PANDA PROJECT INC, S-3/A, 1997-01-17

PANDA PROJECT INC
S-3/A, 1997-01-17
SEMICONDUCTORS & RELATED DEVICES

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As filed with the Securities and Exchange Commission on January 17, 1997
Registration No. 333-14931

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

AMENDMENT NO. 2
TO
FORM S-3

REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933

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.)

901 YAMATO ROAD
BOCA RATON, FLORIDA 33431
(561) 994-2300
-------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

C. DARYL HOLLIS
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
THE PANDA PROJECT, INC.
901 YAMATO ROAD
BOCA RATON, FLORIDA 33431
(561) 994-2300
---------------------------------------------------------
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.

If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, check the following
box. [ ]

<PAGE>

If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than in connection with dividend or interest
reinvestment plans, check the following box. [ X ]

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED JANUARY 17, 1997

PROSPECTUS
2,927,849 SHARES

THE PANDA PROJECT, INC.

COMMON STOCK

All of the shares of common stock, par value $.01 per share ("Common
Stock"), of The Panda Project, Inc. (the "Company") offered hereby (the
"Shares") are being sold by certain securityholders of the Company (the "Selling
Securityholders"). See "Selling Securityholders." The Company will not receive
any of the proceeds from the sale of the Shares by the Selling Securityholders.

The Selling Securityholders have advised the Company that they
propose to sell the Shares from time to time in the over-the-counter market, in
ordinary brokerage transactions or otherwise at market prices prevailing at the
time of sale or at negotiated prices. See "Plan of Distribution." The Common
Stock is traded on the Nasdaq National Market under the symbol "PNDA." On
January 16, 1997, the last reported sale price of the Common Stock on the Nasdaq
National Market was $4.50 per share.

The shares of Common Stock offered hereby represent approximately
24% of the total number of shares outstanding (including shares issuable upon
exercise of outstanding warrants) at January 17, 1997. Sales of all or part of
the Shares offered hereby could have a negative impact on the market price of
the Common Stock and adversely affect the ability of the Company to raise
capital through the sale of its equity securities. See "Risk Factors-- Negative
Effect of Future Sales of Stock on Market Prices and Ability to Raise Capital"
and "Plan of Distribution."

The Company will pay all the expenses, estimated to be $60,000, in
connection with this offering, other than selling expenses and underwriting
discounts, if applicable.

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 3.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus is January 17, 1997.

<PAGE>

TABLE OF CONTENTS

PAGE
----

Available Information................................................... 3

Incorporation of Certain Documents
by Reference.......................................................... 4

Risk Factors............................................................ 5

Recent Developments..................................................... 12

Use of Proceeds......................................................... 14

Selling Securityholders................................................. 14

Plan of Distribution.................................................... 17

Experts................................................................. 18

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AVAILABLE INFORMATION

The Panda Project, Inc. (the "Company") is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith files reports and other
information with the Securities and Exchange Commission (the "Commission").
Reports, proxy statements and other information filed by the Company with the
Commission pursuant to the informational requirements of the Exchange Act may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices located at 7 World Trade Center, 13th Floor, New
York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials also may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Common Stock of
the Company is traded on the Nasdaq National Market. Reports and other
information concerning the Company may be inspected at the National Association
of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.

The Company has filed with the Commission a Registration Statement
on Form S-3 with respect to the Shares (herein, together with all amendments and
exhibits, referred to as the "Registration Statement") under the Securities Act
of 1933, as amended (the "Securities Act"). This Prospectus does not contain all
of the information set forth in the Registration Statement and the exhibits and
schedules thereto, as certain items are omitted in accordance with the rules and
regulations of the Commission. For further information pertaining to the Company
and the Shares, reference is made to such Registration Statement and the
exhibits and schedules thereto, which may be inspected without charge at the
office of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of which may be obtained from the Commission at prescribed rates. The
Commission also makes electronic filings publicly available in the Internet
within 24 hours of acceptance. The Commission's Internet address is
http://www.sec.gov. The Commission's Web site also contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER WOULD
BE UNLAWFUL. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL.

INFORMATION CONTAINED IN THE COMPANY'S WEB SITE SHALL NOT BE DEEMED
TO BE PART OF THIS PROSPECTUS.

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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by the Company with the Commission are
incorporated herein by reference:

(1) The Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1996;

(2) The Company's Current Report on Form 8-K dated July 19, 1996;

(3) The Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996;

(4) The Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996; and

(5) The Company's Registration Statement on Form 8-A filed
May 5, 1994, registering the Common Stock under Section 12(g) of the Exchange
Act.

All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the termination of the offering of the Common Stock
registered hereby shall be deemed to be incorporated by reference into this
Prospectus and to be a part hereof from the date of filing such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.

The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all of the documents incorporated by reference into this Prospectus
(without exhibits to such documents other than exhibits specifically
incorporated by reference into such documents). Requests for such copies should
be directed to The Panda Project, Inc., 901 Yamato Road, Boca Raton, Florida
33431, Attention: Chief Financial Officer, (561) 994-2300.

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RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE
FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN
THE COMMON STOCK OFFERED BY THIS PROSPECTUS. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. WITHOUT
LIMITING THE FOREGOING, THE WORDS "BELIEVES," "ANTICIPATES," "PLANS," "EXPECTS"
AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THE
COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS PROSPECTUS.

1. LIMITED PRODUCT DEVELOPMENT AND OPERATING HISTORY. Although the
Company has recently begun commercialization of certain products, other products
and technologies are undergoing additional testing and certification which may
ultimately lead to their commercialization. The Company's viability,
profitability and growth will depend in part upon successful commercialization
of these other products and technologies. There can be no assurance that these
efforts will be successful or that any of the proposed additional products will
be developed successfully. Further, the Company has a limited operating history
upon which an evaluation of its prospects can be made. Such prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered in the establishment of a new business in the evolving electronics
industry, which is characterized by an increasing number of market entrants and
intense competition, as well as those encountered in the shift from development
to commercialization of new products based on innovative technologies.

2. LIMITED REVENUES; HISTORY OF SIGNIFICANT LOSSES; ACCUMULATED
DEFICIT; ANTICIPATED FUTURE LOSSES. To date, the Company has generated limited
revenues from the sale of its Archistrat 4s servers; the Company does not
anticipate deriving larger revenues from operations until such time, if ever,
that greater numbers of its Archistrat 4s servers and other computers (the
"Archistrat Computers") are sold and its semiconductor packaging and connector
products (the "Archistrat Technology Products") are fully developed and can be
manufactured and licensed or successfully commercialized, as to which there can
be no assurance. Further, of the $596,569 and $837,359 of revenues recognized in
the quarter ended June 30, 1996 and September 30, 1996, respectively, $326,752
and $539,091 related to a barter transaction with a software developer wherein
the Company accepted software licenses, consulting and training services, and
services associated with the certification of the Company's 4s server to use the
software developer's CAD program and porting the software onto the 4s product,
in exchange for 53 of its Archistrat 4s servers. Management believes the amount
of revenue recognized reflects the fair value of the licenses and other services
received and approximated the normal selling price of the servers. Since
inception (April 8, 1992), the Company has incurred significant net losses,
including losses of $1,800,340, $6,931,346, $23,894,426 and $13,838,133 during
the fiscal year ended March 31, 1994, the fiscal year ended March 31, 1995, the
fiscal year ended March 31, 1996, and the six months ended September 30, 1996
respectively, resulting in an accumulated deficit of $46,879,933 as of September
30, 1996. In addition, the Company anticipates substantial losses to continue in
the foreseeable future. Inasmuch as the Company will continue to have a high
level of operating expenses and will be required to make significant
expenditures in connection with its research and development and manufacturing
and marketing activities (including salaries of executive, technical and
research and development personnel), the Company anticipates that such losses
will continue until such time, if ever, as the Company is able to generate
sufficient revenues to support its operations. There can be no assurance that
the Company will ever be able to generate sufficient revenues to achieve
profitable operations.

3. SIGNIFICANT CAPITAL REQUIREMENTS; POSSIBLE NEED FOR ADDITIONAL
FINANCING. The Company's capital requirements in connection with its operations
and development activities have been and may continue to be significant. The
Company has been dependent primarily upon the proceeds of sales of its
securities to fund its activities since inception. During the period from
inception through September 30, 1996, the Company raised capital of
approximately $58,000,000 (after deduction of underwriting discounts,
commissions and other selling costs) through the sale of Common Stock and

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warrants, and from the exercise of warrants. Since June 1996, the Company has
entered into five agreements to license its VSPA and Compass Connector
technologies and began to receive revenues under one of these agreements during
the quarter ending December 31, 1996. The Company anticipates receiving revenues
under one or more of the other agreements by the end of the first quarter of the
Company's fiscal year which begins on April 1, 1997. In addition, the Company
has taken actions to significantly reduce its expenses in all areas including
compensation and benefits, research and development and selling and
administrative expenses. The Company anticipates, based on current plans and
assumptions relating to its operations, including the planned reductions in
expenses, that its working capital at September 30, 1996, as augmented by
anticipated revenues, should be sufficient to satisfy the Company's anticipated
cash requirements.

In the event the Company's plans change or its assumptions prove to
be inaccurate or the Company's working capital, as augmented by proceeds from
any sales revenue prove to be insufficient to fund operations (due to
unanticipated expenses, delays, problems, or otherwise), the Company would be
required to seek additional financing. Furthermore, depending upon the Company's
progress in the development of its products and technology and manufacturing
capabilities, acceptance of its products and technology by third parties, and
the state of the capital markets, the Company may also determine that it is
advisable to raise additional equity capital, possibly within the next six
months. In addition, in the event that the Company receives a larger than
anticipated number of purchase orders for its Archistrat 4s servers or VSPA
semiconductor package ("VSPA"), it may require resources substantially greater
than it currently has or than are otherwise available to the Company, and the
Company may be required to raise additional capital or engage third parties (as
to which engagement there can be no assurance) to assist the Company in meeting
such orders. The Company has no current arrangements with respect to, or sources
of, additional financing, and there can be no assurance that additional
financing will be available to the Company when needed on commercially
reasonable terms or at all. The inability of the Company to obtain additional
financing when needed would have a material adverse effect on the Company,
including possibly requiring the Company to significantly curtail or cease its
operations. To the extent that any future financing involves the sale of the
Company's equity securities, the Company's then existing stockholders may be
substantially diluted.

4. UNCERTAINTY OF MARKET ACCEPTANCE. The products and technologies
currently being sold or developed by the Company utilize newly developed
designs. Although the Company believes that its existing and proposed technology
and products represent significant advancements in semiconductor packaging and
computer technology, demand for the Company's existing and proposed products is
subject to a high degree of uncertainty, as is typical in the case of
newly-developed products. Achieving marketing acceptance for the Company's
technology and existing and proposed products will require substantial marketing
efforts and expenditure of significant funds to educate key original equipment
manufacturers ("OEMs") and value-added resellers ("VARs") and end users as to
the distinctive characteristics and anticipated benefits of the Company's
proposed products and technologies. Many OEMs and VARs manufacture and/or sell
components and computers competitive with those being developed by the Company
and have achieved significant market acceptance for their products. Accordingly,
due to their commitment to their own products, such entities may be inhibited
from doing business with the Company. In addition, many OEMs and VARs may be
reluctant to use or sell the Company's proposed products and technologies until
a sufficient number of other OEMs and VARs have already committed to do so. The
Company currently has limited marketing experience and limited financial,
personnel and other resources to undertake the extensive marketing activities
that will be necessary to market its proposed products and technologies as their
development is completed. The Company's ability to generate revenue from the
sale of Archistrat Computers or the licensing or sale of Archistrat Technology
Products and related technologies will be dependent upon, among other things,
its ability to build an effective sales organization. There can be no assurance
that the

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Company will be able to formalize any marketing arrangements or that its
marketing efforts will be successful.

5. UNCERTAINTY OF PRODUCT AND TECHNOLOGY DEVELOPMENT; TECHNOLOGICAL
FACTORS; DEPENDENCE ON THIRD-PARTY PRODUCT DESIGN CHANGES. Although the
Company's Archistrat 4s server has been sold in limited quantities, the
Company's other Archistrat Computer models and its Archistrat Technology
Products remain in various stages of development. The Company's development
efforts are subject to all of the risks inherent in the development of new
products and technology (including unanticipated delays, expenses or technical
or other problems, as well as the possible insufficiency of funding to complete
development). The Company's success will depend in part upon its products and
technology meeting acceptable cost and performance criteria, and upon their
timely introduction into the marketplace. There can be no assurance that the
Company's products and technology which have not yet been commercialized will
ever be successfully developed, and even if developed, that they will
satisfactorily perform the functions for which they are designed, that they will
meet applicable price or performance objectives or that unanticipated technical
or other problems will not occur which would result in increased costs or
material delays in their development or commercialization. In addition,
technology as complex as that which will be incorporated into the Company's
proposed products may contain errors which become apparent subsequent to
widespread commercial use. Remedying such errors could delay the Company's plans
and cause it to incur additional costs which would have a material adverse
effect on the Company. The Company's success will also be dependent upon the
Company's ability to adapt its products to be compatible with the products of
third-party manufacturers of computer products. In addition, the Company will be
dependent on certain potential customers redesigning or otherwise modifying
their products to fully utilize the Company's proposed products and technology.
Although the Company believes that potential customers will undertake such
modifications to take advantage of the anticipated performance advantages of the
Company's proposed products, the costs of making such adaptations could prevent
them from doing so on a timely basis, or at all. The failure of the Company to
adapt its products and technology to be compatible with products of third-party
manufacturers or the failure of potential customers to make necessary
modifications or to redesign their products to accommodate the Company's
products could have a material adverse effect on the Company's ability to sell
or license its proposed products or technology.

