit ZIM's employees.
ZIM MAY NOT HAVE ADEQUATELY PROTECTED ZIM'S INTELLECTUAL PROPERTY RIGHTS, WHICH
COULD ALLOW COMPETITORS TO DEVELOP SIMILAR PRODUCTS USING SIMILAR TECHNOLOGY
AND THUS REDUCE ZIM'S SALES AND REVENUE.
ZIM has attempted to protect ZIM's technology through patent,
trademark and copyright protection, as well as through trade secret laws and
non-competition and non-disclosure agreements with key employees. ZIM has
applied for one patent which covers a portion of its new mobile enterprise
software. This patent may infringe on valid patents held by third parties, or
patents held by third parties may limit the scope of ZIM's existing patent and
any patent ZIM may receive in the future. In addition, ZIM has not yet sought
international patent protection for this technology. If ZIM is not adequately
protected, other companies with sufficient engineering expertise could develop
competing products based on ZIM's intellectual property and reduce ZIM's sales
and thus ZIM's revenue.
ZIM MAY BE SUED BY THIRD PARTIES FOR INFRINGEMENT OF THEIR INTELLECTUAL
PROPERTY RIGHTS AND INCUR COSTS OF DEFENSE AND POSSIBLY ROYALTIES OR LOSE THE
RIGHT TO USE TECHNOLOGY IMPORTANT TO PROVIDING ZIM'S PRODUCTS.
The software and telecommunications industries are characterized by
the existence of a large number of patents and frequent litigation based on
allegations of patent infringement or other violations of intellectual property
rights. As the number of participants in ZIM's market increases, the
possibility of an intellectual property claim against ZIM could increase. ZIM
has not received any claims that ZIM has infringed patents developed by other
parties. However, it is possible that ZIM could be subject to claims in the
future. Such claims, with or without merit, could be time-consuming and
expensive to litigate or settle, could require ZIM to enter into costly royalty
arrangements, could divert management attention from administering ZIM's
business and could hinder ZIM from conducting its business.
33
ZIM'S ABILITY TO SELL NEW AND EXISTING PRODUCTS AT A PROFIT COULD BE IMPAIRED
BY COMPETITORS.
Intense competition could develop in the market for products offered
by ZIM. ZIM developed its software using standard industry development tools.
ZIM's competitors could develop and use the same products and services in
competition with ZIM. With time and capital, it would be possible for
competitors to replicate ZIM's products. ZIM's competitors could include
wireless network carriers that provide mobile consumer and corporate
applications, software vendors that provide mobile enterprise software, or
systems integrators that develop their own mobile enterprise solutions. Most of
ZIM's competitors have significantly greater resources than ZIM. Competition
could reduce ZIM's market share or force ZIM to lower prices to unprofitable
levels.
THERE IS NO ESTABLISHED MARKET FOR ZIM'S NEW MOBILE DATA PRODUCTS AND ZIM MAY
NOT BE ABLE TO SELL ENOUGH OF THESE PRODUCTS TO BECOME PROFITABLE.
The market for wireless data services is still emerging and continued
growth in demand for and acceptance of these services remains uncertain.
Current barriers to market acceptance of these services include cost,
reliability, functionality and ease of use. ZIM cannot be certain that these
barriers will be overcome. ZIM is currently developing products for some of
ZIM's business customers pursuant to preliminary agreements with these parties
and expects to develop products for other entities as well. ZIM cannot assure
you that these parties will enter into contracts for ZIM's products. ZIM's
competitors may develop alternative mobile data enabling technologies that gain
broader market acceptance than ZIM's products. If the market for ZIM's products
does not grow, or grows more slowly than ZIM currently anticipates, ZIM may not
be able to attract customers for ZIM's products and ZIM may not achieve
profitability.
ZIM'S OPERATING PERFORMANCE COULD BE ADVERSELY AFFECTED BY ITS LONG SALES
CYCLE.
ZIM's operating performance will be exacerbated by the length of time
between ZIM's first contact with a business customer and the first revenue from
sales of products to that customer or end users. Because ZIM's products
represent a significant investment for ZIM's business customers, ZIM spends a
substantial amount of time educating them regarding the use and benefits of
ZIM's products and they, in turn, spend a substantial amount of time performing
internal reviews and obtaining capital expenditure approvals before purchasing
ZIM's products. As much as a year may elapse between the time ZIM approach a
business customer and the time ZIM begins to deliver products to a customer or
end user.
ZIM CONDUCTS OPERATIONS IN BRAZIL AND IS SUBJECT TO RISKS OF INTERNATIONAL
OPERATIONS.
ZIM currently operates in Canada and Brazil. ZIM faces various risks
in these markets, including:
- difficulty and cost of monitoring ZIM's international
operations;
- cultural differences in the conduct of business;
34
- unexpected changes in regulatory requirements, including
export restrictions on some technologies; and
- recessionary or inflationary environments in these countries.
ZIM cannot assure you that its international operations will
contribute positively to ZIM's business, financial condition or result of
operations. ZIM's failure to manage international growth could result in higher
operating costs than anticipated or could delay or preclude altogether ZIM's
ability to generate revenues in international markets. In addition, ZIM's
international operations are, in some instances, conducted in local currency
and fluctuations in the value of this currency relative to Canadian dollars
could cause currency exchange losses. ZIM cannot predict the effect of exchange
rate fluctuations on ZIM's future operating results.
35
FORWARD-LOOKING STATEMENTS
This management proxy circular/prospectus includes forward-looking
statements within the meaning of the Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act. The Company has based these
forward-looking statements on the Company's current expectations and projections
about future events. In some cases, you can identify forward-looking statements
by terminology such as "may," "will," "should," "could," "pending," "potential,"
"continue," "expect," "anticipates," "intends," "plans," "believes," "predicts,"
"estimates" and similar expressions, although not all forwarding-looking
statements are identified by these words. These forward-looking statements are
subject to a number of risks, uncertainties and assumptions about the Company
and ZIM, including those the Company described in the "Risk Factors" section of
this management proxy circular/prospectus. In light of these risks,
uncertainties and assumptions these forward-looking events discussed in this
management proxy circular/prospectus might not occur. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
The Company uses market data and industry forecasts and projections
throughout this management proxy circular/prospectus, which the Company has
obtained from internal surveys, market research, publicly available information
and industry publications. Industry publications generally state that the
information they provide has been obtained from sources believed to be
reliable, but that the accuracy and completeness of such information is not
guarantied. The forecasts and projections are based on industry surveys and the
preparer's experience in the industry and there is no assurance that any of the
projected amounts will be achieved. Similarly, the Company believes that the
surveys or market research the Company or others have performed are reliable,
but the Company has not independently verified this information. Neither the
Company nor any of the other participants in this offering represent that such
information is accurate.
36
ZIM SPECIAL MEETING
The board of directors of ZIM is providing this management proxy
circular/prospectus to you in connection with its solicitation of proxies for
use at the special meeting of ZIM's shareholders and at any adjournments or
postponements of the special meeting. The special meeting will be held at
200-20 Colonnade Road, Ottawa, Ontario ________________________________, at
____ p.m. on ________, 2002. At the special meeting, you will be asked to
consider and vote to approve the proposed amalgamation agreement which provides
for the amalgamation of ZIM and a wholly-owned subsidiary of the Company. ZIM
and the Company will enter into the amalgamation agreement if it is approved by
the shareholders of ZIM.
The Company is also providing this management proxy
circular/prospectus to you as a management proxy circular/prospectus in
connection with the offer and sale by the Company of its shares as a result of
the amalgamation of ZIM and a wholly-owned subsidiary of the Company.
Your vote is important. Please complete, date and sign the enclosed
proxy form and return it in the postage prepaid envelope provided.
RECORD DATE
The ZIM board has fixed the close of business on ___________, 2002 as
the record date for determining the ZIM shareholders entitled to receive notice
of and to vote at the special meeting. As of the record date, there were
33,183,921 common shares and 5,163,500 special shares of ZIM issued and
outstanding shares held by approximately 86 holders of record. Only holders of
record of ZIM shares as of the record date are entitled to notice of and to
vote at the special meeting.
PROXIES
Solicitation. Proxies in the form included in the proxy form
accompanying this management proxy circular/prospectus are being solicited by
the ZIM board. Shares represented by properly executed proxies which are
received in time and not revoked will be voted in accordance with the
instructions indicated on the proxies.
THE FORM OF PROXY CONFERS DISCRETIONARY AUTHORITY UPON THE PERSONS
NAMED THEREIN WITH RESPECT TO AMENDMENTS OR VARIATIONS TO MATTERS IDENTIFIED IN
THE NOTICE OF MEETING AND WITH RESPECT TO OTHER MATTERS WHICH MAY PROPERLY COME
BEFORE THE MEETING. IF MATTERS WHICH ARE NOT NOW KNOWN SHOULD PROPERLY COME
BEFORE THE MEETING THE SHARES REPRESENTED BY THE PROXY WILL BE VOTED ON SUCH
MATTERS IN ACCORDANCE WITH THE BEST JUDGMENT OF THE PERSON VOTING IT. A
shareholder desiring to appoint some other person to represent him or her at
the meeting may do so either by inserting the name of such person in the blank
space provided in the form of proxy or by completing another proxy in form
similar to the enclosed and, in either case, sending it to ZIM. INSTRUMENTS
APPOINTING PROXIES TO BE USED AT THE MEETING MUST BE DEPOSITED WITH ZIM PRIOR
TO THE CLOSE OF BUSINESS ON THE LAST BUSINESS DAY PRECEDING THE DAY OF THE
MEETING.
If no instructions are indicated, those proxies will be voted "FOR"
approval of the amalgamation agreement and in the discretion of the proxies as
to any other matter that may come before the special meeting, including a
motion to adjourn or postpone the special meeting to another time or
37
place for the purpose of soliciting additional proxies or otherwise. However,
no proxy with instructions to vote against approval of the amalgamation
agreement will be voted in favor of any adjournment or postponement of the
special meeting.
Directors, officers and other employees of ZIM may solicit proxies
personally, by telephone or facsimile or otherwise. None of these people will
receive any special compensation for solicitation activities. ZIM will arrange
with brokerage firms and other custodians, nominees and fiduciaries to forward
solicitation material to the beneficial owners of stock held of record by such
persons, and ZIM will reimburse these persons for their reasonable
out-of-pocket expenses.
Revocability. You may revoke your proxy at any time before its
exercise at the special meeting by giving written notice of revocation to the
chairman of the meeting before or at the meeting.
You should address all written notices of revocation and other
communications with respect to revocation of proxies to ZIM, 200-20 Colonnade
Road, Ottawa, Canada K2E 7M2 Attention: Kathy Aubrey-Moore, Chief Financial
Officer.
VOTE REQUIRED
The affirmative vote of the holders of at least 66-2/3% of the common
shares and the special shares present or represented at the meeting, each
voting separately as a separate class, is required for approval of the
amalgamation. Each share of ZIM is entitled to one vote on each matter
submitted to the meeting.
As of the record date, the directors and executive officers of ZIM
were the beneficial owners of 17,033,657 common shares or 51.3% of the common
shares outstanding and 2,700,000 special shares or 52.3% of the special shares
outstanding. These directors and executive officers have indicated that they
intend to vote for the approval of the amalgamation agreement and the
amalgamation.
RECOMMENDATION OF BOARD OF DIRECTORS
The ZIM board has unanimously approved the amalgamation agreement,
believes that the amalgamation is in the best interests of ZIM and recommends
that you vote "FOR" approval of the amalgamation agreement. See "The
Amalgamation -- Reasons of ZIM for the Amalgamation."
FEES AND EXPENSES
The Company will not pay any fees or commissions to any broker or
other person soliciting tenders of ZIM shares pursuant to the amalgamation.
38
THE AMALGAMATION
BACKGROUND OF THE AMALGAMATION
In February, 2001, the board of directors of ZIM held a meeting in
which the directors decided that ZIM should explore the feasibility of becoming
a reporting company under the U.S. Securities Exchange Act of 1934. The
directors believed that there were potential benefits to ZIM and its
shareholders if ZIM became a reporting company or if ZIM were acquired by a
reporting "shell" company.
In April, 2001, Dr. Michael Cowpland, ZIM's chairman, discussed ZIM's
plans with Douglas Duncan, a business acquaintance of Dr. Cowpland. Mr. Duncan
indicated that he would contact Cooper Consultants, Inc. to determine if Cooper
Consultants could assist ZIM in its efforts to become a US reporting company.
Cooper Consultants is a company which provides consulting services to private
companies that are interested in becoming reporting companies.
In April 2001, Mr. Duncan contacted Stuart Cooper, the President of
Cooper Consulting. Mr. Cooper informed Mr. Duncan that Cooper Consultants would
be willing to assist ZIM in becoming a reporting company. Mr. Cooper also
indicated that one alternative available to ZIM would be the acquisition of ZIM
by the Company. Mr. Cooper is the President and principal shareholder of the
Company. Mr. Duncan then informed Dr. Cowpland of his conversation with Mr.
Cooper.
After Mr. Duncan's introduction, Mr. Cooper and Dr. Cowpland and other
executives of ZIM had several conversations regarding the proposed transaction
between the Company and ZIM. As part of these discussions, ZIM's counsel
recommended that the Company reincorporate under the Canada Business
Corporations Act before it acquired ZIM. This structure would allow most
Canadian resident shareholders of ZIM to avoid recognition of taxable income
from the exchange of their shares. The parties also agreed that the acquisition
would be made through an exchange offer for ZIM's shares.
During April 2001, the parties continued to discuss the terms of the
transaction. During these discussions, the Company proposed a transaction in
which the Company would acquire ZIM in exchange for 96% of the shares of the
Company outstanding after the acquisition. Based on these discussions, the
Company's counsel prepared a letter of intent with respect to the proposed
transaction. In May 2001, the Company and ZIM executed the letter of intent.
During the summer of 2001, the Company and ZIM each undertook a due
diligence investigation of the other. Additionally, representatives of the
Company and ZIM prepared and negotiated a proposed acquisition agreement.
In July 2001, the directors of the Company approved the initial
version of the acquisition agreement. In August 2001, the directors of ZIM
approved an initial version of the acquisition agreement. The parties postponed
the execution of the acquisition agreement while they continued to review the
structure of the transaction.
In September 2001, ZIM's counsel recommended that the acquisition
agreement be amended to eliminate the proposed exchange offer and replace it
with the amalgamation of ZIM and a wholly-
39
owned subsidiary of the Company. Based on this recommendation, the parties
prepared a revised version of the acquisition agreement to provide for the
amalgamation. The parties also agreed that the interest of the Company's
shareholders in the Company following the closing be reduced to 3.85% in light
of ZIM's issuance of additional shares after the date of the letter of intent.
Between September 2001 and April 2002, the parties prepared the legal
documentation for the transaction and the required financial information.
On May 29, 2002, the sole director of the Company approved the
acquisition agreement and the amalgamation agreement. On May 29, 2002, ZIM's
directors approved the acquisition agreement. The parties executed the
acquisition agreement on May 29, 2002.
RELATED TRANSACTIONS
The Company has agreed to complete the following actions prior to the
effective date of the amalgamation:
- The Company will continue or reincorporate into Canada under
the Canada Business Corporations Act. The purpose of
continuing into Canada is to improve the tax consequences of
the amalgamation to the Canadian resident shareholders of
ZIM. In this connection, most Canadian resident shareholders
will not recognize any taxable income under Income Tax Act
(Canada) as a result of the amalgamation if the corporation
issuing shares is organized under the Canada Business
Corporations Act and is a taxable Canadian corporation. The
Company will seek shareholder approval to continue the
Company under the Canada Business Corporations Act as soon as
practicable.
- The Company will cause one of the Company's principal
shareholders, Global Intermatch Corp., to distribute 90,000
common shares of the Company to its shareholders. Global has
approximately 890 shareholders of record. The purpose of this
distribution is to increase the number of shareholders of the
Company. The Company will register the distribution of the
shares by Global under the Securities Act of 1933.
- The Company will change its name to "ZIM Corporation." The
Company plans to change its name as part of the Company's
reincorporation into Canada.
ZIM'S REASONS FOR THE AMALGAMATION
The directors of ZIM believe that the amalgamation will provide
potential benefits to ZIM as a result of the Company's status as a reporting
company under the Securities Exchange Act of 1934. These potential benefits are
as follows:
- The Company's status as a reporting company may be attractive
to potential merger and acquisition candidates and to
potential investors. In this connection, ZIM's board believes
that its ability to acquire other businesses through the
issuance of its securities would be enhanced if ZIM were part
of a public company. This conclusion is based on the belief
that
40
sellers of businesses often prefer to receive shares in a
public company because they may be more easily resold
particularly if a public market develops. The same
considerations apply to prospective investors in ZIM.
- The shares of the Company will be eligible for trading on the
OTC Bulletin Board following upon the completion of the
amalgamation. The ability of broker/dealers to quote the
Company's common shares through the OTC Bulletin Board
following the amalgamation may result in the establishment of
a secondary market in the shares for the Company. The
availability of a secondary market would increase the
attractiveness of the Company's shares to prospective merger
and acquisition candidates and to potential investors.
Additionally, the existence of a secondary market could
enable ZIM's current shareholders to resell their shares into
the secondary market, after the expiration of applicable
holding periods under Canadian securities laws.
The directors of ZIM believe that there are potential benefits arising
from the amalgamation from the fact that the Company will have more than 800
shareholders of record after the amalgamation. This large shareholder base will
enable the Company to meet one of the listing criteria for admission to the
American Stock Exchange, the New York Exchange and NASDAQ. Although the Company
has no current plans to seek listing on these exchanges, the existence of a
large shareholder base should make it more likely that the Company could obtain
such a listing in the future.
ZIM's board believes that the registration of the shares to be issued
by the Company in the amalgamation would be beneficial to the shareholders of
ZIM. As a general proposition, shares received in a registered offering could
be publicly resold by shareholders who are not affiliates of ZIM without
restriction under US securities laws. The board believes that this would
provide a benefit to the shareholders. The board was aware that the resale of
the shares would, however, be subject to restrictions under Canadian securities
laws.
ZIM's board of directors, with the assistance of its legal advisors,
evaluated the financial, legal and market considerations bearing on the
decision to recommend the amalgamation. The terms of the amalgamation are a
result of arm's-length negotiations between the representatives of ZIM and the
Company. In reaching its conclusion that the amalgamation is in the best
interest of ZIM and its shareholders, ZIM's board of directors carefully
considered the following material factors:
- the exchange ratio of the proposed amalgamation.
- the review by the ZIM board of directors with its legal
advisors of the provisions of the amalgamation agreement.
- the potential benefits of the Company's status as a reporting
company under the U.S. Securities Exchange Act of 1934.
While each member of the ZIM board of directors individually
considered the foregoing and other factors, the board did not collectively
assign any specific or relative weights to the factors considered and did not
make any determination with respect to any individual factor. ZIM's board of
directors collectively made its determination with respect to the amalgamation
based on the
41
conclusion reached by its members, in light of the factors that each of them
considered appropriate, that the amalgamation is in the best interests of ZIM's
shareholders.
ZIM'S BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE YOUR SHARES IN FAVOR
OF THE AMALGAMATION.
THE COMPANY'S REASONS FOR THE AMALGAMATION
The Company's sole director approved the acquisition agreement and
amalgamation agreement based on his consideration of the following factors:
- The exchange ratio of the proposed amalgamation.
- Information concerning the business, financial condition,
results of operation and prospects of ZIM.
- The background and experience of ZIM's management.
Based on these factors, the sole director determined that the
transaction is in the best interest of the Company and its shareholders.
EFFECTIVE DATE OF THE AMALGAMATION
The amalgamation will be consummated if it is approved by ZIM's
shareholders, and, unless waived, the Company and ZIM obtain all required
consents and approvals and satisfy the other conditions to the obligations of
the parties to consummate the amalgamation. The amalgamation will become
effective on the date and at the time that articles of amalgamation reflecting
the amalgamation are filed with Industry Canada, or a later date or time that
is indicated in the articles. The Company and ZIM have generally agreed to
cause the effective date to occur within ten days after the last of the
conditions to the completion of the amalgamation has been satisfied or waived
or any other date to which the Company and ZIM agree in writing.
The Company and ZIM each has the right, acting unilaterally, to
terminate the acquisition agreement and amalgamation agreement if the
amalgamation is not completed by June 15, 2003. See "The Amalgamation --
Amendment, Waiver and Termination" for further information.
DISTRIBUTION OF THE COMPANY STOCK CERTIFICATES
Following the effective date of the amalgamation, certificates for the
Company shares will be issued to shareholders of ZIM who deposit their ZIM
shares with the Chief Financial Officer of the Company in Ottawa, Ontario. A
letter of transmittal containing instructions with respect to the deposit of
ZIM shares will be forwarded as soon as possible after the effective date to
former shareholders of ZIM for use in exchange for their ZIM shares. Upon
return of a properly completed letter of transmittal, together with
certificates representing ZIM shares or other properly executed documentation
to effectively deposit ZIM shares, the Company will issue certificates for the
appropriate number of the Company shares and forward them to shareholders of
ZIM without charge.
42
No fractional shares of the Company will be issued for ZIM shares
surrendered. Instead, shareholders of ZIM entitled to such fractions will
receive a whole Company share.
The Company is not required to pay any dividends or other
distributions on the Company shares with a record date occurring after the
effective time to any former ZIM shareholder who has not delivered his or her
ZIM stock certificate for exchange. Holders of unexchanged certificates will
not be eligible to vote until his or her certificates are exchanged for the
Company certificates. All paid dividends and other distributions will be
delivered to each shareholder who has exchanged his or her certificates, in
each case without interest.
There will be no transfers of shares of ZIM on ZIM's stock transfer
books after the effective time. ZIM stock certificates presented for transfer
after the effective time will be canceled and exchanged for the Company stock
certificates.
EXCHANGE OF ZIM OPTIONS
Prior to the effective date of the amalgamation, the Company will
offer to issue Company options in exchange for all outstanding options to
acquire ZIM common shares. The Company will forward a letter of transmittal
containing instructions with respect to the surrender of ZIM options to the
holders of the ZIM options for use in the exchange of such options for options
to acquire common shares of the Company. The exchange will be contingent upon
the completion of the amalgamation.
U.S. FEDERAL INCOME TAX CONSEQUENCES
The following section describes the material US federal income tax
consequences of the amalgamation to holders who hold shares of ZIM as capital
assets and is the opinion of Shutts & Bowen LLP, counsel to the Company. This
section does not address state, local or foreign tax consequences of the
amalgamation. This section is based on the federal tax laws that are currently
in effect.
These laws are subject to change at any time, possibly with
retroactive affect. This is not a complete description of all the consequences
of the amalgamation in your particular circumstances. The Company does not
address the US federal income tax considerations applicable to certain classes
of shareholders, including:
- Shareholders who are treated as owning, directly or
indirectly, at least 5% of both the total voting power and
total value of the stock of the Company or ZIM;
- Financial institutions;
- Insurance companies;
- Tax exempt organizations;
- Dealers in securities or currencies;
43
- Traders in securities that elect to mark to market;
- Persons who hold ZIM shares as part of a straddle or
conversion transaction;
- Persons who are not for United State federal income tax
purposes:
-- a citizen or resident of the United States;
-- a domestic corporation;
-- an estate whose income is subject to United
States federal income tax regardless of its
source; or
-- a trust if a United States court can
exercise primary supervision over the trust
administration and one or more United
States persons are authorized to control
all substantial decisions of the trust;
- Persons who acquire or acquired shares of ZIM shares pursuant
to the exercise of employee stock options or otherwise as
compensation;
- Persons who exercise their dissenters appraisal rates; or
- Persons who do not hold their shares or ZIM shares as a
capital asset.
In connection with the filing of this document, the Company and ZIM
have received an opinion of Shutts & Bowen LLP. The opinion is based on the
following assumptions:
- The re-incorporation of the Company will be respected, and
will be treated as a separate transaction for federal income
tax purposes;
- The Company, ZIM and the Company's new subsidiary will each
be respected as Canadian corporations;
- The Company's new subsidiary was formed solely for the
purposes of amalgamating with ZIM and will not survive the
amalgamation;
- ZIM shareholders will receive solely shares in the Company;
- The Company will own at least 80% of ZIM; and
- The principals of continuity of interest and business
enterprise as well as the principal of business purpose shall
all be respected with respect to the amalgamation.
Based on these assumptions, it is the opinion of Shutts & Bowen LLP
that the amalgamation will qualify as a reorganization within the meaning of
such in Section 368(a) of the Code. The Company, ZIM and the Company's new
subsidiary each will be a "party to the reorganization" within the meaning of
Section 368(b) of the Code, and no shareholder owning directly or indirectly
less than 5% of both the total voting power and the total value of the stock of
the Company or ZIM
44
immediately after the amalgamation will be required to recognize any gain with
respect to the amalgamation.
In addition, it is the opinion of Shutts & Bowen LLP that no gain or
loss will be recognized by ZIM shareholders who receive shares of the Company
solely in exchange for shares of ZIM except that gain or loss may be recognized
as to cash received or in connection with the exercise of dissent rights.
This opinion is dated as of the date of this management proxy
circular/prospectus and will be updated as of the effective date of the
amalgamation. It was based upon the facts, representations and assumptions
outlined in the opinion. Counsel relied upon representations contained in
letters received from ZIM and the Company in rendering their opinion. This tax
opinion is not binding on the Internal Revenue Service. Neither the Company nor
ZIM have requested or will request any ruling from the Internal Revenue Service
as to the U.S. federal income tax consequences of the amalgamation. ZIM
shareholders who exchange all of their shares of ZIM shares for the shares of
the Company pursuant to the amalgamation will be subject to the following
material U.S. federal income tax consequences:
- The aggregate adjusted basis of the shares of the Company
received by a ZIM shareholder will be the same as the
aggregate adjusted basis of the shares of the shareholder's
ZIM shares exchanged therefor; and
- The holding period of shares of the Company received by a ZIM
shareholder will include the holding period of the ZIM shares
exchanged therefor.
Cash received by a ZIM shareholder in connection with the exercise of
dissent rights will be treated as received in redemption of the share interest.
The shareholder would generally recognize capital gain or loss for U.S. federal
income tax purposes equal to the difference between the amount of cash received
and the shareholders adjusted tax basis in the ZIM shares exchanged therefor.
This capital gain or loss would be long term capital gain or loss if the ZIM
shareholders holding period and the shares of ZIM allocable to the fractional
share interest is more than one year. Long term capital gain of a non-corporate
person is generally subject to a maximum federal tax rate of 20%. The
deductibility of capital losses is subject to limitations for both individuals
and corporations.
The tax consequences of the amalgamation may vary depending upon your
particular circumstances. You should therefore consult your own tax advisor as
to the specific tax consequences of the amalgamation for you, including
application and affect of U.S. federal, state and, foreign and other tax laws.
CANADIAN TAX CONSEQUENCES
In the opinion of Borden Ladner Gervais LLP, counsel to ZIM, the
following is a summary of the principal Canadian federal income tax
considerations under the Income Tax Act (Canada) (the "Tax Act") generally
applicable to holders of ZIM shares in consequence of the implementation of the
amalgamation.
45
This summary is based on the current provisions of the Tax Act, the
regulations thereunder, all specific proposals to amend the Tax Act and
regulations publicly announced by the Minister of Finance prior to the date
hereof (the "Proposed Amendments") and counsel's understanding of the current
published administrative position of the Canada Customs and Revenue Agency.
Except for the Proposed Amendments, the summary does not take into account or
anticipate changes in the law, whether by way of judicial decision or
legislative action, not does it take into account tax legislation of countries
other than Canada or any relevant provincial or territorial tax legislation.
The summary is not intended to be, nor should it be construed to be, legal or
tax advice to any particular shareholder.
The following summary is applicable to shareholders who, for purposes
of the Tax Act, are resident in Canada, who hold their ZIM shares as capital
property and who deal at arm's length with PCI and ZIM (a "Holder"). The ZIM
shares will generally be considered to be capital property to a Holder unless
the Holder holds such ZIM shares in the course of carrying on a business
involving trading in securities or the holder acquired the shares in a
transaction considered to be an adventure in the nature of trade. ZIM shares
held by certain "financial institutions" (as defined in the Tax Act) generally
will not be capital property to such holders and will be subject to special
"mark-to-market" rules.
Amalgamation of the Amalgamation Subsidiary and ZIM
A Holder whose ZIM shares are exchanged on the amalgamation of the
Company's subsidiary and ZIM for Company shares will be deemed to have disposed
of the ZIM shares for proceeds of disposition equal to the adjusted cost base
of the ZIM shares immediately before the exchange and the Holder will be deemed
to have acquired each Company share in exchange for the ZIM shares at an
aggregate adjusted cost base equal to the adjusted cost base of the ZIM shares
to such Holder. Accordingly, a Holder will not realize any capital gain (or
capital loss) for Canadian tax purposes on the exchange of the ZIM shares for
the Company shares.
Dissent Rights
The Canadian tax consequences to a ZIM shareholder who exercises a
statutory right to dissent from the amalgamation under the Canada Business
Corporations Act and in consequence is paid the fair market value of the
dissenter's ZIM shares are unclear.
In general, in connection with an amalgamation, and assuming that the
dissenter receives cash payment of the fair value of the dissenter's shares
from ZIM, the dissenter will be deemed to have received a capital gain or
capital loss equal to the amount, if any, by which the payment exceeds or is
less than the adjusted cost base attributable to the dissenter's shares as
computed for tax purposes. One-half of any capital gain so triggered is taxable
and one-half of any capital loss is deductible against capital gains. Any
unused capital losses can be carried back three (3) years and carried forward
indefinitely to be offset against capital gains in such years.
THE CANADIAN FEDERAL INCOME TAX CONSIDERATIONS SET FORTH ABOVE ARE FOR
GENERAL INFORMATION ONLY. SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS TO DETERMINE THE PARTICULAR TAX EFFECTS OF THE AMALGAMATION, UPON
THEM.
46
MANAGEMENT AFTER THE AMALGAMATION
On the effective date of the amalgamation, the current directors and
officers of the Company will resign and the following persons will become the
directors and officers of the Company:
NAME PROPOSED POSITION WITH THE COMPANY CURRENT POSITION WITH ZIM
---- ---------------------------------- --------------------------
Dr. Michael C. J. Cowpland President and Chief Executive President and Chief Executive
Officer and Director Officer and Director
Steven Houck Director Director
Gene Rheaume Director Director
Charles Saikaley Director Director
James Stechyson Chairman Chairman
Tony Davidson Chief Technology Officer Chief Technology Officer
Kathy Aubrey-Moore Chief Financial Officer Chief Financial Officer
The background of these individuals is set forth in "Information
Concerning ZIM -- Management" starting on page 81.
BENEFICIAL OWNERSHIP AFTER THE AMALGAMATION
After the completion of the amalgamation, the current shareholders of
ZIM will own 96.15% of the common and special shares of the Company outstanding
following completion of the amalgamation, including a minimum of 95.58% of the
common shares outstanding and 100% of the special shares outstanding. In
addition, the holders of options of ZIM will become holders of options for
15,358,915 of the Company's common shares if they exchange their options.
For more information regarding the beneficial ownership of the
Company's shares following the amalgamation see "Information Concerning ZIM --
Beneficial Ownership of Capital Shares", starting on page 87.
INTERESTS OF CERTAIN PERSONS IN THE AMALGAMATION
The directors and executive officers of ZIM have interests in the
amalgamation in addition to the interests they may have as ZIM's shareholders
generally. These interests consist of the following:
The current directors and executive officers of ZIM will be appointed
as directors and officers of the Company at the time of the closing of the
amalgamation. For more information regarding these individuals, see
"Information Concerning ZIM - Management" on page 81.
The amalgamation does not constitute a "related party transaction"
within the meaning of the Securities Act (Ontario) since none of the
amalgamating corporations or the Company is a "reporting issuer" for the
purpose of such legislation.
47
AGREEMENT WITH COOPER CONSULTANTS, INC.
In April 2001, ZIM engaged Cooper Consultants, Inc., an affiliate of
Stuart D. Cooper, to provide consulting services to ZIM in connection with the
proposed acquisition of ZIM by the Company. The parties amended the agreement
in May 2002. Mr. Cooper is the Company's only current officer and director and
beneficial owner of the majority of its shares.
Under the terms of the consulting agreement, Cooper Consultants agreed
to provide advice to ZIM regarding the structuring of the acquisition and to
assist the Company and ZIM in connection with completion of the transaction
prior to the acquisition.
ZIM agreed to pay up to US$352,000 of the Company's expenses related
to the proposed transaction, with any excess to be retained by Cooper
Consultants. To date, ZIM has paid US$189,000, and agreed to pay US$29,000 upon
the filing of the registration statement which includes this management proxy
circular/prospectus, US$59,000 upon the effectiveness of the registration
statement and US$75,000 upon the listing of the Company's common shares on a
national securities exchange selected by ZIM's board of directors.
Stuart D. Cooper, the Company's only officer and director, and its
principal shareholder, is an officer, director and the principal shareholder of
Global. As part of the proposed amalgamation, the Company has registered the
distribution of approximately 90,000 common shares by Global to its
shareholders. As a result of this distribution, Mr. Cooper will receive a
portion of the Company's shares currently owned by Global.
RESALE OF THE COMPANY'S SHARES UNDER US SECURITIES LAWS
All common shares and special shares of the Company to be issued in
the amalgamation will be freely transferable under the Securities Act of 1933,
except shares received by "affiliates" of ZIM at the time of the special
meeting. These affiliates may only sell their shares in transactions permitted
by Rule 145 under the Securities Act or as otherwise permitted under the
Securities Act. "Affiliates" would typically include directors, executive
officers, and beneficial owners of 10% or more of ZIM's shares.
This management proxy circular/prospectus does not cover resales of
the Company shares received by any person who may be deemed to be an affiliate
of ZIM. The Company may place restrictive legends on certificates representing
the Company shares issued to all persons who are deemed to be "affiliates" of
ZIM under Rule 145.
RESALE OF COMPANY'S SHARES UNDER CANADIAN SECURITIES LAWS
All of the common shares of the Company to be issued in the
amalgamation will be subject to resale restrictions under Canadian securities
laws. In this connection, the holders of common shares will not be able to sell
the shares publicly until the Company has been a reporting issuer in the
shareholders' province of residence for a period of at least 12 months. The
Company intends to file a prospectus in certain Canadian jurisdictions so that
it will become a reporting issuer in those jurisdictions upon the effective
date of the amalgamation. If the Company fails to file this
48
prospectus or it is not approved by the securities regulatory authorities in
each of these jurisdictions, then the holders of the common shares will not be
able to sell their shares publicly.
Following the expiration of the 12 month period, the holders of the
Company's common shares will be entitled to resell the shares publicly if:
(i) the Company has remained a reporting issuer for the preceding
12 months and is not in default under applicable Canadian securities
legislation; and
(ii) no unusual effort is made to prepare the market or create a
demand for the Company shares and no extraordinary commission or other
consideration is paid in respect of the trades.
The Company currently anticipates that all of the special shares of
the Company to be issued in the amalgamation will be converted into common
shares immediately after the amalgamation. In this connection, the terms of the
special shares provide that they will be automatically converted into common
shares on the fifth day following the issuance of a final prospectus by the
Ontario Securities Commission qualifying the common shares issuable upon the
conversion of the special shares. The Company intends to file a prospectus for
this purpose prior to the completion of the amalgamation. If the prospectus is
approved by the securities regulatory authorities in the appropriate
jurisdictions, the newly issued common shares will become freely tradeable
under the laws of such jurisdictions. If the prospectus is not approved by the
appropriate securities regulatory authorities, then the special shares will be
subject to the same restrictions that are applicable to the common shares.
In addition to the resale restrictions described above, the Company
shares held by principals of the Company will be subject to escrow requirements
under Canadian securities laws. Under this legislation, a shareholder who is a
director, senior officer or holder of 10% or more of the voting securities of
the Company, as well as that person's associates and affiliates, is subject to
a national escrow policy. This policy limits the number of shares that a
principal may sell for a period of 18 months, commencing on the date that the
Company becomes a reporting issuer under Canadian securities laws. Under the
escrow requirements, no more than 25% of the shares held by a principal may be
sold during the first six months following the date that the Company becomes a
reporting issuer. An additional 25% of the shares may be sold during the next
six months, with the further 25% after the following six months. The escrow
restrictions expire after 18 months.
