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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
TRIBEWORKS, INC.
(Name of Small Business Issuer in its charter)
DELAWARE 94-3308801
(State or other jurisdiction of (IRS Employer
Incorporation of organization) Identification Number)
988 Market Street, 8th Floor, San Francisco, CA 94102
(Address of principal executive offices and Zip Code)
Registrant's telephone number, including area code: (415) 674-5555
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
COMMON STOCK
TITLE OF CLASS
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INTRODUCTORY NOTE
We have prepared and filed this Form 10-SB on a voluntary basis to make
available reportable information about Tribeworks to existing stockholders and
others interested in the activities of Tribeworks. As used in this Registration
Statement, the terms "we," "us," "our," "Tribeworks," and the "Company" mean
Tribeworks, Inc., a Delaware corporation, and its wholly owned subsidiary.
Tribeworks, the Tribeworks logo and iShell are trademarks of our Company. Each
tradename, trademark, or service mark of any other company appearing in this
Registration Statement belongs to its holder.
The following discussion contains forward-looking statements that are
subject to risks and uncertainties. There are several important factors that
could cause actual results to differ materially from historical results and
percentages and results anticipated by the forward-looking statements. We have
sought to identify the most risks to our business but cannot predict whether or
to what extent any of such risks may be realized. There can be no assurance that
we have identified all possible risks that might arise. Investors should
carefully consider all of such risks before making an investment decision with
respect to our stock.
DESCRIPTION OF BUSINESS
HISTORY OF TRIBEWORKS, INC.
The Company was formed as a California corporation (California
Tribeworks) in August 1998 to develop an Internet-based graphics and multimedia
company. On November 2, 1999, we entered into a transaction with Pan World
Corporation, a Nevada corporation (Pan World), whereby Pan World agreed to
provide $1,000,000 of financing in connection with the merger of a newly formed
subsidiary of Pan World into California Tribeworks (the Merger). Prior to the
Merger, Pan World never had any material operations. As a result of the Merger,
shareholders of California Tribeworks exchanged all their shares in California
Tribeworks for our common stock. Subsequent to the Merger, we reincorporated in
Delaware as Tribeworks, Inc.
BUSINESS STRATEGY
We develop and distribute software tools and services that we believe
make it easier and less expensive for companies to deploy multimedia content
over the Internet.
The creation and deployment of websites and Internet content is becoming
more complicated. Internet content is changing from the simple delivery of text
and graphics to personal computers, to the more complex delivery of audio,
video, graphics, and animation content to a broad range of devices, such as
personal computers, interactive retail displays, Internet enabled telephones,
and hand held computers.
Traditional graphics and multimedia software tools companies generally
do not provide their customers with access to the underlying "source code",
which is the computer language used in writing a software program. The source
code is used to customize or modify software
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applications. In addition, traditional graphics and multimedia companies
distribute and sell their software through multiple distribution tiers.
We have developed a software application (authoring environment) that
allows a developer to create and deploy electronic content that utilizes
interactive features combining audio, video, animation, and graphics content
(Rich-Media). The Rich-Media authoring environment is used for development of
electronic content for the development of Internet TV and Internet radio
stations, video jukeboxes, MP3 players and other broadcasting applications. We
market and sell our products and services through a subscription-based model
that allows us to distribute our software directly to our customers through our
website. We have a two-tier subscription or membership structure that includes a
Free Membership and a Full Membership. Our Full Members can customize their
applications through access to the underlying source code of our software
products.
By providing our Full Members access to the source code of our software
products, these members can develop software tools that enhance the
functionality of our products. We benefit from these enhancements because our
software product continues to become a more robust authoring environment for
development of Rich-Media due to our Full Members' input as to the market needs
for such authoring tools. We benefit from the experience of our customers and
are able to share their developments with our other Full Members.
ONLINE GRAPHICS AND MULTIMEDIA INDUSTRY
The Internet has altered the way companies conduct business. In order to
benefit from the Internet, businesses need to develop an effective presence.
Rich graphics and media attract customers' attention to websites and
differentiate websites from one another. A variety of companies provide graphics
and multimedia software tools and related professional services for the online
graphics and multimedia industry (New Media Industry). The New Media Industry is
growing rapidly. The software tools and the sophistication of the related
professional services in the New Media Industry are also being developed at a
fast pace.
DISTRIBUTION STRATEGY
We distribute our software products based on a subscription model with a
Free Membership and a Full Membership. Customers register as our members at
www.tribeworks.com. Members can download software tools and access technical
support at our website. The Free Membership level allows free access to iShell,
our primary software product. iShell allows users to develop fully functional
software applications for the New Media Industry. Free Members generally consist
of students, hobbyists, and freelance developers. Free Members can upgrade their
membership to Full Membership at any time. Full Membership is held primarily by
companies and professional multimedia developers who are interested in
developing Rich-Media software applications. We charge our Full Members an
annual or monthly per seat subscription fee. Full Members have access to the
source code of our software products and receive free or discounted software
plug-ins that extend the functionality of our software products.
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MARKET OPPORTUNITY
There are broad applications for our products and services.
- Media and Entertainment - Creating Internet-based TV
stations, Internet video jukeboxes, Internet radio
stations, MP3 players, and broadcasting players.
- Advertising - Providing integrated branding campaigns.
- Corporate Communications - Creating sales presentations,
video news releases, and Internet event broadcasting.
- Education - Providing long-distance training
opportunities with interactive and engaging content.
PRODUCTS AND SERVICES
TRIBEWORKS CUSTOM SOLUTIONS
We provide high-end graphics and multimedia development and deployment
solutions to customers who need Internet multimedia applications. Our services
include custom programming and design of our Rich-Media applications. We use our
network of Full Members to develop media solutions for end-users of our
products.
SOFTWARE PRODUCTS
Our principal software products consist of iShell and iShell 2. iShell
products create Rich-Media authoring environments for development of
Internet-based TV stations, video jukeboxes, Internet radio stations, MP3 music
players, full-screen interactive sales, Internet-based marketing presentations,
and Internet-based training programs.
iShell has been released for Windows and Macintosh operating systems. It
allows functionalities to be added through development of plug-ins, video,
sound, animation, and interactivity. iShell is being distributed to our
customers on a free Internet download basis.
iShell 2 is a new version of iShell and is currently available only to
paying subscribers. With this version, end-users can create and deploy a
customized Rich-Media Internet browser for their own applications. Our members
are using our products to develop Rich-Media applications for commercial
entities such as Airbus, Apple Computer and Burger King.
TRIBEWORKS FULL MEMBERSHIP
We offer monthly or annual subscriptions to our Full Members. Full
Members receive email and telephone technical support, access to source code,
and free or discounted software plug-ins that extend the functionality of our
products, discounts on third party products, and complementary access to
customer events such as training sessions and demonstrations of new Rich-Media
applications.
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TRIBEWORKS STORE
We sell products created by our subscribers (Subscriber Products)
through our Tribeworks Store. The Subscriber Products enhance the capabilities
of our products. We receive a percentage of the revenues from sales of the
Subscriber Products sold through the Tribeworks Store.
COMPETITION
We compete in markets that are new, intensely competitive, highly
fragmented and rapidly changing. We have experienced increased competition from
current and potential competitors, many of which have greater technical,
marketing, and other resources. We expect the increased competition will
continue, and we will compete with the major graphics and multimedia software
tools companies, as well as service companies building custom Internet
multimedia applications for corporate clients. We believe that the primary
competitive factors in providing Rich-Media applications tools to Internet-based
organizations are name recognition, value-added services, ease of use, price,
quality of service, availability of customer support, reliability, technical
expertise, and experience. Our success will depend on our ability to provide
quality development tools and value-added Internet services.
The methods of competition in the industry include:
~ augmenting the ability of the software application to
function on different hardware platforms and operating
systems, such as Windows, Windows NT and Macintosh
environments;
~ providing flexibility in the degree and level of
customization of software applications;
~ increasing product functionality and system performance;
~ improving quality of product and product support;
~ reducing total cost of ownership;
~ improving sales and distribution efficiency;
~ improving brand name recognition; and
~ providing high quality professional support services.
A number of companies currently offer services or products that compete
directly and indirectly with our current products and services. These companies
include Macromedia, Adobe Systems, Meta Creations, Asymetrix, and Autodesk.
These companies market a variety of products addressing our target markets,
including software tools for authoring and delivering interactive information
targeted to computer-based training specialists and educators, as well as
multimedia professionals. They also offer graphics and publishing products for
on-line publishing as well as print-based publishing. In addition, competitors
also provide extensive product training to support their products.
Most of our current and potential competitors in the Internet services
and graphics and multimedia industries have longer operating histories, greater
name recognition and larger existing customer bases than we have. These
competitors may be able to respond faster to new or
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emerging technologies and changes in customer requirements. Accordingly, there
can be no assurance that we will be able to compete successfully in the Internet
business.
SALES AND REVENUES
We expect to generate revenues primarily from our membership program,
custom development services for businesses, and sale of our members' customized
applications from our online Tribeworks Store. We charge our Full Members an
initiation fee and a monthly or annual subscription fee. We promote membership
by providing a variety of services to our members, which include: access to
support email lists, telephone support, confidential technical help, emergency
shipping, distribution of software products created by our Full Members through
our online store, and access to support lists that contain users of our products
that may help other users in their development applications. We derive revenues
from custom development services on a fixed-fee or time and materials basis.
Through our on-line store, we sell a variety of products developed by
our Full Members. These products include software tools or plug-ins that enhance
the functionality of our iShell software product.
INTELLECTUAL PROPERTY
We rely on a combination of copyright laws, trademark laws, contract
laws, and other intellectual property protection methods to protect our
technology, including our logo and the names "Tribeworks" and "iShell" in the
United States and other countries. We believe that our trademarks and the use of
material in our website are protected under current provisions of copyright law.
However, legal rights to Internet content and commerce are not clearly settled
by law. We pursue the registration of our trademarks in the United States and
have applied for an "intent to use" trademark registration for our trademarks.
In November 1999, we entered into a software agreement (Keepsake
Software Agreement) with Keepsake SPRL (Keepsake) and Gilbert Amar (one of our
co-founders and a director) pursuant to which we acquired the right, title, and
interest to iShell, our lead product. Mr. Patrick Soquet (one of our co-founders
and a director) performs software development services for us through Keepsake,
a Belgian entity wholly owned by him. The Keepsake Software Agreement provides
that, in the event we commence any action relating to an insolvency event, we
will grant a royalty-free license of transferred intellectual property and any
derivative works to Keepsake.
EMPLOYEES
As of March 31, 2000 we had a total of 12 full time employees and four
consultants working on a part-time basis.
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PROPERTY
In February 2000, we entered into a lease for 9,000 square feet premises
in San Francisco, California. The lease extends through February 2005. We
believe that these premises will be suitable for our use during the term of the
lease.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
The following discussion contains forward-looking statements that are
subject to risks and uncertainties. There are several important factors that
could cause actual results to differ materially from historical results and
percentages and results anticipated by the forward-looking statements. We have
sought to identify the most risks to our business but cannot predict whether or
to what extent any of such risks may be realized. There can be no assurance that
we have identified all possible risks that might arise. Investors should
carefully consider all of such risks before making an investment decision with
respect to the Company's stock.
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: THREE MONTHS ENDED MARCH 31, 2000 AND 1999
REVENUES
We recorded revenues of $164,863 and $16,432 for the three months ended
March 31, 2000 and 1999, respectively. The increase in revenues is the result of
additions to our sales staff and the launching of our custom solutions services.
NET LOSS
We had a net loss of $296,811 and $97,712 for the three months ended
March 31, 2000 and 1999, respectively. The increase in the net loss is the
result of increases in general and administrative expenses associated with the
Merger and sales and marketing expenses associated with the iShell product
launch.
PRODUCT DEVELOPMENT AND SUPPORT
Product development and support expenses were $130,561 and $59,664 for
the three months ended March 31, 2000 and 1999, respectively. The increase was
due primarily to increases in product development and support personnel.
SALES AND MARKETING
Sales and marketing expenses were $158,760 and $19,072 for the three
months ended March 31, 2000 and 1999, respectively. The increase was due
primarily to increases in sales and marketing personnel.
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GENERAL AND ADMINISTRATIVE
General and administrative expenses were $159,643 and $31,856 for the
three months ended March 31, 2000 and 1999, respectively. The increase was due
primarily to an increase in the number of general and administrative personnel
and increased legal and accounting costs.
RESULTS OF OPERATIONS: FISCAL YEARS ENDED DECEMBER 31, 1999 AND 1998
REVENUES
We recorded revenues of $199,198 and $5,562 for the years ended December
31, 1999 and 1998, respectively. The increase in revenues is the result of
increases in our sales staff and the launching of our custom solutions services.
In addition, our year ended December 31, 1998 reflects revenues for less than
four months, from date of our incorporation on August 20, 1998 through December
31, 1998.
NET LOSS
We had a net loss of $1,091,075 and $60,553 for the years ended December
31, 1999 and 1998, respectively. The increase in the net loss is the result of
general and administrative expenses associated with the Merger and sales and
marketing expenses associated with the iShell product launch.
PRODUCT DEVELOPMENT AND SUPPORT
Product development and support expenses were $352,059 and $7,569 for
the years ended December 31, 1999 and 1998, respectively. The increase was due
primarily to increases in product development and support personnel.
SALES AND MARKETING
Sales and marketing expenses were $307,083 and $3,980 for the years
ended December 31, 1999 and 1998, respectively. The increase was due primarily
to increases in sales and marketing personnel.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $564,011 and $54,566 for the
years ended December 31, 1999 and 1998, respectively. The increase was due
primarily to an increase in the number of general and administrative expenses
and increased legal and accounting costs.
LIQUIDITY AND CAPITAL RESOURCES
From inception to March 31, 2000, we incurred net losses resulting in an
accumulated deficit of $1,448,439. For the years ended December 31, 1999 and
1998, respectively, we incurred net losses resulting in an accumulated deficit
of $1,151,628 and $60,553, respectively.
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We have financed our operations primarily through private sales of our
equity securities and the Merger aggregating proceeds from inception to March
31, 2000 to $1,839,000. We financed our operations through private sales of our
equity securities aggregating net proceeds of $1,036,000 and $28,000 for the
years ended December 31, 1999 and 1998, respectively. The increase of $1,000,000
in 1999 was due to the Merger. The increase of $775,000 in our cash in 2000 was
due to our additional financing activities.
Cash and cash equivalents at March 31, 2000 totaled $407,657. Cash and
cash equivalents totaled $157,353 and $37,723 for the years ended December 31,
1999 and 1998, respectively. The increase of $250,304 from December 31, 1999 to
March 31, 2000 was due to our additional financing activities, partially offset
by net losses. The increase of $119,630 from 1998 to 1999 was due to the
financing resulting from the Merger, partially offset by net losses.
Cash flows used in operating activities were $464,179 for the quarter
ended March 31, 2000. Cash flows used in operating activities were $807,149 and
$27,008 for the years ended December 31, 1999 and 1998, respectively. The
increases in cash expenditures resulted primarily from our product launch
expenses.
Capital expenditures for property and equipment were $15,367 for the
quarter ended March 31, 2000. We had capital expenditures for property and
equipment of $8,830 and $0 for the years ended December 31, 1999 and December
31, 1998, respectively.
Duncan Kennedy, Gilbert Amar and Patrick Soquet, cofounders of
California Tribeworks and directors of our Company, loaned $18,787 to California
Tribeworks at inception to fund initial operations. The loan is payable on
demand, without interest. We intend to repay these loans when demand is made.
We do not expect to generate net earnings from our operations within the
next twelve months. Therefore, if we are not able to obtain necessary financing
and if cash is not collected from anticipates sales of our common stock under
our subscription agreements which would generate gross proceed to the Company in
the amount of $1,225,000, we will not be able to maintain operations beyond
September 2000.
Our capital requirements depend on numerous factors, including market
acceptance of our products, resources we devote to developing, marketing,
selling and supporting our products, timing of our operations, extent and timing
of investments, potential acquisition of other concerns, and other factors. We
expect to devote substantial capital resources to hire and expand our sales,
support, marketing and product development organizations, to expand marketing
programs, and for other general corporate activities.