6. COMPETITION; TECHNOLOGICAL OBSOLESCENCE. The markets that the
Company intends to enter are characterized by intense competition. The Company's
Archistrat 4s computers compete with "midrange" systems (server and workstation
systems having prices and performance characteristics between mainframe and
desktop computers and typically utilizing a proprietary operating system), such
as the Hewlett-Packard Net Server LS, Compaq 1500 and Compaq 4500. The related
Archistrat 4b multimedia personal computer (which is designed to stand alone or
be networked with the Archistrat 4s server computer) is expected, upon
commercialization, to compete with personal computers, such as those produced by
IBM, Apple Computer, Inc., Compaq Computer Corporation, Digital Equipment Corp.,
Hewlett-Packard Co., Gateway 2000, Inc. and Dell Computer Corp. The Company's
Archistrat Technologies Division will compete with numerous manufacturers of
semiconductor packages and connectors. All of these companies have substantially
greater financial, technical, personnel and other resources than the Company and
have established reputations for success in the development, licensing, sale and
servicing of their products and technology. Certain of these competitors
dominate their industries and have the financial resources necessary to enable
them to withstand substantial price competition or downturns in the market for
semiconductor packages, related technologies and/or computers. In addition,

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certain companies may be developing technologies or products of which the
Company is unaware, which may be functionally similar, or superior, to some or
all of those being developed by the Company. The markets for the technology and
products being developed by the Company are characterized by rapid changes and
evolving industry standards often resulting in product obsolescence or short
product life cycles. Accordingly, the ability of the Company to compete will
depend on its ability to complete development and introduce to the marketplace
in a timely and cost-competitive manner additional products and technology, to
continually enhance and improve its existing and proposed products and
technology, to adapt its proposed products to be compatible with specific
products manufactured by others, and to successfully develop and market new
products and technology. There can be no assurance that the Company will be able
to compete successfully, that its competitors or future competitors will not
develop technologies or products that render the Company's proposed products and
technology obsolete or less marketable or that the Company will be able to
successfully enhance its proposed products or technology or adapt them
satisfactorily.

7. DEPENDENCE ON MANUFACTURERS AND SUPPLIERS; LACK OF MANUFACTURING
EXPERIENCE AND CAPABILITY. The Company has developed the capability to
manufacture VSPA as well as the Compass Connector products required for its
Archistrat Computers and is currently assembling the Compass Connector in
limited quantities in its own facility. The Company has also entered into an
agreement with Sun Precision Works, Pvt. Ltd. for the production of the male
connector component of the Compass Connector. Although the Company's supply of
this component is currently adequate to meet its needs, no assurance can be
given that such supplier can produce such component in sufficient quantities in
the future, or that the Company will be able to develop an alternative source of
supply within its projected development schedules, or at all. The Company
expects that significant commercialization of the Archistrat Technology Products
will require it to enter into direct licensing arrangements, joint ventures or
strategic alliances with respect to the manufacture of certain of its Archistrat
Technology Products. If the Company is unsuccessful in developing such
manufacturing capabilities or in licensing certain products and technology being
developed by its Archistrat Technologies Division or in developing relationships
with manufacturers and suppliers, its lack of manufacturing capabilities could
limit its ability to otherwise commercialize such products.

The Company anticipates that it will be dependent on third parties
for the manufacture and/or assembly of printed circuit boards, frame, exterior,
base fabrication and other subassemblies, as well as for the supply of various
of the components, incorporated into the Archistrat servers, and for performing
the final assembly configuration, certain quality control testing and delivery
of such servers. Although the Company's agreement with Group Technologies
Corporation to manufacture and assemble the Company's Archistrat 4s servers has
expired, the Company has identified certain other potential manufacturers and
suppliers for its subassembly and component needs, however, the Company has not
yet entered into any additional manufacturing or supply arrangements. The
Company believes it will be able to negotiate satisfactory manufacturing and
supply contracts; however, the failure to do so could have a material adverse
effect on the Company. Even if the Company were able to enter into suitable
manufacturing arrangements for necessary subassemblies, there can be no
assurance that such manufacturers will dedicate sufficient production capacity
to satisfy the Company's requirements within scheduled delivery times or at all.
In addition, the failure or delay by the Company's suppliers in fulfilling its
anticipated component needs would adversely affect the Company's ability to
develop and market its products and technology. While the Company believes that
these components are available from multiple sources, the Company anticipates
that it will obtain certain of them from a single or limited number of sources
of supply. In the event that certain of such suppliers are unable or unwilling
to provide the Company with components to be used in the Archistrat Computers on
commercially reasonable terms, or at

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all, delays in securing alternative sources of supply could result in a material
adverse effect on the Company's operations.

At a future date, the Company may determine that the development of
manufacturing capabilities with respect to the Archistrat Computers (and/or
their subassemblies or components) is necessary or appropriate. To date, the
Company has manufactured limited commercial quantities of the Archistrat 4s
server configuration and the Archistrat 4s workstations. The Company does not
have the staff or the facilities necessary to manufacture, assemble and/or
configure its proposed computers internally in larger commercial quantities. The
establishment of manufacturing and/or assembly capabilities may result in
significant expense and is subject to numerous risks, including unanticipated
technological problems and delays. The failure of the Company to successfully
manufacture its Archistrat Computers would have a material adverse effect on the
Company.

8. DEPENDENCE ON KEY PERSONNEL. The success of the Company will be
dependent on the continued personal efforts of Stanford W. Crane, Jr., its
Chairman and Chief Executive Officer and the principal inventor of its
proprietary products and technologies, and certain other key personnel. Although
Mr. Crane has entered into a five-year employment agreement with the Company,
the agreement provides that he may resign by giving six months' notice at any
time. The loss of his services would have a material adverse effect on the
Company. The Company has obtained key-man insurance on Mr. Crane's life in the
amount of $2,000,000. The success of the Company also is dependent upon its
ability to hire and retain additional qualified executive, scientific,
production and marketing personnel. Although the Company has been able to hire
qualified personnel since its initial public offering in May 1994, there can be
no assurance that the Company will be able to hire additional qualified
personnel or retain such necessary personnel.

9. PATENTS AND PROPRIETARY INFORMATION. The Company's success will
depend on its ability to obtain patents, protect trade secrets, and operate
without infringing on the proprietary rights of others. The Company has pending
a total of 17 United States patent applications and 30 foreign patent
applications with respect to its VSPA, Compass PGA and Well Tech PCB designs and
Archistrat Computer designs and in connection with the use of the Compass
Connector in its Compass PGA semiconductor packages and the Archistrat
Computers. In addition, the Company has obtained an aggregate of seven United
States design and utility patents and an aggregate of 33 foreign utility and
design patents and registrations with respect to Compass PGA and the Archistrat
Computers in several countries, including the Republic of China (Taiwan),
Germany, the United Kingdom, Ireland and France. The Company also intends to
file patent applications in several other foreign jurisdictions to secure
protection in those jurisdictions in accordance with the Patent Cooperation
Treaty and the Paris Convention for the Protection of Industrial Property (which
allows such filings to relate back to the original filing date in the United
States). To the extent possible, the Company also intends to file patent
applications with respect to products and technology that it may develop in the
future.

There can be no assurance that any of the Company's patent
applications will ultimately result in an issued patent. Moreover, the patent
laws of other countries may differ from those of the United States as to the
patentability of the Company's products or technology, and the degree of
protection afforded by foreign patents may be different from that in the United
States. The failure by the Company to obtain patents for which applications are
currently pending could have a material adverse effect on the Company's ability
to commercialize successfully its proposed technology and products. Even if the
Company is able

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to obtain such patents, there can be no assurance that any such patents will
afford the Company commercially significant protection for its technology or
products. In addition, other companies may independently develop equivalent or
superior technologies or products and may obtain patent or similar rights with
respect to them. Although the Company believes that its technology has been
independently developed and that its technology does not infringe on the patents
or violate the proprietary rights of others, there can be no assurance that any
of the Company's technology or products, will not be determined to infringe upon
the patents or proprietary rights of others, or that patents or proprietary
rights of others will not have an adverse effect on the ability of the Company
to do business. If the Company's technology or products were determined to
infringe on the patents, trademarks or proprietary rights of others, the Company
could, under certain circumstances, become liable for damages, which also could
have a material adverse effect on the Company. Moreover, in the event that the
Company's technology or proposed products were deemed to infringe upon the
rights of others, the Company would be required to obtain licenses to utilize
such technology. There can be no assurance that the Company would be able to
obtain such licenses in a timely manner or on acceptable terms and conditions,
and the failure to do so could have a material adverse effect on the Company. If
the Company were unable to obtain such licenses, it could encounter significant
delays in product market introductions while it attempted to design around the
infringed upon patents or rights, or could find the development, manufacture or
sale of products requiring such licenses to be foreclosed. In addition, patent
disputes are common in the computer industry and there can be no assurance that
the Company will have the financial resources to enforce or defend a patent
infringement or proprietary rights action.

The Company also relies on trade secrets and proprietary know-how
and employs various methods, including confidentiality and nondisclosure
arrangements with its employees, consultants and others involved with the
Company's product and technological development efforts, to protect the
concepts, ideas and documentation relating to its proprietary technologies.
There can be no assurance that these arrangements will provide meaningful
protection to the Company or that other companies will not acquire information
which the Company considers to be proprietary. Moreover, there can be no
assurance that other companies have not or will not independently develop
know-how comparable to or superior to that of the Company.

10. DEPENDENCE ON THE CRANE-PANDA LICENSING AGREEMENT; POTENTIAL
CONFLICTS OF INTEREST. Pursuant to a license agreement entered into in January
1996 between the Company and Mr. Crane (the "Crane-Panda License"), Mr. Crane
has granted the Company the nonexclusive right to utilize the Compass Connector,
a key component in the commercialization of the Company's Archistrat Computers
and the development and commercialization of Compass PGA. The Crane-Panda
License was executed in connection with the conversion to a nonexclusive license
of the 3M License described below and supersedes an earlier license agreement
between Mr. Crane and the Company relating to the Compass Connector. Under the
Crane-Panda License, the Company is required to pay Mr. Crane a royalty on any
sales of Compass Connectors as discrete parts in the amount of 5% of the net
sales price for the first five years of the term of the agreement, 2.5% of the
net sales price for the next five years of the term of the agreement and 2% of
the net sales price thereafter, provided that no royalty is payable until
aggregate net sales of the Compass Connector as discrete parts exceed $100,000.
The royalty rate will be reduced after the fifth anniversary of the agreement if
no patent remains in effect with respect to the Compass Connector. No royalty is
payable on sales of the Compass Connector as incorporated in the Archistrat
Computers or other computer system or assembly. The Company may grant
sublicenses under the Crane-Panda License, but only for the use of products as
incorporated in the Archistrat Computers or other computer system or assembly.
To date, there have been no sales requiring the payment of royalties to Mr.
Crane under the Crane-Panda License. The Crane-Panda License obligates the
Company to maintain

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<PAGE>

proprietary information relating to the Compass Connector on a confidential
basis, notify Mr. Crane of any evidence of infringement with respect to the
Compass Connector and related technology, and cooperate with Mr. Crane to
contest any such infringement. In the event that the Company becomes bankrupt or
insolvent or defaults in any of its material obligations under the Crane-Panda
License and fails to cure any such defaults within specified cure periods, Mr.
Crane may terminate the Crane-Panda License. The Company is substantially
dependent upon the Crane-Panda License. The termination of the agreement under
any circumstances would have a material adverse effect on the Company. There can
be no assurance that conflicts of interest will not arise with respect to the
Crane-Panda License or that such conflicts will be resolved in a manner
favorable to the Company. In addition, Mr. Crane retains ownership of the
Compass Connector technology, and has the right to grant licenses to or
otherwise transfer rights to the Compass Connector technology to third parties.

In September 1992, Mr. Crane granted an exclusive license (the "3M
License") to Minnesota Mining and Manufacturing Co. ("3M") to develop,
manufacture, use and sell the Compass Connector other than as part of a computer
system. In February 1996, Mr. Crane and 3M agreed to convert the 3M License to a
nonexclusive license. The 3M License provides in certain circumstances for the
payment of a royalty to Mr. Crane. As of the date of this Prospectus, Mr. Crane
had received no such payments.

11. SUBSTANTIAL CONTROL BY MANAGEMENT. As of the date of this
Prospectus, officers and directors of the Company own of record and beneficially
approximately 39.5% of the issued and outstanding shares of Common Stock and are
thus able to exert substantial influence over the policies and affairs of the
Company.

12. RISKS RELATING TO POTENTIAL INTERNATIONAL OPERATIONS. Although
the Company currently prices all of its international sales in U.S. dollars,
future sales or licensing of its products or technologies outside the U.S., may
be subject to the risks associated with fluctuations in currency exchange rates.
The Company may also be subject to other risks associated with international
operations, including tariff regulations and requirements for export licenses,
particularly with respect to the export of certain technologies (which licenses
may on occasion be delayed or difficult to obtain), unexpected changes in
regulatory requirements, longer accounts receivable requirements, difficulties
in managing international operations, potentially adverse tax consequences,
economic and political instability, restrictions on repatriation of earnings,
and the burdens of complying with a wide variety of foreign laws. In addition,
the laws of certain countries do not protect the Company's products and
intellectual property rights to the same extent as do the laws of the United
States. There can be no assurance that such factors will not have a material
adverse effect on the Company's future international sales or licenses and,
consequently, on the Company's business and operations as a whole.

13. NEGATIVE EFFECT OF FUTURE SALES OF STOCK ON MARKET PRICE AND
ABILITY TO RAISE CAPITAL. Future sales of substantial amounts of Common Stock,
including the Shares offered hereby, or the perception that such sales could
occur, could have a negative impact on the market price of the Common Stock and
adversely affect the ability of the Company to raise capital through the sale of
its equity securities. Virtually all of the outstanding Common Stock, including
the Shares offered hereby, are freely tradeable in the public markets without
restriction, subject in some cases to the volume limitations imposed by Rule 144
under the Securities Act. The Shares offered hereby represent approximately
24% of the total number of shares of Common Stock outstanding (including shares
issuable upon exercise of outstanding warrants) at January 17, 1997. See "Plan
of Distribution."