EACH PERSON WHO RECEIVES COMPANY SHARES IN THE AMALGAMATION SHOULD
CONSULT THEIR OWN LEGAL ADVISOR WITH RESPECT TO RESALE RESTRICTIONS RELATING TO
SUCH SHARES APPLICABLE IN ANY RELEVANT JURISDICTION.
49
RIGHTS OF DISSENTING SHAREHOLDERS
A ZIM shareholder who dissents to the amalgamation will be entitled to
be paid the fair value of the ZIM shares held by such holder if the
amalgamation becomes effective and the holder complies with the provisions of
Section 190 of the Canada Business Corporations Act or CBCA. The fair value of
the ZIM shares held by a dissenting shareholder will be determined as of the
close of business on the day before the resolution regarding amalgamation is
adopted.
A shareholder may only dissent with respect to all of the ZIM shares
held by him or her on behalf of any one beneficial owner and registered in the
name of the dissenting shareholder.
SUMMARY OF SECTION 190 OF THE CBCA
In order to exercise a right of dissent, a dissenting shareholder must
send to ZIM a written objection to the amalgamation resolution at or before the
special meeting. Within 10 days after the amalgamation resolution is adopted by
the shareholders, ZIM must send to each shareholder who has filed a written
objection a notice that the amalgamation resolution has been adopted. ZIM is
not required to send such notice to any shareholder who voted for the
amalgamation resolution or who has withdrawn his or her objection.
The dissenting shareholder must send to ZIM a written notice within 20
days after he or she receives notice that the amalgamation resolution has been
adopted or within 20 days after he or she learns of such adoption. The written
notice must contain:
- the name and address of the dissenting shareholder;
- the number of ZIM shares in respect of which he or she
dissents; and
- a demand for payment of the fair value of such shares.
Within 30 days after sending the notice demanding payment, the
dissenting shareholder must send to ZIM the certificates representing the
shares in respect of which he or she dissents. A dissenting shareholder who
does not send in his or her certificates within the prescribed time loses his
or her right of dissent.
No later than seven days after the effective date of the amalgamation,
ZIM must send to each dissenting shareholder who has sent a notice demanding
payment a written offer to pay for his or her ZIM shares in an amount
considered by the directors of ZIM to be the fair value thereof, accompanied by
a statement showing how the fair value was determined.
A dissenting shareholder who receives an offer must accept the offer
within 30 days after the offer is made otherwise the offer lapses. ZIM must pay
for the ZIM shares of a dissenting shareholder within ten days after the offer
is accepted.
If ZIM does not make an offer or the dissenting shareholder does not
accept an offer, ZIM may, within 50 days after the amalgamation is effective or
within such further period as a court may allow, apply to a court to fix a fair
value for the ZIM shares of any dissenting shareholder. If ZIM
50
does not apply to a court, a dissenting shareholder may apply within a further
period of 20 days or within such further period as a court may allow for the
same purpose. On an application to a court, the dissenting shareholders will be
entitled to be paid the amount fixed by the court which may be greater or less
than the value of the consideration the shareholders would have received as a
result of the amalgamation.
ADDRESS FOR NOTICES
All notices required to be sent to ZIM under the provisions of Section
190 of the CBCA should be addressed to the Chief Financial Officer of ZIM,
200-20 Colonnade Road, Ottawa, Ontario, Canada, K2E 7M2.
CEASING OF RIGHTS AS A SHAREHOLDER
On sending the notice demanding payment, the dissenting shareholder
ceases to have any rights as a shareholder of ZIM other than the right to be
paid the fair value of his or her ZIM shares unless:
- the dissenting shareholder withdraws his or her notice
demanding payment before ZIM makes an offer;
- ZIM fails to make an offer in accordance with the provisions
of the CBCA and the dissenting shareholder withdraws his or
her notice; and
- the directors of ZIM terminate the acquisition agreement and
amalgamation agreement in which case his or her rights as a
shareholder will be reinstated as of the date he or she sent
the notice demanding payment.
STRICT COMPLIANCE WITH DISSENT PROVISIONS REQUIRED
The foregoing summary does not purport to be a comprehensive statement
of the procedures to be followed by a dissenting shareholder who seeks payment
of the fair value of such holder's ZIM Shares. The provisions of Section 190 of
the CBCA require strict adherence to the procedures established therein and
failure to do so may result in the loss of all dissent rights.
51
TERMS OF THE ACQUISITION AGREEMENT AND THE
AMALGAMATION AGREEMENT
The following is a summary of the material terms of the acquisition
agreement and the amalgamation agreement. This summary is qualified in its
entirety by reference to the acquisition agreement and the amalgamation
agreement, copies of which are attached as exhibits to this management proxy
circular/prospectus and are incorporated by reference into this management
proxy circular/prospectus. You are urged to read these agreements in their
entirety for a more complete description of the terms and conditions of the
amalgamation.
THE AMALGAMATION
Structure of the Amalgamation. On the effective date of the
amalgamation, ZIM and a wholly-owned subsidiary of the Company will amalgamate.
As a result, ZIM will become a wholly owned subsidiary of the Company
immediately after the amalgamation.
Effective Time of the Amalgamation. The closing of the amalgamation
will occur within 10 days after the fulfillment or waiver of the conditions
described below under "-Conditions to the Completion of the Amalgamation,"
unless the Company and ZIM agree in writing upon another time or date. The
amalgamation will become effective upon the filing of articles of amalgamation
with Industry Canada. The filing of the articles of amalgamation will take
place at the time of the closing of the amalgamation.
Issuance of Shares. The acquisition agreement and the amalgamation
agreement provide that each share of ZIM that is outstanding prior to the
effective time of the amalgamation will, on the effective date of the
amalgamation, be converted into the right to receive one share of the Company.
Procedure for Surrender of Certificates. Soon after the closing of the
amalgamation, the Company will send a letter of transmittal, which is to be
used to exchange ZIM stock certificates for the Company stock certificates, to
each former ZIM shareowner. The letter of transmittal will contain instructions
explaining the procedure for surrendering ZIM stock certificates. YOU SHOULD
NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY FORM.
ZIM shareowners who surrender their stock certificates together with a
properly completed letter of transmittal will receive stock certificates
representing the shares of the Company into which their shares of ZIM have been
converted in the amalgamation.
After the amalgamation, each certificate that previously represented
shares of ZIM will represent only the right to receive the shares of the
Company into which those shares of ZIM have been converted.
The Company will not pay dividends to holders of ZIM stock
certificates in respect of the shares of the Company into which the ZIM shares
represented by those certificates have been converted until the ZIM stock
certificates are surrendered to the Company.
After the amalgamation becomes effective, ZIM will not register any
further transfers of ZIM shares. Any certificates for ZIM shares that you
present for registration after the effective time of
52
the amalgamation will be exchanged for the Company shares.
ADJUSTMENTS TO REFLECT CHANGES IN ZIM'S CAPITALIZATION
The acquisition agreement provides that the parties will not adjust
the exchange ratio for the common shares and special shares of ZIM. Instead,
the Company is authorized to issue a stock dividend to the holders of the
Company's shares so that the shareholders of the Company immediately prior to
the closing would hold 2.64% of the Company's shares outstanding after the
closing (assuming the issuance of all shares under ZIM's outstanding options
and all shares reserved for issuance under ZIM's employee stock option plans).
The acquisition agreement and amalgamation agreement further provide that the
Company will not issue a stock dividend as a result of the following issuances
of securities by ZIM:
- issuance of additional options to acquire ZIM common shares
provided with an exercise price of at least CDN$1.00.
- issuance of additional common shares or special shares at a
price at or above their fair market value.
Between the date of the acquisition agreement and the date of this
management proxy circular/prospectus, the Company did not issue a stock
dividend pursuant to the adjustment provisions of the acquisition agreement and
the Company will not issue a stock dividend between the date of this management
proxy circular/prospectus and the closing date of the amalgamation.
LOCKUP AGREEMENT WITH CERTAIN COMPANY SHAREHOLDERS
Certain of the Company's shareholders entered into an agreement with
the Company and ZIM which restricts their right to resell their shares of the
Company. These shareholders are Stuart Cooper, Edie Cooper, Cooper Family
Holdings, Mark Weissbaum, Pasadena Investments Ltd., Thornhill Consulting Ltd.
and Global Intermatch Corp. These shareholders are the record owners of
1,444,455 common shares of the Company, representing 2.49% of the shares of the
Company that will be outstanding immediately after the closing of the
amalgamation.
Under this resale restriction agreement, these shareholders are
prohibited from selling their shares, without the consent of ZIM, until three
months after the listing of the Company's shares on a national securities
exchange. After the listing of the Company's shares, each of these shareholders
may resell on a cumulative basis four percent (4%) of their shares each month,
with such restrictions expiring two (2) years after the closing date of the
acquisition. Notwithstanding these provisions, the agreement provides the
following five exceptions from its resale restrictions:
- Global Intermatch Corp. may sell up to 10,000 of its the
Company shares into the public market;
- Global Intermatch Corp. may distribute 89,000 shares of the
Company to Global's shareholders; and
- Cooper Family Holdings or its beneficiaries may sell up to
10,000 of its the Company
53
shares into the public market.
In addition to this resale restriction agreement, Canadian law may
impose additional resale restrictions upon these shareholders.
REPRESENTATIONS AND WARRANTIES OF ZIM
The acquisition agreement contains representations and warranties made
by ZIM to the Company. These representations and warranties relate to:
- the due organization, valid existence and good standing of
ZIM and its subsidiaries.
- the capitalization of ZIM.
- the corporate power and authority of ZIM to execute and
deliver the acquisition agreement and consummate the
transactions contemplated by the acquisition agreement.
- the enforceability of the acquisition agreement against ZIM.
- the receipt by ZIM of all required governmental approvals
necessary for ZIM to consummate the transactions contemplated
by the acquisition agreement.
- the absence of any violation by ZIM, as a result of the
performance of the acquisition agreement, of ZIM's
organizational documents, material contracts or applicable
law.
- ZIM's receipt of all licenses and permits required by ZIM to
conduct its business.
- ZIM's compliance with applicable laws and regulations.
- ZIM's payment of taxes.
- the preparation of ZIM's financial statements in accordance
with Canadian generally accepted accounting principles and
the fair presentation of ZIM's financial condition and
results of operations and ZIM's financial statements.
- ZIM's ownership of its property and assets.
- disclosure of liabilities of ZIM.
- the absence of litigation involving ZIM.
- the material contracts of ZIM and ZIM's compliance with these
contracts.
- the absence of material changes and events affecting ZIM from
February 28, 2002 through the date of the acquisition
agreement.
54
- the ownership by ZIM of intellectual property necessary to
operate its business and the absence of claims against ZIM
with respect to its intellectual property.
- ZIM's maintenance of appropriate books and records.
- the compliance by ZIM's employee benefit plans with
applicable rules and regulations.
- the absence of undisclosed transactions between ZIM and its
affiliates.
- the absence of ZIM's engagement of any investment banker or
finder with respect to the amalgamation.
- the absence of any misleading statements by ZIM with respect
to its representations and warranties.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The acquisition agreement contains representations and warranties made
by the Company to ZIM. These representations and warranties relate to:
- the due organization, valid existence and good standing of
the Company and its subsidiaries.
- the capitalization of the Company.
- the corporate power and authority of the Company to execute
and deliver the acquisition agreement and consummate the
transactions contemplated by the acquisition agreement.
- the enforceability of the acquisition agreement against the
Company.
- the receipt by the Company of all required governmental
approvals necessary for the Company to consummate the
transactions contemplated by the acquisition agreement.
- the absence of any violation by the Company, as a result of
the performance of the agreement, of the Company's
organizational documents, material contracts or applicable
law.
- the Company's compliance with applicable laws and
regulations.
- the preparation of the Company's financial statements in
accordance with United States generally accepted accounting
principles and the fair presentation of the Company's
financial condition and results of operations and the
Company's financial statements.
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- The accuracy and completeness of filings made by the Company
with the Securities and Exchange Commission.
- the absence of litigation involving the Company.
- the absence of material changes and events affecting the
Company from May 31, 2001 through the date of the acquisition
agreement.
- the absence of ZIM's engagement of any investment banker or
finder with respect to the amalgamation.
- the absence of any misleading statements by ZIM with respect
to its representations and warranties.
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF CERTAIN COMPANY SHAREHOLDERS
Certain of the Company's shareholders made representations and
warranties to ZIM. These shareholders were Stuart Cooper, Cooper Family Trust
and Global Intermatch Corp. These shareholders made representations and
warranties relating to:
- their ownership of Company shares.
- their power and authority to enter into the acquisition
agreement.
- the absence of any breach by them of any material agreement
as a result of their execution, delivery and performance of
the acquisition agreement.
- their receipt of any required governmental approvals to be
obtained by them with respect to the transactions
contemplated by the acquisition agreement.
COVENANTS OF ZIM
ZIM agreed that it and its subsidiaries would conduct their operations
in the ordinary and usual course from the date of the acquisition agreement
through the closing of the amalgamation. In addition, ZIM agreed it would not
undertake any of the following actions without the Company's prior consent:
- purchase or redeem any of its outstanding shares or capital
stock or securities convertible into its outstanding shares.
- declare or pay any dividends or distributions on any shares
of its capital stock.
- authorize, recommend or enter into a letter of intent in
respect to any acquisition, consolidation or business
combination, or any amalgamation of assets or securities, any
disposition of assets or securities, or any change in its
capitalization, except for certain planned transactions.
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- take any action which would make any of ZIM's representations
or warranties untrue.
- enter into any material agreement other than the ordinary
course of business.
- agree to take any of the foregoing actions.
COVENANTS OF THE COMPANY
The Company agreed that it would conduct their operations in the
ordinary and usual course from the date of the acquisition agreement through
the closing of the amalgamation. In addition, the Company agreed it would not
undertake any of the following actions without ZIM's prior consent:
- issue or sell any shares of the Company or any securities
convertible into such shares.
- purchase or redeem any of its outstanding shares or capital
stock or securities convertible into its outstanding shares.
- declare or pay any dividends or distributions on any shares
of its capital stock.
- authorize, recommend or enter into a letter of intent in
respect to any acquisition, consolidation or business
combination, or any amalgamation of assets or securities, any
disposition of assets or securities, or any change in its
capitalization, except for certain planned transactions.
- take any action which would make any of Company's
representations or warranties untrue.
- enter into any material agreement other than the ordinary
course of business.
- agree to take any of the foregoing actions.
ACCESS TO INFORMATION
The Company and ZIM agreed to provide each other and their
representatives with access to their books and records.
CONFIDENTIALITY
The Company confirmed that it had entered into a confidentiality
agreement with ZIM and agreed to comply with the terms of the agreement. The
Company and ZIM also agreed not to disclose any such information or documents
to any third parties or to make any use of such information other than in
connection with the transaction contemplated by the acquisition agreement.
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REASONABLE EFFORTS COVENANT
The Company and ZIM agreed to use reasonable efforts to take or cause
to be taken all actions necessary, proper, and advisable under applicable laws
and regulations to consummate or make effective the transactions contemplated
by the acquisition agreement.
NON-SOLICITATION COVENANT OF ZIM
ZIM agreed on behalf of itself and its officers, directors and
affiliates that it would not initiate contact with, solicit or encourage any
inquiry or proposal by or enter into discussions with or disclose directly or
indirectly information not customarily disclosed to the public concerning its
business and properties or afford access to the books and records of ZIM to any
corporation, partnership, person or other entity or group in connection with
any possible acquisition proposed regarding a sale of ZIM's capital stock or a
amalgamation, consolidation, sale of all or substantially all of its assets or
any similar transaction, other than certain planned transactions listed in the
acquisition agreement.
FEES AND EXPENSES
If the amalgamation is completed, Cooper Consultants, Inc. will
utilize funds provided by ZIM to pay all of the costs and expenses incurred by
the Company in connection with the completion of the amalgamation and the
related transactions, including fees and disbursements of counsel and
accountants. Additionally, if the amalgamation is completed, ZIM will pay all
expenses incurred by ZIM in connection with the amalgamation.
JOINT CONDITIONS TO THE COMPLETION OF THE AMALGAMATION
The obligations of the Company and ZIM to complete the amalgamation
are subject to fulfillment of the following conditions prior to the closing of
the amalgamation:
- The fulfillment of all statutory requirements for the
consummation of the amalgamation and the receipt of all
governmental approvals.
- The absence of any order, decree or injunction of any court
of competent jurisdiction restraining and preventing the
amalgamation or otherwise materially and adversely affecting
the amalgamation.
- The absence of any investigation, action, suit or proceeding
by any governmental entity or any other person which
challenges or might reasonably be expected to result in the
challenge to the transactions contemplated by the acquisition
agreement or which claims or might reasonably be expected to
give rise to claim for damages as a result of the
transactions contemplated by the agreement.
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As of the date of this management proxy circular/prospectus, the
Company is not aware of any reason why the foregoing conditions will not be
fulfilled at the time of the proposed closing of the amalgamation.
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
The obligations of the Company to complete the amalgamation are
subject to the fulfillment of the following conditions prior to the closing of
the amalgamation:
- The performance by ZIM and certain ZIM shareholders of their
obligations under the acquisition agreement.
- The accuracy of the representations and warranties of ZIM and
the ZIM shareholders under the acquisition agreement.
- The absence of any action, suit or proceeding pending against
ZIM or its subsidiaries which, could reasonably be expected
to have a material adverse effect on ZIM and its
subsidiaries.
- The delivery of an opinion letter from counsel to ZIM in form
and substance satisfactory to the Company.
- The completion by ZIM and its shareholders of all corporate
proceedings in a manner satisfactory to the Company and its
counsel.
- The absence of any material adverse change in the business,
assets or financial condition or operation of ZIM and its
subsidiaries.
The Company has no reason to believe that these conditions will not be
fulfilled at the time of the proposed closing of the amalgamation.
CONDITIONS OF OBLIGATIONS OF ZIM
The obligations of ZIM to consummate the amalgamation are subject to
the fulfillment of the following conditions prior to the closing of the
amalgamation:
- The performance by the Company and certain Company
shareholders of their obligations under the acquisition
agreement.
- The accuracy of the representations and warranties of the
Company and the Company shareholders under the acquisition
agreement.
- The absence of any action, suit or proceeding pending against
the Company which, could reasonably be expected to have a
material adverse effect on the Company.
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- The delivery of an opinion letter from counsel to the Company
in form and substance satisfactory to the ZIM.
- The completion by the Company and its shareholders of all
corporate proceedings in a manner satisfactory to ZIM and its
counsel.
- The absence of any material adverse change in the business,
assets or financial condition or operation of the Company.
- The absence of any material liabilities in the Company.
- The Company's receipt of a final prospectus in the Province
of Ontario qualifying the conversion of the special shares.
As of the date of this management proxy circular/prospectus, the
Company has no reason to believe that the foregoing conditions will not be
fulfilled.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of the parties will survive the
closing of the amalgamation and will terminate on the second anniversary date
of the closing date, provided that nothing in the acquisition agreement will be
deemed to limit any right or remedy of any party for criminal activity or fraud
or breaches of covenants or warranties in the lockup agreement.
INDEMNIFICATION
The Company and ZIM each agreed to indemnify the other and their
shareholders who were parties to the acquisition agreement for any damages
which they might incur as a result of their breach of any of their
representations or warranties or any of their agreements contained in the
acquisition agreement. Additionally, the Company shareholders who are parties
to the acquisition agreement agree to indemnify ZIM and the Company,
respectively, for any damages suffered by them as a result of any breach of
their representations or warranties or any of their agreements contained in the
acquisition agreement.
TERMINATION
The acquisition agreement may be terminated at any time prior to the
closing of the amalgamation under the following circumstances:
- By mutual written consent of ZIM and the Company.
- By ZIM or by the Company if any of the conditions for their
benefit are not satisfied in a timely basis or become
impossible to satisfy.
- By ZIM, if there has been a material breach of the agreement
on the part of the Company or the Company shareholders which
is not cured within ten days of notice from ZIM.
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- By the Company, if there has been a material breach of the
agreement on the part of the ZIM which is not cured within
ten days after notice from the Company.
- By ZIM or the Company, if the amalgamation has not been
closed before June 15, 2003, provided that the right to
terminate the agreement shall not be available to any party
if that parties breach of any representation, warranty or
agreement contained in the acquisition agreement has been the
cause of or resulted in the failure of the closing to occur
on or before that date.
- By ZIM or the Company, if there shall be a final
non-appealable order of a court of competent jurisdiction in
effect preventing the consummation of the transactions
contemplated by the acquisition agreement.
- By the Company or ZIM, if there shall be any action taken or
any statute, rule, regulation or order enacted by any
governmental entity which would make the consummation of the
transactions contemplated by the agreement illegal.
- By ZIM or the Company, if there shall be any action taken or
any statute, rule, regulation or order enacted by any
governmental entity which would render ZIM or the Company
unable to consummate the transactions contemplated by the
acquisition agreement.
EFFECT OF TERMINATION
In the event of termination of the acquisition agreement, the
acquisition agreement shall become void and there shall be no further liability
on the part of the Company or ZIM except that the confidentiality provisions of
the acquisition agreement shall continue. Additionally, the reasonable expenses
incurred by ZIM shall be paid by the Company if the acquisition agreement has
been terminated as a result of the Company's breach of any of its
representations, warranties and covenants.
GOVERNING LAW
The acquisition agreement is governed by and will be construed in
accordance with the laws of Province of Ontario.
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DESCRIPTION OF THE COMPANY'S SHARE CAPITAL
Prior to the effective date of the amalgamation, the Company will
become a Canadian corporation governed by the provisions of the Canada Business
Corporations Act. At that time, the Company will adopt new articles of
incorporation and bylaws. This section describes the rights and privileges of
the Company's share capital under these new articles and bylaws.
At the time of the amalgamation, the authorized capital of the Company
will consist of an unlimited number of common shares without par value, an
unlimited number of special shares without par value and an unlimited number of
preferred shares without par value. Immediately prior to the amalgamation, the
Company will have 1,535,455 common shares outstanding. After the completion of
the amalgamation, the Company expects that it will have 34,719,376 common
shares outstanding and 5,163,500 special shares outstanding.
COMMON SHARES
The rights, restrictions and conditions of the common shares will be
as follows:
VOTING. Each holder of common shares will be entitled to notice of and
to attend and vote at all general and special meetings of shareholders of the
Company other than meetings at which only the holders of a particular class or
series other than the common shares are entitled to vote. Each common share
will entitle its holder to one vote. Because holders of common shares will not
have cumulative voting rights with respect to the election of directors, the
holders of a majority of the common shares represented at a meeting will be
able to elect all of the directors.
DIVIDENDS. The holders of common shares will, at the discretion of the
board of directors of the Company, be entitled to receive, out of any and all
profits or surplus of the Company properly available for the payment of
dividends (after the payment of any dividends payable on securities of the
Company entitled to receive dividends in priority to the common shares).
DISSOLUTION. The holders of the Company's common shares will be
entitled to share prorata with the holders of the special shares in any
distribution of the assets of the Company upon the liquidation, dissolution or
winding up of the Company or other distribution of its assets among its
shareholders for the purpose of winding up its affairs (after payment of all
amounts payable to the holders of the preferred shares).
PREEMPTIVE RIGHTS. The holders of the Company's common shares will not
have any preemptive rights.
SPECIAL SHARES
The rights, restrictions and conditions of the special shares will be
as follows:
VOTING RIGHTS. The holders of special shares will not be entitled to
notice of or to attend or to vote at any meeting of the shareholders of the
Company except that the holders of the special shares will be entitled to vote
separately as a class upon a proposal to amend the Company's articles to:
62
- increase or decrease the maximum number of authorized special
shares or increase any maximum number of authorized shares of
any class of shares having rights or privileges equal to or
superior to the special shares;
- effect any exchange, reclassification or cancellation of the
special shares; or
- create a new class of shares equal or superior to the special
shares.
DIVIDENDS. The holders of the special shares will be entitled to
receive, prorata with the holders of the common shares, any dividends that may
be declared by the board of directors of the Company, out of funds legally
available therefor subject to the preferential rights of any shares ranking
prior to the special shares or the common shares.
DISSOLUTION. In the event of the liquidation, dissolution or winding
up of the Company, the holders of special shares will be entitled to receive,
on a prorata basis and on a share-for-share basis with the holders of the
common shares, all of the assets of the Company remaining after payment of all
of the Companies liabilities, subject to the preferential rights of any shares
ranking prior to the special shares.
CONVERSION RIGHTS. The holders of special shares will be entitled to
have any and all of the special shares held by them converted into common
shares on the basis of one common share for each special share which the holder
may desire to convert. The special shares will be automatically converted by
the Company without further payment or action by the holder, into common shares
on the earlier of:
- the fifth day following the date of issuance of a receipt for
a final prospectus by the Ontario Securities Commission
qualifying, among other things, the common shares issuable
upon conversion of the special shares; and
- June 1, 2002. ZIM's shareholders will vote on a resolution to
extend this date to June 1, 2004, at a meeting to be held on
May 30, 2002.
No fractional common shares will be issued upon the conversion of the
special shares and no payment will be made to the holders of special shares in
lieu thereof.
ADJUSTMENT RIGHTS. In the event that the special shares or common
shares are at any time sub-divided, consolidated, converted or exchanged for a
greater or lesser number of shares of the same or another class, then
appropriate adjustments will be made in the rights and conditions attaching to
the special shares and the common shares respectively so as to preserve in all
respects the benefits of the holders of each such class.
In the event of any reclassification of common shares, any
amalgamation, amalgamation or other consolidation of the Company with another
entity, or the transfer of all or substantially all of the Company's assets,
the holders of special shares will be entitled to receive such securities or
other property as if on the effective date of the event, they were registered
holders of the number of common shares which such holders of special shares
were entitled to receive upon conversion of
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their special shares. No such adjustment shall be made if the holders of the
special shares are entitled to participate in any such event on the same terms
as they though they had converted their special shares prior to the occurrence
of such event.
PREFERRED SHARES
The Company will be authorized to issue an unlimited number of
preferred shares. The rights, restrictions and conditions of the preferred
shares will be as follows:
DIVIDENDS. The holders of the preferred shares, in priority to the
common shares and all other shares ranking junior to the preferred shares, will
be entitled to receive and the Company will pay thereon, as and when declared
by the board of directors of the Company, out of assets of the Company properly
applicable to the payment of dividends, non-cumulative cash dividends at a rate
to be determined by the board of directors.
No dividend will be declared and paid on the common shares or any
other shares of the Company ranking junior to the preferred shares for any
fiscal year, unless the non-cumulative cash dividends on the preferred shares
then issued and outstanding in respect of such fiscal year will have been
declared and paid.
DISSOLUTION. In the event of liquidation, dissolution or winding-up of
the Company or other distribution of assets of the Company among the
shareholders for the purpose of winding-up its affairs:
- The holders of the preferred shares will be entitled to
receive from the assets of the Company, a sum equivalent to
the aggregate redemption amount for the preferred shares
before any amount shall be paid or any assets the Company
distributed to the holders of any common shares or shares of
any other class ranking junior to the preferred shares.
- After payment to the holders of the preferred shares of the
amounts so payable to them, the holders of the common shares
will be entitled to receive the remaining assets of the
Company.
REDEMPTION. The Company may, subject to the requirements of the Canada
Business Corporations Act, redeem at any time, in whole or in part, the
outstanding preferred shares on payment of a redemption price of CDN$1.00 per
share, plus all declared and unpaid non-cumulative cash dividends on the
preferred shares.
VOTING. The holders of the preferred shares will not be entitled as
such to receive notice of, or to attend any meeting of the shareholders of the
Company and will not be entitled to vote at any such meeting or to sign any
resolution in writing in lieu thereof, except that the holders of preferred
shares will be entitled to vote separately as a class upon a proposal to amend
the Company's articles to:
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- increase or decrease the maximum number of authorized
preferred shares or increase any maximum number of authorized
shares of any class of shares having rights or privileges
equal to or superior to the preferred shares;
- effect any exchange, reclassification or cancellation of the
preferred shares; or
- create a new class of shares equal or superior to the
preferred shares.
TRANSFER AGENT AND REGISTRAR
The Company has appointed Olde Monmouth Stock Transfer Co., Inc. to act
as the transfer agent and registrar for the common shares and special shares.
65
COMPARISON OF SHAREHOLDER RIGHTS
If the amalgamation is completed, you will become a shareholder of the
Company. Your rights as a shareholder of the Company will be determined by the
Company's articles of incorporation and bylaws and the provisions of the Canada
Business Corporations Act. The Company's articles and bylaws will be identical
to the articles and bylaws of ZIM immediately prior to the completion of the
amalgamation. Additionally, the rights of the shareholders in the Company will
be governed by the provisions of the Canada Business Corporations Act, which
also governs the rights of the shareholders of ZIM. As a result, the Company
does not believe that there will be any material differences in the rights of
the shareholders of the Company compared to the rights of the shareholders of
ZIM immediately prior to the completion of the transaction.
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INFORMATION CONCERNING THE COMPANY
GENERAL
The Company was incorporated under the laws of the State of Florida on
August 6, 1999.
The Company is a shell company and has no revenues to date. The
Company is a "shell" company which has conducted virtually no business
operations, other than its efforts to seek acquisition partners or acquisition
candidates. The Company has no full time employees and owns no real estate. The
Company was created to effect a merger, exchange of stock, asset acquisition or
other similar business combination with a target business, such as ZIM, which
desires to acquire the Company's shareholder base and to utilize the Company's
status as a reporting corporation under the Securities Exchange Act of 1934.
STRATEGY
The Company's strategy has been to seek potential business
opportunities and effectuate a business combination with a target business
which management believes has significant growth potential. Presently, the
Company has no plans, agreements, understandings or arrangements to acquire or
merge with any specific business or company other than ZIM.
FACILITIES
The Company's principal office is located at the offices of the
Company's president, Stuart D. Cooper, at 511 NE 94th Street in Miami Shores,
Florida 33138. The Company believes these facilities are adequate to serve its
needs until the amalgamation of ZIM occurs. The Company expects to be able to
utilize these facilities, free of charge, until the closing of the
amalgamation.
EMPLOYEES
As of the date of this management proxy circular/prospectus, the
Company has no full time employees. The Company's management serves on a part
time basis.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings, nor is the
Company aware of any material threatened litigation involving the Company.
67
MANAGEMENT OF THE COMPANY
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
Company's executive officers and directors.
Name Age Position with the Company
- ---- --- -------------------------
Stuart D. Cooper 57 President, Secretary, Treasurer and Sole Director
Stuart D. Cooper, Certified Public Accountant, has been a consultant
and an auditor in the areas of public companies, securities regulatory
compliance and regulatory compliance for financial institutions for over 29
years. Since 1995, Mr. Cooper has been the owner and president of Cooper
Consultants, Inc. Mr. Cooper is qualified as an expert witness in areas of
securities, business evaluations, accounting issues and interpretation.
PROPOSED NEW DIRECTORS AND OFFICERS
Upon the closing of the amalgamation, the current directors and
executive officers of ZIM will become the directors and officers of the
Company. Additionally, the Company's officers and directors will resign. For
more information regarding the new directors and executive officers, see
"Information Concerning ZIM - Management of ZIM" on page 81.
MANAGEMENT COMPENSATION
Stuart D. Cooper, the Company's only officer and director has not
received any salary or other compensation for his services as an officer and
director, and does not expect to receive any salary or compensation in the
future. Mr. Cooper does not have an employment agreement.
The Company currently has no stock option, retirement, pension, or
profit-sharing programs for the benefit of directors, officers or other
employees.
After the amalgamation, the new directors and officers of the Company
will continue to receive compensation and benefits currently payable to them by
ZIM. For more information regarding the compensation of these individuals, see
"Information Concerning ZIM - Management Compensation" on page 85.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was formed by Cooper Family Holdings, Global Intermatch
Corp. and Frank O'Donnell in 1999. These three founders received 400,000,
200,000 and 400,000 shares, respectively of the Company's common stock. They
contributed to the Company $400, $200 and $400, respectively, for their shares.
Cooper Family Holdings and Global are affiliates of Stuart D.
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Cooper, the Company's only officer and director. In the spring of 2000, Mr.
Cooper acquired the shares held by Frank O'Donnell.
In April 2001, ZIM engaged Cooper Consultants, Inc., an affiliate of
Stuart D. Cooper, to provide consulting services to ZIM in connection with the
proposed amalgamation of ZIM by the Company. For a description of the terms of
this consulting arrangement, see "Amalgamation - Interest of Certain Persons in
the Amalgamation" on page 47.
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THE COMPANY
The following table sets forth, as of January 15, 2002, the number and
percentage of shares of the Company's outstanding shares which are beneficially
owned, directly or indirectly, by:
- each shareholder who owns more than 5% of the outstanding
shares;
- each of the Company's directors;
- each of the Company's executive officers; and
- all of the Company's directors and executive officers as a
group.
The Company determines beneficial ownership based on the rules of
Securities and Exchange Commission. In general, beneficial ownership includes
shares over which the indicated person has sole or shared voting or investment
power and shares which he or she has the right to acquire within 60 days of
March 11, 2002. Unless otherwise indicated, the persons listed have sole voting
and investment power over the shares beneficially owned.
SHARES
POSITIONS WITH THE BENEFICIALLY
NAME COMPANY OWNED PERCENTAGE
- ---- ------------------ ------------ ----------
Stuart D. Cooper President and 886,455(1) 57.7%
Cooper Family Holdings Director
Global Intermatch Corp.
511 NE. 94th Street
Miami Shores, FL 33138
Mark Weissbaum -- 80,000 5.2%
511 NE. 94th Street
Miami Shores, FL 33138
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SHARES
POSITIONS WITH THE BENEFICIALLY
NAME COMPANY OWNED PERCENTAGE
- ---- ------------------ ------------ ----------
Douglas Duncan N/A 478,000 31.1%
Pasadena Investments Ltd.
Thornhill Consulting Ltd.
c/o PriceWaterhouseCoopers Ltd.
Abacus House
Providenciales
Turks & Caicos Islands
BWI
- ---------------
(1) The shares beneficially owned by Mr. Cooper, Cooper Family Holdings
and Global Intermatch Corp. consist of 295,182 shares held directly by
Mr. Cooper, 215,182 held by Cooper Family Holdings, 216,091 shares
held by Global Intermatch Corp., 80,000 shares held by Mr. Cooper's
spouse and 80,000 shares held by Mr. Cooper's son. Mr. Cooper holds a
controlling interest in Cooper Family Holdings and Global. Mr. Cooper
disclaims any beneficial ownership of shares held by his spouse and
his son. The shares beneficially owned by Mr. Cooper, Cooper Family
Holdings and Global, do not include 80,000 shares held by Mark
Weissbaum, a business associate of Mr. Cooper.
(2) The shares beneficially owned by Douglas Duncan, Pasadena Investments
Ltd. and Thornhill Consulting Ltd. consists of 48,000 shares held of
record by Pasadena Investments Ltd. and 430,000 shares held of record
by Thornhill Consulting Ltd.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE COMPANY
The following discussion should be read in conjunction with the
Company's consolidated financial statements and the related notes included
elsewhere in this management proxy circular/prospectus.
The Company is a development stage company and has conducted virtually
no business operations, other than its efforts to effect a business combination
with a target business which the Company considers to have significant growth
potential.
To date, the Company has neither engaged in any operations nor
generated any revenue. The Company has received no cash flow from operations.
The Company cannot predict to what extent its liquidity and capital resources
will be diminished prior to the consummation of a business combination (whether
with ZIM or another entity) or whether its capital will be further depleted by
the operating losses, if any, of the target business with which the Company may
effectuate a business combination. The continuation of the Company's business
depends upon its ability to obtain adequate financing, effectuate a business
combination and, ultimately, engage in future profitable operations.
As of April 30, 2002, the Company had a total of $600 in cash. As a
result, the Company is not in a position to meet its cash requirements for the
remainder of the fiscal year or for the next 12 months unless it obtains funds
from an outside source. The Company anticipates that the expenses of the
proposed transactions with ZIM will be paid with funds provided by ZIM. In this
connection, ZIM has agreed to pay up to $352,000 to cover the expenses for the
proposed transaction, with any excess to be retained by Cooper Consultants.
In the event the Company cannot meet its operating costs prior to the
effectuation of a business combination, the Company may cease operations and a
business combination may not occur.
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INFORMATION CONCERNING ZIM
OVERVIEW
ZIM is an established provider of enterprise software for designing,
developing and manipulating database systems and applications. ZIM has licensed
this software, which is known as the ZIM Integrated Development Environment, or
ZIM IDE, to more than 5,000 customers since 1997. These customers include the
US Army, Optus Cable & Wireless, Bell Canada, AT&T, Mitsubishi (Chemtex
Division), Abbott Labs, and Carreker.
