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SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. ___)
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/X/ Preliminary proxy statement
/ / Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
THE PANDA PROJECT, INC.
- -----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- -----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of filing fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
---------------------------------------------------------------
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(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------
(5) Total fee paid:
---------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
---------------------------------------------
(2) Form, Schedule or Registration Statement No.:
---------------------------------------------
(3) Filing party:
---------------------------------------------
(4) Date filed:
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PRELIMINARY COPY FOR INFORMATION OF
SECURITIES AND EXCHANGE COMMISSION ONLY
THE PANDA PROJECT, INC.
901 Yamato Road
Boca Raton, Florida 33431
Notice of Annual Meeting of Shareholders to be Held
on Tuesday, August 12, 1997
The Annual Meeting of Shareholders of The Panda Project, Inc. (the
"Company") will be held on August 12, 1997 at the Marriott Crocker Center
Hotel & Resort, 5150 Town Center Circle, Boca Raton, Florida at 10:00 a.m.,
local time, to consider and act upon the following matters:
1. To elect four directors.
2. To consider and act upon a proposed amendment to the Company's
Articles of Incorporation establishing a class of Preferred Stock
consisting of 2,000,000 shares.
3. To consider and act upon a proposed amendment to the Company's
Articles of Incorporation and By-Laws providing for the
classification of the Board of Directors into three classes and
providing for amended procedures for changing the number of
directors, removing directors, filling vacancies on the Board and
other related matters, as more fully described in the accompanying
Proxy Statement.
4. To consider and act upon a proposed amendment to the Company's Non-
employee Directors Stock Option Plan (the "Director Plan") providing
for the annual grant to each participant in the Director Plan of an
option to purchase 4,000 shares of Common Stock of the Company.
5. To ratify the selection by the Board of Directors of Price
Waterhouse LLP as the Company's independent accountants for the
current fiscal year.
6. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Shareholders of record at the close of business on June 16, 1997 will be
entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof. The stock transfer books of the Company will remain open following
the record date.
All shareholders are cordially invited to attend the Annual Meeting.
By Order of the Board of Directors,
Boca Raton, Florida Stanford W. Crane, Jr.
June 27, 1997 President and Chief Executive Officer
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WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN
ORDER TO ENSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF
THE PROXY IS MAILED IN THE UNITED STATES.
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PRELIMINARY COPY FOR INFORMATION OF
SECURITIES AND EXCHANGE COMMISSION ONLY
THE PANDA PROJECT, INC.
901 Yamato Road
Boca Raton, Florida 33431
(561) 994-2300
--------------
PROXY STATEMENT
---------------
ANNUAL MEETING OF SHAREHOLDERS
August 12, 1997
This Proxy Statement has been prepared and is furnished by the Board of
Directors of The Panda Project, Inc. (the "Company") in connection with the
solicitation of proxies for the Annual Meeting of Shareholders of the Company
to be held on August 12, 1997, and at any adjournment thereof, for the
purposes set forth in the accompanying Notice of Meeting.
It is anticipated that this Proxy Statement and the accompanying form of
proxy will be mailed to shareholders on or about June 27, 1997. The Company's
Annual Report, including audited financial statements for the fiscal year
ended March 31, 1997, is being mailed or delivered concurrently with this
Proxy Statement. The Annual Report is not to be regarded as proxy soliciting
material.
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1997 as filed with the Securities and Exchange Commission,
except for exhibits, will be furnished without charge to any shareholder upon
written request to The Panda Project, Inc., 901 Yamato Road, Boca Raton,
Florida 33431, Attention: Chief Financial Officer. Exhibits will be provided
upon written request and payment of an appropriate processing fee.
Only holders of record of the Company's common stock, $.01 par value (the
"Common Stock"), on the books of the Company at the close of business on June
16, 1997, are entitled to vote at the Annual Meeting. On that date, there
were 10,588,666 issued and outstanding shares of Common Stock entitled to vote
on each matter to be presented at the meeting.