- 11 -
<PAGE>

14. ANTITAKEOVER STATUTES. Florida has enacted legislation that may
deter or frustrate takeovers of the Company. The Florida Control Share Act
generally provides that shares acquired in excess of certain specified
thresholds, starting at 20%, will not possess any voting rights unless such
voting rights are approved by a majority vote of a corporation's disinterested
shareholders. The Florida Affiliated Transactions Act generally requires
supermajority approval by disinterested directors or shareholders of certain
specified transactions between a corporation and holders of more than 10% of the
outstanding voting shares of the corporation or their affiliates.

15. POSSIBLE LACK OF RESOURCES OF SELLING SECURITYHOLDERS. The
Selling Securityholders may be deemed to be Underwriters pursuant to the
Securities Act, and in that regard may become liable to the purchasers of the
Common Stock offered hereby pursuant to the terms of the Securities Act if
certain provisions of the Securities Act are not complied with by them. There
can be no assurance that any of the Selling Securityholders have the financial
resources to discharge any such liability.

16. GENERAL. Because of factors discussed above and other factors,
past financial performance should not be considered an indicator of future
performance. Investors should not use historical trends to anticipate future
results and should be aware that the trading price of the Company's Common Stock
may be subject to wide fluctuations in response to quarter-to-quarter variations
in operating results, general conditions in the semiconductor packaging and
computer industries, changes in earnings estimates and recommendations by
analysts and other events.

RECENT DEVELOPMENTS

PRIVATE PLACEMENT. In July 1996, the Company completed a private
placement of 1,087,833 shares of its Common Stock to accredited investors (the
"Private Placement Financing") at a price of $9.00 per share, resulting in net
proceeds to the Company (after payment of placement and advisory fees) of
$9,193,713. In addition to the shares of Common Stock purchased by each
investor in the Private Placement Financing, such investor received a warrant to
purchase an equal number of shares of Common Stock at an exercise price of
$11.00 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 $26.00 per
share or more for 30 consecutive trading days. In connection with the Private
Placement Financing, the Company entered into a Registration Rights Agreement
with the purchasers under which the purchasers are entitled to cause the Company
to effect the registration under the Securities Act of the shares of Common
Stock (including shares issuable upon exercise of warrants) acquired in the
Private Placement Financing upon the terms and conditions set forth in the
Agreement. Southeast Research Partners, Inc. served as placement agent for the
Private Placement financing and received placement fees of $225,375 and J.P.
Morgan Securities Inc. served as financial advisor in connection with the
Private Placement Financing and received an advisory fee of $250,000. In
addition, the Company issued to certain designees of Southeast Research
Partners, Inc. warrants to purchase an aggregate of 52,183 shares of Common
Stock at a purchase price of $10.80 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 $26.00 per share or more for 30 consecutive trading days. See "Selling
Securityholders."

ANNUAL MEETING. The annual meeting of shareholders of the Company
was held on August 16, 1996. At the annual meeting, the shareholders, among
other actions (i) elected the following persons to serve as directors for the
ensuing year: Stanford W. Crane, Jr., James T.A. Wooder, Robert C. Butler, Claud
L. Gingrich

- 12 -
<PAGE>

and Rao R. Tummala; (ii) approved the Company's 1995 Employee Stock Incentive
Plan; and (iii) approved an amendment to the Company's Amended and Restated
Articles of Incorporation increasing the authorized number of shares of Common
Stock of the Company from 20,000,000 shares to 50,000,000 shares.

CHANGES IN MANAGEMENT. In November 1996, Mr. Butler resigned as a
director of the Company and T. Scott Shamlin resigned as President of the
Company's Technologies Division. The Company has not yet appointed a successor
for Mr. Butler and Mr. Crane assumed Mr. Shamlin's responsibilities.

LICENSE AND DEVELOPMENT AGREEMENTS. In August 1996, the Company and
Stanford W. Crane, Jr., as licensors, entered into a License Agreement with Sun
Precision Works, Pvt. Ltd. ("Sun"), as licensee, under which Sun was granted a
non-exclusive license, for the term of the patents covered by the license
agreement, with respect to the Compass Connector technology owned by Mr. Crane
and certain enhanced Compass Connector technology owned by the Company. Under
this agreement, Sun is required to pay a royalty on sales of products
incorporating the licensed technology. The Company and Mr. Crane have agreed
that such royalty payments shall be made fifty percent to the Company and fifty
percent to Mr. Crane. Mr. Crane's liability under the agreement is limited to
$250,000.

In September 1996, the Company entered into a License Agreement with
Pantronix Corporation ("Pantronix") under which Pantronix was granted the
non-exclusive right to manufacture and market the Company's VSPA product. Unless
otherwise terminated as provided in the agreement, the license shall continue in
effect until the last to expire of the patents covered by the agreement. The
Company is entitled to receive specified royalties on sales by Pantronix or its
affiliates of products incorporating the licensed products.

In October 1996, the Company and Mr. Crane, as licensors, entered
into a License Agreement with LG Cable & Machinery Ltd. ("LG"), as licensee,
under which LG was granted a license, for a term of ten years or until the
expiration of the last to expire of the patents covered by the agreement,
whichever is later, with respect to the Compass Connector technology owned by
Mr. Crane and certain enhanced Compass Connector technology owned by the
Company. The license granted to LG is non-exclusive except for certain limited
exclusive manufacturing rights with respect to specified Asian countries. Under
the agreement, LG is required to pay a license fee within 15 days after
execution of the agreement and on each of the first four anniversaries of the
agreement as well as specified royalties on sales by LG or its affiliates. The
Company and Mr. Crane have agreed that such payments shall be made fifty percent
to the Company and fifty percent to Mr. Crane.

In October 1996, the Company entered into a cooperative development
agreement with the Defense Advanced Research Projects Agency to develop the
Company's VSPA electronics package whereby the government will contribute
approximately $1.8 million to the project over a period of 12 months.

In November 1996, the Company entered into a Reseller Agreement with
Siemens Nixdorf Information Systems, Inc. ("Siemens") under which Siemens has
agreed to purchase the Company's Archistrat workstations and other products for
resale by Siemens. The Reseller Agreement has a term of 24 months, but is
terminable by Siemens at any time after six months, upon 30 days written notice
to the Company.

STATUS OF VSPA DEVELOPMENT AND TESTING. The Company is continuing
testing and qualification activities with respect to the VSPA semiconductor
package. In August 1996 the Company announced that the VSPA package had
successfully passed temperature and humidity tests conducted by Integrated
Qualification Labs. In addition, the Company announced that JEDEC, the
semiconductor engineering standardization body of the Electronic Industries
Association, has voted to permit the Company to submit a proposed outline
registration ballot as part of the package registration process. The Company
anticipates that if the outline is accepted by JEDEC, it will be published as a
"registered outline," although there can be no assurance this will occur.

INVESTOR RELATIONS COUNSEL. In September 1996, the Company entered
into an agreement with Mallory Factor Inc. ("MFI"), pursuant to which MFI will
serve as the Company's investor relations counsel. The agreement provides for
minimum monthly fees payable to MFI in the amount of $3,500 plus payment of
expenses and has a term of one year. In connection with this agreement, the
Company granted the principal of MFI, Mallory Factor, a warrant to purchase
400,000 shares of Common Stock of the Company at an exercise price of $8.00 per
share. The warrant

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<PAGE>

has a term of ten years and is exercisable (i) as to 100,000 shares at any time
during the term of the warrant, and (ii) as to the remaining 300,000 shares,
upon the attainment of certain milestones specified in the warrant. Mallory
Factor has the right to cause the shares covered by the warrant to be registered
under the Securities Act on the terms and conditions set forth in the warrant.

USE OF PROCEEDS

The Company will not receive any proceeds from the sale of the
Shares by the Selling Securityholders.

SELLING SECURITYHOLDERS

All of the shares of Common Stock of the Company offered hereby are
being sold by the Selling Securityholders named below. The Company will receive
none of the proceeds from the sale of shares offered hereby. Other than Stanford
W. Crane, Jr., Philippi Investments Ltd., Torbay Company and Travelers Group,
none of the Selling Securityholders beneficially owns 5% or more of the
Company's outstanding Common Stock.

Of the 2,927,849 shares of Common Stock offered hereby, 1,087,833
currently outstanding shares of Common Stock were acquired by the Selling
Securityholders from the Company in the Private Placement Financing and
1,087,833 shares of Common Stock are issuable upon the exercise of warrants
acquired by the Selling Securityholders from the Company in the Private
Placement Financing. Such shares of Common Stock and warrants were issued to 18
accredited investors, all of whom are identified as Selling Securityholders
herein. The warrants have a term of five years, an exercise price of $11.00 per
share and are callable in the event the Company's Common Stock has a closing
market price of at least $26.00 per share for 30 consecutive days.

The remaining 752,183 shares of Common Stock offered hereby are
issuable upon the exercise of warrants held by (i) designees of Southeast
Research Partners, Inc., which served as placement agent in the Private
Placement Financing (the "SRP Warrants"), (ii) Mallory Factor, the principal of
MFI (the "MFI Warrant"), and (iii) Whale Securities Co., L.P. ("Whale"), which
was underwriter of the Company's initial public offering in May 1994 (the "Whale
Warrant"). The SRP Warrants and the MFI Warrant are described above under
"Recent Developments"). The Whale Warrant was issued pursuant to a Warrant
Agreement executed in May 1994 (the "Warrant Agreement") and entitles Whale to
purchase up to 200,000 shares of Common Stock at an exercise price of $6.75 per
share and to purchase up to 100,000 additional warrants (the "Underlying
Warrants") at an exercise price of $.135 per Underlying Warrant. Each Underlying
Warrant is exercisable for the purchase of one share of Common Stock of the
Company at an exercise price of $6.00 per share. The Whale Warrant is
exercisable as to the 200,000 shares of Common Stock covered thereby during the
three-year period commencing May 16, 1996. Each Underlying Warrant is
exercisable until May 16, 1997. Whale has the right to cause the securities
issued pursuant to the Warrant Agreement to be registered under the Securities
Act on the terms and conditions set forth in the agreement.

None of the above-described warrants to purchase Common Stock are
offered hereby.

- 14 -
<PAGE>

To the best of the Company's knowledge, the following table sets
forth certain information with respect to the Selling Securityholders as of
September 30, 1996:

<TABLE>
<CAPTION>
SHARES OWNED PRIOR SHARES SHARES OWNED
TO OFFERING OFFERED HEREBY AFTER OFFERING(1)
-------------------------- --------------------------------------- ---------------------
WARRANT WARRANT PERCENT
SELLING SECURITYHOLDERS SHARES SHARES(2) TOTAL SHARES(3) SHARES(2) TOTAL SHARES OF CLASS
- ----------------------- ------ --------- ------ --------- --------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Ruegg Bank AG 15,000 15,000 30,000 15,000 15,000(4) 30,000 0

AGF Growth Equity 201,522 147,174 348,696 120,000 120,000(4) 240,000 108,696 1.1%

Torbay Company 330,610 220,470 551,080 180,000 180,000(4) 360,000 191,080 1.9%

Franklin Street Trust
Company(5) 76,500 75,000 151,500 75,000 75,000(4) 150,000 1,500

Spinnaker Technology
Fund, LP 66,500 66,500 133,000 66,500 66,500(4) 133,000 0

Lynn Factor(6) 89,500 30,000 119,500 30,000 30,000(4) 60,000 59,500

Robert Baron(7) 25,500 15,000 40,500 15,000 15,000(4) 30,000 10,500

James E. Lineberger 13,333 13,333 26,666 13,333 13,333(4) 26,666 0

Frog Hollow Partners 10,000 10,000 20,000 10,000 10,000(4) 20,000 0

Jerome E. Collins 5,000 5,000 10,000 5,000 5,000(4) 10,000 0

Philippi Investments
Ltd.(8) 1,145,533 371,022 1,516,555 200,000 200,000(4) 400,000 1,116,555 10.9%

C. Daryl Hollis 2,500 1,500 4,000 1,500 1,500(4) 3,000 1,000

Brant Investments
Ltd 86,940 70,000 156,940 70,000 70,000(4) 140,000 16,940

Davis U.S. Growth Fund 12,500 12,500 24,000 12,500 12,500(4) 25,000 0

Stanford W.
Crane, Jr. (9) 2,481,860 1,000 2,482,860 1,000 1,000(4) 2,000 2,480,860 24.7%

Robert T. McAleer 3,000 7,396 10,396 3,000 7,396(10) 10,396 0

Peter R. McMullin 3,000 11,213 14,213 3,000 11,213(11) 14,213 0

Travelers Group 267,000 267,000 534,000 267,000 267,000(4) 534,000 0

Gayle Bolton 0 1,964 1,964 0 1,964(12) 1,964 0

Arnold Brief 0 155 155 0 155(12) 155 0

David A. Buchsbaum 0 146 146 0 146(12) 146 0

Alexander Cotsalas 0 928 928 0 928(12) 928 0

Phillip L. Dodge 0 618 618 0 618(12) 618 0

Timothy L. Jones 0 1,082 1,082 0 1,082(12) 1,082 0

Peter L. Larkworthy 0 927 927 0 927(12) 927 0

Deborah J. Nash 0 310 310 0 310(12) 310 0

H. Hickman Powell 0 10,974 10,974 0 10,974(12) 10,974 0

Peter J. Quartararo, Jr 0 773 773 0 773(12) 773 0
</TABLE>

- 15 -
<PAGE>

Lawrence Talisman 0 5,000 5,000 0 5,000(12) 5,000 0

Jay M. Wasserman 0 464 464 0 464(12) 464 0

Robert Wasserman 0 155 155 0 155(12) 155 0

Josephthal, Lyon
& Ross, Inc. 0 15,768 15,768 0 15,768(12) 15,768 0

Mallory Factor 0 400,000 400,000 0 400,000(13) 400,000 0

Whale Securities
Co., L.P.(14) 0 87,213 87,213 0 87,213(15) 87,213 0

William G. Walters 0 175,011 175,011 0 175,011(15) 175,011 0

Elliot J. Smith 21,500 25,887 47,387 0 25,887(15) 25,887 21,500

Estate of
Howard D. Harlow 0(16) 9,609 9,609(16) 0 9,609(15)(16) 9,609 0(16)

Nicholas Anari 0 1,023 1,023 0 1,023(15) 1,023 0

Cynthia Buckwalter 0 285 285 0 285(15) 285 0

James D. Whitten 23,500(17) 972 24,472 0 972(15) 972 23,500(17)

<FN>
(1) Assumes all of the Selling Securityholders' shares of Common Stock offered
hereby are sold and no additional shares are acquired. If the amount exceeds one
percent of the total number of shares of Common Stock outstanding (10,065,108
shares of Common Stock as of September 30, 1996), the percent of class is set
forth. Each Selling Securityholder's percentage ownership is determined by
assuming that options or warrants that are held by such person (but not those
held by any other person) and which are exercisable within 60 days after
September 30, 1996 have been exercised.