During 2001 and early 2002, ZIM devoted substantial resources to the
development of a new line of mobile data software products. ZIM designed these
mobile data products to exploit the existing wireless data network
infrastructure known as Short Messaging Service or SMS. SMS allows users to
send text messages through cellular telephones, PDAs and similar devices. SMS
has experienced significant growth throughout Europe and Asia. However, it
remains largely under-utilized in North America. ZIM believes that recent
developments in wireless service provider network technologies and business
models have created ideal conditions for a similar expansion of demand to occur
in North America.
ZIM has developed consumer and business oriented product lines to
deliver simple to use SMS based communication services for end users. These
services include features to increase the usefulness of SMS messaging, and to
leverage the SMS network capabilities for the delivery of personalization and
other revenue generating services. It is ZIM's goal to become a leading North
American provider of SMS-based services to individual consumers and businesses.
ZIM intends to accomplish this goal by utilizing its expertise in database
manipulation and software engineering, and its knowledge of North American SMS
networks.
INDUSTRY BACKGROUND
The market for wireless products and services continues to grow
rapidly. Ovum predicts the number of mobile connections worldwide will increase
from 727 million at the beginning of 2001 to more than 1.7 billion by the
beginning of 2005. According to Goldman Sachs Equity Research, the billion-user
mark for mobile phones worldwide will be exceeded globally by 2003. North
American penetration rates currently exist in the area of 41% and are expected
to grow towards the 75% level currently experienced in some European countries.
SMS messaging has also grown rapidly. The number of SMS messages
delivered worldwide has risen from approximately 2 billion messages per month
to almost 30 billion per month in just 2 years. By the second quarter of 2003,
Durlacher Research predicts worldwide SMS traffic will reach 329 billion
messages per quarter. During 2002, the use of SMS as a messaging vehicle has
overtaken the popular Instant Messaging in terms of message volumes, and is
second only to the use of e-mail.
ZIM believes that the awareness and use of SMS in North America has
been suppressed largely as a consequence of the lack of carrier network
interoperability. This limitation precludes the delivery of SMS messages across
carrier networks, and significantly limits the usefulness of text messaging. In
the last 6 months, most major wireless carriers in North America including AT&T
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have made SMS interoperability announcements, enabling their subscribers to
both send and receive SMS messages through their competitors' systems. This
interoperability is expected to accelerate consumers' adoption of this service,
because consumers will be allowed for the first time to use SMS, without regard
to which carrier the receiving party utilizes.
A number of significant factors have occurred which are expected to
drive the growth of SMS messaging in North America;
- Network interoperability and viable roaming agreements
- Development of SMS based consumer applications
- Economies relative to voice calls
- Rapid acceptance by the youth market
- Simplicity of use (not requiring understanding of complex
functions or technology)
- High penetration of handsets with SMS functionality
- Growth in handsets with smart-text functionality
- Growth in percentage of subscribers able to use SMS
- Appealing to network operators - high gross margins
GEOGRAPHIC BREAKDOWN OF MESSAGES SENT JUNE 2001
[CHART]
Japan 34%
Asia ex Japan 12%
South America 3%
Middle East, India & Africa 1%
Western Europe 40%
Eastern Europe 8%
North America 2%
In North America, operators are focused on SMS as an opportunity to
increase revenues from mobile data. In Europe, SMS now generates an average of
7% of revenues for operators.
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STRATEGY
It is ZIM's goal to become a leading North American provider of
SMS-based services to individual consumers and businesses. ZIM intends to
accomplish this goal by utilizing its expertise in database manipulation and
software engineering, its knowledge of North American SMS networks.
ZIM believes that peer-to-peer messaging will initially drive adoption
and familiarization with SMS in North America. Thereafter, ZIM expects North
American SMS users will utilize the low cost SMS channel for a variety of
business and personal communication services. These value-added communication
services will enable the functionality to bridge the gap between personal
computers and business compute systems, and mobile devices. This will enable
tasks that are familiar in the personal computers or corporate systems
environment to be extended to mobile devices including, group messaging, mobile
chat, mobile marketing, calendaring, collaborative work processes, business
process communications and desktop to mobile integration, to name a few.
ZIM believes that there are multiple revenue stream opportunities for
SMS. Direct payments will include both consumer to operator, as well as
consumer to product and service provider. Indirect payments will arise from
subsidies between various parties, advertising revenues, commissions,
airtime-related commissions, and various taxation revenues implied by macro-
and micro-payment system providers.
ZIM will utilize a number of direct and indirect channels to deliver
these services to end-users. ZIM's direct customers include consumers and small
businesses through ZIM's retail portals, wireless network operators,
traditional Internet portals, and systems integrators serving business
customers.
The principal components of ZIM's business strategy are as follows:
Immediate Term (1-12 months)
- Launch both consumer and business portals for SMS
based services.
- Introduce SMS based communication services based on
proprietary intellectual properties into business
markets.
- Build key proof-of-concept solutions for high
profile business clients to build corporate
visibility and awareness for mobile data solutions.
These early implementations will be geared towards
short-sell-cycle, high-visibility, consumer SMS
applications for large corporate clients.
- Build relationships with key partners, such as
information technology consultants, handset
manufacturers, and systems integrators to handle
implementation and gain specialized business process
knowledge, and mobile network operators to provide
quality of service for data connectivity.
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- Utilize the ZIM SMS Scenario Server to extend mobile
interactivity to widely used commercial
off-the-shelf enterprise software packages, such as
SAP.
- Leverage existing relationships with current
enterprise clients to extend mobile capability to
existing applications.
Near to Long Term (6 to 24+ months)
- Expand the breadth of premium priced service
offerings.
- Secure key Internet portal providers and network
operator customers.
- Expand content delivery and service management
infrastructure.
- Expand the customer base and strengthen the ZIM
brand through enhanced sales and marketing efforts.
- Increase market penetration through expansion into
new segments and international markets.
HISTORY
ZIM is a Canadian corporation formed in 1997. ZIM was formed by Blake
Batson, who had previously served as vice-president of sales at Sterling
Software. At the time of ZIM's formation in 1997, ZIM acquired the rights to
the ZIM IDE software from EMJ Data Systems, Inc. and ZIM Technologies, Inc.
Since 1997, ZIM's principal product has been the ZIM IDE software. The
underlying technology for this software was developed by a team of scientists
at Bell Northern Research in the 1980s. The technology was later acquired by
Sterling Software. The software was designed to be capable of handling complex
database manipulation. The ZIM IDE technology powers applications that provide
important functions for numerous firms around the world.
In the fall of 2000, ZIM expanded its business strategy to include the
development of products for the mobile SMS based data market. This change in
strategy coincided with the addition of Dr. Michael Cowpland as a member of
ZIM's technology advisory board. Dr. Michael Cowpland is a co-founder of Mitel
Corporation and the founder of Corel Corporation. In February 2001, he
purchased a majority interest in ZIM and assumed the role of President and
Chief Executive Officer. Since that time, ZIM has devoted significant resources
to the development of new software products for the mobile SMS based data
market.
PRODUCTS
ZIM SMS PORTAL SERVICE
The ZIM SMS Portal Service will include both consumer and business
oriented service offerings. ZIM may deliver these services either directly
through a retail portal, or through third
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party vendors who will offer ZIM's service as part of their own offerings as
"white labeled" service components to business customers. The consumer retail
offering will be hosted by ZIM and made available to customers through either
web- or SMS-based access. ZIM will sell white labeled service components to
enterprise customers for integration into traditional internet and wireless
network operator portals, as well as for integration into business processes.
The ZIM SMS Portal Service will leverage the combined strength of both
the web and mobile phones. ZIM expects to generate revenue streams from the
following core ZIM SMS Portal Service elements:
- Subscription Services
(e.g. premium on-line services, SMS messaging)
- E-Commerce Services
(e.g. merchandising)
- M-Commerce Services
(e.g. smart messaging)
- On-Line Advertising
(e.g. banners, pop-ups, specials, sponsors)
- Mobile Advertising
(e.g. SMS trailers, Permission Marketing)
- Mobile Traffic Revenue Share
(e.g. SMS messaging, airtime)
The service components offered through third parties may include any
of the above items packaged for hosted delivery through an enterprise
customer's website.
ZIM SMS OFFICE
The ZIM SMS Office product will enable the integration of popular
desktop office tools, with the mobility, cost effectiveness, and reliability of
2-way SMS messaging. This product will enable most components of office
products such as Microsoft Office and Lotus Office Suite with interactive
capability to mobile phones through the SMS messaging channel. The SMS
connectivity will enable the flow of real time notifications from office based
products to the handheld devices.
The use of the SMS channel provides a highly reliable and persistent
method for the delivery of notifications and alerts. Further, the user can rely
on Push functionality to produce a notification, without the need to regularly
launch a query session (e.g. as with traditional Wireless Access Protocol based
protocols) to check for changes in status. Such functionality is primarily
targeted at services such as mail notification services, meeting schedulers,
and bring forward reminders.
By mediating the notification session, ZIM SMS Office will also enable
a 2-way interaction, thereby allowing the remote user to execute response
options that are presented in an easy-to-use predefined format. Predefined
response options will allow users of mobile devices to easily select actionable
commands such as accept or decline meeting invitations, resulting in the
automatic notification to the meeting originator and appropriate updates to
calendaring tools.
ZIM will make the product available in two configurations;
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- Client only solution, where all SMS messaging support is
installed locally on a PC. This includes the user interface
additions to the office product enhancing the user's SMS
experience. This configuration can support its own SMS modem
or rely on a SMS portal managed by ZIM.
- Enterprise server integration, where enterprise exchange
messages and incoming SMS messages are managed by a dedicated
host. This configuration can support a pool of SMS modems or
rely on a SMS portal managed by ZIM.
ZIM SMS SCENARIO SERVER
The ZIM SMS Scenario Server eliminates the need for mobile users to
constantly check on back-end systems and "browse" or "query" for the
information they need for their small devices. Instead, the ZIM SMS Scenario
Server allows corporate systems to proactively "log-on" to remote users when
their input is required, and engage the user in a two-way, real-time,
interactive dialog with enterprise systems. ZIM believes this will create a
superior experience for the mobile user for two reasons. First, the user is
prompted to make decisions and take action in a timely manner, even if they are
pre-occupied. Second, the interactive dialog employs relevant messages and
context sensitive response options that allow the user to easily take action
and create activity on back-end systems, without the need to browse awkwardly
on a small device.
The ZIM SMS Scenario Server also allows the user to initiate the
interaction. The same software engine will also allow users to browse or query
corporate systems for information from remote devices in the usual manner,
should the need arise.
Since business processes typically span multiple applications, the ZIM
SMS Scenario Server was designed to connect to virtually any form of corporate
data, from multiple sources, to enable events to initiate an interactive
dialog. ZIM connects with many popular database formats, including Oracle, SQL
Server, DB2, or any ODBC or JDBC accessible database. Data will also be
utilized from proprietary legacy systems, PC desktop sources such as Microsoft
Outlook, electrical switches or sensors, or derived data.
ZIM IDE
The ZIM Integrated Development Environment or ZIM IDE is an integrated
application development environment for Microsoft Windows and UNIX
environments. ZIM IDE is a well-developed technology, and represents the source
of substantially all of ZIM's revenues to date.
The ZIM IDE software was designed to handle complex data manipulation
in a more efficient manner than other database technologies like SQL Server and
Oracle. The distinctive characteristic of the software is the fact that its
object dictionary contains more than just a table data. All relationships and
data information are concurrently stored in the object dictionary, making it
easier to manipulate and retrieve information. Furthermore, the technology uses
data sets rather than record-by-record access to deal with information. This
further simplifies the management of data.
The ZIM IDE has been used to develop powerful database applications
that have been
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deployed in a wide range of industries, including finance, marketing, human
resources, information and records management. Applications built with the ZIM
IDE also fully access most other major databases such as Oracle and SQL Server.
With the recent integration of SMS functionality, the ZIM IDE is capable of
triggering event-based interactions with mobile devices.
STRATEGIC ALLIANCES
ET ALIA LLC
ZIM has entered into a strategic alliance with Et alia, a Milwaukee technology
consulting firm. Et alia specializes in consulting on SAP products, a major
provider of enterprise management software. ZIM's alliance with Et alia is
based on a revenue share agreement from a dual client base. The company employs
47 people and has sales offices in Atlanta, Washington, D.C., and Philadelphia.
ZIM and Et alia combined solutions help to make SAP technology accessible via
wireless outlets. As an example, if inventory levels reach a critically low
level, an SMS-based alert will be automatically generated signaling the
recipient and providing the capability to execute predefined response options.
ZIM provides the wireless technology, while Et alia provides a sales channel
and participates in the scenario definitions and response options.
EMOBILE PTE LTD
ZIM has entered into a strategic alliance with eMobile Pte Ltd. of
Singapore for the delivery of mobile commerce solutions for both financial
institutions and their clients. eMobile is an established mobile commerce
solution provider with technologies and expertise focused within banking and
payment services. The agreement broadens ZIM's market reach into Southeast
Asia, and provides ZIM with additional technologies and expertise to penetrate
the financial services industry.
ZIM and eMobile plan to include each other's products into their own
mobile solutions. ZIM will incorporate eMobile's mobile banking, point-of-sale,
payment, marketing/promotion and order entry products into its suite of mobile
commerce solutions. eMobile will benefit from the incorporation of ZIM's SMS
Scenario Server product into eMobile's financial offering to allow financial
institutions and their customers to create mobile scenarios for employee or
customer interaction via mobile devices. The combination of technologies will
allow financial institutions to manage their operations with
enterprise-initiated mobile data dialog. ZIM will also be able to provide
banking customers with the security, speed and global coverage of the eMobile
SMS-transaction and payment solutions with the scenario-based and user defined
mobile enabling of ZIM. The strong combination of technologies provides ZIM
with significant growth opportunities within the financial services industry.
The alliance also provides ZIM with the opportunity to sell into eMobile's
existing client base.
MARKETING AND SALES
EXISTING CUSTOMER BASE
ZIM currently has over 1,000 current customers using its technology.
These customers include Nokia, the US Army, Optus Cable & Wireless, Bell
Canada, AT&T, Chemtex, Abbott Labs,
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Carreker. No customer accounted for more than 10% of revenues for the nine
month period ending February 28, 2002 or the fiscal year ended May 31, 2001.
ZIM has increased its organizational structure in order to manage the
sales, support, and development of its software business. This includes
operational systems, technical support services, and selling channel
relationships with value-added resellers and distributors. While continuing to
sell its database technologies through its existing channels, ZIM management
also plans to exploit its existing organizational infrastructure and channel
relationships to introduce the new ZIM SMS mobile products. Concurrently, ZIM
plans to expand its sales and channel capabilities to reach new customers and
markets for mobile SMS based products and services.
MARKET OBJECTIVE
ZIM's overarching marketing objective is to establish an early lead as
a premier provider of SMS-based services in North America, in anticipation of
the expected growth in SMS awareness and usage.
ZIM will offer SMS based products and services to both consumers and
business customers. Proprietary technology will be used to enable the offering
of highly differentiated services to compliment more competitive services,
creating attractive service bundles and one-stop shopping.
ZIM plans to establish relationships with key industry players,
including content aggregators, systems integrators, wireless network operators,
cell phone manufacturers, and portal providers.
MARKET STRATEGY
In order to accomplish its objective, ZIM plans to undertake the
following primary activities:
Initially, ZIM plans to generate short-term cash flows and maximize
market visibility through fast time-to-market implementations of ZIM SMS
technologies. Early implementations will be of two primary types:
business-to-employee (B2E), and business-to-consumer (B2C) mobile solutions.
B2C implementations of mobile technology will serve to build the ZIM brand and
acquire high profile reference clients. B2E implementations will serve to
illustrate high value process improvement through mobile data for early-adopter
corporate clients.
ZIM has already begun to execute on these first implementations with
two clients -- Tracker Management and DUCT (a publicly traded utilities
construction and technology company) -- for extending interactive mobile
capabilities to SAP. ZIM also has completed projects, or is in the process of
completing projects, related to mobile implementations for Nokia, Bell Canada,
the National Capital Commission, and several professional sports franchises in
consideration for both direct revenues or other marketing related
considerations.
ZIM will establish a direct customer portal through the ZIM SMS
Portal, enabling an immediate branded relationship between customers and ZIM.
The portal will offer a combination of competitive content services, as well as
differentiated premium services. Pricing structures will encourage rapid
adoption through a basic set of free messaging applications, with subscription
and transaction-based pricing for premium services. Through the utilization of
proprietary technologies,
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ZIM's management believes that the ZIM SMS Portal Service and SMS Office suites
will maintain superior functionality, offering customers differentiated service
capabilities.
ZIM is also building relationships with technology consulting firms
who will provide additional domain expertise and channel sales and
implementation capabilities. These partners will help to expand the number of
clients using the ZIM SMS Scenario Server to extend mobile functionality to
their commercial off-the-shelf software, or COTS, systems (such as SAP, Siebel,
and JD Edwards). One such example completed by ZIM was for the enterprise
customer DUCT for extending interactive mobile capabilities to SAP.
COMPETITION
ZIM expects that all of its products will be subject to significant
competition. The principal competitors for ZIM's SMS Portal are based in Europe
and Asia, where they have achieved significant market penetration. To date,
these competitors have not devoted significant effort to marketing these
products in North America due to cultural, business and technology hurdles.
ZIM expects more significant competition for certain elements of ZIM's
SMS Portal service offering. Typically, these are provided by wireless network
operators, and are primarily focused on the alert and notification components.
The SMS Office and SMS Scenario Server products have existing competitors,
however, none have established a significant market position to date. A strong
potential exists for established foreign companies seeking growth through
expansion to enter the North American market for the delivery of SMS
based-services. Further, established enterprise system software providers may
choose to differentiate their offerings by placing more emphasis on wireless
system connectivity, in direct competition to some of ZIM's products.
The market for ZIM's IDE product is highly competitive. This product
is subject to significant competition by large, well established competitors
such as Oracle, MicroSoft and Sybase. These competitors currently control
substantially all of the market for database software.
The rapid growth of the wireless industry and the mobile data segment
of the wireless industry make it likely that new competitors will enter these
markets in the future. As a result, ZIM expects to encounter increasing
competition in the markets in the future.
EMPLOYEES
As of the date of this management proxy circular/prospectus, ZIM has
approximately 50 employees in Ottawa, Canada and Sao Paulo, Brazil. ZIM's
technical team consists of approximately 20 persons, including engineering,
technical support, technical publications and management. Most of these are
senior software developers with significant experience. ZIM has approximately
20 developers concentrating their work on the ZIM SMS Office, SMS Scenario
Server and SMS Portal, which include development activities involving database,
security, front-end user interface, back-end connectivity, network protocols,
data adapters, and voice capability. ZIM is not a party to any collective
bargaining agreements and believes that its employee relations are good.
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INTELLECTUAL PROPERTY
ZIM believes that it owns or has valid rights to use all of the
intellectual property currently utilized in its business. ZIM relies upon the
combination of confidentiality agreements, patent trademark copyright and trade
secret laws to protect its intellectual property rights.
At the present time, ZIM has applied for one U.S. patent with respect
to a component of its scenario engine. ZIM is considering the possibility of
seeking additional patents with respect to other components of this product as
well as other products which ZIM is developing. There can be no assurance that
any patent applications will be approved. Furthermore, even if these
applications are approved, there can be no assurance that ZIM would be able to
successfully prevent other parties from infringing on the trademarks.
ZIM has registered the ZIM name in the U.S., Canada and several
foreign countries and has applied to register the ZIM name in several key
international markets. ZIM has also filed applications to register the ZIM logo
in the U.S., Canada and several key international markets. These applications
are currently pending. There can be no assurance that these applications will
be approved. Furthermore, it is possible that third parties may utilize names
which are similar to ZIM's without ZIM's knowledge.
SUBSIDIARIES
ZIM does not currently have any subsidiaries other than ZIM
Technologies do Brazil, a Brazil company based in Sao Paolo, Brazil.
FACILITIES OF ZIM
ZIM's principal office is located in Ottawa, Ontario. ZIM leases an
office suite of approximately 12,600 square feet. The lease, which was
scheduled to expire in July 2002 has been extended for an additional 5 year
period and will expire in July 2007. ZIM has a one time option to terminate the
lease based on ZIM giving notice on or before July 31, 2004.
ZIM has an additional office located in Sao Paolo, Brazil. ZIM leases
an office of approximately 2,000 square feet in this location. The lease is
currently scheduled to expire in April 2002. ZIM has agreed that, effective
June 1, 2002, the leased premises will be reduced to approximately 1,000 square
feet and the termination of the lease will be extended to April 2003.
MANAGEMENT OF ZIM
The following table sets forth certain information regarding the
directors and executive officers of ZIM as of the date of this management proxy
circular/prospectus. The background of these individuals is summarized in the
paragraphs following the table.
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NAME AGE POSITION WITH ZIM
- ---- --- -----------------
Dr. Michael Cowpland 59 President, Chief Executive Officer and Director
Steven Houck 32 Director
Tony Davidson 42 Chief Technology Officer & VP Engineering
Gene Rheaume 46 Director
Charles Saikaley 43 Director
James Stechyson 37 Chairman
Kathy Aubrey-Moore 40 Chief Financial Officer
MICHAEL COWPLAND has served as a director of ZIM since January 2001
and as president and chief executive officer since February 2001. In 1973, Dr.
Cowpland co-founded Mitel Corporation (formerly NYSE:MTL) and was the company's
Chief Executive Officer for 10 years. During Dr. Cowpland's tenure as CEO,
Mitel's sales reached $300 million before it was acquired by British Telecom in
1984. After the acquisition of Mitel, Dr. Cowpland founded Corel Corporation
(NASDAQ:CORL), a company that evolved into one of the world's leading providers
of office productivity software. Corel was widely recognized for its
WordPerfect Office Suite, and its PC graphics application, Corel Draw. Dr.
Cowpland served as President of Corel from 1995 to January 2001. Dr. Cowpland
began his career in 1964 at Bell Northern Research. Dr. Cowpland received a
Bachelor of Science and Engineering from the Imperial College (London), a
Masters of Engineering from Carleton University and Ph.D. in Engineering from
Carleton University.
STEVEN HOUCK has served as a director of ZIM since April 2001. Since
1995, Mr. Houck has held various positions with Corel Corporation, where he
currently serves as the executive vice president for business development.
Prior to his service to Corel, he founded Worldview Technologies, a company
specializing in multimedia design and authoring and served as its CEO until
1995. He has received a Bachelors Degree in Business Administration from
Florida Atlantic University.
GENE S. RHEAUME has been a director of ZIM since February 2001. He
also serves as a chairman of ZIM's audit committee. Since 1989, Mr. Rheaume has
been a partner in the Ottawa based firm of Rheaume Williams Kalbfleisch,
Chartered Accountants. He is also the president of Capital Transitions, Inc., a
firm which provides financial forecasting and transition planing for technology
companies and individuals. From 1977 to 1989, Mr. Rheaume was an accountant
with KPMG LLP. Mr. Rheaume is an investor in several private companies based in
Canada and serves as a director of EatSleepMusic.com, Inc. He received his
Bachelor of Commerce from Carleton University and holds professional
designations as a Chartered Accountant, Certified and Financial Planner and
Certified Fraud Examiner.
CHARLES SAIKALEY has served as a director of ZIM since May 2001. Since
1990, Mr. Saikaley has been a partner in the law firm of Lang Michener based in
Ottawa, Canada. He practices in the area of real estate, providing advice in
all aspects of the purchase and sale of residential and
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commercial real estate as well as commercial leases, commercial mortgages and
business arrangements. He is a member of the firm's alternative dispute
resolution, and franchise and distribution real estate law groups. He is a
member of the Canadian Bar Association, Law Society of Upper Canada. Mr.
Saikaley received a Bachelor of the Arts in Business Administration from the
University of Ottawa and a Bachelor of Laws from University of Ottawa in 1982.
JAMES STECHYSON has served as a director of ZIM since January 1998 and
was appointed into the position of chairman in May 2001. Since 1990, he has
been the president of OM Video, Inc., a major hardware sales and systems
integrator of professional video and presentation technology based in Ottawa,
Canada. He is a charter member of the Innovators Alliance of Ontario, a
government sponsored organization for the chief executive officers of leading
growth firms. He is also the recipient of the Ottawa Carlton Board of Trade
Young Entrepreneur of the Year Award. Mr. Stechyson holds a Bachelors Degree in
Economics and Business from Carleton University, Canada.
TONY DAVIDSON has served as the Vice-President of Engineering and
Chief Technology Officer since March 2002 and April 2002, respectively. He
started his career in the field of medical research. In 1991, Mr. Davidson
joined Corel Corporation where he participated in the development of a wide
range of commercial products covering a variety of genres including medical and
entertainment products to digital stock photography and CDROM mastering
software. This eventually led to his heading up Corel's Multimedia Division in
the role of Executive Director. In 1996, Mr. Davidson joined Vorton
Technologies as Executive Vice President and Chief Technology Officer. He left
Vorton in June 2001 to join ZIM. In his role as VP Engineering at ZIM, he will
be responsible for the technical direction of all new and current ZIM products.
Mr. Davidson is a graduate of Applied Arts and Technology Program of St.
Lawrence College in Kingston Ontario, and has over twenty years of experience
developing software and applications using both low and high level languages.
KATHY AUBREY MOORE has been the Chief Financial Officer of ZIM since
May 2002. She served as the controller for ZIM from May 2001 to May 2002. She
was the controller at Sedona Networks from May 2000 to March 2001. She served
in various positions at CrossKeys Systems Corporation from May 1997 to May
2000, including positions of financial control and treasury. From 1983 to 1997
she served in various positions at SHL Systemhouse Inc. including the assistant
controller. She is a certified management accountant graduating in 1985.
LEGAL PROCEEDINGS INVOLVING DR. COWPLAND
Dr. Michael Cowpland, ZIM's president and chief executive officer,
has been named as a defendant in several lawsuits relating to his actions as
president and chief executive officer of Corel Corporation. These include a
complaint filed by Anthony Basilio and Fred Spagnola on March 13, 2000 in the
U.S. District Court for the Eastern District of Pennsylvania, a complaint filed
by Alan Treski on March 29, 2000 in the U.S. District Court for the Eastern
District of Pennsylvania and four additional complaints filed in the U.S.
District Court for the Eastern District of Pennsylvania and one complaint
filed in the U.S. District Court for the District of Massachusetts. In each of
these cases, the complaints have been filed on behalf of persons who purchased
or otherwise acquired common stock of Corel between December 7, 1999 and
December 21, 1999. The complaints generally allege that the defendants
including Dr. Cowpland violated various provisions of the US securities laws,
including Section 10(b), Section 20(f) and Rule 10b-5 under the Securities
Exchange Act of 1934,
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by misrepresenting or failing to disclose material information regarding
Corel's financial condition.
On October 14, 1999, the Ontario Securities Commission (the "OSC")
filed charges against Dr. Michael Cowpland and his holding company, M.C.J.C.
Holdings Inc. (MCJC) in the Ontario Superior Court. As announced in the news
release of the OSC dated October 14, 1999, an information was laid in the
Ontario Superior Court against Mr. Cowpland and MCJC (now called MC Lux
Corporation), of which Dr. Cowpland is a director, charging Dr. Cowpland with
three counts of violating Ontario securities law and charging MCJC with one
count of violating Ontario securities law.
The following is the OSC's published summary of its allegations.
"Between the dates of August 11, 1997 and August 14, 1997,
MCJC sold 2,431,200 Corel shares for total proceeds of
approximately $20.4 million. At the time that these Corel
shares were sold, MCJC had knowledge of a material fact with
respect to Corel which had not been generally disclosed. The
material fact was that [Corel] would fall short of its
forecasted sales for the third quarter of 1997 ("Q3 1997") by
a significant margin (the "material fact"). MCJC learned of
the material fact from Cowpland who, as a director and
officer of Corel, was an insider of Corel and therefore in a
"special relationship" with Corel as defined in the
Securities Act (Ontario) (the "Act"). By learning of the
material fact from Cowpland, MCJC was in a special
relationship with Corel. Therefore, MCJC, as a company in a
special relationship with Corel, a reporting issuer, sold
securities of Corel with knowledge of a material fact with
respect to Corel that had not been generally disclosed. In
this way, MCJC contravened subsection 76(1) and paragraph
122(1)(c) of the Act. By informing MCJC of the material fact
before it had been generally disclosed and other than in the
necessary course of business, Cowpland contravened subsection
76(2) and paragraph 122(1)(c) of the Act. In addition, as a
director of MCJC, Cowpland authorized the commission of the
offence by MCJC under subsection 76(1) and paragraph
122(1)(c) of the Act and therefore contravened subsection
122(3) of the Act and acted in a manner that is contrary to
public interest.
Cowpland attended a voluntary interview with Staff of the
Commission on May 20, 1998. During this interview, Cowpland
made a number of statements to Staff of the Commission which
were misleading and untrue in a material respect. By making
such statements to Staff of the Commission, Cowpland
contravened paragraph 122(1)(a) of the Act."
On February 11, 2002, MCJC pleaded guilty to the offense of insider
trading in the Ontario Court of Justice in Ottawa, Canada and was fined
CDN$1,000,000, which it has paid. The charges against Mr. Cowpland were stayed.
In February 2002, Mr. Cowpland approved the terms of a proposed
settlement agreement with the staff of the OSC. The proposed settlement
consisted of Mr. Cowpland's agreement to pay $500,000 to the OSC, Mr. Cowpland's
agreement not to serve as a director of a reporting issuer for a period of two
years, and Mr. Cowpland's agreement to pay the legal fees of the OSC staff of
$75,000. On February 12, 2002, a panel of the OSC rejected the proposed
settlement agreement.
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The staff of the OSC has not yet brought this matter forward for a full hearing
nor proposed a new settlement agreement.
MANAGEMENT COMPENSATION OF ZIM
None of the current executive officers of ZIM receives compensation at
a rate in excess of US$100,000 per year during the fiscal year ended May 31,
2002. The Company's chief executive officer, Dr. Michael Cowpland, does not
receive any salary or cash compensation for his services to ZIM. The following
table sets forth the current salaries for the executive officers of ZIM:
NAME POSITION CURRENT ANNUAL SALARY
- ---- -------- ---------------------
Dr. Michael Cowpland President and Chief Executive Officer None
Kathy Aubrey-Moore Chief Financial Officer CDN $ 85,000
Tony Davidson Chief Technology Officer CDN $140,000
From time to time, the board of directors of ZIM issued stock options
to key executives. During the fiscal year ended May 31, 2001, ZIM issued options
for 5,805,000 shares to Dr. Cowpland.
TRANSACTIONS WITH AFFILIATES
On November 10, 2000, ZIM entered into an agreement with ABK Capital
Investments Ltd. to terminate certain royalty obligations under a software
development and marketing agreement with ABK Capital Investments Ltd. ABK
Capital Investments Ltd. was issued 1,550,000 common shares of ZIM in
consideration of the termination of these obligations. These shares were valued
at CDN $186,000 for the purposes of ZIM's financial statements. During the term
of the software development and marketing agreement, royalties of $14,880 were
paid to ABK Capital Investments Ltd. On November 10, 2000 ABK Investments Ltd.
was affiliated with ZIM as a consequence of it being a significant shareholder
of ZIM. ABK Capital Investments Ltd. is controlled by Alan Batson, who was a
principal shareholder of ZIM.
Effective June 1, 2001, ZIM sold the shares of its subsidiary, ZIM
Technologies (B'Dos) Ltd. to Alan Batson Limited for the aggregate price of
CDN$1.00. Alan Batson Limited is controlled by Alan Batson, who is the
beneficial owner of 8% of ZIM's shares. His son, Blake Batson, is also a
significant shareholder of ZIM.
On June 1, 2001, ZIM acquired technology relating to the ZIM Scenario
Server from Gerald Lalonde and Brane Vukelic, two employees of ZIM, for
CDN$2,000,000, payable by the issuance of 2,000,000 shares.
During the fiscal year ended May 31, 2001, ZIM borrowed funds from
time to time from Blake Batson, during the period when he was the principal
shareholder. The loans were made on
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a non-interest bearing basis and had no fixed terms of repayment. The largest
outstanding balance during the year was CDN$527,000. ZIM repaid the loans prior
to the end of the fiscal year.
In 1998, ZIM entered into a lease agreement with ABK Investments Ltd.,
an affiliate of Blake Batson. The lease covered office space located in
Bridgetown, Barbados. Lease payments during the fiscal years ended May 31, 2001,
were CDN$101,000. The lease was terminated on May 31, 2001.
On February 6, 2001, MC Lux Corporation, a company controlled by Dr.
Michael Cowpland, purchased 16,553,657 newly issued common shares from ZIM for a
price of CDN$2,000,000. MC Lux Corporation subsequently transferred these shares
to Dr. Cowpland.
Between February 6, 2001 and the date of this management proxy
circular/prospectus. ZIM has issued options to Dr. Cowpland which entitled him
to purchase up to 7,013,332 shares of ZIM's common shares at prices ranging from
$0.50 to $1.10 per share.
In January 2002, Dr. Michael Cowpland, and other members of Dr.
Cowpland's family, purchased 1,000,000 special shares of ZIM for a price of
CDN$1,100,000.
In April 2002, Dr. Michael Cowpland loaned CDN$1,000,000 to ZIM. The
loan bears interest at 5% per annum and is repayable on demand.
STOCK OPTION PLAN
ZIM has adopted a stock option plan for the benefit of officers,
directors, employees and consultants. The plan is administered by ZIM's board of
directors. The plan provides that the maximum number of shares which may be
issued from time to time under the plan, together with shares which may be
issued under any other options for services or employee stock purchase or stock
option plans of ZIM shall not exceed 10,000,000 shares. No option shall be
granted for a term of more than 10 years of the date of its grant. The board of
directors determines the exercise price of the options granted under the plan.
Upon exercise of any option, the purchaser must pay the purchase price in cash
or by certified check. No option issued under the plan may be assigned or
transferred by the participant during the participant's lifetime. Following the
death of any participant, his options must be exercised by the legal
representative of the participant within 90 days after the date of the
participant's death.
In the event of a merger, amalgamation or consolidation of ZIM with
another company, the receipt of an offer to purchase all or substantially all of
the outstanding shares of ZIM from a third party, or the sale of all or
substantially all of the assets of ZIM to a third party, then each outstanding
option which is not fully exercisable shall be accelerated and become fully
exercisable. However, if the successor agrees to assume all outstanding options
or substitute equivalent options, then the board of ZIM, in its sole discretion,
shall have power to determine that options which were not fully exercisable
shall not be accelerated. In the case of the proposed amalgamation of ZIM by the
Company, none of the options shall be accelerated.
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In the event of any proposed dissolution, liquidation or winding-up of
ZIM, to the extent that an option has not been previously exercised, it will
terminate immediately prior to such proposed action.
If at any time, an option remains unexercised at the time ZIM
authorizes a public offering of ZIM's shares, the board may, in its discretion,
permit all participants to exercise their options in respect of any or all of
the shares covered by their options until a date which is specified by the board
and require the acceleration of the time of the exercise of the effected options
and the time of the fulfillment of any conditions or restrictions on any such
exercise.
The Company will adopt ZIM's option plan at the time of the
amalgamation.
SECURITY OWNERSHIP OF ZIM
The following table sets forth, as of May 15, 2002, the number and
percentage of ZIM common and special shares which are beneficially owned by:
- each person who is the beneficial owner of 5% or more of the
outstanding shares of ZIM;
- each director and executive officer of ZIM; and
- all executive officers and directors of ZIM as a group.
Unless otherwise indicated, each of the following persons may be
deemed to have sole voting and dispositive power with respect to such shares.
Beneficial Ownership
------------------------------------------------------------
Common Shares Special Shares
----------------------------- --------------------------
Name Position Number Percentage Number Percentage
- ---- -------- ---------- ---------- ---------- ----------
Michael Cowpland President, Chief Executive 23,546,989(1) 58.6% 2,700,000 52.3%
Officer and Director
Blake Batson Principal Shareholder 8,645,907(2) 25.7% -- --
Alan Batson Principal Shareholder 3,005,291(3) 9.1% -- --
James Stechyson Chairman 500,000(4) 1.5% -- --
Gene Rheaume Director 200,000(5) 0.6% -- --
Charles Saikaley Director 200,000(6) 0.6% -- --
Steven Houck Director 200,000(7) 0.6% -- --
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Beneficial Ownership
------------------------------------------------------------
Common Shares Special Shares
----------------------------- --------------------------
Name Position Number Percentage Number Percentage
- ---- -------- ---------- ---------- ---------- ----------
Gerald Lalonde Principal Shareholder 2,500,000(8) 7.5% -- --
Kathy Aubrey-Moore Chief Financial Officer 200,000(9) 0.6% -- --
Tony Davidson Chief Technology Officer 300,000(10) 0.9% -- --
(1) The beneficial ownership of Michael Cowpland consists of 16,533,657
common shares owned directly by Dr. Cowpland, 7,013,332 common shares which Dr.