Shares represented by a properly executed proxy received in time to
permit its use at the Annual Meeting or any adjournment thereof will be voted
in accordance with the instructions indicated therein. If no instructions are
indicated, the shares represented by the proxy will be voted FOR the election
of all nominees for director, FOR approval of the amendment to the Company's
Articles of Incorporation establishing a class of preferred stock consisting
of 2,000,000 shares, FOR approval of the amendments to the Company's Articles
of Incorporation and By-Laws providing for the classification of the Board of
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Directors into three classes and related matters described herein, FOR
approval of the amendment to the Company's Nonemployee Director Stock Option
Plan providing for the annual grant to each participant in the Director Plan
of an option to purchase 4,000 shares of Common Stock of the Company, FOR the
ratification of the appointment of Price Waterhouse LLP as the independent
certified public accountants of the Company for the fiscal year ending
March 31, 1998, and in the discretion of the proxy holders as to any other
matter which may properly come before the Annual Meeting. A shareholder who
has given a proxy may revoke it at any time before it is voted at the Annual
Meeting by giving written notice of revocation to the Secretary, by submitting
a proxy bearing a later date, or by attending the Annual Meeting and voting in
person.
The expense of soliciting proxies will be borne by the Company. Proxies
will be solicited principally by mail, but directors, officers and regular
employees of the Company may solicit proxies personally, by telephone or by
facsimile transmission. The Company will reimburse custodians, nominees or
other persons for their out-of-pocket expenses in sending proxy material to
beneficial owners.
In determining the presence of a quorum at the Annual Meeting,
abstentions are counted and broker non-votes are not. The Company's By-Laws
provide that the affirmative vote of a majority of the shares represented, in
person or by proxy, and entitled to vote on a matter shall be the act of the
shareholders, except as otherwise provided by law. The current Florida
Business Corporation Act (the "Act") provides that directors are elected by a
plurality of the votes cast and all other matters are approved if the votes
cast in favor of the action exceed the votes cast against the action (unless
the matter is one for which the Act or the Company's Articles of Incorporation
require a greater vote). Therefore, under the Act, as to all matters to be
voted on by shareholders at the Annual Meeting, abstentions and broker non-
votes have no legal effect on whether a matter is approved.
You are requested, regardless of the number of shares you hold, to sign
the proxy and return it promptly in the enclosed envelope.
PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT
The table below is based on information obtained from the persons named
below with respect to the shares of Common Stock beneficially owned, as of May
1, 1997 (except as noted below), by (i) each person known by the Company to be
the owner of more than 5% of the outstanding shares of Common Stock, (ii) each
director and nominee for director, (iii) each executive officer included in
the Summary Compensation Table and (iv) all executive officers and directors
of the Company as a group.
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Amount and
Nature of Percentage
Beneficial of Outstanding
Name and Address of Beneficial Owner Ownership(1) Shares Owned(2)
- ------------------------------------ ------------ ---------------
Stanford W. Crane, Jr....................... 2,487,860 24.5%
William E. Ahearn (3)....................... 14,000 *
C. Daryl Hollis (4)......................... 19,200 *
Robert Toda (5)............................. 14,300 *
T. Scott Shamlin (6)........................ - *
James T.A. Wooder (7)(8).................... 1,400,380 13.8%
Claud L. Gingrich (9)....................... 2,000 *
Rao R. Tummala.(9).......................... - *
Philippi Investments Ltd.
70 York Street
Suite 1700
Toronto, Ontario M5J 1S9 (10)............. 1,379,948 13.3%
All executive officers and directors as
a group (7 persons) (11).................... 3,938,740 38.7%
- --------------
* Less than 1%.
(1) The number of shares of Common Stock beneficially owned by each person
is determined under the rules of the Securities and Exchange Commission,
and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial ownership
includes any shares as to which the individual has sole or shared voting
power or investment power and also any shares of Common Stock which the
individual has the right to acquire within 60 days after May 1, 1997
through the exercise of any stock option or other right. The inclusion
herein of any shares of Common Stock deemed beneficially owned does not
constitute an admission of beneficial ownership of those shares. Unless
otherwise indicated, the persons named in the table have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
(2) The number of shares deemed outstanding includes 10,155,561 shares
outstanding as of May 1, 1997 plus any shares subject to options held by
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the person in question that are currently exercisable within 60 days
after May 1, 1997.
(3) Includes 12,000 shares issuable upon exercise of outstanding stock
options exercisable with 60 days after May 1, 1997.
