SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. ____)
Filed by the Registrant |X|
Filed by a Party other than the Registrant
Check the appropriate box:
| | Preliminary Proxy Statement | | Confidential, For Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
Definitive Additional Materials
SOLICITING MATERIAL PURSUANT TO RULE 14A-11(C) OR 14A-12
ZOWCOM, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than
the Registrant) Payment of Filing Fee (Check the appropriate box):
| | No Fee Required
Fee computed on table below per Exchange Act Rules 14(a)6(i)(1) and 011.
(1) Title of each class of securities to which investment applies: Common stock
(2) Aggregate number of securities to which investment applies: 21,069,947
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 011: (set forth the amount on which the filing fee is
calculated and state how it was determined): The filing fee is determined based
upon the sum of (a) the product of 19,617,947 shares of Procera's common stock
and warrants to purchase 1,479,000 shares of Procera's common stock outstanding
on the date of this filing and the merger consideration of the market price of
Zowcom's common stock ($2.95 per share on the close of business on August 15,
2003), making the transaction value equal to $62,235,993.65 Pursuant to Section
14(g) of the Exchange Act, the fee was determined by multiplying the aggregate
value of the transaction by 0.0000809.
(4) Proposed Zowcom aggregate value of transaction: $62,235,993.65
(5) Total fee paid: $5,034.89
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act Rule
011(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: 4,789.32
(2) Form, Schedule or Registration Statement No.: PREM14A
(3) Filing Party: Zowcom, Inc.
(4) Date Filed: August 25, 2003
1
ZOWCOM, INC.
17218 Beach Boulevard
Huntington Beach, California 92647
September 29, 2003
DEAR FELLOW STOCKHOLDER:
On behalf of the Board of Directors, I am pleased to invite you to
attend a special meeting of stockholders of Zowcom, Inc., to be held on
October 15, 2003, at 11:00 a.m., local time, at the executive offices of Zowcom,
Inc., 17218 Beach Boulevard, Huntington Beach, CA 92647. The Notice of Special
Meeting, Proxy Statement and form of proxy are enclosed with this letter.
The matters expected to be acted upon at the meeting are described in
detail in the following Notice of Special Meeting and Proxy Statement. THE
PRIMARY AGENDA ITEM FOR THE SPECIAL MEETING IS A MERGER WITH PROCERA NETWORKS,
INC. APPROVAL OF THIS MERGER WILL RESULT IN A CHANGE IN CONTROL OF ZOWCOM BY
PROCERA'S MANAGEMENT AND ASSUMPTION OF PROCERA'S OPERATIONS AND LIABILITIES.
I am delighted you have chosen to invest in Zowcom, Inc. and hope that,
whether or not you plan to attend the special meeting, you will vote as soon as
possible by completing, signing and returning the enclosed proxy card in the
envelope provided. Your vote is important. Voting by written proxy will ensure
your representation at the special meeting if you do not attend in person.
I look forward to seeing you at the special meeting.
Very truly yours,
/s/ Dan Spaulding
-------------------------
Dan Spaulding
Chief Executive Officer
2
ZOWCOM, INC.
17218 Beach Boulevard
Huntington Beach, California 92647
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On October 15, 2003
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the special meeting of stockholders of
Zowcom, Inc, a Nevada corporation, will be held on October 15, 2003, at 11:00
a.m., local time, at our executive offices, 17218 Beach Boulevard, Huntington
Beach, California 92647, to vote on the following proposals:
1. To approve the Agreement and Plan of Merger ("Merger") with Procera Networks,
Inc., a Delaware corporation ("Procera"), a copy of which is attached hereto as
Exhibit A, to effect the following:
o merge with Procera; and
o change our corporate name to Procera Networks, Inc.;
APPROVAL OF THE MERGER WILL RESULT IN A CHANGE IN CONTROL OF ZOWCOM TO PROCERA'S
MANAGEMENT AND THE ASSUMPTION OF PROCERA'S OPERATIONS AND LIABILITIES.
2. To act upon such other matters and transact such other business as may
properly come before the special meeting or any adjournments or postponements
thereof.
The Board of Directors has fixed the close of business on August 22,
2003 as the record date for determining the stockholders entitled to receive
notice of and to vote, either in person or by proxy, at the special meeting and
at any and all adjournments or postponements thereof. To vote your shares,
please sign, date and complete the enclosed proxy and mail it promptly in the
enclosed, postage-paid return envelope.
PLEASE NOTE THAT THE COMPANY'S CONTROLLING STOCKHOLDERS HAVE INFORMED
THE COMPANY THAT THEY WILL BE VOTING "FOR" PROPOSAL 1 ABOVE. THE NUMBER OF VOTES
HELD BY THE CONTROLLING STOCKHOLDERS ARE SUFFICIENT TO SATISFY THE STOCKHOLDER
VOTE REQUIREMENT FOR BOTH OF THE PROPOSALS AND NO ADDITIONAL VOTES WILL
CONSEQUENTLY BE NEEDED TO APPROVE THE PROPOSAL.
By Order of the Board of Directors:
/s/ Dan Spaulding
----------------------
Dan Spaulding
Chief Executive Officer
Huntington Beach, California
September 29, 2003
3
-----------------
PROXY STATEMENT
-----------------
This Proxy Statement is furnished to the stockholders of Zowcom, Inc.
("Zowcom" or the "Corporation") in connection with the solicitation on behalf of
our Board of Directors of proxies to be voted at the Special Meeting of
Stockholders of Zowcom (together with any adjournments or postponements thereof,
the "Special Meeting"). The Special Meeting will be held on October 15, 2003 at
11:00 a.m., local time, at our executive offices, which are located at 17218
Beach Boulevard, Huntington Beach, California 92647.
This Proxy Statement and the accompanying proxy card were first mailed
to our stockholders on or about October 6, 2003.
All shares represented by properly executed proxies will be voted in
accordance with directions on the proxies. If no direction is indicated, the
shares will be voted at the Special Meeting FOR the approval of the Agreement
and Plan of Merger ("Merger") with Procera Networks, Inc., a Delaware
corporation ("Procera") and to approve filing of Articles of Merger with the
State of Nevada effecting the Merger and the name change. A stockholder
executing and returning a proxy may revoke it at any time before it is exercised
by written notice to the Secretary of Zowcom or by voting in person at the
Special Meeting.
The Board of Directors does not know of any matters to be brought
before the Special Meeting other than the items set forth in the accompanying
Notice of Special Meeting of Stockholders. The enclosed proxy confers
discretionary authority to the persons appointed by the Board of Directors to
vote on any other matter that is properly presented for action at the Special
Meeting.
The cost of solicitation of proxies by the Board of Directors is to be
borne by Zowcom. In addition to the use of the mails, proxies may be solicited
by telephone and telecopier transmission by our directors, officers and
employees. Arrangements may also be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation material
to the beneficial owners of stock held of record by such persons, and we may
reimburse such custodians, nominees and fiduciaries for reasonable out-of-pocket
expenses incurred by them in connection with the solicitation.
PLEASE NOTE THAT THE COMPANY'S CONTROLLING STOCKHOLDERS HAVE INFORMED THE
COMPANY THAT THEY WILL BE VOTING "FOR" PROPOSAL 1 ABOVE. THE NUMBER OF VOTES
HELD BY THE CONTROLLING STOCKHOLDERS ARE SUFFICIENT TO SATISFY THE STOCKHOLDER
VOTE REQUIREMENT FOR THE PROPOSAL AND NO ADDITIONAL VOTES WILL CONSEQUENTLY BE
NEEDED TO APPROVE THE PROPOSAL. APPROVAL OF THE MERGER WILL RESULT IN A CHANGE
IN OUR CONTROL TO THAT OF PROCERA'S MANAGEMENT AND THE ASSUMPTION OF PROCERA'S
OPERATIONS AND LIABILITIES.
YOU ARE HEREBY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS TO COMPLETE, SIGN,
DATE AND RETURN THE PROXY IN THE ACCOMPANYING ENVELOPE, WHICH IS POSTAGE-PAID IF
MAILED IN THE UNITED STATES.
4
SUMMARY TERM SHEET
This summary term sheet does not contain all of the information that is
important to you. You should carefully read the entire Information Statement and
the Appendices, as well as the information we incorporate by reference.
THE COMPANIES
ZOWCOM, INC., A NEVADA CORPORATION, 17218 BEACH BOULEVARD, HUNTINGTON BEACH,
CALIFORNIA, 92647 ("ZOWCOM"). Zowcom was incorporated in Nevada on July 11, 2001
as zSolution Inc, and on September 21, 2001, changed its name to Zowcom, Inc.
Zowcom was intended to be a provider of customized websites and web-based
business planning applications and Internet advertising space that would allow
customers to conduct business more efficiently using the utility of Internet.
However, upon recent analysis of operations to date, it decided to focus on
evaluating other opportunities that may enhance stockholder value, including the
acquisition of a product or technology, or pursuing a merger or acquisition of
another business entity with long-term growth potential. Zowcom's shares
currently are listed for quotation on the Over the Counter Bulletin Board under
the symbol "ZWCM" and the closing price of its shares of common stock on August
15, 2003 was $2.95 per share.
PROCERA NETWORKS, INC., A DELAWARE CORPORATION, 3175 SOUTH WINCHESTER BOULEVARD,
CAMPBELL, CALIFORNIA 95008 ("PROCERA"). Procera was incorporated in Delaware on
May 14, 2002, and started as a product family of Milan Technology, an operating
division of Digi International, Inc. ($105 million revenues - NASDAQ: DGII). In
March 2002, Digi completed divestiture of its Milan Technology division, opting
to separate and provide seed financing for its Procera product line, thereby
creating Procera Networks Inc. as an autonomous business entity. During an
eighteen-month product development process, Digi invested approximately $6
million in the creation of the Procera Networks product line. In May 2002, led
by Douglas Glader, a core team of 23 individuals left Milan to develop
affordable, high-performance Layer-7 Advanced Switching technology. At the 2002
COMNET show in Washington D.C., Mr. Glader and his team received both the "Best
New Product Achievement" and "Editor's Choice" awards for their work. Digi has
furnished Procera with an option to purchase for $300,000 all right and title to
the assets of the Procera product line, including: pre-paid technology licenses;
pre-paid facilities and personnel expenses through June, 2002; paid inventory of
300 saleable units; all Procera related capital assets; and an exclusive
non-revocable license of all intellectual properties. To date, the Procera team
has focused its efforts on developing an installed user base to validate the
product in key markets, and continued development and testing of products.
Pursuant to the terms of the Agreement, Zowcom will merge with and into Procera
and the separate corporate existence of Procera shall cease. Following the
Merger, Zowcom shall continue as the surviving corporation, but will take the
name "Procera Networks, Inc." APPROVAL OF THIS MERGER WILL RESULT IN A CHANGE
IN OUR CONTROL TO CONTROL BY PROCERA'S MANAGEMENT AND THE ASSUMPTION OF
PROCERA'S MANAGEMENT AND THE ASSUMPTION OF PROCERA'S OPERATIONS AND LIABILITIES.
Preexisting Relationships
Procera and Zowcom did not have any preexisting relationship prior to entering
into the Merger Agreement. None of Zowcom's shareholders hold shares of Procera
nor do any of the stockholders of Procera hold shares of Zowcom.
5
STRUCTURE OF THE MERGER
At the effective time of the Merger:
o Zowcom will merge with and into Procera and the separate corporate
existence of Procera shall cease;
o Zowcom will issue 19,617,947 shares of its restricted common stock and
warrants to purchase 1,479,000 of its restricted common stock to the
shareholders Procera in exchange for 100% of the issued and outstanding
shares and warrants to purchase shares of Procera's common stock; and
o Zowcom's management, which holds 6,000,000 shares of restricted common
stock, shall tender all of their shares for redemption in exchange for
$88,000 or $0.0147 per share.
As a result of the Merger, Zowcom shall continue as the surviving corporation
and the shareholders of Procera will become stockholders of Zowcom. The
remaining stockholders of Zowcom will own approximately 7.6% of the issued and
outstanding shares of Zowcom common stock, based on 21,227,947 Zowcom shares
outstanding after the Merger. The remaining shareholders of Zowcom would own
approximately 7.1% of the issued and outstanding shares of Zowcom common stock
if all 1,479,000 warrants to purchase Zowcom's stock acquired pursuant to the
Merger are exercised, which would result in 22,706,947 shares outstanding.
We are relying on Rule 506 of Regulation D of the Securities Act of 1933, as
amended (the "Act") in regard to the shares we anticipate issuing pursuant to
the Merger. We believe this offering qualifies as a "business combination" as
defined by Rule 501(d). Reliance on Rule 506 requires that there are no more
than 35 non-accredited purchasers of securities from the issuer in an offering
under Rule 506. Procera has represented to us that they have sixty-seven (67)
stockholders, and that fifty (50) of those stockholders have certified to
Procera that they are `accredited investors' as defined in Rule 501(a) of
Regulation D. Procera also has represented to us that there has been no
advertising or general solicitation in connection with this transaction.
ZOWCOM'S REASONS FOR THE MERGER
Zowcom's board of directors considered various factors in approving the Merger
and the Merger Agreement, including
o its current lack of operations;
o the available technical, financial and managerial resources possessed by
Procera;
o prospects for the future;
o the quality and experience of management services available and the depth
of Procera management;
o Procera's potential for growth or expansion;
o Procera's profit potential; and
o anticipated increase in stockholder value as a result of the Merger.
Zowcom's board of directors considered various factors, but primarily that
Zowcom's management has not been able to expand Zowcom's operations to
profitability. In considering the Merger with Procera, Zowcom's board of
directors anticipated that this lack of profitability was likely to continue for
the foreseeable future. Given those circumstances, Zowcom's board decided that
the best course of action for Zowcom and its shareholders was to enter into and
conclude the proposed Merger with Procera, after which Zowcom's management would
resign. In agreeing to the Merger, Zowcom's board hoped that by relinquishing
control to Procera's management and adopting Procera's assets and operations,
that such a move would eventually add value to Zowcom and the interests of its
shareholders. Zowcom's board of directors reached this conclusion after
analyzing Procera's operations, technical assets, intellectual property and
managerial resources, which are described in more detail below and believes that
acquiring Procera's potential for profitable operations by means of the merger
was the best opportunity to increase value to Zowcom's shareholders. Zowcom's
board of directors did not request a fairness opinion in connection with the
Merger.
PROCERA'S REASONS FOR THE MERGER
Procera's board of directors considered various factors in approving the Merger
and the Merger Agreement, including:
o the increased market liquidity expected to result from exchanging stock in
a private company for publicly traded securities of Zowcom;
o the ability to use registered securities to make acquisition of assets or
businesses;
o increased visibility in the financial community;
o enhanced access to the capital markets;
o improved transparency of operations; and
o perceived credibility and enhanced corporate image of being a publicly
traded company.
Procera's board of directors did not request a fairness opinion in connection
with the Merger.
RISK FACTORS
The Merger entails several risks, including:
o We may not be able to successfully integrate the operations of Procera into
ours. The integration of Procera and Zowcom may be complex and time-
consuming, and will require management to dedicate substantial effort to
it. Difficulties may occur during the integration process, and the
integration may not produce the expected benefits.
6
o Upon completion of the Merger, we will assume Procera's plan of operation,
which is anticipated to require substantial additional funds to fully
implement. As of June 30, 2003 our cash along with Procera's was only
$328,717. In such a restricted cash position, we may be required to raise
additional capital through debt or private equity financings, consistent
with our historical practices. Post closing of the Merger, we anticipate
conducting a private placement offering for up to $7,000,000.00 to
satisfy our working capital needs. We anticipate the $7,000,000.00
along with anticipated cash generated from operations and the conversion
of certain notes as part of the Merger, to satisfy our cash requirements
over the following 12 months.
o Our current stockholders will be diluted by the shares issued as part of
the Merger and may be diluted by future issuances of shares to satisfy our
working capital needs. Even though the 6,000,000 shares held by our
outgoing management will be redeemed, we are issuing 19,617,947 shares of
our common stock and warrants to purchase 1,479,000 shares of our common
stock to the shareholders in Procera as part of the Merger. The above
issuances, along with anticipated issuances to raise working capital, will
reduce the percentage ownership of our stockholders.
o The market price of our common stock may decline as a result of the Merger
if the integration of the Zowcom and Procera businesses is
unsuccessful.
o The stockholders of Procera will own approximately 92.4% of our common
stock following completion of the Merger, even if none of the 1,479,000
warrants to purchase our common stock are exercised, which will limit the
ability of other stockholders to influence corporate matters.
DIRECTORS AND SENIOR MANAGEMENT OF ZOWCOM FOLLOWING THE MERGER
Following completion of the Merger, the board of directors of Zowcom will resign
and new appointees will consist of directors which will be designated by
Procera. The management and directors are anticipated to include:
MR. DOUGLAS J. GLADER, 60, PRESIDENT AND CEO
Prior to founding Procera Networks, Mr. Glader served for 8 years in key senior
executive positions at Digi International, Inc. (NASDAQ: DGII), including
Executive Vice President, Chief Operating Officer, Senior Vice President of
Worldwide Manufacturing and Operations, and General Manager of Milan Technology,
Digi's LAN products division.
Mr. Glader has more than 27 years of experience in general management with firms
such as Memorex, Measurex Corporation, Altus Corporation and Direct
Incorporated, all located in the San Francisco bay area. In addition to
co-founding Greyhawk Systems, Inc., a manufacturer of electronic imaging
hardware and software, Mr. Glader has managed manufacturing operations in
Belgium, Ireland, Mexico and the Pacific Rim. Mr. Glader is on the Board of
Uromedica in Plymouth, Minnesota.
GREG DEWING, 49, VICE PRESIDENT OF SALES
Mr. Dewing is a senior sales executive with more than 19 years of experience in
OEM, end user and VAR partnerships. Prior to joining Procera, Mr. Dewing was
with Network Peripherals Inc. where he led the OEM sales efforts for North
America, Europe and Asia Pacific. Before joining Network Peripherals, Mr. Dewing
was with Novell where he built the OEM business and developed their worldwide
distribution channels.
7
MR. MAGNUS HANSEN, 54, VICE PRESIDENT, ENGINEERING
Mr. Hansen is a senior executive with extensive experience in software, optical,
electrical, and mechanical engineering. His management experience includes more
than 27 years leading development and design teams at a variety of organizations
in the Silicon Valley area. Prior to joining Procera Networks, Mr. Hansen was
Vice President at AmPro Corporation, where he led development of advanced
projection systems, and Chief Technology Officer at Optical Specialties Inc., a
developer of water inspection equipment. Additionally, Mr. Hansen has served in
senior positions at Greyhawk Systems and Cobilt Manufacturing.
MR. JAY ZERFOSS, 68, VICE PRESIDENT, FINANCE
Mr. Zerfoss is an accomplished CPA with extensive experience as Controller,
Treasurer, Director of Finance, Vice President of Finance and Administration,
and CFO for a variety of organizations. His areas of expertise include start-up
high technology manufacturing companies with national and global concerns,
rendering board of directors reporting, financial statement preparation, cash
management reporting, planning and budgeting, policies and internal controls,
attorney, auditor, and banking relationships. Prior to joining Procera Networks,
Mr. Zerfoss was Director of Finance at InnoWave Broadband Inc., CFO at Quality
Semiconductor, CFO at Integrated Device Technology and Director of Finance at
Toshiba Semiconductor.
MR. JOHN A. MCQUADE, 57, DIRECTOR OF OPERATIONS AND SUPPORT
Mr. McQuade is a senior executive with 25 years of high-tech operations, quality
and technical support experience, including expatriate positions in Asia and
Europe. He has spent ten years with Digi following their technology progression
from transceivers through multi layer switches. Recent positions with Digi
include Director of European Operations in Dortmund Germany, Director of
Corporate Quality in Minneapolis and Director of Customer Service and Technical
Support in Sunnyvale on the General Manager's staff. Additionally Mr. McQuade
spent ten years setting up off-site manufacturing facilities with Control Data,
has manufacturing management experience with GTE Sylvania and has operations,
quality, and technical support management positions with several start-ups in
the Silicon Valley.
MR. PATRICK WONG, 41, DIRECTOR OF PRODUCT MANAGEMENT & MARKETING
Mr. Wong has over 18 years experience in marketing, business development, IT,
engineering and management. His industry experience spans networking, software
development, security and optical networking. He has held positions with AT&T
Bell Laboratories, Nortel Networks, Combinet, Madge Networks, Finisar Corp. and
Nexsi Systems Corp.
BOARD MEMBERS:
In addition to MR. DOUGLAS GLADER, the members of the Board of Directors are
anticipated to be:
MR. ERIC A. MCAFEE, 41
Mr. McAfee is a principal at Berg McAfee Companies and Cagan McAfee Capital
Partners. Mr. McAfee is a noted Silicon Valley venture capitalist with
investments in more than 25 Internet, software and telecommunications companies.
Mr. McAfee has co-founded five technology companies, including: NetStream ($31
million from UBS and $24 million of Cisco financing); MindArrow (raised $31
million - NASDAQ: ARRW); Global Digital (leading Internet software company with
210 newspaper customers); NewMedia (grew to 150 employees and $48 million
revenues); and the predecessor to IQ Biometrix (security software for 5000
police depts). Mr. McAfee was selected to serve on the George W. Bush
Information Technology National Advisory Board, and is a graduate of the
Stanford Graduate School of Business Executive Program.
8
MR. TOM WILLIAMS, 64
Tom Williams has 20 years experience as CFO and General Counsel in start-up and
medium- sized venture capital-backed technology companies. Mr. Williams' early
years were spent with IBM and Shell Oil Company in engineering and legal
positions. In 1971, Mr. Williams joined the management team of Measurex Corp., a
process control start-up, responsible for engineering project budgeting and
patent matters as the company grew from $4 million to $50 million. In 1976, Mr.
Williams and two partners took over management of Altus Corporation, guided the
company through bankruptcy, raised venture capital, and hired a distinguished
president. From 1984 though 1993, Mr. Williams was CFO and General Counsel for
Greyhawk Systems, an innovator in high-resolution electronic imaging, which was
sold in 1993. From 1993 to 1997, Mr. Williams was in the private practice of
law. In 1997 he was appointed as CFO of IC WORKS, Inc. a $50 million venture
capital-backed semiconductor company, on an interim basis to guide a financial
turnaround. Within six months, the company was brought from near bankruptcy to a
cash positive position, which allowed the company to be sold in 1998 for more
than $100 million. Since 1999, Mr. Williams has been CFO at Bandwidth9, a
company developing tunable lasers for the fiber optics industry, which has
raised over $110 million in venture capital. Mr. Williams holds a B.S. degree in
electrical engineering, and a law degree from the University of Minnesota and a
M.B.A. from the University of California at Berkeley. He is a member of the
California, New York (inactive), Federal and Patent bars.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT FOLLOWING
THE MERGER
The following table sets forth information with respect to the
anticipated levels of beneficial ownership of our Common Stock owned after
giving effect to the Merger, by:
o the holders of more than 5% of our Common Stock;
o each of our directors;
o our executive officers; and
o all directors and executive officers of our company as a group.
We currently have 7,610,000 shares of our common stock issued and outstanding.
Pursuant to the terms of the Merger, we anticipate that 16,167,947 shares of our
common stock will be issued to Procera's shareholders along with warrants to
purchase an additional 1,479,000 shares of our common stock, resulting in
21,227,947 shares of our common stock outstanding after giving effect to the
Merger. If all 1,479,000 warrants to purchase our common stock are exercised,
our total issued and outstanding shares of common stock would then total
22,706,947. The 6,000,000 shares of restricted common stock owned by our current
management will be cancelled in exchange for $88,000 or $0.0147 per share upon
the closing of the Merger. APPROVAL OF THE MERGER WILL RESULT IN A CHANGE IN
CONTROL FROM OUR MANAGEMENT TO CONTROL BY PROCERA'S MANAGEMENT AND THE
ASSUMPTION OF PROCERA'S OPERATIONS AND LIABILITIES.
The following table sets forth certain information regarding the beneficial
ownership of our common stock after giving effect to the Merger by each person
or entity known by us to be the beneficial owner of more than 5% of the
outstanding shares of common stock, each of our directors and named executive
officers, and all of our directors and executive officers as a group. The table
below assumes all 1,479,000 warrants to purchase our common stock are exercised.