Cowpland has the right to acquire under outstanding stock options, 1,000,000
special shares owned by Dr. Cowpland's spouse, 1,300,000 special shares owned by
a company controlled by Dr. Cowpland's spouse, and 200,000 special shares owned
by the minor children of Dr. Cowpland and his spouse. Dr. Cowpland disclaims
beneficial ownership of the shares held by his wife and the company controlled
by his wife and the shares held by his minor children.
(2) The beneficial ownership of Blake Batson consists of 2,940,907 common
shares owned directly by Mr. Batson, 5,255,000 common shares owned by a company
controlled by Mr. Batson, 250,000 common shares which he has the right to
acquire under outstanding stock options, and 200,000 common shares which Mr.
Batson's spouse has the right to acquire under outstanding stock options.
(3) The beneficial ownership of Alan Batson consists of 3,005,291 common
shares held by two companies controlled by Mr. Batson.
(4) The beneficial ownership of James Stechyson consists of 400,000 common
shares owned directly and 100,000 common shares which he has a right to acquire
under outstanding stock options.
(5) The beneficial ownership of Gene Rheaume consists of 100,000 common
shares owned directly and 100,000 common shares which he has a right to acquire
under outstanding stock options.
(6) The beneficial ownership of Charles Saikaley consists of 200,000 common
shares which he has a right to acquire under outstanding stock options.
(7) The beneficial ownership of Steven Houck consists of 200,000 common
shares which he has a right to acquire under outstanding stock options.
(8) The beneficial ownership of Gerald Lalonde consists of 1,000,000 common
shares owned directly, 1,500,000 common shares owned by a company controlled by
Mr. Lalonde.
(9) The beneficial ownership of Kathy Aubrey-Moore consists of 200,000
common shares which she has a right to acquire under outstanding stock options.
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(10) The beneficial ownership of Tony Davidson consists of 300,000 common
shares which he has a right to acquire under outstanding stock options.
INFORMATION ABOUT SHARES
There is no established public trading market for the shares of ZIM.
As of the date of this management proxy circular/prospectus, there were
approximately 86 shareholders of record of ZIM's shares, consisting of 52
holders of common shares and 34 holders of special shares.
DIVIDENDS
ZIM has never paid a dividend and currently has no plans to pay
dividends in the future. The payment of dividends by ZIM is subject to
restrictions under its by-laws which provide that ZIM shall neither declare nor
pay a dividend if there are reasonable grounds for believing that:
- ZIM is, or after the payment would be unable to pay
its liabilities as they become due; or
- the realizable value of ZIM's assets would thereby be
less than the aggregate of its liabilities and stated
capital of all classes.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION OF ZIM
The following discussion should be read in conjunction with ZIM's
consolidated financial statements and the related notes included elsewhere in
this management proxy circular/prospectus.
OVERVIEW
ZIM was incorporated under the Canada Business Corporations Act in
1997. Following its incorporation, ZIM acquired the ZIM IDE software. To date,
substantially all of ZIM's revenues have been generated from the licensing of
this software and related maintenance and consulting fees.
In February 2001, Dr. Michael Cowpland acquired a controlling interest
in ZIM. Since that time, the Company has devoted significant resources to the
development of a new line of mobile data software products. The first of these
products became generally available during December 2001. To date, ZIM has only
generated minimal revenues from this new product.
OPERATING RESULTS FOR THE FISCAL YEARS ENDED MAY 31, 2001, 2000 AND 1999
All amounts set forth in this section are stated in Canadian dollars.
TOTAL REVENUES. ZIM's revenues were CDN $1.6 million in 2001, CDN$3.2
million in 2000 and CDN$3.9 million in 1999. The decline in revenues during
these three years was due to a combination of a poorly executed marketing plan,
inconsistent customer support and management focus on financing requirements.
ZIM primarily derives its revenues from sales in North America and
Brazil. The following table reflects sales by region for the three years ended
May 31:
2001 2000 1999
---- ---- ----
Canada 24.4% 24.4% 20.3%
United States 13.4% 10.6% --
Brazil 39.5% 28.6% 38.4%
Denmark 9.6% 10.5% --
Other 13.1% 25.9% 41.3%
---- ---- ----
Total 100% 100% 100%
For the 2001 fiscal year, royalties from ZTI do Brazil accounted for
39.5% of total revenues. ZTI do Brazil was an independent distributor of ZIM's
products based in Brazil. In August 2001, ZIM acquired all of the outstanding
shares of this company in exchange for payment of CDN$287,000. No other
customer accounted for more than 10% of revenues during the 2001 fiscal year.
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SOFTWARE LICENSE REVENUES. Software revenues primarily consist of
revenues received from licensing the ZIM IDE software product. Software license
revenues were CDN$1.0 million in 2001, CDN$2.1 million in 2000 and CDN$2.7
million in 1999. As discussed above, the decline of license revenues was due to
ZIM's failure to effectively market and support the ZIM IDE software product.
MAINTENANCE AND CONSULTING REVENUES. Maintenance and consulting
revenues primarily consist of fees earned from maintenance contracts on the ZIM
IDE software product and consulting fees received from users of the ZIM IDE
software product. Maintenance revenue was approximately CDN$500,000 in all
three years. This stability was due to the steady base of licensees. Consulting
revenue were CDN$64,000 in 2001, CDN$506,000 in 2000 and CDN$760,000 in 1999.
Consulting revenues during 2000 and 1999 were primarily received from one
client, which discontinued these services during 2000.
OPERATING EXPENSES
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses were CDN$5.1 million in 2001, CDN$3.2 million in 2000
and CDN$2.8 million in 1999 representing 322%, 101% and 70% of total revenues
in the respective years. The increase in expenses for 2001 was due to increased
marketing expenses for ZIM's proposed mobile software products, as well as fees
and expenses arising from the proposed transaction between the Company and ZIM,
and a non-cash compensation expense of CDN$1.3 million which resulted from
stock options granted to non-employees. The increase in 2000 was attributable,
in large part, to the management's decision to expend significant amounts on a
new marketing plan for the ZIM IDE software product which proved to be
ineffective as well as marketing plans for a new software product, the ZIM
Architect, which was never accepted by the marketplace.
RESEARCH AND DEVELOPMENT. Research and development costs have
primarily consisted of amounts spent in maintaining the viability of the ZIM
IDE software product as well as the development of the Architect product.
Research and development expenses, net of investment tax credits, totaled
CDN$0.7 million in 2001 and CDN$1.0 million in 2000 and 1999, representing 41%,
32% and 26% of total revenues in the respective years.
Investment tax credits received were CDN$65,000 in 2000 and CDN$58,000
in 1999. There was no claim filed for the February 2001 change of control tax
return, as it was management's view that the majority of the expenses were
incurred in Barbados, and would not qualify for investment tax credits.
COST OF SOFTWARE REVENUES. Cost of software revenues consists primarily
of costs associated with product media, documentation, packaging and royalties
to third-party software vendors. Cost of software revenues was CDN$178,000 in
2001, CDN$384,000 in 2000 and CDN$938,000 in 1999. Cost of software revenues as
a percentage of total revenues was 11% in 2001, 12% in 2000 and 24% in 1999. The
higher percentage reflected in 1999 is due to the Company's decision to provide
CDN$400,000 in support costs to its Brazilian distributor. This was done in
order to induce the distributor to undertake the distribution of ZIM's products.
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LIQUIDITY AND CAPITAL RESOURCES
During the fiscal year ended May 31, 2001, ZIM primarily financed its
operations through the private sale of shares. During the 2001 fiscal year, ZIM
received CDN$2.6 million from the sale of the shares as well as CDN$4.0 million
in share subscriptions which were subsequently issued during the 2002 fiscal
year.
Net cash used by operating activities was CDN$2,816,000 in 2001,
CDN$372,000 in 2000 and CDN$1,098,000 in 1999. The principal use of cash in
each of these periods was to fund losses incurred during these periods.
Net cash used by investment activities was CDN$159,000 in 2001,
CDN$131,000 in 2000 and CDN$135,000 in 1999. These amounts primarily reflected
the purchase of property and equipment used to support ZIM's business.
Net cash provided by financing activities was CDN$6,385,000 in 2001,
CDN$519,000 in 2000 and CDN$1,238,000 in 1999. Net cash provided by operations
in 2001 primarily consisted from proceeds from the sale of shares and the
receipt of share subscription amounts. The net cash flows from financing
activities in 2000 primarily consisted of the proceeds of a loan of
approximately CDN$922,000 received from a related party as well as the proceeds
from the issuance of common shares. These amounts were used in part to repay
existing bank debt. The cash provided for financing activities in 1999 was
primarily generated by the sale of shares and the proceeds of long term debt
and bank financing.
At May 31, 2001, ZIM had cash and cash equivalents of approximately
CDN$3,529,000. ZIM's cash and cash equivalents have declined significantly
since that time due to continuing losses.
OPERATING RESULTS FOR THE NINE MONTHS ENDED FEBRUARY 28, 2002 AND 2001
TOTAL REVENUES. ZIM's revenues for the nine months ending February
2002 were CDN $2.5 million compared to CDN$1.2 million in February 2001. The
increase in revenues was due to a combination of the acquisition of a Brazilian
distributor as well as greater emphasis on selling ZIM's products. Sales from
ZIM's Brazilian office accounted for approximately 42% of the total revenue for
the nine months ending February 28, 2002. The Brazil acquisition provided ZIM
the opportunity to share in 100% of ZTI do Brazil Ltda.'s profits and losses.
SOFTWARE LICENSE REVENUES. Software revenues primarily consist of
revenues received from licensing the ZIM IDE software product. Software license
revenues were CDN$1,200,000 for the nine months ending February 2002 compared
to CDN$738,000 for the corresponding period in 2001. As discussed above, the
increase in revenues was due to a combination of the acquisition of ZIM's
Brazilian distributor as well as greater emphasis on selling ZIM's products.
MAINTENANCE AND CONSULTING REVENUES. Maintenance and consulting
revenues primarily consist of fees earned from maintenance contracts on the ZIM
IDE software product and consulting fees received from users of the ZIM IDE
software product. Maintenance revenue was CDN$1,078,000 for the nine months
ending February 2002, or 177% greater than the same period
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in the prior fiscal year. This increase can be attributed to ZIM's sales team
re-establishing contact with customers whose maintenance had expired. Consulting
revenue increased by 173% to CDN$174,000 for the nine months ending February
2002, compared to the same period last year. As discussed above, this increase
is a direct result of ZIM's sales team focused on selling ZIM's products.
OPERATING EXPENSES
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses were CDN$3.9 million for the nine months ending February
2002 compared to CDN$3.2 million for the same period in fiscal year 2001. This
represents an 18% increase in selling, general and administrative expenses. The
increase is a result of the acquisition of ZIM's Brazilian distributor, as well
the fees and expenses arising from the proposed transaction between ZIM and the
Company. The increase was also due to a decision by management to grow all the
various support organizations within ZIM.
RESEARCH AND DEVELOPMENT. Research and development costs have
primarily consisted of amounts spent in maintaining the viability of the ZIM
IDE software product as well as the development of the SMS based services.
Research and development expenses, net of investment tax credits, totaled
CDN$3.1 million for the nine months ending February 2002 compared to
CDN$440,000 for the same period in fiscal 2001. This represents a 607% increase
in expenditures. The increase is attributed to the purchase of intellectual
property for CDN $2.0 million that was in the early stages of conceptual
design. Management felt that this expenditure did not meet the criteria for
deferral and amortization, and was therefore expensed in the period that it was
incurred. For the nine months ending February, 2002 and 2001 the research and
development expenditures represented 126%, and 37% of total revenues
respectively.
COST OF SOFTWARE REVENUES. Cost of software revenues consists primarily
of costs associated with product media, documentation, packaging and royalties
to third-party software vendors. Cost of software revenues was CDN$ 110,000 for
the nine months ending February 2002, compared to CDN $125,000 for the same
period in 2001. Cost of software revenues as a percentage of total revenues for
the nine month period ending February 2002 was 4% compared to 10% for the nine
months ending February 2001. The reduction in the cost of software revenues is a
result of the elimination of third party royalty costs.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended February 28, 2002, ZIM primarily financed
its operations with the cash received from ZIM's private sale of shares in
fiscal 2001.
Net cash used by operating activities for the nine months ending
February 28, 2002 was CDN$3.6 million compared to CDN$1.5 million in February
2001 period. The principal use of cash in each of these periods was to fund
losses incurred during these periods.
Net cash used by investment activities was CDN$446,000 and CDN$10,000
for the nine months ending February 2002 and February 2001 respectively. The
main use of cash for investment activities was the purchase of fixed assets.
These assets were purchased in order to support ZIM's business.
93
Net cash provided by financing activities was CDN$1,003,000 for the
nine months ended February 28, 2002 and CDN$1,891,000 in February 2001. The
cash provided for financing activities in 2002 was primarily generated by the
issue of special shares, and for 2001 the issue of common shares.
At February 28, 2002, ZIM had cash and cash equivalents of
approximately CDN$ 500,000. ZIM's cash and cash equivalents have declined since
that time due to continuing losses. In April of 2002, Dr. Michael Cowpland,
ZIM's principal shareholder, loaned ZIM CDN$1.0 million. The loan bears
interest at the rate of 5% per annum and is repayable on demand.
ZIM's ability to continue as a going concern is subject to substantial
uncertainty due to its continuing operating losses. ZIM's new management team
has devoted significant resources to the development of new mobile data
software which management believes will generate substantial revenues in the
future. Nevertheless, sales of the new software have been insignificant to
date.
ZIM expects to incur a substantial operating loss during the 2002
fiscal year, due in part to approximately CDN$4.3 million in research and
development expenditures, as well as the cost of marketing ZIM's new mobile
data software. Furthermore, ZIM does not expect that it will generate
sufficient cash flow from operations to meet operating expenses for at least 6
months.
In light of the foregoing, ZIM will need to raise significant amounts
of debt or equity financing in order to implement its business plan and to meet
its working capital requirements. Since January 2001, Dr. Michael Cowpland,
ZIM's principal shareholder and other investors have provided financing to ZIM
to meet its cash requirements. At the present time, ZIM expects that Dr.
Cowpland will fund ZIM's working capital requirements for the next 6 months to
the extent that funds are not received from other investors. However, Dr.
Cowpland has no obligation to provide such financing and it is possible that he
may not do so. If ZIM were unable to obtain required financing from third
parties, ZIM might be required to discontinue operations.
CRITICAL ACCOUNTING POLICIES. The preparation of our financial
statements in conformity with Canadian generally accepted accounting principles
requires us 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. Our estimates, judgments and
assumptions are continually evaluated based on available information and
experience. Because of the use of estimates inherent in the financial reporting
process, actual results could differ from those estimates.
Certain of our accounting policies require higher degrees of judgment
than others in their application. One such policy relates to revenue
recognition. Our policy and related procedures for revenue recognition is
summarized below.
ZIM recognizes revenue in accordance with the provisions of Statement
of Position 97-2, "Software Revenue Recognition," as amended by Statement of
Position 98-9 "Modification of SOP 97-2, Software Revenue Recognition, With
Respect to Certain Transactions." ZIM earns revenue primarily from licensing
the rights to its software products to end users and from sublicense fees from
resellers. ZIM also generates revenue from consulting and maintenance. Revenues
from software license agreements are recognized as revenue when all of the
following criteria have been
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met: (i) a purchase order has been received; (ii) the software has been shipped;
(iii) the fee is fixed and determinable; and (iv) collection of the resulting
receivable is reasonably assured.
At the time of the transaction, we assess whether the fee associated
with our revenue transactions is fixed and determinable and whether or not
collection is reasonably assured. We assess whether the fee is fixed and
determinable based on the payment terms associated with the transaction. If a
significant portion of a fee is due after our normal payment terms, which are
30 to 90 days from invoice date, we account for the fee as not being fixed and
determinable. In these cases, we recognize revenue as the fees become due.
We assess collection based on a number of factors, including past
transaction history with the customer and the credit-worthiness of the customer.
We do not request collateral from our customers. If we determine that collection
of a fee is not reasonably assured, we defer the fee and recognize revenue at
the time collection becomes reasonably assured, which is generally upon receipt
of cash.
For arrangements with multiple obligations (e.g., undeliverable
maintenance and support), we allocate revenue over the term of the maintenance
agreement period, which is typically one year. If maintenance services are
included free of charge or discounted in a license agreement, such amounts are
unbundled from the license fee at their fair market value based upon the value
established by independent sales of such maintenance services to other
customers. Where we cannot determine the fair value of maintenance and support,
the entire contract value is recognized over the maintenance period.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS. In December 2001, the CICA
issued Handbook Section 3870, which establishes standards for recognition,
measurement and disclosure of stock-based compensation and other stock-based
payments made in exchange for goods and services provide by employees and
non-employees. The standard requires that a fair value based method of
accounting be applied to all stock-based payments to employee and to
non-employee awards that are direct awards of stock, that call for settlement in
cash or other assets or are stock appreciation rights that call for settlement
by the issuance of equity instruments. However, the new standard permits the
Company to continue its existing policy of recording no compensation cost on the
grant of stock options to employees. Consideration paid by employees on the
exercise of stock options is recorded as share capital. The standard is
effective for the Company's fiscal year beginning June 1, 2002 for awards
granted on or after that date.
In July 2001, the FASB issued Statement No. 141 "Business
Combinations" and Statement No. 142 "Goodwill and Intangible Assets." These
statements are substantially consistent with CICA Sections 1581 and 3062 (refer
to note 1(m)) except that under US GAAP, any transitional impairment charge is
recognized in earnings as a cumulative effect of a change in accounting
principle. Under Canadian GAAP, the cumulative adjustment is recognized in
opening deficit.
In October 2001, FASB issued Statement No. 144 "Accounting for the
Impairment or Disposal of Long-lived Assets," which retains the fundamental
provisions of SFAS 121 for recognizing and measuring impairment losses of
long-lived assets other than goodwill. Statement 144 also broadens the
definition of discontinued operations to include all distinguishable components
of an entity that will be eliminated from ongoing operations. This Statement is
effective
95
for the Company's fiscal year commencing June 1, 2002, to be applied
prospectively. The Company expects the adoption of this standard will have no
material impact on its financial position, results of operations or cash flows.
LEGAL MATTERS
The validity of the Company shares to be issued in the amalgamation
will be passed upon by Borden Ladner Gervais LLP, Ottawa, Canada. Certain legal
matters will be passed upon for ZIM by Borden Ladner Gervais LLP, Ottawa,
Canada. One member of Borden Ladner Gervais LLP holds options to purchase
100,000 common shares at a price of CDN$1.00 per share.
EXPERTS
The financial statements of the Company for the period from August 6,
1999 (inception) to July 31, 2000, included in this management proxy
circular/prospectus have been audited by David Tow, independent certified public
accountant, as stated in his opinion, which has been rendered upon the authority
of said firm as experts in accounting and auditing.
The financial statements of the Company for the twelve months ended
July 31, 2001, included in this management proxy circular/ prospectus have been
audited by Rachlin, Cohen & Holtz LLP, independent certified public accountants.
The consolidated financial statements of ZIM as of May 31, 2001, 2000
and 1999 included in this management proxy circular/prospectus have been audited
by KPMG LLP, independent chartered accountants, as stated in their opinion,
which has been rendered upon the authority of such firm as experts in accounting
and auditing.
OTHER MATTERS
As of the date of this management proxy circular/prospectus, the ZIM
board does not know of any matters that will be presented for consideration at
the special meeting other than as described in this management proxy circular/
prospectus. However, the proposed proxy will be deemed to confer authority to
the individuals named as authorized therein to vote the shares represented by
such proxy as to any matters that fall within the purposes outlined in the
Notice of Special Meeting as determined by a majority of ZIM's board, including
any adjournments or postponements. Nonetheless, a proxy which is voted against
the proposal to approve the amalgamation will not be voted in favor of any
adjournment or postponement.
The Board of Directors of ZIM has approved the contents of this
management proxy circular and the mailing of same on or about [ ], 2002
to shareholders of record on [ ], 2002.
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WHERE YOU CAN FIND MORE INFORMATION
The Company has filed a registration statement on Form S-4 with the
SEC to register the common shares and special shares that the Company will
issue in the amalgamation. As permitted by the rules and regulations of the
SEC, this management proxy circular/prospectus does not contain all of the
information that you can find in the registration statement and its exhibits.
You may read and copy the Company's registration statement, and any
reports and other information which the Company may file with the SEC at the
SEC's public reference rooms in Washington, D.C., New York or Chicago,
Illinois. You may call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms.
The SEC also maintains a website that contains reports, proxy and
information statements and other information regarding registrants such as the
Company that file electronically with the Securities and Exchange Commission.
The address of this website is http://www.sec.gov.
The Company has a class of securities registered under Section 12 of
the Securities Exchange Act of 1934. As a result, the Company files with the
Securities and Exchange Commission an annual report on Form 10-KSB, quarterly
reports on Form 10-QSB and current reports on Form 8-K. The Company sends an
annual report to each of its shareholders and this report contains audited
financial statements for the Company.
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EXHIBIT A
ACQUISITION AGREEMENT
ACQUISITION AGREEMENT dated as of May 29, 2002 (this "Agreement"), by
and among Private Capital Investors, Inc., a corporation organized under the
laws of the State of Florida (the "Company"); ZIM Technologies International,
Inc., a corporation organized under the laws of Canada ("ZIM"); and certain
shareholders of the Company listed on signature pages to this Agreement (the
"Company Shareholders").
RECITALS
A. ZIM is a privately held company engaged in the business of
developing and marketing various types of software.
B. ZIM desires to become a publicly traded company in order to
enhance its access to capital and its ability to consummate acquisitions of
other businesses.
C. The Company is a public company in the United States by
virtue of the registration of its common stock under Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
D. The board of directors of each of the Company and ZIM have
approved the acquisition of ZIM by the Company and a series of related
transactions designed to cause ZIM to become a publicly traded company, as more
fully described in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained in this Agreement, and intending to be
legally bound, the parties hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
SECTION 1.01. CERTAIN DEFINITIONS. For purposes of this Agreement,
the following terms have the meanings set forth below:
"Acquisition Proposal" has the meaning set forth in Section 6.05.
"Affiliate" of a specified Person means a Person who directly or
indirectly through one or more intermediaries controls, is controlled by, or is
under common control with, such specified Person.
"Amalgamated Company" has the meaning set forth in Section 2.02.
"Amalgamation" has the meaning set forth in Section 2.01.
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"Amalgamation Agreement" has the meaning set forth in Section 2.02.
"Amalgamation Subsidiary" has the meaning set forth in Section 2.01.
"Benefit Plan" has the meaning set forth in Section 4.18.
"CBCA" means the Canada Business Corporation Act.
"Closing" has the meaning set forth in Section 2.03.
"Closing Date" has the meaning set forth in Section 2.03.
"Company" means Private Capital Investors, Inc., a Florida
corporation.
"Company Approvals" has the meaning set forth in Section 5.04.
"Company Common Shares" means the common shares in the capital of the
Company, which shares will be created concurrently with the
Continuance.
"Company Options" has the meaning set forth in Section 2.05.
"Company Reports" has the meaning set forth in Section 5.09.
"Company Shareholders" means the shareholders of the Company listed on
the signature pages to this Agreement.
"Company Shares" means shares of the Company's common stock, par value
US$.001 per share (prior to the Continuance) and the Company's common
shares (after the Continuance).
"Company Special Shares" means the special shares in the capital of
the Company, which shares will be created concurrently with the
Continuance.
"Continuance" has the meaning set forth in Section 2.06.
"control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies
of a Person, whether through the ownership of voting securities, as
trustee or executor, by contract or credit arrangement or otherwise.
"Damages" has the meaning set forth in Section 8.03.
"Effective Date" has the meaning set forth in Section 2.02.
"Exchange Act" has the meaning set forth in Recital C to this
Agreement.
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"Exchange Ratio" has the meaning set forth in Section 2.02.
"Expiration Date" has the meaning set forth in Section 2.02."Exchange
Act" has the meaning set forth in Recital C to this Agreement.
"GAAP" means generally accepted accounting principles, as in effect in
the United States (in the case of the Company, until its continuance)
and in Canada (in the case of ZIM, ZIM and the Company, after
continuance).
"Global" means Global Intermatch, Inc., a Minnesota corporation.
"Governmental Entity" shall mean any government, governmental,
regulatory or administrative authority, agency or commission or any
court, tribunal or judicial or arbitral body or any quasi-governmental
or private body exercising any regulatory or taxing authority
thereunder, including any federal, state, provincial or local
governmental entity.
"Intellectual Property" has the meaning set forth in Section 4.16.
"Knowledge" means actual knowledge of a Person.
"Liens" means any mortgage, pledge, lien, charge, security interest,
encumbrance or restriction.
"Lock-Up Agreement" has the meaning set forth in Section 3.04.
"Material Adverse Effect" means any change, effect, event, development
or circumstance which, individually or when taken together with all
other changes, effects, events, developments or circumstances, causes
or results, or could reasonably be expected to cause or result a
material adverse effect on the business, financial condition or
prospects of a Person.
"Material Contracts" has the meaning set forth in Section 4.14.
"Matter" has the meaning set forth in Section 8.03.
"Person" means an individual, corporation, limited liability company,
partnership, limited partnership, syndicate, trust, association,
citizens' group or other entity or a political subdivision, agency or
instrumentality of a government.
"Related Transactions" has the meaning set forth in Section 2.092.06.
"SEC" means the U.S. Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Share Exchange Ratio" has the meaning set forth in Section
2.02.
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"Subsidiary" means any corporation, partnership, joint venture,
association or other entity in which a Person owns more than 50% of the
direct or indirect equity or ownership interests of such entity.
"Tax" has the meaning set forth in Section 4.08.
"Transactions" has the meaning set forth in Section 3.01.
"ZIM" means ZIM Technologies International, Inc., a corporation
organized under the CBCA.
"ZIM Approvals" has the meaning set forth in Section 4.04.
"ZIM Common Shares" means the issued and outstanding common shares in
the capital of ZIM.
"ZIM Due Diligence Materials" means the documents contained in the
books delivered by ZIM to the Company pursuant to the due diligence
request provided by the Company to ZIM as well as all information
disclosed in writing to the Company by ZIM or its agents (which shall
include information disclosed through electronic mail communication).
"ZIM Financial Statements" has the meaning set forth in Section 4.09.
"ZIM Options" has the meaning set forth in Section 2.04.
"ZIM Permits" has the meaning set forth in Section 4.06.
"ZIM Shares" means collectively, the ZIM Common Shares and the ZIM
Special Shares.
"ZIM Special Shares" means the issued and outstanding special shares in
the capital of ZIM.
ARTICLE II
THE AMALGAMATION AND RELATED TRANSACTIONS
SECTION 2.01. AMALGAMATION. Subject to the terms and conditions
set forth in this Agreement, the Company will acquire all of the ZIM Common
Shares and all of the ZIM Special Shares through an amalgamation (the
"Amalgamation") involving the Company, a newly formed subsidiary of the Company
(the "Amalgamation Subsidiary") and ZIM in accordance with the provisions of
this Article II.
SECTION 2.02. TERMS OF AMALGAMATION. Upon the fulfillment of the
conditions set forth in Article VII, the parties will complete the Amalgamation
on the following terms and conditions:
(a) The Company will incorporate the Amalgamation
Subsidiary, as wholly owned subsidiary, under the CBCA.
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(b) The Company, ZIM and the Amalgamation Subsidiary
shall enter into the amalgamation agreement in the form of Exhibit A to this
Agreement (the "Amalgamation Agreement").
(c) The Amalgamation Subsidiary and ZIM will amalgamate
under subsection 182(1) of the CBCA to create a new corporate entity (the
"Amalgamated Company"), by filing articles of amalgamation in accordance with
the provisions of the Amalgamation Agreement.
(d) Upon the effective date (the "Effective Date") of
the Amalgamation, each outstanding ZIM Common Share will be exchanged for one
Company Common Share and each outstanding ZIM Special Share will be exchanged
for one Company Special Share. All of the ZIM Special Shares and ZIM Common
Shares will be cancelled.
(e) Upon the Effective Date of the Amalgamation, all of
the outstanding shares of the Amalgamation Subsidiary shall become outstanding
shares of the Amalgamated Company and shall continue to be held by the Company.
SECTION 2.03. CLOSING. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Borden Ladner Gervais LLP, Ottawa, Canada. The date of the Closing is
hereinafter referred to as the "Closing Date."
SECTION 2.04. ADJUSTMENTS TO REFLECT CHANGES IN ZIM CAPITALIZATION.
(a) Except as provided in Section 2.04(b), in the event
that ZIM issues additional ZIM Shares after the date of this Agreement, then
the Company shall be authorized to issue a stock dividend to the holders of the
outstanding Company Shares so that the holders of the Company Shares
immediately prior to the Closing shall hold 2.64% of the Company Shares
immediately after the Effective Date (assuming that all outstanding rights,
warrants and options to acquire ZIM Shares ("ZIM Options") outstanding as of
the Effective Date and all options reserved for grant under ZIM's employee
stock option plan but not yet granted have been exercised).
(b) The Company shall not be authorized to issue the
stock dividend described in Section 2.04(a) in respect of (i) the issuance of
an unlimited number of ZIM Special Shares provided that such shares are sold to
investors at a minimum price of CDN$1.00 per share, and (ii) the issuance of an
unlimited number of ZIM Common Shares, provided that such shares are issued at
a minimum of CDN$1.00 per share or if the price is less than CDN$1.00 per share
such shares are issued upon the exercise of ZIM options granted on or before
May 1, 2001.
SECTION 2.05. EXCHANGE OF ZIM OPTIONS. Prior to the Effective
Date, the Company shall offer the holders of the ZIM Options the right to
exchange their ZIM Options for options to acquire common shares of the Company
(the "Company Options"). The terms and conditions of the Company Options will
be identical to the ZIM Options, except that they will entitle the holders to
acquire Company Common Shares in lieu of ZIM Common Shares. The offer will be
contingent upon the consummation of the Amalgamation.
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SECTION 2.06. RELATED TRANSACTIONS. The Company will use its best
efforts to complete the following actions (the "Related Transactions") as
promptly as possible following the execution of this Agreement:
(a) DISTRIBUTION OF COMPANY SHARES BY GLOBAL INTERMATCH,
INC. One of the Company Shareholders, Global Intermatch, Inc. ("Global"), will
distribute 90,000 Company Shares to its shareholders.
(b) CONTINUANCE. The Company will file Articles of
Continuance under the CBCA so that the Company becomes a corporation organized
under the CBCA (the "Continuance").
(c) CHANGE OF NAME. The Company will change its name to
"ZIM Corporation".
ARTICLE III
ADDITIONAL AGREEMENTS
SECTION 3.01. PREPARATION OF SEC FILINGS.
(a) The Company will use its best efforts to prepare and
file with the Securities and Exchange Commission (the "SEC") the registration
statements and other filings which the Company is required to file with the SEC
in order to consummate the Amalgamation and Related Transactions (the
"Transactions"). The Company will file with all Canadian securities
commissions, except in the province of Quebec (the "Canadian Securities
Commissions"), all filings which the Company is required to file with the
Canadian Securities Commissions in order to consummate the Transactions. The
parties acknowledge that the required filings include registration statements
pursuant to which the Company will register under the Securities Act: (i) the
distribution of 90,000 Company Shares by Global to the shareholders of Global;
(ii) the deemed issuance of the shares by the Company as a result of the
Continuance of the Company under the CBCA; and (iii) the issuance of the
Company Common Shares and the Company Special Shares by the Company pursuant to
the Amalgamation.
(b) The Company Shareholders and ZIM shall cooperate
with the Company in preparing the required SEC filings by providing any
information and documentation reasonably required by the Company in order to
prepare such filings.
(c) As promptly as reasonably practicable following the
date hereof, the Company shall prepare and file a registration statement on
Form S-4 (the "Form S-4") with respect to the issuance of the Company Common
Shares and the Company Special Shares pursuant to the Amalgamation. ZIM shall
cooperate with the Company in connection with the preparation and filing of,
and provide all information reasonably required by the Company for inclusion
in, the Form S-4. The Form S-4, and the prospectus contained therein and made a
part thereof, shall comply as to form in all material respects with the
applicable provisions of the Securities Act and the Exchange Act and the rules
and regulations thereunder. The Company shall use reasonable best efforts to
have the Form S-4 declared effective by the SEC and to keep the Form S-4
effective as long as is necessary to consummate the Amalgamation and the
transactions contemplated thereby. The
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Company shall, as promptly as practicable after receipt thereof, provide ZIM
copies of any written comments and advise them of any oral comments, with
respect to the Form S-4 received from the SEC. The Company will provide ZIM
with a reasonable opportunity to review and comment on any amendment or
supplement to the Form S-4 prior to filing such with the SEC, and will provide
ZIM with a copy of all such filings made with the SEC. The Company shall also
take any action required to be taken under the state securities and blue sky
laws of all jurisdictions that are applicable to the issuance of the Company
Common Shares and the Company Special Shares pursuant to the Amalgamation, and
ZIM shall furnish all information concerning ZIM and the holders of ZIM Shares
as may be reasonably requested in connection with any such action. The Company
will advise ZIM promptly after it receives notice thereof, of the time when the
Form S-4 has become effective, the issuance of any stop order, the suspension
of the qualification of the Company Common Shares or Company Special Shares
issuable in connection with the Amalgamation for offering or sale in any
jurisdiction, or any request by the SEC for amendment of the Form S-4. If at
any time prior to the Closing Date any information relating to the Company or
ZIM, or any of their respective affiliates, officers or directors, should be
discovered by the Company or ZIM which should be set forth in an amendment or
supplement to the Form S-4 so that the Form S-4 would not include any
misstatement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, the party which discovers such information shall
promptly notify the other party hereto and, to the extent required by law,
rules or regulations, an appropriate amendment or supplement describing such
information shall be promptly filed with the SEC and disseminated to the
stockholders of ZIM.
SECTION 3.02. OTHER FILINGS WITH GOVERNMENTAL ENTITIES. Each of
the parties shall promptly prepare and make all other filings required to be
made by any of them in order to consummate the Transactions.
SECTION 3.03. COMMITMENTS OF COMPANY SHAREHOLDERS. The Company
Shareholders will vote to approve the Transactions, to the extent that the
approval of the Company Shareholders is required.
SECTION 3.04. LOCK-UP AGREEMENT. Within ten (10) days of the date
of this Agreement, the Company shall arrange for Stuart Cooper, Cooper Family
Holdings, Pasadena Investments Limited, Thornhill Consulting Limited and Global
to enter into a Stock Restriction Agreement in the form of Exhibit B to this
Agreement (the "Lock-Up Agreement").
SECTION 3.05. REPORTS UNDER THE EXCHANGE ACT. With a view to
making available to the shareholders of ZIM the benefits of Rule 145(d)
promulgated under the Securities Act and any other rules and regulations of the
SEC which may permit the sale of the Company Shares to the public without
registration, the Company agrees to do the following:
(a) Make and keep public information available, as those
terms are understood and defined in SEC Rule 144 or any similar or analogous
rule promulgated under the Securities Act, at all times after the effective
date of this Agreement;
(b) File with the SEC, in a timely manner, all reports
and other documents required of the Company under the Securities Act and the
Exchange Act, at all times after the
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effective date of this Agreement; and
(c) Furnish to any ZIM Shareholder (including any
transferee of a ZIM Shareholder), so long as such shareholder owns any Company
Common Shares or Company Special Shares, forthwith upon request (i) a written
statement by the Company as to its compliance with the reporting requirements
of SEC Rule 144, the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may be
reasonably requested in availing any such shareholder of any rule or regulation
of the SEC which permits the selling of any such securities without
registration.
SECTION 3.07. LISTING OF COMPANY STOCK. The Company shall use its
reasonable best efforts to have authorized for listing on the OTC Bulletin
Board, or such other national exchange on which the Company Shares may
subsequently become listed, the Company Shares issuable pursuant to the
Amalgamation (including the Company Common Shares issuable upon conversion or
exchange of the Company Special Shares.)