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FACTORS THAT MAY AFFECT FUTURE RESULTS
AND MARKET PRICE OF STOCK
WE HAVE A LIMITED OPERATING HISTORY AND THERE IS A GREAT DEGREE OF UNCERTAINTY
AS TO OUR FUTURE RESULTS. WE HAVE NEVER BEEN PROFITABLE AND MAY NEVER ACHIEVE
PROFITABILITY.
We have a limited operating history upon which an evaluation of our
business and prospects can be based. We have never been profitable and may never
achieve profitability. Our prospects must be evaluated with a view to the risks
encountered by a company in an early stage of development, particularly in light
of the uncertainties relating to the new and evolving markets in which we intend
to operate and in light of the uncertainty as to market acceptance of our
business model. We will be incurring costs in marketing our products and
services to clients and in building an administrative organization. To the
extent that revenues do not match these expenses, our business, results of
operations and financial conditions will be materially adversely affected. There
can be no assurance that we will be able to generate sufficient revenues from
the Full Memberships, custom development solutions, and third party products to
achieve or maintain profitability on a quarterly or annual basis in the future.
Even if we are able to achieve profitability in any period, we may not be able
to sustain or increase profitability on a quarterly or annual basis.
WE EXPECT TO INCUR OPERATING LOSSES FOR THE FORESEEABLE FUTURE AS WE CONTINUE TO
DEVELOP AND MARKET OUR BUSINESS.
We have incurred operating losses each year since our inception. We
expect to continue to incur losses for the foreseeable future as we increase our
sales and marketing, research and development and administrative expenses. As a
result, we cannot be certain when or if we will achieve sustained profitability.
Failure to become and remain profitable may adversely affect the market price of
our common stock and our ability to raise capital and continue operations.
We expect high variability and uncertainty as to our future operations
and financial results. As we continue to develop and market our business, our
quarterly operating results may fluctuate as a result of a variety of factors.
Many of these factors are outside our control, including demand for the
development of Internet-based Rich-Media applications, the introduction of new
sites and services by our competitors, price competition or pricing changes in
the industry, technical difficulties or system downtime, general economic
conditions, and economic conditions specific to the Internet and related media.
Due to these factors, among others, our operating results may fall below our
expectations and the expectations of investors.
WE ANTICIPATE THAT WE HAVE SUFFICIENT FUNDS TO ENABLE US TO MAINTAIN OUR
OPERATIONS ONLY THROUGH SEPTEMBER 2000. WE WILL NEED ADDITIONAL FUNDS TO
MAINTAIN OUR SHORT TERM OPERATIONS. WE CANNOT ASSURE YOU THAT FUNDS WILL BE
AVAILABLE TO US OR AVAILABLE ON COMMERCIALLY REASONABLE TERMS.
Based on current levels of operations and assuming cash is not collected
from $1,225,000 of gross proceeds from sale of our common stock under our
subscription agreements, we anticipate that our existing capital resources will
be sufficient to enable us to maintain our operations only through September
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2000. In addition, we will require additional funds to sustain and expand our
sales and marketing and research and development activities. Adequate funds for
these and other purposes, whether through additional equity financing, debt
financing or other sources, may not be available when needed or available on
commercially reasonable terms acceptable to us, or may result in dilution to
existing stockholders. The inability to obtain sufficient funds from operations
and external sources would have a material adverse effect on our business,
results of operations and financial condition.
THE OPEN SOURCE AND FREE SOFTWARE BUSINESS MODELS ARE UNPROVEN IN THE GRAPHICS
AND MULTIMEDIA INDUSTRY, AND WE MAY FAIL TO ACHIEVE MARKET ACCEPTANCE.
We have not demonstrated the success of our business model, which gives
our customers the right to freely use and modify our software. No other company
has built a successful business following such a model, and few open source
software products have gained widespread commercial acceptance. This is partly
due to the lack of viable open source industry participants to offer adequate
service and support on a long-term basis. In addition, we are not able to
provide industry standard warranties and indemnities for our products.
Independent parties over whom we exercise no control or supervision develop
components of these products. If open source software should fail to gain
widespread commercial acceptance, we will not be able to sustain our revenue
growth and our business could fail. We cannot assure that we will be able to
achieve market acceptance.
A SUBSTANTIAL PORTION OF OUR REVENUES DEPENDS ON OUR ABILITY TO ATTRACT FULL
MEMBERS WHO WILL PAY A MONTHLY OR ANNUAL FEE. ATTRACTING FEE-GENERATING FULL
MEMBERS OR CONVERTING OUR FREE MEMBERS TO FULL MEMBERS MAY BE A DIFFICULT AND
TIME-CONSUMING PROCESS, THE SUCCESS OF WHICH CANNOT BE GUARANTEED.
We have a two-tiered subscription structure. Only Full Members pay fees.
The Free Members are not paying for their usage of our service and are not
obligated to convert to Full Member status. We cannot assure that we will be
able to attract sufficient numbers of Full Members or convert Free Members to
achieve profitability. If we are unable to attract Full Members or convert Free
Members, our business and financial operations could be materially adversely
affected.
OUR PRODUCTS AND SERVICES MAY NOT BE ACCEPTED BY THE INDUSTRIES THAT USE
RICH-MEDIA APPLICATIONS.
Our future success depends on our ability to create, license, and
deliver sophisticated tools for the development of Rich-Media applications in
the (i) media and entertainment industries, (ii) advertising industry, (iii)
corporate communications industry, and (iv) educational industry. If our
products and related services are not widely accepted, our ability to sell
custom solutions and increase the Tribeworks memberships will be hampered. There
can be no assurance that our products and tools will be attractive to a
sufficient number of users to generate revenues. If we are unable to evolve our
present products and to develop new products that allow us to attract, retain,
and expand a loyal membership base, our business, results of operations and
financial condition will be materially adversely affected.
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THE RICH-MEDIA MARKET IS INTENSELY COMPETITIVE. WE CANNOT ASSURE YOU THAT WE
WILL BE ABLE TO ACHIEVE MARKET ACCEPTANCE.
The Rich-Media market is intensely competitive. We expect the
competition to increase as new competitors enter the market. Our competitors may
have greater technical, marketing, and other resources. We believe that the
primary competitive factors in providing Rich-Media applications tools to
Internet-based organizations are name recognition, value-added services, ease of
use, price, quality of service, availability of customer support, reliability,
technical expertise, and experience. To the extent that we are not able to
attract sources of revenues from Full Members, custom development services, and
sales of our products, our business, results of operations, and financial
condition will be materially adversely affected.
A number of companies currently offer services or products that compete
directly or indirectly with our current products and service offerings. These
companies include Macromedia, Adobe Systems, Meta Creations, Asymetrix, and
Autodesk. These companies market a variety of products addressing our target
markets, including software tools for authoring and delivering interactive
information targeted to computer-based training specialists and educators, as
well as multimedia professionals. They also offer graphics and publishing
products for on-line and print-based publishing. In addition, competitors also
provide extensive product training to support their products. If we are unable
to introduce competitive products with competitive training and consulting
services, our business, results of operations, and financial condition will be
materially adversely affected.
Most of our current and potential competitors in the Internet services
and graphics and multimedia industries have longer operating histories, greater
name recognition and larger existing customer base than us. These competitors
may be able to respond faster to new or emerging technologies and changes in
customer requirements. Because of their greater resources, they will be able to
make more responsive changes to market conditions. Accordingly, there can be no
assurance that we will be able to compete successfully in the Internet business.
THE LINUX OPEN SOURCE COMMUNITY OR THE TRIBEWORKS DEVELOPER COMMUNITY MAY REACT
NEGATIVELY TO OUR SOFTWARE AND BUSINESS STRATEGY, WHICH COULD MATERIALLY HARM
OUR REPUTATION AND BUSINESS.
Although we allow customers access to the underlying source code of our
software products, we believe that many of our customers do not wish to license
product enhancements to us or to potential customers. One of the most important
characteristics of Linux is that it has developed an open source system. We do
not follow a strict open source model with respect to our software. In
particular, we allow proprietary product enhancement, we limit the
redistribution of our software, and we do not make our products available under
a General Public License, which is available on www.opensource.org. These
restrictions on our software run counter to current trends in the Linux open
source community, which advocates unlimited distribution of software and the use
of General Public Licenses. The Linux open source community is a diverse group
of
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software developers, and companies that have advocated the use of Linux, an
alternative operating system to Microsoft's Windows.
The approach we take towards our software, which allows proprietary
product enhancements, and our decision to forego use of General Public Licenses
may result in a negative reaction from the Linux-based open source community.
This type of negative reaction, if widely shared by our customers, developers or
the rest of the open source community, could harm our reputation, diminish the
Tribeworks brand and result in substantially decreased revenue.
In addition, the Tribeworks developer community, which contributes
software, testing, and technical support to other members, could react
negatively to our current or future business strategy. A negative reaction by
our community could have a negative effect on the willingness of our members and
contributors to share their improvements to our software. We would then have to
develop our own improvements without the benefit of the potentially valuable
contributions of third parties. As a result, we would incur higher development
costs and our business and revenues could be adversely affected.
OUR SOFTWARE DEPENDS ON APPLE'S QUICKTIME TECHNOLOGY TO FUNCTION PROPERLY. WE
CANNOT ASSURE YOU THAT APPLE WILL CONTINUE TO DEVELOP THE QUICKTIME TECHNOLOGY
OR DISTRIBUTE IT FREE OF CHARGE.
Our iShell product line currently requires installation of Apple
Computer's QuickTime software in order to function properly on both Windows and
Macintosh systems. Apple's QuickTime technology competes directly with
Rich-Media technologies from Microsoft and Real Networks, which our technology
does not support. We have no control over whether, and cannot assure that,
Apple's QuickTime will maintain or enlarge its current market share against
these competitive technologies. In addition, although Apple's QuickTime
technology has been under development for more than eight years, we cannot
assure that Apple will continue to develop the technology or distribute it free
of charge to consumers. Apple may also substantially alter its business or
licensing strategy with QuickTime in a way that could adversely impact our
business, resulting in increases in our development costs.
WE CANNOT ASSURE YOU THAT THE MARKET WILL ACCEPT THE INTERNET AS A VEHICLE FOR
RICH-MEDIA APPLICATIONS.
Use of the Internet-based Rich-Media by individuals and business users
is at an early stage of development. Market acceptance of the Internet as a
medium for Rich-Media applications, information, entertainment, commerce,
advertising, and education is subject to a high level of uncertainty. We depend
on the Internet to market our Rich-Medial products. Our ability to succeed will
depend, in part, in the development of Internet infrastructure to support
delivery of Rich-Media content. If Internet-based Rich-Media applications are
not widely accepted by consumers or businesses, or appropriate Internet
infrastructure does not become available, our business, financial condition, and
operating results will be materially adversely affected.
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WE CANNOT BE CERTAIN THAT WE WILL BE ABLE TO ESTABLISH AND MAINTAIN THE
TRIBEWORKS BRAND, WHICH IS CRITICAL TO OUR EFFORTS TO ATTRACT AND EXPAND OUR
MARKET.
We believe that establishing and maintaining the Tribeworks brand is a
critical aspect of our efforts to attract and expand our Internet audience. The
importance of brand recognition will increase due to the growing number of
Internet sites and the relatively low barriers to entry in providing Internet
services, tools, products, and content. If we fail to promote and maintain our
brand, or if we incur excessive expenses in an attempt to promote and maintain
our brand, our business, financial condition and operating results will be
materially adversely affected.
OUR SUCCESS DEPENDS ON OUR ABILITY TO ADDRESS POTENTIAL MARKET OPPORTUNITIES
WHILE MANAGING OUR EXPENSES. IF WE ARE UNABLE TO MANAGE OUR EXPENSES, OUR
BUSINESS AND FINANCIAL CONDITIONS WILL BE MATERIALLY ADVERSELY AFFECTED.
Our future success depends upon our ability to address market
opportunities while managing our expenses to match our ability to finance our
operations. Our need to manage expenses will place a strain on our management
and operational resources. If we are unable to manage our expenses effectively,
our business, financial condition, and operating results will be materially
adversely affected.
OUR SUCCESS DEPENDS ON OUR KEY PERSONNEL AND THE CONSULTING SERVICES PROVIDED BY
KEEPSAKE. WE MAY BE UNABLE TO ATTRACT AND RETAIN QUALIFIED EMPLOYEES AND MAY NOT
BE ABLE TO RETAIN THE SERVICES OF KEEPSAKE AFTER THE EXPIRATION OF THE KEEPSAKE
SOFTWARE AGREEMENT.
Our performance and success substantially depends on the services of
Duncan Kennedy, our President and CEO, and Gilbert Amar, our CTO, as well as on
our ability to recruit, retain and motivate our other officers and key
employees.
We do not currently have employment contracts with key officers or
employees, and they could terminate their relationship with us. Our success also
depends on our ability to attract and retain additional qualified employees in
the San Francisco Bay Area. Competition for qualified personnel in the San
Francisco Bay Area is intense and there are a limited number of persons with
knowledge of and experience in our field of business. There can be no assurance
that we will be able to attract and retain key personnel. The loss of one or
more key employees or of our key service providers could have a material adverse
effect on the Company.
In addition, Mr. Soquet (one of our co-founders and a director) performs
software development services for us through Keepsake, the Belgian entity owned
by him. Pursuant to the Keepsake Software Agreement, Keepsake agreed to provide
necessary services to us through November 2000. In the event that we are unable
to retain Mr. Soquet's services after termination of the Keepsake Software
Agreement, our business and financial condition could be materially and
adversely affected.
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<PAGE> 15
OUR SUCCESS DEPENDS ON OUR ABILITY TO DEVELOP SERVICES THAT MEET OUR CUSTOMERS'
REQUIREMENTS. WE MAY NOT BE ABLE TO MEET THOSE REQUIREMENTS IF WE ARE UNABLE TO
KEEP PACE WITH TECHNOLOGY TRENDS AND THE EVOLVING RICH-MEDIA INDUSTRY STANDARDS.
Our success depends on our ability to develop and provide new services
that meet our customers' changing requirements. The Internet is characterized by
rapidly changing technology, evolving industry standards, changes in customer
needs and frequent new service and product innovations. Our future success will
depend, in part, on our ability to assess and effectively use unproven
technologies and unproven standards. We must evaluate and utilize technical
standards developed by industry committees. We must also evaluate and use
proprietary multimedia development software provided by companies such as Apple,
Microsoft, and Real Networks to continue to develop our technological expertise,
enhance our current services, develop new services that meet changing customer
needs, and influence and respond to merging industry standards and other
technological changes on a timely and cost-effective basis. If we fail to
adequately assess or utilize these standards or proprietary technologies at the
appropriate time in the market place, the competitive advantages of our products
and services and our business, financial condition, and operating results could
be materially adversely affected.
WE ARE ENTIRELY DEPENDENT ON THE INTERNET WHICH REMAINS AN UNCERTAIN MEDIUM FOR
COMMERCE.
Use of the Internet by consumers is at an early stage of development,
and market acceptance of the Internet as a medium for commerce is subject to
uncertainty. Our future success will depend on our ability to increase revenues,
which will require the development and widespread acceptance of the Internet as
a medium for commerce. There can be no assurance that the Internet will be a
successful commercial channel. The Internet may not prove to be a viable
commercial marketplace because of inadequate development of the necessary
infrastructure, such as reliable network for delivery of content, or
complementary services, such as high-speed modems and security procedures for
financial transactions. The viability of the Internet may prove uncertain due to
delays in the development and adoption of new standards and protocols to handle
increased levels of Internet activity or due to increased government regulation.
If use of the Internet does not continue to grow, or if the necessary Internet
infrastructure or complementary services are not developed to effectively
support growth that may occur, our business, results of operations and financial
condition could be materially adversely affected.
INCREASING GOVERNMENTAL REGULATION ON ELECTRONIC COMMERCE AND LEGAL
UNCERTAINTIES COULD LIMIT OUR GROWTH.
The adoption of new laws or the adaptation of existing laws to the
Internet may decrease the growth in the use of the Internet, which could in turn
decrease the demand for our services, increase our cost of doing business or
otherwise harm our business. Federal, state, local and foreign governments are
considering a number of legislative and regulatory proposals relating to
Internet commerce. As a result, a number of laws or regulations may be adopted
regarding Internet user privacy, security, taxation, pricing, quality of
products and services, and intellectual property ownership, which may also be
applicable to us. How existing laws will be applied to the
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<PAGE> 16
Internet, in areas such as property ownership, copyrights, trademarks, trade
secrets, and obscene or indecent communications, is uncertain.