(2) Represents shares of Common Stock issuable upon exercise of warrants issued
by the Company.

(3) Represents shares of Common Stock issued pursuant to the Private Placement
Financing and being offered hereby.

(4) Represents shares of Common Stock issuable upon exercise of warrants issued
in the Private Placement Financing and being offered hereby.

(5) Shares owned includes 1,500 shares of Common Stock held by George Salley,
an affiliate of Franklin Street Investment Company, none of which are
offered hereby.

(6) Shares owned includes 18,000 shares of Common Stock held by Ms. Lynn
Factor's husband, none of which are offered hereby.

(7) Shares owned includes 10,500 shares of Common Stock held by Mr. Baron's
wife, none of which are offered hereby.

(8) Shares owned includes 18,932 shares held by James T.A. Wooder or members of
his immediate family and 1,000 shares issuable upon the exercise within 60 days
after September 30, 1996 of options held by Mr. Wooder. Mr. Wooder, a director
of the Company, is a Vice President of Helix Investments (Canada) Inc., the sole
shareholder of Helix (PEI) Inc., which is the sole shareholder of Philippi
Investments Ltd.

(9) Shares and Warrant Shares owned includes 198,860 shares of Common Stock held
by Mr. Crane jointly with his wife and 1,000 shares issuable upon the exercise
of warrants held by Mr. Crane jointly with his wife.

(10) Includes 3,000 shares issuable upon exercise of warrants issued in the
Private Placement Financing and 4,396 shares issuable upon exercise of SRP
Warrants.

(11) Includes 3,000 shares issuable upon exercise of warrants issued in the
Private Placement Financing and 8,213 shares issuable upon exercise of SRP
Warrants.

- 16 -
<PAGE>

(12) Represents shares of Common Stock issuable upon exercise of the SRP
Warrants and being offered hereby.

(13) Represents shares of Common Stock issuable upon exercise of the MFI Warrant
and being offered hereby.

(14) These securities are held in the name of Whale for the account of certain
equity owners and former equity owners on Whale. Does not include an
indeterminate number of shares of Common Stock held in Whale's tradng account.

(15) Represents shares of Common Stock issuable upon exercise of the Whale
Warrant and the Underlying Warrants and being offered hereby.

(16) Does not include 7,500 shares of Common Stock owned by the widow of Mr.
Harlow and 4,500 shares of Common Stock owned by her IRA.

(17) Represents 1,000 shares of Common Stock owned by Whitten Group, Inc., 1,000
shares of Common Stock held jointly with Mrs. Whitten. 7,500 shares of Common
Stock held by Mrs. Whitten, 6,500 shares of Common Stock held by Mr. Whitten's
IRA, 4,500 shares of Common Stock held by Mrs. Whitten's IRA, and 3,000 shares
of Common Stock held by trusts of which Mr. Whitten is the Trustee. Does not
include 10,000 shares of Common Stock and 10,000 Warrant Shares offered hereby
held by Frog Hollow Partners, of which Mrs. Whitten is the general partner.
</FN>
</TABLE>

PLAN OF DISTRIBUTION

The Shares may be offered for sale from time to time by the Selling
Securityholders to various purchasers, or pledged or hypothecated, or they may
be retained. The Selling Securityholders may elect to sell the Shares in
negotiated transactions at prices and on terms related to the then-current
market price or otherwise, or in market transactions, in each case without the
participation of underwriters, brokers or dealers. The Selling Securityholders
may also from time to time offer the Shares through brokers, dealers or agents,
or with the permission of the Company through underwriters, who may receive
underwriting discounts, concessions or commissions from the Selling
Securityholders and/or the purchasers for whom they act as agent. In that event,
the offers or sales may be made (i) by a block trade in which a broker or
dealer, engaged for the purpose, will attempt to sell the Shares as agent but
may position and resell a portion of the block as principal to facilitate the
transaction, (ii) by purchases by a broker or dealer as principal and resale by
such broker or dealer for its own account, (iii) by ordinary brokerage
transactions or transactions in which the broker solicits purchasers, (iv) with
the permission of the Company, in an underwritten transaction, or (v) otherwise.
In the event that brokers or dealers are engaged by the Selling Securityholders,
such brokers or dealers may arrange for other brokers or dealers to participate.
The Company has been advised by the Selling Securityholders that they have not,
as of the date hereof, entered into any arrangement with a broker-dealer for the
sale of Shares through a block trade, special offering, exchange distribution or
secondary distribution of a purchase by a broker-dealer.

Any Shares which qualify for sale pursuant to Rule 144 under the
Securities Act may be sold under Rule 144 rather than pursuant to this
Prospectus.

In offering the Shares, the Selling Securityholders and any
broker-dealers and any other participating broker-dealers who execute sales for
the Selling Securityholders may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales, and any profits
realized by the Selling Securityholders and the compensation of such
broker-dealers may be deemed to be underwriting discounts and commissions.

The Selling Securityholders have advised the Company that, during
such time as they may be engaged in a distribution of the Shares, they will
comply with Rules 10b-6 and 10b-7 under the Exchange Act. Rule 10b-6 under the
Exchange Act prohibits participants in a distribution from bidding for or
purchasing, for an account in which the participant has a beneficial interest,
any of the securities that are the subject of the distribution. Rule 10b-7
governs bids and purchases made in order to stabilize the price of a security in
connection with a distribution of the security.

- 17 -
<PAGE>

The public offering of the Shares by the Selling Securityholders
will terminate on the earlier of (a) nine months from the date of this
Prospectus, or (b) the date on which all Shares have been sold by the Selling
Securityholders. The Company has agreed with the Selling Securityholders to
prepare and file with the Commission any amendments or supplements to the
Registration Statement and this Prospectus as may be necessary to keep the
Registration Statement effective through such offering period.

The Company will pay certain expenses incidental to the offering and
sale of the Shares to the public estimated to be approximately $60,000. The
Company will not pay for, among other expenses, selling expenses or underwriting
discounts, if applicable.

EXPERTS

The financial statements incorporated in this Prospectus by
reference to the Annual Report on Form 10-K of The Panda Project, Inc. for the
year ended March 31, 1996 have been so incorporated in reliance on the report
(which contains an explanatory paragraph relating to The Panda Project, Inc.'s
ability to continue as a going concern as described in Note 1 to the financial
statements) of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.

- 18 -
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the various expenses in connection
with the sale and distribution of the securities being registered, other than
any underwriting discounts and commissions. All these expenses will be paid by
the Company.

NATURE OF EXPENSE

SEC Registration fee........................................... $ 5,546
Nasdaq Listing Fee............................................. 14,000
Legal and accounting fees and expenses......................... 35,000*
Miscellaneous.................................................. 5,454*
-------
TOTAL $60,000*
=======

* Estimated

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. FLORIDA BUSINESS CORPORATION
ACT.

Section 607.0850(1) of the Florida Business Corporation Act (the
"FBCA") provides that a Florida corporation, such as the Registrant, shall have
the power to indemnify any person who is or was a party to any proceeding (other
than an action by, or in the right of, the corporation), by reason of the fact
that he is or was a director, officer, employee or agent of the corporation or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against liability incurred in connection with such proceeding,
including any appeal thereof, if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action of proceeding, had no
reasonable cause to believe his conduct was unlawful.

Section 607.0850(2) of the FBCA provides that a Florida corporation
shall have the power to indemnify any person who is or was a party to any
proceeding by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he is or was a director, officer, employee or
agent of the corporation or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses and amounts paid in
settlement not exceeding, in the judgment of the board of directors, the
estimated expense of litigating the proceeding to conclusion, actually and
reasonably incurred in connection with the defense or settlement of such
proceeding, including any appeal thereof. Such indemnification shall be
authorized if such person acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation,
except that no indemnification shall be made under Section 607.0850(2) in
respect of any claim, issue or matter as to

II-1

<PAGE>

which such person shall have been adjudged to be liable unless, and only to the
extent that, the court in which such proceeding was brought, or any other court
of competent jurisdiction, shall determine upon application that, despite the
adjudication of liability but in view of all circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
such court shall deem proper.

Section 607.0850 of the FBCA further provides that, to the extent
that a director, officer, employee or agent of a corporation has been successful
on the merits or otherwise in defense of any proceeding referred to in
subsection (1) or subsection (2), or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses actually and reasonably
incurred by him in connection therewith; that indemnification provided pursuant
to Section 607.0850 is not exclusive; and that the corporation may purchase and
maintain insurance on behalf of a director, officer, employee or agent of the
corporation against any liability asserted against him or incurred by him in any
such capacity or arising out of his status as such whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 607.0850.

Notwithstanding the foregoing, Section 607.0850 of the FBCA provides
that indemnification of advancement of expenses shall not be made to or on
behalf of any director, officer, employee or agent if a judgment or other final
adjudication establishes that his actions, or omissions to act, were material to
the cause of action so adjudicated and constitute: (a) a violation of the
criminal law, unless the director, officer, employee or agent had reasonable
cause to believe his conduct was lawful or had no reasonable cause to believe
his conduct was unlawful; (b) a transaction from which the director, officer,
employee or agent derived an improper personal benefit; (c) in the case of a
director, a circumstance under which the liability provisions regarding unlawful
distributions are applicable; or (d) willful misconduct or a conscious disregard
for the best interests of the corporation in a proceeding by or in the right of
the corporation to procure a judgment in its favor or in a proceeding by or in
the right of a shareholder.

Section 607.0831 of the FBCA provides that a director of a Florida
corporation is not personally liable for monetary damages to the corporation or
any other person for any statement, vote, decision, or failure to act, regarding
corporate management or policy, by a director, unless: (a) the director breached
or failed to perform his duties as a director, and (b) the director's breach of,
or failure to perform, those duties constitutes: (1) a violation of the criminal
law, unless the director had reasonable cause to believe his conduct was lawful
or had no reasonable cause to believe his conduct was unlawful; (2) a
transaction from which the director derived an improper personal benefit, either
directly or indirectly; (3) a circumstance under which the liability provisions
regarding unlawful distributions are applicable; (4) in a proceeding by or in
the right of someone other than the corporation or a shareholder, recklessness
or an act or omission which was committed in bad faith or with malicious purpose
or in a manner exhibiting wanton and willful disregard of human rights, safety
or property.

ARTICLES OF INCORPORATION OF THE REGISTRANT

The Articles of Incorporation of the Registrant (the "Articles")
provide that, to the fullest extent permitted by applicable law, as amended from
time to time, the Registrant will indemnify any person who is or was a party or
is threatened to be made a party to an action, suit or proceeding (whether
civil, criminal, administrative or investigative) by reason of the fact that
such person

II-2

<PAGE>

is or was a director, officer, employee or agent of the Registrant or serves or
served any other enterprise at the request of the Registrant. This
indemnification includes the right to advancement of expenses when allowed
pursuant to applicable law.

In addition, the Articles provide that a director of the Registrant
shall not be personally liable to the Registrant or its shareholders for
monetary damages for breach of the director's fiduciary duty. However, the
Articles do not eliminate or limit the liability of a director for any of the
following reasons: (i) a breach of the director's duty of loyalty to the
Registrant or its shareholders; (ii) acts or omissions not in good faith or that
involve intentional misconduct or knowing violation of law; (iii) a violation
under Section 607.0834 of the FBCA (which imposes liability upon directors for
unlawful distributions); (iv) a transaction from which the director derived an
improper personal benefit; or (v) an act or omission occurring before the
effective date of the Articles.

INDEMNIFICATION

The Registrant has entered into or intends to enter into
Indemnification Agreements with its directors (collectively, the "Agreements")
which provide that each director is entitled to indemnification to the fullest
extent permitted by applicable law. Such indemnification will cover all
expenses, liabilities, judgments (including punitive and exemplary damages),
penalties, fines (including excise taxes relating to employee benefit plans and
civil penalties) and amounts paid in settlement which are incurred or imposed
upon the director if the director is a party or threatened to be made a party to
any threatened, pending or completed action, suit or proceeding of any kind,
whether civil, criminal, administrative or investigative (including actions by
or in the right of the Registrant and any preliminary inquiry or claim by any
person or authority), by reason of the fact that the director is or was a
director, officer, employee or agent of the Registrant or is or was serving at
the Registrant's request as a director, officer, employee or agent of another
corporation (including a subsidiary), partnership, joint venture, trust or other
enterprise against liability incurred in connection with such proceeding,
including any appeal thereof (collectively, the "Covered Matters"). Pursuant to
the Agreements, the directors are presumed to be entitled to indemnification
irrespective of whether the Covered Matter involves allegations of intentional
misconduct, alleged violations of Section 16(b) of the Exchange Act, alleged
violations of Section 10(b) of the Exchange Act (including Rule 10b-5
thereunder), breach of the director's fiduciary duties (including duties of
loyalty or care) or any other claim.