(4) Includes 11,500 shares issuable upon exercise of outstanding warrants and
stock options exercisable within 60 days after May 1, 1997.
(5) Includes 10,000 shares issuable upon exercise of outstanding stock
options exercisable within 60 days after May 1, 1997.
(6) Mr. Shamlin resigned his positions with the Company in November 1996.
(7) Includes 1,379,948 shares deemed to be beneficially owned by Philippi
Investments Ltd. Mr. Wooder 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.
(8) Does not include an option to purchase 4,000 shares of Common Stock
issued to such director under the Nonemployee Director Stock Option Plan
subject to shareholder approval of the amendment to the plan described
under "Amendment to Nonemployee Director Stock Option Plan." Includes
500 shares issuable upon exercise of outstanding stock options within 60
days after May 1, 1997.
(9) Does not include an option to purchase 4,000 shares of Common Stock
issued to such director under the Nonemployee Director Stock Option Plan
subject to shareholder approval of the amendment to the plan described
under "Amendment to Nonemployee Director Stock Option Plan."
(10) Includes 254,348 shares issuable upon exercise of outstanding warrants.
(11) See footnotes (3) through (5), and (7) through (10) above.
ELECTION OF DIRECTORS
The persons named in the accompanying form of proxy intend to vote all
valid proxies received in favor of the election of each of the persons named
below as nominees for director unless authority is withheld. If the
shareholders approve the proposal described below under the caption "Amendment
to the Articles of Incorporation Concerning Classification of the Board of
Directors", and the nominees are elected, Mr. Gingrich will be elected for an
initial term expiring at the 1998 Annual Meeting of Shareholders; Mr. Tummala
will be elected for an initial term expiring at the 1999 Annual Meeting of
Shareholders; and Messrs. Wooder and Crane will be elected for an initial term
expiring at the 2000 Annual Meeting of Shareholders (in all cases, until their
successors are elected and qualified, subject to the election and
qualification of their successors and to their earlier death, resignation or
removal). If such proposal is not so approved, all of those so elected will
serve until the next Annual Meeting of Shareholders and until their successors
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are elected and qualified, subject to the election and qualification of their
successors and to their earlier death, resignation or removal. In the event
that any nominee is unable or unwilling to serve, discretionary authority is
reserved to the persons named in the accompanying form of proxy to vote for
substitute nominees. Management does not anticipate that such an event will
occur. Each director shall be elected by a plurality of the votes cast.
NOMINEES FOR DIRECTOR
The Company's By-Laws authorize the Board of Directors to set the size of
the Board at between three and seven persons. On May 8, 1997, the Board of
Directors set the size of the Board at four persons and nominated the
following persons for election as directors.
STANFORD W. CRANE, JR., age 46, has served as President, Chief Executive
Officer and Chairman of the Board of Directors of the Company since its
inception in April 1992 and, since November 1993, as Senior Vice President -
Product Design and Development. From May 1990 to April 1992, Mr. Crane was
self-employed, principally engaged in the development of the Compass
Connector. From 1984 to April 1990, Mr. Crane was president of Crane
Electronics, Inc., which supplied advanced interconnection technology for
military and commercial products. From 1980 until 1984, Mr. Crane was an
executive at Molex Corporation, a publicly-held corporation manufacturing and
selling electronic interconnect devices, and served from 1982 to 1984 on the
Chairman's staff for the Advanced Development Committee and assisted in
marketing and strategic planning for domestic and international operations.
From 1976 to 1980, Mr. Crane served as a sales executive for AMP Incorporated,
a manufacturer of electronic components.
JAMES T.A. WOODER, age 42, has been a director of the Company since
September 1994. Since November 1993, Mr. Wooder has served as Vice President
of Helix Investments (Canada) Inc., and from December 1989 to November 1993,
Mr. Wooder served as Vice President of Citibank Canada. Helix Investments
(Canada) Inc. is sole shareholder of Helix (PEI) Inc., which is the sole
shareholder of Philippi Investments Ltd., an owner of more than 5% of the
Company's outstanding Common Stock. Mr. Wooder is also a director of Xinex
Networks Inc., an emerging provider of integrated, multimedia (voice, video,
and data) communication platforms for the global workplace based in Vancouver,
Canada.
