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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1996
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ________ to ________
Commission File Number 0-24030
THE PANDA PROJECT, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0323354
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5201 CONGRESS AVENUE, C-100
BOCA RATON, FLORIDA 33487
(Address of principal executive offices)
(561) 994-2300
(Registrant's telephone number)
NONE
(Former name, former address and former fiscal year,
if changed since last report.)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO____.
APPLICABLE ONLY TO ISSUERS INVOLED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
INDICATE BY CHECK MARK WHETHER THE REGISTRANT FILED ALL DOCUMENTS AND
REPORTS REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT. YES____ NO____.
APPLICABLE ONLY TO CORPORATE ISSUERS
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE: AS OF AUGUST 15,
1996, THE PANDA PROJECT, INC. HAD 9,778,258 SHARES OF COMMON STOCK OUTSTANDING.
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<PAGE>
THE PANDA PROJECT, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance Sheets 3
Statement of Operations 4
Statement of Cash Flows 5
Notes to Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 12
Item 2 - Changes in Securities 12
Item 3 - Defaults Upon Senior Securities 12
Item 4 - Submission of Matters to Vote of Security Holders 12
Item 5 - Other Information 12
Item 6 - Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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<TABLE>
<CAPTION>
THE PANDA PROJECT, INC.
BALANCE SHEETS
- ------------------------------------------------------------------------------------------------
JUNE 30, MARCH 31,
1996 1996
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 6,736,663 $ 10,731,540
Accounts receivable-trade (net of allowance of
$171,943 at June 30, 1996 and March 31, 1996) 229,690 311,375
Inventory 1,969,746 1,616,022
Other receivables 405,597 488,556
Prepaid expenses and other current assets 97,416 246,942
---------------- -----------------
Total current assets 9,439,112 13,394,435
---------------- -----------------
Property and equipment, net 4,139,166 4,315,199
Restricted cash 900,000 750,000
Other assets 99,556 98,047
---------------- -----------------
Total assets $ 14,577,834 $ 18,557,681
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable - trade $ 468,765 $ 1,216,530
Accrued compensation and employee benefits 254,740 266,148
Other current liabilities 3,897,604 2,207,412
---------------- -----------------
Total current liabilities 4,621,109 3,690,090
---------------- -----------------
Commitments and contingencies - -
---------------- -----------------
Stockholders' Equity:
Common Stock, $.01 par value, 20,000,000
shares authorized, 9,126,175 shares at June 30, 1996
and 8,680,488 shares at March 31, 1996 issued and
outstanding 91,262 86,805
Additional paid-in capital 50,695,376 47,822,586
Accumulated deficit (40,829,913) (33,041,800)
---------------- -----------------
Total stockholders' equity 9,956,725 14,867,591
---------------- -----------------
Total liabilities and stockholders' equity $ 14,577,834 $ 18,557,681
================ =================
</TABLE>
The Balance Sheet at March 31, 1996 has been derived from
the audited financial statements of the Company at that date.
See Notes to the Financial Statements.
3
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THE PANDA PROJECT, INC.
STATEMENTS OF OPERATIONS
- -----------------------------------------------------------------------------
THREE MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995
(UNAUDITED)
Gross revenues $ 596,569 $ -
Less sales returns and allowances (163,457) -
------------- ------------
Net revenues 433,112 -
Operating expenses:
Cost of sales--Note 2 790,106 -
Research and development 1,537,068 1,622,471
Selling, general and administrative 4,552,836 2,371,375
Costs associated with asset
impairments--Note 4 1,471,026 -
------------- ------------
Total operating expenses 8,351,036 3,993,846
------------- ------------
Operating loss (7,917,924) (3,993,846)
Interest income 122,004 99,043
Other income 7,807 -
------------- ------------
Net loss ($ 7,788,113) ($ 3,894,803)
============= ============
Net loss per common share ($0.88) ($0.58)
============= ============
Weighted average number of
shares of common stock and
common stock equivalents
outstanding 8,810,664 6,683,547
============= ============
See Notes to the Financial Statements.