CAPACITY CONSTRAINTS AND SYSTEM DISRUPTIONS COULD SUBSTANTIALLY REDUCE THE
PRODUCTS WE SELL AND UNDERMINE OUR REPUTATION FOR RELIABILITY AMONG OUR
CUSTOMERS AND POTENTIAL CUSTOMERS.
The satisfactory performance, reliability and availability of our
Internet sites and our network infrastructure are critical to attracting
Internet users and maintaining relationships with subscribing customers. System
interruptions that result in the unavailability of our Internet sites and slower
response times for users could reduce the number of products and multi-media
services we deliver and reduce the attractiveness of our services to members and
subscribers. Any disruption of our services would materially adversely affect
our business, financial condition and results of operations.
OUR INTERNET OPERATIONS ARE LOCATED IN A SINGLE FACILITY, WHICH IS LOCATED IN
THE SAN FRANCISCO BAY AREA IN CALIFORNIA. A NATURAL DISASTER IS POSSIBLE AND
COULD RESULT IN PROLONGED INTERRUPTION OF OUR BUSINESS.
Our Internet operations are located in our San Francisco, California
facility. San Francisco is a seismically active area. With our operations
centralized in a single facility, a natural disaster, such as an earthquake,
fire, or flood, could substantially disrupt our manufacturing operations or
destroy our facilities. This could cause delays and cause us to incur additional
expenses and adversely affect our reputation with our customers. In addition,
since the real estate market in the San Francisco Bay Area is extremely
competitive and is likely to remain competitive, an alternative facility may not
be available on commercially reasonable terms if we suffer a catastrophic loss
from a natural disaster.
WE ARE SUSCEPTIBLE TO PARTIES WHO MAY COMPROMISE OUR SECURITY MEASURES, WHICH
COULD CAUSE US TO EXPEND CAPITAL AND MATERIALLY ADVERSELY AFFECT OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Hackers may be able to circumvent our security measures and could
misappropriate proprietary information or cause interruptions in our Internet
operations. In the past, computer viruses or software programs that disable or
impair computers have been distributed and have rapidly spread over the
Internet. Computer viruses could be introduced into our systems or those of our
users, which could disrupt our network or make our systems inaccessible to
users. Any of these events could damage our reputation among our customers and
potential customers and substantially harm our business. We may be required to
expend capital and resources to protect against the threat of security breaches
or to alleviate problems caused by these breaches. Consumer concern over
Internet security has been, and could continue to be, a barrier to commercial
activities requiring consumers to send their credit card information over the
Internet. Computer viruses, break-ins, or other security problems could lead to
misappropriation of proprietary information and interruptions, delays or
cessation in service to our customers. Moreover, until more comprehensive
security technologies are developed, the security and
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<PAGE> 17
privacy concerns of existing and potential customers may inhibit the growth of
the Internet as a merchandising medium.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, OR WE MAY INFRINGE
THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WHICH MAY RESULT IN LAWSUITS AND
PREVENT US FROM SELLING OUR PRODUCTS.
We rely on copyright and trade secret laws to protect our trademarks,
content, and proprietary technologies and information. However, there can be no
assurance that such laws will provide sufficient protection to us, other parties
will not develop technologies that are similar or superior to ours, or, given
the availability of our products' source-code, other parties will not copy or
otherwise obtain and use our content or technologies without authorization.
There are no pending lawsuits against us regarding infringement of any
existing patents or other intellectual property rights or any material notices
that we are infringing the intellectual property rights of others. However,
there can be no assurance that third parties will not assert infringement claims
in the future. If any claims are asserted and determined to be valid, there can
be no assurance that we will be able to obtain licenses of the intellectual
property rights in question or obtain licenses on commercially reasonable terms.
Our involvement in any patent dispute or other intellectual property dispute or
action to protect proprietary rights may have a material adverse effect on our
business, operating results, and financial condition. Adverse determinations in
any litigation may subject us to liabilities, require us to seek licenses from
third parties, and prevent us from marketing and selling our products. Any of
these situations can have a material adverse effect on our business, operating
results, and financial condition.
Effective trademark, copyright, and other intellectual property
protection may not be available in every country in which our technology is
distributed or made available through the Internet. There can be no assurance
that our means of protecting our proprietary rights in the United States or
abroad will be adequate or that competitors will not independently develop
similar technology.
OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO ATTRACT CUSTOMERS FROM OUTSIDE THE
UNITED STATES. JURISDICTIONS OUTSIDE THE UNITED STATES MAY IMPOSE TAX AND
REGULATORY BURDENS ON OUR BUSINESS, WHICH COULD HAVE A MATERIAL ADVERSE AFFECT
ON OUR BUSINESS, FINANCIAL CONDITION, AND RESULTS OF OPERATIONS.
Our future success will be affected by our ability to attract customers
and subscribe members from countries outside the United States. We believe that
the growth of the Internet in foreign countries will outpace growth of the
Internet in the United States in the next decade. Because our products advance
development of Rich-Media content, we expect to derive revenues from Canada and
Western Europe. Foreign countries could impose withholding taxes or otherwise
tax our foreign income, impose tariffs, embargoes or exchange controls, or adopt
other restrictions on foreign trade or restrictions relating to use or access of
or distribution of software through electronic means. The laws of certain
countries also do not protect our intellectual property rights to the same
extent as the laws of the United States. In addition, we are subject to the
United States export control regulations that may restrict our ability to market
and sell our
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<PAGE> 18
products to certain countries outside of the United States. Failure in
successfully marketing our products in international markets could have a
material adverse effect on our business, operating results and financial
conditions.
WE EXPECT QUARTERLY REVENUE AND OPERATING RESULTS TO VARY IN FUTURE PERIODS,
WHICH COULD CAUSE OUR STOCK PRICE TO FLUCTUATE.
Our limited operating results have varied widely in the past, and we
expect they will continue to vary from quarter to quarter as we attempt to
commercialize our product. Our quarterly results may fluctuate for many reasons,
including:
- limited operating history,
- dependence on Full Membership fees to provide future
revenue, and
- lack of experience in commercializing products for
e-commerce.
As a result of these fluctuations and uncertainties in our operating results, we
believe quarter-to-quarter or annual comparisons of our operating results are
not a good indication of our future performance. In addition, at some point in
the future, these fluctuations may likely cause us to perform below the
expectations of public market analysts or investors. If our results fall below
market expectations, the price of our common stock will be adversely affected.
OUR STOCK PRICE IS VOLATILE AND, AS A RESULT, YOU COULD LOSE SOME OR ALL OF YOUR
MONEY.
We believe that various factors may cause the market price of our common
stock to fluctuate, including announcements of:
- new products by us or our competitors;
- developments or disputes concerning intellectual
property proprietary rights;
- our failing to achieve our operational milestones; and
- changes in our financial conditions or securities
analysts' recommendations.
The stock markets, in general, and the shares of Internet companies, in
particular, have experienced extreme price fluctuations. These broad market and
industry fluctuations may cause the market price of our common stock to decline.
In addition, the low trading volume of our stock will accentuate price swings of
our stock.
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<PAGE> 19
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of our common stock at March 31, 2000, by (i) each of our directors
and named executive officers; (ii) all of our directors and executive officers
as a group, and (iii) each person or group known to us to own beneficially more
than 5% of the outstanding common stock.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER(1) OWNERSHIP CLASS
- ------------------- --------- -----
<S> <C> <C>
Duncan J. Kennedy 1,632,760(2) 9.90%
Patrick Soquet 2,465,856(3) 14.87
Gilbert Amar 2,505,250(4) 15.07
Steven Bennet 154,537(5) 0.94
Thomas J.L. Williams 300,000(6) 1.83
All Directors and Officers
As a Group (5 persons) 7,058,403 41.49
Daniel Hodges 2,002,000(7) 12.21
</TABLE>
(1) Unless otherwise noted, the address of each of the named directors and
officers individuals is: c/o Tribeworks, Inc., 988 Market Street, 8th
Floor, San Francisco, CA 94102.
(2) Includes 90,000 shares issuable upon the exercise of options that are
immediately exercisable.
(3) All of the shares are owned of record by Keepsake, a Belgian entity
owned by Mr. Soquet. Includes Warrants to purchase up to 181,818 shares
of common stock at any time prior to November 2, 2004.
(4) Includes Warrants to purchase up to 121,212 shares of common stock at
any time prior to November 2, 2004 and 100,000 shares issuable upon the
exercise of options that are immediately exercisable.
(5) Includes 22,000 shares issuable upon the exercise of options that will
be exercisable after June 30, 2000. It also includes 100,000 shares
issuable upon the exercise of options within 60 days of March 31, 2000,
which may not vest in optionee due to the performance milestones stated
in the terms of the options.
(6) All of the shares are owned by Talisman Venture Partners Ltd., of which
Mr. Williams is a principal and Managing Director. Mr. Williams's
address is #51-1101 Nicola Street, Vancouver, B.C., CANADA, V6G 2E3.
(7) Mr. Hodges's address is 505 N. Indian Trail, Tucson, AZ 85759.
DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS
The following table sets forth the name, age and positions of our
directors, officers, executive officers and key employees.
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<PAGE> 20
<TABLE>
<CAPTION>
OFFICER
NAME AGE DIRECTOR OR POSITION SINCE
- ---- --- -------------------- -----
<S> <C> <C> <C>
Duncan J. Kennedy 35 President, Chief Executive Officer 1998
and Director
Steven Bennet 37 Chief Financial Officer 1999
Gilbert Amar 43 Chief Technology Officer and Director 1998
Patrick Soquet 38 Director 1998
Thomas J.L. Williams 21 Director 1999
</TABLE>
DUNCAN KENNEDY, President, Chief Executive Officer, and Director. Mr.
Kennedy is a co-founder of Tribeworks and has served as President, Chief
Executive Officer and Director since our inception in August 1998. From December
1997 to July 1998, Mr. Kennedy served as Senior Vice President of business
development at Mjuice.com, a distributor of syndicated digital music. From March
1997 to November 1997, Mr. Kennedy was Senior Vice President, Business
Development at MYCD, a distributor of digital music. From January 1990 to
February 1997, Mr. Kennedy worked at Apple Computer, Inc. where he held various
positions, the most recent of which was Senior Manager Mr. Kennedy holds a B.S.
from the University of British Columbia.
STEVEN BENNET, Chief Financial Officer. Mr. Bennet has served as our CFO
since April 1999 on a part-time basis. Since January 1994, Mr. Bennet has been
the principal of Bodega Partners, a financial consulting firm in Palo Alto,
California. He holds a B.S. in Economics from the Wharton School of Business,
University of Pennsylvania, and an MBA from the University of California, Los
Angeles.
GILBERT AMAR, Chief Technical Officer and Director. Mr. Amar is a
co-founder of Tribeworks and has served as Director since our inception in
August 1998, and has served as our CTO since August 1999. From March 1991 to
July 1998, Mr. Amar was Senior Engineer at Arborescence. Mr. Amar holds an M.S.
in electrical engineering from the University of Paris, D'Orsay in France.
PATRICK SOQUET, Director. Mr. Soquet is a co-founder of Tribeworks and
has served as Director since our inception in August 1998. From February 1998
through July 1998, Mr. Soquet was self-employed as a software developer. From
January 1990 to January 1998, Mr. Soquet served as consultant to Arborescence, a
French software development company, and Havas Interactive, a European software
company. Mr. Soquet holds a Masters Degree from the ENSAV de La Cambre in
Belgium.
THOMAS J.L. WILLIAMS, Director. Mr. Williams has served as a director of
Tribeworks since November 1999. Since December 1998, Mr. Williams has been a
principal and Managing Director of Talisman Venture Partners, Ltd., a technology
consulting firm. From April 1997 to May 1998, Mr. Williams was at Whalen
Beliveau & Associates, a Canadian Investment Banking Firm. From December 1996 to
March 1997, Mr. Williams was at Maple Leaf Financial Corp., a Canadian
Investment Banking Firm. From January 1996 to August 1996 Mr. Williams was at
MultiActive Software.
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<PAGE> 21
DIRECTOR COMPENSATION
Our Directors currently do not receive any cash compensation for their
services as members of the board of directors, although members are reimbursed
for expenses in connection with attendance at board of directors and committee
meetings. Directors are eligible to participate as optionees under our 1999
Stock Option Plan (1999 Plan).
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation of our executive officers. No other current executive officer has
received or is expected to receive annual salary and bonus in excess of $100,000
for our 1999 fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
AWARDS
SECURITIES
ANNUAL UNDERLYING ALL
NAME AND PRINCIPAL COMPENSATION OPTIONS OTHER
POSITION YEAR SALARY (#) COMPENSATION
- -------- ---- ------ --- ------------
<S> <C> <C> <C> <C>
Duncan Kennedy, 1999 101,750 100,000 --
President, Chief
Executive Officer and
Director
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning grants of stock
options to each of the executive officers named in the compensation table above
during fiscal year 1999. All options granted to these executive officers in the
last fiscal year were granted under our 1999 Plan. The percent of the total
options set forth below is based on an aggregate of 1,186,800 options granted to
employees during fiscal 1999. All options were granted at a fair market value as
determined by our Board of Directors on the date of grant.
21
<PAGE> 22
<TABLE>
<CAPTION>
% OF TOTAL
OPTIONS
NUMBER OF GRANTED TO
SECURITIES EMPLOYEES EXERCISE
NAME AND PRINCIPAL UNDERLYING IN FISCAL PRICE EXPIRATION
POSITION OPTIONS YEAR ($/SH) DATE
- -------- ------- ---- ------ ----
<S> <C> <C> <C> <C>
Duncan Kennedy, 100,000(1) 8.43 0.06 3/30/09
Director and
Chief Executive
Officer
</TABLE>
- ----------
(1) These options were fully vested at March 31, 2000.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR END OPTION VALUES
The following table sets forth information concerning option exercises
in fiscal 1999 and exercisable and unexercisable stock options held by the
executive officers named in the summary compensation table at March 31, 2000.
The value of unexercised in-the-money options is based on a value of $1.75 per
share, the fair market value of our common stock as of March 31, 2000, as
determined by our board of directors minus the actual per share exercise prices,
multiplied by the number of shares underlying the option. All options were
granted under the 1999 Plan.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE OPTIONS AT F-Y END
NAME AND PRINCIPAL ON REALIZED F-Y END ($)
POSITION EXERCISE ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------- -------- ------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Duncan Kennedy, 10,000 16,900 90,000 -- 152,100 --
President, Chief
Executive Officer and
Director
</TABLE>
- ----------
(1) Represents the difference between (a) the exercise price and (b)
the fair market value of the common stock on the date of
exercise. The fair market value of the common stock as of
December 31, 1999 was $1.75 per share as determined by the Board
of Directors.
CONSULTING ARRANGEMENTS
In November 1999, we entered into the Keepsake Software Agreement. Under
that agreement, Keepsake agreed to assist Tribeworks in the development of the
Company's software for a period of 12 months. Keepsake receives $9,000 per month
of compensation for services rendered under the agreement.
In April 1999, we entered into a Consulting Agreement with Steven Bennet
pursuant to which he agreed to join us as our Chief Financial Officer. Pursuant
to that agreement, Mr. Bennet received $2,500 per month for services rendered
during the term of the Agreement and options to purchase 20,000 shares of our
common stock at an exercise price of $0.05 per share. The options vested at a
rate of 5,000 shares per month. Starting October 1, 1999, Mr. Bennet's cash
22
<PAGE> 23
compensation for services rendered was increased to $3,750 per month. Either
party may terminate the agreement upon 30 days' prior notice. Under a separate
agreement, in October 1999, Mr. Bennet was granted options to purchase 118,000
shares of our common stock at an exercise price of $0.75 per share, 18,000 of
which vest monthly over a nine month period, 50,000 of which vest in him if the
Company books $400,000 in revenue in any three consecutive months for the period
October 1, 1999 through June 30, 2000, and 50,000 of which will vest in him upon
the Company's raising $3,000,000 of funds pursuant to financing transactions
after the closing of the Merger.