CLAUD L. GINGRICH, age 51, has been a director of the Company since July
1996. Since 1985, Mr. Gingrich has been a Vice President and partner of L.A.
Motley and Company, a consulting and lobbying firm with a practice in
international trade and investment, which Mr. Gingrich co-founded. From 1983
to 1984, Mr. Gingrich was General Counsel to United States Trade
Representative and Ambassador William E. Brock.
RAO R. TUMMALA, age 55, has been a director since July 1996. Dr. Tummala
has been a member of the faculty of the Georgia Institute of Technology
serving as a Pettit Chair Professor in Electronics Packaging and Georgia State
Research Scholar since 1993. From 1969 to 1993, Dr. Tummala was employed by
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International Business Machines Corporation where, from 1984 to 1993, he was
an IBM Fellow.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" ALL
NOMINEES FOR DIRECTOR.
BOARD AND COMMITTEE MEETINGS
The Board of Directors of the Company held 9 meetings during its fiscal
year ended March 31, 1997. The Board has a standing Audit Committee and a
standing Compensation and Stock Option Committee. The Compensation and Stock
Option Committee and the Audit Committee each met twice during the fiscal year
ended March 31, 1997. The Company does not have a nominating committee.
During the most recent fiscal year, each director attended at least 75% of the
meetings of the Board and any committee on which such director served.
Mr. Gingrich and Mr. Wooder comprise the Audit Committee of the Board of
Directors, the members of which make recommendations concerning the engagement
of independent public accountants, review with the independent public
accountants the results of the audit engagement, approve professional services
provided by the independent accountants, review the independence of the
independent public accountants, consider the range of audit and non-audit fees
and review the adequacy of the Company's internal accounting controls.
Mr. Gingrich and Mr. Tummala comprise the Compensation and Stock Option
Committee of the Board of Directors, which makes recommendations to the Board
regarding the executive and employee compensation programs of the Company and
which administers the 1993 Performance Incentive Plan, the 1995 Employee Stock
Incentive Plan and the Nonemployee Director Stock Option Plan. See "Report of
Compensation and Stock Option Committee On Executive Compensation" below.
DIRECTORS' COMPENSATION
All directors hold office until the next annual meeting of shareholders
and the election and qualification of their successors. Directors who are not
employees and do not otherwise receive compensation from the Company are
entitled to a retainer of $2,000 per month for serving on the Board of
Directors in addition to the reimbursement of reasonable expenses incurred at
any meetings.
See "Amendment of Nonemployee Director Stock Option Plan" below for a
description of the Company's Nonemployee Director Stock Option Plan.
SECTION 16 REPORTING
Federal securities laws require the Company's directors, certain of its
officers, and persons owning beneficially more than ten percent of the
Company's Common Stock to file reports of initial ownership and is required to
disclose into this Proxy Statement any failure of the foregoing persons to
file timely those reports during its fiscal year ended March 31, 1997. To the
best of the Company's knowledge, based solely upon a review of copies of
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reports furnished to it and written representations that no other reports were
required, all of the Company's directors, officers required to report, and
greater than ten percent beneficial owners made all such filings timely,
except that Mr. Hollis filed Form 4 late on one occasion.
COMPENSATION OF EXECUTIVE OFFICERS
Summary of Compensation. The following table sets forth the compensation
paid by the Company for services performed on the Company's behalf during the
last three fiscal years with respect to the Company's Chief Executive Officer
and the Company's four other most highly compensated executive officers as of
March 31, 1997 (the "Named Executive Officers").