4
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<TABLE>
<CAPTION>
THE PANDA PROJECT, INC.
STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------
THREE MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 7,788,113) ($ 3,894,803)
------------- -------------
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 403,361 70,709
Decrease in accounts receivable, net 81,685 -
Decrease in other receivables 82,959 -
Decrease (increase) in prepaid expenses
and other current assets 149,526 (111,672)
Increase in inventory, net (353,723) (122,256)
Increase in other assets (1,509) -
Decrease in accounts payable-trade (747,765) (51,024)
(Decrease) increase in accrued compensation and
employee benefits (11,408) 128,376
Increase (decrease) in other current liabilities 1,690,191 (362,117)
------------- -------------
Total adjustments 1,293,317 (412,068)
------------- -------------
Net cash used by operating
activities (6,494,796) (4,306,871)
------------- -------------
Cash flows from investing activities:
Additions to property and equipment (227,328) (498,977)
------------- -------------
Net cash used by investing activities (227,328) (498,977)
------------- -------------
Cash flows from financing activities:
Proceeds from issuance of stock 2,877,247 90,900
------------- -------------
Net cash provided by financing activities 2,877,247 90,900
------------- -------------
Net decrease in cash and cash equivalents (3,844,877) (4,714,948)
Cash and cash equivalents at beginning
of period 10,731,540 8,481,300
------------- -------------
Cash and cash equivalents at end of period $ 6,886,663 $ 3,766,352
============= =============
</TABLE>
During the quarter ended June 30, 1996, the Company sold certain products to a
software developer in exchange for certain licenses to use the developer's
software for internal purposes. Revenues and fixed assets were recorded as a
result of the transaction in the amount of approximately $327,000.
See Notes to the Financial Statements.
5
<PAGE>
THE PANDA PROJECT, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying condensed financial statements of The Panda Project, Inc. ("the
Company") have been prepared in accordance with generally accepted accounting
principles on a basis consistent in all material respects with those applied in
the Annual Report on Form 10-K for the year ended March 31, 1996. The interim
financial information is unaudited, but reflects all normal adjustments which
are, in the opinion of management, necessary to provide a fair statement of
results of operation for the interim periods presented. The interim financial
statements should be read in connection with the financial statements in the
Company's Annual Report on Form 10-K for the year ended March 31, 1996.
2. INVENTORY
JUNE 30, 1996 MARCH 31, 1996
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Raw materials $ 1,237,134 $ 937,388
Work in process 93,611 225,872
Finished goods 639,001 452,762
------------- --------------
$ 1,969,746 $ 1,616,022
Inventory is valued at net realizable value, which is net of obsolescence
reserves of approximately $128,000 and $800,000 at March 31, 1996 and June 30,
1996, respectively.
During the quarter ended June 30,1996, approximately $500,000 was charged to
cost of sales in connection with the write down of certain inventory to net
realizable value, and the recognition of scrap and rework charges associated
with certain engineering changes made to existing products.
3. STOCKHOLDERS' EQUITY
In July 1996, the Company completed the sale of 1,087,833 shares of its common
stock in a private placement to accredited investors. The Company received
proceeds of approximately $9 million, net of expenses of approximately $800,000.
At June 30, 1996, the Company had received $1.8 million in proceeds from
investors, which is reflected in the accompanying balance sheet.
In addition to the shares of common stock purchased by each investor in the
placement, such investor received a warrant to purchase an equal number of
shares of common stock at an exercise price of $11 per share. The warrants
expire in July 2001 and are callable by the Company whenever the Company's
common stock trades at a price of $26 or more for thirty consecutive trading
days. No value has been separately allocated to these warrants.
In addition, during the quarter ended June 30, 1996, options to purchase 245,687
shares of common stock were exercised for which the company received proceeds of
approximately $1,077,000.