In August 1999, we entered into a Consulting Agreement with Talisman
Venture Partners Ltd. Thomas Williams (one of our directors) is one of the
principals and the Managing Director of Talisman Venture Partners. Under that
agreement, we agreed to appoint Mr. Williams as one of our Directors after the
Merger. We also agreed to issue to Talisman Venture Partners 300,000 shares of
our Common Stock upon consummation of the Merger, which would vest in Talisman
Venture Partners over a three-year period. We agreed to compensate Talisman
Venture Partners in the amount of $5,000 per month for strategic consulting for
Tribeworks through August 2001 for the period during which services are
provided. (See "Certain Relationships and Related Transactions -Talisman Venture
Partners Agreements").
CHANGE OF CONTROL ARRANGEMENTS
Upon consummation of the Merger, each of Duncan Kennedy, Gilbert Amar
and Keepsake exchanged their shares of California Tribeworks common stock for
shares of our Common Stock pursuant to Restricted Stock Purchase Agreements.
Each of these agreements provided for Company's repurchase rights of the shares
upon termination of each of these person's employment.
Duncan Kennedy received 2,022,759 shares of Common Stock; we had the
right to repurchase 500,000 as of the consummation of the Merger. Gilbert Amar
received 3,034,037 shares of our Common Stock; we had the right to repurchase
750,000 of those shares as of the consummation of the Merger. Keepsake received
3,034,037 shares of Common Stock; we had the right to repurchase 750,000 of
those shares as of the consummation of the Merger.
Each of these agreements provided that upon a change of control, the
lapsing of the repurchase right will be accelerated such that our repurchase
right with respect to 100% of the Common Stock would lapse.
The repurchase right was subject to milestones designed to properly
incentivize the Company's founders and to motivate the Company's investors to
assist the Company with raising the necessary capital. In the absence of a
change of control, our repurchase right will lapse upon occurrence of the
following events: (1) for the 12 month period ending September 30, 2001, we have
gross revenues in the amount of $5,000,000; or (2) for the period July 1, 2001
through September 30, 2001, we have gross revenues of $1,250,000; and (3) we
have 30,000 registered users by September 30, 2001. In the event that the
following events did not occur, then, our Board of Directors may amend the
milestones applicable to Mr. Kennedy, Mr. Amar and Keepsake. These events are:
(1) (A) we do not raise $500,000 gross proceeds from sale of its stock within 3
months after closing of the Merger; and (B) we do not raise $500,000 gross
proceeds from sale of our stock within a 1 month period after the listing of our
Common Stock on OTC Bulletin
23
<PAGE> 24
Board or a national exchange; or (2) we do not raise in the aggregate
$3,000,0000 gross proceeds from sale of our capital stock within 6 month after
closing of the Merger.
1999 STOCK OPTION PLAN
Our 1999 Plan was approved by our board of directors and our
stockholders in December 1999. Our 1999 Plan provides for the grant to our
employees, including officers and employee directors, of incentive stock options
within the meaning of Section 422 of the Internal Revenue Code and for the grant
of nonstatutory stock options and restricted stock awards to our employees,
directors and consultants. Our 1999 Plan is currently administered by the board
of directors which selects the optionees, determines the number of shares to be
subject to each option, and determines the exercise price of each option.
Our 1999 Plan authorizes the issuance of an aggregate of up to 1,600,000
shares of our common stock. As of March 31, 2000, options to purchase an
aggregate of 669,097 shares of our common stock were outstanding under the 1999
Plan. During 1999 a total of 1,186,800 options were granted. Of the options
granted, we repurchased 371,667 options as a result of employees leaving their
employment with us, consultants ceasing to provide services for us, or lapsing
of the options by their terms. As of March 31, 2000, an aggregate of 784,867
shares of our common stock remained available for future grants under the 1999
Plan.
The exercise price of all incentive stock options granted under our 1999
Plan must be at least equal to the fair market value of the our common stock on
the date of grant. The exercise price of all nonstatutory stock options granted
must be at least equal to 85% of the fair market value on the date of grant.
With respect to any participant who owns stock possessing more than 10% of the
total combined voting power of all our classes of our stock, the exercise price
of any incentive option and nonstatutory option granted must equal at least 110%
of the fair market value on the grant date. The term of the options granted
under our 1999 Plan may not exceed ten years.
Stock purchase rights may be issued either alone or in addition to other
awards under the 1999 Plan. Unless otherwise specified in the stock purchase
right award, the Company will have a repurchase right exercisable upon the
voluntary or involuntary termination of the grantee with the Company for any
reason. The repurchase right lapses at such rate as set forth in the stock
purchase right award. With respect to stock purchase rights awards, the
repurchase right lapses upon a change of control.
Our 1999 Plan will terminate in 2009. Our board of directors has
authority to amend or terminate our 1999 Plan, provided that such action will
not impair the rights of the holder of any outstanding awards without the
written consent of that holder.
401(k) PLAN
We maintain a tax-qualified retirement and deferred savings plan for our
employees, commonly known as a 401(k) plan. The 401(k) plan provides that each
participant may
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<PAGE> 25
contribute up to 20% of his or her pre-tax gross compensation up to a statutory
limit, which was $10,000 in calendar year 1999. Under the 401(k) plan, we may
make discretionary matching contributions. We made no contributions to the
401(k) plan in 1999.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
BACKGROUND TO THE MERGER
In April 1999 we commenced discussions with Mr. Thomas Williams of
Talisman Venture Partners regarding our financing activities. Mr. Williams
introduced us to Mr. Conrad Raedemaker of Conrad International Financing
Corporation. Mr. Raedemaker assisted us in our discussions with Pan World and
the $1,000,000 financing resulting in connection with the Merger and
consummation of the Merger with Pan World.
EXCHANGE RATIO IN THE MERGER
In November 1999, California Tribeworks consummated the Merger. In that
transaction, holders of California Tribeworks common stock exchanged each share
of their common stock for 2.033537474 shares of our common stock. Those
shareholders exchanged each share of their series A preferred stock for
2.033537474 shares of our common stock. California Tribeworks optionees
exchanged each of their options to purchase one share of California Tribeworks
common stock for options to purchase one share of our common stock under our
1999 Plan. Persons who benefited from the favorable exchange ratio for common
stockholders in the Merger included California Tribeworks shareholders and
optionees who exercised their options to purchase California Tribeworks common
stock prior to the Merger, including our executive officers. (See "Security
Ownership of Certain Beneficial Owners and Management - Directors, Executive
Officers, Promoters and Control Persons").
KEEPSAKE SOFTWARE AGREEMENT
In November 1999, we entered into the Keepsake Software Agreement.
Pursuant to that agreement, we purchased all of the right, title and interest to
the iShell software from Keepsake, a Belgian entity wholly owned by Mr. Soquet
(our director), and Mr. Amar (our Chief Technical Officer and Director). Under
that agreement, Keepsake received warrants to purchase 181,818 shares of our
Common Stock at an exercise price of $0.33 per share and $60,000 in cash. Under
that agreement, Mr. Amar received warrants to purchase 121,212 shares of our
Common Stock at an exercise price of $0.33 per share and $40,000 in cash. The
warrants issued under the Keepsake agreement terminate in November 2004. Under
that agreement, Keepsake agreed to perform software development services for us
for a period of 12 months. Keepsake receives $9,000 per month as compensation
for services rendered. Mr. Soquet owns Keepsake.
TALISMAN VENTURE PARTNERS AGREEMENTS
Pursuant to our Consulting Agreement with Talisman Venture Partners, in
November 1999, we entered into a Finder's Fee Agreement pursuant to which we
issued to Talisman Venture Partners 300,000 shares of our common stock. This
stock was issued to them in consideration for assistance of Talisman Venture
Partners in our consummating the Merger. Mr. Williams (one of our directors) is
a principal and Managing Director of Talisman Venture Partners. These shares
were placed in escrow pursuant to a Shareholder Agreement between Talisman
Venture Partners, Tribeworks and Duncan Kennedy, as representative of California
Tribeworks shareholders. Pursuant to the Shareholder Agreement, Talisman Venture
Partners agreed to indemnify the shareholders of California Tribeworks for any
losses that they may incur in connection with the Merger. In the event that no
claims are made against California Tribeworks shareholders, the shares will be
released to Talisman Venture Partners as follows: 200,000 shares
25
<PAGE> 26
will be released in November 2000, 50,000 shares will be released in November
2001, and 50,000 shares will be released in November 2002.
CONRAD INTERNATIONAL AGREEMENT
In August 1999, we entered into a Side Letter with Conrad International
Financing Corporation pursuant to which we granted them the right to approve any
of our financing transactions until the earlier of one year after the Side
Letter and the time that we received a major financing. In addition, we granted
Conrad International the right to introduce us to investors for sale of up to
1,200,000 shares of our common stock at a purchase price of $2.50 per share for
a period of six months after closing of the Merger. Conrad International agreed
to place 200,000 of those shares with investors at the earlier of three months
after closing of the Merger or one month following the quoting of our Common
Stock on the OTC Bulletin Board. Under the Side Letter, Conrad International
would lose the right to introduce us to investors if they were unable to place a
total of 200,000 shares of our Common Stock within the specified time period.
VOTING AGREEMENT
In November 1999, Mr. Kennedy, Keepsake and Mr. Amar entered into a
Voting Agreement with us and certain of our other major stockholders consisting
of Mr. Daniel Hodges and Ms. Jennifer Worden. Pursuant to that agreement, those
shareholders agreed that at any annual meeting of shareholders or whenever
members of the Board of Directors elected the members of the Board of Directors,
those shareholders would vote their shares to elect Duncan Kennedy, Patrick
Soquet, Gilbert Amar and Tom Williams as members of the Board of Directors. The
agreement terminates upon completion of the Company's initial public offering or
our change of control.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 200,000,000 shares of common
stock, par value $0.0001 per share, and 10,000,000 shares of Preferred Stock,
par value $0.0001 per share. There are presently 16,397,500 shares of common
stock issued and outstanding. There are no shares of Preferred Stock
outstanding. Under our 1999 Plan, we are authorized to issue up to 1,600,000
shares of common stock. As of March 31, 2000 there were outstanding options for
the purchase of 669,097 shares of common stock under our 1999 Plan. As of March
31, 2000, there were outstanding Warrants for the purchase of 690,530 shares of
common stock.
COMMON STOCK
Immediately prior to the Merger, California Tribeworks had 4,000,000
shares of common stock and 142,223 shares of preferred stock outstanding. These
shares were exchanged for 8,700,000 shares of common stock of Pan World.
Immediately after the Merger, Tribeworks, Inc., a Delaware corporation, had
16,000,000 shares of common stock outstanding (including 136,036 shares of
common stock issued under the exercise of options).
As of March 31, 2000, there were 16,397,500 shares of our common stock
outstanding held of record by approximately 112 stockholders.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock that we may issue in the future,
the holders of common stock are entitled to
26
<PAGE> 27
receive ratably dividends, if any, as may be declared from time to time by the
board of directors out of legally available funds. In the event of the
liquidation, dissolution or winding up of the Company, the holders of our common
stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of preferred stock, if any,
then outstanding. The common stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are fully
paid and nonassessable.
PREFERRED STOCK
Our certificate of incorporation authorizes 10,000,000 shares of
preferred stock. The board of directors has the authority to issue the preferred
stock in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders. The issuance
of preferred stock may have the effect of delaying, deferring or preventing a
change in control of our Company without further action by the stockholders. For
example, the board of directors could issue preferred stock that has the power
to prevent a change of control transaction. The issuance of preferred stock with
voting and conversion rights may adversely affect the voting power of the
holders of common stock, including the loss of voting control to others. We
currently have no plans to issue any of the preferred stock.
WARRANTS
As of March 31, 2000, there were warrants outstanding for the purchase
of 303,030 shares of our common stock at an exercise price of $0.33 per share.
In addition, there were warrants outstanding for the purchase of 387,500 shares
of our common stock at an exercise price of $2.50 per share.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE
CERTIFICATE OF INCORPORATION AND DELAWARE LAW
CERTIFICATE OF INCORPORATION
Our Certificate of Incorporation provides that all stockholder actions
must be effected at a duly called meeting and not by a consent in writing. This
provision could discourage potential acquisition proposals and could delay or
prevent a change of control because a potential acquisition could not be
approved by the stockholders without a duly called meeting.
DELAWARE TAKEOVER STATUTE
We are subject to Section 203 of the Delaware General Corporation Law,
which, subject to various exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that such stockholder became an
interested stockholder, unless: (A) prior to such date, the board of directors
of the corporation approved either the business combination or the transaction
that
27
<PAGE> 28
resulted in the stockholder becoming an interested stockholder; (B) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (1) by persons who are directors and also
officers and (2) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (C) on or subsequent to
such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock that is not owned by the interested stockholder.
Section 203 defines business combination to include: (A) any merger or
consolidation involving the corporation and the interested stockholder; (B) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (C) subject to various
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (D)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (E) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
REGISTRATION RIGHTS
After this offering, the holders of 387,500 shares of outstanding common
stock and holders of warrants to purchase 690,530 shares of common stock will be
entitled to rights with respect to the registration of such shares under the
Securities Act of 1933, as amended. Thus, if we propose to register any of our
securities under the Securities Act, either for our own account or for the
account of other security holders exercising registration rights, the holders
are entitled to notice of the registration and are entitled to include these
shares in the registration. Further, holders may require us to file additional
registration statements on Form S-3. These rights are subject to conditions and
limitations, among them the right of the underwriters of an offering to limit
the number of shares included in such registration in certain circumstances.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is Holladay Stock
Transfer, Inc.
SHARES ELIGIBLE FOR FUTURE SALE
As of March 31, 2000 we had 16,397,500 shares of common stock
outstanding. Of these shares, 14,397,500 shares are "restricted securities" as
defined in Rule 144. The number of shares of common stock available for sale in
the public market is limited by restrictions under the
28
<PAGE> 29
Securities Act of 1933 and lock-up agreements under which the holders of the
shares have agreed, subject to limited exceptions, not to sell or otherwise
dispose of any of their shares for a period of 180 days after our initial public
offering. Restricted securities may be sold in the public market only if
registered or if they qualify for an exemption from registration under safe
harbor rules set forth in Rules 144 or 701 of the Securities Act.
RULE 144
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after this offering, a person (or persons whose shares are
aggregated) who owns shares that were purchased from us (or any affiliate) at
least one year previously, is entitled to sell within any three-month period a
number of shares that does not exceed the greater of 1% of our then-outstanding
shares of common stock or the average weekly trading volume of our common stock
on the Nasdaq National Market during the four calendar weeks preceding the date
on which notice of the sale is filed with the Securities and Exchange
Commission. Sales under Rule 144 are also subject to manner of sale provisions,
notice requirements and the availability of current public information about us.
Any person (or persons whose shares are aggregated) who is not deemed to have
been one of our affiliates at any time during the three months preceding a sale,
and who owns shares within the definition of "restricted securities" under Rule
144 that were purchased from us (or any affiliate) at least two years
previously, would be entitled to sell such shares under Rule 144(k) without
regard to the volume limitations, manner of sale provisions, public information
requirements or notice requirements.
RULE 701
Subject to limitations on the aggregate offering price of a transaction
and other conditions, Rule 701 may be relied upon with respect to the resale of
securities originally purchased from us by our employees, directors, officers,
consultants or advisers prior to the date we become subject to the reporting
requirements of the Securities Exchange Act of 1934, or pursuant to written
compensatory benefit plans or written contracts relating to the compensation of
such persons. In addition, the Securities and Exchange Commission has indicated
that Rule 701 will apply to typical stock options granted by an issuer before it
becomes subject to the reporting requirements of the Exchange Act, along with
the shares acquired upon exercise of such options. Securities issued in reliance
on Rule 701 are restricted securities and, subject to the contractual
restrictions described above, beginning 90 days after the date of this
registration statement, may be sold by persons other than affiliates subject
only to the manner of sale provisions of Rule 144 and by affiliates under Rule
144 without compliance with its minimum holding period requirements.
REGISTRATION RIGHTS
As of March 31, 2000, holders of 387,500 shares of outstanding common
stock and holders of warrants to purchase 690,530 shares of common stock will be
entitled to rights with respect to the registration of such shares under the
Securities Act. Thus, if we propose to register any of our securities under the
Securities Act, either for our own account or for the account of other security
holders exercising registration rights, the holders are entitled to notice of
the registration and are entitled to include these shares in the registration.