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF ZIM
ZIM hereby represents and warrants to and covenants and agrees with
the Company and the Company Shareholders as follows:
SECTION 4.01. ORGANIZATION AND QUALIFICATION.
ZIM and each of its Subsidiaries: (i) is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation; (ii) has the requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as it is now
being conducted; and (iii) is in good standing and duly qualified to do
business in each jurisdiction in which the transaction of its business makes
such qualification necessary, except where the failure to be so organized,
existing, qualified and in good standing or to have such power or authority
would not constitute a Material Adverse Effect. True and complete copies of the
Articles of Incorporation and the By-laws (or other comparable governing
documents) of ZIM and each of its Subsidiaries have been delivered to the
Company.
Set forth on Schedule 4.01 is a list of each of the Subsidiaries of
ZIM, including a description of the interest of ZIM in each Subsidiary.
SECTION 4.02. CAPITALIZATION.
(a) The authorized capital stock of ZIM consists of an
unlimited number of ZIM Common Shares and an unlimited number of ZIM Special
Shares. As of the date of this Agreement: (i) 33,183,921 ZIM Common Shares and
5,163,500 ZIM Special Shares were issued and outstanding; and (ii) no ZIM
Shares are, or ever have been, held in the ZIM's treasury. All outstanding ZIM
Shares are validly issued, fully-paid and nonassessable and are not subject to
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preemptive rights.
(b) Each of the ZIM Options is listed on Schedule 4.02.
Except for the ZIM Options listed on Schedule 4.02, as of the date of this
Agreement, there are no outstanding rights, warrants, options, subscriptions,
calls, rights, commitments or any other agreements to which ZIM or any of its
Subsidiaries is a party or by which ZIM or any of its Subsidiaries is bound
which obligate ZIM or any of its Subsidiaries to: (A) issue, deliver or sell or
cause to be issued, delivered or sold any additional ZIM Shares or any other
capital stock of ZIM or any of its Subsidiaries or any other securities
convertible into, or exercisable or exchangeable for, or evidencing the right
to subscribe for, any ZIM Shares or any other capital stock of ZIM or its
Subsidiaries; or (B) purchase, redeem or otherwise acquire any ZIM Shares and
any other capital stock of the ZIM or its Subsidiaries. Except as described in
the ZIM Due Diligence Materials, there are no outstanding contractual
obligations of ZIM or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any ZIM Shares or any other capital stock of ZIM or its
Subsidiaries or to provide funds to, or make any investment (in the form of a
loan, capital contribution or otherwise) in any other Person.
(c) To the knowledge of ZIM, except as described in the
ZIM Due Diligence Materials, there are no voting trusts or shareholder
agreements to which ZIM or its Subsidiaries or any ZIM Shareholder is a party
with respect to the capital stock of ZIM or its Subsidiaries.
SECTION 4.03. AUTHORIZATION AND VALIDITY OF AGREEMENT. ZIM has the
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the Transactions in accordance with the terms of this
Agreement. The Board of Directors of ZIM has duly authorized the execution,
delivery and performance of this Agreement by ZIM. This Agreement has been duly
and validly executed and delivered by ZIM and constitutes the legal, valid and
binding obligation of ZIM, enforceable against ZIM in accordance with its
terms, except as enforcement thereof may be limited by any bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
law affecting the enforcement of creditors' rights generally or by general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
SECTION 4.04. CONSENTS AND APPROVALS. Except as described in the
ZIM Due Diligence Materials, all consents, waivers, registrations,
certificates, approvals, grants, franchises, concessions, permits, licenses,
exceptions or authorizations of, or declarations or filings with, or notices or
reports to, (a) any Governmental Entity and (b) any other Person (including,
but not limited to, any party to a contract or other agreement or commitment of
ZIM or its Subsidiaries) (collectively, the "ZIM Approvals"), which ZIM or its
Subsidiaries must obtain or make in order to consummate the Transactions have
been obtained and are in full force and effect, and ZIM or its Subsidiaries is
in full compliance with each of such ZIM Approvals.
SECTION 4.05. NO VIOLATION. Assuming the receipt of all ZIM
Approvals, the execution, delivery and performance of this Agreement by ZIM and
the consummation by ZIM of the Transactions will not: (a) conflict with or
violate the organizational documents of ZIM; (b) result in a violation or
breach of, constitute a default (with or without notice or lapse of time, or
both) under, give rise to any right of termination, cancellation or
acceleration of, or result in the imposition of any material Lien on any assets
or property of ZIM or its Subsidiaries pursuant to, any material
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note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which ZIM or its Subsidiaries is
a party or by which ZIM or its Subsidiaries or any of their respective assets
or properties are bound, other than such items which would not have a Material
Adverse Effect on ZIM or (c) conflict with or violate any order, writ,
injunction, decree, statute, rule or regulation applicable to ZIM or its
Subsidiaries, or any of their assets and properties, other than conflicts or
violations which would not have a Material Adverse Effect on ZIM.
SECTION 4.06. LICENSES AND PERMITS. Each license, franchise,
permit, registration or other similar governmental authorization affecting, or
relating in any way to, the business of ZIM or its Subsidiaries, together with
the name of the Governmental Entity issuing such authorization (the "ZIM
Permits") are valid and in full force and effect, will not be terminated or
impaired or become terminable as a result of the Transactions. ZIM and its
Subsidiaries hold all Permits necessary for the conduct of their business and
the use of their properties.
SECTION 4.07. COMPLIANCE WITH LAWS. Except as described in the
ZIM Due Diligence Materials, ZIM and its Subsidiaries are in material
compliance with all applicable federal, state, provincial, local or foreign
statutes, rules, regulations, decrees, ordinances, code requirements or orders
of any Governmental Entity or rules of common law, other than violations which
would not have a Material Adverse Effect on ZIM.
SECTION 4.08. TAXES.
(a) For purposes of this Agreement: (i) "Tax" or "Taxes"
means any and all taxes, fees, levies, duties, tariffs, imposts, and other
charges of any kind (together with any and all interest, penalties, additions
to tax and additional amounts imposed with respect thereto) imposed by any
Governmental Entity or taxing authority including, without limitation, taxes or
other charges on or with respect to income, franchises, windfall or other
profits, gross receipts, property, sales, use, capital stock, payroll,
employment, social security, workers' compensation, unemployment compensation,
or net worth; taxes or other charges in the nature of excise, withholding, ad
valorem (including real property, tangible and intangible taxes), stamp,
transfer, value added, or gains taxes; license, registration and documentation
fees; and customs' duties, tariffs, and similar charges; and (ii) "Tax Returns"
means all reports and returns (including elections, claims, declarations,
disclosures, schedules, estimates, computations and information returns)
required to be supplied to a Governmental Entity in any foreign or domestic
jurisdiction relating to Taxes.
(b) Except as disclosed in the ZIM Due Diligence
Materials and items which would not have a Material Adverse Effect on ZIM, (i)
ZIM and its Subsidiaries have duly and timely filed (taking into account any
extension of time within which to file) all Tax Returns required to be filed by
any of them and all such filed Tax Returns are complete and accurate in all
material respects; (ii) ZIM and its Subsidiaries have paid or deposited or made
adequate provision in ZIM's consolidated financial statements for the payment
of all Taxes required by the Tax Returns referred to in clause (i) above,
including Taxes that ZIM and its Subsidiaries are obligated to withhold from
amounts owing to any employee, creditor or third party, except with respect to
matters contested in good faith; (iii) as of the date of this Agreement, there
are no pending or, to the Knowledge of ZIM, threatened (in writing or
otherwise) audits, examinations, investigations or other proceedings in
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respect of Taxes or Tax matters relating to ZIM and its Subsidiaries; (iv)
there are no deficiencies or claims for any Taxes that have been proposed,
asserted or assessed against ZIM or its Subsidiaries; (v) there are no material
Liens for Taxes upon the assets of ZIM or its Subsidiaries, other than Liens
for current Taxes not yet due and payable and Liens for Taxes that are being
contested in good faith by appropriate proceedings; (vi) no extension of the
statute of limitations on the assessment or allocation of any Taxes has been
granted by ZIM or its Subsidiaries and is currently in effect; (vii) all Taxes
required to be withheld, collected or deposited by or with respect to ZIM or
its Subsidiaries have been timely withheld, collected or deposited, as the case
may be, and, to the extent required have been paid to the relevant taxing
authority; (viii) there are no requests for information currently outstanding
that could affect the Taxes of ZIM or its Subsidiaries; (ix) there are no
proposed reassessments of any property owned by ZIM or its Subsidiaries or
other Persons that could increase the amount of any Tax to which ZIM or its
Subsidiaries or any such Person would be subject; (x) ZIM or its Subsidiaries
is not a party to nor is obligated to make payments under a Tax sharing
agreement with respect to the payment of Taxes; and (xi) neither ZIM nor its
Subsidiaries has been a member of an affiliated, consolidated, combined or
unitary group for Tax purposes other than one of which ZIM was the common
parent.
SECTION 4.09. FINANCIAL STATEMENTS AND REPORTS. The consolidated
balance sheets of ZIM as of May 31, 2001, 2000 and 1999, and the related
statements of operations, stockholders' equity and cash flow for each of the
years then ended, delivered to the Company, present fairly, in all material
respects, the consolidated financial position of ZIM as of the dates thereof
and its results of operations and changes in financial position for the periods
then ended in conformity with GAAP applied on a consistent basis throughout the
periods then ended.
SECTION 4.10. PROPERTIES AND ASSETS. As of the date of this
Agreement, ZIM and its Subsidiaries has good and marketable title to all the
properties and assets, tangible and intangible, owned by them, subject to no
material Liens, except for Liens for taxes and governmental charges not yet
due, and Liens disclosed in the ZIM Due Diligence Materials. Except as
aforesaid, the assets and properties owned by ZIM and its Subsidiaries at the
Closing shall be free and clear of any material Liens (other than Liens arising
in the ordinary course of business).
SECTION 4.11. DISCLOSURE OF LIABILITIES. Except for liabilities
which have been incurred since May 31, 2001, in the ordinary course of business
or disclosed in the ZIM Due Diligence Materials, ZIM and its Subsidiaries have
not incurred any liability of any material nature (whether accrued, absolute,
contingent or otherwise) since May 31, 2001.
SECTION 4.12. LITIGATION. Except as disclosed in the ZIM Due
Diligence Materials, there is no action, suit, claim, investigation or
proceeding pending against, or to the knowledge of ZIM, threatened or
contemplated against or affecting ZIM or its Subsidiaries, or their assets or
properties before any court or arbitrator or any Governmental Entity.
SECTION 4.13. REAL PROPERTY LEASES. The ZIM Due Diligence
Materials include true and correct copies of each material lease for real
property to which ZIM or its Subsidiaries is a party. Each such lease is in
full force and effect and neither ZIM, its Subsidiaries nor the other party to
such lease is in default thereunder.
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SECTION 4.14. MATERIAL CONTRACTS.
(a) The ZIM Due Diligence Materials include true and
correct copies of each of the following contracts and agreements of ZIM and its
Subsidiaries (such contracts and agreements being "Material Contracts"):
(i) all material distributor, dealer, agency,
sales promotion, market research, marketing, consulting and advertising
contracts and agreements to which ZIM or its Subsidiaries is a party;
(ii) all management contracts, employment
contracts and contracts with independent contractors or consultants (or similar
arrangements) to which ZIM or its Subsidiaries is a party, and all Benefit
Plans;
(iii) all material contracts and agreements
relating to indebtedness of ZIM or its Subsidiaries or to any direct or
indirect guaranty by ZIM or its Subsidiaries of indebtedness of any other
Person;
(iv) all material joint venture contracts or
similar arrangements or agreements which involve the showing of profits or
payments;
(v) all material license agreements, either as
licensor or licensee, or other similar contracts or commitments;
(vi) all material contracts and agreements for
the sale or other transfer of any assets, property or rights of ZIM or its
Subsidiaries;
(vii) all material contracts or arrangements
providing for the maintenance or support of the products, services or supplies;
(viii) all contracts or arrangements providing for
any capital expenditures or addition to property, plan or equity in excess of
$25,000;
(ix) all material contracts, agreements,
commitments, written understandings or other arrangements with any Governmental
Entity, to which ZIM or its Subsidiaries is a party;
(x) all material contracts and agreements that
limit or purport to limit the ability of ZIM or its Subsidiaries to compete in
any line of business or with any Person or in any geographic area or during any
period of time; and
(xi) all other material contracts and
agreements, whether or not made in the ordinary course of business, which are
material to ZIM or its Subsidiaries, or the conduct of the business of ZIM or
its Subsidiaries.
(b) Each Material Contract: (i) is legal, valid and
binding on ZIM or its
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Subsidiaries and, to the knowledge of ZIM, the other parties thereto, and is in
full force and effect; and (ii) upon consummation of the Transactions shall
continue in full force and effect without penalty or other adverse consequence.
ZIM and its Subsidiaries are not in breach of, or default under, any Material
Contract.
SECTION 4.15. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since February
28, 2002, except as disclosed in the ZIM Due Diligence Materials, there has not
been:
(a) Any material adverse change in the business, assets,
condition (financial or otherwise), or results of operations of ZIM or its
Subsidiaries, or any fact, or any anticipated event which, individually or in
the aggregate, may be reasonably expected to give rise to any Material Adverse
Effect with respect to ZIM or its Subsidiaries.
(b) Any change in any method of accounting or accounting
practice of ZIM or its Subsidiaries.
(c) Any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of capital stock of
ZIM or its Subsidiaries, or any repurchase, redemption, retirement or other
acquisition by ZIM or its Subsidiaries of any outstanding shares or capital
stock or other securities of, or other equity or ownership interest in, ZIM or
its Subsidiaries.
(d) Any changes in the Articles of the Incorporation or
the By-laws of ZIM or its Subsidiaries or any amendment to any term of any
outstanding security of ZIM or its Subsidiaries.
(e) Any transaction or commitment made or contract or
agreement entered into by ZIM or its Subsidiaries relating to its assets or
business outside the ordinary course of business.
(f) terminated any employees, officers and director have
been terminated;
(g) granted any options under the ZIM Employee Stock
Option plan;
(h) made any capital expenditures in excess of $10,000;
(i) Any payment of any amounts to, or liability incurred
in respect of, or sale of any properties or assets (real, personal, mixed,
tangible or intangible) to, or any transaction or any agreement or arrangement
with, any Person in which ZIM or its Subsidiaries or any of its corporate
officers and directors, or any "affiliate" or "associate" (as such terms are
defined in the rules and regulations promulgated under the Securities Act) of
any such Person has any direct or indirect ownership interest.
(j) Any agreement undertaken or commitment to do any of
the foregoing.
SECTION 4.16. INTELLECTUAL PROPERTY.
(a) Except as described in the ZIM Due Diligence
Materials, to the knowledge of ZIM, ZIM and its Subsidiaries own or possess
adequate licenses or other rights to use all patents,
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patent applications, trademarks, trademark applications, service marks, service
applications, trade names, copyrights, formulae, trade secrets, customer lists,
software, strategies and know how (collectively, the "Intellectual Property")
necessary to the conduct of their business as now conducted and as proposed to
be conducted, and no claim is pending or threatened to the effect that the
operations of ZIM or its Subsidiaries infringe upon or conflict with the rights
of any other Person. No claim is pending or, to the knowledge of ZIM,
threatened to the effect that any such Intellectual Property owned or licensed
by ZIM or its Subsidiaries, or which ZIM or its Subsidiaries otherwise has the
right to use, is invalid or unenforceable by ZIM or its Subsidiaries. All
formulae, trade secrets, customer lists, strategies and know how have been kept
confidential by ZIM or its Subsidiaries.
(b) To the knowledge of ZIM, the Intellectual Property
owned by ZIM or its Subsidiaries or for which ZIM or its Subsidiaries is the
exclusive licensee is free and clear of all Liens, is not currently being
challenged in any way, has not lapsed or expired and is not involved in any
pending or threatened interference proceedings.
(c) Except as described in the ZIM Due Diligence
Materials, neither ZIM nor any of its Subsidiaries have, during the five (5)
years precedent to the date of this Agreement, been sued or charged in writing
with, or been a defendant in any claim, suit, action or proceeding relating to
the business of ZIM or its Subsidiaries that involves a claim of infringement
of any Intellectual Property. To the Knowledge of ZIM, no Person has made any
claim of infringement by ZIM or its Subsidiaries, and no Person is improperly
using, misappropriating or infringing any of the Intellectual Property. No
Intellectual Property is subject to any outstanding order, judgment, decree,
stipulation or agreement restricting the use thereof by ZIM or its Subsidiaries
or restricting the licensing thereof by ZIM or its Subsidiaries to any other
party.
(d) Except as described in the ZIM Due Diligence
Materials, none of the present or former employees, officers or directors of
ZIM or its Subsidiaries owns directly or indirectly, in whole or in part, any
of the Intellectual Property of ZIM. Except as described in the ZIM Due
Diligence Materials, to the knowledge of ZIM, each current and former officer,
employee or consultant of ZIM or its Subsidiaries having access to confidential
or proprietary information of ZIM or its Subsidiaries has executed and
delivered to ZIM or its Subsidiaries an agreement regarding the protection of
such confidential and proprietary information and the assignment of inventions
to ZIM or its Subsidiaries. To the knowledge of ZIM, ZIM and its Subsidiaries
are not and never have been engaged in any dispute or litigation with any
employee or former employee regarding matters pertaining to Intellectual
Property or assignment of inventions.
SECTION 4.17. BOOKS AND RECORDS.
(a) The books, records and accounts of ZIM and its
Subsidiaries (i) have been maintained in accordance with good business
practices on a basis consistent with prior years, (ii) were stated in
reasonable detail and accurately and fairly reflect the transactions of ZIM and
its Subsidiaries, and (iii) accurately and fairly reflect the basis for the
financial statements of ZIM and its Subsidiaries.
(b) ZIM and its Subsidiaries have implemented and
maintained a system of internal accounting controls sufficient to provide
reasonable assurances that (i) all transactions are
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executed in accordance with management's general and specified authorization
and (ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP consistently applied and to
maintain the accountability for assets and liabilities.
SECTION 4.18. EMPLOYEE BENEFIT PLANS.
(a) For purposes of this Agreement, "Benefit Plan" means
any employment, severance or similar contract, arrangement or policy, and each
plan or arrangement providing for insurance coverage, worker's compensation,
disability benefits, supplementary unemployment benefits, vacation benefits,
pension or retirement benefits or for deferred compensation, profit sharing,
bonuses, stock options, stock appreciation rights, or other forms of incentive
compensation or post retirement insurance, compensation or benefits that is
maintained or contributed to by ZIM or any of its Subsidiaries.
(b) Each Benefit Plan has been maintained in compliance
with its terms and with the requirements prescribed by any and all statutes,
orders, rules or regulations which are applicable to such Benefit Plan.
SECTION 4.19. CONFLICTS OF INTEREST. To the Knowledge of ZIM, none
of the directors, officers, employees of ZIM or its Subsidiaries, or any of
their Affiliates, (a) has any material direct or indirect interest in any Person
which does business with ZIM or its Subsidiaries, (b) has any direct or indirect
interest in any property, asset or right which is used by ZIM or its
Subsidiaries in the conduct of its business, or (c) has any contractual
relationship with ZIM or its Subsidiaries other than such relationship which
occur from being an officer, employee, director or shareholder of ZIM or its
Subsidiaries.
SECTION 4.20 BROKERS AND FINDERS. No broker, finder or investment
bank has acted directly or indirectly for ZIM, nor has ZIM incurred any
obligation to pay any brokerage, finder's or other fee or commission in
connection with the Transactions.
SECTION 4.21 NO MISLEADING STATEMENTS. The representations and
warranties of ZIM contained in this Agreement and each of the Schedules are
accurate in all material respects and do not include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements made herein or therein not misleading
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to and covenants and agrees
with ZIM as follows:
SECTION 5.01. ORGANIZATION AND QUALIFICATION. The Company: (a) is
duly organized, validly existing and in good standing under the laws of
Florida; (b) has the requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as it is now being
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conducted; and (c) is in good standing and duly qualified to do business in
each jurisdiction in which the transaction of its business makes such
qualification necessary.
SECTION 5.02. CAPITALIZATION.
(a) The authorized capital stock of the Company consists
of 100,000,000 shares of capital stock, par value $.001 per share. As of the
date of this Agreement: (i) 1,535,455 Company Shares were issued and
outstanding; and (ii) no Company Shares are, or ever have been, held in the
Company's treasury. All outstanding Company Shares are validly issued,
fully-paid and nonassessable and are not subject to preemptive rights. There
are no outstanding subscriptions, options, warrants, calls, rights, commitments
or any other agreements to which the Company is a party or by which the Company
is bound which obligate the Company to: (A) issue, deliver or sell or cause to
be issued, delivered or sold any additional the Company Shares or any other
capital stock of the Company or any other securities convertible into, or
exercisable or exchangeable for, or evidencing the right to subscribe for, any
such the Company Shares; or (B) purchase, redeem or otherwise acquire any the
Company Shares and any other capital stock of the Company. There are no
outstanding contractual obligations of the Company to repurchase, redeem or
otherwise acquire any the Company Shares or to provide funds to, or make any
investment (in the form of a loan, capital contribution or otherwise) in any
other Person.
(b) There are no voting trusts or shareholder agreements
to which the Company is a party with respect to the voting of the capital stock
of the Company.
(c) The Company Shares to be issued in the Amalgamation,
will, when issued, be duly authorized, validly issued, fully paid and
nonassessable.
SECTION 5.03. AUTHORIZATION AND VALIDITY OF AGREEMENT. The Company
has the requisite corporate power and authority to execute and deliver this
Agreement and to consummate the Transactions in accordance with the terms of
this Agreement. The Board of Directors of the Company has duly authorized the
execution, delivery and performance of this Agreement by the Company, and,
except as set forth on SCHEDULE 5.04, no other action or other proceedings on
the part of the Company or its shareholders is necessary to authorize this
Agreement or the Transactions. This Agreement has been duly and validly
executed and delivered by the Company and constitutes the legal, valid and
binding obligation of the Company, constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except as enforcement thereof may be limited by any bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
laws affecting the enforcement of creditors' rights generally or by general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
SECTION 5.04. CONSENTS AND APPROVALS. Set forth on Schedule 5.04
is a complete list of all consents, waivers, registrations, certificates,
approvals, grants, franchises, concessions, permits, licenses, exceptions or
authorizations of, or declarations or filings with, or notices or reports to,
(a) any Governmental Entity and (b) any other Person (including, but not
limited to, any party to a contract or other agreement or commitment of the
Company or its Subsidiaries) (collectively, the "Company Approvals"), which the
Company must obtain or make in order to consummate the
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Transactions. Except as set forth on Schedule 5.04, all of the Company
Approvals have been obtained and are in full force and effect, and ZIM or its
Subsidiaries is in full compliance with each of such Company Approvals.
SECTION 5.05. NO VIOLATION. Assuming the receipt of all Company
Approvals, the execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the Transactions will not: (a)
conflict with or violate the Articles of Incorporation or the By-Laws of the
Company; (b) result in a violation or breach of, constitute a default (with or
without notice or lapse of time, or both) under, give rise to any right of
termination, cancellation or acceleration of, or result in the imposition of
any Lien on any assets or property of the Company pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company is a party or by which the
Company or any of its assets or properties are bound; or (c) conflict with or
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company or any of its assets and properties.
SECTION 5.06. COMPLIANCE WITH LAWS. The Company is in material
compliance with all applicable federal, state, provincial, local or foreign
statutes, rules, regulations, decrees, ordinance, code requirements or orders
of any Governmental Entity or rules of common law.
SECTION 5.07. DISCLOSURE OF LIABILITIES. Except for liabilities
disclosed on Schedule 5.07, the Company has not incurred any liability of any
nature (whether accrued, absolute, contingent or otherwise).
SECTION 5.08. PRIOR ACTIVITIES OF THE COMPANY. From the date of its
incorporation through the date of this Agreement, the Company has not engaged
in any business activity of any kind other than those directly related to the
negotiation, execution and consummation of this Agreement. Except for the
letter of intent entered into with ZIM, the Company is not party to any
agreements.
SECTION 5.09. SEC FILINGS. The Company Shares are registered with
the SEC under Section 12(g)(3) of the Exchange Act. Except as listed on
Schedule 5.09, the Company has timely filed and previously furnished to ZIM
true and correct copies of (i) its Registration Statement on Form 10-SB, (ii)
its Quarterly Report on Form 10-QSB for the period ended April 30, 2001 and
(iii) all other reports, registration statements, forms, schedules and other
documents required to be filed by it with the SEC under the Exchange Act since
the effective date of its registration statement on Form 10-SB, all in the form
(including exhibits) so filed (collectively, the "COMPANY REPORTS"). As of
their respective dates, the Company Reports complied in all material respects
with the Securities Act, the Exchange Act and the then applicable published
rules and regulations of the SEC with respect thereto at the date of their
issuance and did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Each of the audited consolidated financial statements and
unaudited interim financial statements included in the Company Reports has been
prepared in accordance with GAAP applied on a consistent basis (except as may
be indicated therein or in the notes thereto) and fairly presents the financial
position of the Company as at its date or the results of operations,
stockholders equity or cash flows, subject
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to normal year-end adjustments and any other adjustments described therein,
which adjustments will not be material in amount or effect. Upon effectiveness
of the Continuance, the successor entity to the Company under the CBCA will
succeed to the registration status and reporting history of Private Capital
Investors, Inc., a Florida corporation, under the Exchange Act and will
continue to be a reporting issuer under the Exchange Act.
SECTION 5.10. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since January
1, 2000, there has not been any material adverse change in the business,
assets, condition (financial or otherwise), results of operations or prospects
of the Company.
SECTION 5.11. LITIGATION. There is no action, suit, claim,
investigation or proceeding pending or, to the knowledge of the Company,
threatened or contemplated against or affecting the Company or its properties
and assets before any court or arbitrator or any Governmental Entity.
SECTION 5.12. BROKERS AND FINDING. No broker, finder or investment
bank has acted directly or indirectly for the Company or any of the Company
Shareholders, nor has the Company or any of the Company Shareholders incurred
any obligation to pay any brokerage, finder's or other fee or commission in
connection with the Transactions.
SECTION 5.13. NO MISLEADING STATEMENTS. The representations and
warranties of the Company contained in this Agreement are accurate in all
material respects and do not include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements made herein or
therein not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF COMPANY SHAREHOLDERS
SECTION 5A.01 REPRESENTATIONS AND WARRANTIES OF COMPANY
SHAREHOLDERS. The Company Shareholders hereby jointly and severally represent
and warrant to ZIM as follows:
(a) The Company Shareholders are the record and
beneficial owners of the outstanding Company Shares, free and clear of any
Liens, in the amounts set forth on Schedule 5A.01.
(b) Each of the Company Shareholders has full legal
right, power and authority to enter into this Agreement. This Agreement has
been duly authorized and delivered by each of the Company Shareholders and
constitutes the legal, valid and binding obligation of each of the Company
Shareholders enforceable against each of the Company Shareholders in accordance
with its terms, except as enforcement thereof may be limited by any bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
laws affecting the enforcement of creditors rights generally or by general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
(c) Neither the execution and delivery of this Agreement
by each of the Company Shareholders, nor the performance of this Agreement by
each of the Company Shareholders, nor the
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consummation of the Transactions will require on the part of any of the Company
Shareholders any consent, approval, authorization or permit of, or filing with
or notification to, any Governmental Entity that has not already been made,
filed or received, as the case may be. Neither the execution or delivery of
this Agreement by each of the Company Shareholders nor the performance of this
Agreement by each of the Company Shareholders and the consummation by each of
the Company Shareholders of the Transactions will (i) result in a violation or
breach of, constitute a default under (with or without notice or lapse of time
or both) give rise to any right of termination, cancellation or acceleration
of, or result in the imposition of any Lien on any assets or property of any of
the Company Shareholders pursuant to any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise, or other instrument or
obligation to which any of the Company Shareholders is a party or by which any
of the assets or properties of the Company Shareholders are bound; or (ii)
conflict with or violate any order, writ, injunction, decree, statute, rule or
regulation applicable to any of the Company Shareholders or any of their
properties or assets.
(d) Except for liabilities disclosed on Schedule 5.07,
the Company has not incurred any liability of any nature (whether accrued,
absolute, contingent or otherwise).
ARTICLE VI
ADDITIONAL COVENANTS
SECTION 6.01. CONDUCT OF BUSINESS BY ZIM. Except as contemplated
by this Agreement, from the date of this Agreement to the Closing Date, ZIM
will conduct its operations, and will cause its Subsidiaries to conduct their
operations, only in the ordinary and usual course of business and consistent
with past practices and will use its best efforts to preserve intact its
present business organization, keep available the services of its officers and
employees and preserve its relationships with customers, suppliers and others
so that its good will and ongoing business shall not be impaired. During such
period, ZIM shall promptly report to the Company any occurrence or omission
which shall have caused any representation or warranty of ZIM hereunder to
become untrue as of the date of such occurrence or omission, and shall confer
on a regular and frequent basis with representatives of the Company to report
operational matters of a material nature and report the general status of the
ongoing operations of the business of ZIM. Without limiting the generality of
the foregoing, and except as contemplated by this Agreement, ZIM will not,
prior to the Closing Date, without the prior written consent of the Company,
which shall not be unreasonably withheld or delayed in each instance:
(i) Except as permitted by Section 2.04(b) and the grant
of ZIM Options with an exercise price of at least CDN$1.00, issue, sell or
pledge, or authorize or propose the issuance, sale or pledge of (i) any shares
of capital stock of any class of ZIM or its Subsidiaries (including ZIM
Shares), or securities convertible into any such shares, or any rights,
warrants or options to acquire any such shares or convertible securities, other
than upon the exercise, in accordance with the present terms thereof, of ZIM
Options, or (ii) any other securities in respect of, in lieu of or in
substitution of outstanding ZIM Shares;
(ii) Purchase or redeem or otherwise acquire, or propose
to purchase or redeem or otherwise acquire, any outstanding shares of capital
stock of any class of ZIM or its Subsidiaries
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(including ZIM Shares), or securities convertible to any such shares or any
rights, warrants or options to acquire any such shares or convertible
securities;
(iii) Declare or pay any dividend or distribution on any
shares of the capital stock of ZIM or its Subsidiaries other than as approved
in writing by the Company or repurchase, redeem, retire or otherwise acquire
any shares of the capital stock or securities of or equity or other ownership
interest in, ZIM or its Subsidiaries;
(iv) Authorize, recommend, propose or announce an
intention to authorize, recommend or propose, or enter into a letter of intent
(whether or not binding), an agreement in principle or an agreement with
respect to any merger, consolidation or business combination, any acquisition
of assets or securities, any disposition of assets or securities or any change
in the capitalization of ZIM or its Subsidiaries, except as permitted by
Section 2.04(b) and except for the grant of ZIM Options with an exercise price
of at least CDN$1.00;
(v) Take any action which could make any representation
or warranty in this Agreement untrue or incorrect, as if made as of such time;
(vi) Enter into any material agreement, contract or
commitment (other than in the ordinary course of business and other than
agreements, contracts or commitments which were under negotiation on the date
hereof and were described in the ZIM Due Diligence Materials);
(vii) Enter into any contract, agreement, license or
commitment which would be breached or violated or in respect of which a right
of acceleration would be created by the Company's execution and deliver of this
Agreement and the transactions contemplated hereby; or
(viii) Agree in writing or otherwise to take any of the
foregoing actions.
SECTION 6.02. COVENANTS OF THE COMPANY. Except as contemplated by
this Agreement, from the date of this Agreement to the Closing Date, the
Company will conduct its operations only in the ordinary and usual course of
business and consistent with past practices. During such period, the Company
shall promptly report to the ZIM any occurrence or omission which shall have
caused any representation or warranty of the Company hereunder to become untrue
as of the date of such occurrence or omission, and shall confer on a regular
and frequent basis with representatives of ZIM to report operational matters of
a material nature and report the general status of the ongoing operations of
the business of the Company. Without limiting the generality of the foregoing,
and except as contemplated by this Agreement, the Company will not, prior to
the Closing Date, without the prior written consent of ZIM, which shall not be
unreasonably withheld or delayed in each instance:
(a) Issue, sell or pledge, or authorize or propose the
issuance, sale or pledge of (i) any shares of capital stock of any class of the
Company (including Company Shares), or securities convertible into any such
shares, or any rights, warrants or options to acquire any such shares or
convertible securities, or (ii) any other securities in respect of, in lieu of
or in substitution of outstanding Company Shares, except as provided by Section
2.04(a);
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(b) Purchase or redeem or otherwise acquire, or propose
to purchase or redeem or otherwise acquire, any outstanding shares of capital
stock of any class of the Company (including Company Shares), or securities
convertible to any such shares or any rights, warrants or options to acquire
any such shares or convertible securities;
(c) Declare or pay any dividend or distribution on any
shares of the capital stock of the Company other than as approved in writing by
ZIM or repurchase, redeem, retire or otherwise acquire any shares of the
capital stock or securities of or equity or other ownership interest in, the
Company;
(d) Authorize, recommend, propose or announce an
intention to authorize, recommend or propose, or enter into a letter of intent
(whether or not binding), an agreement in principle or an agreement with
respect to any merger, consolidation or business combination, any acquisition
of assets or securities, any disposition of assets or securities or any change
in the capitalization of the Company;
(e) Take any action which could make any representation
or warranty in this Agreement untrue or incorrect, as if made as of such time;
(f) Enter into any contract, agreement, license or
commitment which would be breached or violated or in respect of which a right
of acceleration would be created by the ZIM's execution and deliver of this
Agreement and the transactions contemplated hereby; or
(g) Agree in writing or otherwise to take any of the
foregoing actions.
SECTION 6.03. ACCESS AND INFORMATION CONFIDENTIALITY.
(a) ZIM shall afford to the Company and to the Company's
accountants, counsel and other representatives access throughout the period
prior to the Closing Date to its senior management, properties, books,
contracts, commitments and records and all other information concerning its
business, properties and personnel as the Company may reasonably request.
(b) The Company shall afford to ZIM and to its
accountants, counsel and other representatives access throughout the period
prior to the Closing Date to its senior management, properties, books,
contracts, commitments and records and all other information concerning the
Company as ZIM may reasonably request.
(c) The Company has entered into a confidentiality
agreement with ZIM concerning the Company's obligations to protect the
confidential information of ZIM. The Company hereby affirms its obligations
under such agreement. If this Agreement is terminated in accordance with
Section 9.01 hereof, ZIM shall, and shall cause its accountants, counsel and
other representatives to deliver to the Company all documents and other
material, and all copies thereof, obtained by ZIM or on its behalf from the
Company in connection with this Agreement, whether so obtained before or after
the execution hereof, and will not disclose any such information or documents
to any third parties or make any use of such. If this Agreement is terminated
in accordance with Section 9.01 hereof, the Company shall, and shall cause its
accountants, counsel
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and other representatives to, deliver to ZIM all documents and other material,
and all copies thereof, obtained by the Company or on its behalf from ZIM in
connection with this Agreement, whether so obtained before or after the
execution hereof, and will not disclose any such information or documents to
any third parties or make any use of such.
SECTION 6.04. REASONABLE EFFORTS. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations expeditiously and practicably to consummate and make
effective the transactions contemplated by this Agreement, including using its
reasonable efforts to obtain all necessary actions or non-actions, waivers,
consents and approvals from Governmental Entities and to effect all necessary
registrations and filings.
SECTION 6.05. NO SOLICITATION. Unless and until this Agreement
shall have been terminated pursuant to Section 9.01 hereof, neither ZIM nor any
of its officers, directors or affiliates nor any ZIM Shareholder or any of its
representatives shall (a) initiate contact with, solicit or encourage any
inquiry or proposal by or (b) enter into discussions with, or disclose,
directly or indirectly, any information not customarily disclosed to the public
concerning the business and properties of ZIM to, or afford access to the
properties, books or records of ZIM to, any corporation, partnership, person or
other entity or group in connection with any possible proposal (an "Acquisition
Proposal") regarding a sale of ZIM's capital stock or a merger, consolidation,
sale of all or a substantial portion of the assets of ZIM or any similar
transaction, except for any transaction permitted by Section 2.04(b). ZIM will
notify the Company immediately if any discussions or negotiations are sought to
be initiated, any inquiry or proposal is made, or any such information is
requested, with respect to an Acquisition Proposal or potential Acquisition
Proposal or if any Acquisition Proposal is received or indicated to be
forthcoming.