<TABLE>
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------
<CAPTION>
FISCAL
YEAR
ENDED LONG-TERM
MARCH OTHER ANNUAL COMPENSATION ALL OTHER
NAME AND PRINCIPAL 31 SALARY BONUS COMPENSATION OPTIONS (#) COMPENSATION
POSITION ----- -------- ----- ------------ ------------ ------------
- --------
<S> <C> <C> <C> <C> <C> <C>
Stanford W. Crane, Jr. 1997 $150,000 $ 100<F1> - - $7,613<F2>
President, 1996 $150,000 - - - $2,344<F3>
Chief Executive 1995 $150,000 $25,000<F4> $350,000<F5> - -
Officer and Chairman
of the Board
William E. Ahearn 1997 $143,752 $50,100<F6> - 70,000 $4,800<F7>
Vice President, 1996 $ 8,814 - - - -
Technology 1995 - - - - -
C. Daryl Hollis 1997 $ 93,754 $25,100<F9> - 70,000 $4,800<F7>
Executive Vice 1996 - - - - -
President, Secretary 1995 - - - - -
Treasurer and Chief
Financial Officer <F8>
Robert Toda 1997 $ 85,235 $ 100<F1> - 70,000 $2,400<F7>
Vice President Sales 1996 - - - - -
and Marketing <F10> 1995 - - - - -
T. Scott Shamlin 1997 $129,231 - - - $8,730<F7>
Former President 1996 $ 89,671 $50,000 - - $6,338<F7>
Archistrat 1995 - - - - -
Technologies
Division <F11>
- ---------------
<FN>
<F1> Holiday bonus.
<F2> Consists of car allowance of $4,800 and Company contribution to 401(k) Plan of $2,813.
<F3> Company contribution to 401(k) Plan.
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<F4> Bonus paid to Mr. Crane in connection with completion of a prototype of the Company's
Archistrat 4s server and its installation at two beta test sites.
<F5> Represents the value in February 1994 of the assignment by the Company to Mr. Crane of
the Company's rights to purchase 197,860 shares of Common Stock in connection with his
employment agreement. Mr. Crane purchased these shares in March 1996 for an aggregate
purchase price of $312,000.
<F6> $50,000 bonus paid to Mr. Ahearn in connection with achieving certain performance
objectives and $100 of holiday bonus.
<F7> Car allowance.
<F8> Mr. Hollis' employment with the Company commenced on July 1, 1996. His current annual
salary if $125,000.
<F9> $25,000 bonus paid to Mr. Hollis in connection with achieving certain performance
objectives and $100 holiday bonus.
<F10> Mr. Toda's employment with the Company commenced on July 17, 1996. His current annual
salary is $120,000.
<F11> Mr. Shamlin resigned his position with the Company in November 1996. All options to
purchase common stock of the Company previously granted to Mr. Shamlin have expired in
accordance with their terms.
</FN>
</TABLE>
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STOCK OPTION GRANTS IN LAST FISCAL YEAR
OPTION GRANTS. The following table summarizes option grants during
fiscal 1996 to the Named Executive Officers:
<TABLE>
STOCK OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
Potential
Realizable
Percent Value at
of Total Assumed Annual
Options Rates of
Granted Stock Price
to Appreciation
Options Employees Exercise for
Granted In Fiscal Price Expiration Option Term <F6>
Name (#) Year ($/Share)<F1> Date -----------------
- ---- ------- --------- ------------ ---------- 5%($) 10%($)
-------- --------
<S> <C> <C> <C> <C> <C> <C>
Stanford W. Crane, Jr.... - - - - - -
William E. Ahearn........ 10,000<F2> 1.9% $4.75 1/10/07 $ 29,900 $ 75,700
........ 60,000<F3> 11.5% $7.88 8/16/06 $297,600 $753,600
C. Daryl Hollis.......... 20,000<F4> 3.8% $4.75 1/10/07 $ 59,800 $151,400
........ 50,000<F5> 9.6% $7.88 8/6/06 $248,000 $628,000
Robert Toda.............. 20,000<F4> 3.8% $4.75 1/10/07 $ 59,800 $151,400
........ 50,000<F5> 9.6% $7.88 8/6/06 $248,000 $628,000
- -----------------------
<FN>
<F1> Equals fair market value of Common Stock on the date of grant.
<F2> Options to purchase 2,000 shares of Common Stock are exercisable 6 months from the date
of grant and the remainder become exercisable in equal annual installments on the first,
second, third and fourth anniversaries of grant.
<F3> Options to purchase 12,000 shares of Common Stock exercisable as of the date of grant;
the remainder become exercisable in equal annual installments on the first, second, third
and fourth anniversaries of grant.
<F4> Options to purchase 4,000 shares of Common Stock exercisable 6 months from the date of
grant; the remainder become exercisable in equal annual installments on the first,
second, third and fourth anniversaries of grant.
<F5> Options to purchase 10,000 shares of Common Stock exercisable as of the date of grant;
the remainder become exercisable in equal annual installments on the first, second, third
and fourth anniversaries of grant.