Further, holders may require us to file
29
<PAGE> 30
additional registration statements on Form S-3. These rights are subject to
conditions and limitations, among them the right of the underwriters of an
offering to limit the number of shares included in such registration in certain
circumstances.
30
<PAGE> 31
PART II
MARKET PRICE OF AND DIVIDENDS ON COMMON
EQUITY AND RELATED SHAREHOLDER MATTERS
MARKET FOR COMMON EQUITY
Our common stock commenced quotation on the National Quotation Bureau
Pink Sheets (NQB Pink Sheets) under the symbol "PNWR" on March 1, 1999. The
following table sets forth, for the periods indicated, the high and low bid
information for the limited trading of our common stock, as reported on the NQB
Pink Sheets. The new trading symbol for our common stock is "TRWX." The
information relating to the market price of our common stock was obtained
through National Quotation Bureau, LLC. The quotations provided are based on
non-Nasdaq over the counter market quotations. These quotations reflect
inter-dealer prices, without retail mark-up or mark-down or commission and may
not represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL 1999:
First Quarter No Sale No Sale
Second Quarter $ 2.50 $ 0.50
Third Quarter $ 2.66 $ 1.63
Fourth Quarter $ 1.75 $ 1.50
FISCAL 2000:
First Quarter $ 7.05 $1.625
</TABLE>
NUMBER OF HOLDERS
As of March 31, 2000, there were 112 holders of record of our common
stock.
DIVIDENDS
We have never declared or paid any dividends on our common stock and we
do not intend to pay dividends on our common stock in the foreseeable future. We
anticipate that we will retain any earnings to finance the growth and
development of our business and for general corporate purposes.
LEGAL PROCEEDINGS
We are not currently a party to any legal proceedings.
RECENT SALES OF UNREGISTERED SECURITIES
(1) From June 30, 1999 to October 15, 1999 California Tribeworks granted
stock options to purchase 1,174,800 shares of our common stock to employees,
consultants and directors pursuant to our 1999 Stock Plan incentive plan. Of
these stock options, 371,667 shares have been
31
<PAGE> 32
cancelled without being exercised, 146,036 shares have been exercised, no shares
have been repurchased and 657,097 shares remain outstanding.
(2) On December 1, 1998, California Tribeworks issued an aggregate of
994,700 shares of common stock to Duncan Kennedy at $0.001 per share for an
aggregate purchase price of $994.70.
(3) On December 1, 1998, California Tribeworks issued an aggregate of
1,492,000 shares of common stock to Patrick Soquet at $0.001 per share for an
aggregate purchase price of $1,492.00.
(4) On December 1, 1998, California Tribeworks issued an aggregate of
1,492,000 shares of common stock to Gilbert Amar at $0.001 per share for an
aggregate purchase price of $1,492.00.
(5) On December 1, 1998, California Tribeworks issued an aggregate of
21,300 shares of common stock to Arman Pahlavan at $0.001 per share for an
aggregate purchase price of $21.30.
(6) From December 4, 1998 through January 15, 1999, we issued an
aggregate of 142,222 shares of Series A preferred stock of California Tribeworks
to five accredited investors at $0.45 per share for an aggregate purchase price
of $64,000.
(7) From January 1, 2000 to March 31, 2000, we granted stock options to
purchase 12,000 shares of our common stock to an employee pursuant to our 1999
Plan. Of these stock options, 12,000 shares remain outstanding.
(8) In November 1999, we issued an aggregate of 3,030,303 shares of
common stock to 4 accredited investors at $0.33 per share for an aggregate
purchase price of $1,000,000 pursuant to the Merger.
(9) In November 1999, we issued warrants to purchase 303,030 shares of
common stock to Gilbert Amar and Keepsake with an exercise price of $0.33 per
share in connection with assignment of iShell to us.
(10) For the period January 1, 2000 through March 31, 2000 we issued an
aggregate of 387,500 shares of common stock to 7 accredited investors at $2.00
per share for an aggregate purchase price of $775,000 and warrants to purchase
an aggregate of 387,500 shares of common stock at the exercise price of $2.50
per share. These shares were issued in connection with our offering of units of
securities consisting of one share of common stock and one warrant to purchase a
share of common stock at the exercise price of $2.50 per share to raise in the
aggregate $2,000,000 of proceeds. We have received commitments to purchase an
additional aggregate purchase price of $1,225,000 of units pursuant to this
offering. Assuming closing of all commitments under this offering, we will issue
an additional 612,500 shares of common stock and warrants to purchase aggregate
of 612,500 shares of common stock. The offering will terminate at the earlier of
(i) June 30, 2000 or (ii) such time that we shall have received offers from
subscribers for purchase of 1,000,000 units under the offering.
32
<PAGE> 33
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Certificate of Incorporation includes provisions to eliminate the
personal liability of our directors for monetary damages resulting from breach
of fiduciary duties as directors, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit. Our Bylaws provide for the indemnification of any
director or officer made a party to or involved in any action, suit or
proceeding by reason of the fact that he or she was a director, officer or
employee of the Company.
We entered into indemnity agreements with each of the following
directors and officers: Duncan Kennedy, Patrick Soquet, Gilbert Amar, Steven
Bennet, Thomas Williams and Arman Pahlavan. These indemnity agreements provide
for the indemnification of these individuals in their capacities as directors
and/or officers to the fullest extent permitted by the provisions of our Bylaws
and Delaware corporate law.
Section 145 of the General Corporation Law of the State of Delaware
authorizes a corporation to indemnify directors, officers, employees or agents
of the corporation in non-derivative suits if such party acted in good faith and
in a manner which he or she reasonably believed to be in or not opposed to the
best interest of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe this conduct was unlawful, as
determined in accordance with the Delaware General Corporation Law.
33
<PAGE> 34
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
TRIBEWORKS, INC. AUDITED FINANCIAL STATEMENTS FOR FISCAL YEARS ENDED
DECEMBER 31, 1998 AND DECEMBER 31, 1999
Report of Independent Auditor......................................... F-2
Balance Sheets........................................................ F-3
Statements of Operations.............................................. F-4
Statements of Cash Flow............................................... F-5
Statement of Stockholders' Equity..................................... F-6
Notes to Financial Statements......................................... F-7
TRIBEWORKS, INC. UNAUDITED FINANCIAL STATEMENTS FOR THE THREE-MONTH
PERIOD ENDED MARCH 31, 2000
Balance Sheet........................................................... F-11
Statement of Operations................................................. F-12
Statement of Cash Flows................................................. F-13
Notes to Unaudited Financial Statements................................. F-14
TRIBEWORKS, INC. UNAUDITED FINANCIAL STATEMENTS FOR THE THREE-MONTH
PERIOD ENDED MARCH 31, 1999
Balance Sheet........................................................... F-15
Statement of Operations................................................. F-16
Statement of Cash Flows................................................. F-17
Note to Unaudited Financial Statements.................................. F-18
</TABLE>
F-1
<PAGE> 35
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Tribeworks, Inc.
San Francisco, CA
I have audited the accompanying balance sheets of Tribeworks, Inc. and
its consolidated subsidiary as of December 31, 1999 and 1998, and the related
statements operations, cash flows, and stockholders' deficit for the years then
ended. These financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Tribeworks, Inc. and
its consolidated subsidiary as of December 31, 1999 and 1998, and the results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
W. Alan Jorgensen
Certified Public Accountant
March 22, 2000
Seattle, WA
F-2
<PAGE> 36
TRIBEWORKS, INC.
BALANCE SHEETS (Consolidated)
As Of December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 157,353 $ 37,723
Accounts receivable, net 31,240 19,650
Subscriptions receivable -- 19,492
Prepaids and deposits 21,514 4,800
----------- --------
Total current assets 210,107 81,665
----------- --------
OTHER ASSETS
Equipment (net of $1,228 accumulated depreciation) 14,140 --
Technology license (net of $7,223 amortization) 122,777 --
----------- --------
Total assets $ 347,024 $ 81,665
----------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 211,631 $ 20,298
Accrued other liabilities 30,160 --
Due to shareholders 18,732 18,732
Deferred revenue 97,983 35,188
----------- --------
Total current liabilities 358,506 74,218
----------- --------
NON CURRENT LIABILITIES
Obligation to issue common stock 40,000
----------- --------
Total liabilities 398,506 74,218
----------- --------
Stockholders' (Deficit) Equity:
Preferred stock: 50,000,000 shares authorized, none issued
Common stock: 200,000,000 shares authorized, $0.0001 par value
16,287,539 and 13,000,000 shares issued and outstanding
1,601 1,286
Additional paid in capital 1,103,801 66,714
Related party subscription receivable (5,257) --
Accumulated deficit (1,151,628) (60,553)
----------- --------
Total stockholders' (deficit) equity (51,482) 7,447
----------- --------
Total liabilities and stockholders' equity $ 347,024 $ 81,665
=========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE> 37
TRIBEWORKS, INC
STATEMENTS OF OPERATIONS (Consolidated)
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
REVENUES $ 199,198 $ 5,562
Cost of sales 67,120 --
------------ ------------
Gross profit 132,078 5,562
------------ ------------
Operating Expenses:
Product support 71,039 --
Product development 281,020 7,569
Sales and marketing 307,083 3,980
General and administrative 564,011 54,566
------------ ------------
Total expenses 1,223,153 66,115
------------ ------------
Loss from operations (1,091,075) (60,553)
Income taxes -- --
------------ ------------
Net loss $ (1,091,075) $ (60,553)
============ ============
Basic and diluted loss per share $ (0.07) $ (0.00)
============ ============
Weighted average number of shares outstanding 16,010,000 12,863,964
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE> 38
TRIBEWORKS, INC.
STATEMENTS OF CASH FLOWS (Consolidated)
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss from operations $(1,091,075) $(60,553)
Adjustments to reconcile net loss
to net cash used by operating activity
Depreciation and amortization expense 13,250 --
Stock grants for services -- 2,508
Changes in operating assets and liabilities
Accounts receivable (11,590) (19,650)
Other receivables, prepaids and deposits (2,023) (4,800)
Accounts payable 191,333 20,299
Deferred revenue 62,795 35,188
Other liabilities 30,160 --
----------- --------
Cash used in operating activities (807,149) (27,008)
INVESTING ACTIVITIES
Purchase Equipment (15,367) --
Purchase Technology license (100,000) --
----------- --------
Net cash used by investing activities (115,367) --
FINANCING ACTIVITIES
Proceeds from sale of common shares 1,002,146 46,000
Proceeds from obligation to issue common stock 40,000 --
Proceeds from loan from shareholders -- 18,732
----------- --------
Net cash provided by financing activities 1,042,146 64,732
Increase in cash and cash equivalents 119,630 37,723
Beginning of period 37,723 --
----------- --------
END OF PERIOD $ 157,353 $ 37,723
=========== ========
Taxes paid during the year $ 800 $ 800
Interest paid during the year $ -- $ --
NON CASH EVENT:
Related party rec. - options exercise for 146,036 common shares $ 5,257
Purchase technology license for cash and 303,030 warrants valued at $ 30,000
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE> 39
TRIBEWORKS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
From Inception (August 20, 1998) to December 31, 1999
<TABLE>
<CAPTION>
Common Stock Paid in
Per Share -------------------- Capital Accumulated Related Party
$ Amt Shares $ Amount $ Amount Deficit Receivable Total
--------- ---------- -------- ----------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning balances -- $ -- $ -- $ -- $ -- $ --
Issued at Inception for cash 0.0005 3,034,038 303 1,189 1,492
Founders shares for Services 0.0005 5,100,112 510 1,998 2,508
Pref. Shares convert to common 0.001 289,216 29 (29) (0)
Issued in reverse
merger acquisition
0.0144 4,440,598 444 63,556 64,000
Net loss for 1998 (60,553) (60,553)
---------- ------ ---------- ----------- ------- ------------
Balances at December 31, 1998 12,863,964 $1,286 $ 66,714 $ (60,553) $ -- $ 7,447
---------- ------ ---------- ----------- ------- ------------
Exercise of options 0.05 136,036 14 6,788 6,802
Issued for cash during 1999 0.33 3,000,000 300 999,700 1,000,000
Exercise of options 0.06 10,000 1 599 600
Purchase license technology
for warrants 30,000 30,000
Related party receivable for
common shares (5,257) (5,257)
Net loss for 1999 (1,091,075) (1,091,075)
---------- ------ ---------- ----------- ------- ------------
Balances at December 31, 1999 16,010,000 $1,601 $1,103,801 $(1,151,628) $(5,257) $ (51,482)
========== ====== ========== =========== ======= ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE> 40
TRIBEWORKS, INC.
Notes to the financial statements
DECEMBER 31, 1999 AND 1998
NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION On November 2, 1999, Tribeworks Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of Pan World Corporation, a Nevada
corporation (PWC) merged with and into Tribeworks, Inc., a California
corporation (California Tribeworks). Subsequent to the merger California
Tribeworks renamed itself Tribeworks Development Corporation (Tribeworks
Development) and PWC, the sole shareholder of Tribeworks Development,
reincorporated as Tribeworks, Inc., a Delaware corporation. These transactions
hereinafter are referred to as the "Merger". The majority shareholders of
California Tribeworks became the majority shareholders of PWC. Therefore, the
Merger was a reverse acquisition that is being accounted for as such.
Unless the context otherwise indicates, "Tribeworks" or "Company" refers to
California Tribeworks prior to the Merger and to Tribeworks, Inc., a Delaware
corporation, after the Merger.
On August 20, 1998 ("Inception") Tribeworks began its business activities. The
Company's principal business activities are developing software applications for
Internet media developers through the Internet and marketing a technology known
as "ishell." This technology was acquired from an officer and director of the
Company and an affiliate of the Company. Business activities have been financed
primarily through the issuance of equity securities for cash, sales of
membership subscriptions, custom development services and product sales.
FINANCIAL STATEMENT PRESENTATION For periods prior to the Merger, the financial
statements reflect California Tribeworks financial position, results of
operations and cash flows. For periods subsequent to the Merger, the financial
statements of the Company are presented on a consolidated basis and include the
Company and its only subsidiary, Tribeworks Development. The Company's
operations are conducted through Tribeworks Development. The only inter-company
activity during the periods presented was the Merger.
The Merger has been accounted for under the purchase method of accounting. The
effect of the Merger for accounting purposes is that of a recapitalization of
the number of shares outstanding and the par value.
Pursuant to the Merger each capital stock of California Tribeworks was exchanged
for 2.033537474 shares of PWC common stock and each outstanding option of
California Tribeworks was assumed by PWC under PWC's 1999 Stock Option plan.
REVENUE RECOGNITION The Company's revenue sources are from the sale of
membership subscriptions, custom development services and product sales. Revenue
from membership subscriptions is deferred and recognized in the income statement
pro rata over the period covered by the membership period, typically twelve
months. Revenue recognition for custom development services is milestone based.
Revenue is recognized as each milestone for the development service is
completed. Revenue from product sales is recognized at the time of sale.
TECHNOLOGY LICENSE The Company's principal business activity centers around the
commercialization of certain software known as "ishell" which was developed by
an officer and director of the Company and an affiliate of the Company. In
November 1999 we purchased all right, title and interest in "ishell" in exchange
for payment of $100,000 cash and warrants to purchase 303,030 shares of common
stock at an exercise price of $0.33 per share, valued at $30,000. This agreement
is reflected in the financial statements as a technology license valued at
$130,000 and is amortized on a straight line basis over the estimated 36 month
useful life. Amortization expense for 1999 was $7,223.
EQUIPMENT During 1999 the Company acquired computers and related equipment for
$15,368. The Company depreciates its equipment on a straight-line basis over an
estimated useful life of 36 months. There were no retirements during 1998 or
1999. The balance of accumulated depreciation on December 31, 1999, was $1,228.
Depreciation expense was $1,228 for 1999 and none for 1998.
F-7
<PAGE> 41
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
requires 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.
CASH AND CASH EQUIVALENTS The Company considers, and the financial statements
reflect, all highly liquid short-term investments with original maturity of
three months or less as cash.