SECTION 6.06. PUBLIC ANNOUNCEMENTS. Prior to the Closing Date, the
Company and ZIM will obtain the written consent of each other prior to issuing
any press release or otherwise making any public statement with respect to the
Transactions and shall not issue any such press release or make any public
statement prior to obtaining such consent, except as may be required by
applicable law.
SECTION 6.07. FEES AND EXPENSES. Assuming the consummation of the
Transactions, all costs and expenses incurred by the Company hereto in
connection with this Agreement and the Transactions (including, without
limitation, fees and disbursements of counsel and accountants) shall be paid by
Cooper Consultants, Inc. Assuming the consummation of the Transactions, all
costs and expenses incurred by ZIM hereto in connection with this Agreement and
the Transactions (including, without limitation, fees and disbursements of
counsel and accountants) shall be paid by ZIM. In the event that the
Transactions are not consummated for any reason, then each of the parties shall
bear its own expenses in connection with this Agreement and the Transactions,
except as otherwise provided in Section 9.02.
SECTION 6.08. SEC FILINGS. The Company will file with the SEC, in
a timely manner, all reports and other documents required of the Company under
the Securities Act and the Exchange Act, at all times after the date of this
Agreement.
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ARTICLE VII
CONDITIONS
SECTION 7.01. CONDITIONS TO EACH PARTY'S OBLIGATIONS. The
respective obligations of the parties to consummate the Transactions shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) statutory requirements for the valid consummation by
the Company of the Transactions contemplated by this Agreement shall have been
fulfilled; and all authorizations, waivers, consents, approvals and actions of
all Governmental Entities required to be obtained in order to permit
consummation of the Transactions contemplated by this Agreement shall have been
obtained.
(b) No court of competent jurisdiction shall have issued
any order, decree or injunction restraining or preventing the consummation of
the Transactions or otherwise materially adversely affecting the Transactions;
(c) No investigation, action, suit or proceeding by any
Governmental Entity, and no action, suit or proceeding by any other person,
firm, corporation or entity, shall be pending on the Closing Date which
challenges, or might reasonably be expected to result in a challenge to, this
Agreement or the Transactions, or which claims, or might reasonably be expected
to give rise to a claim for, damages in a material amount as a result of the
consummation of the Transactions.
SECTION 7.02. CONDITIONS TO OBLIGATION OF THE COMPANY AND THE
COMPANY SHAREHOLDERS. The obligation of the Company and the Company
Shareholders to consummate the Transactions shall be subject at the option of
the Company to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) ZIM shall have performed in all material respects
their agreements contained in this Agreement required to be performed on or
prior to the Closing Date; and the representations and warranties of ZIM set
forth in Article IV hereof shall be true, correct and complete as of the
Closing Date as if made as of such time, except as contemplated or permitted by
this Agreement; and at the Closing, the Company shall have received
certificates executed by the President of ZIM to the foregoing effect;
(b) No action, suit, claim, investigation or proceeding
shall be pending or threatened against ZIM, any of its Subsidiaries or their
properties and assets which, if adversely determined, could reasonably be
expected to have a Material Adverse Effect.
(c) At the Closing, there shall be delivered to the
Company and Company Shareholders the opinion of Borden Ladner Gervais LLP,
counsel for ZIM, dated the Closing Date, in form and substance reasonably
satisfactory to the Company and its counsel.
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(d) All corporate and other proceedings to be taken by
ZIM in connection with the transactions contemplated hereby and all documents
incident thereto shall be satisfactory in form and substance to the Company and
its counsel, and the Company and its counsel shall have received all such
counterpart originals or certified or other copies of such documents as they
reasonably may request.
(e) No material adverse change in the business, assets,
condition (financial or otherwise) or results of operations of ZIM and its
Subsidiaries taken as a whole shall have occurred.
SECTION 7.03. CONDITIONS TO OBLIGATIONS OF ZIM. The obligations of
ZIM to consummate the Transactions shall be subject to the fulfillment at or
prior to the Closing Date of the following conditions:
(a) The Company and the Company Shareholders shall have
performed in all material respects its agreements contained in this Agreement
required to be performed on or prior to the Closing Date and the
representations and warranties of the Company and the Company Shareholders set
forth in Article V and Article V-A hereof shall be true, correct and complete
as of the Closing Date as if made as of such time, except as contemplated or
permitted by this Agreement; and at the Closing, ZIM shall have received a
certificate executed by the President of the Company to the foregoing effect;
(b) No action, suit, claim, investigation or proceeding
shall be pending or threatened against the Company or its properties and assets
which, if adversely determined, could reasonably by expected to have a Material
Adverse Effect;
(c) At the Closing, there shall be delivered to ZIM the
opinion of Shutts & Bowen LLP, counsel for the Company, dated the Closing Date,
in form and substance reasonably satisfactory to ZIM and its counsel.
(d) All corporate and other proceedings to be taken by
the Company and the Company Shareholders in connection with the transactions
contemplated hereby and all documents incident thereto shall be satisfactory in
form and substance to ZIM and its counsel, and ZIM and its counsel shall have
received all such counterpart originals or certified or other copies of such
documents as they reasonably may request.
(e) The Related Transactions shall have been completed.
(f) Tax clearance certificates referred to Section 2.07
have been received by the Company.
(g) The Company shall have no liabilities of any nature,
accrued, absolute, contingent or otherwise, except as described in Schedule
5.07.
(h) The Company (or the successor entity under the CBCA
pursuant to the Continuance) shall continue to be a public company in the
United States by virtue of the registration of its common stock under Section
12(g) of the Exchange Act.
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(i) The Company shall have been issued a receipt for a
final prospectus in the province of Ontario qualifying the conversion of its
special shares.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS, WARRANTIES
AND COVENANTS; INDEMNIFICATION
SECTION 8.01. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS. All representations, warranties and covenants of the Company,
Company Shareholders and ZIM contained in this Agreement or in any schedule,
document, written statement, certificate or other instrument delivered by or on
behalf of the Company, Company Shareholders or ZIM, as the case may be,
pursuant to the terms of this Agreement shall survive the execution and
delivery of this Agreement, any investigation by or on behalf of the Company,
the Company Shareholders or ZIM, as the case may be, and the completion of the
Transactions and shall terminate on the second anniversary of the Closing Date;
provided that nothing in this Agreement shall be deemed to limit any right or
remedy of any party for criminal activity or fraud, or breaches of covenants or
inaccuracies in any representations or warranties set forth in the Lockup
Agreement.
SECTION 8.02. EXCLUSIVE REMEDY. The exclusive remedy of the
parties for any and all claims arising from or related to this Agreement or the
transactions contemplated by this Agreement (whether in contract, tort or
otherwise) shall be to assert a claim for indemnification pursuant to Section
8.03, except for those claims specifically excluded under Section 8.01.
SECTION 8.03. INDEMNIFICATION.
(a) ZIM, from and after the Closing, shall indemnify and
hold the Company and the Company Shareholders harmless from and against any and
all losses, claims, damages, liabilities and expenses (including reasonable
counsel fees and expenses) ("Damages") suffered by any of them as a result of,
caused by, arising out of, or in any way relating to any misrepresentation,
breach of warranty, or nonfulfillment of any agreement or covenant on the part
of ZIM under this Agreement.
(b) The Company, from and after the Closing, shall
indemnify and hold ZIM harmless from and against any and all Damages suffered
by any of them as a result of, caused by, arising out of, or in any way
relating to any misrepresentation, breach of warranty, or nonfulfillment of any
agreement or covenant on the part of the Company under this Agreement.
(c) The Company Shareholders, from and after the
Closing, shall indemnify and save the Company and ZIM harmless from any and all
Damages suffered by any of them as a result of, caused by, arising out of, or
in any way relating to any misrepresentation, breach of warranty, or
non-fulfillment of any agreements or covenant on the part of the Company
Shareholders under this Agreement.
(d) Each indemnified party hereunder agrees that
promptly upon its discovery of facts giving rise to a claim for indemnity under
the provisions of this Agreement, including receipt by it of notice of any
demand, assertion, claim, action or proceeding, judicial or otherwise, by any
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third party (such discovery of facts or third-party action being collectively
referred to herein as a "Matter"), with respect to any Matter as to which it
claims to be entitled to indemnity under the provisions of this Agreement, it
will give prompt notice thereof in writing to the indemnifying party, together
with a statement of such information respecting any of the foregoing as it
shall have. Such notice shall include a formal demand for indemnification under
this Agreement. The indemnifying party shall not be obligated to indemnify the
indemnified party with respect to any Matter if the indemnified party knowingly
failed to notify the indemnifying party thereof in accordance with the
provisions of this Agreement in sufficient time to permit the indemnifying
party or its counsel to defend against such Matter and to make a timely
response thereto including, without limitation, any responsive motion or answer
to a complaint, petition, notice or other legal, equitable or administrative
process relating to the Matter, only insofar as such knowing failure to notify
the indemnifying party has actually resulted in prejudice or damage to the
indemnifying party.
(e) The indemnifying party shall be entitled at its cost
and expense to contest and defend by all appropriate legal proceedings any
Matter with respect to which it is called upon to indemnify the indemnified
party under the provisions of this Agreement; provided, that notice of the
intention so to contest shall be delivered by the indemnifying party to the
indemnified party within 20 calendar days from the date of receipt by the
indemnifying party of notice by the indemnified party of the assertion of the
Matter. If the indemnifying party has elected to assume the defense of any
Matter, except as otherwise provided in this Section 8.03, the indemnifying
party will not be liable for any legal expenses subsequently incurred by the
indemnified party in connection with the defense thereof; provided, however,
that if the indemnifying party fails to notify the indemnified party of its
intent to assume the defense of the Matter within such 20-day period, the
indemnified party may assume its own defense, and the indemnifying party will
be liable for any reasonable expenses thereof. Any such contest may be
conducted in the name and on behalf of the indemnifying party or the
indemnified party as may be appropriate. Such contest shall be conducted by
reputable counsel employed by the indemnifying party, but the indemnified party
shall have the right but not the obligation to participate in such proceedings
and to be represented by counsel of its own choosing at its sole cost and
expense. The indemnifying party shall have full authority to determine all
action to be taken with respect thereto; provided, however, that the
indemnifying party will not have the authority to subject the indemnified party
to any obligation whatsoever, other than the performance of purely ministerial
tasks or obligations not involving material expense. If the indemnifying party
does not elect to contest any particular Matter, the indemnifying party shall
be bound by the result obtained with respect thereto by the indemnified party.
At any time after the commencement of the defense of any Matter, the
indemnifying party may request the indemnified party to agree in writing to the
abandonment of such contest or to the payment or compromise by the indemnified
party of the asserted Matter, whereupon such action shall be taken unless the
indemnified party reasonably determines that the contest should be continued,
and so notifies the indemnifying party in writing within 15 calendar days of
such request from the indemnifying party. Whenever the indemnified party
determines that the contest should be continued, the indemnifying party shall
be liable hereunder only to the extent of the amount that the other party to
the contested Matter had agreed unconditionally to accept in payment or
compromise as of the time the indemnifying party made its request therefor to
the indemnified party. The indemnified party shall not settle any Matter for
which it is seeking indemnification without the prior written consent of the
indemnifying party (which consent shall not be unreasonably withheld or
delayed).
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(f) If requested by the indemnifying party, the
indemnified party agrees to cooperate, including, without limitation, providing
reasonable access to its books and records relating to the Matter, with the
indemnifying party and its counsel in contesting any Matter that the
indemnifying party elects to contest or, if appropriate, in making any
counterclaim against the person asserting the Matter, or any cross-complaint
against any person, and the indemnifying party will reimburse the indemnified
party for any expenses incurred by it in so cooperating. At no cost or expense
to the indemnified party, the indemnifying party shall cooperate with the
indemnified party and its counsel in contesting any Matter with respect to all
reasonable requests for such cooperation.
(g) The indemnified party agrees to afford the
indemnifying party and its counsel the opportunity to be present at, and to
participate in, conferences with all Persons, including governmental
authorities, asserting any Matter against the indemnified party or conferences
with representatives of or counsel for such Persons.
(h) The indemnifying party shall pay to the indemnified
party any amounts to which the indemnified party may become entitled by reason
of the provisions of this Section 6.13, such payment to be made within five
business days after any such amounts are finally determined either by mutual
agreement of the parties hereto or pursuant to the final unappealable judgment
of a court of competent jurisdiction. In calculating any amount to be paid by
an indemnifying party by reason of the provisions of this Section 8.03, the
amount shall be reduced by all Tax benefits and other reimbursements credited
to or received by the indemnified party related to the Damages and shall be
increased by the amount of any Taxes actually paid by the indemnified party as
a result of the indemnified party's receipt of such Damages.
ARTICLE IX
TERMINATION; AMENDMENT AND WAIVER
SECTION 9.01. TERMINATION. This Agreement may be terminated at any
time prior to the Closing:
(a) By mutual written consent of ZIM and Company;
(b) By ZIM or by Company if, at or before the Closing,
any conditions set forth herein for the benefit of ZIM or Company, as the case
may be, (i) shall not have been timely met or (ii) shall have become impossible
to satisfy;
(c) By ZIM, if there has been a material breach of this
Agreement on the part of the Company or any of the Company Shareholders with
respect to any of their covenants, representations or warranties contained
herein and such breach has not been cured within 10 days after written notice
thereof from ZIM;
(d) By Company, if there has been a material breach of
this Agreement on the part of ZIM with respect to any of their covenants,
representations or warranties contained herein and such breach has not been
cured within 10 days after written notice thereof from Company; or
A-27
(e) By ZIM or the Company if:
(i) the Closing shall not have occurred on or
before June 15, 2003, or such later date as may have been agreed upon in
writing by ZIM and the Company; provided, that the right to terminate this
Agreement under this clause (i) shall not be available to any party if such
party's breach of any representation, warranty or agreement contained in this
Agreement has been the cause of or resulted in the failure of the Closing to
occur on or before such date;
(ii) there shall be a final nonappealable order
of a court of competent jurisdiction in effect preventing consummation of the
Transactions;
(iii) there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Transactions by any Governmental Entity which would make
consummation of the Transactions illegal; or (iv) there shall be any action
taken, or any statute, rule, regulation or order enacted, promulgated or issued
or deemed applicable to the Transactions by any Governmental Entity, which
would render ZIM or the Company unable to consummate the Transactions.
(f) The party desiring to terminate this Agreement shall
give written notice of such termination to the other parties.
SECTION 9.02. EFFECT OF TERMINATION. In the event of termination
of this Agreement as provided above, this Agreement shall forthwith become void
and there shall be no liability on the part of any party, except (i) the
provisions of Section 6.03(c) hereof shall survive indefinitely; and (ii) in
the event this Agreement is terminated pursuant to Section 9.01(c), the
reasonable, documented expenses incurred by ZIM shall be paid by the Company.
All payments pursuant to this section shall be made within 30 days of a written
claim.
SECTION 9.03. AMENDMENT. This Agreement may not be amended except
by an instrument in writing signed on behalf of the Company, the Company
Shareholders and ZIM.
SECTION 9.04. WAIVER. At any time prior to the Closing, the
Company and ZIM, by action taken by their respective Boards of Directors, may
(a) extend the time for the performance of any of the obligations or other acts
of the parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and
(c) waive compliance with any of the agreements or conditions contained herein.
Any agreement on the part of the party hereto any such extension or waiver
shall be valid if set forth in an instrument in writing signed on behalf of
such party.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01. NOTICES. All notices, requests, claims, demands and
other communications given or made pursuant to this Agreement shall be in
writing and shall be deemed to have been duly given or made as of the date of
delivery (if delivered personally), three days after
A-28
the date of mailing (if mailed by registered or certified mail, postage
prepaid, return receipt requested to the parties at the following addresses),
or on the date of transmission (if sent by electronic transmission to the
telecopier number specified below):
(a) If to the Company:
511 N.E. 94th Street
Miami Shores, Florida 33138
Attention: Stuart D. Cooper
Fax: (305) 759-2444
with a copy to:
Shutts & Bowen LLP
201 South Biscayne Boulevard
Suite 1500
Miami, Florida 33131
Attention: Alfred G. Smith, II
Fax: (305) 381-9982
(b) If to ZIM:
20 Colonnade Road, Suite 200
Ottawa, Ontario Canada K2E7M6
Attention: Kathy Aubrey-Moore
Fax: (613) 727-9868
With a copy to:
Borden Ladner Gervais LLP
1100-100 Queen Street
Ottawa, ON K1P 1J9
Attention: Timothy J. McCunn
Fax: (613) 230-8842
Notice to a "copy to" address shall be provided as a courtesy, but
shall not be deemed to be actual notice received by a party for any purpose.
Any party may change the address to which notices, requests, demands, claims
and other communications hereunder are to be delivered by giving the other
parties notice in the manner herein set forth.
SECTION 10.03. HEADINGS. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 10.04. SEVERABILITY. If any term or other provision of this
Agreement is determined to be invalid, illegal or incapable of being enforced
by any rule of law or public policy, all other terms and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the Transactions is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid,
A-29
illegal, or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
Transactions are fulfilled to the extent possible.
SECTION 10.05. ENTIRE AGREEMENT. This Agreement (together with the
Schedules and the Exhibits) constitutes the entire agreement of the parties and
supersedes all prior agreements and undertakings, both written and oral,
between the parties, or any of them, with respect to the subject matter hereof.
SECTION 10.06. ASSIGNMENT. This Agreement shall not be assigned by
operation of law or otherwise.
SECTION 10.07. PARTIES IN INTEREST. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
Person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.
SECTION 10.08. TIME. Time is of the essence with respect to this
Agreement.
SECTION 10.09. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES
CUMULATIVE. No failure or delay on the part of any party hereto in the exercise
of any right hereunder shall impair such right or be construed to be a waiver
of, or acquiescence in, any breach of any representation, warranty or agreement
herein, nor shall any single or partial exercise of any such right preclude
other or further exercise thereof or of any other right. All rights and
remedies existing under this Agreement are in addition to, and not exclusive
of, any rights or remedies otherwise available.
SECTION 10.10. GOVERNING LAW. This Agreement shall be governed by,
and construed in accordance with, the laws of the Province of Ontario.
SECTION 10.11. JURISDICTION. Each party hereby irrevocably submits
to the exclusive jurisdiction of the Province of Ontario in any action, suit or
proceeding arising in connection with this Agreement, and agrees that any such
action, suit or proceeding shall be brought only in a court of competent
jurisdiction in the Province of Ontario (and waives any objection based on
forum non CONVENIECES or any other objection to venue therein).
SECTION 10.12. COUNTERPARTS. This Agreement may be executed in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
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IN WITNESS WHEREOF, the parties have executed, or caused to be
executed by their respective officers thereunto duly authorized, this Agreement
as of the date first written above.
COMPANY:
PRIVATE CAPITAL INVESTORS, INC.
By: /s/ Stuart D. Cooper
----------------------------------
President
ZIM:
ZIM TECHNOLOGIES INTERNATIONAL INC.
By: /s/ Michael Cowpland
----------------------------------
President
COMPANY SHAREHOLDERS:
/s/ Stuart Cooper
- -------------------------------------
STUART COOPER, Individually
COOPER FAMILY TRUST
By: /s/ Stuart Cooper
----------------------------------
Name: Stuart Cooper
--------------------------------
Trustee
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GLOBAL INTERMATCH, INC.
By: /s/ Stuart Cooper
----------------------------------
President
COOPER CONSULTANTS:
COOPER CONSULTANTS, INC.
By: /s/ Stuart Cooper
----------------------------------
Stuart Cooper, President
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EXHIBIT B
FORM OF AMALGAMATION AGREEMENT
AMALGAMATION AGREEMENT dated as of the _____ day of __________ , 2002.
BETWEEN:
ZIM TECHNOLOGIES INTERNATIONAL INC., a corporation governed
by the Canada Business Corporations Act, having its
registered office in the City of Ottawa in the Province of
Ontario,
(hereinafter referred to as "ZIM")
AND
PCI CANADA INC., a corporation governed by the Canada
Business Corporations Act, having its registered office in
the City of Ottawa in the Province of Ontario,
(hereinafter referred to as "Canco")
AND
ZIM CORPORATION, INC., a corporation governed by the Canada
Business Corporations Act, having its registered office in
the City of Ottawa in the Province of Ontario, and formerly
known as "Private Capital Investors, Inc."
(hereinafter referred to as the "Company")
WHEREAS ZIM was incorporated pursuant to the laws of Canada on November 13,
1997 with authorized capital consisting of an unlimited number of common shares
of which ___________ are currently issued and outstanding and an unlimited
number of special shares of which ________ are currently issued and
outstanding;
AND WHEREAS Canco was incorporated pursuant to the laws of Canada on
____________, 2002 with authorized capital consisting of an unlimited number of
common shares of which 100 common shares are currently issued and outstanding;
AND WHEREAS the parties hereto, have determined that it is desirable that ZIM
and Canco should amalgamate, under the authority contained in the Canada
Business Corporations Act, and continue as one corporation upon the terms and
conditions hereinafter set out.
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NOW THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained (the adequacy of which is hereby
mutually admitted), the parties hereto have agreed as follows:
ARTICLE ONE
INTERPRETATION
1.01 DEFINITIONS. Whenever used in this Agreement, the following terms
shall have the respective meanings ascribed to them as follows:
(a) "Act" means the Canada Business Corporations Act as
heretofore enacted or as the same may from time to time be
amended or re-enacted, or any other legislation hereafter
enacted in substitution therefor or replacement thereof, and
includes any regulations heretofore or hereafter made
pursuant to such Act or other legislation, and any term
defined in the Act and not otherwise defined herein is used
in this Agreement with the same meaning;
(b) "Amalgamating Corporations" mean ZIM and Canco;
(c) "Amalgamated Corporation" means the corporation continuing
from the amalgamation of the Amalgamating Corporations;
(d) "Amalgamation Agreement" or "Agreement" means this
Amalgamation Agreement;
(e) "Articles" means the articles of amalgamation by which the
Amalgamated Corporation is incorporated as a result of this
Agreement;
(f) "Business Day" means any day other than a Saturday, Sunday or
civic or statutory holiday in the City of Ottawa;
(g) "Canco Shares" means the issued and outstanding common shares
of Canco;
(h) "Certificate of Amalgamation" means the certificate of
amalgamation issued by the Director in respect of the
Amalgamation;
(i) "Common Shares" means the common shares of the Amalgamated
Corporation, the rights, privileges, restrictions and
conditions attaching to such shares being as set forth in
Section 3.06 herein;
(j) "Company Common Shares" means the common shares of the
Company;
(k) "Company Shares" means the common shares and special shares
of the Company;
(l) "Company Special Shares" means the special shares of the
Company;
(m) "Director" means the Director appointed under the Act;
B-2
(n) "Dissenting Shareholder" means a holder of ZIM Shares or
Canco Shares, as the case may be, who has exercised its right
of dissent in respect of the special resolution authorizing
the amalgamation in strict compliance with section 190 of the
Act and has been paid fair value in accordance therewith;
(o) "Effective Date" means the date of the Certificate of
Amalgamation which is expected to be ______________, 2002;
(p) "Expiry Time" means 5:00 p.m. (Ottawa time) on that date
which is 30 days following the Effective Date;
(q) "Share Provisions" means the rights, privileges, restrictions
and conditions attaching to the Common Shares being as set
forth in Schedule "I" attached hereto;
(r) "ZIM Common Shares" means the issued and outstanding common
shares of ZIM;
(s) "ZIM Shares" means the issued and outstanding common shares
and special shares of ZIM; and
(t) "ZIM Special Shares" means the issued and outstanding special
shares of ZIM.
ARTICLE TWO
IMPLEMENTATION
2.01 IMPLEMENTATION. The Amalgamating Corporations and each of them do
hereby agree to amalgamate under the provisions of the Act effective
immediately upon the commencement of the [____] day of [________], 2002, under
the terms and conditions hereinafter set out. After this Agreement has become
effective, subject to Section 2.02 hereof, Articles of Amalgamation in
prescribed form shall be delivered to the Director, together with all other
documents necessary to bring the amalgamation into effect.
2.02 TERMINATION. Notwithstanding the approval of this Agreement by the
shareholders of the Amalgamating Corporations, the Board of Directors of any of
the Amalgamating Corporations may, without further shareholder approval,
terminate the amalgamation and this Agreement at any time before the issuance
of a Certificate of Amalgamation.
ARTICLE THREE
ORGANIZATION
3.01 NAME. The name of the Amalgamated Corporation shall be ZIM
TECHNOLOGIES INTERNATIONAL INC.
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3.02 REGISTERED OFFICE. The registered office of the Amalgamated
Corporation shall be in the City of Ottawa in the Province of Ontario. Until
changed in accordance with the provisions of the Act, the address of the
Registered Office shall be 200-20 Colonnade Road, Ottawa, Ontario, K2E 7M2.
3.03 NUMBER OF DIRECTORS. The number of directors of the Amalgamated
Corporation, until changed in accordance with the provisions of the Act, shall
be a minimum of 1 and a maximum of 10.
3.04 DIRECTORS. The first directors of the Amalgamated Corporation shall be:
Name Residential Address Resident Canadian
- ---- ------------------- -----------------
[TO BE ADDED]
3.05 RESTRICTIONS ON BUSINESS. There shall be no restrictions on the
business of the Amalgamated Corporation or on the powers that the Amalgamated
Corporation may exercise.
3.06 AUTHORIZED CAPITAL. The Amalgamated Corporation is authorized to issue
an unlimited number of Common Shares and the rights, privileges, restrictions
and conditions attaching to such shares are as set forth in Appendix "I"
attached hereto.
3.07 RESTRICTED TRANSFER. The right to transfer shares in the capital stock
of the Amalgamated Corporation shall be restricted and no shares shall be
transferred without either:
(a) the consent of the majority of the directors of the
Amalgamated Corporation expressed by a resolution passed by
the board of directors; or
(b) the consent of the holders of the common shares for the time
being outstanding expressed by a resolution passed by such
shareholders.
3.08 OTHER PROVISIONS. The other provisions to be included in the Articles
of Amalgamation shall be as follows:
(a) the number of shareholders of the Amalgamated Corporation
exclusive of persons who are in its employment and exclusive
of persons who, having been formerly in the employment of the
Amalgamated Corporation, were, while in that employment, and
have continued after the termination of that employment to
be, shareholders of the Amalgamated Corporation, is limited
to not more than 50, two or more persons who are the joint
registered owners of one or more shares being counted as one
shareholder;
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(b) any invitation to the public to subscribe for the securities
of the Amalgamated Corporation shall be prohibited;
(c) the board of directors may from time to time, without
authorization of the shareholders, in such amounts and on
such terms as it deems expedient:
(i) borrow money on the credit of the Amalgamated
Corporation;
(ii) issue, reissue, sell or pledge debt obligations
(secured or unsecured) of the Amalgamated
Corporation;
(iii) give a guarantee on behalf of the Amalgamated
Corporation to secure performance of an obligation
of any person or body corporate; and
(iv) charge, mortgage, hypothecate, pledge, cede and
transfer or otherwise create a security interest in
all or any of the currently owned or subsequently
acquired real or personal, movable or immovable,
property of the Amalgamated Corporation, including
book debts, rights, powers, franchises and
undertaking, to secure any debt obligations or any
money borrowed, or other debt or liability of the
Amalgamated Corporation; and
(d) the board of directors may from time to time delegate to such
one or more directors and officers of the Amalgamated
Corporation as may be designated by the board all or any of
the powers conferred on the board pursuant to subparagraph
(c) above to such extent and in such manner as the board of
directors shall determine at the time of each such
delegation.
(e) the Amalgamated Corporation shall have a lien on the shares
registered in the name of a shareholder or his legal
representative for a debt of that shareholder to the
Amalgamated Corporation.
ARTICLE FOUR
ISSUED CAPITAL
4.01 EXCHANGE OF SHARES. At the time the Amalgamation becomes effective:
(a) each Canco Share shall be exchanged for issued and fully paid
Common Shares of the Amalgamated Corporation on the basis of
one (1) Common Share of the Amalgamated Company for one (1)
Canco Share;
(b) each ZIM Common Share other than those held by Dissenting
Shareholders shall be exchanged for issued and fully paid
Company Common Shares on the basis of one (1) Company Common
Share for one (1) ZIM Common Share;
B-5
(c) each ZIM Special Share other than those held by Dissenting
Shareholders shall be exchanged for issued and fully paid
Company Special Shares on the basis of one (1) Company
Special Share for one (1) ZIM Special Share;
(d) each ZIM Share held by Dissenting Shareholders tendered for
cancellation in accordance with the provisions of section 190
of the Act shall be cancelled;
(e) all ZIM Shares which have been exchanged or tendered in
accordance with this section 4.01 shall thereupon be
cancelled; and
(f) all authorized but unissued shares in the capital of Canco
and ZIM shall be cancelled.
4.02 FRACTIONAL SHARES. No fractional shares of the Company will be issued
to any holder of ZIM Shares. In lieu thereof such shareholders shall receive a
whole Company Share.
4.03 SHARE CERTIFICATES. After the Effective Date:
(a) the holders of ZIM Shares (other than Dissenting Shareholders
holding such shares) shall be entitled to receive
certificates representing Company Shares on the basis
provided for in sections 4.01 and 4.02 hereof on presentation
and surrender for cancellation of the certificates
representing the ZIM Shares held by them, or such other
properly executed documentation as the Amalgamated
Corporation may request in lieu of such certificates, at the
office of the Company; and
(b) the holders of Canco Shares (other than Dissenting
Shareholders holding such shares) shall be entitled to
receive certificates representing Common Shares on the basis
provided for in section 4.01 on presentation and surrender
for cancellation of the certificates representing the Canco
Shares held by them, or such other properly executed
documentation as the Amalgamated Corporation may request in
lieu of such certificates at the office of the Amalgamated
Corporation.
4.04 DISSENTING SHAREHOLDER. Notwithstanding anything in this Agreement to
the contrary, ZIM Shares, in respect of which a Dissenting Shareholder shall
dissent shall not, at the Effective Date, be converted into Company Shares as
provided in Sections 4.01 and 4.02 hereof, and no Company Shares shall be
issued to such Dissenting Shareholder, as provided in Sections 4.01 and 4.02
hereof; provided however, that in the event that a Dissenting Shareholder who
has exercised the right of dissent under section 190 of the Act fails to
perfect or withdraws or forfeits his or her right to make a claim under section
190 of the Act or his or her rights as a shareholder are otherwise reinstated
such shareholder's ZIM Shares shall thereupon be deemed to have been exchanged
as at the Effective Date into Company Shares as provided in Sections 4.01 and
4.02 hereof, and the Company shall be deemed to have issued to such shareholder
as at the Effective Date the Company Shares as provided in Sections 4.01 and
4.02 hereof.
4.05 CONSIDERATION. In consideration of the issue by the Company of the
Company Shares to holders of the ZIM Shares as contemplated by Sections 4.01
and 4.02 hereof, the Amalgamated Corporation shall, upon the Amalgamation
becoming effective, issue to the Company fully paid and
B-6
non-assessable Common Shares having an aggregate fair market value of the said
Company Shares issued upon the Amalgamation to the said holders of ZIM Shares
as contemplated by Sections 4.01 and 4.02 hereof, such fair market value to be
determined by the board of directors of the Amalgamated Corporation.
4.06 STATED CAPITAL. The aggregate stated capital of each class of shares
in the capital of the Amalgamated Corporation shall be equal to the aggregate
stated capital of the class(es) of shares in the capital of the Amalgamating
Corporations which it replaced immediately before such amalgamation becomes
effective.
ARTICLE FIVE
MISCELLANEOUS
5.01 ARTICLES. Upon the shareholders of ZIM and Canco approving this
Agreement in accordance with the provisions of the Act and the obtaining of all
other consents or orders of all regulatory authorities, federal, provincial,
domestic or foreign, ZIM and Canco shall forthwith complete and send to the
Director the Articles in prescribed form and such other related documents as
may be required pursuant to the Act or any other regulatory authority.
5.02 FURTHER ASSURANCES. The parties hereto shall with reasonable diligence
do all things and provide all reasonable assurances as may be required to
complete the transactions contemplated by this Agreement, and each party hereto
shall provide such further documents or instruments required by any other party
as may be reasonably necessary or desirable to give effect to this Agreement
and to carry out its provisions.
5.03 AMENDMENT. This Agreement may be amended by an agreement in writing
signed by each of the parties hereto, provided that the amendment is approved
by a special resolution of the shareholders of each Amalgamating Corporation.
5.04 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of Ontario and the federal laws of Canada applicable
therein.
5.05 BY-LAWS. The by-laws of Canco shall, so far as applicable, be the
by-laws of the Amalgamated Corporation, until repealed, amended, altered or
added to and a copy of such by-laws may be examined at the registered office
address of the Amalgamated Corporation.
B-7
IN WITNESS WHEREOF this Amalgamation Agreement has been duly executed
by the parties hereto as witnessed by the signatures of their proper officers
in that behalf.
ZIM TECHNOLOGIES INTERNATIONAL INC.
By:
----------------------------------------
PCI CANADA INC.
By:
----------------------------------------
ZIM CORPORATION
By:
----------------------------------------
B-8
APPENDIX "I"
TO THE AMALGAMATION AGREEMENT BETWEEN
ZIM TECHNOLOGIES INTERNATIONAL INC.
PCI CANADA INC.
AND
ZIM CORPORATION
THE RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS ATTACHING TO THE COMMON
SHARES OF THE AMALGAMATED CORPORATION SHALL BE AS FOLLOWS:
A. COMMON SHARES
1. DIVIDENDS
1.1 The holders of the Common Shares shall be entitled, subject to the
provisions of the Canada Business Corporations Act (the "CBCA"), to receive and
the Amalgamated Corporation shall pay thereon, as and when declared by the
board of directors of the Amalgamated Corporation, out of any or all profits or
surplus available for dividends, such dividends (if any) as the directors may
from time to time declare.
2. VOTING RIGHTS
2.1 Except for meetings at which only the holders of another specified
class of shares of the Amalgamated Corporation are entitled to vote separately
as a class, the holders of the Common Shares shall be entitled to receive
notice of and to attend all meetings of shareholders of the Amalgamated
Corporation and shall be entitled to one vote for each Common Share held by
them at all meetings of the shareholders of the Amalgamated Corporation.
3. DISSOLUTION
3.1 In the event of the liquidation, dissolution or winding up of the
Amalgamated Corporation, whether voluntary or involuntary, or any other
distribution of its assets among its shareholders for the purpose of winding up
its affairs, after payment to the holders of any class having priority to the
holders of Common Shares, all of the remaining property and assets of the
Amalgamated Corporation shall be distributed among the holders of Common Shares
in proportion to the number of shares held.
B-9
EXHIBIT C
FINANCIAL STATEMENTS OF THE COMPANY
C-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Private Capital Investors, Inc.
Miami Shores, Florida
We have audited the accompanying balance sheet of Private Capital Investors,
Inc. (A Development Stage Company) (the Company) as of July 31, 2001, and the
related statements of operations, stockholders' equity and cash flows for the
year then ended and cumulative from inception (August 6, 1999). The statement of
operations, stockholders' equity and cash flows from inception (August 6, 1999)
to July 31, 2000, were audited by another auditor whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts included
as cumulative from inception (August 6, 1999) to July 31, 2000, is based solely
on the report of the other auditor. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about 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. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, based on our audit and the report of the other auditor, the
financial statements referred to above present fairly, in all material respects,
the financial position of Private Capital Investors, Inc. (A Development Stage
Company) as of July 31, 2001, and the results of its operations and its cash
flows for the year then ended and cumulative from inception, in conformity with
accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 2 to the
financial statements, the Company is subject to certain risks and uncertainties,
which conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans with regard to these matters are also
described in Note 2 to the financial statements. The financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
November 16, 2001
C-2
Independent Auditor's Report
To the Board of Directors
Private Capital Investors, Inc. (formerly Private Funding Inc.)
Miami Shores, Florida
I have audited the accompanying statements of operations, stockholders'
equity and cash flows of Private Capital Investors, Inc. (formerly Private
Funding, Inc.) for the period ended July 31, 2000. These financial statements
are the responsibility of the Company's management. My responsibility is to
express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted accounting
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
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. I believe that my audit provided a reasonable basis for my
opinion.
In my opinion, the accompanying financial statements present fairly, in
all material respects, the results of operations and cash flows of Private
Capital Investors, Inc. (formerly Private Funding, Inc.) for the period ended
July 31, 2000 in conformity with generally accepted accounting principles.