In addition to the foregoing, the Company maintains a director an
officer liability insurance policy insuring directors and officers of the
Registrant against certain liabilities.

ITEM 16. EXHIBITS.

See the Exhibit Index included immediately preceding the Exhibits to
this Registration Statement, which is incorporated herein by reference.

ITEM 17. UNDERTAKINGS.

The Registrant hereby undertakes:

II-3

<PAGE>

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:

(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended (the "Securities Act");

(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this Registration
Statement; and

(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement;

PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Company pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") that are incorporated by reference in this Registration
Statement.

(2) That, for the purposes of determining any liability under the
Securities Act, each post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial BONA
FIDE offering thereof.

(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.

The Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

II-4

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Amendment No. 2 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Boca Raton, State of Florida, on this 17th day
of January, 1997.

THE PANDA PROJECT, INC.

By: *
-----------------------------
Stanford W. Crane, Jr.
President

*By: /s/ C. DARYL HOLLIS
-------------------
C. Daryl Hollis
Attorney-in-fact

Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.

SIGNATURE TITLE DATE
- --------- ----- ----
*
- ----------------------- Chief Executive Officer, ) January 17, 1997
Stanford W. Crane, Jr. President and Director )
(Principal Executive )
Officer) )
/s/ C. DARYL HOLLIS )
- ----------------------- Executive Vice President ) January 17, 1997
C. Daryl Hollis and Chief Financial Officer)
(Principal Financial and )
Accounting Officer) )
*
- ----------------------- Director ) January 17, 1997
James T.A. Wooder )
)

II-5

<PAGE>
*
- ----------------------- Director ) January 17, 1997
Claud L. Gingrich )
)
*
- ----------------------- Director ) January 17, 1997
Rao R. Tummala )

*By: /s/ C. DARYL HOLLIS
-------------------
C. Daryl Hollis
Attorney-in-fact

II-6

<PAGE>

EXHIBIT INDEX

EXHIBIT DESCRIPTION OF EXHIBIT PAGE
- ------- ---------------------- ----

** 3.1 -- Amended and Restated Articles of
Incorporation of the Company, as amended.......................

3.2 -- Amended and Restated By-Laws of the
Company (filed as Exhibit 3.2 to the
Company's Registration Statement on
Form SB-2 (File No. 33-76694-A))............................... *

4.1 -- Specimen Certificate of Common Stock of
the Company (filed as Exhibit 4.1 to the
Company's Registration Statement on
Form SB-2 (File No. 33-76694-A))............................... *

** 5.1 -- Opinion of Holland & Knight....................................

**23.1 -- Consent of Holland & Knight (included in
Exhibit 5.1)...................................................

23.2 -- Consent of Price Waterhouse LLP................................

**24.1 -- Power of Attorney..............................................

99.1 -- Registration Rights Agreement, dated as
of July, 1996, among the Company and the
Purchasers named therein (filed as Exhibit
10.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996)................. *

99.2 -- Warrant Agreement dated May 16, 1994
between the Company and Whale Securities
Co., L.P. (filed as Exhibit 4.4 to Amendment No. 1
to the Company's Registration Statement on
Form SB-2 (File No. 33-76694-A)).............................. *

99.3 -- Form of Warrant issued in Private Placement
Financing...................................................... *

**99.4 -- Form of SRP Warrant............................................

**99.5 -- License Agreement, dated as of
August 17, 1996, among Stanford W.
Crane, Jr., the Company and Sun Precision
Works, Pvt. Ltd.+...............................................

**99.6 -- Letter Agreement dated as of September 10, 1996
between the Company and Mallory Factor Inc......................

**99.7 -- Warrant dated September 10, 1996 issued by
the Company to Mallory Factor...................................

**99.8 -- License Agreement, dated as of August 18, 1996,
between the Company and Pantronix Corporation+..................

II-7
<PAGE>

**99.9 -- License Agreement, dated as of September 30,
1996, among Stanford W. Crane, Jr., the Company
and LG Cable & Machinery Ltd.+..................................

99.10 -- Cooperative Agreement, dated October 22, 1996
between the Company and The United States of
America, U.S. Air Force, Air Force Materiel
Command+........................................................

**99.11 -- Reseller Agreement, dated November 1996 between
the Company and Siemens Nixdorf Information
Systems, Inc.+..................................................
- -----------------
* Incorporated herein by reference.

+ Confidential treatment requested.

**Previously filed.

II-8

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Amendment No. 2 to the Registration Statement on Form
S-3 of our report dated June 24, 1996, appearing on page F-2 of The Panda
Projects Inc.'s Annual Report on Form 10-K for the year ended March 31, 1996. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.

/s/ PRICE WATERHOUSE LLP
- -------------------------
Price Waterhouse LLP
Fort Lauderdale, Florida
January 17, 1997

CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.

Cooperative Agreement
between
The United States of America
U.S. Air Force, Air Force Materiel Command
2530 C Street
Wright-Patterson AFB
Dayton, OH 45433-7607

and

The Panda Project, Inc.
901 Yamato Road
Boca Raton, FL 33431-4425

Concerning Strategic Packaging for Single and Multi-Chip
Modules Very Small Peripheral Array (VSPA)

Agreement No.: F33615-96-2-5110
PR/DARPA Order No.: GWLMLFT-96-05162/AO A453-16
Total Amount of the Agreement: $4,034,625.00
Government share: $1,792.800.00
Recipient share: $2,241,825.00
Authority: 10 U.S.C. 2358, Pursuant to 10 U.S.C. 2371
Effective Date: Mail Date
Catalog of Federal Domestic Assistance number: 12.910

For The Panda Project For the United States of
America Wright Laboratory

/s/ Stanford W. Crane, Jr.10/18/96 /s/ Bruce J. Miller 96OCT22

Signature Date Signature Date

Stanford W. Crane, Jr. Bruce J. Miller

Name Title: President & CEO Name, Grants Officer

<PAGE>

Agreement No: F33615-96-2-5110
Page 2

Table of Contents

ARTICLES PAGE
- -------- ----
Part I ADMINISTRATIVE INFORMATION

Article 1 Definitions 4
Article 2 Administrative Requirements 4
Article 3 Administrative Responsibilities 4

PART II TERM

Article 4 Recognition of Pre-Award Costs 5
Article 5 Term of the Agreement 5
Article 6 Termination 6
Article 7 Extending the Term 6
Article 8 Additional Effort 6

PART III MANAGEMENT OF THE PROJECT

Article 9 Scope and Management of the Program 7
Article 10 Program Management Planning Process 7
Article 11 Modifications 8
Article 12 Title to Property 8

PART IV FINANCIAL MATTERS

Article 13 Cost Principles 8
Article 14 Standards for Financial Management Systems 9
Article 15 Allotted Funding 9
Article 16 Payment 9
Article 17 Program Income 10
Article 18 Cost Sharing and Matching 10

PART V DISPUTES

Article 19 Disputes 10

PART VI INTELLECTUAL PROPERTY RIGHTS

Article 20 Patent Infringement 11
Article 21 Inventions 11
Article 22 Data Rights 12
Article 23 Foreign Access to Technology 13

PART VII TECHNICAL AND FINANCIAL REPORTING

Article 24 Quarterly Reports 15
Article 25 Annual Program Plan 15
Article 26 Special Technical Reports 15

<PAGE>

Article 27 Final Report 15
Article 28 Payable Milestone Reports and Invoices 16

PART VIII MISCELLANEOUS PERFORMANCE ISSUES

Article 29 Using Technical Information Resources 16
Article 30 Procurement Standards 16

PART IX CERTIFICATIONS

Article 31 Certification 16

ATTACHMENTS

1 Statement of Work 18
2 Schedule of Payable Milestones 19
3 Cost Matching Summary and Schedule 20

<PAGE>

PART I. ADMINISTRATIVE INFORMATION

ARTICLE 1. DEFINITIONS

The term "parties" as used herein shall refer to The Panda Project and the
United States of America, hereinafter called the Government, represented by
Wright Laboratory.

The term "agreement" as used herein shall refer to these articles and the
attachments hereto.

The term "agreement year" as used herein shall refer to each consecutive twelve
month period from the effective date of this agreement throughout the term of
the agreement.

The term "recipient" shall refer to The Panda Project.

The term "program" shall refer to the Strategic Packaging for Single and
Multi-Chip Modules Very Small Peripheral Array (VSPA).

ARTICLE 2. ADMINISTRATIVE REQUIREMENTS

A. This agreement will be administered in accordance with, and recipients shall
comply with the requirements of, the Interim-Guidance draft of DOD 3210.6-R, the
DOD Grant and Agreement Regulations (DODGARs) (4 Feb 94), Parts 22, 25, 28, 31,
34, 36, and 37.

B. In the event of a conflict between the terms of this agreement and other
governing documents, the following shall be the order of precedence, in
descending order:

1. The DODGARs
2. The articles in this agreement
3. The attachments to this agreement

ARTICLE 3. ADMINISTRATIVE RESPONSIBILITIES

Grant Officer: Bruce J. Miller
WL/MLKT, Bldg. 7
2530 C Street
Wright-Patterson AFB, OH 45433-7607
(513) 255-7143
(513) 255-4434 Fax

Grants Administration Office: DCMC Seattle

ATTN: Cristina Austin
3009 112th Ave., NE. Suite 200
Bellevue, WA 98004-8019

<PAGE>

Government Program Manager: Bob Cross
WL/MTMC, Bldg. 653
2977 P Street, Suite 6
Wright-Patterson AFB, OH 45433-7739
(513) 255-2461
(513) 476-4420 Fax

Payment Office: DFAS-CO-JSA/Southeast
P. O. Box 182225
Columbus, OH 43218-2225
1-800-832-9976

Servicing Staff Judge Advocate's office (for invention reporting):
Staff Judge Advocate
Patents Monitoring Office
ATTN: AFMC LO/JAZI
Bldg. 11,2240 B Street, Suite 5
Wright-Patterson AFB, OH 45433-7109
(513) 255-5270

Recipient's Program Manager: John Bartoszek
Archistrat Technologies Division
The Panda Project
901 Yamato Road
Boca Raton, FL 33431-4425
(561) 989-4075
(561) 994-0191 Fax

PART II. TERM

ARTICLE 4. RECOGNITION OF PRE-AWARD COSTS

Costs may be incurred by the recipient up to 90 days prior to the effective date
of this agreement to the same extent as if incurred after award.

ARTICLE 5. TERM OF THE AGREEMENT

The term of this agreement commences on the effective date shown on the face of
the agreement, and continues for 12 months. If all funds are expended prior to
the end of the term (including recipient contributions, both cash and in-kind),
the parties have no obligation to continue performance and may elect to cease
development at that point. Articles in this agreement which by their express
terms or by necessary implication, apply for periods of time other than as
specified in this article shall be

<PAGE>

given effect, notwithstanding this article.

ARTICLE 6. TERMINATION

A. The grants officer may terminate this agreement by written notice to the
recipient upon a finding that the recipient has failed to comply with the
material provisions of this agreement.

B. Additionally, this agreement may be terminated by either party upon written
notice to the other party, based upon a reasonable determination that the
project will not produce beneficial results commensurate with the expenditure of
resources. Such written notice shall be preceded by consultation between the
parties. In the event of a termination, the Government shall have a paid-up
Government purpose license in any subject invention, copyright work, data and
technical data made or developed under this agreement.

C. The government and the recipient will negotiate in good faith an equitable
reimbursement for work performed toward accomplishment of program goals. The
Government will allow full credit to the recipient for the Government share of
the obligations properly incurred by the recipient prior to termination, and
those noncancellable obligations that remain after the termination. The cost
principles and procedures described in the article entitled "Cost Principles"
shall govern all costs claimed, agreed to, or determined under this article.

ARTICLE 7. EXTENDING THE TERM

If the parties agree, the term of this agreement may be extended if funds are
available and research opportunities reasonably warrant. Any extension shall be
formalized through modification of the agreement by the grants officer and the
recipient.

ARTICLE 8. ADDITIONAL EFFORT

A. Before the completion date of the current performance period, the Government
may elect to support one period of additional effort. The Government's election
will be in the form of a bilateral modification to this agreement. Performance
of the additional effort will be based upon the statement of work and the
following terms and conditions:

1. The performance period for this additional effort will be 12 months.

2. The Government and recipient's share for the period of additional effort
will be negotiated prior to adding any additional effort.

B. If the Government elects to support additional effort,

<PAGE>

provisions of this agreement will be amended accordingly.

PART III. MANAGEMENT OF THE PROJECT

ARTICLE 9. SCOPE AND MANAGEMENT OF THE PROGRAM

A. The Government and the recipient are bound to each other by a duty of good
faith and best effort in achieving the goals of this agreement. This agreement
is not intended to be, nor shall it be construed as, by implication or
otherwise, a partnership, a corporation, or other business organization.

B. The recipient shall perform a coordinated research and development program
carried out in accordance with the Statement of Work entitled "Strategic
Packaging for Single and Multi-Chip Modules Very Small Peripheral ARRAY (VSPA),"
Attachment 1.B. to this agreement. The recipient shall submit all documentation
required by Part VII, Technical and Financial Reporting.

C. The overall management, including technical, programmatic, reporting,
financial and administrative matters, of the coordinated research program
established under this agreement shall be accomplished by the recipient. The
Government program manager may, at his/her discretion, interact with the
recipient to promote effective collaboration between the recipient and the
Government. All technical and/or funding changes to this agreement must first be
approved by the Government, and the agreement modified in accordance with the
articles entitled "MODIFICATIONS."