RECEIVABLES The Company records a receivable and an increase in deferred revenue
when a membership subscription is entered into and a payment under the
membership subscription is due. An allowance for doubtful accounts has been
established based on a percentage of sales made during the year. Management
reviews the allowance account for adequacy on an interim and annual basis. On
December 31, 1999 and 1998, the allowance account balances were $10,000 and $600
respectively. There were no write offs of accounts receivables during the year.
DEFERRED REVENUE The Company pro rates recognition of revenue from membership
subscriptions over the lives of the subscriptions, generally a 12 month period.
Customers are billed at the time the membership subscriptions are entered into.
SOFTWARE DEVELOPMENT COSTS The Company expenses all software development costs
in the period the costs are incurred.
ORGANIZATION COST During 1998 the Company incurred $6,000 in organization cost.
This amount was fully amortized as administrative expense during 1998 and 1999.
INCOME TAXES Deferred income tax assets and liabilities are computed for
differences between the financial statement and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future.
These tax deferments are based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable income.
NET LOSS PER COMMON SHARE Net loss per common share is computed based on the
weighted average number of common stock and common stock equivalents
outstanding. When dilutive, stock options are included as common stock
equivalents using the treasury stock method. There was no difference between
basic and fully diluted earnings per share in each of the periods presented.
COMPENSATED ABSENCES The Company accrues vacation pay for all full time
employees. On December 31, 1999, this liability totaled $30,160.
NOTE 2 COMMON STOCK
ACQUISITION The effect of the Merger was to increase the number of shares
authorized to 200,000,000 (from 10,000,000), and to reduce the par value per
share to $0.0001(from $0.01 per share), and to increase the number of shares
outstanding from 4,000,000 to 16,000,000. The financial statements reflect the
retroactive effects of the Merger.
SHARES HELD IN ESCROW As part of the Merger, 2,000,000 shares were held in
escrow for certain Company executives, pending specific performance thresholds.
However, the Company's Board of Directors can amend the terms of the performance
thresholds in the event the Company is unable to fulfill certain contingencies.
Because the Board of Directors can make amendments to the performance
threshholds, the shares are included as outstanding.
Additionally, 300,000 shares of common stock have been placed in escrow to
indemnify California Tribeworks shareholders in the event of breach by PWC of
certain representations, warranties and covenants related to the Merger. These
shares are beneficially owned by one of the Company's directors, they are
included in the issued
F-8
<PAGE> 42
and outstanding shares and they are being released from escrow over a two year
period from the date of the Merger.
NOTE 3 PREFERRED STOCK
The Board of Directors has the authority, without further stockholder action, to
determine the preferences, limitations, and relative rights of the preferred
stock. During the fourth quarter of 1998 and the first quarter of 1999 the
Company issued 142,222 shares of Series A Preferred Stock for $64,000. That
stock was exchanged for shares of the Company's common stock as part of the
Merger. On December 31, 1999, there was no preferred stock of the Company
outstanding.
NOTE 4 INCOME TAXES
Deferred tax assets primarily consist of a net operating loss (NOL) carryforward
since the Company has not generated taxable income since inception. There are no
significant deferred tax liabilities. Due to the uncertainties concerning the
future ability of the Company to benefit from the net operating loss
carryforward, a valuation allowance was established which reduced the deferred
tax assets to zero. There may be restrictions related to tax laws, which may
further limit the value of any deferred tax asset. As of December 31, 1999, the
estimated NOL carryforward was approximately $1,150,000.
NOTE 5 FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash, receivables, and accounts
payable. The Company believes that the fair value of these financial instruments
approximates their carrying amounts based on current market indicators, such as
prevailing market rates.
NOTE 6 STOCK BASED COMPENSATION
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 123 (SFAS 123) addresses the accounting for stock-based compensation
arrangements. SFAS 123 permits a company to choose either a new fair-value-based
method or the current APB Opinion 25 intrinsic-value-based method of accounting
for stock-option-based compensation arrangements. Management will continue to
record stock-based compensation using APB Opinion 25 method and, believes
adoption of SFAS 123 will not impact the Company's financial position and
results of operations. The pro forma effect of use of fair-value-based
compensation would have increased net loss by approximately $6,000 and $3,500
for 1999 and 1998 respectively. The Black-Scholes method was used in estimating
these amounts and included the following data.
<TABLE>
<CAPTION>
For the year ended December 31, 1998 1999 1999 1999 1999
------- --------- ------- ---------- ------
<S> <C> <C> <C> <C> <C>
Grant date Sept 1 Jan - May Mar 30 Jul - Sept Oct 1
Shares under options granted 430,000 214,800 300,000 230,000 12,000
Stock price at grant date $0.05 $0.05 $0.06 $0.75 $1.50
Exercise price $0.05 $0.05 $0.06 $0.75 $1.75
Expected life 3 3 3 3 3
Volatility measurement 10% 10% 10% 10% 10%
Dividends None none None none none
</TABLE>
STOCK OPTION PLAN The Company has reserved 1,600,000 shares for the exercise of
options under its 1999 Stock Option Plan. The exercise price at the date of
grant is the estimated fair market value at the grant date as determined by the
Company's Board of Directors.
On December 31, 1999, the Company had outstanding vested and unvested options to
purchase 769,097 shares common stock. Of the vested options, 47,940 were
exercisable at $.05 per share, 290,000 were exercisable at $0.06 per share, and
6,000 were exercisable at $0.75 per share. On December 31, 1999, there were
unvested options to purchase 425,157 shares of common stock. These unvested
options will be exercisable at prices ranging from $0.05 to $1.75 per share. Of
the unvested options, 156,834 will vest during 2000, 168,323 will vest
F-9
<PAGE> 43
pro rata over a 48 month period (including 2000), and an additional 100,000 will
vest as certain performance-based milestones are met.
The vested options begin to expire in 2008. The following table summarizes
information concerning stock options.
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price Price Per Share
-------- -------------- ----------------
<S> <C> <C> <C>
During 1998
Granted 430,000 $0.05 $0.05
Exercised -- -- --
Expired or cancelled -- -- --
--------
Outstanding December 31, 1998 430,000 $0.05 $0.05
========
During 1999
Granted 756,800 $0.05 - $1.75 $0.29
Exercised (146,036) $0.05 - $0.06 $0.05
Expired or cancelled (271,667) $0.05 $0.05
--------
Outstanding December 31, 1999 769,097 $0.05 - $1.75 $0.29
========
</TABLE>
NOTE 7 COMMITMENTS AND CONTINGENCIES
LEASES At December 31, 1999, the Company had no long-term lease commitments for
equipment or for office capacity. Office and workspace was rented on a month to
month basis. During 1999, $34,175 was paid for facilities rent. In February 2000
the Company entered into a 5 year lease for 9,000 square feet of office and work
space for $21,000 per month.
NOTE 8 RELATED PARTY TRANSACTIONS
During the period ended December 31, 1998, certain officers of the Company
loaned $18,732 to the Company to finance some of its start-up costs. The loan is
non-interest bearing and payable on demand.
NOTE 9 FOREIGN SALES
During 1999 approximately 39% of the Company's total membership subscriptions
were sold to customers in six principal foreign geographic areas including
Western Europe (27%) and Australia (6%). The remaining 6% were in four separate
foreign geographic areas. All foreign revenues are denominated in U.S. dollars.
NOTE 10 SUBSEQUENT EVENTS
During December 1999, the Company began to offer up to 1,000,000 units of
securities consisting of one share of common stock and one warrant to purchase
one common stock at a price of $2.50 per share for an aggregate purchase price
of $2,000,000 in a private placement of securities. Each warrant is to be
exercisable within the seven month period following the date of purchase of the
unit. At March 31, 2000, $775,000 has been raised for the Company under this
offering.
F-10
<PAGE> 44
TRIBEWORKS, INC.
BALANCE SHEET (Consolidated)
As of March 31, 2000
<TABLE>
<CAPTION>
Unaudited
-----------
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 407,657
Accounts receivable, net 82,748
Prepaids and deposits 48,218
-----------
Total current assets 538,623
-----------
OTHER ASSETS
Leasehold improvements 13,170
Equipment (net of $2,361 accumulated depreciation) 25,763
Technology license (net of $18,056 amortization) 111,944
-----------
Total assets $ 689,500
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 127,747
Accrued other liabilities 26,979
Due to shareholders 18,732
Deferred revenue 84,679
-----------
Total current liabilities 258,137
-----------
Stockholders' Equity:
Preferred stock: 50,000,000 shares authorized, none issued
Common stock: 200,000,000 shares authorized, $0.0001 par value
16,397,500 and 13,000,000 shares issued and outstanding 1,640
Additional paid in capital 1,878,762
Related party subscription receivable (600)
Accumulated deficit (1,448,439)
-----------
Total stockholders' equity 431,363
-----------
Total liabilities and stockholders' equity $ 689,500
===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-11
<PAGE> 45
TRIBEWORKS, INC
STATEMENT OF OPERATIONS (Consolidated)
First Quarter Ended March 31, 2000
<TABLE>
<CAPTION>
Unaudited
------------
<S> <C>
REVENUES $ 164,863
Cost of sales 12,710
------------
Gross profit 152,153
------------
Operating Expenses:
Product support 19,938
Product development 110,623
Sales and marketing 158,760
General and administrative 159,643
------------
Total expenses 448,964
------------
Loss from operations (296,811)
Income taxes --
------------
Net loss $ (296,811)
============
Basic and diluted loss per share $ (0.02)
============
Weighted average number of shares outstanding 16,397,500
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE> 46
TRIBEWORKS, INC.
STATEMENT OF CASH FLOWS (Consolidated)
First Quarter Ended March 31, 2000
<TABLE>
<CAPTION>
Unaudited
----------
<S> <C>
OPERATING ACTIVITIES
Cash flows from operating activities
Net loss from operations $(296,811)
Adjustments to reconcile net loss
to net cash used by operating activity
Depreciation and amortization expense 11,966
Changes in operating assets and liabilities
Accounts receivable (51,508)
Other receivables, prepaids and deposits (27,457)
Accounts payable (83,884)
Deferred revenue (13,304)
Other liabilities (3,181)
---------
Cash used in operating activities (464,179)
INVESTING ACTIVITIES
Purchase equipment (8,830)
Leasehold Improvement (11,687)
---------
Net cash used by investing activities (20,517)
FINANCING ACTIVITIES
Proceeds from sale of common shares 735,000
Increase in cash and cash equivalents 250,304
Beginning of period 157,353
---------
END OF PERIOD $ 407,657
=========
Taxes paid during period $ --
Interest paid during period $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE> 47
TRIBEWORKS, INC.
March 31, 2000
Unaudited
NOTES TO INTERIM FINANCIAL STATEMENTS
In February 2000 the Company entered into a 5 year lease for 9,000 square feet
of office and work space for $21,000 per month.
During December 1999, the Company began the offer of up to 1,000,000 units for
an aggregate purchase price of $2,000,000 in a private placement of securities
under the SEC's Rule 506. Each unit is offered at $2.00 and consists of one
share of common stock and one warrant to purchase one share of common stock for
$2.50. Each warrant is to be exercisable within the seven month period following
the date of purchase of the unit. By March 31, 2000, $775,000 has been raised
for the Company under this offering. The financial statements reflect the
issuance of 387,500 shares, and the 387,500 warrants to purchase the Company's
common shares at $2.50 per share under the offering.
All adjustments which in the opinion of management are necessary for a fair
statement of the interim period financial statements presented have been made
and were of a normal and recurring nature.
F-14
<PAGE> 48
TRIBEWORKS, INC.
BALANCE SHEET
As of March 31, 1999
<TABLE>
<CAPTION>
Unaudited
---------
<S> <C>
Current assets:
Cash and cash equivalents $ --
Accounts receivable, net 22,213
Subscription receivable 6,392
Prepaid expenses --
Deposits 3,500
---------
Total current assets 32,105
Property and equipment, Net --
Organization costs, net 4,500
---------
Total assets $ 36,605
=========
Current liabilities:
Accounts payable and accrued expenses $ 38,258
Deferred revenue 69,880
Due to shareholders 18,732
Convertible debt --
---------
Total current liabilities 126,870
---------
Stockholders' equity:
Common stock 1,286
Additional paid in capital 66,714
Accumulated deficit (158,265)
---------
Total stockholders' deficit (90,265)
---------
Total liabilities and stockholders' deficit $ 36,605
=========
</TABLE>
The accompanying note is an integral part of these financial statements
F-15
<PAGE> 49
TRIBEWORKS, INC
STATEMENT OF OPERATIONS
First Quarter Ended March 31, 1999
<TABLE>
<CAPTION>
Unaudited
------------
<S> <C>
Revenues $ 16,432
Cost of sales 3,553
------------
Gross margin 12,879
Expenses:
Product support 10,664
Product development 49,000
Sales and marketing 19,072
General and administrative 31,856
------------
Total operating expenses 110,591
------------
Operating loss (97,712)
------------
Interest expense --
Interest income --
------------
Loss before income taxes (97,712)
Income taxes --
------------
Net loss $ (97,712)
============
Basic and diluted loss per share $ (0.01)
============
Weighted average number of shares outstanding 12,863,964
============
</TABLE>
The accompanying note is an integral part of these financial statements
F-16
<PAGE> 50
TRIBEWORKS, INC.
STATEMENT OF CASH FLOWS
First Quarter Ended March 31, 1999
<TABLE>
<CAPTION>
Unaudited
---------
<S> <C>
OPERATING ACTIVITIES
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from operations $(97,712)
ADJUSTMENTS TO RECONCILE NET LOSS
TO NET CASH USED BY OPERATING ACTIVITY
Amortization of organization costs 300
Depreciation --
CHANGES IN OPERATING ASSETS AND LIABILITY
Accounts receivable 10,537
Accounts payable 17,962
Prepaid expenses and deposits (3,500)
Deferred revenue 34,690
--------
CASH USED IN OPERATING ACTIVITIES (37,723)
INVESTING ACTIVITIES
Increase in organization costs --
Acquisition of capital equipment --
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of preferred shares --
Proceeds from issue of common shares --
Proceeds from bridge loan --
Proceeds from loan from shareholders --
--------
NET CASH PROVIDED BY FINANCING ACTIVITIES --
Decrease in cash (37,723)
Beginning of period 37,723
--------
END OF PERIOD $ --
========
</TABLE>
The accompanying note is an integral part of these financial statements
F-17
<PAGE> 51
TRIBEWORKS, INC.
March 31, 1999
Unaudited
NOTE TO INTERIM FINANCIAL STATEMENTS
All adjustments which in the opinion of management are necessary for a fair
statement of the interim period financial statements presented have been made
and were of a normal and recurring nature.
F-18
<PAGE> 52
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant has caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
TRIBEWORKS, INC.
By /s/ Duncan Kennedy
---------------------------------
Duncan Kennedy
Its President and Chief Executive Officer
34
<PAGE> 53
PART III
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
<S> <C>
2.1 Form of Agreement of Merger between Tribeworks, Inc., a
California corporation and Tribeworks Acquisition Corporation,
dated November 2, 1999
3.1 Articles of Incorporation of Tribeworks, Inc., a Delaware
Corporation
3.2 Bylaws of Tribeworks, Inc., a Delaware Corporation
9.1 Voting Agreement of Pan World Corporation and Holders of Pan World
Common Stock stated therein dated November 2, 1999
10.1 Software Agreement by and between Tribeworks, Inc., a California
corporation, Keepsake SPRL, and Gilbert Amar dated November 2,
1999
21.1 Subsidiaries of Registrant
27.1 Financial Data Schedule
</TABLE>
35
<PAGE> 1
EXHIBIT 2.1
AGREEMENT OF MERGER
BETWEEN
TRIBEWORKS, INC.
AND
TRIBEWORKS ACQUISITION CORP.
AGREEMENT OF MERGER ("Agreement") by and between Tribeworks, Inc., a
California corporation ("Tribeworks"), and Tribeworks Acquisition Corp., a
Delaware corporation (the "Sub") and a wholly owned subsidiary of Pan World
Corporation, a Nevada Corporation ("Pan World").
WHEREAS, Tribeworks and the Sub have entered into a Plan of Merger,
dated August 19, 1999 (the "Plan of Merger"), pursuant to which the Sub is to
merge with and into Tribeworks, with Tribeworks as the surviving corporation
(the "Surviving Corporation");
WHEREAS, Surviving Corporation and the Sub are entering into this
Agreement pursuant to the terms of the Plan of Merger, to consummate the
transactions set forth therein;
FIRST: The Sub shall be merged into Surviving Corporation.