David I. Tow, Certified Public Accountant
Port St. Lucie, Florida
September 8, 2000
C-3
PRIVATE CAPITAL INVESTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
JULY 31, 2001
ASSETS
Current Assets:
Cash $ 600
-------
Total assets $ 600
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ --
-------
Stockholders' Equity:
Common stock, $.001 par value; 100,000,000 shares authorized;
1,535,455 shares issued and outstanding 1,535
Additional paid-in capital 8,465
Deficit accumulated during the development stage (9,400)
-------
Total stockholders' equity 600
-------
Total liabilities and stockholders' equity $ 600
=======
See notes to financial statements.
C-4
PRIVATE CAPITAL INVESTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
INCEPTION
(AUGUST 6,
YEAR 1999)
ENDED THROUGH CUMULATIVE
JULY 31, JULY 31, FROM
2001 2000 INCEPTION
------------ ------------ ------------
Revenue $ -- $ -- $ --
------------ ------------ ------------
Costs and Expenses:
Organization costs -- 9,400 9,400
------------ ------------ ------------
-- 9,400 9,400
------------ ------------ ------------
Net Loss $ -- $ (9,400) $ (9,400)
============ ============ ============
Weighted Average Number of Common Shares
Outstanding 1,535,455 1,535,455
============ ============
Net Loss Per Share $ -- $ (0.01)
============ ============
See notes to financial statements.
C-5
PRIVATE CAPITAL INVESTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FROM INCEPTION (AUGUST 6, 1999) THROUGH JULY 31, 2001
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE
---------------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
------------ ------------ ------------ ------------ ------------
Inception (August 6, 1999) to July 31, 2000: -- $ -- $ -- $ -- $ --
Shares issued for cash 153,545 153 847 -- 1,000
Shares issued for services 1,381,910 1,382 7,618 -- 9,000
Net loss -- -- -- (9,400) (9,400)
------------ ------------ ------------ ------------ ------------
Balance, July 31, 2000 1,535,455 1,535 8,465 (9,400) 600
Year Ended July 31, 2001:
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, July 31, 2001 1,535,455 $ 1,535 $ 8,465 $ (9,400) $ 600
============ ============ ============ ============ ============
See notes to financial statements.
C-6
PRIVATE CAPITAL INVESTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
INCEPTION
(AUGUST 6,
YEAR 1999)
ENDED THROUGH CUMULATIVE
JULY 31, JULY 31, FROM
2001 2000 INCEPTION
---------- ---------- ----------
Cash Flows from Operating Activities:
Net loss $ -- $ (9,400) $ (9,400)
(Decrease) increase in accounts payable (400) 400 --
---------- ---------- ----------
Cash used in operating activities (400) (9,000) (9,400)
Cash Flows from Financing Activities:
Proceeds from issuance of common stock -- 10,000 10,000
---------- ---------- ----------
Net (Decrease) Increase in Cash (400) 1,000 600
Cash, Beginning 1,000 -- --
---------- ---------- ----------
Cash, Ending $ 600 $ 1,000 $ 600
========== ========== ==========
See notes to financial statements.
C-7
PRIVATE CAPITAL INVESTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2001
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Private Capital Investors, Inc. (the Company) was incorporated in
Florida on August 6, 1999. The Company intends to serve as a vehicle to
effect asset acquisition, merger, exchange of capital stock or other
business combination with a domestic or foreign business. At July 31,
2001, the Company had not yet commenced any formal business operations.
DEVELOPMENT STAGE ENTERPRISE
As described above, the Company was incorporated on August 6, 1999,
and, since that time, has been seeking candidates to effect an asset
acquisition, merger, exchange of shares or the business combination. As
of July 31, 2001, operations have not commenced. Accordingly, the
Company is considered to be in the development stage, and the
accompanying financial statements represent those of a development
stage enterprise.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Although these estimates are based
on management's knowledge of current events and actions it may
undertake in the future, they may ultimately differ from actual
results.
INCOME TAXES
The Company accounts for its income taxes using Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, which
requires recognition of deferred tax liabilities and assets for
expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the differences
between the financial statement and tax bases of assets and liabilities
using enacted tax rates in effect for the year in which the differences
are expected to reverse.
ORGANIZATION COSTS
During fiscal 2000, the Company issued 153,545 shares for cash and
1,381,910 shares of common stock in exchange for $9,000 in organization
costs to its incorporators. The shares issued have been restated to
reflect the stock split in 2001 (see Note 6)
C-8
PRIVATE CAPITAL INVESTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
LOSS PER SHARE
The Company computes loss per share in accordance with SFAS No. 128,
Earnings Per Share. This standard requires dual presentation of basic
and diluted earnings per share on the face of the income statement for
all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the diluted earnings
per share computation.
Net loss per common share (basic and diluted) is based on the net loss
divided by the weighted average number of common shares outstanding
during the year. The Company does not have any potentially dilutive
securities outstanding at July 31, 2001. Share amounts have been
adjusted retroactively to reflect the stock split in 2001 (see Note 6)
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting
for Asset Retirement Obligations". SFAS 143 requires entities to record
the fair value of a liability for an asset retirement obligation in the
period in which it is incurred. The statement requires that the amount
recorded as a liability be capitalized by increasing the carrying
amount of the related long-lived asset. Subsequent to initial
measurement, the liability is accreted to the ultimate amount
anticipated to be paid, and is also adjusted for revisions to the
timing or amount of estimated cash flows. The capitalized cost is
depreciated over the useful life of the related asset. Upon settlement
of the liability, an entity either settles the obligation for its
recorded amount or incurs a gain or loss upon settlement. SFAS 143 will
be effective for the Company's financial statements beginning July 1,
2002, with earlier application encouraged. The Company believes that
the adoption of this statement will not have a significant impact on
the results of operations or financial position of the Company.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations",
and SFAS No. 142, "Goodwill and Other Intangible Assets" which replace
Accounting Principles Board Opinion Nos. 16, "Business Combinations"
and 17, "Intangible Assets", respectively. SFAS No. 141 requires that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001, and that the use of the
pooling-of-interests method be prohibited. SFAS No. 142 changes the
accounting for goodwill from an amortization method to an impairment-
only method. Amortization of goodwill, including goodwill recorded in
past business combinations, will cease upon adoption of SFAS No. 142,
which the Company will be required to adopt on August 1, 2002. After
July 31, 2002, goodwill can only be written down upon impairment
discovered during annual tests for fair value, or discovered during
tests taken when certain triggering events occur. The Company does not
believe the impact of these pronouncements on its financial position
and results of operations will be significant.
C-9
PRIVATE CAPITAL INVESTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. ACCOUNTING POLICIES AND OPERATIONS (Continued)
RECENTLY ISSUED ACCOUNTING STANDARDS (Continued)
In June 1998, the FASB issued SFAS No. 133, as amended by SFAS No. 137
and SFAS No. 138, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair
value and that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows derivatives gains
and losses to offset related results on the hedged item in the income
statement and requires that the company must formally document,
designate and assess the effectiveness of transactions that receive
hedge accounting. SFAS No. 133 is effective for fiscal years beginning
after June 15, 2000. The adoption of this statement has not had a
significant impact on the results of operations or financial position
of the Company.
NOTE 2. GOING CONCERN CONSIDERATIONS
The accompanying financial statements have been presented in accordance
with accounting principles generally accepted in the United States,
which assumes the continuity of the Company as a going concern.
However, the Company has generated no revenue to date, and has limited
assets and an accumulated deficit of approximately $9,400 at July 31,
2001. These factors raise substantial doubt about the Company's ability
to continue as a going concern.
Management's plans with regard to these matters include consummating a
merger with an operating company (see Note 3). However, there can be no
assurance that management's plans will be successful.
NOTE 3. PROPOSED TRANSACTION
On May 2, 2001, the Company and Zim Technologies International, Inc.
(ZTI) entered into a letter of intent regarding the Company's proposed
acquisition of ZTI. ZTI is a privately held developer of leading edge
mobile applications based in Ottawa, Ontario. The parties intend to
structure the acquisition as a share exchange, in which each
outstanding share of ZTI will be exchanged for one share of the common
stock of the Company. The letter of intent provides that the
shareholders of ZTI will receive approximately 96.2% of the shares in
the Company outstanding after the completion of the acquisition. The
current shareholders of the Company will retain the remaining 3.8%.
Additionally, all of ZTI's outstanding stock options will be exchanged
for options to purchase shares of the common stock of the Company. ZTI
has agreed to pay the costs in connection with the proposed transaction
up to the amount of $352,000.
C-10
PRIVATE CAPITAL INVESTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. PROPOSED TRANSACTION (Continued)
The completion of the proposed transactions involving ZTI is subject
to a variety of conditions and contingencies, many of which are
outside of the control of the Company. As a result, there can be no
assurance that the transaction will be completed.
NOTE 4. INCOME TAXES
Deferred income taxes are comprised of the following:
2001
Deferred tax assets: --------
Organization cost $ 3,760
Less valuation allowance 3,760
--------
$ --
========
A valuation allowance has been established against the deferred tax
asset since the Company believes it is more likely than not that the
amounts will not be realized.
NOTE 5. COMMITMENTS AND CONTINGENCIES
OPERATIONAL COSTS
For fiscal year ended July 31, 2001, the Company's principal
shareholder provided the Company, at no cost, with office space,
secretarial services, telephone, fax and related administrative
services.
SALARIES
The Company's principal officer and director have waived any right to
receive a salary for the fiscal year ended July 31, 2001.
EMPLOYMENT CONTRACTS
At July 31, 2001, the Company was not a party to any employment
agreements.
LEGAL
At July 31, 2001, the Company was not a party to legal proceedings.
C-11
PRIVATE CAPITAL INVESTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6. STOCKHOLDERS' EQUITY
STOCK SPLIT
On May 18, 2001, the Company's Board of Directors approved a 1.535455
for 1 stock split of its common stock. The stock split was effective as
to shareholders of record on the close of business on June 5, 2001. The
effect of the stock split has been recognized retroactively in the
stockholders' equity accounts in the balance sheet at July 31, 2001,
and in all share and per share data in the accompanying financial
statements. Stockholders' equity accounts have been restated to reflect
the reclassification of an amount equal to the par value increase in
issued common shares from the capital in excess of par value accounts
to the common stock account.
C-12
PRIVATE CAPITAL INVESTORS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
(UNAUDITED)
4/30/02 7/31/01
---------- ----------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 600 $ 600
---------- ----------
TOTAL ASSETS $ 600 $ 600
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
LIABILITIES -- --
STOCKHOLDERS' EQUITY
Common Stock, $.001 par value, 100,000,000 shares
authorized, 1,535,455 shares issued and outstanding 1,535 1,535
Additional paid-in capital 8,465 8,465
Deficit accumulated during the development stage (9,400) (9,400)
---------- ----------
Total Stockholders' Equity 600 600
---------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 600 $ 600
========== ==========
See accompanying notes to condensed financial statements.
C-13
PRIVATE CAPITAL INVESTORS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
(UNAUDITED)
CUMULATIVE
FROM
FOR THE FOR THE FOR THE FOR THE 08/06/99
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS (INCEPTION) TO
ENDED 4/30/02 ENDED 4/30/01 ENDED 4/30/02 ENDED 4/30/01 4/30/02
--------------- --------------- --------------- --------------- ---------------
REVENUE $ -- $ -- $ -- $ -- $ --
EXPENSES -- -- -- -- 9,400
Organization
Costs -- -- -- -- --
--------------- --------------- --------------- --------------- ---------------
NET LOSS -- -- -- -- $ (9,400)
=============== =============== =============== =============== ===============
Net loss per
share
(basic and
diluted) -- -- -- -- $ (0.01)
=============== =============== =============== =============== ===============
Weighted
average
number of
shares
outstanding 1,535,455 1,535,455 1,535,455 1,535,455 1,535,455
=============== =============== =============== =============== ===============
See accompanying notes to condensed financial statements.
C-14
PRIVATE CAPITAL INVESTORS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
(UNAUDITED)
CUMULATIVE
FROM
08/06/99
NINE MONTHS NINE MONTHS (INCEPTION) TO
ENDED 4/30/02 ENDED 4/30/01 4/30/02
--------------- --------------- ---------------
Cash flows from operating activities:
Net loss $ -- $ -- $ (9,400)
Adjustments to reconcile net loss to cash
used in operating activities:
(Decrease) Increase in Current Liabilities -- (400) --
--------------- --------------- ---------------
Cash used in operating activities -- (400) (9,400)
Cash flows from financing activities:
Proceeds from issuance of common stock -- -- 10,000
--------------- --------------- ---------------
NET (DECREASE) INCREASE IN CASH -- (400) 600
CASH - BEGINNING OF PERIOD 600 1,000 --
--------------- --------------- ---------------
CASH - END OF PERIOD $ 600 $ 600 $ 600
=============== =============== ===============
See accompanying notes to condensed financial statements.
C-15
PRIVATE CAPITAL INVESTORS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
AS OF APRIL 30, 2002
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles and the rules and
regulations of the Securities and Exchange Commission for interim financial
information. Accordingly, they do not include all the information necessary for
a comprehensive presentation of financial position and results of operations.
It is management's opinion, however that all material adjustments (consisting of
normal recurring adjustments) have been made which are necessary for a fair
financial statements presentation. The results for the nine month periods ended
April 30, 2002 and 2001 are not necessarily indicative of the results to be
expected for the fiscal year ended July 31, 2002.
NOTE 2. STOCKHOLDERS' EQUITY
The Company is authorized to issue 100,000,000 shares of common stock, with a
par value of $.001 per share.
On May 18, 2001, the Company's Board of Directors approved a 1.535455 for 1
stock split of its common stock. The stock split was effective as to
shareholders of record on the close of business on June 5, 2001. The effect of
the stock split has been recognized retroactively in all share and per share
data in the accompanying condensed financial statements.
NOTE 3. LIQUIDITY CONSIDERATIONS
The Company is a development stage company and, to date, has neither engaged in
any operations nor generated any revenue. The Company is subject to certain
liquidity considerations.
C-16
EXHIBIT D
FINANCIAL STATEMENTS OF ZIM TECHNOLOGIES INTERNATIONAL, INC.
D-1
AUDITORS' REPORT TO THE DIRECTORS
We have audited the consolidated balance sheets of ZIM Technologies
International Inc. as at May 31, 2001 and 2000 and the consolidated statements
of operations, shareholders' equity (deficiency) and cash flows for each of the
years in the three year period ended May 31, 2001. 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 auditing standards generally accepted
in Canada and the United States of America. 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 consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at May 31, 2001 and
2000 and the results of its operations and its cash flows for each of the years
in the three year period ended May 31, 2001 in accordance with Canadian
generally accepted accounting principles.
/s/ KPMG LLP
Chartered Accountants
Ottawa, Canada
August 3, 2001 (except for note 16
which is as of May 30, 2002)
COMMENTS BY AUDITOR FOR U.S. READERS ON CANADA - U.S. REPORTING DIFFERENCE
In the United States of America, reporting standards for auditors require the
addition of an explanatory paragraph (following the opinion paragraph) when the
financial statements are affected by conditions and events that cast substantial
doubt on the Company's ability to continue as a going concern, such as those
described in Note 1(a) to the financial statements. Our report to the directors
dated August 3, 2001 (except for Note 16 which is as of May 30, 2002) is
expressed in accordance with Canadian reporting standards which do not permit a
reference to such events and conditions in the auditor's report when these are
adequately disclosed in the financial statements.
/s/ KPMG LLP
Chartered Accountants
Ottawa, Canada
August 3, 2001 (except for note 16
which is as of May 30, 2002)
D-2
ZIM TECHNOLOGIES INTERNATIONAL INC.
Consolidated Balance Sheets
(Expressed in Canadian dollars)
February 28, May 31, May 31,
2002 2001 2000
------------ ---------- -----------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 499,766 $3,529,068 $ 119,123
Accounts receivable (note 3) 879,266 314,743 404,086
Investment tax credits receivable 409,104 13,557 79,881
Prepaid expenses 62,031 44,858 24,930
---------- ---------- -----------
1,850,167 3,902,226 628,020
Property and equipment (note 4) 620,532 421,255 460,948
Goodwill 323,873 -- --
---------- ---------- -----------
$2,794,572 $4,323,481 $ 1,088,968
========== ========== ===========
Liabilities and Shareholders' Equity (Deficiency)
Current liabilities:
Bank loans (note 5) $ -- $ 63,332 $ 246,666
Accounts payable 185,150 271,242 669,379
Accrued liabilities 529,508 488,673 149,346
Deferred revenue 614,317 409,394 625,956
Current portion of capital lease obligations (note 6) 52,343 46,806 40,351
---------- ---------- -----------
1,381,318 1,279,447 1,731,698
Capital lease obligations (note 6) 29,312 69,294 116,100
Due to related party (note 7) -- -- 496,554
Shareholders' equity (deficiency) 1,383,942 2,974,740 (1,255,384)
Future operations (note 1(a))
Commitments and contingencies (note 14)
Subsequent events (note 16)
Canadian and United States accounting policy
differences (note 17)
---------- ---------- -----------
$2,794,572 $4,323,481 $ 1,088,968
========== ========== ===========
See accompanying notes to consolidated financial statements.
D-3
ZIM TECHNOLOGIES INTERNATIONAL INC.
Consolidated Statements of Earnings
(Expressed in Canadian dollars)
Nine months ended Years ended
--------------------------- ---------------------------------------
February 28, February 28, May 31, May 31, May 31,
2002 2001 2001 2000 1999
------------ ------------ ------------ ----------- -----------
(unaudited) (unaudited)
Revenues:
Software $ 1,230,660 $ 738,085 $ 999,429 $ 2,115,970 $ 2,655,858
Maintenance 1,070,760 386,104 508,693 544,195 524,062
Consulting 174,399 63,970 63,970 506,123 760,127
----------- ----------- ------------ ----------- -----------
2,475,819 1,188,159 1,572,092 3,166,288 3,940,047
Costs and expenses (income):
Selling, general and administrative (note 8) 3,883,034 3,292,941 5,062,395 3,213,871 2,753,514
Research and development, net of investment tax credits 3,113,867 439,894 653,229 1,003,319 1,009,217
Depreciation of property and equipment 183,294 155,493 198,552 218,901 144,622
Cost of software revenues 109,572 124,579 177,520 383,826 937,935
Interest 22,224 34,608 61,741 70,882 11,620
Foreign exchange gain (42,401) (2,392) (26,891) (1,118) (17,253)
Other -- (161,883) (100,797) (76,443) (48,866)
----------- ----------- ------------ ----------- -----------
7,269,590 3,883,240 6,025,749 4,813,238 4,790,789
----------- ----------- ------------ ----------- -----------
Net loss before income taxes (4,793,771) (2,695,081) (4,453,657) (1,646,950) (850,742)
Income taxes (note 10) 86,000 -- -- -- --
----------- ----------- ------------ ----------- -----------
Net loss $(4,879,771) $(2,695,081) $ (4,453,657) $(1,646,950) $ (850,742)
=========== =========== ============ =========== ===========
Loss per share - basic and fully diluted (note 11) $ (0.15) $ (0.29) $ (0.31) $ (0.33) $ (0.18)
=========== =========== ============ =========== ===========
Weighted average number of shares outstanding 33,204,811 9,308,648 14,497,588 5,065,923 4,837,438
=========== =========== ============ =========== ===========
See accompanying notes to consolidated financial statements.
D-4
ZIM TECHNOLOGIES INTERNATIONAL INC.
Consolidated Statements of Shareholders Equity (Deficiency)
(Expressed in Canadian dollars)
Foreign Total
Share Share currency shareholders'
capital subscriptions Contributed translation equity
(note 8) received surplus adjustment Deficit (deficiency)
------------ ------------- ----------- ----------- ------------ ------------
Balance, June 1, 1998 $ 200,001 $ -- $ -- $ -- $ (361,460) $ (161,459)
Shares issued 565,517 -- -- -- -- 565,517
Net loss for the year -- -- -- -- (850,742) (850,742)
------------ ----------- ----------- ------- ------------ -----------
Balance, May 31, 1999 765,518 -- -- -- (1,212,202) (446,684)
Shares issued 839,000 -- -- -- -- 839,000
Shares redeemed (307,946) -- -- -- 307,196 (750)
Net loss for the year -- -- -- -- (1,646,950) (1,646,950)
------------ ----------- ----------- ------- ------------ -----------
Balance, May 31, 2000 1,296,572 -- -- -- (2,551,956) (1,255,384)
Shares issued 3,334,448 -- -- -- -- 3,334,448
Share subscriptions received -- 4,010,500 -- -- -- 4,010,500
Shares redeemed (850) -- -- -- (150) (1,000)
Stock options issued to
non-employees (note 8(c)) -- -- 1,339,833 -- -- 1,339,833
Net loss for the year -- -- -- -- (4,453,657) (4,453,657)
------------ ----------- ----------- ------- ------------ -----------
Balance, May 31, 2001 4,630,170 4,010,500 1,339,833 -- (7,005,763) 2,974,740
Shares issued 7,111,550 (4,010,500) -- -- -- 3,101,050
Stock options issued to
non-employees (note 8(c)) -- -- 163,324 -- -- 163,324
Currency translation -- -- -- 24,599 -- 24,599
Net loss for the period -- -- -- -- (4,879,771) (4,879,771)
------------ ----------- ----------- ------- ------------ -----------
Balance, February 28, 2002 $ 11,741,720 -- $ 1,503,157 $24,599 $(11,885,534) $ 1,383,942
============ =========== =========== ======= ============ ===========
See accompanying notes to consolidated financial statements.
D-5
ZIM TECHNOLOGIES INTERNATIONAL INC.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
Nine months ended Years ended
--------------------------- ---------------------------------------
February 28, February 28, May 31, May 31, May 31,
2002 2001 2001 2000 1999
------------ ------------ ----------- ---------- ----------
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss $(4,879,771) $(2,695,081) $(4,453,657) $(1,646,950) $ (850,742)
Items not involving cash:
Depreciation of property and equipment 183,294 155,493 198,552 218,901 144,622
Compensation expense (note 8(c)) 163,324 1,333,771 1,339,833 -- --
Common shares issued for future royalty
stream (note 8(b)) -- 186,000 186,000 -- --
Common shares issued for services -- 48,000 53,000 14,000 --
Common shares issued for acquired technology 2,000,000 -- -- -- --
Gain on disposal of Zim Technologies
(B'Dos) Ltd. (2,017) -- -- -- --
Change in non-cash operating working
capital (note 12) (1,075,808) (535,586) (139,633) 1,042,538 (391,532)
----------- ----------- ----------- ----------- ----------
(3,610,978) (1,507,403) (2,815,905) (371,511) (1,097,652)
Cash flows from investing activities:
Purchase of property and equipment (354,093) (9,952) (158,859) (130,691) (134,908)
Acquisition of ZTI do Brasil Ltda., net of cash (88,708) -- -- -- --
Disposition of Zim Technologies (B'Dos) Ltd. (3,388) -- -- -- --
----------- ----------- ----------- ----------- ----------
(446,189) (9,952) (158,859) (130,691) (134,908)
Cash flows from financing activities:
Net proceeds from (repayment of) bank loans (63,332) (172,389) (183,334) (547,146) 246,688
Repayment of capital lease obligations (34,445) (29,696) (40,351) (30,660) --
Net proceeds from long-term debt -- -- -- -- 565,524
Net proceeds from (repayment of) due to
related party -- (58,893) (36,931) 922,361 (43,823)
Issue of common shares 1,050 2,153,275 2,635,825 175,000 176,793
Issue of preferred shares -- -- -- -- 293,200
Issue of special shares 1,100,000 -- 4,010,500 -- --
Redemption of common shares -- (1,000) (1,000) (750) --
----------- ----------- ----------- ----------- ----------
1,003,273 1,891,297 6,384,709 518,805 1,238,382
Effects of exchange rates on cash and cash equivalents 24,592 -- -- -- --
----------- ----------- ----------- ----------- ----------
Increase (decrease) in cash and cash equivalents (3,029,302) 373,942 3,409,945 16,603 5,822
Cash and cash equivalents, beginning of year 3,529,068 119,123 119,123 102,520 96,698
----------- ----------- ----------- ----------- ----------
Cash and cash equivalents, end of year $ 499,766 $ 493,065 $ 3,529,068 $ 119,123 $ 102,520
=========== ========== =========== ========== ==========
Supplemental cash flow disclosure:
Interest paid $ 22,224 $ 34,608 $ 41,742 $ 70,882 $ 11,620
=========== ========== =========== ========== ==========
See accompanying notes to consolidated financial statements.
D-6
ZIM TECHNOLOGIES INTERNATIONAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
ZIM Technologies International Inc. (the "Company") was incorporated
under the Canada Business Corporations Act on November 13, 1997 to
provide enterprise-class software and tools for designing, developing
and manipulating database systems and applications. The Company has
built upon its core database technology to create an innovative
solution to provide wireless data services and systems that enable
people to engage in remote or mobile decision-making based on real-time
interactive data communications and transactions.
1. SIGNIFICANT ACCOUNTING POLICIES:
(a) Future operations:
These financial statements have been prepared on the basis of
accounting principles applicable to a going concern which
assumes that the Company will realize the carrying value of
its assets and satisfy its obligations as they become due in
the normal course of operations. At February 28, 2002, the
Company has positive working capital of $468,849 however it
incurred a loss of $4,879,771 and generated negative cash flow
from operations of $3,610,978 for the nine months then ended.
In addition, the Company has accumulated losses of $11,884,912
as of February 28, 2002.
The Company's new management team and recent technology
acquisition have focused the direction of the Company from a
mature database and application development technology player
to a provider of interactive mobile messaging for enterprise
database systems.
All of the factors above raise doubt about the Company's
ability to continue as a going concern. Management's plans to
address these issues include continuing to raise capital
through the private placement of equity and, if necessary,
renegotiating the repayment terms of accounts payable and
accrued liabilities. The Company's ability to continue as a
going concern is subject to management's ability to
successfully implement the above plans. Failure to implement
these plans could have a material adverse effect on the
Company's position and/or results of operations and may
necessitate a reduction in operating activities. The
consolidated financial statements do not include adjustments
that may be required if the assets are not realized and the
liabilities settled in the normal course of operations.
In the longer term, the Company has not yet generated the
level of sales which would result in cash self sufficiency and
it may need to continue to raise capital by selling additional
equity or by obtaining credit facilities. The Company's future
capital requirements will depend on many factors, including,
but not limited to, the market acceptance of its software, the
level of its promotional activities and advertising required
to support its software. No assurance can be given that any
such additional funding will be available or that, if
available, it can be obtained on terms favourable to the
Company.
D-7
ZIM TECHNOLOGIES INTERNATIONAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(b) Principles of consolidation:
The consolidated financial statements for the period ended
February 28, 2002 include the financial statements of ZIM
Technologies International Inc. and its wholly-owned
subsidiary, ZTI do Brasil Ltda. from the date of acquisition
on August 1, 2001. The consolidated financial statements for
the years ended May 31, 2001, 2000 and 1999 include the
financial statements of ZIM Technologies International Inc.
and its wholly-owned subsidiary, Zim Technologies (B'Dos) Inc.
(c) Cash equivalents:
The Company considers cash equivalents to be highly liquid
investments with original maturities of three months or less.
(d) Property and equipment:
Property and equipment is recorded at cost. Property under
capital leases is initially recorded at the present value of
minimum lease payments at the inception of the lease.
Depreciation is provided over the estimated useful lives of
the underlying assets on a straight-line basis using the
following annual rates:
Asset Rate
----- ----
Computer equipment 3 years
Software 2 years
Office furniture and equipment 5 years
Automobiles 5 years
Leasehold improvements 5 years
(e) Leases:
Leases are classified as either capital or operating in
nature. Capital leases are those which substantially transfer
the benefits and risks of ownership to the Company. Assets
acquired under capital leases are depreciated at the same
rates as those described in note 1(d). Obligations recorded
under capital leases are reduced by the principal portion of
lease payments. The imputed interest portion of lease payments
is charged to expense.
(f) Revenue recognition:
The Company recognizes software revenue in accordance with
Statement of Position (SOP) 97-2, Software Revenue
Recognition, issued by the American Institute of Certified
Public Accountants.
Revenue from license fees for standard software products is
recognized when the software is delivered provided no
significant future vendor obligations exist and collection is
probable.
D-8
ZIM TECHNOLOGIES INTERNATIONAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(f) Revenue recognition (continued):
Maintenance contracts entitle the customer to telephone
support, bug fixing and the right to receive preferential
pricing for software updates when-and-if available. Revenue
from maintenance contracts, including product support included
in initial license fees, is recognized ratably over the annual
contract period.
Consulting revenue is recognized as the services are
performed.
For contracts with multiple obligations (e.g., deliverable and
undeliverable products, support obligations, consulting and
other software-related services), the Company allocates
revenue to each element of the contract based on objective
evidence, specific to the Company, of the fair value of the
element.
Billings in excess of revenue earned are recorded as deferred
revenue.
(g) Research and development:
Software development costs are expensed as incurred unless
they meet generally accepted accounting criteria for deferral
and amortization. Software development costs incurred prior to
the establishment of technological feasibility do not meet
these criteria and are expensed as incurred. Research costs
are expensed as incurred. No software development costs
incurred to date meet the criteria for deferral and
amortization.
(h) Advertising:
Advertising costs are expensed as incurred. Advertising costs
amounted to $10,155 for the nine months ended February 28,
2002 (May 31, 2001 - $19,973; May 31, 2000 - $50,333; and May
31, 1999 - $11,063).
(i) Investment tax credits:
Investment tax credits are accounted for using the cost
reduction approach whereby they are recorded as a reduction of
the related expense or the cost of the assets acquired when
there is reasonable assurance that they will be realized.
(j) Foreign currency translation:
The accounts of the Company's self-sustaining foreign
operations are translated into Canadian dollars using the
current rate method. Assets and liabilities are translated at
rates of exchange at the balance sheet date and revenue and
expenses are translated at average exchange rates. Gains and
losses arising from the translation of financial statements of
foreign operations are deferred and included as a separate
component of shareholders' equity (deficiency).
D-9
ZIM TECHNOLOGIES INTERNATIONAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(j) Foreign currency translation (continued):
Monetary assets and liabilities of the Company's integrated
foreign operation are translated into Canadian dollars at
exchange rates in effect as at the balance sheet date.
Non-monetary assets and liabilities are translated at historic
exchange rates and revenues and expenses are translated at
average exchange rates prevailing during the period. Exchange
gains and losses are reflected in the consolidated statement
of operations.
(k) Income taxes:
Income taxes are accounted for under the asset and liability
method. Future tax assets and liabilities are recognized for
the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. When necessary, a
valuation allowance is recorded to reduce tax assets to an
amount for which realization is more likely than not. The
effect of changes in tax rates is recognized in the period in
which the rate change occurs.
(l) Use of estimates:
The preparation of financial statements requires management to
make estimates and assumptions that affect reported amounts
and disclosures in these financial statements. Actual results
could differ from those estimates. Significant management
estimates include assumptions used in estimating investment
tax credits receivable. Receipt of these credits is dependent
on Canada Customs and Revenue Agency's review and acceptance
of the eligibility of expenditures.
(m) Changes in accounting policy:
Earnings per share:
Basic earnings per share are computed by dividing net earnings
by the weighted average shares outstanding during the
reporting period.
As a result of the new Canadian Institute of Chartered
Accountants (CICA) Handbook Section 3500 "Earnings per share,"
the Company is required to retroactively use the treasury
stock method for calculating diluted earnings per share. Under
the treasury stock method, diluted earnings per share are
computed similar to basic earnings per share except that the
weighted average shares outstanding are increased to include
additional shares from the assumed exercise of stock options,
if dilutive. The number of additional shares is calculated by
assuming that outstanding stock options were exercised and
that the proceeds were used to acquire shares of common stock
at the average market price during the reporting period.
Previously reported diluted earnings per share have been
restated to reflect this change.
D-10
ZIM TECHNOLOGIES INTERNATIONAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(m) Changes in accounting policy (continued):
Business combinations and goodwill:
In September 2001, the CICA issued Handbook Sections 1581
"Business Combinations" and 3062 "Goodwill and Other
Intangible Assets." The new standards mandate the purchase
method of accounting for business combinations and require
that goodwill no longer be amortized but tested for impairment
at least annually. The new standards are substantially
consistent with US GAAP.
Effective July 1, 2001 and for the remainder of the fiscal
year, goodwill acquired in business combinations completed
after June 30, 2001 was not amortized. In addition, the
criteria for recognition of intangible assets apart from
goodwill has been applied to business combinations after June
30, 2001.
In connection with Section 3062's transitional goodwill
impairment evaluation, the Company is required to assess
whether goodwill is impaired as of June 1, 2002. The Company
has up to six months to determine the fair value of its
reporting units and compare that to the carrying amounts of
the reporting units. To the extent a reporting unit's carrying
amount exceeds its fair value, the Company must perform a
second step to measure the amount of the impairment in a
manner similar to a purchase price allocation. This second
step is to be completed no later than May 31, 2003. Any
transitional impairment will be recognized as an effect of a
change in accounting principle and will be charged to opening
deficit as of June 1, 2002.
As of February 28, 2002, the Company has unamortized goodwill
of $323,873 which is subject to the transitional provisions of
Sections 1581 and 3062. Goodwill was not amortized during the
period ended February 28, 2002. Because of the extensive
effort required to comply with the remaining provisions of
Sections 1581 and 3062, the Company has not estimated the
impact of these provisions on its financial statements.
(n) Recently issued accounting pronouncements:
Stock based compensation:
In December, 2001, the CICA issued Handbook Section 3870,
which establishes standards for recognition, measurement and
disclosure of stock-based compensation and other stock-based
payments made in exchange for goods and services provided by
employees and non-employees. The standard requires that a fair
value based method of accounting be applied to all stock-based
payments to non-employees and to employee awards that are
direct awards of stock, that call for settlement in cash or
other assets or are stock appreciation rights that call for
settlement by the issuance of equity instruments. However, the
new standard permits the Company to continue its existing
policy of recording no compensation cost on the grant of stock
options to employees. Consideration paid by employees on the
exercise of stock options is recorded as share capital. The
standard is effective for the Company's fiscal year beginning
June 1, 2002 for awards granted on or after that date.
D-11
ZIM TECHNOLOGIES INTERNATIONAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
2. ACQUISITION AND DISPOSAL:
(a) Acquisition of ZTI do Brasil Ltda.:
Effective August 1, 2001, the Company acquired 100% of the
issued and outstanding common shares of its South American
distributor, ZTI do Brasil Ltda. This acquisition provided the
Company with the opportunity to share in 100% of ZTI do Brasil
Ltda.'s profits and losses. The transaction has been accounted
for using the purchase method, whereby the cost of acquisition
is allocated to the identifiable assets acquired and
liabilities assumed using estimates of their fair value. The
goodwill recorded for ZTI do Brasil Ltda. is not tax
deductible. The results of operations of ZTI do Brasil Ltda.
have been consolidated with the results of operations of the
Company
The total cost of the acquisition was allocated to the assets
acquired and liabilities assumed as follows:
(unaudited)
Assets acquired:
Cash $ 198,496
Other current assets 127,127
Property and equipment 54,490
Goodwill 323,873
---------
703,986
Liabilities assumed:
Current liabilities 416,782
---------
$ 287,204
=========
Consideration given:
Cash $ 287,204
=========
Supplemental pro forma information:
Had the acquisition of ZTI do Brasil Ltda. occurred on June 1,
2001 the proforma combined revenue and net loss of the Company
at February 28, 2002 would have been $2,716,229 and
$4,925,558, respectively.
Had the acquisition of ZTI do Brasil Ltda. occurred on June 1,
2000 the proforma combined revenue and net loss of the Company
at May 31, 2001 would have been $3,246,468 and $3,991,842,
respectively.
(b) Disposal of Zim Technologies (B'Dos) Ltd.:
In June 2001, the Company disposed of its 100% interest in Zim
Technologies (B'Dos) Ltd.