9
===================== ===================================== ================================ ============================
Title of Class Name and Address of Beneficial Owner Amount and Nature of
Beneficial Owner Percent of Class
- --------------------- ------------------------------------- -------------------------------- ----------------------------
Common Stock Douglas Glader(1) 4,271,754 Shares
3175 S. Winchester Blvd. President, Chief Executive 20.12%
Campbell, CA 95008 Officer, Director
- --------------------- ------------------------------------- -------------------------------- ----------------------------
Common Stock Gregory Dewing 450,510 Shares
3175 S. Winchester Blvd. Vice President Sales and 2.12%
Campbell, CA 95008 Marketing
- --------------------- ------------------------------------- -------------------------------- ----------------------------
Common Stock Magnus Hansen 675,232 Shares
3175 S. Winchester Blvd. Vice President Engineering 3.18%
Campbell, CA 95008
- --------------------- ------------------------------------- -------------------------------- ----------------------------
Common Stock Jay Zerfoss 680,318 Shares
3175 S. Winchester Blvd. Vice President Finance 3.20%
Campbell, CA 95008
- --------------------- ------------------------------------- -------------------------------- ----------------------------
Common Stock John A. McQuade 656,086 Shares
3175 S. Winchester Blvd. Director of Operations and 3.09%
Campbell, CA 95008 Services
- --------------------- ------------------------------------- -------------------------------- ----------------------------
Common Stock Thomas Williams 100,000 Shares
46410 Fremont Blvd. Director 0.47%
Fremont, CA 94538
- --------------------- ------------------------------------- -------------------------------- ----------------------------
Common Stock Eric McAfee(2) (3) 1,810,440 Shares
10600 N. De Anza Blvd., Director 8.53%
Suite 250
Cupertino, CA 95014
- --------------------- ------------------------------------- -------------------------------- ----------------------------
Common Stock Patrick Wong (4) 250,000 Shares
3175 S. Winchester Blvd. Director of Product Management 1.18%
Campbell, CA 95008 & Marketing
- --------------------- ------------------------------------- -------------------------------- ----------------------------
Common Stock The Minnis Living Trust
dated March 5, 1997
1781 Pinehurst Court 1,232,959 Shares 5.81%
Milpitas, CA 95035
- --------------------- ------------------------------------- -------------------------------- ----------------------------
Common Stock Liviakis Financial
655 Redwood Highway, 1,100,000 Shares 5.18%
Suite 255
Mill Valley, CA 94941
- --------------------- ------------------------------------- -------------------------------- ----------------------------
Common Stock Cagan-McAfee Capital Partners(2)
10600 N. De Anza Blvd., 2,000,000 Shares 9.42%
Suite 250
Cupertino, CA 95014
- --------------------- ------------------------------------- -------------------------------- ----------------------------
Common Stock Berg McAfee Companies(3)
10600 N. De Anza Blvd., Suite 250 1,920,880 Shares 9.05%
Cupertino, CA 95104
- --------------------- ------------------------------------- -------------------------------- ----------------------------
Common Stock Eric Glader (1)
c/o 3175 S. Winchester Blvd. 4,271,754 Shares 20.12%
Campbell, CA 95008
- --------------------- ------------------------------------- -------------------------------- ----------------------------
Common Stock All officers and directors 8,894,340 Shares 41.90%
as a group
===================== ===================================== ================================ ============================
(1) Douglas Glader, who owns 4,148,970 shares of Procera's common stock, is the
father of Eric Glader, who owns 122,784 shares of Procera's common stock.
Therefore, each is the beneficial owner of 4,271,754 shares of Procera's common
stock.
(2) ^ Eric McAfee owns 42.5% of Cagan-McAfee Capital Partners, making Eric
McAfee the beneficial owner of 850,000 shares of Procera's common stock.
(3) Berg McAfee Companies owns 620,800 shares of Procera's common stock ^.
Eric McAfee owns 50% of Berg McAfee Companies, making Eric McAfee the beneficial
owner of 960,440 of those shares.
(4) Patrick Wong has a warrant to purchase 250,000 shares of Procera's common
stock at $.075 per share.
Beneficial ownership is determined in accordance with the Rule 13d-3(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and generally
includes voting or investment power with respect to securities. Except as
subject to community property laws, where applicable, the person named above has
sole voting and investment power with respect to all shares of the Company's
common stock shown as beneficially owned by him.
INTERESTS OF DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL
STOCKHOLDERS IN THE MERGER
Some of the directors and executive officers of Procera have interests in the
Merger that are different from, or are in addition to, the interests of their
shareholders. These interests include positions as directors or executive
officers of Zowcom following the Merger, potential benefits under employment or
benefit arrangements as a result of the Merger, and potential severance and
other benefit payments in the event of termination of employment following the
Merger. On August 20, 2003, Procera's directors, executive officers and their
affiliates owned approximately 44.1% of Procera common stock entitled to vote on
adoption of the Merger Agreement. The board of Zowcom was aware of these
interests and considered them in approving the Merger.
10
ANTICIPATED OPERATIONS FOLLOWING THE MERGER
--------------------------------------------
PROCERA'S BACKGROUND. Procera Networks, Inc. ("Procera") was incorporated in
Delaware on May 1, 2002. After completing the Merger, we will assume Procera's
business operations, including their assets and liabilities.
PROCERA'S BUSINESS. Procera is a hardware and software development company that
has developed what it believes is the first hardware-based, scalable, Layer 7
switching and network management system that operates at full wire speed,
enabling the full Layer 7 packet processing to be integrated with switching and
routing without materially degrading network speed or latency. A switch is a
computer network device that looks at a packet internet protocol address and
determines to which other network or computer end-user computer to send it to. A
Layer 7 Switch is a switch tailored to a particular application, such as the
internet, an email program, MS Word, etc. Wire-speed means packet processing at
Ethernet 10 Mb (megabytes), 100Mb or Gigabit Ethernet speeds without adding
delay. Packet means a unit of data that can be up to 1,500 bytes.
In short, Procera's management believes its products enable computer networks to
manage information in a more sophisticated manner thereby increasing employee
and computer network efficiency and substantially reducing the costs of network
expansion. Procera's management believes that Procera's hardware solution
presents an affordable opportunity for medium and small sized enterprises to
more efficiently manage their networks on an individual, end-user basis in order
to: (i) increase efficiency of the computer network, (ii) eliminate legal
liability issues stemming from employees' use of company-provided computer
network for non-business purposes, and (iii) simplify the increasing demands on
corporations to comply with new laws regarding data storage and email archiving.
PRODUCTS. Procera has recently brought to market the "Procera MLS-XP," which
Procera's management believes is a unique non-blocking, Layer 7 switch and
network management system. In the estimation of Procera's management, the MLS-XP
allows network administrators to control, monitor and secure network traffic
with very high levels of speed, specificity, granularity, accuracy and ease. As
of July 31, 2003, Procera has shipped 80 MLS-XP units to a series of customers
that have extensively tested and confirmed the performance of the MLS-XP.
Procera is currently shipping MLS-XP switches with Layer 7 software for security
(content control), quality of service ("QoS") (packet shaping), flow metering
and routing.
DISTRIBUTION METHODS. Procera's management expects Procera will sell products
through original equipment manufacturer customers, or OEM customers, value added
resellers and system integrators. Procera's management anticipates that Procera
will also sell product to end users that have their own service organizations to
perform first level support. In the international space, Procera's management
anticipates sales into local territories or countries through two tier
distributors and OEM customers. Procera's management expects that all channels
of distribution must receive training from Procera to be able to provide their
own first level support, and that any back up support required by the
distributors will come from Procera.
NEW PRODUCTS. Procera's management anticipates that a feature enhancement
software release for MLS-XP should be delivered in the fourth quarter of 2003,
and that a new switch platform, in development for the first quarter of 2004,
will have feature enhancements to address service provider markets. Additional
products currently in design include a Network Attached Storage (NAS) content
controller that may be completed by the second quarter of 2004, and a wireless
controller with unique security features which is currently scheduled for
release in the fourth quarter of 2004.
11
COMPETITION. In the estimation of Procera's management, Layer 2 and Layer 3
switching categories already have clearly established brand leaders such as
Cisco, Foundry Networks and Extreme Networks, but that the Layer 2-3 switch
(switching based on Mac addresses or IP addresses, respectively) market is
becoming commoditized. However, Procera's management believes that the Layer 7
space remains open for new companies with superior products and performance to
establish themselves as market leading players. Procera's management believes
that its Layer 7 switch applications are different from other Layer 7 switch
applications. Companies like Cisco Systems, Inc. (NASDAQ: CSCO), Extreme
Networks, Inc. (NASDAQ: EXTR), and Foundry Networks, Inc. (NASDAQ: FDRY), Alteon
(a division of Nortel) provide Layer 7 server load balancing for data centers
environments. Server load balancing switches distribute web requests across
multiple servers and supply Layer 2-3 switches with some limited Layer 7
capability. Procera's Layer 7 application switches are used for applications
such as security (disallowing certain types of traffic), rate limiting, QoS
(prioritizing traffic) and surveillance (monitoring and archiving of email,
instant messaging).
However, Procera's management believes that no current competitor provides a
hardware-based Layer 7 product that performs all of these applications entirely
at wire-speed. Procera's management hopes that its Procera Layer 7 product
capabilities may open up a variety of customers and markets to Procera, such as
the NAS controller, message archiving and wireless markets, where the inherent
performance limitations and additional overhead of processor-based Layer 7
solutions are unacceptable. There are QoS appliance companies who offer
non-wire-speed, processor-based, WAN (wide area network)-facing devices that
control, prioritize, monitor and report on bandwidth usage. Packeteer, Inc.
(NASDAQ: PKTR) offers a range of products that sell for significantly more than
Procera's products. Packeteer's products typically have 2 or 3 ports that
operate between a company's firewall and the local area network to provide
quality of service functionality. Procera's MLS-XP has 26 ports and performs all
Layer 7 applications at wire-speed on all ports.
SUPPLIERS. Procera presently outsources the manufacturing of its products to
Delta Networks, located in the Republic of China ("Taiwan").
CUSTOMERS. As of the date of this filing, Procera has sold its product to seven
(7) customers. Procera is not dependent on any one or a few major customers.
INTELLECTUAL PROPERTY. Procera owns the domain name www.proceranetworks.com.
Procera does not have any copyrights. Procera has filed one patent application
with 39 claims and an additional provisional patent application, which Procera's
management believes covers a number of very important ideas and concepts. For
example, one of the patents has a claim protecting the starting and stopping of
policies and network instructions based upon time including the minute, hour,
day, month or year. The patent also contains a claim that protects "packet
shaping policies" such as determining which software applications have priority
on the computer network and thereby will load and operate faster than others of
lesser priority. The patent also protects the process of establishing network
policies based upon an analysis of the computer network's traffic and usage. For
example, Procera's product can instruct the network to add information, track
information, delete information or perform other functions based upon the nature
of the particular data entering or leaving the computer network. Digi has
applied for federal trademark registration of the trademark "Procera Networks,"
however, Procera's management believes that Digi will transfer ownership of the
trademark to Procera after Procera has paid $300,000 to exercise a contract
option with Digi.
12
GOVERNMENT REGULATIONS. Procera's management believes that no governmental
approval is required for any of Procera's products. Procera's management is not
aware of any existing or probable governmental regulations that would prohibit
or inhibit the sale of its products in the foreseeable future.
RESEARCH AND DEVELOPMENT. Procera has recorded engineering expenses of $574,000
from its incorporation on May 2, 2002 through June 29, 2003. None of these costs
were borne by a customer.
EMPLOYEES. As of September 11, 2003, Procera had 17 full time employees.
FACILITIES. Procera's executive offices, comprising approximately 3200 square
feet, are located at 3175 South Winchester Boulevard, Campbell, CA 95008. These
facilities are leased on a month-to-month basis, and the monthly rent is $3,200
plus a monthly service fee of $2,300. Procera's management believes that this
space will meet its needs for the near term. Procera does not own any other real
property.
LEGAL PROCEEDINGS. Neither Procera nor its property is a party to or the subject
of any pending legal proceeding.
PRIVATE PLACEMENT FOLLOWING THE MERGER
--------------------------------------
Following the closing of the Merger, we anticipate conducting a private
placement offering ("Private Placement or Private Placement Offering") for up to
$7,000,000 to satisfy our working capital needs. We anticipate the $7,000,000
along with anticipated cash generated from operations and the conversion of
certain notes as part of the Merger will satisfy our cash requirements over the
next twelve months.
The target size of this Offering is $7,000,000 (the "Target Offering") and the
minimum amount of this Private Placement Offering is $5,000,000 (the "Minimum
Offering"); however, we reserve the right to increase or decrease the size of
the Private Placement Offering or decrease the size of the Minimum Offering at
our discretion. The minimum investment is $250,000. Procera has engaged a
placement agent which shall receive a fee
of 7% of the proceeds raised in the Private Placement plus warrants equal to 10%
of the shares of common stock purchased in the Private Placement.
The shares being offered ("Offered Shares") in the Private Placement Offering
will be offered only to selected accredited investors pursuant to exemptions
from the registration requirements of the Act provided by Section 4(2) thereof
and/or Rule 506 of Regulation D promulgated thereunder and applicable state
exemptions. We reserve the right to approve each investor. The Offered Shares
will be subject to restrictions on transferability and may not be resold or
otherwise transferred except pursuant to registration under or exemptions from
the registration requirements of the Act and applicable state securities laws.
Notwithstanding the foregoing, and within 90 days after the close of the
offering, we shall file registration statement with the Commission pursuant to
the Act, covering the Offered Shares.
13
THIS INFORMATION DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION. NO
MONEY OR CONSIDERATION IS BEING SOLICITED NOR WILL ANY MONEY OR CONSIDERATION BE
ACCEPTED AS A RESULT OF THIS NOTICE.
This information is not a general notice to the public, and is directed only to
Zowcom's security holders and to comply with the disclosure requirements of
Schedule 14A.
In the event that this private placement offering of up to $7,000,000 is not
completed, Procera's management anticipates that we will approach the investors
in the prior private placements to determine if they are interested in
increasing their investment in us. If this alternative approach is not
successful, we anticipate that we will seek financial support from customers
whom Procera's management believes have tested and identified the value of
Procera's products.
If this funding is not obtained as described above, Procera's management
believes that we will not add any additional personnel as planned and would
continue to take steps to control expenses. Procera's management expects that
Procera's fixed operating overhead and operating model will allow us to expand
Procera's operations quickly without increasing fixed overhead. The lack of
outside funding would slow our growth or reduce our ability to operate
profitably.
ANTICIPATED LIQUIDITY AND CAPITAL RESOURCES FOLLOWING THE MERGER
----------------------------------------------------------------
We will assume Procera's assets and liabilities following the Merger. At June
29, 2003, Procera had $328,523 in cash, loans payable of $1,355,000 and accrued
interest of $210,432, although during August 2003, those loans payable and
accrued interest were converted to 3,589,559 shares of Procera's common stock.
Procera recently completed raising approximately $2,100,000 in two separate
private placements to accredited investors. As of the date of this filing,
Procera has no long-term debt.
Procera's management estimates that after giving effect to the Merger, the
combined current capital reserves that result will allow us to operate for at
least 6 months without relying on incoming revenue or additional investment. If
additional funds are raised through the issuance of equity or convertible debt
securities, the percentage ownership of our stockholders will be reduced,
stockholders may experience additional dilution and such securities may have
rights, preferences and privileges senior to those of our common stock. There
can be no assurance that additional financing will be available on terms
favorable to us or at all. If adequate funds are not available or are not
available on acceptable terms, we may not be able to fund expansion, take
advantage of unanticipated acquisition opportunities, develop or enhance
services or products or respond to competitive pressures. Such inability could
harm our business, results of operations and financial condition.
14
WHAT WE NEED TO DO TO COMPLETE THE MERGER
Zowcom and Procera will complete the Merger only if the conditions set forth in
the Merger Agreement are satisfied or, in some cases, waived. These conditions
include:
o the approval and adoption of the Merger Agreement by the requisite vote of
the stockholders of Zowcom and Procera;
o no statute, rule, regulation, executive order, decree, ruling or injunction
shall have been enacted, entered, promulgated or enforced by any United
States court or Governmental Entity which prohibits, restrains, enjoins or
restricts the consummation of the Merger;
o accuracy of each company's representations and warranties;
o performance by each company of its obligations under the Merger Agreement;
and
o the mailing of this information to all Zowcom stockholders as of the record
date.
ABOUT THE MEETING
WHAT IS THE PURPOSE OF THE SPECIAL MEETING?
At our Special Meeting, stockholders will act upon the matters outlined
in the Notice of Special Meeting of Stockholders on the cover page of this proxy
statement, including the approval of the Agreement and Plan of Merger and
approval of the filing of Articles of Merger with the State of Nevada effecting
the Merger and the name change. In addition, management will respond to
appropriate questions from stockholders.
WHO IS ENTITLED TO VOTE AT THE MEETING?
Only stockholders of record of shares of Common Stock at the close of
business on August 22, 2003 (the "Record Date") will be entitled to vote at the
Special Meeting. On the Record Date, there were 7,610,000 shares of Common Stock
were issued and outstanding. Our management, which holds 6,000,000 of these
shares, have already informed us that they will be voting FOR the proposal.
These shares are enough to approve the proposal. These shares of Common Stock
were the only outstanding voting securities of Zowcom. If you were a stockholder
of record of shares of Common Stock on that date, you will be entitled to vote
all of the shares that you held on that date at the Special Meeting.
WHAT ARE THE VOTING RIGHTS OF THE HOLDERS OF OUR COMMON STOCK?
Each share of Common Stock is entitled to one vote on each proposal
submitted to stockholders. Stockholders of record may vote on a matter by
marking the appropriate box on the proxy.
WHO CAN ATTEND THE SPECIAL MEETING?
Any stockholder of record may attend the Special Meeting.
WHAT CONSTITUTES A QUORUM?
A majority of the outstanding shares of our Common Stock, represented
in person or by proxy, shall constitute a quorum for the transaction of business
at the Special Meeting. As of the Record Date, 7,610,000 shares of our Common
Stock were outstanding. Thus, the presence, in person or by proxy, of the
stockholders of Common Stock representing at least 3,805,001 votes will be
required to establish a quorum. Our management, which holds 6,000,000 of these
shares, has already informed us that they will be voting FOR the proposal. These
shares are enough to approve the proposal. Action on all matters scheduled to
come before the Special Meeting, including the approval of the Agreement and
Plan of Merger and approval to file Articles of Merger with the State of Nevada
effecting the Merger and the name change, will be authorized by the affirmative
vote of the majority of shares present at the Special Meeting and entitled to
vote on such matters. Abstentions will be treated as shares that are present and
entitled to vote for purposes of determining the presence of a quorum but as
unvoted for purposes of determining the approval of any matter submitted to the
stockholders for a vote. If a broker indicates on the proxy that it does not
have discretionary authority as to certain shares to vote on a particular
matter, those shares will not be considered as present and entitled to vote with
respect to that matter.
15
HOW DO I VOTE?
If you complete and properly sign the accompanying proxy card and
return it to Zowcom, it will be voted as you direct. If you are a stockholder of
record and attend the Special Meeting, you may deliver your completed proxy card
in person. "Street name" stockholders who wish to vote at the Special Meeting
will need to obtain a proxy form from the institution that holds their shares.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. Even after you have submitted your proxy card, you may change your
vote at any time before the proxy is exercised by filing with the Secretary of
Zowcom either a notice of revocation or a duly executed proxy bearing a later
date. The powers of the proxy holders will be suspended if you attend the
Special Meeting in person and so request, although attendance at the Special
Meeting will not by itself revoke a previously granted proxy.
The following are answers to some of the questions about the Merger that you, as
one of our stockholders, may have. We urge you to read this Proxy Statement,
including the Agreement and Plan of Merger with Procera, carefully because the
information in this section is not complete.
HAS THE BOARD OF DIRECTORS APPROVED THE MERGER?
Yes. On August 22, 2003 our directors approved the Merger and all
of the transactions and developments contemplated, subject to shareholder
approval.
WHY IS ZOWCOM PROPOSING TO MERGE WITH PROCERA?
We believe that the acquisition of Procera's business will prove
beneficial to us in that we will improve our ability to conduct operations.
HOW WILL THE MERGER WORK?
The Merger will be a very simple, straight-forward transaction. We will
acquire all of the assets, liabilities, and business operations of Procera
Networks, Inc., which will be acquired in exchange for 16,167,947 shares of our
common stock along with 3,450,000 warrants to purchase shares of our common
stock. Our current management will resign their positions with us and the
6,000,000 shares held by our current management will be cancelled in exchange
for cash of $88,000, or $0.0147 per share. One of our shareholders has provided
additional capital to redeem these shares and to settle our outstanding
liabilities as of the closing of the Merger.
WHAT WILL BE THE RESULT OF THE PROPOSED MERGER?
The proposed Merger will result in Procera being merged into our
corporation. The legal existence of Procera will cease to exist. We will succeed
to the assets, liabilities and business of Procera.
WHAT WILL I RECEIVE IN THE MERGER?
16
The Merger will not result in the issuance of additional shares of our
common stock or other property to our stockholders. However, one result of the
Merger will be to reduce the percentage ownership of each stockholder in our
company, as is more fully described in this proxy statement.
DOES THE BOARD OF DIRECTORS OF ZOWCOM RECOMMEND VOTING IN FAVOR OF THE PROPOSED
MERGER?
After careful consideration, our board of directors has determined that
the terms and conditions of the proposed Merger are advisable, fair to, and in
the best interests of, our company and our stockholders, and unanimously
recommends that our stockholders vote in favor of the Merger and its
consummation.
WHEN DO YOU EXPECT THE MERGER TRANSACTION TO BE COMPLETED?
We are working to complete the Merger transaction as quickly as
possible. We hope to complete the transaction immediately after the special
meeting of our shareholders.
WHAT VOTE IS REQUIRED TO APPROVE THE MERGER?
Nevada law requires that our board of directors and the holders of a
majority of the outstanding shares of our common stock approve the Agreement and
Plan of Merger and consummation of the transaction by filing Articles of Merger
with the Nevada Secretary of State. Our board of directors has already approved
such matters. Our officers and directors own 6,000,000 shares which comprise
78.84% of the outstanding shares of our common stock, and intend to vote their
shares in of the Merger proposal described herein. The number of shares they own
is set forth in the table on page 16. Procera Networks, Inc will also be
required to obtain the approval of its board of directors and stockholders.
DO I HAVE THE RIGHT TO VOTE ON THE MERGER?
Yes, you do. That is one of the purposes of this proxy statement. We
are soliciting your vote in favor of the Merger. Your vote is required because
the accounts receivable to be written off in this transaction is equivalent to
the sale of a substantial portion of our assets.
WILL MY VOTE HAVE ANY EFFECT ON THE OUTCOME?
No, it will not. Our officers, directors and controlling stockholders
hold enough votes to approve all of the proposals and they has informed us that
they will be voting their shares in favor of all the proposals discussed herein.
HOW MANY SHARES WILL I HAVE AFTER THE MERGER?
The number of shares you own will remain the same. Nonetheless, your
ownership percentage will be diluted. We are issuing 16,167,947 shares of our
common stock in the Merger to shareholders of Procera, and, after canceling the
6,000,000 shares held by Zowcom's current management, the total number of shares
of our common stock issued and outstanding will therefore increase to 17,777,947
from the current 7,610,000 and if all the warrants are exercised, to
21,227,947.
WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
We hope to complete the Merger as soon as possible, assuming that all
of the conditions to the closing of the Merger as set forth in the Agreement are
either waived or completed to the satisfaction of the parties.
17
DO I HAVE ANY DISSENTERS' RIGHTS?
Pursuant to Nevada Revised Statutes section 92A, shareholders are
entitled to dissent and demand payment of fair value for their shares. We will
provide to any shareholder seeking to dissent all of the necessary documents
required for that purpose upon request to us at 17218 Beach Boulevard,
Huntington Beach, California 92647. Section 92A of the Nevada Revised Statutes
is attached as Exhibit B. Refer to the section entitled "Dissenter's Rights."
WHAT ARE THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS?
Unless you give other instructions on your proxy card, the person named
as proxy holder on the proxy card will vote in accordance with the
recommendations of the Board of Directors. The recommendation of the Board of
Directors is set forth with the description of each item in this proxy
statement. In summary, the Board of Directors recommends approval of the
Agreement and Plan of Merger with Procera Networks, Inc. and approval of consent
to file Articles of Merger with the State of Nevada effecting the Merger and the
name change, all as described in detail in this Proxy Statement.
With respect to any other matter that properly comes before the Special
Meeting, the proxy holder will vote as recommended by the Board of Directors,
or, if no recommendation is given, in their own discretion.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Some statements in this Proxy Statement contain certain "forward-looking"
statements of management of Zowcom. Forward-looking statements are statements
that estimate the happening of future events are not based on historical fact.