6
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THE PANDA PROJECT, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
- --------------------------------------------------------------------------------
4. COSTS ASSOCIATED WITH ASSET IMPAIRMENTS
During the quarter ended June 30, 1996, the Company determined that, due to
various events and changes in circumstances (including efforts to streamline
operations and to increase the use of strategic alliances to manufacture and
market the Company's products), certain long-lived assets were impaired. As a
result, in the first quarter of fiscal 1997, the Company recorded a charge of
approximately $1.5 million, the majority of which relates to assets which will
continue to be held and used in continuing operations. Of this total,
approximately $650,000 relates to demonstration and promotional equipment and
approximately $350,000 relates to production equipment and tooling. The
remaining portion relates principally to an automated inventory control system
considered by the Company to be of limited future use. The Company determined
the amount of the asset impairment charge using various valuation techniques.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company was incorporated in April 1992 to design, develop, and license
products incorporating the Company's proprietary semiconductor packaging and
interconnect technology (the "Archistrat Technology Products") and to develop,
manufacture and market a line of powerful, modular computers (the "Archistrat
Computers"). The Company's fiscal year ends March 31. Prior to January 1, 1996,
the Company was considered a "development stage enterprise" as defined by
Statement of Financial Accounting Standards No. 7 (FAS 7), ACCOUNTING AND
REPORTING BY DEVELOPMENT STAGE ENTERPRISES, and the Company's financial
statements for all periods prior to that date were prepared on the basis
specified in FAS 7. The Company emerged from development stage status as of
January 1, 1996.
This Report on Form 10-Q contains forward-looking statements. For this purpose
any statements contained herein that are not statements of historical fact may
be deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes", "anticipates", "plans", "expects" and similar expressions are
intended to identify forward-looking statements. There are a number of important
factors that could cause the company's actual results to differ materially from
those indicated by such forward-looking statements. These factors, include,
without limitation, delays in product development, competitive pressures,
manufacturing risks, general economic conditions and the risk factors detailed
from time to time in the company's periodic reports and registration statements
filed with the Securities and Exchange Commission.
RESULTS OF OPERATIONS - FIRST QUARTER OF 1997 COMPARED TO FIRST QUARTER OF 1996
Gross revenue from the sale of Archistrat computers amounted to $596,569 during
the quarter ended June 30, 1996 (the "first quarter of fiscal 1997"); net
revenue for the period accounted to $433,112 after deducting sales returns and
allowances. Because the Company began shipment of production units of the
Archistrat Computer, its first commercially available product, during the second
quarter of fiscal 1996, no revenues from operations were realized during the
quarter ended June 30, 1995 (the "first quarter of fiscal 1996").
During the fourth quarter of fiscal year 1996, the Company entered into
arrangements with Siemens Nixdorf Information Systems, Inc. ("Siemens") and with
Parametric Technology Corporation ("Parametric") relating to the marketing of
its Archistrat computers. The Siemens arrangement is subject to execution of a
definitive agreement, and no sales of computers have been made by the Company
under the terms of this arrangement. Subject to the completion of the definitive
agreement, management believes such sales are likely to occur during the quarter
ending December 31, 1996. Sales aggregating $327,000 were made under the
arrangements with Parametric during the quarter ended June 30, 1996.
In June 1996, the Company entered into a license agreement with AMP Incorporated
under which AMP is granted the right to manufacture and market the Company's
VSPA product. Under this agreement, AMP has exclusive rights to the VSPA product
in certain fields for a limited period of time and non-exclusive rights in all
other fields for the term of the patents included in the license agreement. The
Company is entitled to receive royalties on sales by AMP or its affiliates of
the VSPA packages.
8
<PAGE>
The revenue and gross profit amounts for the first quarter of fiscal 1997 do not
include the effects of any licensing arrangements related to the Company's
Archistrat Technologies. The Company expects to realize licensing revenue in an
amount not yet quantified during fiscal 1997.