D. A kickoff meeting will be conducted within thirty days following the
cooperative agreement award date. The recipient will establish a schedule of
quarterly technical meetings, and notify the Government program manager of the
schedule. The subject matter for these meetings will include but not be limited
to technical progress, associated research, and possible options that require
further exploration in future work. Both Government and the recipient will
jointly review the subject matter and make decisions on how the planned research
will proceed within the scope of the effort. The Government program manager
shall participate in all technical meetings. Other Government personnel, as
deemed appropriate, may also participate.

ARTICLE 10 PROGRAM MANAGEMENT PLANNING PROCESS

A. For the first agreement year, the recipient will follow the annual program
plan that is contained in the Statement of Work (Attachment 1.B.), and the
Schedule of Payable Milestones in

<PAGE>

Attachment 2.

B. The recipient, with Government program manager involvement, will prepare an
Annual Program Plan in the first quarter of each subsequent agreement year. This
Plan will be presented for review and approval at the appropriate quarterly
technical meeting, attended by the Government program manager and other
Government personnel as appropriate.

C. The Annual Program Plan provides a detailed schedule of project activities,
commits the recipient to use its best efforts to meet specific performance
objectives, includes forecasted expenditures and describes the payable
milestones. The Annual Program Plan will consolidate all prior adjustments in
the program schedule, including revisions/modifications to payable milestones.

ARTICLE 11. MODIFICATIONS

A. Modifications to this agreement may be proposed by either party. Only the
grants officer has the authority to act on behalf of the Government to modify
this agreement. The recipient will make recommendations for any modifications to
this agreement in writing, including justifications to support any changes to
the statement of work, and/or the payable milestones, and submit them to the
government program manager with a copy to the grants officer. The recipient
shall detail the technical, chronological, and financial impact of the proposed
modification to the program.

B. The Government is not obligated to pay for additional or revised payable
milestones until the payable milestone schedule (Attachment 2) is formally
revised by the grants officer and made a part of this agreement.

C. The grants officer may unilaterally make minor or administrative agreement
modifications (e.g., changes in the paying office or appropriation data, changes
to Government personnel identified in the agreement).

ARTICLE 12. TITLE TO PROPERTY

Title to all real property and nonexpendable tangible personal property
purchased by the recipient with federal funds under this agreement is vested in
the Government. The recipient must obtain the prior approval of the grants
officer before making any such purchases of real property or nonexpendable
tangible personal property with federal funds under this award.

PART IV. FINANCIAL MATTERS

ARTICLE 13. COST PRINCIPLES

<PAGE>

Federal funds and funds counted as the recipient's cost share or match shall be
used only for costs that:

A. A reasonable and prudent person would incur, in carrying out the project
contemplated by this agreement; and

B. Are consistent with the purposes stated in the governing Congressional
authorizations and appropriations.

ARTICLE 14. STANDARDS FOR FINANCIAL MANAGEMENT SYSTEMS

A. The recipient shall maintain adequate records to account for the control and
expenditure of Federal funds received and cost matching required under this
agreement.

B. The recipient shall establish and maintain an accounting system that:

1. Complies with Generally Accepted Accounting Principles.
2. Controls and properly documents all cash receipts and disbursements.

C. The recipient's relevant financial records are subject to examination or
audit by or for the Government for a period not to exceed three years after
expiration of the term of this agreement. The grants officer or designee shall
have direct access to sufficient records and information of the recipient's
activities to ensure full accountability for all funding under this agreement.
Such audit, examination, or access shall be performed during business hours on
business days upon prior written notice and shall be subject to the security
requirements of the audited party.

ARTICLE 15. ALLOTTED FUNDING

The following funds are allotted to this agreement:

FUND CITE(S) AMOUNT
------------ ------

9760400 1302 D16 47WL 6L1000 0A4530 00000 63226E
503000 F03000 $1,792,800.00

ARTICLE 16. PAYMENT

A. The recipient shall be paid for each payable milestone accomplished in
accordance with the schedule of payable milestones at Attachment 2 and the
procedures of this article.

<PAGE>

B. The recipient shall document the accomplishment of each payable milestone by
submitting or otherwise providing the payable milestone report required by the
article entitled "PAYABLE MILESTONE REPORTS AND INVOICES." The recipient shall
concurrently submit an original and 2 copies of the associated invoice to the
grants officer. The government program manager will review the report, verify
the accomplishment of the payable milestone, and notify the grants officer of
such in writing. After receipt of this verification by the Government program
manager, the grants officer will approve the payment in writing and forward the
invoice to the payment office. All invoices will be forwarded to the payment
office within thirty calendar days of receipt by the grants officer.

C. It is recognized that the quarterly accounting of current expenditures
reported in the "Quarterly Business Status Report" submitted in accordance with
the article entitled "Quarterly Reports" is not necessarily intended or required
to match the payable milestones until submission of the Final Report; however,
payable milestones may be revised during the course of the program to reflect
current and revised projected expenditures.

D. The Schedule of Payable Milestones is shown at Attachment 2.

17. PROGRAM INCOME

The provisions of Attachment D to OMB Circular A-110 (30 Jul 76) apply. All
program income earned during the project period shall be used to finance the
non-Government share of the project.

ARTICLE 18. COST SHARING AND MATCHING

A. The parties estimate that the statement of work for this agreement can only
be accomplished with the recipient aggregate resource contribution of
$4,034,625.00 from the effective date of this agreement through 12 months
thereafter. The recipient intends, and by entering into this agreement,
undertakes to cause to be provided these resources. Recipient contributions will
be provided as shown in Attachment 3. Failure of either party to provide its
respective total contribution may result in a unilateral amendment to the
agreement by the grants officer to reflect a proportional reduction in funding
for the other party.

B. The provisions of 32 CFR 34.2(a)(2) apply. The recipient's contributions may
count as cost sharing or matching only to the extent that they are used for
authorized purposes of the agreement, and such purposes are consistent with
applicable cost principles.

PART V. DISPUTES

ARTICLE 19. DISPUTES

<PAGE>

A. General. Parties shall communicate with one another in good faith and in a
timely and cooperative manner when raising issues under this article. The
Department of Defense's policy is to try to resolve all issues concerning
agreements by mutual agreement at the grants officer's level.

B. Dispute Resolution Process.

1. Any disagreement, claim or dispute between the Government and the
recipient concerning questions of fact or law arising from or in connection with
this agreement, whether or not involving an alleged breach of this agreement,
may be raised only under this Article.

2. Whenever disputes, disagreements, or misunderstandings arise, the
parties shall attempt to resolve the issue(s) involved by discussion and mutual
agreement as soon as practicable. Failing resolution by mutual agreement, the
recipient shall submit to the grants officer, in writing, the relevant facts,
identifying unresolved issues and specifying the clarification or remedy sought.
Within 60 days of receipt of the written claim or issue in dispute, the grants
officer shall either:

a. Prepare a written decision on the issue, including the basis for the
decision, or

b. Notify the recipient of a specific date when he or she will render a
written decision, if more time is required to do so. The notice will include the
reason for delaying the decision.

3. In the event the recipient decides to appeal the decision of the grants
officer, they must do so within 30 calendar days of receipt of the decision. The
appeal must be submitted, in writing, to the Wright Laboratory Commander. The
Commander shall conduct a review of the matter and render a decision in writing
within 30 calendar days of receipt of the written appeal. Any such decision is
not subject to further administrative review and shall be final and binding
subject to judicial review.

PART VI. INTELLECTUAL PROPERTY RIGHTS

ARTICLE 20. PATENT INFRINGEMENT

The recipient agrees not to hold the U.S. Government responsible for any and all
patent infringement cases which may arise under any research projects conducted
under this agreement. In

<PAGE>

addition, the recipient shall indemnify the Government against all claims and
proceedings for actual or alleged direct or contributory infringement of, or
inducement to infringe, any U.S. or foreign patent, trademark, or copyright
arising under this agreement and the consortium shall hold the government
harmless from any resulting liabilities and losses provided the recipient is
reasonably notified of such claims and proceedings. At its expense, the
recipient will have control of the defense or settlement of any such claim or
proceeding.

ARTICLE 21. INVENTIONS

A. The clause entitled "Rights to Inventions Made by Nonprofit Organizations and
Small Business Firms," (37 CFR 401) is hereby incorporated by reference and the
clauses in paragraph 401.14 are modified as follows: replace the word
"contractor" with "recipient"; replace the words "agency," "Federal Agency" and
"funding Federal Agency" with "government"; replace the word "contract" with
"agreement"; delete paragraphs (g)(2), (g)(3) and the words "to be performed by
a small business firm or domestic nonprofit organization" from paragraph (g)(1);
paragraph (1), Communications, point of contact on matters relating to this
clause will be the servicing Staff Judge Advocate's office identified elsewhere
in this agreement.

B. The recipient shall file Invention (Patent) Reports as of the close of the
performance year and at the end of the term for this Agreement. Annual reports
are due 60 days after the end of each year of performance and final reports are
due 60 days after the expiration of the final performance period. The recipient
shall use DD Form 882, Report of Inventions and Subcontracts, to file an
inventions report. Negative reports are also required. The recipient shall
submit the original and one copy to the servicing Staff Judge Advocate's office,
one copy to the Grants Administration Office, and one copy to the grants
officer, if different than the Grants Administration Office.

C. Final payment cannot be made nor can the agreement be closed out until the
recipient delivers to the Government all disclosures of subject inventions
required by this agreement, an acceptable final report pursuant to the article
entitled "FINAL REPORT", and all confirmatory instruments.

ARTICLE 22. DATA RIGHTS

A. Ownership rights to data and technical data, as defined in 48 CFR 27.401,
generated under this agreement shall vest in the recipient.

B. The recipient hereby grants to the U.S. Government a non-exclusive,
non-transferable, royalty-free, fully paid-up license to use, duplicate, or
disclose for governmental purposes any

<PAGE>

data, technology and inventions, whether patented or not, made or developed
under this agreement. Government purposes include competitive procurement, but
do not include the right to have or permit others to use any data, technology
and inventions for commercial purposes.

C. The recipient reserves the right to protect by copyright original works
developed under this agreement. All such copyrights will be in the name of the
recipient. The recipient hereby grants the U.S. Government a non-exclusive,
non-transferable, royalty-free, fully paid-up license to reproduce, prepare
derivative works, distribute copies to the public, and perform publicly and
display publicly, for governmental purposes, any copyrighted materials developed
under this agreement, and to authorize others to do so. The recipient also
grants non-exclusive, non-transferable, royalty-free, fully paid-up licenses to
project subrecipients to use any copyrighted material developed under this
agreement for research purposes as necessary to fulfill the requirements of this
agreement.

D. The recipient is responsible for affixing appropriate markings indicating
rights on all data and technical data delivered under the agreement. The
Government shall be deemed to have unlimited rights in all data and technical
data delivered without markings.

ARTICLE 23. FOREIGN ACCESS TO TECHNOLOGY

This article shall remain in effect during the term of the agreement and for 2
years thereafter.

A. Definitions

"Foreign firm or institution" means a firm or institution organized or
existing under the laws of a country other than the United States, its
territories, or possessions. The term includes, for purposes of this agreement,
any agency or instrumentality of a foreign government; and firms, institutions
or business organizations which are owned or substantially controlled by foreign
governments, firms, institutions, or individuals.

"Know-how" means all information including, but not limited to discoveries,
formulas, materials, inventions, processes, ideas, approaches, concepts,
techniques, methods, software, programs, documentation, procedures, firmware,
hardware, technical data, specifications, devices, apparatus and machines.

<PAGE>

"Technology" means discoveries, innovations, know-how and inventions,
whether patentable or not, including computer software, recognized under U.S.
law as intellectual creations to which rights of ownership accrue, including,
but not limited to, patents, trade secrets, mask works, and copyrights developed
under this agreement.

B. General. The parties agree that research findings and technology developments
in VSPA technology may constitute a significant enhancement to the national
defense, and to the economic vitality of the United States. Accordingly, access
to important technology developments under this agreement by foreign firms or
institutions must be carefully controlled. The controls contemplated in this
article are in addition to, and are not intended to change or supersede, the
provisions of the International Traffic in Arms Regulation (22 CFR pt. 121 et
seq.), the DOD Industrial Security Regulation (DOD 5220.22-R) and the Department
of Commerce Export Regulation (15 CFR pt. 770 et.seq.)

C. Restrictions on Sale or Transfer of Technology to Foreign Firms or
Institutions.

1. In order to promote the national security interests of the United States
and to effectuate the policies that underlie the regulations cited above, WITH
THE EXCEPTION OF ANY TRANSFER OF TECHNOLOGY IDENTIFIED IN THE "CONSENTS OF THE
GOVERNMENT UNDER ARTICLE 23.C.," SIGNED BY THE GRANTS OFFICER ON 17 OCT 96, the
procedures stated in subparagraphs C.2, C.3, and C.4 below shall apply to any
transfer of technology. For purposes of this paragraph, a transfer includes a
sale of the company, and sales or licensing of technology. Transfers do not
include:

a. sales of products or components, or
b. licenses of software or documentation related to sales of products
or components, or
c. transfer to foreign subsidiaries of the recipient for purposes
related to this agreement, or
d. transfer which provides access to technology to a foreign firm or
institution which is an approved source of supply or source for the conduct of
research under this agreement provided that such transfer shall be limited to
that necessary to allow the firm or institution to perform its approved role
under this agreement.

2. The recipient shall provide timely notice to the Government of any
proposed transfer from the recipient of technology developed with Government
funding under this agreement to foreign firms or institutions. If the Government
determines that the transfer may have adverse consequences to the national
security interests of the United States, the recipient, its vendors, and the
Government shall jointly endeavor to find

<PAGE>

CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS

alternatives to the proposed transfer which obviate or mitigate potential
adverse consequences of the transfer but which provide substantially equivalent
benefits to the recipient.