Forward-looking statements may be identified by the use of forward-looking
terminology, such as "may", "shall", "will", "could", "expect", "estimate",
"anticipate", "predict", "probable", "possible", "should", "continue", or
similar terms, variations of those terms or the negative of those terms. The
forward-looking statements specified in the following information have been
compiled by our management on the basis of assumptions made by management and
considered by management to be reasonable. Our future operating results,
however, are impossible to predict and no representation, guaranty, or warranty
is to be inferred from those forward-looking statements.
The assumptions used for purposes of the forward-looking statements specified in
the following information represent estimates of future events and are subject
to uncertainty as to possible changes in economic, legislative, industry, and
other circumstances. As a result, the identification and interpretation of data
and other information and their use in developing and selecting assumptions from
and among reasonable alternatives require the exercise of judgment. To the
extent that the assumed events do not occur, the outcome may vary substantially
from anticipated or projected results, and, accordingly, no opinion is expressed
on the achievability of those forward-looking statements. We cannot guaranty
that any of the assumptions relating to the forward-looking statements specified
in the following information are accurate, and we assume no obligation to update
any such forward-looking statements.
PLEASE NOTE THAT THE COMPANY'S CONTROLLING STOCKHOLDERS HAVE INFORMED THE
COMPANY THAT THEY WILL BE VOTING "FOR" PROPOSAL 1 ABOVE. THE NUMBER OF VOTES
HELD BY THE CONTROLLING STOCKHOLDERS ARE SUFFICIENT TO SATISFY THE STOCKHOLDER
VOTE REQUIREMENT FOR THE PROPOSAL AND NO ADDITIONAL VOTES WILL CONSEQUENTLY BE
NEEDED TO APPROVE THE PROPOSAL. APPROVAL OF THE MERGER WILL RESULT IN A CHANGE
IN CONTROL FROM OUR CURRENT MANAGEMENT TO CONTROL BY PROCERA'S MANAGEMENT AND
THE ASSUMPTION OF PROCERA'S OPERATIONS AND LIABILITIES.
PROPOSAL 1
18
APPROVAL OF THE AGREEMENT AND PLAN OF MERGER WITH PROCERA NETWORKS, INC. AND TO
APPROVE FILING OF ARTICLES OF MERGER WITH THE STATE OF NEVADA TO EFFECT THE
MERGER AND THE NAME CHANGE
THE BOARD OF DIRECTORS OF ZOWCOM RECOMMENDS THAT HOLDERS OF COMMON STOCK VOTE
"FOR" THE APPROVAL OF THE AGREEMENT AND PLAN OF MERGER WITH PROCERA AND TO
APPROVE FILING OF ARTICLES OF MERGER WITH THE STATE OF NEVADA TO EFFECT THE
MERGER AND THE NAME CHANGE.
On August 22, 2003, our Board of Directors approved, subject to
stockholder approval, an approval of the Agreement and Plan of Merger with
Procera and to approve filing of Articles of Merger with the State of Nevada
effecting the Merger and the name change to Procera Networks, Inc. The Agreement
and Plan of Merger and the proposed Articles of Merger are attached as exhibits.
CONSEQUENCES OF APPROVAL OF THE AGREEMENT AND PLAN OF MERGER WITH PROCERA AND TO
APPROVE FILING OF ARTICLES OF MERGER WITH THE STATE OF NEVADA EFFECTING THE
MERGER AND THE NAME CHANGE:
If the approval of the Agreement and Plan of Merger with Procera and to
approve filing of Articles of Merger with the State of Nevada effecting the
Merger and the name change, then the corporate existence of Procera will cease,
shareholders of Procera will be issued shares of Zowcom, we will operate the
business of Procera, and we will change our corporate name to Procera Networks,
Inc.
The affirmative vote of a majority of the outstanding shares of our
Common Stock at the Special Meeting, whether in person or by proxy, is required
to approve the approval of the Agreement and Plan of Merger with Procera
Networks, Inc. and to approve filing of Articles of Merger with the State of
Nevada to effecting the Merger and the name change.
The Board of Directors recommends that the stockholders vote FOR the
approval of the Agreement and Plan of Merger with Procera and to approve filing
of Articles of Merger with the State of Nevada to effect the Merger and the name
change. Proxies solicited by the Board of Directors will be voted for these
actions unless stockholders specify in their proxies a contrary choice.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of our Common Stock owned, as of August 22, 2003, by:
o the holders of more than 5% of our Common Stock;
o each of our directors;
o our executive officers; and
o all directors and executive officers of our company as a group.
As of August 22, 2003, an aggregate of 7,610,000 shares of our Common
Stock were issued and outstanding. As of this same date, there were no options
or warrants to acquire our Common Stock issued. The following table sets forth
certain information regarding the beneficial ownership of our common stock as of
that date by each person or entity known by us to be the beneficial owner of
more than 5% of the outstanding shares of common stock, each of our directors
and named executive officers, and all of our directors and executive officers as
a group.
19
===================== ================================= ================================ ============================
Title of Class Name and Address of Beneficial Amount and Nature of
Owner Beneficial Owner Percent of Class
- --------------------- --------------------------------- -------------------------------- ----------------------------
Common Stock Dan Spaulding 200,000 shares
17218 Beach Boulevard, president, director 2.63%
Huntington Beach, CA 92647
- --------------------- --------------------------------- -------------------------------- ----------------------------
Common Stock Marc Seely 800,000 shares
17218 Beach Boulevard, secretary, treasurer, director 10.51%
Huntington Beach, CA 92647
- --------------------- --------------------------------- -------------------------------- ----------------------------
Common Stock Frank Drechsler 5,000,000 shares
17218 Beach Boulevard, director 65.70%
Huntington Beach, CA 92647
- --------------------- --------------------------------- -------------------------------- ----------------------------
Common Stock All officers and directors 6,000,000 shares 78.84%
as a group
===================== ================================= ================================ ============================
Beneficial ownership has been determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934. Unless otherwise noted, we believe that all
persons named in the table have sole voting and investment power with respect to
all shares of our Common Stock beneficially owned by them. Upon closing of the
Merger, our current management will resign their positions with us and the
6,000,000 shares held by our current management will be cancelled in exchange
for cash of $88,000, or $0.0147 per share.
FINANCIAL AND OTHER INFORMATION
ZOWCOM AUDITED FINANCIAL STATEMENTS
The financial statements of Zowcom as of December 31, 2002 and 2001 and are
contained in Zowcom's Annual Report on Form 10-KSB for the year ended December
31, 2002 which is included in this document as Exhibit C. These financial
statements have been audited by Lesley, Thomas, Schwarz and Postma, independent
auditors. You are encouraged to review the financial statements, related notes
and other information included elsewhere in this filing.
PROCERA FINANCIAL STATEMENTS
-----------------------------
The financial statements of Procera Networks, Inc. ("Procera") from inception to
December 29, 2002 and for the period ending June 29, 2003 are attached hereto as
Exhibit D. These statements were prepared by Procera's management. Procera's
fiscal year end is December 29.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
- ---------------------------------------------------------------------------
Procera Networks, Inc. was incorporated on May 1, 2002 and completed its first
fiscal year of business operations on December 29, 2002.
LIQUIDITY AND CAPITAL RESOURCES. During the fiscal year ended December 29, 2002,
Procera financed its operations through short-term borrowings totaling
$1,080,000, which were convertible into equity, at the option of the lender. At
yearend, accrued interest on borrowings totaled $87,300 and was also convertible
into equity, at the option of the lender. Except for the sale of founders' stock
to employees, Procera was unable to raise any equity capital during 2002. Cash
balance at December 29, 2002 was $7,854 and trade accounts receivable was
$23,289. Trade payables at yearend totaled $142,059 and were owed primarily to a
financial consultant ($59,850) and to Procera's outside legal counsel ($73,735).
During the six months ended June 29, 2003, Procera financed operations through:
(a) collection of receivables of $23,289; (b) additional short-term convertible
loans totaling $275,000; and (c) through the private placement of its common
stock totaling $404,000 of equity capital. At June 29, 2003, cash balance was
$328,523, loans payable totaled $1,355,000, and accrued interest totaled
$210,432. During August 2003, total loans and accrued interest through July 31,
2003 were converted by all lenders to 3,589,559 shares of Procera's common
stock. Trade payables at June 29, 2003 totaled $180,114 and were owed primarily
to a financial consultant ($59,850), Procera's outside legal counsel ($82,017),
and Procera's outside patent counsel ($20,943). All trade payables were paid
during July and August 2003 as a result of Procera completing the private
placement of its common stock to raise $1,695,000 of equity capital. Procera did
not pay any brokerage commission for raising the private investment of
$1,695,000. This latest offering raised the amount of cash received from
Procera's private placements to approximately $2,100,000.
RESULTS OF OPERATIONS.
- ----------------------
REVENUES. During 2002, Procera introduced to the market its multi-layer switch
products that provide network administrators with the ability to prioritize and
control traffic content on their local area networks. Sales of 35 switch
products and related accessories were made during 2002 to nine different
customers, totaled $175,368 in revenues.
Due to a lack of cash resources, on March 31, 2003 it became necessary for
Procera to terminate 21 of its 23 employees and cease product development and
sales activities. During April and May 2003, Procera's business activities were
conducted by its CEO and CFO only. As of June 9, 2003, twelve additional
employees have been re-hired, including the complete technical team, and Procera
has re-started all of its business operations. As a result of the foregoing,
sales revenue of $4,043 has been generated during the six months ended June 29,
2003. Procera expects to begin product shipments in September 2003 and expects
that its revenues will increase over the next year and beyond.
20
COST OF SALES. Procera's cost of sales for the fiscal year ended December 29,
2002 totaled $170,435, of which $149,962 represented manufacturing overhead
costs. Due to the low volume of product shipments during the year, gross margin
for the period was $4,933. At volume level shipments, Procera's management
estimates that its gross margin will be 65% of revenues.
During the six months ended June 29, 2003, cost of sales totaled $102,818,
primarily all manufacturing overhead costs, on revenues of $4,043 from sales of
two switch units.
OPERATING EXPENSES. For the fiscal year ended December 29, 2002, Procera's
operating expenses totaled $1,307,566, of which $404,423 represented research
and development expenses, $272,194 represented sales and marketing expenses, and
$630,950 represented general and administrative expenses.
For the six months ended June 29, 2003, operating expenses totaled $526,379, of
which $169,499 represented research and development expenses, $80,842
represented sales and marketing expenses, and $276,399 represented general and
administrative expenses. Included in operating expenses for the fiscal year
ended December 29, 2002 were $882,527 for salaries and employee benefits,
$119,700 for consulting services, $137,994 for facilities expenses, $80, 900 for
legal services, and $36,000 for accrued auditing services. Included in operating
expenses for the six months ended June 29, 2003 were $369,196 for salaries and
employee benefits, $93,317 for facilities expenses, $46,054 for legal services,
and $18,000 for accrued auditing services. In addition, interest expenses were
$88,597 for the fiscal year ended December 29, 2002 and $124,268 for the six
months ended June 29, 2003. The total of all expenses for the eight months ended
December 29, 2002 averaged $195,825 per month. The total of all expenses for the
six months ended June 29, 2003 averaged $125,577 per month. The $70,000
reduction in average monthly expenses during the first six months of 2003 can be
attributed to: (a) the 23 employees employed during January, February, and March
were paid only a minimum wage of $2,340 per month per employee; (b) business
operations were terminated during April and May; (c) only 14 employees were
re-hired to re-start operations in June; and (d) beginning June 1, 2003, monthly
facilities expenses were reduced to $5,500 per month compared with $20,075 per
month prior to the re-start of operations. All expenses for June 2003 totaled
$174,000. During the third quarter which ends September 30, Procera's management
anticipates that monthly expenses will increase to $225,000 per month as Procera
accelerates its product development and sales and marketing activities.
The following describes the pro forma effect of the merger on (1) the audited
balance sheet data of Zowcom and unaudited balance sheet data of Procera as of
December 31, 2002 and December 29, 2002 respectively and (2) the audited
statements of operations data of Zowcom for the year ended December 31, 2002 and
the unaudited statements of operations of Procera for the period from its
inception to December 29, 2002.
Income Statement Procera Zowcom Consolidated Pro Forma
For the period from For the year ended for the year ended
inception to year ended December 31, 2002 December 31, 2002
December 29, 2002
$ $ $
Revenue 175,368 2,045 177,413
Gross Profit (Loss) 4,933 (83,237) (78,304)
Net Profit (Loss) (1,376,230) (81,192) (1,457,422)
Net Profit (Loss) Per Share (0.16) (0.00) (0.09)
Balance Sheet December 29, 2002 December 31, 2002 December 31, 2002
$ $ $
Total Assets 59,384 6,075 65,459
Total Liabilities 1,426,824 17,150 1,443,974
Shareholders' Deficit (1,367,439) (11,075) (1,378,514)
21
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following describes the pro forma effect of the merger on (1) the unaudited
balance sheet data of Zowcom and Procera as of June 30, 2003 and (2) the
unaudited statements of operations data of Zowcom and Procera for the six
months ended June 30, 2003.
Income Statement Procera Zowcom Consolidated Pro Forma
Six month period ending Six month period ending Six month period ending
June 30, 2003 June 30, 2003 June 30, 2003
$ $ $
Revenue 4,000 0 4,000
Gross Profit (Loss) (99,000) (30,340) 129,340
Net Loss (749,000) (30,340) (779,340)
Net Loss Per Share (0.40) (0.00) (0.03)
Balance Sheet June 30, 2003 June 30, 2003 June 30, 2003
$ $ $
Total Assets 357,000 4,338 361,338
Total Liabilities 2,073,000 37,453 2,110,453
Shareholders' Deficiency (1,716,000) (33,115) (1,749,115)
22
This information is only a summary. You should also read the historical
Information, management's discussion and analysis and related notes of Zowcom
contained it its Quarterly Report on Form 10-QSB for the six month period ended
June 30, 2003, which are incorporated by reference into this document and the
historical financial statements managements discussion and analysis and related
notes for Zowcom contained elsewhere in this document. The unaudited pro forma
combined condensed balance sheet data and the unaudited pro forma combined
condensed operations data show the estimated effects of the merger as if it had
occurred on June 30, 2003.
We are providing the unaudited pro forma combined condensed financial and other
information for informational purposes only. It does not necessarily represent
or indicate what the financial position and results of operations of Zowcom
would actually have been had the merger and other pro forma adjustments in fact
occurred at the date indicated. It also does not necessarily represent or
indicate the future financial position or results Zowcom will achieve after the
merger.
ADDITIONAL INFORMATION
Zowcom will furnish without charge to any stockholder, upon written or
oral request, any documents filed by Zowcom pursuant to the Securities Exchange
Act. Requests for such documents should be addressed to Zowcom, Inc., 17218
Beach Boulevard, Huntington Beach, California 92647. Documents filed by Zowcom
pursuant to the Securities Exchange Act may be reviewed and/or obtained through
the Securities and Exchange Commission's Electronic Data Gathering Analysis and
Retrieval System, which is publicly available through the Securities and
Exchange Commission's web site (http://www.sec.gov).
DISSENTERS' RIGHTS
As an owner of Zowcom common stock, you have the right to dissent from this
merger and obtain cash payment for the "fair value" of your shares, as
determined in accordance with the Nevada Revised Statutes ("NRS"). Below is a
description of the steps you must take if you wish to exercise dissenters'
rights with respect to the merger under NRS Sections 92A.300 to 92A.500, the
Nevada dissenters' rights statute. The text of the statute is set forth in
Exhibit D. This description is not intended to be complete. If you are
considering exercising your dissenters' rights, you should review NRS Sections
92A.300 to 92A.500 carefully, particularly the steps required to perfect
dissenters' rights. FAILURE TO TAKE ANY ONE OF THE REQUIRED STEPS MAY RESULT IN
TERMINATION OF YOUR DISSENTERS' RIGHTS UNDER NEVADA LAW. IF YOU ARE CONSIDERING
DISSENTING, YOU SHOULD CONSULT WITH YOUR OWN LEGAL ADVISOR.
To exercise your right to dissent, you must:
o before the effective date of the merger, deliver written notice to us
at Zowcom, Inc. , 17218 Beach Boulevard, Huntington Beach, California 92647,
Attn: Corporate Secretary, stating that you intend to demand payment for your
shares if the merger is completed; and
o not vote your shares in favor of the merger, either by proxy or in
person.
If you satisfy those conditions, we will send you a written
dissenter's notice within 10 days after the merger is effective. This
dissenter's notice will:
23
o specify where you should send your payment demand and where and when
you must deposit your stock certificates, if any;
o inform holders of uncertificated shares to what extent the transfer of
their shares will be restricted after their payment demand is received;
o supply a form of payment demand that includes the date the merger was
first publicly announced and the date by which you must have acquired beneficial
ownership of your shares in order to dissent;
o set a date by when we must receive the payment demand, which may not
be less than 30 or more than 60 days after the date the dissenters' notice is
delivered; and
o provide you a copy of Nevada's dissenters' rights statute. After you
have received a dissenter's notice, if you still wish to exercise your
dissenters' rights, you must:
o demand payment either through the delivery of the payment demand form
to be provided or other comparable means;
o certify whether you have acquired beneficial ownership of the shares
before the date set forth in the dissenter's notice; and
o deposit your certificates, if any, in accordance with the terms of the
dissenter's notice.
FAILURE TO DEMAND PAYMENT IN THE PROPER FORM OR DEPOSIT YOUR CERTIFICATES
AS DESCRIBED IN THE DISSENTER'S NOTICE WILL TERMINATE YOUR RIGHT TO RECEIVE
PAYMENT FOR YOUR SHARES PURSUANT TO NEVADA'S DISSENTERS' RIGHTS STATUTE. YOUR
RIGHTS AS A STOCKHOLDER WILL CONTINUE UNTIL THOSE RIGHTS ARE CANCELED OR
MODIFIED BY THE COMPLETION OF THE MERGER.
Within 30 days after receiving your properly executed payment demand, we
will pay you what we determine to be the fair value of your shares, plus accrued
interest (computed from the effective date of the merger until the date of
payment). The payment will be accompanied by:
o our balance sheet as of the end of a fiscal year ended not more than 16
months before the date of payment, an income statement for that year, a
statement of changes in stockholders' equity for that year, and the latest
available interim financial statements, if any;
o an explanation of how we estimated the fair value of the shares and how
the interest was calculated;
o information regarding your right to challenge the estimated fair value;
and
o a copy of Nevada's dissenters' rights statute.
We may elect to withhold payment from you if you became the beneficial
owner of the shares on or after the date set forth in the dissenter's notice. If
we withhold payment, after the consummation of the merger, we will estimate the
fair value of the shares, plus accrued interest, and offer to pay this amount to
you in full satisfaction of your demand. The offer will contain a statement of
our estimate of the fair value, an explanation of how the interest was
calculated, and a statement of dissenters' rights to demand payment under NRS
Section 92A.480.
If you believe that the amount we pay in exchange for your dissenting
shares is less than the fair value of your shares or that the interest is not
correctly determined, you can demand payment of the difference between your
estimate and ours. You must make such demand within 30 days after we have made
or offered payment; otherwise, your right to challenge our calculation of fair
value terminates.
If there is still disagreement about the fair market value within 60 days
after we receive your demand, we will petition the District Court of Clark
County, Nevada to determine the fair value of the shares and the accrued
interest. If we do not commence such legal action within the 60-day period, we
will have to pay the amount demanded for all unsettled demands. All dissenters
whose demands remain unsettled will be made parties to the proceeding, and are
entitled to a judgment for either:
24
o the amount of the fair value of the shares, plus interest, in excess
of the amount we paid; or
o the fair value, plus accrued interest, of the after-acquired shares
for which we withheld payment.
We will pay the costs and expenses of the court proceeding, unless the
court finds the dissenters acted arbitrarily, vexatiously or in bad faith, in
which case the costs will be equitably distributed. Attorney fees will be
divided as the court considers equitable.
Failure to follow the steps required by NRS Sections 92A.400 through
92A.480 for perfecting dissenters' rights may result in the loss of such rights.
If dissenters' rights are not perfected, you will be entitled to receive the
consideration receivable with respect to such shares in accordance with the
merger agreement. In view of the complexity of the provisions of Nevada's
dissenters' rights statute, if you are considering objecting to the merger you
should consult your own legal advisor.
OTHER MATTERS
The Board of Directors knows of no business which will be presented for
consideration at the Special Meeting other than that shown above. However, if
any business shall properly come before the Special Meeting, the persons named
in the enclosed proxy or their substitutes will vote the proxy in respect of any
such business in accordance with their best judgment pursuant to the
discretionary authority conferred thereby.
September 29, 2003
- --------------------------------------------------------------------------------
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN
IT IN THE ENCLOSED ADDRESSED ENVELOPE, WHICH REQUIRES
NO POSTAGE IF MAILED IN THE UNITED STATES.
- --------------------------------------------------------------------------------
25
ZOWCOM
PROXY SOLICITED BY THE BOARD OF DIRECTORS
Special Meeting of Stockholders - October 15, 2003
- --------------------------------------------------------------------------------
The undersigned stockholder of ZOWCOM, INC. ("Zowcom"), revoking all previous
proxies, hereby constitutes and appoints Dan Spaulding, as the agent and proxy
of the undersigned, with full power of substitution in each, for and in the name
and stead of the undersigned, to attend the Special Meeting of Stockholders of
Zowcom to be held on October 15, 2003 at 11:00 A.M., local time, at Zowcom's
executive offices, 17218 Beach Boulevard, Huntington Beach, California 92647,
and to vote all shares of Common Stock of Zowcom which the undersigned would be
entitled to vote if personally present at the Special Meeting, and at any
adjournment or postponement thereof; provided, that said proxies are authorized
and directed to vote as indicated with respect to the matters set forth on the
reverse side hereof:
This Proxy will be voted in the manner directed herein by the undersigned
stockholder(s). IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR"
APPROVAL OF THE MERGER AND NAME CHANGE. This Proxy also delegates discretionary
authority to vote with respect to any other business which may properly come
before the Special Meeting or any adjournment or postponement thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF THE SPECIAL MEETING
AND THE PROXY STATEMENT FURNISHED IN CONNECTION THEREWITH. The undersigned also
hereby ratifies all that the said agents and proxies may do by virtue hereof and
hereby confirms that this Proxy shall be valid and may be voted whether or not
the stockholder's name is signed as set forth below or a seal is affixed or the
description, authority or capacity of the person signing is given or other
defect of signature exists.
1. To approve proposed Agreement and Plan of Merger, a copy of which is attached
hereto as Exhibit A, to effect the following:
o merge with Procera; and
o change our corporate name to Procera Networks, Inc.;
|_| FOR |_| AGAINST |_| ABSTAIN
In their discretion, the proxies will vote on such other business as may
properly come before the 2003 Special Meeting.
|_| Please check here if you plan to attend the Special Meeting in person.
NOTE: PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT IN THE ENCLOSED
ENVELOPE. Please sign this Proxy exactly as name(s) appear in address below.
When signing as attorney-in-fact, executor, administrator, trustee or guardian,
please add your title as such. Corporations please sign with full corporate name
by a duly authorized officer and affix the corporate seal.
- - -------------------------------------
Signature Date
26
Exhibit A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
ZOWCOM, INC.
AND
PROCERA NETWORKS, INC.
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is dated as of June 24,
2003, by and between Zowcom, Inc. ("ZWCM"), a Nevada corporation whose
principal place of business is located at 17218 Beach Boulevard, Huntington
Beach, California 92647, such corporation being herein sometimes called the
"Surviving Corporation", and Procera Networks, Inc. ("Procera"), a Delaware
corporation whose principal place of business is located at 3175 S.
Winchester Blvd., Campbell, California 95008, such corporation being herein
sometimes called the "Disappearing Corporation," with ZWCM and Procera
being herein sometimes collectively called the "Constituent Corporations".
This agreement replaces all preceding agreements.
SECTION 1. NAME OF SURVIVING CORPORATION; ARTICLES OF INCORPORATION AND
-------------------------------------------------------------
BY-LAWS; BOARD OF DIRECTORS; OFFICERS
-------------------------------------
1.1 NAME OF SURVIVING CORPORATION. The corporation which shall survive
the merger ("Merger") contemplated hereby is Zowcom, Inc., a Nevada
corporation. However, immediately following the Effective Time
(asdefined in Section 3.2 hereof), the name of the Surviving
Corporation shall be changed to "Procera Networks, Inc."
1.2 ARTICLES OF INCORPORATION AND BY-LAWS: The articles of incorporation
and the by-laws of Zowcom, Inc. as in effect at the Effective Time (as
defined in Section 3.2 hereof) shall from and after the Effective Time
be the articles of incorporation and the by-laws of the Surviving
Corporation until they are amended.