The total cost of the disposal has been allocated to the
assets disposed of and liabilities transferred as follows:
D-12
ZIM TECHNOLOGIES INTERNATIONAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
2. ACQUISITION AND DISPOSAL (CONTINUED):
(b) Disposal of Zim Technologies (B'Dos) Ltd. (continued):
(unaudited)
Assets disposed of:
Cash $ 3,387
Other current assets 13,425
Property and equipment 26,012
--------
42,824
Liabilities transferred:
Current liabilities 44,840
--------
(2,016)
Consideration received - cash 1
--------
Gain on disposal $ 2,017
========
3. ACCOUNTS RECEIVABLE:
February 28, May 31, May 31,
2002 2001 2000
------------ -------- --------
(unaudited)
Trade accounts receivable $ 946,764 $299,580 $399,794
Allowance for doubtful accounts (76,840) - -
Other 9,342 15,163 4,292
---------- -------- --------
$ 879,266 $314,743 $404,086
========== ======== ========
4. PROPERTY AND EQUIPMENT:
Accumulated Net book
February 28, 2002 Cost depreciation value
---------- ------------ --------
(unaudited)
Computer equipment $ 783,491 $441,292 $342,199
Software 37,252 10,505 26,747
Office furniture and equipment 150,958 61,110 89,848
Automobile 14,176 1,742 12,434
Leasehold improvements 143,019 88,667 54,352
Office furniture and equipment
under capital leases 187,111 92,159 94,952
---------- -------- --------
$1,316,007 $695,475 $620,532
========== ======== ========
D-13
ZIM TECHNOLOGIES INTERNATIONAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
4. PROPERTY AND EQUIPMENT (CONTINUED):
Accumulated Net book
May 31, 2001 Cost depreciation value
----------- ------------ ---------
Computer equipment $ 570,394 $ 404,188 $ 166,206
Office furniture and equipment 111,970 59,439 52,531
Automobiles 47,727 35,357 12,370
Leasehold improvements 133,265 66,136 67,129
Office furniture and equipment
under capital leases 187,111 64,092 123,019
----------- --------- ---------
$ 1,050,467 $ 629,212 $ 421,255
=========== ========= =========
Accumulated Net book
May 31, 2000 Cost depreciation value
----------- ------------ ---------
Computer equipment $ 418,362 $ 301,211 $ 117,151
Office furniture and equipment 105,143 38,330 66,813
Automobiles 47,727 25,189 22,538
Leasehold improvements 133,265 39,483 93,782
Office furniture and equipment
under capital leases 187,111 26,447 160,664
----------- --------- ---------
$ 891,608 $ 430,660 $ 460,948
=========== ========= =========
During the year ended May 31, 2000, property and equipment was acquired
at an aggregate cost of $317,802 of which $187,111 were acquired by
means of capital leases. Cash payments of $130,691 were made to
purchase property and equipment.
5. BANK LOANS:
February 28, May 31, May 31,
2002 2001 2000
------------ --------- ---------
(unaudited)
Demand loan bearing interest at prime, with
scheduled monthly principal payments of
$3,750 plus interest, maturing October 15, 2002 $ -- $ 63,332 $ --
Line of credit, due on demand, bearing interest at
prime plus 2.5% -- -- 140,000
Business improvement loan bearing interest at
prime plus 3%, monthly principal payments of
$3,750 plus interest, maturing November 30, 2002 -- -- 106,666
----------- --------- ---------
$ -- $ 63,332 $ 246,666
=========== ========= =========
D-14
ZIM TECHNOLOGIES INTERNATIONAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
5. BANK LOANS (CONTINUED):
The demand loan was secured by a pledge on the liquid assets of the
Company and the line of credit was secured by the assets of the
Company.
At February 28, 2002, the Company's available line of credit was $Nil
(2001 - $Nil and 2000 - $10,000).
6. CAPITAL LEASE OBLIGATIONS:
February 28, May 31, May 31,
2002 2001 2000
----------- --------- ---------
(unaudited)
Period ending February 28 and May 31:
2001 $ -- $ -- $ 61,522
2002 -- 61,522 61,522
2003 61,542 59,135 59,135
2004 30,942 17,968 17,968
--------- --------- ---------
92,484 138,625 200,147
Less amount representing interest (with interest
rates varying between 13% and 17%) 10,829 22,525 43,696
--------- --------- ---------
Present value of net minimum lease payments 81,655 116,100 156,451
Current portion of obligations under capital leases 52,343 46,806 40,351
--------- --------- ---------
$ 29,312 $ 69,294 $ 116,100
========= ========= =========
7. RELATED PARTY TRANSACTIONS:
(a) Due to related party:
The amount due to related party was due to the then
controlling shareholder, was non-interest bearing and had no
fixed terms of repayment. At May 31, 2000, the due to related
party was subordinated up to $500,000 in favour of the bank
loan. This amount was repaid in fiscal 2001.
(b) Transactions with related parties:
Prior to May 31, 2001, the Company leased premises from a
shareholder. During the year ended May 31, 2001, lease
payments of $100,600 (2000 - $108,500; 1999 - $110,673) were
incurred under the terms of this lease.
During the year ended May 31, 2001, the Company issued
1,550,000 common shares to a related party to cancel a
software development contract which would have required the
Company to make future software royalty payments. The common
shares were valued at $186,000 which represents the fair value
of the shares. During the year ended May 31, 2000, royalties
of $14,880 were paid under the software development contract.
D-15
ZIM TECHNOLOGIES INTERNATIONAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
7. RELATED PARTY TRANSACTIONS (CONTINUED):
(b) Transactions with related parties (continued):
During the year ended May 31, 2001, the Company borrowed funds
from the then controlling shareholder. The loans were
non-interest bearing and had no fixed terms of repayment. At
May 31, 2001, all such amounts had been repaid.
On June 1, 2001, the Company acquired certain technology from
two employees in exchange for 2,000,000 common shares. The
common shares were valued at $2,000,000 which represents the
fair value of the shares.
8. SHARE CAPITAL:
(a) Authorized:
Unlimited number of shares without par value:
Preferred shares, bearing a non-cumulative dividend at a
rate to be determined by the Board of Directors and
redeemable for $1 per share.
Special shares, non-voting, non-participating, convertible
into common shares on a one-for-one basis at any time at the
option of the holder and automatically on the earlier of (i)
the fifth day following the date of issuance of a receipt
for a final prospectus qualifying the common shares issuable
upon conversion of the special shares; and (ii) June 1,
2002. On May 30, 2002, the Company's shareholders will vote
on a resolution to extend this latter date to June 1, 2004.
Common shares
(b) Issued and outstanding:
Number
of shares Amount
--------- -----------
Preferred shares:
Balance, June 1, 1998 -- $ --
Issued for cash 293,200 293,200
--------- -----------
Balance, May 31, 1999 293,200 293,200
Redemption of shares (293,200) (293,200)
--------- -----------
Balance, May 31, 2000 and 2001 -- --
Special shares:
Balance, June 1, 2001 -- --
Issued for cash 5,010,500 5,110,500
Converted from common shares 153,000 153,000
--------- -----------
Balance, February 28, 2002 5,163,500 5,263,500
--------- -----------
Balance forward 5,263,500
D-16
ZIM TECHNOLOGIES INTERNATIONAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
8. SHARE CAPITAL (CONTINUED):
(b) Issued and outstanding (continued):
Number
of shares Amount
---------- ------------
Balance forward $ 5,263,500
Common shares:
Balance, June 1, 1998 4,750,000 200,001
Issued for cash 133,000 176,793
Issued on conversion of amounts due to related party 95,524 95,524
---------- ------------
Balance, May 31, 1999 4,978,524 472,318
Issued for cash 233,333 175,000
Issued for services 14,000 14,000
Issued on conversion of amounts due to related party 866,667 650,000
Redemption of shares (103,000) (14,746)
---------- ------------
Balance, May 31, 2000 5,989,524 1,296,572
Issued for cash 19,920,657 2,635,825
Issued for services 405,000 53,000
Issued on conversion of amounts due to related party 3,473,740 459,623
Issued in exchange for future royalty stream 1,550,000 186,000
Redemption of shares (4,000) (850)
---------- ------------
Balance, May 31, 2001 31,334,921 4,630,170
Issued for cash 2,000 1,050
Issued in exchange for technology 2,000,000 2,000,000
Converted to special shares (153,000) (153,000)
---------- ------------
Balance, February 28, 2002 33,183,921 6,478,220
---------- ------------
$ 11,741,720
============
During the year ended May 31, 2000, the Company redeemed the
293,200 preferred shares in exchange for software licenses,
the fair value of which was $293,200.
During 2001, the Company redeemed 4,000 (2000 - 3,000) common
shares for cash consideration of $1,000 (2000 - $750). In
addition, during 2000, the Company redeemed 100,000 common
shares in exchange for products valued at $146,600.
Included in selling, general and administrative expenses for
the year ended May 31, 2001 is a non-cash expense of $186,000
which represents the fair value of common shares issued to
cancel a contract which would have required the Company to
make future software royalty payments.
Included in selling, general and administrative expenses for
the nine months ended February 28, 2002 is a non-cash expense
of $2,000,000 which represents the fair value of common shares
issued in exchange for acquired technology.
D-17
ZIM TECHNOLOGIES INTERNATIONAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
8. SHARE CAPITAL (CONTINUED):
(c) Contributed surplus:
Included in contributed surplus and selling, general and
administrative expenses for the nine months ended February 28,
2002 is a non-cash compensation expense of $163,324 (2001 -
$1,339,833) which represents the fair value of stock options
issued to non-employees.
9. STOCK OPTIONS:
Under the Company's Stock Option Plan, the Company may grant options to
its officers, directors and employees for up to 10,000,000 common
shares. Stock options are granted with an exercise price equal to the
stock's fair market value at the date of grant as determined by the
Board of Directors. Options are granted periodically and both the
maximum term of an option and the vesting period are set at the Board's
discretion.
In addition to options granted under the Company's Stock Option Plan,
8,293,333 options were granted to officers, directors, employees and
advisory board members outside of the Plan. 8,103,333 options were
granted with an exercise price of $1.00, 200,000 were granted with an
exercise price of $0.50 and 10,000 with an exercise price of $1.00 were
cancelled. The options have a term of either 3 or 4 years and vest
immediately.
A summary of the status of the stock options is as follows:
February 28, 2002 May 31, 2001 May 31, 2000
-------------------------- -------------------------- -------------------------
(unaudited)
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
----------- ----------- ----------- --------- ---------- ---------
Options outstanding,
beginning of period 11,806,833 $ .98 3,704,500 $ 0.11 1,995,250 $ 0.09
Granted 3,653,332 1.05 11,593,333 0.98 1,824,500 0.18
Exercised (2,000) .45 (3,255,000) (0.04) -- --
Forfeited (99,250) .95 (236,000) (0.58) (115,250) (0.77)
----------- --------- ----------- --------- ---------- ---------
Options outstanding,
end of period 15,358,915 $ 1.00 11,806,833 $ 0.98 3,704,500 $ 0.11
=========== ========= =========== ========= ========== =========
At February 28, 2002, there were 15,358,915 (May 31, 2001 - 11,806,833
and May 31, 2000 - 3,656,000) options exercisable with a weighted
average exercise price of $1.00 (May 31, 2001 - $0.98 and May 31, 2000
- $0.10).
D-18
ZIM TECHNOLOGIES INTERNATIONAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
9. STOCK OPTIONS (CONTINUED):
The following table summarizes information about stock options
outstanding at February 28, 2002:
Options Options
outstanding exercisable
--------------------------------------------------------------- -----------------------
Weighted Weighted Weighted
Range Number average average Number average
of exercise outstanding remaining exercise exercisable exercise
prices at 2/28/02 contractual life price at 2/28/02 price
------------ ----------- ---------------- -------- ----------- --------
$ 0.25 125,000 2.62 $ .25 125,000 $ .25
0.45 - 0.60 302,750 2.25 .50 302,750 .50
0.75 - 1.75 14,931,165 2.24 1.01 14,931,165 1.01
---------- ------ ---------- ------
15,358,915 $ 1.00 15,358,915 $ 1.00
========== ====== ========== ======
10. INCOME TAXES:
Income tax expense varies from the amount that would be computed by
applying the basic federal and provincial income tax rates to loss
before taxes, as follows:
February 28, May 31, May 31,
2002 2001 2000
----------- ----------- ---------
(unaudited)
Tax rate 40.66% 42.12% 44.12%
Expected Canadian income tax
recovery $(1,949,147) $(1,875,880) $(726,397)
Decrease resulting from:
Change in valuation allowance for
originating temporary differences
and loss carryforwards 929,000 816,000 473,000
Acquired technology 813,000 -- --
Difference between Canadian and
foreign tax rates 199,000 207,000 178,000
Adjustments to opening future tax
asset for changes in tax laws and rates -- 276,000 62,000
Non-deductible stock option benefits 66,000 564,300 --
Other 28,147 12,580 13,397
----------- ----------- ---------
$ 86,000 $ -- $ --
=========== =========== =========
Income tax expense of $86,000 for the period ended February 28, 2002
relates to income taxes paid by the Company's Brazilian subsidiary.
D-19
ZIM TECHNOLOGIES INTERNATIONAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
10. INCOME TAXES (CONTINUED):
Future income taxes reflect the impact of temporary differences between
amounts of assets and liabilities for financial reporting purposes and
such amounts as measured by tax laws. The tax effects of temporary
differences that gave rise to significant portions of the future tax
asset and future tax liability are as follows:
February 28, May 31, May 31,
2002 2001 2000
----------- ----------- ---------
(unaudited)
Future tax asset:
Loss carryforwards $ 1,470,000 $ 1,195,000 $ 775,000
Property and equipment - differences in net
book value and undepreciated capital cost 76,000 113,000 85,000
Scientific research and experimental
development - amounts deductible for tax in
excess of amounts deductible for accounting 284,000 88,000 99,000
Other 101,000 50,000 7,000
----------- ----------- ---------
Total gross future tax asset 1,931,000 1,446,000 966,000
Less valuation allowance (1,931,000) (1,446,000) (966,000)
----------- ----------- ---------
Net future tax asset $ -- $ -- $ --
=========== =========== =========
The differences in the amounts deductible for tax and accounting
purposes relate primarily to differences in the values of property and
equipment on these bases and undeducted scientific research
expenditures.
The Company's year end for tax purposes is December 31. The Company has
federal non-capital losses available to reduce taxable income in Canada
which expire on December 31 of the following years:
Federal Provincial
---------- ----------
2005 $ 45,000 $ 96,000
2006 1,060,000 1,108,000
2007 430,000 483,000
2008 439,000 439,000
2009 2,745,000 2,745,000
2010 121,000 121,000
---------- ----------
$4,840,000 $4,992,000
========== ==========
D-20
ZIM TECHNOLOGIES INTERNATIONAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
11. LOSS PER SHARE:
For the purposes of the loss per share computation, the weighted
average number of common shares outstanding has been used. Had the
treasury stock method been applied to the unexercised share options and
the special shares been converted, the effect on the loss per share
would be anti-dilutive.
The following securities could potentially dilute basic earnings per
share in the future but have not been included in diluted earnings per
share because their effect was antidilutive:
February 28, February 28, May 31, May 31, May 31,
2002 2001 2001 2000 1999
------------ ------------ ---------- --------- ---------
(unaudited) (unaudited)
Stock options 15,358,915 3,346,833 11,806,833 3,704,500 1,995,250
Special shares 5,163,500 -- -- -- --
========== ========== ========== ========= =========
12. CHANGE IN NON-CASH OPERATING WORKING CAPITAL:
February 28, February 28, May 31, May 31, May 31,
2002 2001 2001 2000 1999
------------ ------------ ---------- --------- ---------
(unaudited) (unaudited)
Accounts receivable $(462,766) $ 8,800 $ 89,343 $ 635,657 $(801,654)
Investment tax credits receivable (395,547) 66,324 66,324 (400) 176,265
Prepaid expenses (5,219) (5,480) (19,928) 43,492 (41,938)
Accounts payable (487,640) (306,457) (398,137) 407,849 88,171
Accrued liabilities 70,441 (23,179) 339,327 47,430 (31,186)
Deferred revenue 204,923 (275,594) (216,562) (91,490) 218,810
------------ --------- --------- ---------- ---------
$ (1,075,808) $(535,586) $(139,633) $1,042,538 $(391,532)
============ ========= ========= ========== =========
13. FINANCIAL INSTRUMENTS:
Risk management activities
The Company operates internationally, giving rise to significant
exposure to market risks from changes in foreign exchange rates.
Foreign exchange risk management
Accounts receivable at February 28, 2002 include amounts receivable in
US dollars of $235,397 (May 31, 2001 - $181,040 and May 31, 2000 -
$192,861). Accounts payable at February 28, 2002 included $5,639 (May
31, 2001 - $31,096 and May 31, 2000 - $133,598) payable in US dollars.
D-21
ZIM TECHNOLOGIES INTERNATIONAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
13. FINANCIAL INSTRUMENTS (CONTINUED):
Concentrations of credit risk
The Company is exposed to credit-related losses in the event of
non-performance by counterparties to financial instruments. Credit
exposure is minimized by dealing with only creditworthy counterparties
in accordance with established credit approval policies.
Concentrations of credit risk in accounts receivable are indicated
below by the percentage of the total balance receivable from customers
in the specified geographic area.
February 28, May 31, May 31,
2002 2001 2000
------------ ------- -------
(unaudited)
Canada 30% 14% 28%
North and South America, excluding Canada 46% 63% 49%
Europe 23% 21% 20%
Other 1% 2% 3%
Fair values
The carrying values of cash and cash equivalents, accounts receivable,
investment tax credits receivable, bank loans, accounts payable and
accrued liabilities approximate their fair value due to the relatively
short periods to maturity of the instruments. The fair values of other
financial assets and liabilities included in the consolidated balance
sheet are as follows:
February 28, May 31, May 31,
2002 2001 2000
---------------------- ----------------------- ------------------------
Carrying Carrying Carrying
amount Fair value amount Fair value amount Fair value
-------- ---------- -------- ---------- -------- ----------
(unaudited)
Capital lease
obligations $ 81,655 $ 70,587 $ 116,100 $ 104,326 $ 156,451 $ 143,160
======== ======== ========= ========= ========= =========
The following methods and assumptions were used to estimate fair value
of each class of financial instrument:
Capital lease obligations - at the present value of contractual future
payments, discounted at the current market rates of interest available
to the Company for the same or similar debt instruments.
It is not practicable to determine the fair value of the amount due to
related party as there are no terms of repayment.
D-22
ZIM TECHNOLOGIES INTERNATIONAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
14. COMMITMENTS AND CONTINGENCIES:
(a) Operating lease commitments:
The Company has the following lease commitments relating to
facilities and equipment:
2002 $ 37,940
2003 159,800
2004 134,180
2005 144,690
2006 149,170
Thereafter 176,480
---------
$ 802,260
=========
For the nine months ended February 28, 2002, rent expense was
$200,057 (year ended May 31, 2001 - $288,776; year ended May
31, 2000 - $347,942 and year ended May 31, 1999 - $246,005).
(b) Legal proceedings:
The Company is a defendant in a suit that alleges, among other
things, a breach in a distribution agreement. The plaintiff is
seeking damages in an amount to be determined by the court in
terms of lost sales. Management is of the opinion that the
plaintiff's claim is without merit and the Company will
prevail in defending the suit.
The Company is involved in various other claims and legal
actions arising in the ordinary course of business. In the
opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on the
Company's consolidated financial position, results of
operations or liquidity.
15. SEGMENT REPORTING:
Management has determined that the Company operates in one dominant
industry segment, which involves providing enterprise software for
designing, developing and manipulating database systems and
applications.
The following table sets forth external revenues attributable to
geographic areas based on the location of the customer:
D-23
ZIM TECHNOLOGIES INTERNATIONAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
15. SEGMENT REPORTING (CONTINUED):
February 28, May 31, May 31, May 31,
2002 2001 2000 1999
------------ ---------- ---------- ----------
(unaudited)
Canada $ 191,086 $ 384,054 $ 773,586 $ 797,183
United States 370,220 210,641 334,191 --
Brazil 1,161,855 620,437 904,878 1,514,413
Australia 182,689 206,187 820,983 1,628,451
Denmark -- 150,773 332,650 --
Europe 555,618 -- -- --
Other 14,351 -- -- --
---------- ---------- ---------- ----------
$2,475,819 $1,572,092 $3,166,288 $3,940,047
========== ========== ========== ==========
The following tables set forth consolidated assets located in different
geographic area:
February 28, 2002 Canada Brazil Barbados Total
----------------- ------ ------ -------- -----
(unaudited)
Property and equipment $ 561,136 $ 59,396 $ -- $ 620,532
Goodwill -- 323,873 -- 323,873
Current assets 1,850,167
---------- ---------- ---------- ----------
$2,794,572
==========
May 31, 2001 Canada Brazil Barbados Total
------------ ------ ------ -------- -----
Property and equipment $ 395,243 $ -- $ 26,012 $ 421,255
Current assets 3,902,226
---------- ---------- ---------- ----------
$4,323,481
==========
May 31, 2000 Canada Brazil Barbados Total
------------ ------ ------ -------- -----
Property and equipment $ 410,144 $ -- $ 50,804 $ 460,948
Current assets 628,020
---------- ---------- ---------- ----------
$1,088,968
==========
D-24
ZIM TECHNOLOGIES INTERNATIONAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
16. SUBSEQUENT EVENTS:
(a) The Company has entered into a letter of intent to sell all of
its outstanding common shares to Private Capital Investors,
Inc. ("PCI") in exchange for 96.15% of the outstanding shares
of PCI. As the Company's shareholders will control PCI
subsequent to the share exchange, the acquisition will be
accounted for as a reverse takeover of PCI by the Company. PCI
is a public company in the United States by virtue of the
registration of its common stock under the Securities Exchange
Act of 1934.
(b) In April 2002, a significant shareholder of the Company loaned
the Company $1,000,000 in exchange for a note payable. The
note payable bears interest at a rate of 5% per annum and is
due on demand.
17. UNITED STATES ACCOUNTING PRINCIPLES:
The financial statements presented herein have been prepared in
accordance with Canadian generally accepted accounting principles
("GAAP"). The significant differences between Canadian and US GAAP and
their effect on the consolidated financial statements of the Company
are described below:
Consolidated statement of operations:
The following table reconciles net loss as reported in the accompanying
consolidated statement of operations to net loss that would have been
reported had the consolidated financial statements been prepared in
accordance with US GAAP:
Nine months Nine months Year Year
ended ended ended ended
February 28, February 28, May 31, May 31,
2002 2001 2001 2000
------------ ------------ ---------- -----------
(unaudited) (unaudited)
Net loss in accordance with
Canadian and US GAAP $(4,879,771) $(2,695,081) $(4,453,657) $(1,646,950)
Other comprehensive loss:
Foreign currency translation
adjustment 24,599 -- -- --
----------- ----------- ----------- -----------
Comprehensive loss in accordance
with US GAAP $(4,855,172) $(2,695,081) $(4,453,657) $(1,646,950)
=========== =========== =========== ===========
D-25
ZIM TECHNOLOGIES INTERNATIONAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
17. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED):
Other disclosures required under US GAAP:
(a) Stock based compensation:
The Company measures compensation costs related to stock
options granted to employees using the intrinsic value method
as prescribed by APB Opinion 25, "Accounting for Stock Issued
to Employees" as permitted by SFAS No. 123. However, SFAS No.
123 does require the disclosure of pro forma net loss and net
loss per share information as if the Company had accounted for
its employee stock options under the fair value method
prescribed by SFAS No. 123. Accordingly, the fair value of the
options issued was determined using the Black-Scholes option
pricing model (excluding a volatility assumption) with the
following assumptions: risk-free interest rate of 3.38% to
5.24% (2001 - 4.93% to 5.52%; 2000 - 6.26%; 1999 - 5.21%),
expected dividend yield 0% (2001 - 0%; 2000 - 0%; 1999 - 0%),
and an expected life of 2 years (2001 - 3 years; 2000 - 3
years; 1999 - 3 years).
The weighted average grant date fair values of options issued
was $0.08 per share (2001 - $0.14 per share; 2000 - $Nil per
share; 1999 - $Nil per share). Had the Company determined
compensation cost based on the fair value at the grant date
for its stock options under SFAS No. 123, the Company's net
income would have been reduced to the pro forma amounts
indicated below:
February 28, February 28, May 31, May 31,
2002 2001 2001 2000
----------- ----------- ----------- -----------
(unaudited) (unaudited)
Net loss As reported $(4,879,771) $(2,695,081) $(4,453,657) $(1,646,950)
Pro forma (5,149,813) (3,904,897) (5,731,440) (1,646,950)
(b) Accumulated other comprehensive loss:
Nine months Nine months Year Year
ended ended ended ended
February 28, February 28, May 31, May 31,
2002 2002 2001 2000
------------ ------------ ---------- ----------
(unaudited) (unaudited)
Opening balance of foreign currency
translation account $ -- $ -- $ -- $ --
Foreign currency translation account 24,599 -- -- --
---------- ---------- ---------- ----------
Accumulated other comprehensive loss $ 24,599 $ -- $ -- $ --
========== ========== ========== ==========
D-26
ZIM TECHNOLOGIES INTERNATIONAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
17. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED):
(c) New US accounting pronouncements:
In July 2001, the FASB issued Statement No. 141 "Business
Combinations" and Statement No. 142 "Goodwill and Intangible
Assets." These statements are substantially consistent with
CICA Sections 1581 and 3062 (refer to note 1(m)) except that
under US GAAP, any transitional impairment charge is
recognized in earnings as a cumulative effect of a change in
accounting principle. Under Canadian GAAP, the cumulative
adjustment is recognized in opening deficit.
In October 2001, FASB issued Statement No. 144 "Accounting for
the Impairment or Disposal of Long-Lived Assets," which
retains the fundamental provisions of SFAS 121 for recognizing
and measuring impairment losses of long-lived assets other
than goodwill. Statement 144 also broadens the definition of
discontinued operations to include all distinguishable
components of an entity that will be eliminated from ongoing
operations. This Statement is effective for the Company's
fiscal year commencing June 1, 2002, to be applied
prospectively. The Company expects the adoption of this
standard will have no material impact on its financial
position, results of operations or cash flows.
D-27
EXHIBIT E
DISSENT RIGHTS PROVISIONS UNDER CBCA
Canada Business Corporations Act
190. (1) Right to Dissent. Subject to sections 191 and 241, a holder of
shares of any class of a corporation may dissent if the corporation is subject
to an order under paragraph 192(4)(d) that affects the holder or if the
corporation resolves to
(a) amend its articles under section 173 or 174 to add,
change or remove any provisions restricting or constraining the issue, transfer
or ownership of shares of that class;
(b) amend its articles under section 173 to add, change
or remove any restriction on the business or businesses that the corporation may
carry on;
(c) amalgamate otherwise than under section 184;
(d) be continued under section 188;
(e) sell, lease or exchange all or substantially all its
property under subsection 189(3); or
(f) carry out a going-private transaction or a
squeeze-out transaction.
Further right
(2) A holder of shares of any class or series of shares entitled
to vote under section 176 may dissent if the corporation resolves to amend its
articles in a manner described in that section.
(2.1) If one class of shares - The right to dissent described in
subsection (2) applies even if there is only one class of shares.
Payment for shares
(3) In addition to any other right the shareholder may have, but
subject to subsection (26), a shareholder who complies with this section is
entitled, when the action approved by the resolution from which the shareholder
dissents or an order made under subsection 192(4) becomes effective, to be paid
by the corporation the fair value of the shares in respect of which the
shareholder dissents, determined as of the close of business on the day before
the resolution was adopted or the order was made.
E-1
No partial dissent
(4) A dissenting shareholder may only claim under this section
with respect to all the shares of a class held on behalf of any one beneficial
owner and registered in the name of the dissenting shareholder.
Objection
(5) A dissenting shareholder shall send to the corporation, at or
before any meeting of shareholders at which a resolution referred to in
subsection (1) or (2) is to be voted on, a written objection to the resolution,
unless the corporation did not give notice to the shareholder of the purpose of
the meeting and of their right to dissent.
Notice of resolution
(6) The corporation shall, within ten days after the shareholders
adopt the resolution, send to each shareholder who has filed the objection
referred to in subsection (5) notice that the resolution has been adopted, but
such notice is not required to be sent to any shareholder who voted for the
resolution or who has withdrawn their objection.
Demand for payment
(7) A dissenting shareholder shall, within twenty days after
receiving a notice under subsection (6) or, if the shareholder does not receive
such notice, within twenty days after learning that the resolution has been
adopted, send to the corporation a written notice containing
(a) the shareholder's name and address;
(b) the number and class of shares in respect of which
the shareholder dissents; and
(c) a demand for payment of the fair value of such
shares.
Share certificate
(8) A dissenting shareholder shall, within thirty days after
sending a notice under subsection (7), send the certificates representing the
shares in respect of which the shareholder dissents to the corporation or its
transfer agent.
Forfeiture
(9) A dissenting shareholder who fails to comply with subsection
(8) has no right to make a claim under this section.
E-2
Endorsing certificate
(10) A corporation or its transfer agent shall endorse on any share
certificate received under subsection (8) a notice that the holder is a
dissenting shareholder under this section and shall forthwith return the share
certificates to the dissenting shareholder.
Suspension of rights
(11) On sending a notice under subsection (7), a dissenting
shareholder ceases to have any rights as a shareholder other than the right to
be paid the fair value of their shares as determined under this section except
where
(a) the shareholder withdraws that notice before the
corporation makes an offer under subsection (12),
(b) the corporation fails to make an offer in accordance
with subsection (12) and the shareholder withdraws the notice, or
(c) the directors revoke a resolution to amend the
articles under subsection 173(2) or 174(5), terminate an amalgamation agreement
under subsection 183(6) or an application for continuance under subsection
188(6), or abandon a sale, lease or exchange under subsection 189(9), in which
case the shareholder's rights are reinstated as of the date the notice was sent.
Offer to pay
(12) A corporation shall, not later than seven days after the later
of the day on which the action approved by the resolution is effective or the
day the corporation received the notice referred to in subsection (7), send to
each dissenting shareholder who has sent such notice
(a) a written offer to pay for their shares in an amount
considered by the directors of the corporation to be the fair value, accompanied
by a statement showing how the fair value was determined; or
(b) if subsection (26) applies, a notification that it is
unable lawfully to pay dissenting shareholders for their shares.
Same terms
(13) Every offer made under subsection (12) for shares of the same
class or series shall be on the same terms.
Payment
(14) Subject to subsection (26), a corporation shall pay for the
shares of a dissenting shareholder within ten days after an offer made under
subsection (12) has been accepted, but any
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such offer lapses if the corporation does not receive an acceptance thereof
within thirty days after the offer has been made.
Corporation may apply to court
(15) Where a corporation fails to make an offer under subsection
(12), or if a dissenting shareholder fails to accept an offer, the corporation
may, within fifty days after the action approved by the resolution is effective
or within such further period as a court may allow, apply to a court to fix a
fair value for the shares of any dissenting shareholder.
Shareholder application to court
(16) If a corporation fails to apply to a court under subsection
(15), a dissenting shareholder may apply to a court for the same purpose within
a further period of twenty days or within such further period as a court may
allow.
Venue
(17) An application under subsection (15) or (16) shall be made to
a court having jurisdiction in the place where the corporation has its
registered office or in the province where the dissenting shareholder resides if
the corporation carries on business in that province.
No security for costs
(18) A dissenting shareholder is not required to give security for
costs in an application made under subsection (15) or (16).
Parties
(19) On an application to a court under subsection (15) or (16),
(a) all dissenting shareholders whose shares have not
been purchased by the corporation shall be joined as parties and are bound by
the decision of the court; and
(b) the corporation shall notify each affected dissenting
shareholder of the date, place and consequences of the application and of their
right to appear and be heard in person or by counsel.
Powers of court
(20) On an application to a court under subsection (15) or (16),
the court may determine whether any other person is a dissenting shareholder who
should be joined as a party, and the court shall then fix a fair value for the
shares of all dissenting shareholders.
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Appraisers
(21) A court may in its discretion appoint one or more appraisers
to assist the court to fix a fair value for the shares of the dissenting
shareholders.
Final order
(22) The final order of a court shall be rendered against the
corporation in FAVOUR of each dissenting shareholder and for the amount of the
shares as fixed by the court.
Interest
(23) A court may in its discretion allow a reasonable rate of
interest on the amount payable to each dissenting shareholder from the date the
action approved by the resolution is effective until the date of payment.
Notice that subsection (26) applies
(24) If subsection (26) applies, the corporation shall, within ten
days after the pronouncement of an order under subsection (22), notify each
dissenting shareholder that it is unable lawfully to pay dissenting shareholders
for their shares.
Effect where subsection (26) applies
(25) If subsection (26) applies, a dissenting shareholder, by
written notice delivered to the corporation within thirty days after receiving a
notice under subsection (24), may
(a) withdraw their notice of dissent, in which case the
corporation is deemed to consent to the withdrawal and the shareholder is
reinstated to their full rights as a shareholder; or
(b) retain a status as a claimant against the
corporation, to be paid as soon as the corporation is lawfully able to do so or,
in a liquidation, to be ranked subordinate to the rights of creditors of the
corporation but in priority to its shareholders.
Limitation
(26) A corporation shall not make a payment to a dissenting
shareholder under this section if there are reasonable grounds for believing
that
(a) the corporation is or would after the payment be
unable to pay its liabilities as they become due; or
(b) the realizable value of the corporation's assets
would thereby be less than the aggregate of its liabilities.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Registrant's Bylaws limit, to the maximum extent permitted by
Florida law, the personal liability of directors and officers for monetary
damages for breach of their fiduciary duties as directors or officers. The
Bylaws provide further that the Registrant shall indemnify to the fullest extent
permitted by Florida law any person made a party to an action or proceeding by
reason of the fact that such person was director, officer, employee or agent of
the Registrant. The Bylaws also provide that directors and officers who are
entitled to indemnification shall be paid their expenses incurred in connection
with any action, suit, or proceeding in which such director or officer is made a
party by virtue of his or her being an officer or director of the Registrant to
the maximum extent permitted by Florida law.
Reference is made to the following documents filed as Exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
Document Exhibit Number
- -------- --------------
Registrant's Articles of Incorporation.................................................... 3.1
Registrant's Bylaws....................................................................... 3.3
Item 21. Exhibits.
(a) Exhibits
Exhibit
Number Exhibit
- ------- -------
2.1 Acquisition Agreement dated as of May 29, 2002 by and among Private
Capital Investors, Inc., ZIM Technologies International, Inc. and
certain shareholders of Private Capital Investors, Inc.
3.1 Articles of Incorporation of Registrant (a)
3.2 Bylaws of the Registrant (a)
5.1 Opinion re: Legality*
8.1 Opinion of Shutts & Bowen LLP (re: US Federal Income Tax Consequences)*
8.2 Opinion of Borden Ladner Gervais LLP (re: Canadian Income Tax Consequences)*
10.1 Letter of Intent dated as of May 2, 2001, by and between the Registrant
and ZIM Technologies International, Inc. (b)
23.1 Consent of KPMG LLP
23.2 Consent of Rachlin Cohen & Holtz, LLP
23.3 Consent of David Tow
23.4 Consent of Shutts & Bowen LLP*
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23.5 Consent of Borden Ladner Gervais LLP*
99.1 Form of Proxy*
99.2 Letter Agreement dated as of May 29, 2002 between ZIM Technologies
International, Inc., Stuart Cooper, Edie Cooper, Cooper Family
Holdings, Global Intermatch, Inc., Pasadena Investments, Ltd. and
Thornhill Consulting, Ltd.
99.3 Consent of Michael Cowpland, Proposed Director*
99.4 Consent of Gene Rheaume, Proposed Director*
99.5 Consent of James Stechyson, Proposed Director*
99.6 Consent of Charles Saikaley, Proposed Director*
99.7 Consent of Steven Houck, Proposed Director*
* To be filed by amendment
- -------------
(a) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form 10-SB (File No. 000-31691).
(b) Previously filed as an Exhibit to the Registrant's Current Report on
Form 8-K (filed with the Commission on May 18, 2001).
Item 22. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement: (in) To include
any management proxy circular/prospectus required by Section 10(a)(3) of the
Securities Act; (ii) To reflect in the management proxy circular/prospectus any
facts or events which, individually or together, represent a fundamental change
in the registration statement; (iii) To include any additional or changed
material information on the plan of distribution.
(2) For determining liability under the Securities Act, to treat
each post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of this offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officer or controlling persons of
the registrant, pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such
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liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-4 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Miami,
State of Florida on May 30, 2002.
PRIVATE CAPITAL INVESTORS, INC.
By: /s/ Stuart D. Cooper
----------------------------------
Stuart D. Cooper, President
and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
Name Title Date
---- ----- ----
/s/ Stuart D. Cooper President and Chief Executive May 30, 2002
- ---------------------------- Officer (Principal, Executive,
Stuart D. Cooper Financial and Accounting Officer)
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