SECOND: The Articles of Incorporation of the Surviving Corporation shall
be amended and restated in their entirety in the form attached hereto as Exhibit
A.
THIRD: (a) At the Effective Time (i) the separate existence of Sub shall
cease and Sub shall be merged with and into Surviving Corporation (Sub and
Surviving Corporation are sometimes referred to herein as the "Constituent
Corporations"), (ii) the Articles of Incorporation of Surviving Corporation as
amended and restated shall be the Articles of Incorporation of the Surviving
Corporation, and (iii) the Bylaws of Surviving Corporation as in effect
immediately prior to the Effective Time shall be the Bylaws of the Surviving
Corporation.
(b) The directors of Sub immediately prior to the Effective Time
shall become the directors of the Surviving Corporation, each to hold office in
accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation, and the officers of Sub immediately prior to the Effective Time
shall become the officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed and qualified.
FOURTH: Upon the effectiveness of the merger, the capital stock of
Surviving Corporation and the Sub shall be converted as follows:
<PAGE> 2
(a) At the Effective Time, by virtue of the Merger and without
any action on the part of the holder of any shares of the capital stock of
Surviving Corporation or Sub, each issued and outstanding share of the capital
stock of Sub shall be converted into and become one fully paid and nonassessable
share of Common Stock, $0.01 per share, of the Surviving Corporation.
(b) Each issued and outstanding share of Surviving Corporation
Common Stock shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into the right to receive 2.033537474 shares
of fully paid and nonassessable shares of Pan World Common Stock, and each
issued and outstanding share of Surviving Corporation Series A Preferred Stock
("Surviving Corporation Preferred Stock") shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive 2.033537474 shares of fully paid and nonassessable shares of
Pan World Common Stock. All such shares of Surviving Corporation Common Stock
and Surviving Corporation Preferred Stock, when so converted, shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares shall cease
to have any rights with respect thereto, except the right to receive the shares
of Pan World Common Stock in the case of Surviving Corporation Common Stock or
Surviving Corporation Preferred Stock, upon the surrender of such certificates
of Surviving Corporation capital stock.
(c) All options to purchase Surviving Corporation Common Stock
(the "Surviving Corporation Options") issued and outstanding under Surviving
Corporation's 1999 Equity Incentive Plan (the "Surviving Corporation Stock
Option Plan"), whether or not exercisable, whether or not vested, and whether or
not performance-based, shall remain outstanding following the Effective Time. At
the Effective Time, the Surviving Corporation Options shall, by virtue of the
Merger and without any further action on the part of Surviving Corporation or
the holder thereof, be assumed by Pan World. Each such Surviving Corporation
Option so assumed by Pan World under this Agreement shall continue to have, and
be subject to, the same terms and conditions set forth in the Surviving
Corporation Stock Option Plan immediately prior to the Effective Time, except
that (i) such Surviving Corporation Option will be exercisable for that number
of whole shares of Pan World Common Stock equal to the product of the number of
shares of Surviving Corporation Common Stock that were issuable upon exercise of
such Surviving Corporation Option immediately prior to the Effective Time
multiplied by the Option Exchange Ratio (defined below) and rounded down to the
nearest whole number of shares of Pan World Common Stock, and (ii) the per share
exercise price for the shares of Pan World Common Stock issuable upon exercise
of such assumed option will be equal to the quotient determined by dividing the
exercise price per share of Surviving Corporation Common Stock at which such
Surviving Corporation Option was exercisable immediately prior to the Effective
Time by the Option Exchange Ratio, rounded down to the nearest whole cent. The
Option Exchange Ratio shall be 1.00.
(d) For purposes of this Agreement, the term "Effective Time"
shall mean the time upon which the due and valid filing of this Agreement with
the Secretary of State of the State of California has occurred.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Agreement of
Merger to be executed by their respective officers thereunto duly authorized on
this 2nd day of November, 1999.
TRIBEWORKS, INC.
/s/ Duncan Kennedy
------------------------------------
Name: Duncan Kennedy
Title:President
/s/ Arman Pahlavan
------------------------------------
Name: Arman Pahlavan
Title:Secretary
TRIBEWORKS ACQUISITION CORP.
/s/ Duncan Kennedy
------------------------------------
Name: Duncan Kennedy
Title:President
/s/ Arman Pahlavan
------------------------------------
Name: Arman Pahlavan
Title:Secretary
3
<PAGE> 4
EXHIBIT A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
----------------------------
TRIBEWORKS, INC.
----------------------------
ARTICLE I
The name of this corporation is Tribeworks Development Corporation (the
"Corporation").
ARTICLE II
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
The Corporation is authorized to issue only one class of shares of
stock; and the total number of shares which the Corporation is authorized to
issue is 1,000 shares of Common Stock, par value $0.01.
ARTICLE IV
The liability of the directors of the Corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
ARTICLE V
The Corporation is authorized to provide indemnification of agents, as
that term is defined in Section 317 of the California General Corporation Law
for breach of duty to the corporation and its shareholders, in excess of that
expressly permitted by said Section 317, under any bylaw, agreement, vote of
shareholder of disinterested directors or otherwise, to the fullest extent such
indemnification may be authorized hereby, subject to the limits on such excess
indemnification set forth in Section 204 of the California General Corporation
Law. The Corporation is further authorized to provide insurance for agents as
set forth in Section 317 of the California Corporations Code, provided that, in
cases where the corporation owns all or a portion of the shares of the company
issuing the insurance policy, the company and/or the policy must meet on the two
sets of conditions set forth in Section 317, as amended. Any repeal or
modification of the foregoing provisions of this Article V by the shareholders
of this Corporation shall not adversely
4
<PAGE> 5
affect any right of protection of an agent of this Corporation existing at the
time of such repeal or modification.
5
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION OF
TRIBEWORKS, INC.
ARTICLE I
The name of the corporation is Tribeworks, Inc. (the "Corporation").
ARTICLE II
The address of the registered office of this corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of Newcastle. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
ARTICLE IV
The Corporation is authorized to issue two classes of stock to be
designated common stock ("Common Stock") and preferred stock ("Preferred
Stock"). The number of shares of Common Stock authorized to be issued is Two
Hundred Million (200,000,000), par value $.0001 per share, and the number of
shares of Preferred Stock authorized to be issued is Ten Million (10,000,000),
par value $.0001 per share.
The board of directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of shares of Preferred Stock in
series, and by filing a certificate pursuant to the applicable law of the State
of Delaware (such certificate being hereinafter referred to as a "Preferred
Stock Designation"), to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, preferences,
and rights of the shares of each such series and any qualifications, limitations
or restrictions thereof. The number of authorized shares of Preferred Stock may
be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the Common
Stock, without a vote of the holders of the Preferred Stock, or of any series
thereof, unless a vote of any such holders is required pursuant to the terms of
any Preferred Stock Designation.
ARTICLE V
The following provisions are inserted for the management of the business
and the conduct of the affairs of the Corporation, and for further definition,
limitation and regulation of the powers of the Corporation and of its directors
and stockholders:
<PAGE> 2
A. The business and affairs of the Corporation shall be managed by or
under the direction of the board of directors. In addition to the powers and
authority expressly conferred upon them by statute or by this Certificate of
Incorporation or the Bylaws of the Corporation, the directors are hereby
empowered to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation.
B. The directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
C. Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
D. Special meetings of stockholders of the Corporation may be called
only by the Chairman of the Board or the President or by the board of directors
acting pursuant to a resolution adopted by a majority of the Whole Board. For
purposes of this Certificate of Incorporation, the term "Whole Board" shall mean
the total number of authorized directors whether or not there exist any
vacancies in previously authorized directorships.
ARTICLE VI
A. Subject to the rights of the holders of any series of Preferred Stock
to elect additional directors under specified circumstances, the number of
directors shall be fixed from time to time by the board of directors pursuant to
a resolution adopted by a majority of the Whole Board.
B. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the board of directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause shall, unless otherwise provided by law or by resolution
of the board of directors, be filled only by a majority vote of the directors
then in office, though less than a quorum.
C. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
D. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, any directors, or the entire board of directors, may be
removed from office at any time, but only for cause and only by the affirmative
vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of
the voting power of all of the then-outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class.
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ARTICLE VII
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law as so amended.
Any repeal or modification of the foregoing provisions of this Article
by the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of, or increase
the liability of any director of this Corporation with respect to any acts or
omissions of such director occurring prior to, such repeal or modification.
ARTICLE VIII
The board of directors is expressly empowered to adopt, amend or repeal
the Bylaws of the Corporation. Any adoption, amendment or repeal of the Bylaws
of the Corporation by the board of directors shall require the approval of a
majority of the Whole Board. The stockholders shall also have power to adopt,
amend or repeal the Bylaws of the Corporation; provided, however, that, in
addition to any vote of the holders of any class or series of stock of the
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then-outstanding shares of the
capital stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required to adopt, amend
or repeal any provision of the Bylaws of the Corporation.
ARTICLE IX
In addition to any vote of the holders of any class or series of the
stock of this Corporation required by law or by this Certificate of
Incorporation, the affirmative vote of the holders of a majority of the voting
power of all of the then outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required to amend or repeal the provisions of Article I,
Article II, and Article III of this Certificate of Incorporation.
Notwithstanding any other provision of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then outstanding shares of the
capital stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required to amend or
repeal any provision of this Certificate of Incorporation not specified in the
preceding sentence.
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<PAGE> 4
* * * *
The name and mailing address of the Sole Incorporator is as follows:
Arman Pahlavan, Esq.
Georgopoulos & Pahlavan LLP
935 Hamilton Avenue
Menlo Park, CA 94025
IN WITNESS WHEREOF, this Certificate of Incorporation has been executed
in Menlo Park, California this 20th day of December 1999.
By: /s/ Arman Pahlavan
---------------------------------
Arman Pahlavan, Sole Incorporator
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<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
TRIBEWORKS, INC.
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington,
County of Newcastle, State of Delaware.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held in the City of San Francisco, State of California, at
such place as may be fixed from time to time by the Board of Directors, or at
such other place either within or without the State of Delaware as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting. Meetings of stockholders for any other purpose may be held at
such time and place, within or without the State of Delaware, as shall be stated
in the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders, commencing with the year
2000, shall be held at such date and time as shall be designated from time to
time by the Board of Directors and stated in the notice of the meeting, at which
they shall elect by a plurality vote a board of directors, and transact such
other business as may properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not fewer than ten (10) nor more than sixty (60) days before the
date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be
<PAGE> 2
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning at least ten
percent (10%) in amount of the entire capital stock of the corporation issued
and outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
Section 6. Written notice of a special meeting stating the place, date
and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be given not fewer than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of fifty percent (50%) of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of
incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
Section 11. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special meeting
of stockholders of the corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action
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<PAGE> 3
so taken, shall be signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole
board shall be determined by resolution of the Board of Directors or by the
stockholders at the annual meeting of the stockholders, except as provided in
Section 2 of this Article, and each director elected shall hold office until his
successor is elected and qualified. Directors need not be stockholders.
Section 2. Vacancies and new created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent
(10%) of the total number of the shares at the time outstanding having the right
to vote for such directors, summarily order an election to be held to fill any
such vacancies or newly created directorships, or to replace the directors
chosen by the directors then in office.
Section 3. The business of the corporation shall be managed by or under
the direction of its board of directors which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these bylaws directed or required to
be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 5. The first meeting of each newly elected Board of Directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
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<PAGE> 4
Section 6. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the president
on two (2) days' notice to each director by mail or forty-eight (48) hours
notice to each director either personally or by telegram; special meetings shall
be called by the president or secretary in like manner and on like notice on the
written request of two (2) directors unless the board consists of only one
director, in which case special meetings shall be called by the president or
secretary in like manner and on like notice on the written request of the sole
director.
Section 8. At all meetings of the board a majority of the directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
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<PAGE> 5
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
Section 12. Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
incorporation or these bylaws, any director or the entire Board of Directors may
be removed, with or without cause, by the holders of a majority of shares
entitled to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
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<PAGE> 6
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the Board
of Directors and shall be a president, treasurer and a secretary. The Board of
Directors may elect from among its members a Chairman of the Board and a Vice
Chairman of the Board. The Board of Directors may also choose one or more vice-
presidents, assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the certificate of incorporation
or these bylaws otherwise provide.
Section 2. The Board of Directors at its first meeting after each annual
meeting of stockholders shall choose a president, a treasurer, and a secretary
and may choose vice presidents.
Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the Board
of Directors may be removed at any time by the affirmative vote of a majority of
the Board of Directors. Any vacancy occurring in any office of the corporation
shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if any, shall preside at all
meetings of the Board of Directors and of the stockholders at which he shall be
present. He shall have and may exercise such powers as are, from time to time,
assigned to him by the board and as may be provided by law.
Section 7. In the absence of the Chairman of the Board, the Vice
Chairman of the Board, if any, shall preside at all meetings of the Board of
Directors and of the stockholders at which he shall be present. He shall have
and may exercise such powers as are, from time to time, assigned to him by the
board and as may be provided by law.
THE PRESIDENT AND VICE-PRESIDENTS
Section 8. The president shall be the chief executive officer of the
corporation; and in the absence of the Chairman and Vice Chairman of the Board
he shall preside at all meetings of the stockholders and the Board of Directors;
he shall have general and active management of the business of the corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect.
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Section 9. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the corporation.
Section 10. In the absence of the president or in the event of his
inability or refusal to act, the vice-president, if any, (or in the event there
be more than one vice-president, the vice-presidents in the order designated by
the directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
Section 12. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the Board of Directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 13. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors.
Section 14. He shall disburse the funds of the corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
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Section 15. If required by the Board of Directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 16. The assistant treasurer, or if there shall be more than one,
the assistant treasurers in the order determined by the Board of Directors (or
if there be no such determination, then in the order of their election) shall,
in the absence of the treasurer or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the treasurer and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled to
have a certificate, signed by, or in the name of the corporation by, the
Chairman or Vice Chairman of the Board of Directors, or the president or a
vice-president and the treasurer or an assistant treasurer, or the secretary or
an assistant secretary of the corporation, certifying the number of shares owned
by him in the corporation.
Certificates may be issued for partly paid shares and in such case upon
the face or back of the certificates issued to represent any such partly paid
shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Section 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
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LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholder or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
9
<PAGE> 10
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject
to the provisions of the certificate of incorporation, if any, may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SEAL
Section 5. The Board of Directors may adopt a corporate seal having
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 6. The corporation shall, to the fullest extent authorized under
the laws of the State of Delaware, as those laws may be amended and supplemented
from time to time, indemnify any director made, or threatened to be made, a
party to an action or proceeding, whether criminal, civil, administrative or
investigative, by reason of being a director of the corporation or a predecessor
corporation or, at the corporation's request, a director or officer of another
corporation, provided, however, that the corporation shall indemnify any such
agent in connection with a proceeding initiated by such agent only if such
proceeding was authorized by the Board of Directors of the corporation. The
indemnification provided for in this Section 6 shall: (i) not be deemed
exclusive of any other rights to which those indemnified may be entitled
10
<PAGE> 11
under any bylaw, agreement or vote of stockholders or disinterested directors or
otherwise, both as to action in their official capacities and as to action in
another capacity while holding such office, (ii) continue as to a person who has
ceased to be a director, and (iii) inure to the benefit of the heirs, executors
and administrators of such a person. The corporation's obligation to provide
indemnification under this Section 6 shall be offset to the extent of any other
source of indemnification or any otherwise applicable insurance coverage under a
policy maintained by the corporation or any other person.
Expenses incurred by a director of the corporation in defending a civil
or criminal action, suit or proceeding by reason of the fact that he is or was a
director of the corporation (or was serving at the corporation's request as a
director or officer of another corporation) shall be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized by relevant sections of the General Corporation Law of
Delaware. Notwithstanding the foregoing, the corporation shall not be required
to advance such expenses to an agent who is a party to an action, suit or
proceeding brought by the corporation and approved by a majority of the Board of
Directors of the corporation which alleges willful misappropriation of corporate
assets by such agent, disclosure of confidential information in violation of
such agent's fiduciary or contractual obligations to the corporation or any
other willful and deliberate breach in bad faith of such agent's duty to the
corporation or its stockholders.