1.3 BOARD OF DIRECTORS AND OFFICERS: The directors and officers of Procera
as of the Effective Time shall be the directors and the officers of the
Surviving Corporation, each to serve in each case until his respective
successor shall have been elected and qualified
1.4 EMPLOYEES AND CONSULTANTS: All employees of Procera shall remain
employees of the Surviving Corporation following the Effective Time, at
the sole discretion of the directors and officers of the Surviving
Corporation.
SECTION 2. STATUS AND CONVERSION OF SECURITIES
-----------------------------------
27
2.1 Stock of Disappearing Corporation
---------------------------------
(a) PROCERA COMMON STOCK. Each share of common stock, par value
$0.001 per share, of Procera ("Procera Common Stock")
outstanding at the Effective Time shall, subject to compliance
with Section 2.1(d), be converted into and exchanged for one
(1) share of common stock, par value $0.001 per share, of ZWCM
("ZWCM Common Stock"), except that shares of Procera Common
Stock held in Procera's treasury at the Effective Time, if any,
shall be cancelled.
(b) DISSENTER'S RIGHTS. Notwithstanding Section 2.1(a), no share of
ZWCM Common Stock shall be issued in respect of any shares of
Procera Common Stock, the holders of which shall object to the
Merger in writing and demand payment of the value of their
shares pursuant to the General Corporation Law of the State of
California and as a result payment therefore is made, such
holders to have only the rights provided by such law.
(c) SURRENDER AND EXCHANGE OF PROCERA COMMON STOCK. Subject to the
provisions of Section 2.1(a) and 2.1(d), after the Effective
Time each holder of an outstanding certificate or certificates
("Old Certificates") theretofore representing shares of Procera
Common Stock, upon surrender thereof to Randall J. Lanham, Esq.
("Exchange Agent"), at 28562 Oso Parkway, Unit D, Rancho Santa
Margarita, California 92688, shall be entitled to receive in
exchange therefore a certificate or certificates ("New
Certificates"), which ZWCM agrees to make available to the
Exchange Agent as soon as practicable after the Effective Time,
representing the number of whole shares of ZWCM Common Stock
rounded up to the nearest whole share into and for which the
shares of Procera Common Stock theretofore represented by such
surrendered Old Certificates have been converted. No
certificates or scrip for fractional shares of ZWCM Common
Stock will be issued, no ZWCM stock split or dividend shall
relate to any fractional share interest, and no such fractional
share interest shall entitle the owner thereof to vote or to
any rights of a shareholder of ZWCM.
(d) ENDORSEMENT OF SHARES OF PROCERA COMMON STOCK. The Old
Certificates to be surrendered by the holders of Procera Common
Stock shall be properly endorsed and otherwise in proper form
for transfer in accordance with the share exchange instructions
provided to the holders of such securities.
(e) STOCK TRANSFERS. As of the Effective Time, no transfer of the
shares of Procera Common Stock outstanding prior to the
Effective Time shall be made on the stock transfer book of the
Surviving Corporation. If, after the Effective Time, Old
Certificates are presented to the Surviving Corporation, they
shall be exchanged pursuant to Section 2.1 (c).
2.2 ASSUMPTION AND RECOGNITION OF PROCERA OPTIONS: On and after the
Effective Time, ZWCM shall assume and recognize any vested or unvested
stock options outstanding with respect to Procera Common Stock.
2.3 NONASSUMPTION OR NONRECOGNITION OF ZWCM OPTIONS: On and after the
Effective Time, Procera shall neither assume nor recognize any stock
options outstanding with respect to ZWCM Common Stock. It is the
intention of ZWCM to cause all outstanding stock options to be
cancelled or exercised prior to the Effective Time.
28
2.4 CAPITAL STOCK OF ZWCM. All issued shares of ZWCM Common Stock
outstanding immediately prior to the Effective Time shall continue
unchanged as securities of the Surviving Corporation.
SECTION 3. STOCKHOLDER APPROVALS; BOARDS OF DIRECTORS' RECOMMENDATIONS;
-----------------------------------------------------------
FILING; EFFECTIVE TIME
-----------------------
3.1 STOCKHOLDER APPROVALS; BOARDS OF DIRECTORS' RECOMMENDATIONS: Meetings
of the stockholders of Procera and ZWCM shall be held in accordance
with their articles and bylaws and general corporate law, in accordance
with any and all applicable federal laws or regulations or SEC
provisions, respectively, as promptly as possible, after at least 20
days' prior written notice thereof to the stockholders of the
respective Constituent Corporations, in each case, among other things,
to consider and vote upon the adoption and approval of this Agreement,
the Merger and the other transactions, if any, contemplated hereby. In
the event that either party hereto is able to obtain the written
consent of the owners of a majority of its outstanding shares of
capital stock in favor of the Merger, then no notice of a stockholders'
meeting need be given to such party's stockholders and no proxies need
to be solicited from such stockholders to accomplish the Merger.
Subject to its fiduciary duty to its stockholders, the Board of
Directors of ZWCM shall recommend to its stockholders that this
Agreement, the Merger and the other transactions contemplated hereby,
if any, be adopted and approved. Subject to its fiduciary duties to its
stockholders, the Board of Directors of Procera shall recommend to its
stockholders that this Agreement, the Merger and the other transactions
contemplated hereby, if any, be adopted and approved.
3.2 FILING; EFFECTIVE TIME: As soon as practicable after the adoption and
approval of this Agreement, the Merger and the other transactions
contemplated hereby, if any, by the respective stockholders of each of
the Constituent Corporations (unless one or more of the conditions
contained in Sections 7 and 8 have not then been fulfilled or waived,
then as soon as practicable after the fulfillment or waiver of all such
conditions), an appropriate certificate of merger in the form required
by law shall be executed and filed in the office of the Secretary of
State of the respective states, at which time the Merger shall become
effective (the "Closing" or the "Effective Time"). The parties intend
the Closing to take place no later than 5:00 p.m., Pacific Standard
Time, on June 30, 2003.
SECTION 4. CERTAIN EFFECTS OF THE MERGER
-----------------------------
4.1 EFFECTS OF MERGER: When the Merger becomes effective, the separate
existence of Procera shall cease, Procera shall be merged into ZWCM,
and the Surviving Corporation shall possess all the rights, privileges,
powers and franchises of a public or private nature, and shall be
subject to all the restrictions, disabilities and duties of each of the
Constituent Corporations; and all and singular, the rights, privileges,
powers and franchises of each of the Constituent Corporations, and all
property, real, personal and mixed, and all debts due to either of the
Constituent Corporations on whatever account, as well for stock
subscriptions as all other things in action or belonging to each of the
Constituent Corporations shall be vested in the Surviving Corporation;
and all property, rights, privileges, powers and franchises, and all
29
and every other interest shall be thereafter as effectively as possible
the property of the Surviving Corporation as they were of the several
and respective Constituent Corporations; and the title to any real
estate vested by deed or otherwise, under the laws of any jurisdiction,
in either of the Constituent Corporations, shall not revert or be in
any way impaired by reason of the Merger; but all rights of creditors
and all liens upon any property of either of the Constituent
Corporations shall be preserved unimpaired, and all debts, liabilities
and duties of the respective Constituent Corporations shall thenceforth
attach to the Surviving Corporation, and may be enforced against it to
the same extent as if such debts, liabilities and duties had been
incurred or contracted by it.
SECTION 5. COVENANTS
5.1 COVENANTS OF PROCERA: Procera agrees that, unless ZWCM otherwise
agrees in writing:
(a) CERTIFICATE OF INCORPORATION AND BYLAWS. Until the earlier of the
Effective Time or the rightful abandonment or termination of the
Merger pursuant to Sections 7 or 8 or otherwise ("Release Time"),
no amendment will be made in the certificate of incorporation or
bylaws of Procera.
(b) DIVIDENDS AND PURCHASES OF STOCK. Until the Release Time, no
dividend or liquidating or other distribution or stock split shall
be authorized, declared, paid or affected by Procera in respect of
the outstanding shares of Procera Common Stock.
(c) ACCESS. Until the Release Time, Procera will afford the officers,
directors, employees, counsel, agents, investment bankers
accountants and other representatives of ZWCM free and full access
to the plants, premises, properties, books and records of Procera,
will permit them to make extracts from and copies of such books
and records, and will from time to time furnish ZWCM with such
additional financial and operating data and other information as
to the financial condition, results of operations, business,
properties, assets, liabilities or future prospects of Procera as
ZWCM from time to time may request.
(d) CONDUCT OF BUSINESS. Until the Release Time, Procera shall conduct
its affairs so that at the Effective Time no representation or
warranty of Procera will be inaccurate, no covenant or agreement
of Procera will be breached, and no condition of this Agreement
will remain unfulfilled by reason of the actions or omissions of
Procera. Except as otherwise requested by ZWCM in writing, until
the Release Time, Procera will use its best efforts to preserve
the business operations of Procera intact, to keep available the
services of its present personnel, to preserve in full force and
effect the contracts, agreements, instruments, leases, licenses,
arrangements and understandings of Procera, and to preserve the
good will of its suppliers, customers and others having business
relations with any of them. Until the Release Time, Procera will
conduct its business and operations in all respects only in the
ordinary course.
30
(e) ADVICE OF CHANGES. Until the Release Time, Procera will
immediately advise ZWCM in a detailed written notice of any fact
or occurrence or any pending or threatened occurrence of which it
obtains knowledge and which (if existing and known at the date of
the execution of this Agreement) would have been required to be
set forth or disclosed in or pursuant to this Agreement or the
Procera Disclosure Letter (as defined in Section 6.1 (a)), which
(if existing and known at any time prior to or at the Effective
Time) would make the performance by any party of a covenant
contained in this Agreement impossible or make such performance
materially more difficult than in the absence of such fact or
occurrence, or which (if existing and known at the time of the
Effective Time) would cause a condition to any party's obligations
under this Agreement not to be fully satisfied.
(f) CONFIDENTIALITY. Procera shall ensure that all confidential
information which Procera or any of its respective officers,
directors, employees, counsel, agents, investment bankers, or
accountants may now possess or may hereafter create or obtain
relating to the financial condition, results of operation,
business, properties, assets, liabilities or future prospects of
ZWCM, any of ZWCM affiliate, or any customer or supplier of ZWCM
or any such affiliate shall not be published, disclosed, or made
accessible by any of them to any other person or entity at any
time or used by any of them except pending the Effective Time in
the business and for the benefit of Procera, in each case without
the prior written consent of ZWCM; provided, however, that the
restrictions of this sentence shall not apply (i) after the Merger
is rightfully abandoned or terminated pursuant to Section 7 or 8
or otherwise, but only to the extent such confidential information
relates to the financial condition, results of operations,
business, properties, assets, liabilities or future prospects of
Procera, of any affiliate of any of them, or (insofar as such
confidential information was obtained directly by Procera or any
such affiliate from any customer or supplier of any of them) of
any such customer or supplier, (ii) as may otherwise be required
by law, (iii) as may be necessary or appropriate in connection
with the enforcement of this Agreement, or (iv) to the extent the
information shall have otherwise become publicly available.
Procera shall, and shall cause all other such persons and entities
to, deliver to ZWCM all tangible evidence of the confidential
information to which the restrictions of the foregoing sentence
apply immediately after the rightful abandonment or termination of
the Merger pursuant to Section 7 or 8 or otherwise.
(g) PUBLIC STATEMENTS. Before Procera releases any information
concerning this Agreement, the Merger, or any of the other
transaction contemplated by this Agreement which is intended for
or may result in public dissemination thereof, Procera shall
cooperate with ZWCM, shall furnish drafts of all documents or
proposed oral statements to ZWCM for comments, and shall not
release any such information without the written consent of ZWCM.
Nothing contained herein shall prevent Procera from releasing any
information if required to do so by law.
(h) INDEMNIFICATION. Procera agrees to indemnify and hold harmless
ZWCM and its officers, directors, managers, employees, agents and
counsel, against any and all losses, liabilities (including
personal liabilities of certain executives and directors), claims,
damages, and expenses whatsoever (which shall include, for all
purposes of this Section 5.1(j), but not be limited to, counsel
fees and any and all expenses whatsoever incurred in
investigating, preparing or defending against any litigation,
commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation) as and when
incurred and whether or not involving a third party arising out
31
of, based upon, or in connection with (i) an untrue statement or
alleged untrue statement of a material fact contained in this
Agreement or any other document relating to this Agreement and the
Merger contemplated thereby, and (ii) any liability under state or
Federal securities laws resulting from any omission or alleged
omission to state a material fact required to be stated in this
Agreement or any other document required hereunder, provided in
each case that such untrue statement, alleged untrue statement,
omission, or alleged omission relates to information furnished by
or on behalf of, or pertaining to, Procera or any Procera security
holder or (ii) any breach of any representation, warranty,
covenant or agreement of Procera contained in this Agreement. The
foregoing agreement to indemnify shall be in addition to any
liability Procera may otherwise have, including liabilities
arising under this Agreement.
5.2 COVENANTS OF ZWCM: ZWCM agrees that, unless Procera otherwise agrees
in writing:
(a) ARTICLES OF INCORPORATION AND BYLAWS. Until the earlier of the
Effective Time or the rightful abandonment or termination of the
Merger pursuant to Section 7 or 8 or otherwise ("Release Time"),
no amendment will be made in the articles of incorporation or
bylaws of ZWCM.
(b) SHARES AND OPTIONS. Until the Release Time, no shares of capital
stock of ZWCM, options or warrants for such shares, rights to
subscribe to or purchase such shares, or securities convertible
into or exchangeable for such shares, shall be issued, granted
or sold by ZWCM without the prior written consent of an
authorized officer of Procera.
(c) DIVIDENDS AND PURCHASES OF STOCK. Until the Release Time, no
dividend or stock split shall be authorized, declared, paid or
affected by ZWCM in respect of the outstanding shares of ZWCM
Common Stock.
(d) ASSETS/LIABILITIES/BORROWING OF MONEY. Until the Release Time,
ZWCM shall not borrow money, guarantee the borrowing of money,
engage in any transaction or enter into any material agreement,
except in the ordinary course of business. At the Closing, ZWCM
shall have no assets, no liabilities and no contracts in force
or effect.
(e) ACCESS. Until the Release Time, ZWCM will afford the officers,
directors, employees, counsel, agents, investment bankers
accountants and other representatives of Procera free and full
access to the plants, premises, properties, books and records of
ZWCM and the ZWCM Subsidiaries, will permit them to make
extracts from and copies of such books and records, and will
from time to time furnish Procera with such additional financial
and operating data and other information as to the financial
condition, results of operations, business, properties, assets,
liabilities or future prospects of ZWCM and the ZWCM
Subsidiaries as Procera from time to time may request.
32
(f) CONDUCT OF BUSINESS. Until the Release Time, ZWCM shall conduct
its affairs so that at the Effective Time no representation or
warranty of ZWCM will be inaccurate, no covenant or agreement of
ZWCM will be breached, and no condition of this Agreement will
remain unfulfilled by reason of the actions or omissions of ZWCM.
Except as otherwise requested by Procera in writing, until the
Release Time, ZWCM will use its best efforts to preserve the
business operations of ZWCM intact, to keep available the services
of its present personnel, to preserve in full force and effect the
contracts, agreements, instruments, leases, licenses, arrangements
and understandings of ZWCM, and to preserve the good will of its
suppliers, customers and others having business relations with any
of them. Until the Release Time, ZWCM will conduct its business
and operations in all respects only in the ordinary course.
(g) ADVICE OF CHANGES. Until the Release Time, ZWCM will immediately
advise Procera in a detailed written notice of any fact or
occurrence or any pending or threatened occurrence of which it
obtains knowledge and which (if existing and known at the date of
the execution of this Agreement) would have been required to be
set forth or disclosed in or pursuant to this Agreement or the
ZWCM Disclosure Letter [as defined in Section 6.02 (a)], which (if
existing and known at any time prior to or at the Effective Time)
would make the performance by any party of a covenant contained in
this Agreement impossible or make such performance materially more
difficult than in the absence of such fact or occurrence, or which
(if existing and known at the time of the Effective Time) would
cause a condition to any party's obligations under this Agreement
not to be fully satisfied.
(h) CONFIDENTIALITY. ZWCM shall ensure that all confidential
information which ZWCM or any of its officers, directors,
employees, counsel, agents, investment bankers, or accountants may
now possess or may hereafter create or obtain relating to the
financial condition, results of operation, business, properties,
assets, liabilities or future prospects of Procera, any Procera
affiliate, or any customer or supplier of Procera or any such
affiliate shall not be published, disclosed, or made accessible by
any of them to any other person or entity at any time or used by
any of them except pending the Effective Time in the business and
for the benefit of ZWCM, in each case without the prior written
consent of Procera; provided, however, that the restrictions of
this sentence shall not apply (i) after the Merger is rightfully
abandoned or terminated pursuant to Section 7 or 8 or otherwise,
but only to the extent such confidential information relates to
the financial condition, results of operations, business,
properties, assets, liabilities or future prospects of ZWCM or of
any of its affiliates, or (insofar as such confidential
information was obtained directly by ZWCM, any ZWCM Subsidiary, or
any such affiliate from any customer or supplier of any of them)
of any such customer or supplier, (ii) as may otherwise be
required by law, (iii) as may be necessary or appropriate in
connection with the enforcement of this Agreement, or (iv) to the
extent the information shall have otherwise become publicly
available. ZWCM shall, and shall cause all other such persons and
entities to, deliver to Procera all tangible evidence of the
confidential information to which the restrictions of the
foregoing sentence apply immediately after the rightful
abandonment or termination of the Merger pursuant to Section 7 or
8 or otherwise.
33
(i) PUBLIC STATEMENTS. Before ZWCM releases any information concerning
this Agreement, the Merger, or any of the other transactions
contemplated by this Agreement which is intended for or may result
in public dissemination thereof, ZWCM shall cooperate with Procera,
shall furnish drafts of all documents or proposed oral statements
to Procera for comments, and shall not release any such information
without the written consent of Procera Nothing contained herein
shall prevent ZWCM from releasing any information if required to do
so by law.
(j) INDEMNIFICATION. ZWCM agrees to indemnify and hold harmless Procera
and its officers, directors, managers, employees, agents and
counsel, against any and all losses, liabilities, claims, damages,
and expenses whatsoever (which shall include, for all purposes of
this Section 5.3(j), but not be limited to, counsel fees and any
and all expenses whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any
claim whatsoever, and any and all amounts paid in settlement of any
claim or litigation) as and when incurred and whether or not
involving a third party arising out of, based upon, or in
connection with (i) untrue statement or alleged untrue statement of
a material fact contained in this Agreement or in any other
document relating to this Agreement and the Merger contemplated
thereby, and (ii) any liability under state or Federal securities
laws resulting from any omission or alleged omission to state a
material fact required to be stated this Agreement or any other
document required hereunder, provided in each case that such untrue
statement, alleged untrue statement, omission, or alleged omission
relates to information furnished by or on behalf of, or pertaining
to, ZWCM, any ZWCM Subsidiary, or any ZWCM security holder or (ii)
any breach of any representation, warranty, covenant or agreement
of ZWCM contained in this Agreement. The foregoing agreement to
indemnify shall be in addition to any liability ZWCM may otherwise
have, including liabilities arising under this Agreement.
SECTION 6. REPRESENTATIONS AND WARRANTIES
6.1 Certain Representations and Warranties of Procera: Procera represents
and warrants to ZWCM as follows:
(a) DISCLOSURES. Procera is incorporated in the State of Delaware; its
principal place of business is in California; the jurisdictions in
which it is qualified to do business are California and Delaware;
and the business which it presently conducts and which it
contemplates conducting is network software and devices. Procera is
a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation, with all
requisite power and authority, and all necessary consents,
authorizations, approvals, orders, licenses, certificates and
permits of and from, and declarations and filings with, all
federal, state, local and other governmental authorities and all
courts and other tribunals, to own, lease, license and use its
properties and assets and to carry on the business in which it is
now engaged and the business in which it contemplates engaging.
Procera is duly qualified to transact the business in which it is
engaged and is in good standing as a foreign corporation in every
jurisdiction in which its ownership, leasing, licensing, or use of
property or assets or the conduct of its business makes such
qualification necessary.
34
(b) CAPITALIZATION. The authorized capital stock of Procera consists of
50,000,000 shares of Procera Common Stock, and 20,000,000 shares of
Preferred Stock, $0.001 par values, of which 17,740,769 common
shares shall be outstanding as of Closing, including the conversion
of bridge funding, warrants and other amounts. Procera is
conducting a private placement of its common shares and prior to
Closing may issue up to an additional two million common shares
pursuant to such placement. Each of such outstanding shares of
Procera Common and Preferred Stock is validly authorized, validly
issued, fully paid and nonassessable, has not been issued and is
not owned or held in violation of any preemptive right of
stockholders, and is owned of record and beneficially by the
following persons in the case of Procera in accordance with the
following capitalization table:
SEE EXHIBIT "A"
in each case free and clear of all liens, security interests,
pledges, charges, encumbrances, stockholders' agreements and voting
trusts. Other than the shares and convertible securities disclosed
herein, there is no commitment, plan or arrangement to issue, and
no outstanding option, warrant, or other right calling for the
issuance of, any share of capital stock of Procera or any security
or other instrument convertible into, exercisable for, or
exchangeable for capital stock of Procera, and there is outstanding
no security or other instrument convertible into or exchangeable
for capital stock of Procera.
(c) FINANCIAL CONDITION. Procera has delivered to ZWCM true and correct
copies of its unaudited financial statements (profit and loss
statement and a balance sheet). Such financial statements are true
and correct. Since the preparation of such statements:
(i) There has at no time been a material adverse change in the
financial condition, results of operations, business,
properties, assets, liabilities, or future prospects of
Procera.
(ii) Procera has not authorized, declared, paid or affected any
dividend or liquidating or other distribution in respect of
its capital stock or any direct or indirect redemption,
purchase or other acquisition of any stock of Procera.
(d) TAX AND OTHER LIABILITIES. To its knowledge, Procera has no
material liability of any nature, accrued or contingent, including
without limitation liabilities for federal, state, local or foreign
taxes ("Taxes") and liabilities to customers or suppliers, except
those reflected in the financial statements provided by Procera to
ZWCM. Procera has filed all federal, state and local tax returns
required to be filed by it, and all such tax returns are true and
correct and all taxes due by Procera have been paid.
(e) LITIGATION AND CLAIMS. Except as previously disclosed to ZWCM,
there is no litigation, arbitration, claim, governmental or other
proceeding (formal or informal), or investigation pending,
threatened or in prospect known to Procera, with respect to Procera
or any of its businesses, properties or assets.
35
(f) PROPERTIES. Procera has good and marketable title to all
properties and assets used in its business or owned by it, free
and clear of all liens, security interests, mortgages, pledges,
charges and encumbrances (except as set forth in the financial
statements and other disclosures by Procera to ZWCM, including
the use of inventory, equipment, furniture and intellectual
property under agreements with Digi International and Doug
Glader).
(g) RETIREMENT PLANS. Procera has no pension, profit sharing or
other incentive plans or any outstanding bonuses, incentive
compensation, vacations, severance pay, insurance or other
benefits, except as previously disclosed to ZWCM.
(h) AUTHORITY TO MERGE. Procera has all requisite power and
authority to execute, deliver and perform this Agreement. All
necessary corporate proceedings of Procera have been taken to
authorize the execution, delivery and performance of this
Agreement by Procera, other than approval of the holders of
Procera Common Stock. This Agreement has been duly authorized,
executed and delivered by Procera, constitutes the legal, valid
and binding obligation of Procera, and is enforceable as to it
in accordance with its terms. Except as set forth elsewhere
herein, no consent, authorization, approval, order, license,
certificate, or permit of or from, or declaration or filing
with, any federal, state, local or other governmental authority
or any court or other tribunal is required by Procera for the
execution, delivery or performance of this Agreement by Procera.
No consent of any party to any contract, agreement, instrument,
lease, arrangement or understanding to which Procera is a party,
or to which any of its properties or assets are subject, is
required for the execution, delivery or performance of this
Agreement. At the Effective Time, the Surviving Corporation will
acquire all right, title and interest of Procera in and to all
of its properties and assets, free and clear of all liens,
mortgages, security interests, pledges, charges and
encumbrances, except these specifically assumed as set forth a
disclosure letter to be delivered by Procera to ZWCM at Closing
(the "Procera Disclosure Letter").
6.2 CERTAIN REPRESENTATIONS AND WARRANTIES OF ZWCM: ZWCM represents and
warrants to Procera as follows:
(a) DISCLOSURE. ZWCM is incorporated in Nevada; its principal place of
business is in California; the jurisdictions in which it is
qualified to do business are California and Nevada; and the
business which it presently conducts and which it contemplates
conducting will be sold to a private party prior to the Closing.