Selling, general and administrative (SG&A) expenses for the quarter ended June
30, 1996 increased approximately $2.2 million to $4.6 million as compared to
$2.4 million for the corresponding quarter of the previous year. The significant
increase (92%) in SG&A expenses is due principally to the costs incurred in
connection with the introduction of the Archistrat 4s server, and the expansion
of distribution channels and the sales force. In this connection, the Company
significantly increased the number of employees from 63 at June 30, 1995 to 140
at June 30, 1996. As a result, employee compensation and related expenses, such
as state and federal unemployment taxes, health insurance premiums and other
fringe benefits, amounted to $1.7 million for the quarter ended June 30, 1996,
as compared with approximately $700,000 for the corresponding quarter of the
previous year. As of August 1, 1996, the Company has reduced its number of
full-time employees to approximately 100 and does not expect to significantly
increase that number during the next fiscal quarter. Increased sales of the
Company's Archistrat Computers, additional licensing arrangements related to the
Company's Semiconductor Technology, or both may require the hiring of additional
employees in the later months of fiscal 1997. Professional fees, such as legal
services associated with registration of patents, accounting and auditing, and
various other consulting services, increased approximately $570,000 compared to
the corresponding period of the preceding year. Facility rent and insurance
expense increased approximately $330,000 compared to the corresponding period of
the preceding year.
Research and development (R&D) expenses totaled approximately $1.5 million for
the first quarter of fiscal 1997, representing a slight decrease as compared to
$1.6 million for the first quarter of fiscal 1996. The Company believes that its
level of R&D spending is appropriate to support current operations and to
continue to maintain strong efforts to design and develop VSPA, Compass PGA, and
the Archistrat 4s Computers and related technologies. During the quarter ended
June 30, 1996, research and development activities included continued testing
and qualification of VSPA; development of initial production tooling for VSPA;
development of Compass PGA, and the development of a new processor
board utilizing DEC's alpha microprocessor.
During the quarter ended June 30, 1996, management initiated a review which
ultimately led to a realignment of responsibilities of the Company's two
divisions, and a reduction in the number of employees, as well as adjustments to
the carrying value of certain assets. During this review, management considered
the nature and extent to which the Company has used strategic alliances with
larger, more established companies and concluded that the use of such
arrangements should be continued and expanded, when appropriate.
Management concluded that the alliances entered into with Siemens and Parametric
relating to the marketing of the Company's Archistrat computers and with AMP
relating to the VSPA product are representative of the types of alliances that
the Company will seek to establish in the future. Such future alliances will
likely relate to manufacturing activities and product and technology
development, as well as the marketing of such products and technologies. By
using the greater resources of larger, more
9
<PAGE>
established companies, the Company believes it will be able to achieve its
objectives more quickly and with less expenditure of its own resources.
In connection with management's review, the Company determined that, due to
various events and changes in circumstances (as described above), certain
long-lived assets were impaired. As a result, in the first quarter of fiscal
1997, the Company recorded a charge of approximately $1.5 million, the majority
of which relates to assets which will continue to be held and used in continuing
operations. Of this total, approximately $650,000 relates to demonstration and
promotional equipment and approximately $350,000 relates to production equipment
and tooling. The remaining portion relates principally to an automated inventory
control system considered by the Company to be of limited future use.
In realigning the responsibilities of the Company's two divisions, the
activities of the newly named Semiconductor Technologies Division were limited
to focusing on the VSPA semiconductor package and related technologies. That
division's other previous activities were absorbed by the Company's Systems
Division. As a result of these changes and other actions taken by management,
the total number of employees of the Company was reduced to approximately
100 as of August 1, 1996.