3. In any event, the recipient shall provide written notice to the
Government program manager of any proposed transfer to a foreign firm or
institution at least 60 calendar days prior to the proposed date of transfer.
Such notice shall cite this article and shall state specifically what is to be
transferred and the general terms of the transfer. Within thirty calendar days
of receipt of the recipient's written notification, the grants officer shall
advise the recipient whether it consents to the proposed transfer. In cases
where the Government does not concur or sixty calendar days after receipt and
the Government provides no decision, the recipient may utilize the procedures
under the article entitled "DISPUTES." No transfer shall take place until a
decision is rendered.

4. Except as provided in subparagraph C.1 above-***************************
******************************************************************************
******************************************************************************
******************************************************************************
******************************************************************************
******************************************************************************
**********************************************************************. A
statement of fees generated from a Government approved foreign license will be
provided to the Government Grants Officer.

D. Lower Tier Agreements. The recipient shall include this article, suitably
modified, to identify the parties, in all subcontracts or lower tier agreements,
regardless of tier, for experimental, development, or research work.

PART VII. TECHNICAL AND FINANCIAL REPORTING

ARTICLE 24. QUARTERLY REPORTS

On or before ninety calendar days after the effective date of this agreement and
quarterly thereafter throughout the term of this agreement, the recipient shall
submit a quarterly report. Two copies shall be submitted or otherwise provided
to the Government program manager, and one copy shall be submitted to the grants
officer. The report will have two major sections:

A. Technical Status Report. The technical status report will detail technical
progress to date and report on all problems,

<PAGE>

technical issues or major developments during the reporting period.

B. Business Status Report. The business status report shall provide summarized
details of the resource status of this agreement, including the status of the
contributions by both parties. This report will include a quarterly accounting
of current expenditures as outlined in the Annual Program Plan. Any major
deviations shall be explained along with discussion of proposed actions to
address the deviations.

ARTICLE 25. ANNUAL PROGRAM PLAN

The recipient shall submit to the Government program manager one copy of the
Annual Program Plan described in the article entitled "PROGRAM MANAGEMENT
PLANNING PROCESS." This plan shall be submitted not later than 30 calendar days
following the annual site review as described in the article entitled PROGRAM
MANAGEMENT PLANNING PROCESS."

ARTICLE 26. SPECIAL TECHNICAL REPORTS

As agreed to by the recipient and the Government program manager, the recipient
shall submit to the Government program manager one copy of special reports on
significant events such as significant target accomplishments by the recipient,
significant tests, experiments, or symposia.

ARTICLE 27. FINAL REPORT

A. Within 60 calendar days of completion or termination of this agreement, the
recipient shall submit a Final Report consisting of two parts, one addressing
the technical achievements and the second recapping the business/financial
aspects of the agreement. The technical portion of the report should be suitable
for publication and is to provide a recap of the program, discussing program
accomplishments. With the approval of the Government program manager, reprints
of published articles may be submitted or attached to the technical portion of
the Final Report. The business portion of the report shall contain a separate
discussion of total costs incurred, and total costs contributed by the recipient
with an explanation for any deviations from the original business plan. The
original and two copies shall be submitted to the Government program manager.

B. The recipient shall mark all data delivered with the following distribution
statement in accordance with MIL STD 1806:

"Distribution authorized to U.S. Government Agencies and their contractors;
Administrative or Operational Use, Oct 1996. Other requests for this document
shall be referred to WL/MTMC, Bldg. 653, 2977 P Street, Suite 6,
Wright-Patterson AFB, OH

<PAGE>

45433-7739."

ARTICLE 28. PAYABLE MILESTONE REPORTS AND INVOICES

The recipient shall submit to the Government program manager two copies of
documentation describing the extent of accomplishment of payable milestones.
This information shall be as required by the article entitled "PAYMENT," and
shall be sufficient for the Government program manager to verify the
accomplishment of the milestone event in accordance with the statement of work.
Each report shall have an associated invoice, which shall be submitted
concurrently to the grants officer (see article entitled "PAYMENT)

PART VIII. MISCELLANEOUS PERFORMANCE ISSUES

ARTICLE 29. USING TECHNICAL INFORMATION RESOURCES

To the extent practical, the recipient will use the technical information
resources of the Defense Technical Information Center (DTIC) and other
Government or private facilities to investigate recent and on-going research and
avoid needless duplication of scientific and engineering effort.

ARTICLE 30. PROCUREMENT STANDARDS

The recipient will:

A. Follow basic principles of business intended to produce rational decisions
and fair treatment in all contracts entered into under this agreement.

B. Comply with federal statutes, executive orders, regulations, and other legal
requirements applicable to contracts entered into under this agreement.

PART IX. CERTIFICATIONS

ARTICLE 31. CERTIFICATION

By signing the agreement or accepting funds under the agreement, the recipient
provides the:

A. Certification at Appendix C, 32 CFR Part 25 regarding Drug-Free Workplace
Requirements.

B. Certification at Appendix A, 32 CFR Part 25 regarding Debarment, Suspension,
and Other Responsibility Matters--Primary

<PAGE>

Covered Transactions.

C. Certification at Appendix A, 32 CFR Part 28 regarding Lobbying.

D. Assurance at 32 CFR Part 56.9(b) regarding Nondiscrimination on the Basis of
Handicap in Programs and Activities Assisted or Conducted by the Department of
Defense.

E. Assurance at 32 CFR 195.6 regarding Nondiscrimination in Federally Assisted
Programs of the Department of Defense--Effectuation of Title IV of the Civil
Rights Act of 1964.

<PAGE>

VISION STATEMENT

STRATEGIC PACKAGING FOR SINGLE AND MULTI-CHIP MODULES USING
VERY SMALL PERIPHERAL ARRAYS (VSPA)

The Defense Advanced Research Projects Agency's (DARPA) funding of this effort,
if successful, will overtake the Pacific Rim-based electronic package module
design and manufacturing infrastructure with the development of the Very Small
Peripheral Array (VSPA) packaging, a U.S.-based breakthrough technology. This
packaging technology is extremely flexible and will have wide and deep
applications from Single Chip Modules (SCMs) to Multi-Chip Modules (MCMs), for
use in high frequency applications like cellular communications, Charge Coupled
Devices (CCDs) for solid state cameras, Personal Computer Memory Card
International Association (PCMCIA) cards, personal information appliances, and
other military applications. VSPA technology has the potential to leapfrog ALL
existing packaging technologies in both civilian and military applications.

This project dovetails well with DARPA's overall goals outlined in its mission
statement for packaging and interconnect, as well as with DARPA's prior
investments in the area of electronic packaging. It also clearly addresses the
concerns expressed in the Administration's report, ENHANCING THE COMPETITIVENESS
OF THE U.S. ELECTRONIC PACKAGING INDUSTRY (March 29, 1994) about the United
States lagging behind other countries in many important packaging areas,
particularly thin, small packages (i.e., VSPA packages). Finally, this project
addresses many of the goals outlined in the solicitation. VSPA is ideally suited
for the military and dual-use mixed signal products, in particular wireless
communications, PCMCIA cards and personal data assistants. Because of its low
unit cost, VBSPA could facilitate a significant cost reduction for the Armed
Services products.

The current cornerstone of the Integrated Circuit (IC) packaging industry is the
Quad Flat Pack (QFP) style of packaging. However, this package technology is
approaching its limits with respect to performance and the need for increased
leads. WFP, while currently the lowest cost style of packaging in the industry,
has 4 major drawbacks:

1. Large size (36 mm/superior 2/ at 304 I/Os)
2. Limited power dissipation capability
3. Degrading electrical performance as lead count (& size) increases
4. Decreasing reliability and assembly yields as lead count increases

<PAGE>

The above drawbacks associated with QFPs has spawned the development of
alternative packaging technologies, the most notable of which is Ball Grid
Arrays (BGAs). However, BGAs suffer from drawbacks as well including
questionable Printed Wiring Board (PWB) assembly reliability, limited heat
dissipation capability, and not fitting into current IC packaging and PCB
assembly manufacturing infrastructure. An important added drawback that could
impact military use is the ability to survive a more harsh environment.

The proposed VSPA package is a U.S. invention that can provide many improvements
over existing packaging technologies. The development of this packaging
technology will yield the following benefits to the government and to the
electronics industry in general:

<TABLE>
<S> <C>
/bullet/ Small footprint (28 mm/superior 2/ at 312 I/Os) /bullet/ Low Weight
/bullet/ High I/O count (/greater than or equal to/ 600) /bullet/ Lower Card Cost
/bullet/ Reduced Design Time (Modular) /bullet/ Robust Construction
/bullet/ Reduced Manufacturing Cost /bullet/ Lower Overall "Use" Costs
(Preformed Package) /bullet/ Design Flexibility (Ease
/bullet/ Improved Mechanical and Electrical of Customization)
Characteristics
/bullet/ U.S. based Manufacturing Capability
</TABLE>

<PAGE>

STATEMENT OF WORK

STRATEGIC PACKAGING FOR SINGLE AND MULTI-CHIP MODULES
USING VERY SMALL PERIPHERAL ARRAYS (VSPA)

1. SCOPE

1.1 The objective of this program is to develop a set of Very Small Peripheral
Array (VSPA) products and process technologies, including a variety of multichip
modules, and to define the infrastructure to manufacture these packages on a
high volume, low cost basis.

The program objectives can be divided into four focus areas:

1. The design, development, and production of a family of VSPA-based
semiconductor packages.
2. The assembly of the chip to the package and the package to the Printed
Wiring Board (PWB).
3. Characterization and simulation of the package technology.
4. Demonstrating the viability of VSPA and ensuring the reliability of the
technology.

The specific objectives of the first year of the program are to:

/bullet/ complete the design, development and testing of the initial single chip
package technology
/bullet/ develop automated manufacturing processes that provide a significant
reduction in assembly cost, and to demonstrate fully automated chip placement
and wirebonding as well as encapsulation processes
/bullet/ insert a VSPA into a real application, and to measure user acceptance
and field reliability

In year two, the objectives are to deliver additional VSPA package versions,
including Multi-Chip Modules (MCM) version, alternative single chip version, a
flip chip version (referred to as C4), and test the viability of commercial
versions in a military environment. In year three, the objective is to develop 4
and 5 tier versions, and to explore reductions in cost by exploring alternative
materials and manufacturing processes.

1.2 BACKGROUND

The Panda Project has developed a package technology, called VSPA, that differs
from existing semiconductor packaging technologies in that it can provide more
I/Os in a smaller space, has improved electrical and thermal performance, is
more rugged, and has the

<PAGE>

potential for overall lower costs than currently available technologies. Panda
has demonstrated an initial proof of concept with a 320 pin, staggered leaded
version of the VSPA technology. In addition, preliminary characterization work
has been done by Georgia Tech which verifies the potential for VSPA to deliver
better electrical and thermal performance than existing technologies. The
complete characterization of the technology is yet to be accomplished, as is the
design, testing, and manufacturability of the technology, in order to verify its
viability and reliability as a semiconductor packaging technology. The extension
of the single chip package concept to multichip packages, high frequency
(referred to as RF) specific packages and militarized versions needs to be
accomplished. In essence, the extensibility of the VSPA technology needs to be
developed and demonstrated if the industry, as well as the government, is to
take full advantage of this strategic packaging technology.

2.0 APPLICABLE DOCUMENTS

2.1 None

3.0 PHASE I - TECHNICAL REQUIREMENTS

3.1 TASK 1: ALTERNATIVE PINNING CONFIGURATIONS AND

PROCESSES

The recipient shall perform the following subtasks:

3.1.1 Define alternative hole and pin configurations for the VSPA SCM (Single
Chip Module) design with the objective of improving and enhancing the
manufacturability and reliability of the VSPA SCM technology.

3.1.2 Procure engineering test vehicles and evaluate configurations defined in
3.1.1 with respect to pin insertion, pin retention, wire bondability, and
overall design attributes.

3.1.3 Upgrade the current concept pin insertion equipment to incorporate
previously defined design improvements. Evaluate performance to incorporate
learning into next generation equipment.

3.1.4 Define requirements and design for a lead straightening tool. Demonstrate
the lead straightening tool for use with VSPA after device assembly.

3.1.5 Define specifications and design for second generation assembly machine.

3.1.6 Design and demonstrate automated pin feeder concepts.

3.1.7 Design and demonstrate automated plastic frame feeder concepts.

<PAGE>

3.1.8 Design and demonstrate ganged pin insertion concepts.

3.1.9 Issue reports documenting the findings for each of the following subtasks:
3.1.2, 3.1.3, 3.1.7, 3.1.8, 3.1.9.

3.2 TASK 2: WIRE BONDING PROCESSES

The recipient shall work with a subrecipient, a contract package assembly
manufacturer and perform the following subtasks:

3.2.1 Define the die attach and wirebond assembly requirements and document as
process and equipment specifications.

3.2.2 Verify the assembly process defined in 3.2.1 on VSPA-264 design and
determine projected throughput and yield.

3.2.3 Develop and evaluate die attach and wire bond processes for selected MCM
substrates and applications.

3.3 TASK 3: DIE ATTACH AND ENCAPSULATING MATERIALS The recipient shall work with
a subrecipient as well as with selected materials vendors and perform the
following subtasks:

3.3.1 Define and verify the die attach and encapsulation materials combination
and associated dispense and curing processes to be used with the initial
VSPA-264 product. Incorporate into process specifications defined in 3.2.1.

3.3.2 Investigate and select alternative die attach and encapsulation materials
systems, and dispense and curing processes for general VSPA SCM applications.

3.3.3 Evaluate candidate materials systems and processes defined in 3.3.2.

3.3.4 Select and evaluate die attach and encapsulation materials systems and
processes for application to VSPA MCM (Multi-Chip Module) designs.

3.3.5 Issue reports documenting the findings for each of the following subtasks:
3.3.3 and 3.3.4.

3.4 TASK 4: ELECTRICAL AND MECHANICAL CHARACTERIZATION AND SIMULATION

The recipient shall work with one or more subrecipients and perform the
following subtasks:

<PAGE>

3.4.1 Create two-dimensional (2-D), finite element models of the package and PCB
system and exercise those models to determine first order fatigue and mechanical
stresses.