ZWCM is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, with
all requisite power and authority, and all necessary consents,
authorizations, approvals, orders, licenses, certificates and
permits of and from, and declarations and filings with, all
federal, state, local and other governmental authorities and all
courts and other tribunals, to own, lease, license and use its
properties and assets and to carry on the business in which it is
now engaged and the business in which it contemplates engaging.
ZWCM is duly qualified to transact the business in which it is
engaged and is in good standing as a foreign corporation in every
jurisdiction in which its ownership, leasing, licensing, or use of
property or assets or the conduct of its business makes such
qualification necessary.
36
(b) CAPITALIZATION. The authorized capital stock of ZWCM consists of
50,000,000 shares of ZWCM Common Stock, and 5,000,000 shares of
Preferred Stock, $0.001 par value, of which 1,610,000 shares of
registered Common Stock and zero shares of Preferred Stock shall be
outstanding at Closing. Immediately prior to Closing, ZWCM shall
cause to be cancelled all the shares of its outstanding restricted
common stock, and shall have only 1,610,000 shares of registered
common stock outstanding. All of the registered common shares of
ZWCM shall be delivered to an escrow account to be established by
Randall Lanham prior to this Merger Agreement becoming effective,
unless such share delivery is specifically waived by an authorized
officer of Procera. Each of such outstanding shares of ZWCM Common
Stock is validly authorized, validly issued, fully paid and
nonassessable, has not been issued and is not owned or held in
violation of any preemptive right of stockholders. There is no
commitment, plan or arrangement to issue, and no outstanding
option, warrant, or other right calling for the issuance of, any
share of capital stock of ZWCM or any security or other instrument
convertible into, exercisable for, or exchangeable for capital
stock of ZWCM. There is outstanding no security or other instrument
convertible into or exchangeable for capital stock of ZWCM.
(c) FINANCIAL CONDITION. ZWCM has delivered to Procera true and correct
copies of its audited and unaudited financial statements (profit
and loss statement and a balance sheet). Such financial statements
are true and correct. Since the preparation of the aforementioned
financial statements: (i) There has at no time been a material
adverse change in the financial condition, results of operations,
business, properties, assets, liabilities, or future prospects of
ZWCM; (ii) ZWCM has not authorized, declared, paid or effected any
dividend or liquidating or other distribution in respect of its
capital stock or any direct or indirect redemption, purchase or
other acquisition of any stock of ZWCM.
(d) TAX AND OTHER LIABILITIES. ZWCM has no liability of any nature,
accrued or contingent, including without limitation liabilities for
federal, state, local or foreign taxes ("Taxes") and liabilities to
customers or suppliers, except those reflected in the financial
statements provided by ZWCM to Procera.
(e) LITIGATION AND CLAIMS. There is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or
investigation pending, threatened or in prospect known to ZWCM,
with respect to ZWCM or any of its businesses, properties or
assets, other than those proceedings previously disclosed to
Procera.
(f) PROPERTIES. ZWCM has good and marketable title to all properties
and assets used in its business or owned by it, free and clear of
all liens, security interests, mortgages, pledges, charges and
encumbrances except these specifically assumed as set forth a
disclosure letter to be delivered by ZWCM to Procera at Closing
(the "ZWCM Disclosure Letter").
(g) AUTHORITY TO MERGE. ZWCM has all requisite power and authority to
execute, deliver and perform this Agreement. All necessary
corporate proceedings of ZWCM have been taken to authorize the
execution, delivery and performance of this Agreement by ZWCM,
other than approval of the holders of ZWCM Common Stock. This
Agreement has been duly authorized, executed and delivered by ZWCM,
constitutes the legal, valid and binding obligation of ZWCM, and is
enforceable as to it in accordance with its terms. Except as set
forth elsewhere herein, no consent, authorization, approval, order,
license, certificate, or permit of or from, or declaration or
filing with, any federal, state, local or other governmental
authority or any court or other tribunal is required by ZWCM for
the execution, delivery or performance of this Agreement by ZWCM.
No consent of any party to any contract, agreement, instrument,
lease, arrangement or understanding to which ZWCM is a party, or to
which any of its properties or assets are subject, is required for
the execution, delivery or performance of this Agreement.
37
SECTION 7. ABANDONMENT AND TERMINATION
7.1 Right of ZWCM to Abandon: ZWCM's Board of Directors shall have the
right to abandon or terminate the Merger if any of the following shall
not be true or shall not have occurred, as the case may be, prior to
the Effective Time:
(a) ACCURACY OF REPRESENTATIONS AND COMPLIANCE WITH CONDITIONS: All
representations and warranties of Procera contained in this
Agreement shall be accurate when made and, in addition, shall be
accurate as of the Effective Time as though such representations
and warranties were then made in exactly the same language by
Procera and regardless of knowledge or lack thereof on the part of
Procera or changes beyond their control; as of the Effective Time,
Procera shall have performed and complied with all covenants and
agreements and satisfied all conditions required to be performed
and complied with by them at or before the Effective Time of this
Agreement; and ZWCM shall have received a certificate executed by
the chief executive officer and the chief financial officer of
Procera dated the Effective Time to that effect.
(b) OTHER CLOSING DOCUMENTS: Procera shall have delivered to ZWCM at
or prior to the Effective Time such other documents as ZWCM may
reasonably request in order to enable ZWCM to determine whether
the conditions to its obligations under this Agreement have been
met and otherwise to carry out the provisions of this Agreement.
(c) LEGAL ACTION: There shall not have been instituted or threatened
any legal proceeding relating to, or seeking to prohibit or
otherwise challenge the consummation of, the transactions
contemplated by this Agreement, or to obtain substantial damages
with respect thereto.
7.2 RIGHT OF PROCERA TO ABANDON: The Board of Directors of Procera shall
have the right to abandon or terminate the Merger if any of the
following shall not be true or shall not have occurred, as the case may
be, prior to the Effective Time:
(a) ACCURACY OF REPRESENTATIONS AND COMPLIANCE WITH CONDITIONS. All
representations and warranties of ZWCM contained in this Agreement
shall be accurate when made and, in addition, shall be accurate as
of the Effective Time as though such representations and
warranties were then made in exactly the same language by ZWCM and
regardless of knowledge or lack thereof on the part of ZWCM or
changes beyond their control; as of the Effective Time, ZWCM shall
have performed and complied with all covenants and agreements and
satisfied all conditions required to be performed and complied
with by them at or before the Effective Time of this Agreement;
and Procera shall have received a certificate executed by the
chief executive officer and the chief financial officer of the
ZWCM dated the Effective Time to that effect.
38
(b) OTHER CLOSING DOCUMENTS. ZWCM shall have delivered to Procera at
or prior to the Effective Time such other documents as Procera may
reasonably request in order to enable Procera to determine whether
the conditions to its obligations under this Agreement have been
met and otherwise to carry out the provisions of this Agreement.
(c) LEGAL ACTION. There shall not have been instituted or threatened
any legal proceeding relating to, or seeking to prohibit or
otherwise challenge the consummation of, the transactions
contemplated by this Agreement, or to obtain substantial damages
with respect thereto.
SECTION 8. ADDITIONAL TERMS OF ABANDONMENT
8.1 MANDATORY ABANDONMENT: The Merger shall be abandoned or terminated if
the holders of at least the requisite majority of the shares of any of
the Constituent Corporations, as required by applicable state laws,
shall not have voted in favor of the adoption and approval of this
Agreement, the Merger and the other transactions contemplated hereby.
8.2 OPTIONAL ABANDONMENT: In addition to the provisions of Section 7, the
Merger may be abandoned or terminated at or before the Effective Time,
notwithstanding the adoption and approval of this Agreement, the Merger
and the other transactions contemplated hereby by the stockholders of
the parties hereto:
(a) by mutual agreement of the Boards of Directors of the Constituent
Corporations; or
(b) At the option of any of the respective Boards of Directors of the
Constituent Corporations, if the Effective Time shall not have
occurred on or before June 30, 2003.
8.3 EFFECT OF ABANDONMENT: If the Merger is rightfully abandoned or
terminated as provided in Section 7 or this Section 8:
(a) this Agreement shall forthwith become wholly void and of no
effect without liability on the part of either party to this
Agreement or on the part of any officer, director, controlling
person, employee, counsel, agent or shareholder thereof; and
(b) the Constituent Corporations shall each pay and bear its own
fees and expenses incident to the negotiation, preparation and
execution of this Agreement and its respective meetings of
stockholders, including fees and expenses of its counsel,
accountants, investment banking firm and other experts.
SECTION 9. GENERAL PROVISIONS
------------------
39
9.1 FURTHER ACTIONS: At any time and from time to time, each party agrees,
at its expense, to take such actions and to execute and deliver such
documents as may be reasonably necessary to effectuate the purposes of
this Agreement.
9.2 AMENDMENTS: This Agreement sets forth the entire understanding of the
parties with respect to the subject matter hereof and supersedes all
existing agreements among them concerning such subject matter. This
Agreement may be amended prior to the Effective Time (notwithstanding
stockholder adoption and approval) by a written instrument executed by
the Constituent Corporations with the approval of their respective
Boards of Directors.
9.3 NOTICES: Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified
mail, return receipt requested, or by Federal Express or similar
overnight delivery or courier service or delivered in person against
receipt to the party to whom it is to be given at the address of such
party set forth in the preamble to this Agreement. Notices hereunder
shall be deemed delivered only upon actual delivery against a signed
receipt.
9.4 WAIVER: Any waiver by any party of a breach of any provision of this
Agreement shall not operate as or be construed to be a waiver of any
other breach of that provision or of any breach of any other provision
of this Agreement. Any waiver must be in writing and be authorized by a
resolution of the Board of Directors of the waiving party.
9.5 BINDING EFFECT: The provisions of this Agreement shall be binding
upon and inure to the benefit of the Constituent Corporations and
their respective successors and assigns and shall inure to the benefit
of each indemnity.
9.6 SEPARABILITY: If any provision of this Agreement is invalid, illegal or
unenforceable, the balance of this Agreement shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it
shall nevertheless remain applicable to all other persons and
circumstances.
9.7 HEADINGS: The headings in this Agreement are solely for convenience of
reference and shall be given no effect in the construction or
interpretation of this Agreement.
9.8 COUNTERPARTS; GOVERNING LAW: This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument. It
shall be governed by and construed in accordance with the laws of the
State of California.
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IN WITNESS WHEREOF, this Agreement has been approved by resolutions
duly adopted by the Board of Directors of each of the Constituent Corporations
and has been signed by duly authorized officers of each of the Constituent
Corporations, and each of the Constituent Corporations has caused its corporate
seal to be hereunto affixed and attested by the signature of its Secretary or
Assistant Secretary, all as of the date first above written.
ZOWCOM, INC. June 24, 2003
/s/ Frank Drechsler
- ----------------------------------------------
Frank Drechsler
Chairman and Director
PROCERA NETWORKS, INC. June 18, 2003
/s/ Doug Glader
- ----------------------------------------------
Doug Glader
President and Chief Executive Officer
41
EXHIBIT "A" TO MERGER AGREEMENT
PROCERA NETWORKS COMMON SHAREHOLDERS
------------------------------------
Shareholder Number of Shares
--------------------- ------------------
Douglas Glader 4,148,970
Jon Minnis Trust 1,137,110
Liviakis Financial 1,000,000
Clyde Berg 932,500
Eric McAfee 932,500
Jay Zerfoss 680,318
Christopher Claudatos 677,086
Magnus Hansen 675,232
Laird Cagan 665,000
John McQuade 656,086
Lyles Diversified, Inc. 631,000
Gregory Dewing 450,510
Berg McAfee Companies 423,866
Christina Jones 393,297
Ravinder Sajwan 353,000
John Pimentel 285,000
Ravinder Pahwa 253,658
Cagan McAfee Capital Partners, LLC 247,000
William D. Smythe Trust 245,468
John O'Shaughnessy 245,336
Steve Ruben 200,000
Heidar Javadi 147,276
Anthony Le 140,814
Keith Andrews 124,300
Walter Samuelson 123,100
Eric Glader 122,784
Daniel Ching 119,876
William Ge 119,876
Tai Nguyen 118,768
Xiaoan Hou 115,722
Pieter Wiersma 112,398
Nahid Amiri 111,568
Henry Pham 111,568
Thanh Phan 111,568
Nai-Cheng Chao 107,414
Michelle Leahy 100,000
Thomas Williams 100,000
Edward Smith 100,000
Paul Schroeder 88,000
James Moon 84,260
T. Sridhar 75,000
Anthony Romano 74,040
George Roberts 54,500
Scott Kinder 50,000
Robert Wallace 50,000
Pillsbury-Winthrop 40,000
BFI Finance 5,000
------------
Total Common Shares 17,740,769
------------
42
Exhibit A-1
FIRST AMENDMENT TO THE
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
ZOWCOM, INC.
AND
PROCERA NETWORKS, INC.
THIS FIRST AMENDMENT TO THE AGREEMENT AND PLAN OF MERGER (the
"Amendment") is dated as of July 24, 2003, by and between Zowcom, Inc. ("ZWCM")
and Procera Networks, Inc. ("Procera"). This Amendment is amends that certain
Agreement and Plan of Merger (the "Agreement") between ZWCM and Procera, dated
June 24, 2003.
RECITALS
A. Procera and ZWCM signed the Agreement on June 24, 2003.
B. The Agreement provides for the merger of Procera into ZWCM
C. The parties desire to amend the Agreement reflect recent developments
with respect to Procera.
AMENDMENT
NOW THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged the parties agree to amend the Agreement as
follows:
1. Section 2.2 is hereby deleted in its entirety and replaced with the
following language:
ASSUMPTION AND RECOGNITION OF PROCERA OPTIONS AND WARRANTS: On and after
the Effective Time, ZWCM shall assume and recognize any vested or unvested
stock options and warrants for Procera Common Stock.
2. The last sentence of Section 3.2 is hereby deleted in its entirety and
replaced with the following language:
"The Closing shall occur on August 16, 2003, or on such other date as the
parties mutually agree."
3. The sentence of Section 6.1 (b) referring to authorization of Procera
to issue additional shares of its Common Stock in a private placement
prior to the Closing Date is hereby deleted in its entirety and
replaced with the following language:
"Procera may issue up to an additional six million (6,000,000) shares of
its Common Stock prior to the Closing."
4. Except as hereby amended, the Agreement shall remain in full force
and effect.
43
IN WITNESS WHEREOF, this Amendment has been approved by each of the
parties as of the date first above written.
ZOWCOM, INC.
/s/ Frank Drechsler
- --------------------------------------
Frank Drechsler
Chairman and Director
PROCERA NETWORKS, INC.
/s/ Douglas J. Glader
- --------------------------------------
Douglas J. Glader
President and Chief Executive Officer
44
Exhibit A-2
SECOND AMENDMENT TO THE
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
ZOWCOM, INC.
AND
PROCERA NETWORKS, INC.
THIS SECOND AMENDMENT TO THE AGREEMENT AND PLAN OF MERGER (the "Second
Amendment") is dated as of August 15, 2003, by and between Zowcom, Inc.
("ZWCM") and Procera Networks, Inc. ("Procera"). This Second Amendment amends
that certain Agreement and Plan of Merger (the "Agreement") between ZWCM and
Procera, dated June 24, 2003.
RECITALS
A. Procera and ZWCM signed the Agreement on June 24, 2003.
B. The Agreement provides for the merger of Procera into ZWCM
C. The parties desire to amend the Agreement to further ensure the
closing of the transaction.
AMENDMENT
NOW THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged the parties agree to amend the Agreement as
follows:
1. Section 3 is hereby amended to include a new Section 3.4 to read as
follows:
"During the period from the date of this Agreement through the Effective
Time, the undersigned shareholder hereby agrees to vote all of his ZWCM
Common Stock in favor of the approval and adoption of the Agreement and
approval of the Merger and any action in furtherance of the foregoing. The
agreements contained in this Section 3.4 are irrevocable to the fullest
extent permitted under Nevada law."
2. Section 6.2 (b) is hereby amended to read as follows
"CAPITALIZATION. The authorized capital stock of ZWCM consists of 50,000,000
shares of ZWCM Common Stock, and 5,000,000 shares of Preferred Stock, $0.001 par
value, of which 1,610,000 shares of registered Common Stock and zero shares of
Preferred Stock shall be outstanding at Closing. Immediately prior to Closing,
ZWCM shall cause to be redeemed all the shares of its outstanding restricted
common stock, and shall have only 1,610,000 shares of registered common stock
outstanding. All of the registered common shares of ZWCM shall be delivered to
an escrow account to be established by Randall Lanham prior to this Merger
Agreement becoming effective, unless such share delivery is specifically waived
by an authorized officer of Procera. Each of such outstanding shares of ZWCM
Common Stock is validly authorized, validly issued, fully paid and
nonassessable, has not been issued and is not owned or held in violation of any
preemptive right of stockholders. There is no commitment, plan or arrangement to
issue, and no outstanding option, warrant, or other right calling for the
issuance of, any share of capital stock of ZWCM or any security or other
instrument convertible into, exercisable for, or exchangeable for capital stock
of ZWCM. There is outstanding no security or other instrument convertible into
or exchangeable for capital stock of ZWCM.
45
3. Except as hereby amended, the Agreement shall remain in full force
and effect.
IN WITNESS WHEREOF, this Amendment has been approved by each of the
parties as of the date first above written.
ZOWCOM, INC.
/s/ Dan Spaulding
- --------------------------------------
Dan Spaulding
President and Chief Executive Officer
PROCERA NETWORKS, INC.
/s/ Douglas J. Glader
- --------------------------------------
Douglas J. Glader
President and Chief Executive Officer
AGREED TO AND ACCEPTED:
/s/ Frank Drechsler
- --------------------------------------
Frank Drechsler
Zowcom, Inc. Common Stock: 5,000,000
/s/ Dan Spaulding
- --------------------------------------
Dan Spaulding
Zowcom, Inc. Common Stock: 200,000
/s/ Marc Seely
- ---------------------------------------
Marc Seely
Zowcom, Inc. Common Stock: 800,000
46
Exhibit A-3
THIRD AMENDMENT TO THE
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
ZOWCOM, INC.
AND
PROCERA NETWORKS, INC.
THIS THIRDAMENDMENT TO THE AGREEMENT AND PLAN OF MERGER (the "Third
Amendment") is dated as of August 18, 2003, by and between Zowcom, Inc.
("ZWCM") and Procera Networks, Inc. ("Procera"). This Third Amendment amends
that certain Agreement and Plan of Merger (the "Agreement") between ZWCM and
Procera, dated June 24, 2003.
RECITALS
A. Procera and ZWCM signed the Agreement on June 24, 2003.
B. The Agreement provides for the merger of Procera into ZWCM
C. The parties desire to amend the Agreement to further ensure the
closing of the transaction.
AMENDMENT
NOW THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged the parties agree to amend the Agreement as
follows:
1. Section 6.2 (b) is hereby amended to read as follows
"CAPITALIZATION. The authorized capital stock of ZWCM consists of 50,000,000
shares of ZWCM Common Stock, and 5,000,000 shares of Preferred Stock, $0.001 par
value, of which 1,610,000 shares of registered Common Stock and zero shares of
Preferred Stock shall be outstanding at Closing. At Closing, ZWCM shall cause to
be redeemed all the shares of its outstanding restricted common stock, which
total 6,000,000 shares in exchange for $88,000, or $0.0147 per share, and shall
have only 1,610,000 shares of registered common stock outstanding. All of the
registered common shares of ZWCM shall be delivered to an escrow account to be
established by Randall Lanham prior to this Merger Agreement becoming effective,
unless such share delivery is specifically waived by an authorized officer of
Procera. Each of such outstanding shares of ZWCM Common Stock is validly
authorized, validly issued, fully paid and nonassessable, has not been issued
and is not owned or held in violation of any preemptive right of stockholders.
There is no commitment, plan or arrangement to issue, and no outstanding option,
warrant, or other right calling for the issuance of, any share of capital stock
of ZWCM or any security or other instrument convertible into, exercisable for,
or exchangeable for capital stock of ZWCM. There is outstanding no security or
other instrument convertible into or exchangeable for capital stock of ZWCM.
2. Except as hereby amended, the Agreement shall remain in full force
and effect.
47
IN WITNESS WHEREOF, this Amendment has been approved by each of the
parties as of the date first above written.
ZOWCOM, INC.
/s/ Dan Spaulding
- --------------------------------------
Dan Spaulding
President and Chief Executive Officer
PROCERA NETWORKS, INC.
/s/ Douglas J. Glader
- --------------------------------------
Douglas J. Glader
President and Chief Executive Officer
AGREED TO AND ACCEPTED:
/s/ Frank Drechsler
- --------------------------------------
Frank Drechsler
Zowcom, Inc. Common Stock: 5,000,000
/s/ Dan Spaulding
- --------------------------------------
Dan Spaulding
Zowcom, Inc. Common Stock: 200,000
/s/ Marc Seely
- ---------------------------------------
Marc Seely
Zowcom, Inc. Common Stock: 800,000
48
Exhibit B
NEVADA DISSENTERS' RIGHTS STATUTE
RIGHTS OF DISSENTING OWNERS
NRS 92A.300 DEFINITIONS. As used in NRS 92A.300 to 92A.500, inclusive,
unless the context otherwise requires, the words and terms defined in NRS
92A.305 to 92A.335, inclusive, have the meanings ascribed to them in those
sections.
NRS 92A.305 "BENEFICIAL STOCKHOLDER" DEFINED. "Beneficial stockholder"
means a person who is a beneficial owner of shares held in a voting trust or by
a nominee as the stockholder of record.
NRS 92A.310 "CORPORATE ACTION" DEFINED. "Corporate action" means the
action of a domestic corporation.
NRS 92A.315 "DISSENTER" DEFINED. "Dissenter" means a stockholder who is
entitled to dissent from a domestic corporation's action under NRS 92A.380 and
who exercises that right when and in the manner required by NRS 92A.400 to
92A.480, inclusive.
NRS 92A.320 "FAIR VALUE" DEFINED. "Fair value," with respect to a
dissenter's shares, means the value of the shares immediately before the
effectuation of the corporate action to which he objects, excluding any
appreciation or depreciation in anticipation of the corporate action unless
exclusion would be inequitable.
NRS 92A.325 "STOCKHOLDER" DEFINED. "Stockholder" means a stockholder of
record or a beneficial stockholder of a domestic corporation.
NRS 92A.330 "STOCKHOLDER OF RECORD" DEFINED. "Stockholder of record" means
the person in whose name shares are registered in the records of a domestic
corporation or the beneficial owner of shares to the extent of the rights
granted by a nominee's certificate on file with the domestic corporation.
NRS 92A.335 "SUBJECT CORPORATION" DEFINED. "Subject corporation" means the
domestic corporation which is the issuer of the shares held by a dissenter
before the corporate action creating the dissenter's rights becomes effective or
the surviving or acquiring entity of that issuer after the corporate action
becomes effective.
NRS 92A.340 COMPUTATION OF INTEREST. Interest payable pursuant to NRS
92A.300 to 92A.500, inclusive, must be computed from the effective date of the
action until the date of payment, at the average rate currently paid by the
entity on its principal bank loans or, if it has no bank loans, at a rate that
is fair and equitable under all of the circumstances.
NRS 92A.350 RIGHTS OF DISSENTING PARTNER OF DOMESTIC LIMITED PARTNERSHIP.
A partnership agreement of a domestic limited partnership or, unless otherwise
provided in the partnership agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the partnership interest of a
dissenting general or limited partner of a domestic limited partnership are
available for any class or group of partnership interests in connection with any
merger or exchange in which the domestic limited partnership is a constituent
entity.
NRS 92A.360 RIGHTS OF DISSENTING MEMBER OF DOMESTIC LIMITED-LIABILITY
COMPANY. The articles of organization or operating agreement of a domestic
limited-liability company or, unless otherwise provided in the articles of
organization or operating agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the interest of a dissenting
member are available in connection with any merger or exchange in which the
domestic limited-liability company is a constituent entity.
NRS 92A.370 RIGHTS OF DISSENTING MEMBER OF DOMESTIC NONPROFIT CORPORATION
49
1. Except as otherwise provided in subsection 2, and unless otherwise
provided in the articles or bylaws, any member of any constituent domestic
nonprofit corporation who voted against the merger may, without prior notice,
but within 30 days after the effective date of the merger, resign from
membership and is thereby excused from all contractual obligations to the
constituent or surviving corporations which did not occur before his resignation
and is thereby entitled to those rights, if any, which would have existed if
there had been no merger and the membership had been terminated or the member
had been expelled.