Depreciation expense increased to $380,996 in the first quarter of fiscal 1997
from $70,709 in the first quarter of fiscal 1996. This increase is primarily due
to the acquisition of office furniture and equipment resulting from the hiring
of additional full-time personnel, and the acquisition near the end of fiscal
1996 of machinery and equipment necessary to develop the internal capability and
capacity to manufacture VSPA as well as the Compass Connectors.
Interest and other income for the first quarter of fiscal 1997 increased to
$129,811 from $99,043 from the first quarter of fiscal 1996.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has largely been dependent upon the proceeds of sales of
its securities to fund its activities. The Company expects that increased
shipments of Archistrat computers and the related revenue, as well as licensing
revenue from the arrangement with AMP and other potential licensees, will
provide additional resources to partially fund its activities during the
remainder of the current fiscal year. However, sales of Archistrat computers to
date have been limited, there has been no licensing revenue from the AMP
arrangement nor have revenues from any additional licensing agreements been
realized as of the date of this report.
In connection with the management review discussed previously, a revised budget
for the remainder of the current fiscal is being developed. In addition to the
savings expected from the reduction in number of employees resulting from the
actions described earlier, management intends to bring total spending to a level
which will permit the continuation of appropriate spending for critical research
and development and marketing activities but which will also make prudent use of
the Company's total resources.
In July 1996, the Company completed the sale of 1,087,833 shares of its common
stock in a private placement to accredited investors. The Company received
proceeds of approximately $9 million, net of expenses of approximately $800,000.
At June 30, 1996, the Company had received $1.8 million in proceeds from
investors, which is reflected in the accompanying balance sheet. In addition to
the shares of common stock purchased by each investor in the placement, such
investor received a warrant to purchase an equal number of shares of common
stock at an exercise price of $11 per share. The warrants expire in July 2001
and are callable by the Company whenever the Company's common stock trades at a
price of $26 or more for thirty consecutive trading days. In connection with the
placement, the company entered into a Registration Rights Agreement entitling
each purchaser the right to cause the company to effect the registration of the
company shares of common stock held by the purchaser under the terms and
conditions set forth in the agreement.
As of June 30, 1996, the Company had working capital of approximately $4.8
million. The Company anticipates, based on its revised plans and assumptions
relating to its operations, that the amount of working capital at June 30, 1996,
as augmented by proceeds received from the July 1996 private placement,
anticipated revenues from the sale of Archistrat computers and limited licensing
revenue, will be sufficient to satisfy the Company's anticipated cash
requirements through March 31, 1997.
11
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In April 1996, William J. Sarubbi, the Company's former Vice President
of Sales, filed a suit against the Company and Melissa Crane (Mr.
Crane's wife) in the Circuit Court of the 15th Judicial Circuit in Palm
Beach County, Florida. The suit alleges that Mr. Sarubbi is entitled to
certain sales commissions from the Company and that certain
misrepresentations were made to Mr. Sarubbi by Ms. Crane which prevented
him from selling stock of the Company. At this time the Company cannot
determine the liability, if any, that may be assessed in this matter.
The Company believes Mr. Sarubbi's claims are without merit and intends
to defend the suit vigorously.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Form of Registration Rights Agreement dated July 18, 1996
27 Financial Data Schedule
(b) Reports on Form 8-K:
A current report on Form 8-K dated April 8, 1996 was filed on April 19,
1996 reporting certain changes in the management of the Registrant, an
event reported under Item 5 - Other Events.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
registrant caused duly this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE PANDA PROJECT, INC.
Date: August 16, 1996
By: /s/ C. DARYL HOLLIS
----------------------------------
C. Daryl Hollis, Chief Financial Officer
(On behalf of the Registrant and as Principal
Financial and Accounting Officer)
13
EXHIBIT 10.1
REGISTRATION RIGHTS AGREEMENT
This Agreement dated as of July __, 1996 is entered into by and among
The Panda Project, Inc., a Florida corporation (the "Company"), and the
Purchasers listed on Exhibit A attached hereto (the "Purchasers").