The foregoing provisions of this Section 6 shall be deemed to be a
contract between the corporation and each director who serves in such capacity
at any time while this bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
The Board of Directors in its discretion shall have power on behalf of
the corporation to indemnify any person, other than a director, made a party to
any action, suit or proceeding by reason of the fact that he, his testator or
intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 6 of all directors,
officers and employees who are determined by the corporation or otherwise to be
or to have been "fiduciaries" of any employee benefit plan of the corporation
which may exist from time to time, Section 145 of the General Corporation Law of
Delaware shall, for the purposes of this Section 6, be interpreted as follows:
an "other enterprise" shall be deemed to include such an employee benefit plan,
including without limitation, any plan of the corporation which is governed by
the Act of Congress entitled "Employee Retirement Income Security Act of 1974,"
as amended from time to time; the corporation shall be deemed to have requested
a person to serve an employee benefit plan where the performance by such person
of his duties to the corporation also imposes duties on, or otherwise involves
services by, such person to the plan or participants or beneficiaries of the
plan; excise taxes assessed on a person with respect to an employee benefit plan
pursuant to such Act of Congress shall be deemed "fines."
11
<PAGE> 12
ARTICLE VIII
AMENDMENTS
Section 1. These bylaws may be altered, amended or repealed or new
bylaws may be adopted by the stockholders or by the Board of Directors, when
such power is conferred upon the Board of Directors by the certificate of
incorporation at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
bylaws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal bylaws is conferred upon the Board of Directors by the
certificate or incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal bylaws.
12
<PAGE> 1
EXHIBIT 9.1
PAN WORLD CORPORATION
VOTING AGREEMENT
This VOTING AGREEMENT (the "AGREEMENT") is made and entered into as of
November 2, 1999 by and among Pan World Corporation., a Nevada corporation (the
"COMPANY") and holders of Pan World Common Stock whose names appear on the
Signature Page hereto (the "MAJOR COMMON STOCKHOLDERS") effective as of and
contingent upon the closing of the Merger (as defined in Paragraph A below).
RECITALS
A. Tribeworks, Inc., a California corporation ("TRIBEWORKS"), and
Tribeworks Acquisition Corp., a California corporation and wholly-owned
subsidiary of the Company ("MERGER SUB"), have entered into an Agreement and
Plan of Merger dated as of August 19, 1999 (the "MERGER AGREEMENT"), which
provides for the merger (the "MERGER") of Merger Sub with and into Tribeworks.
B. Pursuant to the Merger Agreement, the holders of Tribeworks Series A
Preferred Stock and the holders of Tribeworks Common Stock have agreed to
convert such shares of Tribeworks Series A Preferred Stock and shares of
Tribeworks Common Stock, as applicable into shares of the Company Common Stock
(on the terms and conditions set forth in the Merger Agreement).
C. A condition to the parties' obligations under the Merger Agreement is
that the Company and the Major Common Stockholders enter into this Agreement for
the purpose of setting forth the terms and conditions pursuant to which the
Major Common Stockholders shall vote their shares of the Company's Common Stock
in favor of certain designees to the Company's Board of Directors. The Company
and the Major Common Stockholders each desire to facilitate the voting
arrangements set forth in this Agreement by agreeing to the terms and conditions
set forth below.
AGREEMENT
The parties agree as follows:
1. ELECTION OF DIRECTORS. At each annual meeting of the stockholders of
the Company, or at any meeting of the stockholders of the Company at which
members of the Board of Directors of the Company are to be elected, or whenever
members of the Board of Directors are to be elected by written consent, the
Major Common Stockholders agree to vote or act with respect to their shares so
as to elect:
<PAGE> 2
(a) Duncan Kennedy
(b) Patrick Soquet
(c) Gilbert Amar
(d) Thomas Williams
2. NO REVOCATION. The voting agreements contained herein are coupled with
an interest and may not be revoked during the term of this Agreement.
3. REMOVAL OF DIRECTORS. In the event of any vacancy on the Board of
Directors, the Major Common Stockholders will vote to fill such vacancy by
person(s) to be designated by Duncan Kennedy. In the event that Duncan Kennedy
resigns from the position of Director from the Company, then, the Major Common
Stockholders will vote to fill such vacancy by a person ("Kennedy Nominee") to
be nominated by Duncan Kennedy, and thereafter, the Major Common Stockholders
will vote to fill any such vacancy on the Board of Directors by such person as
shall be designated by the Kennedy Nominee or any successor(s) to the Kennedy
Nominee on the Board of Directors.
4. LEGENDS. Each certificate representing shares held by a Major Common
Stockholder or their respective transferees, successors or assigns shall be
endorsed by the Company with a legend reading as follows:
"THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING AGREEMENT BY AND
AMONG THE COMPANY AND CERTAIN STOCKHOLDERS OF THE COMPANY (A COPY OF
WHICH MAY BE OBTAINED FROM THE COMPANY), AND BY ACCEPTING ANY INTEREST
IN SUCH SHARES THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO
AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF SAID VOTING
AGREEMENT."
5. TERMINATION.
5.1 TERMINATION EVENT. This Agreement shall terminate upon the
earlier of:
(a) the consummation of the Company's initial public offering on
a firm commitment underwriting basis pursuant to a registration statement under
the Securities Act of 1933, as amended; or
(b) a sale of all or substantially all of the assets of the
Company or a consolidation or merger of the Company with or into any other
corporation or corporations in which the holders of the Company's outstanding
shares immediately before such consolidation or merger do not, immediately after
such consolidation or merger retain stock representing a majority of the voting
power of the surviving corporation of such consolidation or merger,
2
<PAGE> 3
provided that this Section 5.1 shall not apply to a merger effected exclusively
for the purpose of changing the domicile of the Company.
5.2 REMOVAL OF LEGEND. At any time after the termination of this
Agreement in accordance with Section 5.1, any holder of a stock certificate
legended pursuant to Section 4 may surrender such certificate to the Company for
removal of the legend, and the Company will duly reissue a new certificate
without the legend.
6. NO LIABILITY FOR ELECTION OF RECOMMENDED DIRECTOR. None of the
parties hereto and no officer, director, stockholder, partner, employee or agent
of any such party makes any representation or warranty as to the fitness or
competence of the nominee of any party hereunder to serve on the Board of
Directors of the Company by virtue of such party's execution of this Agreement
or by the act of such party in voting for such nominee pursuant to this
Agreement.
7. AMENDMENTS; WAIVERS. Any term hereof may be amended or waived
with the written consent of the Company and holders of the majority of the total
aggregate number of shares of Common Stock held by the Major Common Stockholders
as of the time of amendment hereof; provided, however, in no event may the terms
of this Agreement be amended prior to the fifth anniversary hereof.
8. NOTICES. Any notice required or permitted by this Agreement shall
be in writing and shall be deemed sufficient on the date of delivery, when
delivered personally or by overnight courier or sent by telegram or fax, or
forty-eight (48) hours after being deposited in the U.S. mail, as certified or
registered mail, with postage prepaid, and addressed to the party to be notified
at such party's address as set forth below or as subsequently modified by
written notice.
9. SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
10. GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
11. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
12. SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
3
<PAGE> 4
13. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof, and
supersedes all other written or oral agreements existing between the parties
with respect to the subject matter hereof.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Voting Agreement
as of the date and year first written above.
THE COMPANY:
Pan World CORPORATION
By: /s/ Duncan Kennedy
----------------------------
Name: Duncan Kennedy
Title: President
MAJOR COMMON STOCKHOLDERS
/s/ Daniel L. Hodges
- ----------------------------------
Daniel L. Hodges
5505 N. Indian Trail
Tucson, AZ 85759
/s/ Jennifer L. Worden
- ----------------------------------
Jennifer L. Worden
9055 E. Catlina Hwy., No. 5206
Tucson, AZ 85749
/s/ Duncan Kennedy
- ----------------------------------
Duncan Kennedy
1620 Montgomery Street, Suite 120
San Francisco, CA 94111
5
<PAGE> 6
SIGNATURE PAGE TO VOTING AGREEMENT
DATED NOVEMBER 2, 1999
MAJOR COMMON STOCKHOLDERS
Keepsake SPRL
Avenue Eugene Demolder 38
1030 Brussels
Belgium
By: /s/ Patrick Soquet
------------------------------
Name: Patrick Soquet
Title: Manager
/s/ Gilbert Amar
- ----------------------------------
Gilbert Amar
1620 Montgomery Street, Suite 120
San Francisco, CA 94111
6
<PAGE> 1
EXHIBIT 10.1
Execution Copy
Software Agreement
Between: Tribeworks, Inc., a California corporation ("Tribeworks"), with
offices located 1620 Montgomery Street, Suite 220, San Francisco,
California 94111;
And: Keepsake sprl, a Belgian corporation ("Keepsake") with offices
located at Avenue Eugene Demolder 38 at 1030 Brussels, Belgium;
And: Mr. Gilbert Amar ("Amar"), residing at 5, rue Helene at 75017
Paris, France.
Dated: November 2, 1999
Preamble
Tribeworks is engaged in developing software applications for web media
developers through the Internet.
Keepsake has extensive experience in development of multimedia publishing
software tools.
Keepsake has developed a software authoring tool distributed under the tradename
"iShell" (the "Software").
Amar has assisted Keepsake in development of the Software.
Tribeworks is commercializing the Software.
In consideration for the premises and covenants included herein, the parties
agree to enter into this Agreement.
Agreement
1. Keepsake is holder of all intellectual property rights, including copyrights
to the Software. The specifications to the Software are specified on Annex A.
The credits regarding the authors of the Software that are imbedded in the
source code shall remain unchanged.
2. Keepsake and Amar warrant to Tribeworks that they are authorized to enter
this Agreement. To the best of the knowledge of Amar and Keepsake, execution of
this Agreement by Keepsake and Amar will not conflict with any rights granted by
Keepsake or Amar in the Software to any third party .Keepsake and Amar further
represent that (i) the Software is proprietary to Keepsake and Amar, and (ii) to
the best of their knowledge, the Software does not infringe upon or conflict
with the intellectual property rights of any third parties in the Software.
<PAGE> 2
3. Keepsake and Amar hereby assign to Tribeworks all of their right, title and
interest to the Software (including without limitation the source code, the
tradename, and other related intellectual property rights). Tribeworks agrees to
pay Keepsake the consideration as specified in Annex B.
4. KEEPSAKE AND AMAR EXPRESSLY DISCLAIM ANY WARRANTIES WITH RESPECT TO THE
SOFTWARE EXCEPT THOSE SPECIFIED IN SECTION 2 ABOVE. THE SOFTWARE IS PROVIDED ON
AN "AS IS BASIS". ANY WARRANTY OF MERCHANT ABILITY OR FITNESS FOR A PARTICULAR
USE OR PURPOSE IS EXPRESSLY DISCLAIMED.
5. Unless there would be a breach of Section 2 above, Keepsake and Amar shall in
no event be liable for any damages (including without limitation, damages for
loss of business profits, business interruption, loss of business information,
or any other pecuniary loss) related directly or indirectly to the Software. In
the event that the provisions of preceding sentence set forth in this Section 5
shall be considered invalid under the laws of the applicable jurisdiction, or in
the event of breach by Keepsake and/or Amar of the provisions of Section 2
hereunder, the parties acknowledge that the total damages due and payable by
Keepsake and/or Amar hereunder shall not exceed twenty-five percent (25%) of the
total aggregate consideration paid by Tribeworks to Keepsake and Amar under this
Agreement.
6. Tribeworks undertakes on a "best effort basis" to commercialize and to
develop the worldwide notoriety of the Software. Tribeworks shall organize a
professional team to support the Software and to respond to any queries
regarding the Software by users.
7. Upon (i) institution by or against Tribeworks of any action for insolvency,
receivership or bankruptcy or any other proceedings for settlement of
Tribeworks' debts, or (ii) Tribeworks' making an assignment for the benefit of
creditors, or (iii) Tribeworks, dissolution or insolvency (the events specified
in clauses (i) through (iii) hereof being referred to herein as "Insolvency
Events"), Tribeworks will grant to Keepsake a royalty-free license to the
Software and any derivative works based on the Software. For purposes hereof,
term "Derivative Works" shall mean all work based on the Software such as a
revision, modification, translation, compilation, or any other form, including a
new work in which the Software may be recast, transformed or adapted (including
but not limited to error corrections or enhancements to the Software). In
connection with the foregoing, Tribeworks shall make available to Keepsake all
documentation relating to the Software or the Derivative Works upon occurrence
of an Insolvency Event.
8. Keepsake shall assist Tribeworks for a period of 12 months after execution of
this Agreement in development of the Software on a "best effort basis". The
relationships of Tribeworks and Keepsake shall be that of an independent
contractor for work performed by Keepsake for Tribeworks under this Section 8.
All work product developed by Keepsake for Tribeworks after the date hereof
under this Section 8 shall constitute the property of Tribeworks. The fees
payable by Tribeworks to Keepsake for this development work are specified in
Annex C. Tribeworks shall deliver to Keepsake such copies of the Software and
Derivative Works to enable Keepsake to perform its duties under this Agreement.
Any copies of the Software and Derivative Works
2
<PAGE> 3
delivered by Tribeworks to Keepsake for this purpose shall be used by Keepsake
for internal purpose only.
9. Commencing as of the effective date of this Agreement, Tribeworks will
perform all development with respect to the Software. Tribeworks' development
work will be headed by Amar.
10. Failure by either party to enforce any provision of this Agreement will not
be deemed a waiver of future enforcement of that or any other provision. This
Agreement is governed by and construed in accordance with the laws of Belgium.
In case of litigation, the courts having exclusive jurisdiction shall always be
the courts in which judicial area the registered office of the defendant is
located. This Agreement, including all annexes thereto, constitutes the entire
Agreement between the parties with respect to the subject matter hereof, and
supersedes and replaces all prior or contemporaneous understandings or
agreements, written or oral regarding such subject matter. Any amendment to this
Agreement should be made exclusively by written means.
IN WITNESS WHEREOF, that parties have executed this Agreement by their duly
authorized representative as of the date specified below.
TRIBEWORKS, INC.
By: /s/ Duncan Kennedy
---------------------------------
Name: Duncan Kennedy
Title: CEO
KEEPSAKE SPRL
By: /s/ Patrick Soquet
---------------------------------
Name: Patrick Soquet
Title: Manager
/s/ Gilbert Amar
- ------------------------------------
Gilbert Amar
Acknowledged:
PAN WORLD CORPORATION
By: /s/ Thomas Williams
---------------------------------
Name: Thomas Williams
Title: President
3
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
State of Name under which
Name Incorporation subsidiary does business
- ---- ------------- ------------------------
<S> <C> <C>
Tribeworks Development California Tribeworks Development
Corporation Corporation
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR YEAR
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-2000 JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-2000 DEC-31-1999 DEC-31-1998
<CASH> 407,657 157,353 37,723
<SECURITIES> 0 0 0
<RECEIVABLES> 140,966 62,754 44,542
<ALLOWANCES> 10,000 10,000 600
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 538,623 210,107 81,665
<PP&E> 171,294 145,368 0
<DEPRECIATION> 20,417 8,451 0
<TOTAL-ASSETS> 689,500 347,024 81,665
<CURRENT-LIABILITIES> 258,137 358,506 74,218
<BONDS> 0 40,000 0
0 0 0
0 0 0
<COMMON> 1,640 1,601 1,286
<OTHER-SE> 429,723 (53,083) 6,161
<TOTAL-LIABILITY-AND-EQUITY> 689,500 347,024 81,665
<SALES> 0 0 0
<TOTAL-REVENUES> 164,863 199,198 5,562
<CGS> 0 0 0
<TOTAL-COSTS> 12,710 67,120 0
<OTHER-EXPENSES> 448,964 1,213,753 65,515
<LOSS-PROVISION> 0 9,400 600
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> (296,811) (1,091,075) (60,553)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> 0 0 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (296,811) (1,091,075) (60,553)
<EPS-BASIC> (0.02) (0.07) 0
<EPS-DILUTED> (0.02) (0.07) 0
</TABLE>