2. Unless otherwise provided in its articles of incorporation or bylaws,
no member of a domestic nonprofit corporation, including, but not limited to, a
cooperative corporation, which supplies services described in chapter 704 of NRS
to its members only, and no person who is a member of a domestic nonprofit
corporation as a condition of or by reason of the ownership of an interest in
real property, may resign and dissent pursuant to subsection 1.
NRS 92A.380 RIGHT OF STOCKHOLDER TO DISSENT FROM CERTAIN CORPORATE ACTIONS
AND TO OBTAIN PAYMENT FOR SHARES.
1. Except as otherwise provided in NRS 92A.370 and 92A.390, a stockholder
is entitled to dissent from, and obtain payment of the fair value of his shares
in the event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the domestic corporation
is a constituent entity:
(1) If approval by the stockholders is required for the merger by NRS
92A.120 to 92A.160, inclusive, or the articles of incorporation, regardless of
whether the stockholder is entitled to vote on the plan of merger; or
(2) If the domestic corporation is a subsidiary and is merged with its
parent pursuant to NRS 92A.180.
(b) Consummation of a plan of exchange to which the domestic
corporation is a constituent entity as the corporation whose subject owner's
interests will be acquired, if his shares are to be acquired in the plan of
exchange.
(c) Any corporate action taken pursuant to a vote of the stockholders
to the event that the articles of incorporation, bylaws or a resolution of the
board of directors provides that voting or nonvoting stockholders are entitled
to dissent and obtain payment for their shares.
2. A stockholder who is entitled to dissent and obtain payment pursuant to
NRS 92A.300 to 92A.500, inclusive, may not challenge the corporate action
creating his entitlement unless the action is unlawful or fraudulent with
respect to him or the domestic corporation.
NRS 92A.390 LIMITATIONS ON RIGHT OF DISSENT: STOCKHOLDERS OF CERTAIN
CLASSES OR SERIES; ACTION OF STOCKHOLDERS NOT REQUIRED FOR PLAN OF MERGER.
1. There is no right of dissent with respect to a plan of merger or
exchange in favor of stockholders of any class or series which, at the record
date fixed to determine the stockholders entitled to receive notice of and to
vote at the meeting at which the plan of merger or exchange is to be acted on,
were either listed on a national securities exchange, included in the national
market system by the National Association of Securities Dealers, Inc., or held
by at least 2,000 stockholders of record, unless:
(a) The articles of incorporation of the corporation issuing the
shares provide otherwise; or
(b) The holders of the class or series are required under the plan of
merger or exchange to accept for the shares anything except:
50
(1) Cash, owner's interests or owner's interests and cash in lieu of
fractional owner's interests of:
(I) The surviving or acquiring entity; or
(II) Any other entity which, at the effective date of the plan of
merger or exchange, were either listed on a national securities exchange,
included in the national market system by the National Association of
Securities Dealers, Inc., or held of record by a least 2,000 holders of
owner's interests of record; or
(2) A combination of cash and owner's interests of the kind described in
sub-subparagraphs (I) and (II) of subparagraph (1) of paragraph (b).
2. There is no right of dissent for any holders of stock of the surviving
domestic corporation if the plan of merger does not require action of the
stockholders of the surviving domestic corporation under NRS 92A.130.
NRS 92A.400 LIMITATIONS ON RIGHT OF DISSENT: ASSERTION AS TO PORTIONS ONLY
TO SHARES REGISTERED TO STOCKHOLDER; ASSERTION BY BENEFICIAL STOCKHOLDER.
1. A stockholder of record may assert dissenter's rights as to fewer than
all of the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the subject corporation
in writing of the name and address of each person on whose behalf he asserts
dissenter's rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different stockholders.
2. A beneficial stockholder may assert dissenter's rights as to shares held
on his behalf only if:
(a) He submits to the subject corporation the written consent of the
stockholder of record to the dissent not later than the time the beneficial
stockholder asserts dissenter's rights; and
(b) He does so with respect to all shares of which he is the
beneficial stockholder or over which he has power to direct the vote.
NRS 92A.410 NOTIFICATION OF STOCKHOLDERS REGARDING RIGHT OF DISSENT.
1. If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, the notice of the meeting must state that
stockholders are or may be entitled to assert dissenters' rights under NRS
92A.300 to 92A.500, inclusive, and be accompanied by a copy of those sections.
2. If the corporate action creating dissenters' rights is taken by written
consent of the stockholders or without a vote of the stockholders, the domestic
corporation shall notify in writing all stockholders entitled to assert
dissenters' rights that the action was taken and send them the dissenter's
notice described in NRS 92A.430.
NRS 92A.420 PREREQUISITES TO DEMAND FOR PAYMENT FOR SHARES.
1. If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, a stockholder who wishes to assert
dissenter's rights:
(a) Must deliver to the subject corporation, before the vote is
taken, written notice of his intent to demand payment for his shares if the
proposed action is effectuated; and
(b) Must not vote his shares in favor of the proposed action.
51
2. A stockholder who does not satisfy the requirements of subsection 1 and
NRS 92A.400 is not entitled to payment for his shares under this chapter.
NRS 92A.430 DISSENTER'S NOTICE: DELIVERY TO STOCKHOLDERS ENTITLED TO
ASSERT RIGHTS; CONTENTS.
1. If a proposed corporate action creating dissenters' rights is authorized
at a stockholders' meeting, the subject corporation shall deliver a written
dissenter's notice to all stockholders who satisfied the requirements to assert
those rights.
2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and
when certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates to
what extent the transfer of the shares will be restricted after the demand for
payment is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to the news media or to the stockholders of the terms of the
proposed action and requires that the person asserting dissenter's rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
(d) Set a date by which the subject corporation must receive the
demand for payment, which may not be less than 30 nor more than 60 days after
the date the notice is delivered; and
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
NRS 92A.440 Demand for payment and deposit of certificates; retention of rights
of stockholder. 1. A stockholder to whom a dissenter's notice is sent must:
(a) Demand payment;
(b) Certify whether he acquired beneficial ownership of the shares
before the date required to be set forth in the dissenter's notice for this
certification; and
(c) Deposit his certificates, if any, in accordance with the terms of
the notice.
2. The stockholder who demands payment and deposits his certificates, if
any, before the proposed corporate action is taken retains all other rights of a
stockholder until those rights are canceled or modified by the taking of the
proposed corporate action.
3. The stockholder who does not demand payment or deposit his certificates
where required, each by the date set forth in the dissenter's notice, is not
entitled to payment for his shares under this chapter.
NRS 92A.450 UNCERTIFICATED SHARES: AUTHORITY TO RESTRICT TRANSFER
AFTER DEMAND FOR PAYMENT; RETENTION OF RIGHTS OF
STOCKHOLDER .
1. The subject corporation may restrict the transfer of shares not
represented by a certificate from the date the demand for their payment is
received.
52
2. The person for whom dissenter's rights are asserted as to shares not
represented by a certificate retains all other rights of a stockholder until
those rights are canceled or modified by the taking of the proposed corporate
action.
NRS 92A.460 PAYMENT FOR SHARES: GENERAL REQUIREMENTS.
1. Except as otherwise provided in NRS 92A.470, within 30 days after
receipt of a demand for payment, the subject corporation shall pay each
dissenter who complied with NRS 92A.440 the amount the subject corporation
estimates to be the fair value of his shares, plus accrued interest. The
obligation of the subject corporation under this subsection may be enforced by
the district court:
(a) Of the county where the corporation's registered office is
located; or
(b) At the election of any dissenter residing or having its registered
office in this state, of the county where the dissenter resides or has its
registered office. The court shall dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The subject corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, a statement of
income for that year, a statement of changes in the stockholders' equity for
that year and the latest available interim financial statements, if any;
(b) A statement of the subject corporation's estimate of the fair
value of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's rights to demand
payment under NRS 92A.480; and
(e) A copy of NRS 92A.300 to 92A.500, inclusive.
NRS 92A.470 PAYMENT FOR SHARES: SHARES ACQUIRED ON OR AFTER DATE OF
DISSENTER'S NOTICE.
1. A subject corporation may elect to withhold payment from a dissenter
unless he was the beneficial owner of the shares before the date set forth in
the dissenter's notice as the date of the first announcement to the news media
or to the stockholders of the terms of the proposed action.
2. To the extent the subject corporation elects to withhold payment, after
taking the proposed action, it shall estimate the fair value of the shares, plus
accrued interest, and shall offer to pay this amount to each dissenter who
agrees to accept it in full satisfaction of his demand. The subject corporation
shall send with its offer a statement of its estimate of the fair value of the
shares, an explanation of how the interest was calculated, and a statement of
the dissenters' right to demand payment pursuant to NRS 92A.480.
NRS 92A.480 DISSENTER'S ESTIMATE OF FAIR VALUE: NOTIFICATION OF SUBJECT
CORPORATION; DEMAND FOR PAYMENT OF ESTIMATE.
1. A dissenter may notify the subject corporation in writing of his own
estimate of the fair value of his shares and the amount of interest due, and
demand payment of his estimate, less any payment pursuant to NRS 92A.460, or
reject the offer pursuant to NRS 92A.470 and demand payment of the fair value of
his shares and interest due, if he believes that the amount paid pursuant to NRS
92A.460 or offered pursuant to NRS 92A.470 is less than the fair value of his
shares or that the interest due is incorrectly calculated.
53
2. A dissenter waives his right to demand payment pursuant to this section
unless he notifies the subject corporation of his demand in writing within 30
days after the subject corporation made or offered payment for his shares.
NRS 92A.490 LEGAL PROCEEDING TO DETERMINE FAIR VALUE: DUTIES OF SUBJECT
CORPORATION; POWERS OF COURT; RIGHTS OF DISSENTER.
1. If a demand for payment remains unsettled, the subject corporation shall
commence a proceeding within 60 days after receiving the demand and petition the
court to determine the fair value of the shares and accrued interest. If the
subject corporation does not commence the proceeding within the 60-day period,
it shall pay each dissenter whose demand remains unsettled the amount demanded.
2. A subject corporation shall commence the pro ceeding in the district
court of the county where its registered office is located. If the subject
corporation is a foreign entity without a resident agent in the state, it shall
commence the proceeding in the county where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
entity was located.
3. The subject corporation shall make all dissenters, whether or not
residents of Nevada, whose demands remain unsettled, parties to the proceeding
as in an action against their shares. All parties must be served with a copy of
the petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced under
subsection 2 is plenary and exclusive. The court may appoint one or more persons
as appraisers to receive evidence and recommend a decision on the question of
fair value. The appraisers have the powers described in the order appointing
them, or any amendment thereto. The dissenters are entitled to the same
discovery rights as parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is entitled to a
judgment:
(a) For the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the subject corporation;
or
(b) For the fair value, plus accrued interest, of his after-acquired
shares for which the subject corporation elected to withhold payment pursuant to
NRS 92A.470.
NRS 92A.500 LEGAL PROCEEDING TO DETERMINE FAIR VALUE: ASSESSMENT OF COSTS
AND FEES.
1. The court in a proceeding to determine fair value shall determine all
of the costs of the proceeding, including the reasonable compensation and
expenses of any appraisers appointed by the court. The court shall assess the
costs against the subject corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously or not
in good faith in demanding payment.
2. The court may also assess the fees and expenses of the counsel and
experts for the respective parties, in amounts the court finds equitable:
(a) Against the subject corporation and in favor of all dissenters if
the court finds the subject corporation did not substantially comply with the
requirements of NRS 92A.300 to 92A.500, inclusive; or
(b) Against either the subject corporation or a dissenter in favor of
any other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith with
respect to the rights provided by NRS 92A.300 to 92A.500, inclusive.
54
3. If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the subject corporation, the
court may award to those counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefited.
4. In a proceeding commenced pursuant to NRS 92A.460, the court may assess
the costs against the subject corporation, except that the court may assess
costs against all or some of the dissenters who are parties to the proceeding,
in amounts the court finds equitable, to the extent the court finds that such
parties did not act in good faith in instituting the proceeding.
5. This section does not preclude any party in a proceeding commenced
pursuant to NRS 92A.460 or 92A.490 from applying the provisions of N.R.C.P. 68
or NRS 17.115.
55
EXHIBIT C
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT No. 1 TO
FORM 10-KSB
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the fiscal year ended December 31, 2002
-----------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to
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Commission File Number: 000-49862
Zowcom, Inc.
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(Exact name of registrant as specified in its charter)
Nevada 33-0974674
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
17218 Beach Boulevard, Huntington Beach, California 92647
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(Address of principal executive offices) (Zip Code)
(714) 785.2095
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(Registrant's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Act:
Title of each class registered: Name of each exchange on which registered:
- ------------------------------- ------------------------------------------
None None
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Securities registered under Section 12(g) of the Act:
Common Stock, Par Value $.001
-----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. (X) Yes ( ) No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
State issuer's revenues for its most recent fiscal year. $2,045.
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.) As of April 29, 2003, approximately $80,500.
As of April 31, 2003, there were 7,610,000 shares of the issuer's $.001 par
value common stock issued and outstanding.
Documents incorporated by reference. There are no annual reports to security
holders, proxy information statements, or any prospectus filed pursuant to Rule
424 of the Securities Act of 1933 incorporated herein by reference.
56
Transitional Small Business Disclosure format (check one):
Yes ( ) No (X)
PART I
Item 1. Description of Business.
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Our Background. We were incorporated in Nevada on July 11, 2001 as zSolution
Inc. On September 21, 2001, we changed our name to Zowcom, Inc.
Our Business. We intend to be a provider of customized websites and web-based
business planning applications and Internet advertising space that allow our
customers to conduct business more efficiently using the utility of Internet. To
date, we have only generated $2,045 in revenues and we do not have any
employees, other than our current officers and directors. We believe that by
offering a library of e-commerce business solutions, our business customers can
easily access web-based tools, such as online catalogs, and applications that
manage inventory, forecast sales and schedule resources, thereby increasing
their profitability. We also plan to design customized websites targeting each
customer's unique users, offering the following features:
o 150 MB of disk space;
o 10 GB of data transfer per month;
o unlimited pop e-mail accounts with a web mail site administrator;
o encryption methods for security of user files;
o domain name listings and annual name renewal service;
o flexibility in number of website pages;
o submission to search engines to optimize placement in search results;
o customized banners; and
o statistical software, tracking number of visits to the site.
We anticipate that our primary source of revenue will come from the sale of
web-based business planning solutions, web-hosting, and advertisement space. We
intend to partner with Zow Graphics, a sole proprietorship owned by Marc Seely,
one of our officers and directors. Zow Graphics provides interactive web hosting
and design services, which has a large client base which will complement our
operations. Zow Graphics was started in 1995 and generates revenues of
approximately $100,000 per year. We do not anticipate that we will enter into a
formal agreement with Zow Graphics, but we do intend to share expenses, such
costs for server space and bandwidth. Marc Seely owns 800,000 shares of our
common stock.
We believe our products and services will offer business customers a unique
combination of online business planning solutions and targeted advertising,
tailored to the needs of entrepreneurial and multi-national companies,
hospitality services and small- to medium-size businesses. As businesses become
increasingly multi-national and more "virtual" in nature, we expect that
e-commerce capabilities will require more than e-mail and traditional networks.
We anticipate, for example, that our products will allow personal digital
assistant, or PDA, users to check and manage inventory, schedules, or sales
forecasts from any location. We anticipate that our library of web-based
e-commerce tools will help any business that sells products, manages inventory,
schedules allocation of resources, or makes sales forecasts.
We believe these functions are important to business users of the Internet who
seek new forms of communications to facilitate both the types of content and the
ability to remotely access that content. We believe our market has
characteristics and benefits similar to the growth and adoption of the
Internet-based email market. We believe that the current potential market for
e-commerce business planning solutions, website design and hosting and Internet
advertising services applications is extremely large. We intend to target
business users who can utilize the Internet and e-commerce applications to
streamline their operations and increase profitability. We will attempt to
attract a diverse customer base to drive multiple streams of revenue for our
proposed strategic partners and us.
57
Our Industry. We believe that the e-commerce industry will grow in the coming
years, and that companies already have significant data to process and
manipulate, whether it be online orders, or managing operational data, such as
forecasts, inventories, resource allocation. We anticipate that many businesses
faced with the shortcomings of traditional solutions to technology
infrastructure challenges will outsource technology functions to application
service providers. Application service providers enable businesses to gain
access to the latest technologies without increasing expenditures for technical
personnel and equipment. We believe a significant market opportunity exists for
application service providers offering Internet-based data storage and
management services that allow small and medium-sized businesses in particular
as well as hospitality services and multi-national business users to protect,
store, access and share their critical computerized information at any time and
from any location. Additionally, web-based advertising is becoming crucial to
companies relying on their Internet presence for success. An Internet presence
is nearly mandatory for any new or emerging business, as well as any business
that hopes to participate in e-commerce today. Web site advertising has proven
successful through many other Internet ventures.
Proposed Website. We anticipate that our proposed website, located at
www.zowcom.com and www.zowcom.net, will initially be developed as our Internet
corporate presence. We plan to use our website for marketing our proposed
library of business application software, as well as our banner advertising
services, data storage, and website design and hosting services.
Our Services. We also propose to offer website design, web hosting and
advertisement services. Our proposed web storage service will allow users to
easily store and share files and information. Our services are accessible only
to registered users, who are initially allotted 40 megabytes of memory upon
registration. Users may increase their designated storage capacity by purchasing
additional units of storage space. Unlike other providers of Internet storage
space, we propose to offer our own web design and hosting services.
We have designed our services to be secure by encrypting data prior to
transmission, maintaining the data in encrypted form at our data centers and
returning it to the user in encrypted form. Our systems are reliable because we
have designed them with multiple redundancies. Our services are easy to use
because they have a simple Windows-based interface and run automatically each
day with minimal user effort. Our services are cost-effective because users can
implement them without any hardware, additional software or technical personnel.
In addition, we have designed our systems to scale to accommodate millions of
simultaneous users.
We also propose to sell advertising space in the form of banner advertising.
Under our model of banner advertising sales, the amount of banner advertisement
space available will be directly correlated with the number of page views our
site receives.
Our Business Strategy. Our objective is to become a market leader in providing
website solutions for business customers, by not only designing and hosting
tailored websites, but also featuring a veritable library of e-commerce business
solutions, such as inventory management, sales forecasting and resource
scheduling to three primary target groups: entrepreneurial and multi-national
companies; hospitality services; and small businesses.
To achieve this objective, we intend to:
o strengthen our co-marketing programs with existing marketing partners
and develop new relationships with other industry-leading companies;
o increase awareness of the Zowcom brand to position ourselves as a
leading provider of web design, hosting and advertising services;
o introduce web-based business planning applications on our proprietary
technology to address the evolving needs of small and medium-sized
businesses;
o continue to invest in developing new technologies and services;
o establish new, state-of-the-art data centers that will enhance the
security and reliability of our solutions; and
o pursue strategic acquisitions to broaden our offerings, expand our
technology platform and capitalize on consolidation opportunities in
our market.
58
Additional Revenue Sources.
Banner Advertising: We anticipate that banner advertising will be a major source
of our revenues. The amount of banner advertisement space available is, in this
instance, directly correlated with the number of page views a site receives. If
the site receives one million page requests on a given day, then one million
banner advertisement spaces would be available to sell. Advertisers purchase
banner advertisements in blocks of one thousand. The cost of each block of one
thousand is referred to as the cost-per-thousand impressions, or CPMs.
Advertising space will cost between $25.00-$60.00 per CPM, depending on size,
traffic volume, and location on the site. That calculates to between $0.025 and
$0.06 per advertisement banner. It should be noted that standard advertising
rates for banners are currently $30 and up, thus we have the strong potential
undercutting ability in our initial advertising sales.
Sponsorships: We also plan to sell sponsorships on websites we design or host.
Branded content sponsorship is analogous to the "brought to you by" model used
on television or radio. Companies will often want to sponsor a specific section
of a site. For example, a computer manufacturer could potentially be a "site
sponsor" of ours. Thus, the phrase "Presented by ABC Computers" would be written
above or below the title, ZOWCOM, INC. appearing on a website. The computer
manufacturer would benefit by associating their brand with a high-quality
Internet service. Usually, branded content sponsorship arrangements are based on
long-term, renewable contracts.
Affiliate Programs Transaction Fees: We also anticipate collection transaction
fees as a source of revenue. At this time, search engines structure deals
earning between 10-20% of every sale precipitated through their site. For
example, many search engines feature the Amazon.com logo and a link that reads,
"Related Books," in a different section of their site. If a user were to click
on that link and purchase a book, the search engine would earn 15% of the price
of the book. We believe that 15% is standard fee for Amazon.com. Although these
partnership arrangements have failed to yield significant revenue thus far, we
hope that e-commerce will flourish over the next few years, making them an
important additional source of revenue.
Up-front Fees: We will also offer advertising partners the option of paying an
up-front fee to be featured on our site for an agreed upon duration. Under this
arrangement, we will feature the company's logo and a direct link to their web
site in a specific area of the site. Often, up-front payments for an arrangement
of this sort are very large. Recently, a large pharmaceutical company paid
America On-Line $20 million to be the exclusive partner in its Health Care
section for three years.
Growth Strategy. We intend to be a leading provider of website design and
hosting, as well as the provider of a unique library of web-based business
planning applications, and the source of advertising with the largest base of
active users. We plan to achieve this growth, build our Zowcom brand and grow
our revenues through the following:
o develop our customer base to drive multiple revenue streams;
o target and expand strategic partnerships with highly trafficked
websites with attractive user demographics;
o enable our strategic partners to create and manage new and enhanced
applications that utilize our Zowcom library of business solution
products and web-based advertising services;
o work in conjunction with strategic partners to enable multiple mobile
devices to utilize our Zowcom products and services;
o private label our Zowcom library of business solution products and
Internet banner advertising services to business-to-business websites;
and
o pursue international expansion through localized Zowcom business
solution products and web-based advertising services.
Advertising and marketing. We intend to implement an advertising and
co-marketing campaign to increase awareness of the Zowcom brand and to acquire
new users and expand and strengthen our strategic relationships. Our target
market primarily consists of entrepreneurial and multinational companies,
hospitality services, as well as small- to medium-size companies. Our marketing
and advertising efforts will be targeted at these groups.
59
We will seek to maximize the value of our e-commerce business solution products
by creating vertically integrated services by including secondary services such
as web-hosting and web-banner advertising services. We will conduct sponsorships
and other promotional activities geared towards our primary target market by
soliciting "site sponsors," engaging in co-marketing activities and
contemporaneous service and product launches. These sponsorship and promotional
activities will build our brand image and increase our presence in the market
while offering a return benefit to the sponsor.
Competition. We are a start up company and therefore we primarily compete with
small firms that offer similar products to our products. The web-based design
and hosting, advertising industries and e-commerce business planning tool
industries are very competitive and extremely fragmented. We compete directly
with other companies and businesses that have developed and are in the process
of developing platforms for Internet based business planning applications, as
well as those that offer Internet advertising. We intend to compete by providing
personal service with free technical support for needs other than our services
that we provide. We also intend to compete by providing extended services beyond
basic web hosting, including secure server, database applications, conferencing
services and intranet development and maintenance.
Many of these competitors have greater financial and other resources, and more
experience in research and development, than us. We cannot guaranty that other
products, which are functionally equivalent or similar to our products, are not
marketed or will not be marketed. For example, semicustomwebsites and other
companies do provide some elements of our product offering, though none provide
the user the encryption security or combination of online business solutions
such as inventory management, sales forecasting or scheduling the way we do.
Government Regulation. Online commerce is new and rapidly changing, and federal
and state regulations relating to the Internet and online commerce are
relatively new and evolving. Due to the increasing popularity of the Internet,
it is possible that laws and regulations may be enacted to address issues such
as user privacy, pricing, content, copyrights, distribution, antitrust matters
and the quality of products and services. The adoption of these laws or
regulations could reduce the rate of growth of the Internet, which could
potentially decrease the usage of our website and could otherwise harm our
business. In addition, the applicability to the Internet of existing laws
governing issues such as property ownership, copyrights and other intellectual
property issues, libel, obscenity and personal privacy is uncertain. Most of
these laws were adopted prior to the advent of the Internet and do not
contemplate or address the unique issues of the Internet. New laws applicable to
the Internet may impose substantial burdens on companies conducting online
commerce. In addition, the growth and development of online commerce may prompt
calls for more stringent consumer protection laws in the United States and
abroad.
Taxing authorities in a number of states are currently reviewing the appropriate
tax treatment of companies engaged in Internet commerce. New state tax
regulations may subject us to additional state sales, use and income taxes. The
adoption of any of these laws or regulations may decrease the growth of Internet
usage or the acceptance of Internet commerce which could, in turn, decrease the
demand for our products and services and increase costs. To date, we have not
spent significant resources on lobbying or related government affairs issues,
but we may need to do so in the future.