WHEREAS, the Company has accepted the subscription by each Purchaser for
the number of shares of Common Stock, $.01 par value, of the Company ("Common
Stock") set forth opposite such Purchaser's name on Exhibit A attached hereto
under the heading "Number of Shares" (the "Company Shares") and has agreed to
issue each Purchaser a warrant to purchase the number of shares of Common Stock
set forth opposite such Purchaser's name on Exhibit A attached hereto under the
heading "Number of Warrant Shares" (the "Warrant Shares") (all of such Company
Shares and Warrant Shares are referred to herein as the "Registrable Shares");
and
WHEREAS, the Company and the Purchasers desire to provide for certain
arrangements with respect to the registration of shares of Common Stock of the
Company under the Securities Act of 1933;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:
"AFFILIATE" of a party means any member of such party's
immediate family or any person or entity that controls, is controlled by or is
under common control with such party. "Control" shall mean (a) in the case of a
corporation, ownership of at least 51% of the voting stock, and (b) in the case
of a partnership, limited liability company or other entity, ownership of at
least 51% of the beneficial interest.
"COMMISSION" means the Securities and Exchange Commission, or any
other Federal agency at the time administering
<PAGE>
the Securities Act.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any similar Federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
"REGISTRATION STATEMENT" means a registration statement filed by
the Company with the Commission for a public offering and sale of Common Stock
as provided in Section 2 below.
"REGISTRATION EXPENSES" means the expenses described in Section
4.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or
any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
2. REGISTRATION.
(a) At any time prior to March 31, 1997, a Purchaser or
Purchasers holding in the aggregate at least 51% of the Company Shares may
request the Company, in writing, to effect the registration on Form S-3 (or any
successor form thereto) of the Company Shares held by such Purchaser or
Purchasers. Upon receipt of any such request, the Company shall promptly give
written notice of such proposed registration to all Purchasers. Such Purchasers
shall have the right, by giving written notice to the Company within 10 days
after the Company provides its notice, to elect to have included in such
registration such of their Company Shares as such Purchasers may request in such
notice of election. Thereupon, the Company shall, as expeditiously as possible,
use its best efforts to effect the registration on Form S-3 (or such successor
form) of all Company Shares which the Company has been requested to so register.
The Company shall not be required to effect more than one registration pursuant
to this Section 2(a).
(b) A Purchaser or Purchasers holding in the aggregate at least
100,000 Warrant Shares (or adjusted for stock splits, stock dividends and
similar recapitalizations) may request the Company, in writing, to effect the
registration on Form S-3 (or any successor form thereto) of the Warrant Shares
held by such Purchaser or Purchasers. Upon receipt of any such request, the
Company shall promptly give written notice of such proposed registration to all
Purchasers. Such Purchasers shall have the right, by giving written notice to
the Company within 10 days after the Company provides its notice, to elect to
have included
<PAGE>
in such registration such of their Registrable Shares as such Purchasers may
request in such notice of election. Thereupon, the Company shall, as
expeditiously as possible, use its best efforts to effect the registration on
Form S-3 (or such successor form) of all Registrable Shares which the Company
has been requested to so register. The Company shall not be required to effect
more than one registration pursuant to this Section 2(b) or to register the
warrants underlying the Warrant Shares.
3. REGISTRATION PROCEDURES. In connection with the registration of
the Registrable Shares, the Company shall:
(a) file with the Commission a Registration Statement with
respect to such Registrable Shares and use its best efforts to cause that
Registration Statement to become and remain effective;
(b) as expeditiously as possible prepare and file with the
Commission any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective, until the earlier of the sale of all
Registrable Shares covered thereby or six months after the effective date of
Registration Agreement;
(c) as expeditiously as possible furnish to each Purchaser such
reasonable numbers of copies of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as the Purchaser may reasonably request in order to facilitate
the public sale or other disposition of the Registrable Shares owned by the
Purchaser; and
(d) as expeditiously as possible use its best efforts to register
or qualify the Registrable Shares covered by the Registration Statement under
the securities or Blue Sky laws of such states as Purchaser shall reasonably
request, and do any and all other acts and things that may be necessary or
desirable to enable the Purchaser to consummate the public sale or other
disposition in such states of the Registrable Shares owned by the Purchaser;
PROVIDED, HOWEVER, that the Company shall not be
<PAGE>
required in connection with this paragraph (d) to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction.