3.4.2 Update model as required to reflect new designs, material and design
changes.

3.4.3 Create a three-dimensional (3-D), finite element model of package and PCB
structure, including solder joints, and compare results with the 2-D model.

3.4.4 Evaluate various material systems, mechanical configurations, and
alternative designs using both 2-D and 3-D models, as appropriate, to predict
electrical and mechanical performance.

3.4.5 Modify existing electrical models and evaluate alternative VSPA designs,
including RF versions and MCM versions, relative to electrical performance, and
perform experiments, as required, to verify modeling results.

3.4.6 Issue reports documenting the findings for each of the following subtasks:
3.4.1 and 3.4.3; issue periodic reports, as appropriate, documenting the
findings of subtasks 3.4.4 and 3.4.5.

3.5 TASK 5: SOCKETS AND PACKAGING

The recipient shall work with a subrecipient, socket vendors and perform the
following subtasks:

3.5.1 Evaluate qualification sockets using particle interconnect and compliant
interposers for use with prototype and production VSPA SCM applications.

3.5.2 Investigate and select alternative socket technologies for use in VSPA SCM
applications.

3.5.3 Procure and evaluate socket technology(s) selected in 3.5.2.

3.5.4 Define and procure SMC Joint Electron Device Engineering Council (JEDEC)
registered trays using VSPA-264 design as the baseline.

3.5.5 Define VSPA packaging and handling requirements relative to cleanliness,
humidity protection, and mechanical protection.

3.5.6 Define and evaluate alternative handling systems and procedures for piece
part and bare package handling and shipping.

3.5.7 Issue reports documenting the findings for each of the following subtasks:
3.5.1, 3.5.3, 3.5.5, and 3.5.6.

<PAGE>

3.6 TASK 6: PRINTED WIRING BOARD (PWB) ASSEMBLY

The recipient shall work with selected PWB manufacturers, selected PWB assembly
equipment manufacturers and perform the following subtasks:

3.6.1 Define the PWB assembly process for SCM applications.

3.6.2 Verify compatibility with existing equipment and document as process
specifications.

3.6.3 Evaluate yield and cost as a function of footprint variations and solder
deposition and volumes.

3.6.4 Issue a report documenting the findings for subtask 3.6.3.

3.7 TASK 7: QUALIFICATION AND RELIABILITY

The recipient shall work with a subrecipient and qualified test labs and perform
the following subtasks:

3.7.1 Demonstrate technology readiness by executing a subset of the JEDEC
defined semiconductor package qualification tests using the VSPA-320 development
package with an electrically "live" chip.

3.7.2 Demonstrate product readiness by executing a series of qualification tests
as defined by a selected semiconductor manufacturer or the generally accepted
JEDEC testing series with a production level device and package assembly.

3.7.3 Demonstrate package-to-PWB assembly reliability by executing a series of
JEDEC defined tests designed for determining solder joint integrity.

3.7.4 Issue reports documenting the findings of each of the following subtasks:
3.7.1, 3.72, and 3.7.3.

3.8 TASK 8: PIN FABRICATION

The recipient shall work with selected pin fabrication vendors and perform the
following subtasks:

3.8.1 Define pin plating requirements and acceptable plating systems and process
for initial VSPA-264 production parts.

3.8.2 Evaluate selective plating techniques for Gold (Au) and Lead-Tin (PbSn)
systems as an alternative to all gold.

<PAGE>

3.8.3 Evaluate alternative plating systems, including, as a minimum, palladium,
for application to VSPA SCM technology.

3.8.4 Evaluate alternative pin materials for potential improvement in overall
manufacturability, reliability, and cost.

3.8.5 Define and evaluate alternative pin singulation processes.

3.8.6 Issue reports documenting the findings of each of the following subtasks:
3.8.2, 3.8.3, 3.8.4, and 3.8.5.

3.9 TASK 9: PLASTIC MOLDING

The recipient shall work with selected plastic molders and perform the following
subtasks:

3.9.1 Define and design insert mold techniques and molding processes using the
VSPA-264 design.

3.9.2 Procure and evaluate parts produced with system(s) defined in 3.9.1.

3.9.3 Investigate and select alternative plastic materials for use with VSPA
technology.

3.9.4 Procure and evaluate parts fabricated using materials defined in 3.9.3 for
manufacturability, extensibility and cost reduction potential.

3.9.5 Investigate and select candidate alternative molding processes for
evaluation for use with VSPA SCM and MCM applications.

3.9.6 Issue reports documenting the findings of each of the following subtasks:
3.9.2 and 3.9.4.

3.10 TASK 10: DIE ATTACH TO SUBSTRATES

The recipient shall perform the following subtasks:

3.10.1 Investigate and select for evaluation alternative substrate materials for
potential SCM application.

3.10.2 Evaluate materials selected in 3.10.1 for manufacturability, performance,
and cost reduction.

3.10.3 Evaluate selective plating techniques and systems for use with the die
attach plate.

3.10.4 Investigate and select candidate substrate materials and technologies for
use in VSPA MCM wirebond applications.

<PAGE>

3.10.5 Procure and evaluate technologies identified in 3.10.4.

3.10.6 Issue reports documenting the findings for each of the following
subtasks: 3.10.2, 3.10.3, and 3.10.5.

4.0 PHASE II - TECHNICAL REQUIREMENTS

4.1 TASK 1: ALTERNATIVE PINNING CONFIGURATIONS AND PROCESSES

The recipient shall perform the following subtasks:

4.4.1 Define and procure parts. Evaluate RF specific pin and hole designs

4.1.2 Verify application of automated assembly concepts developed in Phase I for
SCM assembly to MCM assembly.

4.1.3 Define equipment requirements for high volume (/less than/1 million parts
per year) production of SCM VSPA products; document as an equipment
specification.

4.1.4 Define equipment requirements for high volume (/less than/100,000 parts
per year) production of MCM VSPA products; document as an equipment
specification.

4.1.5 Design high volume equipment to meet defined specifications for SCM
assembly.

4.1.6 Design high volume equipment to meet defined specifications for MCM
assembly.

4.1.7 Issue reports documenting the findings for subtask 4.1.1.

4.2 TASK 2: WIRE BONDING PROCESSES

The recipient shall work with a subrecipient, a contract package assembly
manufacturer, and selected equipment manufacturers, and perform the following
subtasks:

4.2.1 Verify the assembly process for wire bonded, MCM applications; determine
yields and throughput; document as a process specification.

4.2.2 Define and verify the assembly process for RF specific applications, both
SCM and MCM as appropriate; document as a process specification.

4.2.3 Verify compatibility of selected wire bonded MCM processes

<PAGE>

and designs with existing equipment and processes.

4.3 TASK 3: DIE ATTACH AND ENCAPSULATING MATERIALS

The recipient shall work with a subrecipient as well as with selected materials
vendors and perform the following subtasks:

4.3.1 Verify compatibility of material systems selected for SCM applications to
wire bonded MCM design and applications.

4.3.2 Evaluate applicability of selected material systems for commercial
applications to a more rugged military environment and requirements.

4.3.3 Investigate and select alternative material systems adaptable for more
robust, military type applications.

4.3.4 Issue reports documenting the findings of the following subtasks: 4.3.2
and 4.3.3.

4.4 TASK 4: ELECTRICAL AND MECHANICAL CHARACTERIZATION AND SIMULATION

The recipient shall work with one or more subrecipients and perform the
following subtasks:

4.4.1 Develop RF specific models for analyzing design tradeoffs and predicting
resulting electrical and mechanical performance.

4.4.2 Define recommended RF specific designs for further hardware design
evaluation and process development.

4.4.3 Develop C4, MCM models for evaluating design tradeoffs and predicting
electrical and mechanical performance.

4.4.4 Issue reports documenting the findings of each of the following subtasks:
4.4.1, 4.4.2 and 4.4.3.

4.5 TASK 5: SOCKETS AND PACKAGING

The recipient shall work with a subrecipient and with selected vendors and
perform the following subtasks:

4.5.1 Investigate and evaluate socket technologies for RF specific VSPA designs
and applications.

4.5.2 Select and evaluate socket technologies for MCM applications.

4.5.3 Define handling requirements and procure and evaluate trays and/or
carriers for MCM designs and applications.

<PAGE>

4.6 TASK 6: PWB ASSEMBLY

The recipient shall work with selected PWB assembly manufacturers and selected
PWB assembly equipment manufacturers and perform the following subtasks:

4.6.1 Define and verify assembly process for RF specific designs; document as a
process specification.

4.6.2 Define and verify assembly process for MCM designs; document as a process
specification.

4.7 TASK 7: QUALIFICATION AND RELIABILITY

The recipient shall work with a subrecipient and qualified test labs and perform
the following subtasks:

4.7.1 Demonstrate MCM technology readiness by executing a subset of the JEDEC
defined semiconductor package qualification tests.

4.7.2 Demonstrate product readiness by executing a series of qualification tests
as defined by a selected MCM manufacturer or the generally accepted JEDEC
testing series with production level devices and package assembly.

4.7.3 Demonstrate package-to-PWB assembly reliability for MCM designs by
executing a series of JEDEC defined tests designed for determining solder joint
integrity.

4.7.4 Demonstrate technology readiness for military applications by executing a
series of qualification tests as defined by appropriate military documents.

4.7.5 Issue reports documenting the findings of each of the following subtasks:
4.7.1, 4.7.2, 4.7.3 and 4.7.4.

4.8 TASK 8: PIN FABRICATION

The recipient shall work with selected pin fabrication vendors and perform the
following subtasks:

4.8.1 Evaluate alternative pin fabrication techniques, such as etching and wire
machining, with the objective of reduced costs, increased flexibility, and
improved reliability and manufacturability.

4.8.2 Define and demonstrate the pin fabrication process for RF specific
designs.

<PAGE>

4.8.3 Issue reports documenting the findings of subtask 4.8.1.

4.9 TASK 9: PLASTIC MOLDING

The recipient shall work with selected plastic molding vendors and perform the
following subtasks:

4.9.1 Procure parts for evaluation of alternative molding processes as defined
in Phase I.

4.9.2 Evaluate parts procured in task 4.9.1.

4.10 TASK 10: DIE ATTACH TO SUBSTRATES

The recipient shall work with selected substrate vendors and perform the
following subtasks:

4.10.1 Define and procure alternative heat sink/die attach design and materials.

4.10.2 Evaluate alternative designs and materials for compatibility and
performance in MCM and SCM applications.

4.10.3 Procure and evaluate selected substrate concepts for C4, MCM
applications.

4.10.4 Issue reports documenting the findings for each of the following
subtasks: 4.10.2 and 4.10.3.

5.0 RECIPIENT'S PROPOSAL

The recipient's proposal reference number 9526-113 is hereby incorporated in its
entirety by reference.

<PAGE>

Attachment 1

A. VISION STATEMENT

B. STATEMENT OF WORK

<PAGE>

CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.

ATTACHMENT 2

SCHEDULE OF PAYABLE MILESTONES

PAYABLE
MILESTONE SCHEDULE DARPA RECIPIENT TOTAL
- --------- -------- ----- --------- -----

********* Agreement $***** $****** $******
********* Start
************
************

*********** ****** after $***** $****** $******
********* award
********
********

************ ****** after $****** $****** $*****
********** award
*********
************

*********** ******** after $******* $****** $******
********** award
***********
***********
***********

********** ******* after $****** $****** $******
award ------- ------- -------

Total $1,792,800 $2,241,825 $4,034,625

<PAGE>

Attachment 3

Cost Matching and Schedule

The recipient agrees to cost share or match as shown below. This schedule may be
amended annually to reflect changes or updates resulting from the annual program
planning process.

1. Contributions Summary:

Cash $2,041,825.00
In-Kind 200,000.00
IR&D
Total Cost Share/Match $2,241,825.00

2. Cost Match Contribution Schedule - See Attachment 2 for Breakout.

<PAGE>

CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.

Agreement No. F33615-96-2-5110
PR/ARPA Order No.: GWLMLFT-96-05162/AO A453-16

CONSENTS OF THE GOVERNMENT UNDER ARTICLE 23.C

Article 23.C. of the above-referenced Agreement provides for the Government
to consent to the sale or transfer of technology to foreign firms or
institutions and for other matters. The below-referenced Grants Officer, acting
on behalf of the United States Government pursuant to this Agreement, hereby
consents to the sale or transfer of technology to foreign firms or institutions,
from the date hereof through the termination of the Cooperative Agreement and
the restriction period, and to waiver of the other terms contained within
Subsection C, under the following conditions:

1. All research and development (knowledge creation) under this agreement,
including that undertaken with funds contributed by the recipient, shall
take place within the United States.

2. The technology developed under this Agreement ************************
**********************************************************************
**********************************************************************
**********************************. Recipient will provide quarterly
reports summarizing new licensing Agreements.

3. The recipient recognizes the Government's goal of establishing in the
United States a manufacturing base for technology developed under this
Agreement. To this end, ***********************************************
***********************************. **********************************
***********************************************************************
***************.

4. Recipient agrees that funds it expends for the development of manufacturing
equipment for technology developed under this Agreement
***********************************************************************
*********************************************************************.

5. Panda will use reasonable efforts to ensure that for the restriction
period, ***********************************************************
***********************************************************************
***********************************************************************
**************************************. Quarterly reports will be provided
by the recipient summarizing in-house production and royalty payments.

<PAGE>

CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.

6. All funds obtained from the license of technology developed under this
Agreement to foreign firms or institutions shall be used by the recipient
for **********************************************************.

7. The recipient shall not license to any foreign firm or institution any
technology which is developed specifically for military applications as so
designated in the Statement of Work.

For purposes of this consent, all terms shall have the same meaning as
under the above-referenced Cooperative Agreement.

For the United States of America
Wright Laboratory

---------------------------------
Signature Date