Intellectual Property. We may rely on a combination of patents, copyright and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect our proprietary rights. We believe that factors such as
the technological and creative skills of our personnel, new product
developments, frequent product enhancements and name recognition are essential
to establishing and maintaining a technology leadership position. We seek to
protect our software, documentation and other written materials under trade
60
secret and copyright laws, which afford only limited protection. We cannot
guaranty that our intellectual property will be successfully protected, or if
protected, that it will not be invalidated, circumvented or challenged, that the
rights granted thereunder will provide competitive advantages to us or that any
of our pending or future patent applications, whether or not being currently
challenged by applicable governmental patent examiners, will be issued on
substantially the same basis as the claims we seek, if at all. We cannot
guaranty that others will not develop technologies that are similar or superior
to our technology or design around the intellectual property. Despite our
efforts to protect our proprietary rights, unauthorized parties may attempt to
copy aspects of our products or to obtain and use information that we regard as
proprietary.
We currently own the web domain name www.zowcom.com and www.zowcom.net.
Currently, governmental agencies such as the U.S. Department of Commerce and
their designees such as ICANN regulate the acquisition and maintenance of domain
names. Others may obtain domain names which are similar to ours, which could
cause confusion among web users trying to locate our site. Furthermore, the
relationship between regulations governing domain names and laws protecting
trademarks and similar proprietary rights is unclear. We may be unable to
prevent third parties from acquiring domain names that are similar to ours. The
acquisition of similar domain names by third parties could cause confusion among
web users attempting to locate our site and could decrease the value of our name
and the use of our site.
Our Research and Development. We are not currently conducting any research and
development activities other than the development of our website. We do not
anticipate conducting such activities in the near future.
Employees. As of April 29, 2003, we have no employees other than our officers.
We do not currently anticipate that we will hire any employees in the next six
months, unless we generate significant revenues. From time-to-time, we
anticipate that we will use the services of independent contractors and
consultants to support our business development. We believe our future success
depends in large part upon the continued service of our senior management
personnel and our ability to attract and retain highly qualified technical and
managerial personnel.
Facilities. Our administrative offices are located at 17218 Beach Boulevard,
Huntington Beach, California, 92647. We have a month to month lease and the rent
is $250 per month. We believe that our facilities are adequate for our needs and
that additional suitable space will be available on acceptable terms as
required. We do not own any real estate.
Item 2. Description of Property.
- ---------------------------------
Property held by us. As of the date specified in the following table, we held
the following property:
============================= ==================== ==========================
Property December 31, 2002 December 31, 2001
- ----------------------------- -------------------- --------------------------
Cash $254 $54,817
- ----------------------------- -------------------- --------------------------
Property and Equipment, net $5,518 $5,083
============================= ==================== ==========================
Our Facilities. Our headquarters are located at 17218 Beach Boulevard,
Huntington Beach, California, 92647. We have a month to month lease and the rent
is $250 per month. We believe that our facilities are adequate for our needs and
that additional suitable space will be available on acceptable terms as
required.
Item 3. Legal Proceedings.
- --------------------------
There are no legal actions pending against us nor are any legal actions
contemplated by us at this time.
Item 4. Submission of Matters to Vote of Security Holders
- -----------------------------------------------------------
Not applicable.
PART II
Item 5. Market Price for Common Equity and Related Stockholder Matters.
- ------------------------------------------------------------------------
Reports to Security Holders. We are a reporting company with the Securities and
Exchange Commission, or SEC. The public may read and copy any materials filed
with the SEC at the SEC's Public Reference Room at 450 Fifth Street N.W.,
Washington, D.C. 20549. The public may also obtain information on the operation
of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC. The address of that site is http://www.sec.gov.
61
Prices of Common Stock. We participate in the OTC Bulletin Board, an electronic
quotation medium for securities traded outside of the Nasdaq Stock Market, and
prices for our common stock are published on the OTC Bulletin Board under the
trading symbol "ZWCM". This market is extremely limited and the prices quoted
are not a reliable indication of the value of our common stock. As of April 29,
2003, our stock has not been traded on this market.
We are authorized to issue 50,000,000 shares of $.001 par value common stock,
each share of common stock having equal rights and preferences, including voting
privileges. As of December 31, 2002, 7,610,000 shares of our common stock were
issued and outstanding. We are also authorized to issue 5,000,000 shares of
$.001 par value preferred stock, none of which is issued and outstanding.
In June 2002, our registration statement on Form SB-2 to register 1,610,000
shares of common stock held by our shareholders was declared effective by the
SEC. The approximate number of holders of record of shares of our common stock
is thirty-five. There are no outstanding options or warrants to purchase, or
securities convertible into, shares of our common stock. There are 6,000 shares
that can be sold pursuant to Rule 144 promulgated pursuant to the Securities Act
of 1933.
There have been no cash dividends declared on our common stock. Dividends are
declared at the sole discretion of our Board of Directors.
Penny Stock Regulation. Shares of our common stock are subject to rules adopted
by the Securities and Exchange Commission that regulate broker-dealer practices
in connection with transactions in "penny stocks". Penny stocks are generally
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the Nasdaq
system, provided that current price and volume information with respect to
transactions in those securities is provided by the exchange or system). The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from those rules, deliver a standardized risk
disclosure document prepared by the Securities and Exchange Commission, which
contains the following:
o a description of the nature and level of risk in the market for penny
stocks in both public offerings and secondary trading;
o a description of the broker's or dealer's duties to the customer and
of the rights and remedies available to the customer with respect to
violation to such duties or other requirements of securities' laws;
o a brief, clear, narrative description of a dealer market, including
"bid" and "ask" prices for penny stocks and the significance of the
spread between the "bid" and "ask" price;
o a toll-free telephone number for inquiries on disciplinary actions;
o definitions of significant terms in the disclosure document or in the
conduct of trading in penny stocks; and
o such other information and is in such form (including language, type,
size and format), as the Securities and Exchange Commission shall
require by rule or regulation.
Prior to effecting any transaction in penny stock, the broker-dealer also must
provide the customer the following:
o the bid and offer quotations for the penny stock;
o the compensation of the broker-dealer and its salesperson in the
transaction;
o the number of shares to which such bid and ask prices apply, or other
comparable information relating to the depth and liquidity of the
market for such stock; and
o monthly account statements showing the market value of each penny
stock held in the customer's account.
In addition, the penny stock rules require that prior to a transaction in a
penny stock not otherwise exempt from those rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written acknowledgment of the receipt
of a risk disclosure statement, a written agreement to transactions involving
62
penny stocks, and a signed and dated copy of a written suitably statement. These
disclosure requirements may have the effect of reducing the trading activity in
the secondary market for a stock that becomes subject to the penny stock rules.
Holders of shares of our common stock may have difficulty selling those shares
because our common stock will probably be subject to the penny stock rules.
Item 6. Management's Discussion and Analysis of Financial Condition or Plan
of Operation.
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This following information specifies certain forward-looking statements of
management of the company. Forward-looking statements are statements that
estimate the happening of future events are not based on historical fact.
Forward-looking statements may be identified by the use of forward-looking
terminology, such as "may", "shall", "will", "could", "expect", "estimate",
"anticipate", "predict", "probable", "possible", "should", "continue", or
similar terms, variations of those terms or the negative of those terms. The
forward-looking statements specified in the following information have been
compiled by our management on the basis of assumptions made by management and
considered by management to be reasonable. Our future operating results,
however, are impossible to predict and no representation, guaranty, or warranty
is to be inferred from those forward-looking statements.
The assumptions used for purposes of the forward-looking statements specified in
the following information represent estimates of future events and are subject
to uncertainty as to possible changes in economic, legislative, industry, and
other circumstances. As a result, the identification and interpretation of data
and other information and their use in developing and selecting assumptions from
and among reasonable alternatives require the exercise of judgment. To the
extent that the assumed events do not occur, the outcome may vary substantially
from anticipated or projected results, and, accordingly, no opinion is expressed
on the achievability of those forward-looking statements. No assurance can be
given that any of the assumptions relating to the forward-looking statements
specified in the following information are accurate, and we assume no obligation
to update any such forward-looking statements.
CRITICAL ACCOUNTING POLICY AND ESTIMATES. Our Management's Discussion and
Analysis of Financial Condition and Results of Operations section discusses our
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. On an on-going basis, management evaluates
its estimates and judgments, including those related to revenue recognition,
accrued expenses, financing operations, and contingencies and litigation.
Management bases its estimates and judgments on historical experience and on
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. The most significant accounting estimates inherent in
the preparation of our financial statements include estimates as to the
appropriate carrying value of certain assets and liabilities which are not
readily apparent from other sources. These accounting policies are described at
relevant sections in this discussion and analysis and in the notes to them
consolidated financial statements included in our Annual Report on Form 10-KSB
for the fiscal year ended December 31, 2002.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
- --------------------------------------------------------------------------
For the year ended December 31, 2002, compared to the period from July 11, 2001,
our date of formation, through December 31, 2001.
Liquidity and Capital Resources. We have cash of $254 as of December 31, 2002
and other receivables of $303 resulting in our total current assets of $557 as
of December 31, 2002. We also had $5,518 in property and equipment, resulting in
our total assets of $6,075. This is in comparison to the period from July 11,
2001, our date of formation, through December 31, 2001, where we had total
current assets of $65,827, which was comprised of $54,817 in cash, $10,010 in
prepaid expenses and $1,000 in a subscription receivable. We also had property
and equipment of $5,083, resulting in our total assets of $70,910 for the period
from July 11, 2001, our date of formation, through December 31, 2001. In
December 2001, we completed the sale of our common stock for $0.05 per share.
The proceeds to us were $80,500 and were used for working capital.
63
Our total liabilities were approximately $17,150 as of December 31, 2002, of
which $16,361 is for accounts payable and $789 is due to one of our officers who
had previously advanced funds to us. As of December 31, 2002, we had no long
term commitments or contingencies. This is in comparison to the period from July
11, 2001, our date of formation, through December 31, 2001, where our only
liabilities were $793 due to an officer.
Results of Operations.
Revenues. For the year ended December 31, 2002, we generated $2,045 in revenues.
We hope to increase our revenues when we are able to offer our products and
services by means of our website. For the period from July 11, 2001, our date of
formation, through December 31, 2001, we did not generate any revenues.
Operating Expenses. For the year ended December 31, 2002, our total expenses
were $83,237, which were represented by $16,059 in general and administrative
expenses, $11,420 in accounting expenses, $18,615 in consulting expenses and
$37,143 in legal expenses. Therefore, our net loss for the year ended December
31, 2002 was $81,192. This is in comparison to the period from July 11, 2001,
our date of formation, through December 31, 2001, where we had $12,405 in
general administrative expenses, and a net loss of $12,405.
Our Plan of Operation for the Next Twelve Months. We have only generated $2,045
in revenues from our operations as of December 31, 2002. To effectuate our
business plan during the next twelve months, we must continue to develop our
internet presence, market our products and services and develop our brand image.
We believe that we will be able to increase the revenues we generate after the
development of our website is complete. Any revenues generated will be used to
expand our service offerings.
We have cash of $254 as of December 31, 2002. In the opinion of management,
available funds will not satisfy our working capital requirements through the
next twelve months. Our monthly cash requirements are approximately $2,000 per
month. We believe that those costs will remain consistent over the next twelve
months because we do not intend to hire any more employees over the next twelve
months. We believe that our officers and directors will contribute funds to pay
for our expenses to achieve our objectives over the next twelve months.
Our belief that our officers and directors will pay our expenses is based on the
fact that our officers and directors collectively own 6,000,000 shares of our
common stock, which equals approximately 78.84% of our outstanding common stock.
We believe that our officers and directors will continue to pay our expenses as
long as they maintain their ownership of our common stock. Any additional
capital contributed by our management would be contributed without any
consideration. However, our officers and directors are not committed to
contribute additional capital.
Our forecast for the period for which our financial resources will be adequate
to support our operations involves risks and uncertainties and actual results
could fail as a result of a number of factors. We may need to raise additional
capital to expand our operations. In the event that we experience a shortfall in
our capital, we intend to pursue capital through public or private financing as
well as borrowings and other sources, such as our officers and directors. We
cannot guaranty that additional funding will be available on favorable terms, if
at all. If adequate funds are not available, then our ability to expand our
operations may be significantly hindered.
We are not currently conducting any research and development activities, other
than the development of our website. We do not anticipate conducting such
activities in the near future. We do not anticipate that we will purchase or
sell any significant equipment. In the event that we generate significant
revenues and expand our operations, then we may need to hire additional
employees or independent contractors as well as purchase or lease additional
equipment.
Item 7. Financial Statements
The financial statements required by Item 7 are presented in the following
order:
64
ZOWCOM, INC.
(A Development Stage Company)
INDEX
Independent Auditors' Report
Balance Sheets as of December 31, 2002 and 2001
Statements of Operations for the year ended December 31, 2002, and the
periods July 11, 2001 (inception) through December 31, 2001 and July 11,
2001 (inception) through December 31, 2002
Statement of Changes in Stockholders' Equity (Deficit)for the period July 11,
2001 (inception) through December 31, 2002
Statements of Cash Flows for the for the year ended December 31, 2002, and
the periods July 11, 2001 (inception) through December 31, 2001 and July
11, 2001 (inception) through December 31, 2002
Notes to Financial Statements
65
March 26, 2003
Independent Auditors' Report
To the Board of Directors and Stockholders of
Zowcom, Inc.
We have audited the accompanying balance sheets of Zowcom, Inc. (A
Development Stage Company) as of December 31, 2002 and 2001, and the related
statements of operations, changes in stockholders' equity (deficit) and cash
flows for the year ended December 31, 2002 and the periods July 11, 2001
(inception) through December 31, 2001 and July 11, 2001 (inception) through
December 31, 2002. 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 the United States of America. Those standards require that we plan
and perform the audits 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
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Zowcom, Inc. as of
December 31, 2002 and 2001, and the results of its operations and its cash flows
for the year ended December 31, 2002 and the periods July 11, 2001 (inception)
through December 31, 2001 and July 11, 2001 (inception) through December 31,
2002 in conformity with accounting principles generally accepted in the United
States of America.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As shown in the financial
statements, the Company incurred a net loss of $81,192 during the year ended
December 31, 2002, and as of that date, had a working capital deficiency of
$16,593 and stockholders' deficit of $11,075. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Lesley, Thomas, Schwarz & Postma, Inc.
A Professional Accountancy Corporation
Newport Beach, California
66
ZOWCOM, INC.
(A Development Stage Company)
BALANCE SHEETS
ASSETS
------
December 31,
----------------------------------
2002 2001
--------------- ---------------
ASSETS
Cash $ 254 $ 54,817
Prepaid expenses (Note 4) --- 10,010
Subscription receivable --- 1,000
Other receivable 303 ---
--------------- ---------------
Total current assets 557 65,827
--------------- ---------------
PROPERTY AND EQUIPMENT, net (Note 3) 5,518 5,083
--------------- ---------------
Total assets $ 6,075 $ 70,910
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
---------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 16,361 $ ---
Due to related parties (Note 6) 789 793
-------------- --------------
Total current liabilities 17,150 793
-------------- --------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.001 par value;
5,000,000 shares authorized,
no shares issued and outstanding
Common stock, $0.001 par value;
50,000,000 shares authorized,
7,610,000 and 7,590,000 shares issued and outstanding
respectively, at December 31, 2002 and 2001 7,610 7,590
Common stock subscribed, $0.001 par value;
20,000 shares --- 20
Additional paid-in capital 74,912 74,912
Deficit accumulated during development stage (93,597) (12,405)
--------------- --------------
Total stockholders' equity (deficit) (11,075) 70,117
--------------- --------------
Total liabilities and stockholders' equity (deficit) $ 6,075 $ 70,910
============== ==============
See the accompanying notes to these financial statements
67
ZOWCOM, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Period July 11, Period July 11,
2001 2001
(inception) (inception)
Year Ended through through
December 31, December 31, December 31,
2002 2001 2002
-------------- -------------- --------------
REVENUE $ 2,045 $ --- $ 2,045
-------------- -------------- --------------
EXPENSES
Accounting 11,420 --- 11,420
Consulting 18,615 --- 18,615
Legal 37,143 --- 37,143
Other general and administrative expenses 16,059 12,405 28,464
-------------- -------------- --------------
Total expenses 83,237 12,405 95,642
-------------- -------------- --------------
LOSS FROM OPERATIONS BEFORE PROVISION FOR INCOME TAXES (81,192) (12,405) (93,597)
PROVISION FOR INCOME TAXES --- --- ---
-------------- -------------- --------------
NET LOSS $ (81,192) $ (12,405) $ (93,597)
============== ============== ==============
BASIC LOSS PER SHARE $ (0.01) $ (0.00) $ (0.01)
============== ============== ==============
DILUTIVE LOSS PER SHARE $ (0.01) $ (0.00) $ (0.01)
============== ============== ==============
BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 7,610,000 6,218,694 7,162,610
============== ============== =============
See the accompanying notes to these financial statements
68
ZOWCOM, INC.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD JULY 11, 2001 (INCEPTION) THROUGH DECEMBER 31, 2002
Deficit
Accumulated
Common Stock Common Stock Subscribed Additional During
------------------------- ------------------------- Paid-In Development
Shares Amount Shares Amount Capital Stage Total
----------- ----------- ----------- ----------- ----------- ----------- ---------
BALANCE, July 11, 2001 (inception) --- $ --- --- $ --- $ --- $ --- $ ---
SHARES ISSUED, July 2001,
(in exchange for incorporation
expense and related services)
(Note 6) 6,000,000 6,000 --- --- --- --- 6,000
SHARES ISSUED for cash, October
2001 100,000 100 --- --- 4,540 --- 4,640
SHARES ISSUED for cash, November 2001
1,474,000 1,474 --- --- 66,916 --- 68,390
SHARES ISSUED for cash, December
2001 16,000 16 --- --- 726 --- 742
SHARES SUBSCRIBED --- --- 20,000 20 980 --- 1,000
ADDITIONAL PAID-IN CAPITAL (in
exchange for rent expense)
(Note 6) --- --- --- --- 1,750 --- 1,750
NET LOSS --- --- --- --- --- (12,405) (12,405)
----------- ----------- ----------- ----------- ----------- ----------- ---------
BALANCE, December 31, 2001 7,590,000 7,590 20,000 20 74,912 (12,405) 70,117
SUBSCRIBED SHARES issued,
January 2002 20,000 20 (20,000) (20) --- --- ---
NET LOSS --- --- --- --- --- (81,192) (81,192)
----------- ----------- ----------- ----------- ----------- ----------- ---------
BALANCE, December 31, 2002 7,610,000 $ 7,610 --- $ --- $ 74,912 $ (93,597) $ (11,075)
=========== =========== =========== =========== =========== =========== =========
See the accompanying notes to these financial statements
69
ZOWCOM, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Period July 11, Period July 11,
2001 2001
(inception) (inception)
Year Ended through through
December 31, December 31, December 31,
2002 2001 2002
-------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (81,192) $ (12,405) $ (93,597)
Adjustments to reconcile net loss to net cash used in
operating activities
Goods and services provided in exchange for shares of
common stock --- 6,000 6,000
Goods and services provided in exchange for additional
paid-in capital --- 1,750 1,750
Depreciation 2,626 83 2,709
Changes in operating assets and liabilities
Increase in other receivable (303) --- (303)
(Increase) decrease in prepaid expenses 10,010 (10,010) ---
Increase in accounts payable 16,361 --- 16,361
-------------- -------------- --------------
Net cash used in operating activities (52,498) (14,582) (67,080)
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of computer equipment (3,061) (5,166) (8,227)
--------------- -------------- --------------
Net cash used in investing activities (3,061) (5,166) (8,227)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock --- 73,772 73,772
Increase (decrease) in due to related parties (4) 793 789
Cash received on subscription receivable 1,000 --- 1,000
-------------- -------------- --------------
Net cash provided by financing activities 996 74,565 75,561
-------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (54,563) 54,817 254
CASH AND CASH EQUIVALENTS, beginning of period 54,817 --- ---
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS, end of period $ 254 $ 54,817 $ 254
============== ============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ --- $ --- $ ---
Cash paid during the period for income taxes $ --- $ --- $ ---
See the accompanying notes to these financial statements
70
ZOWCOM, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS (Continued)
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
During the period ended December 31, 2001 the Company issued 6,000,000 shares of
common stock for incorporation expenses and related services.
During the period ended December 31, 2001, the Company recorded additional
paid-in capital of $1,750 for rent provided by a stockholder.
See the accompanying notes to these financial statements
71
ZOWCOM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
NOTE 1 - COMPANY OPERATIONS
Zowcom, Inc. (the "Company") is currently a development stage company
under the provisions of the Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 7. The Company was
incorporated under the laws of the state of Nevada on July 11, 2001. Zowcom,
Inc. is developing a library of e-commerce solutions for customers to easily
launch web applications such as online catalogs, inventory management, sales
forecasting and resource scheduling.
Going Concern - The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. The Company
has experienced net losses since its inception and had an accumulated deficit of
$93,597 at December 31, 2002. Additionally, the Company has a working capital
deficiency of $16,593. The Company expects operating losses to continue for the
foreseeable future as it continues to develop and promote its services. In
addition, the Company has not been able to raise sufficient funds to sustain its
operations. These matters raise substantial doubt about the Company's ability to
continue as a going concern.
On September 21, 2001, the Company extended a Private Placement
Offering Memorandum to raise up to $125,000 in exchange for 2,500,000 shares of
common stock on a "best efforts" basis. Management is attempting to raise
additional equity and debt financing to sustain operations until it can market
its services, expand its customer base, and achieve profitability. The
successful outcome of future activities cannot be determined at this time due to
the current market conditions and there are no assurances that if achieved, the
Company will have sufficient funds to execute its intended business plan or
generate positive operating results.
The accompanying financial statements do not include any adjustments
related to the recoverability and classification of assets or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies are summarized as follows:
Cash and Cash Equivalents - For purposes of the balance sheets and
statements of cash flows, the Company considers all highly liquid debt
instruments purchased with a maturity of three (3) months or less to be cash
equivalents.
72
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounting Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Accounts Receivable - The Company extends credit to its customers as
part of its normal business operations.
The Company monitors all receivables, especially those balances over
sixty (60) days past due. Balances are written off only when all reasonable
collection efforts have been exhausted. Management must approve all write-offs
of customer balances. There were no bad debt write-offs for the periods ended
December 31, 2002 and 2001.
Property and Equipment - Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which is three years for computer equipment. Repairs
and maintenance to property and equipment are expensed as incurred. When
property and equipment is retired or disposed of, the related costs and
accumulated depreciation are eliminated from the accounts and any gain or loss
on such disposition is reflected in income.
Revenue Recognition - The Company is retained to provide web
applications services. Revenue is recognized upon completion of services.
Income Taxes - The Company accounts for income taxes in accordance with
the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"), which requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been included in the financial statements or tax returns. Under
this method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and the tax basis of assets and
liabilities using enacted rates in effect for the periods in which the
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be
realized.
Fair Value of Financial Instruments - SFAS No. 107, "Disclosure about
Fair Value of Financial Instruments" ("SFAS 107") requires entities to disclose
the fair value of financial instruments, both assets and liabilities recognized
and not recognized on the balance sheet, for which it is practicable to estimate
fair value. SFAS 107 defines fair value of a financial instrument as the amount
at which the instrument could be exchanged in a current transaction between
willing parties. As of December 31, 2002 and 2001, the carrying value of cash
and cash equivalents, receivables and accounts payable approximate fair value
due to the short term nature of such instruments.
73
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Start-up Activities - The Company has adopted the provisions of
Statement of Position 98-5, "Reporting Costs of Start-up Activities" ("SOP
98-5"). SOP 98-5 requires that the costs of start-up activities including
organization costs be expensed as incurred.
Common Stock Issued for Services Rendered - The Company issued common
stock for services rendered. Common stock issued is valued at the estimated fair
market value, as determined by management and the board of directors of the
Company. Management and the board of directors consider recent stock offering
prices and other factors in determining fair market value for purposed of
valuing the common stock.
Loss Per Share of Common Stock - Basic and diluted loss per share is
computed using shares of common stock issued to date. Consideration is also
given in the dilutive loss per share calculation for the dilutive effect of
common stock equivalents which might result from the exercise of stock options.
However, for the period presented, there were no common stock equivalents.
Accounting Pronouncements - In July 2001, the FASB issued Statement of
Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations,"
which is effective for business combinations initiated after June 30, 2001. SFAS
141 eliminates the pooling of interest method of accounting for business
combinations and requires that all business combinations occurring after July 1,
2001 are accounted for under the purchase method. The Company has not been
affected by SFAS 141.