If the Company has delivered preliminary or final prospectuses to the
Purchasers and after having done so the prospectus is amended to comply with the
requirements of the Securities Act, the Company shall promptly notify the
Purchasers and, if requested, the Purchasers shall immediately cease making
offers of Registrable Shares and return all prospectuses to the Company. The
Company shall promptly provide the Purchasers with revised prospectuses and,
following receipt of the revised prospectuses, the Purchasers shall be free to
resume making offers of the Registrable Shares.
4. ALLOCATION OF EXPENSES. The Company will pay all Registration
Expenses of a registration under this Agreement. For purposes of this Section 4,
the term "Registration Expenses" shall mean all expenses incurred by the Company
in complying with this Agreement, including, without limitation, all
registration and filing fees, exchange listing fees, printing expenses, fees and
expenses of counsel for the Company, state Blue Sky fees and expenses, and the
expense of any special audits incident to or required by any such registration,
but excluding underwriting discounts, selling commissions and the fees and
expenses of Purchasers' counsel.
5. INDEMNIFICATION AND CONTRIBUTION.
(a) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, the Company will
indemnify and hold harmless the seller of such Registrable Shares, each
underwriter of such Registrable Shares, and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities Act or
the Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act, state securities or Blue Sky
laws or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any Registration
Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or supplement to such Registration
Statement, or arise out of or are based upon the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not
<PAGE>
misleading; and the Company will reimburse such seller, underwriter and each
such controlling person for any legal or any other expenses reasonably incurred
by such seller, underwriter or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action;
PROVIDED, HOWEVER, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any untrue statement or omission made in such Registration Statement,
preliminary prospectus or final prospectus, or any such amendment or supplement,
in reliance upon and in conformity with information furnished to the Company, in
writing, by or on behalf of such seller, underwriter or controlling person
specifically for use in the preparation thereof.
(b) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, each seller of
Registrable Shares, severally and not jointly, will indemnify and hold harmless
the Company, each of its directors and officers and each underwriter (if any)
and each person, if any, who controls the Company or any such underwriter within
the meaning of the Securities Act or the Exchange Act, against any losses,
claims, damages or liabilities, joint or several, to which the Company, such
directors and officers, underwriter or controlling person may become subject
under the Securities Act, Exchange Act, state securities or Blue Sky laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Securities Act,
any preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if the statement or omission was made in reliance upon
and in conformity with information relating to such seller furnished in writing
to the Company by or on behalf of such seller specifically for use in connection
with the preparation of such Registration Statement, prospectus, amendment or
supplement;
<PAGE>
PROVIDED, HOWEVER, that the obligations of such Purchasers hereunder shall be
limited to an amount equal to the proceeds to each Purchaser of Registrable
Shares sold in connection with such registration.