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets," which is
effective for fiscal years beginning after December 15, 2001. Early adoption is
permitted for entities with fiscal years beginning after March 15, 2001,
provided that the first interim financial statements have not been previously
issued. SFAS 142 addresses how intangible assets that are acquired individually
or with a group of other assets should be accounted for in the financial
statements upon their acquisition and after they have been initially recognized
in the financial statements. SFAS 142 requires that goodwill and intangible
assets that have indefinite useful lives not be amortized but rather be tested
at least annually for impairment, and intangible assets that have finite useful
lives be amortized over their useful lives. SFAS 142 provides specific guidance
for testing goodwill and intangible assets that will not be amortized for
impairment. The Company has not been affected by SFAS 142.
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 143 ("SFAS 143"), "Accounting for Asset Retirement Obligations."
SFAS 143 established standards associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. This statement is
effective for financial statements issued for fiscal years beginning after June
15, 2002. The Company does not expect SFAS 143 to have a material impact on its
financial statements.
74
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets." SFAS 144 addresses financial accounting and reporting for
the impairment of long-lived assets of which to be disposed. The provisions of
SFAS 144 are effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods within these fiscal
years, with early adoption encouraged. The Company does not expect SFAS 144 to
have a material impact on its financial statements.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, 64, Amendment of FASB Statement No. 13, and Technical
Corrections . SFAS No. 145 requires that only certain extinguishments of debt be
classified as an extraordinary item. Further, this statement requires that
capital leases which are modified such that the resulting lease agreement is
classified as an operating lease be accounted for under the sale-leaseback
provisions of SFAS No. 98. The provisions of the statement pertaining to debt
extinguishments are effective for companies with fiscal years beginning after
May 15, 2002. The provisions of the statement pertaining to lease modifications
are effective for transactions consummated after May 15, 2002. Implementation of
this statement will not impact net income, however, it will result in a
reclassification of the extraordinary loss for reporting purposes in 2003. Such
amounts will be reported as a separate component of income from continuing
operations, and the earnings per share effects will not be disclosed on the face
of the income statement.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
December 31,
----------------------------
2002 2001
------------ --------------
Computer equipment $ 8,227 $ 5,166
Less: accumulated depreciation (2,709) (83)
------------ --------------
$ 5,518 $ 5,083
============ ==============
NOTE 4 - PREPAID EXPENSES
Prepaid expenses consisted of the following:
December 31,
----------------------------
2002 2001
------------ --------------
Prepaid legal fees $ --- $ 10,010
============ ==============
75
NOTE 5 - INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109 ("SFAS 109"). This statement mandates the liability
method of accounting for deferred income taxes and permits the recognition of
deferred tax assets subject to an ongoing assessment of realizability.
The components of the Company's income tax provision consist of:
Period July
11, 2001 Period July 11,
(inception) 2001 (inception)
Year Ended through through
December 31, December 31, December 31,
2002 2001 2002
-------------- ------------- --------------
Federal taxes (deferred) capitalized start-up costs
for tax purposes $ (14,100) $ (2,000) $ (16,100)
Change in valuation account 14,100 $ 2,000 $ 16,100
-------------- ------------- --------------
$ --- $ --- $ ---
============== ============= ==============
Deferred income taxes are provided for timing differences in the
recognition of certain income and expense items for tax and financial statement
purposes. The tax effect of the temporary differences giving rise to the
Company's deferred tax assets and liabilities are as follows:
December 31,
-------------------------------
2002 2001
------------- --------------
Deferred income taxes
Capitalized start-up costs for tax purposes $ 14,100 $ 2,000
Valuation allowance (14,100) (2,000)
------------- --------------
$ --- $ ---
============= ==============
NOTE 6 - RELATED PARTY TRANSACTIONS
The Company has recorded incorporation expenses and related services
provided of $6,000 in exchange for 6,000,000 shares of common stock during the
period ended December 31, 2001. These services were provided by the Company's
officers and director. The fair value of those services received was not readily
determinable. Management believes that the par value of the Company's common
stock is a reasonable estimate for the services received.
The Company was utilizing office space provided by a stockholder.
During the period ended December 31, 2001, the Company has recorded rent fees of
$1,750 which represents the Company's pro rata share of the office space being
provided by a stockholder.
76
NOTE 6 - RELATED PARTY TRANSACTIONS (CONTINUED)
During year ended December 31, 2002 and the period ended December 31,
2001, an officer and a director of the Company advanced funds in the amount of
$789 and $793 for certain expenses, respectively.
During year ended December 31, 2002 and the period ended December 31,
2001, an officer was paid $10,030 and $1,000 for consulting services,
respectively.
NOTE 7 - STOCKHOLDERS' EQUITY
The Company is authorized to issue up to 50,000,000 shares of $0.001
par value common stock and 5,000,000 shares of $0.001 par value preferred stock.
Each share of common stock shall entitle the holder to one vote, in person or by
proxy, on any matter on which action of the stockholders of this corporation is
sought. The holders of shares of preferred stock shall have no right to vote
such shares, with certain exceptions as determined by the Board of Directors of
this corporation or as otherwise provided by the Nevada General Corporation Law,
as amended from to time.
In July 2001, the Company issued 6,000,000 shares of its common stock
to its founder in exchange for reimbursement of organizational costs and related
expenses.
During the period ended December 31, 2001, the Company conducted a
Regulation D, Rule 506 Offering ("Rule 506 Offering") of the common stock. As
part of the Rule 506 Offering, the Company issued 1,610,000 shares of common
stock for net cash consideration of $74,772.
77
Item 8. Changes in and Disagreements with Accountants.
- -------------------------------------------------------
There have been no changes in or disagreements with our accountants since our
formation required to be disclosed pursuant to Item 304 of Regulation S-B.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons.
- -----------------------------------------------------------------------
Executive Officers and Directors.
Our directors and principal executive officers are as specified on the following
table:
78
================== =============== ===========================================
Name Age Position
- ------------------ --------------- -------------------------------------------
Dan Spaulding 39 president
- ------------------ --------------- -------------------------------------------
Marc Seely 32 secretary, treasurer and a director
- ------------------ --------------- -------------------------------------------
Frank Drechsler 34 director
================== =============== ===========================================
Dan Spaulding. Mr. Spaulding has been our president since our inception. Mr.
Spaulding has over 20 years' experience in graphic design, as well as
expert-level knowledge of cutting-edge Internet technologies and programs, an
extensive history of web project management, and expertise in numerous software,
hardware and network technologies. Mr. Spaulding currently devotes approximately
10 hours per week to our operations. Mr. Spaulding is currently a senior Web
Analyst for SBC Communications, which he has been since May 2001. Prior to that,
he was the Director of Web Strategies for BKM Total Office from 1995 to 2001.
From 1994 to 1995, Mr. Spaulding was Director of Technology and a co-founder of
Integrated Furniture Management. Prior to that, Mr. Spaulding was an Automated
Design consultant for Spaulding and Associates from 1989 to 1994, and a
Technology Trainer and consultant for Computer Aided Planning from 1987 to 1989.
From 1981 to 1982, Mr. Spaulding attended Kent State University where he majored
in Fine Art and Graphic Design. He also attended the Art Institute of Pittsburgh
in 1982 and the Columbus College of Art and Design in 1983. Mr. Spaulding is not
an officer or director of any reporting company.
Marc Seely. Mr. Seely has been our secretary, treasurer and one of our directors
since our inception. Mr. Seely currently devotes approximately 35 hours per week
to our operations. For the past six years, Mr. Seely has been self-employed as a
computer consultant. Since July 2001, Mr. Seely has also been the treasurer and
a director of Finger Tip Drive, Inc., a Nevada corporation that provides online
computer data storage services. Additionally, Mr. Seely has participated in the
development of business-to-business solutions for multinational companies such
as Hewlett Packard, Sony and Mass Mutual. Mr. Seely has ten years of database
programming combined with six years focused on Internet applications. Mr. Seely
has spoken at the University of Southern California, the University of
California, Los Angeles and Orange Coast College on the topic of multimedia
technologies. Mr. Seely also possesses six years experience of network topology
for multimedia and web server installations. Mr. Seely has acted as an alpha
tester of Cold Fusion, a software application, since its initial version. Mr.
Seely has also acted as a beta tester of Microsoft's Windows NT and other
Microsoft applications for the last six years. Mr. Seely is not an officer or
director of any reporting company.
Frank Drechsler. Mr. Drechsler has been one of our directors since our
inception. Since July 2001, Mr. Drechsler has also been the president, secretary
and a director of Finger Tip Drive, Inc., a Nevada corporation which provides
online computer data storage services. From October 1998 to May 2001, Mr.
Drechsler was the president and a director of Pacific Trading Post, Inc., a
Nevada corporation, which marketed and sold products on the Internet within the
outdoor sports industries, specifically in the areas of skate, surf and snow. In
January 1998, Mr. Drechsler co-founded and developed the business model for
skatesurfsnow.com, where he was responsible for the day-to-day operations.
During 1997, Mr. Drechsler was self-employed as a consultant and helped start up
companies develop sales and marketing programs. From 1995 to December 1996, Mr.
Drechsler was the international sales manager for Select Distribution. Mr.
Drechsler graduated from California State University, Fullerton with a Bachelor
of Science degree in International Business in 1992. Mr. Drechsler was
previously an officer and director of JPAL, Inc., a Nevada corporation, and
Expressions Graphics, Inc., a Nevada corporation, both of which are reporting
companies. Mr. Drechsler is not an officer or director of any other reporting
company.
There is no family relationship between any of our officers or directors. There
are no orders, judgments, or decrees of any governmental agency or
administrator, or of any court of competent jurisdiction, revoking or suspending
for cause any license, permit or other authority to engage in the securities
business or in the sale of a particular security or temporarily or permanently
restraining any of our officers or directors from engaging in or continuing any
conduct, practice or employment in connection with the purchase or sale of
securities, or convicting such person of any felony or misdemeanor involving a
security, or any aspect of the securities business or of theft or of any felony,
nor are any of the officers or directors of any corporation or entity affiliated
with us so enjoined.
Our directors will serve until the next annual meeting of stockholders. Our
executive officers are appointed by our Board of Directors and serve at the
discretion of the Board of Directors.
79
Section 16(a) Beneficial Ownership Reporting Compliance. Our officers,
directors, and principal shareholders have filed all reports required to be
filed on, respectively, a Form 3 (Initial Statement of Beneficial Ownership of
Securities), a Form 4 (Statement of Changes of Beneficial Ownership of
Securities), or a Form 5 (Annual Statement of Beneficial Ownership of
Securities).
Item 10. Executive Compensation
- ---------------------------------
Any compensation received by our officers, directors, and management personnel
will be determined from time to time by our Board of Directors. Our officers,
directors, and management personnel will be reimbursed for any out-of-pocket
expenses incurred on our behalf.
Summary Compensation Table. The table set forth below summarizes the annual and
long-term compensation for services in all capacities to us payable to our
president and our other executive officers during the year ending December 31,
2002. Our Board of Directors may adopt an incentive stock option plan for our
executive officers which would result in additional compensation.
================================== ======== ============== ============= ======================= =======================
Name and Principal Position Year Annual Bonus ($) Other Annual All Other Compensation
Salary ($) Compensation ($)
- ---------------------------------- -------- -------------- ------------- ----------------------- -----------------------
Dan Spaulding - president 2002 None None None None
- ---------------------------------- -------- -------------- ------------- ----------------------- -----------------------
Marc Seely - secretary, treasurer 2002 None None None $10,030
================================== ======== ============== ============= ======================= =======================
Compensation of Directors. Directors who are also our employees receive no extra
compensation for their service on our Board of Directors.
Employment Contracts. We anticipate that we will enter into employment contracts
with Dan Spaulding and Marc Seely, although we do not currently know the terms
of those employment agreements. Additionally, we have not negotiated, either in
writing or verbally, any specific terms or conditions of such employment
agreements. We anticipate that we will negotiate employment agreements with Mr.
Spaulding and Mr. Seely when, and if, we begin earning sufficient revenue to
justify making such commitments.
Stock Option Plan. We anticipate that we will adopt a stock option plan,
pursuant to which shares of our common stock will be reserved for issuance to
satisfy the exercise of options. The stock option plan will be designed to
retain qualified and competent officers, employees, and directors. Our Board of
Directors, or a committee thereof, shall administer the stock option plan and
will be authorized, in its sole and absolute discretion, to grant options
thereunder to all of our eligible employees, including officers, and to our
directors, whether or not those directors are also our employees. Options will
be granted pursuant to the provisions of the stock option plan on such terms,
subject to such conditions and at such exercise prices as shall be determined by
our Board of Directors. Options granted pursuant to the stock option plan shall
not be exercisable after the expiration of ten years from the date of grant.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
- -------------------------------------------------------------------------
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of April 29, 2003 by each person or entity
known by us to be the beneficial owner of more than 5% of the outstanding shares
of common stock, each of our directors and named executive officers, and all of
our directors and executive officers as a group.
80
======================= ====================================== ====================================== =======================
Title of Class Name and Address of Beneficial Owner Amount and Nature of Beneficial Owner Percent of Class
- ----------------------- -------------------------------------- -------------------------------------- -----------------------
Common Stock Dan Spaulding 200,000 shares 2.63%
17218 Beach Boulevard, Huntington president, director
Beach, CA 92647
- ----------------------- -------------------------------------- -------------------------------------- -----------------------
Common Stock Marc Seely 800,000 shares 10.51%
17218 Beach Boulevard, Huntington secretary, treasurer, director
Beach, CA 92647
- ----------------------- -------------------------------------- -------------------------------------- -----------------------
Common Stock Frank Drechsler 5,000,000 shares 65.70%
17218 Beach Boulevard, Huntington director
Beach, CA 92647
- ----------------------- -------------------------------------- -------------------------------------- -----------------------
Common Stock All officers and directors 6,000,000 shares 78.84%
as a group
======================= ====================================== ====================================== =======================
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. In accordance with Securities and Exchange
Commission rules, shares of our common stock which may be acquired upon exercise
of stock options or warrants which are currently exercisable or which become
exercisable within 60 days of the date of the table are deemed beneficially
owned by the optionees. Subject to community property laws, where applicable,
the persons or entities named in the table above have sole voting and investment
power with respect to all shares of our common stock indicated as beneficially
owned by them.
Changes in Control. Our management is not aware of any arrangements which may
result in "changes in control" as that term is defined by the provisions of Item
403(c) of Regulation S-B.
Item 12. Certain Relationships and Related Transactions.
- ---------------------------------------------------------
Related Party Transactions. There have been no related party transactions,
except for the following:
Frank Drechsler was issued 5,000,000 shares of our common stock in exchange for
his services as our promoter. The value of the services performed by Mr.
Drechsler was approximately $5,000. Marc Seely was issued 800,000 shares of our
common stock in exchange for his services as our promoter. The value of the
services performed by Mr. Seely was approximately $800. Dan Spaulding was issued
200,000 shares of our common stock in exchange for his services as our promoter.
The value of the services performed by Mr. Spaulding was approximately $200.
During the period ending December 31, 2001, one of our officers and directors
advanced funds to us in the amount of $793 for certain expenses.
During the period ending December 31, 2001, Marc Seely, one of our officers, was
paid compensation of $1,000 for services, which included developing the server
network and maintaining it. Mr. Seely had also previously provided office space
to us at no charge.
We are currently sharing the costs for server space and bandwidth with Zow
Graphics, a sole proprietorship owned by Marc Seely, one of our officers and
directors. We pay to third parties approximately $500 per month for server space
and $179 per month for bandwidth. Zow Graphics was started in 1995 and generates
revenues of approximately $100,000 per year.
With regard to any future related party transaction, we plan to fully disclose
any and all related party transactions, including, but not limited to, the
following:
o disclose such transactions in prospectus where required;
o disclose in any and all filings with the Securities and Exchange
Commission, where required;
o obtain disinterested directors' consent; and
o obtain shareholder consent where required.
81
Item 13. Exhibits and Reports on Form 8-K
- -------------------------------------------
(a) Exhibit No.
- ---------------
3.1 Articles of Incorporation*
3.2 Bylaws*
99.1 Section 906 Certification by Chief Executive Officer
99.2 Section 906 Certification by Chief Financial Officer
* Included in the registration statement on Form SB-2 filed on February 22,
2002.
(b) Reports on Form 8-K
- ------------------------
No reports on Form 8-K were filed during the last quarter of the period covered
by this annual report on Form 10-KSB.
ITEM 14. CONTROLS AND PROCEDURES.
------------------------
(a) Evaluation of disclosure controls and procedures. We maintain controls and
procedures designed to ensure that information required to be disclosed in the
reports that we file or submit under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the Securities and Exchange Commission. Based upon
their evaluation of those controls and procedures performed within 90 days of
the filing date of this report, our chief executive officer and the principal
financial officer concluded that our disclosure controls and procedures were
adequate.
(b) Changes in internal controls. There were no significant changes in our
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation of those controls by the chief
executive officer and principal financial officer.
82
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned in the City of Cypress, California, on April 29, 2003.
Zowcom, Inc.
a Nevada corporation
By: /s/ Dan Spaulding
------------------------------------
Dan Spaulding
Its: principal executive officer
president and a director
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Dan Spaulding April 29, 2003
--------------------------------------------
Dan Spaulding
Its: principal executive officer
president and a director
By: /s/ Marc Seely April 29, 2003
--------------------------------------------
Marc Seely
Its: principal accounting officer
secretary, treasurer and a director
By: /s/ Frank Drechsler April 29, 2003
--------------------------------------------
Frank Drechsler
Its: director
83
CERTIFICATIONS
- --------------
I, Dan Spaulding, certify that:
1. I have reviewed this annual report on Form 10-KSB of Zowcom, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: April 29, 2003
/s/ Dan Spaulding
- -----------------------
Dan Spaulding
Chief Executive Officer
84
CERTIFICATIONS
- --------------
I, Marc Seely, certify that:
1. I have reviewed this annual report on Form 10-KSB of Zowcom, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: April 29, 2003
/s/ Marc Seely
- -----------------------
Marc Seely
Chief Financial Officer
85
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Zowcom, Inc. a Nevada corporation (the
"Company") on Form 10-KSB for the year ending December 31, 2002, as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), Frank
Drechsler, Chief Executive Officer of the Company, certifies to the best of his
knowledge, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and result of
operations of the Company.
A signed original of this written statement required by Section 906 has been
provided to Zowcom, Inc., and will be retained by Zowcom, Inc. and furnished to
the Securities and Exchange Commission or its staff upon request.
/s/ Dan Spaulding
- --------------------------
Dan Spaulding
Chief Executive Officer
April 29, 2003
86
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Zowcom, Inc. a Nevada corporation (the
"Company") on Form 10-KSB for the year ending December 31, 2002, as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), Marc
Seely, Chief Financial Officer of the Company, certifies to the best of his
knowledge, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and result of
operations of the Company.
A signed original of this written statement required by Section 906 has been
provided to Zowcom, Inc., and will be retained by Zowcom, Inc. and furnished to
the Securities and Exchange Commission or its staff upon request.
/s/ Marc Seely
- --------------------------
Marc Seely
Chief Financial Officer
April 29, 2003
87
EXHIBIT D
Procera Networks, Inc.
Balance Sheet
As Of December 29, 2002
(unaudited)
ASSETS -----------
Current Assets: ------
- ---------------
Cash $ 7,854
Accounts Receivable, Net 23,289
Prepaid Insurance 6,738
Prepaid Expenses 10,852
------------------
Total Current Assets 48,733
------------------
Property & Equipment:
- ---------------------
Computers 2,899
Tooling 2,690
Office Equipment 5,062
------------------
Total Property & Equipment 10,651
------------------
TOTAL ASSETS $ 59,384
==================
LIABILITIES
-----------
Current Liabilities:
- --------------------
Trade Accounts Payable $ 142,059
Salaries & Taxes Payable 13,224
Interest & Loan Fees Payable 87,300
Accrued Expenses 98,967
Contingent Warranty Liability 5,274
Loans Payable 1,080,000
------------------
Total Current Liabilities 1,426,824
------------------
STOCKHOLDERS' EQUITY
--------------------
Common Stock 8,791
Retained Earnings (1,376,230)
------------------
TOTAL STOCKHOLDERS' EQUITY (1,367,439)
------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 59,384
==================
88
Procera Networks, Inc.
Income Statements
For the Period of May 1, 2002 (Inception) through December 29, 2002
(unaudited)
-----------
Net Sales Revenues $ 175,368
Cost of Sales
Direct Material Costs 20,473
Manufacturing Overhead 149,962
--------------------
Total Cost of Sales 170,435
--------------------
Gross (Loss) 4,933
--------------------
Operating Expenses:
Engineering 404,423
Sales & Marketing 272,194
General & Administrative 630,950
--------------------
Total Operating Expenses 1,307,566
--------------------
Operating (Loss) (1,302,633)
Interest Expense (88,597)
Gain on Sale of Assets 15,000
--------------------
Net (Loss) Before Taxes (1,376,230)
Provision for Income Taxes -
--------------------
Net (Loss) After Taxes $ (1,376,230)
====================
89
Procera Networks, Inc.
Statement of Cash Flows
For the Period of May 1, 2002 (Inception) through December 29, 2002
(unaudited)
Cash Flows from Operating Activities:
- -------------------------------------
Net (Loss) $ (1,376,230)
(Increase) in Net Receivables (23,289)
(Increase) in Prepaids (17,591)
Increase in Payables 346,824
-------------------------
Net Cash Flows from Operating Activities (1,070,285)
-------------------------
Cash Flows from Investing Activities:
- -------------------------------------
Capital Acquisitions (10,651)
-------------------------
Cash Flows from Financing Activities:
- -------------------------------------
Sale of Common Stock 8,791
Bridge Loan Borrowing 1,080,000
-------------------------
Net Cash Flows from Financing Activities 1,088,791
-------------------------
Net Cash Flows 7,854
Beginning Cash Balance -
-------------------------
ENDING CASH BALANCE $ 7,854
=========================
90
Procera Networks, Inc.
Balance Sheet
As Of June 29, 2003
(unaudited)
ASSETS -----------
------
Current Assets:
- ---------------
Cash $ 328,523
Accounts Receivable, Net -
Prepaid Insurance 7,896
Prepaid Expenses 9,835
--------------------------
Total Current Assets 346,254
--------------------------
Property & Equipment:
- ---------------------
Computers 2,899
Tooling 2,690
Office Equipment 5,062
--------------------------
Total Property & Equipment 10,651
--------------------------
TOTAL ASSETS $ 356,905
==========================
LIABILITIES
Current Liabilities: -----------
- --------------------
Trade Accounts Payable $ 257,441
Salaries & Taxes Payable 62,027
Interest & Loan Fees Payable 210,432
Accrued Expenses 182,307
Contingent Warranty Liability 5,274
Loans Payable 1,355,000
--------------------------
Total Current Liabilities 2,072,481
--------------------------
STOCKHOLDERS' EQUITY
Common Stock -------------------- 410,077
Retained Earnings (2,125,652)
--------------------------
TOTAL STOCKHOLDERS' EQUITY (1,715,575)
--------------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 356,905
==========================
91
Procera Networks, Inc.
Income Statements
For the Period of December 30, 2002 through June 29, 2003
(unaudited)
----------
Net Sales Revenues $ 4,043
Cost of Sales
Direct Material Costs -
Manufacturing Overhead 102,818
-----------------------
Total Cost of Sales 102,818
-----------------------
Gross (Loss) (98,775)
-----------------------
Operating Expenses:
Engineering 169,499
Sales & Marketing 80,482
General & Administrative 276,399
-----------------------
Total Operating Expenses 526,379
-----------------------
Operating (Loss) (625,154)
Interest Expense (124,268)
Gain on Sale of Assets 15,000
-----------------------
Net (Loss) Before Taxes (734,422)
Provision for Income Taxes -
-----------------------
Net (Loss) After Taxes $ (734,422)
=======================
92
Procera Networks, Inc.
Statement of Cash Flows
For the Period of December 30, 2002 through June 29, 2003
(unaudited)
-----------
Cash Flows from Operating Activities:
- -------------------------------------
Net (Loss) $ (749,422)
(Increase) in Net Receivables 23,289
(Increase) in Prepaids (140)
Increase in Payables 370,657
-----------------------
Net Cash Flows from Operating Activities (355,617)
-----------------------
Cash Flows from Investing Activities:
- -------------------------------------
Capital Acquisitions -
-----------------------
Cash Flows from Financing Activities:
- -------------------------------------
Sale of Common Stock 401,286
Bridge Loan Borrowing 275,000
-----------------------
Net Cash Flows from Financing Activities 676,286
-----------------------
Net Cash Flows 320,669
Beginning Cash Balance 7,854
-----------------------
Ending Cash Balance $ 328,523
=======================