(c) Each party entitled to indemnification under this Section 5
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; PROVIDED, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and, PROVIDED, FURTHER, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 5. The Indemnified Party may participate in such
defense at such party's expense; PROVIDED, HOWEVER, that the Indemnifying Party
shall pay such expense if representation of such Indemnified Party by the
counsel retained by the Indemnifying Party would be inappropriate due to actual
or potential differing interests between the Indemnified Party and any other
party represented by such counsel in such proceeding. No Indemnifying Party, in
the defense of any such claim or litigation shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect of such claim or litigation, and no Indemnified Party shall
consent to entry of any judgment or settle such claim or litigation without the
prior written consent of the Indemnifying Party.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i) any
holder of Registrable Shares exercising rights under this Agreement, or any
controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 5 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 5 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any such Purchaser or
any such controlling person in circumstances for which indemnification is
provided under this Section 5; then, in each such case, the Company and such
Purchaser will contribute to the
<PAGE>
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportions so that such holder is
responsible for the portion represented by the percentage that the public
offering price of its Registrable Shares offered by the Registration Statement
bears to the public offering price of all securities offered by such
Registration Statement, and the Company is responsible for the remaining
portion; PROVIDED, HOWEVER, that, in any such case, (A) no such holder will be
required to contribute any amount in excess of the proceeds to it of all
Registrable Shares sold by it pursuant to such Registration Statement, and (B)
no person or entity guilty of fraudulent misrepresentation, within the meaning
of Section 11(f) of the Securities Act, shall be entitled to contribution from
any person or entity who is not guilty of such fraudulent misrepresentation.
6. INFORMATION BY HOLDER. Each Purchaser shall furnish to the
Company such information regarding such Purchaser and the distribution proposed
by such Purchaser as the Company may reasonably request in writing and as shall
be required in connection with any registration, qualification or compliance
referred to in this Agreement.
7. TRANSFERS OF RIGHTS. This Agreement, and the rights and
obligations of each Purchaser hereunder, may be assigned by such Purchaser
only to an Affiliate of the Purchaser that acquires all of the Registrable
Shares purchased by the Purchaser.
8. GENERAL.
(a) NOTICES. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand or mailed by first class certified or registered mail, return receipt
requested, postage prepaid:
If to the Company, at 5201 Congress Avenue, C100, Attention: President,
or at such other address or addresses as may have been furnished in writing by
the Company to the Purchasers; or
If to a Purchaser, at his or its address set forth on
<PAGE>
EXHIBIT A, or at such other address or addresses as may have been furnished to
the Company in writing by such Purchaser.
Notices provided in accordance with this Section 8 shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
(b) ENTIRE AGREEMENT. This Agreement embodies the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
(c) AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the holders of at
least a majority of the Registrable Shares; PROVIDED, that this Agreement may be
amended with the consent of the holders of less than all Registrable Shares only
in a manner which affects all Registrable Shares in the same fashion. No waivers
of or exceptions to any term, condition or provision of this
Agreement, in any one or more instances, shall be deemed to be, or construed as,
a further or continuing waiver of any such term, condition or provision.
(d) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
(e) SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(f) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida.
Executed as of the date first written above.
COMPANY:
THE PANDA PROJECT, INC.
By:________________________________
Stanford W. Crane, Jr.
President
<PAGE>
PURCHASERS:
- ------------------------------
Print Name of Purchaser
- -------------------------------
(For Purchasers other than
individuals, print name and
title of persons signing on
its behalf)
- -----------------------------
(Signature)
<PAGE>
Exhibit A
PURCHASERS
NAME AND ADDRESS NUMBER OF SHARES NUMBER OF WARRANT
SHARES
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 6,736,663
<SECURITIES> 0
<RECEIVABLES> 401,633
<ALLOWANCES> 171,943
<INVENTORY> 1,969,746
<CURRENT-ASSETS> 9,439,112
<PP&E> 5,067,017
<DEPRECIATION> 927,851
<TOTAL-ASSETS> 14,577,834
<CURRENT-LIABILITIES> 4,621,109
<BONDS> 0
0
0
<COMMON> 91,262
<OTHER-SE> 9,865,463
<TOTAL-LIABILITY-AND-EQUITY> 14,577,834
<SALES> 433,112
<TOTAL-REVENUES> 433,112
<CGS> 790,106
<TOTAL-COSTS> 790,106
<OTHER-EXPENSES> 7,560,930
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,788,113)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,788,113)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,788,113)
<EPS-PRIMARY> (.88)
<EPS-DILUTED> (.88)
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