<F6> Amounts represent hypothetical gains that could be achieved for the respective options if
exercised at the end of the option term. These gains are based on assumed rates of stock
price appreciation of 5% and 10% compounded annually from the date of grant to their
expiration date. Actual gains, if any, on stock option exercises will depend upon the
future performance of the Common Stock and the date on which the options are exercised.
</FN>
</TABLE>
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OPTION EXERCISES AND YEAR-END VALUES. None of the Named Executive
Officers exercised any stock options during the fiscal year ended March 31,
1997. The following table summarizes the value of options held by such
persons at the end of fiscal year 1997:
YEAR-END OPTION VALUES
Number of Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options
Year-End (#) at Fiscal Year-End ($)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
Stanford W. Crane, Jr. - - - -
William E. Ahearn..... 12,000 58,000 - $10,000
C. Daryl Hollis....... 10,000 60,000 - $20,000
Robert Toda........... 10,000 60,000 - $20,000
T. Scott Shamlin...... - - - -
- ---------------
(1) As of March 31, 1997, the closing sale price of the Company's Common
Stock was $6.25 per share.
REPORT OF COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation and Stock Option Committee of the Board of Directors (the
"Committee"), which is composed of two non-employee Directors. The Committee
is responsible for establishing and administering the policies which govern
both annual compensation and equity ownership programs. All decisions by the
Committee relating to the compensation of the Company's executive officers are
reviewed by the full Board of Directors. This report is submitted by the
Committee and addresses the Company's policies for 1997 as they apply to
Stanford W. Crane, Jr., the President and Chief Executive Officer of the
Company, and Messrs. Ahearn, Hollis and Toda.
OVERVIEW AND PHILOSOPHY
The Company's executive compensation program is designed to promote the
following objectives:
- To provide competitive compensation that will help attract, retain and
reward highly qualified executives who contribute to the long-term
success of the Company.
- To align management's interests with the success of the Company by
placing a portion of the executive's compensation at risk in relation
to the Company's performance.
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Page 15
- To align management's interests with stockholders by including long-
term equity incentives.
The Committee believes that the Company's executive compensation program
provides an overall level of compensation that is competitive within its
industry and among companies of comparable size and complexity. To ensure
that compensation is competitive, the Company regularly compares its
compensation practices with those of other similar companies and sets its
compensation guidelines based on this review. The Committee also seeks to
achieve an appropriate balance of the compensation paid to a particular
individual and the compensation paid to other executives both inside the
Company and at comparable companies and attempts to maintain an appropriate
mix of salary and incentive compensation. While compensation data are useful
guides for comparative purposes, the Company believes that a successful
compensation program also requires the application of judgment and subjective
determinations of individual performance.
EXECUTIVE COMPENSATION PROGRAM
The Company's executive compensation program consists of base salary,
periodic incentive compensation and long-term equity incentives in the form of
stock options. Executive officers also are eligible to participate in certain
benefit programs which are generally available to all employees of the
Company, such as medical and 401(k) savings plans.
BASE SALARY
At the beginning of each fiscal year, the Committee establishes an annual
salary plan for the Company's senior executive officers based on
recommendations made by the Company's Chief Executive Officer. The Committee
attempts to set base salary compensation within its perceived range of
salaries of executive officers with comparable qualifications, experience and
responsibilities at other companies in the same or similar businesses and of
comparable size and success. Because of the Company's limited operating
history, the Committee has not previously reviewed compensation for comparable
positions by reviewing published compensation data as part of its efforts to
set the annual cash compensation for Company executives. Instead, the
Committee has attempted to base salary determinations both upon the Company's
financial performance and upon the individual's performance as measured by
certain subjective non-financial objectives. These non-financial objectives
include the individual's contribution to the Company as a whole, including his
or her ability to motivate others, develop the skills necessary to grow as the
Company matures, recognize and pursue new business opportunities and initiate
programs to enhance the Company's growth and success.
ANNUAL AND LONG-TERM INCENTIVE COMPENSATION
The Company has no formal bonus program for its key employees, although
it is likely the Committee will consider adopting such a program during the
current fiscal year. Occasionally, bonus payments may be made to key
employees based on the achievement of agreed upon performance objectives or as
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Page 16
a part of the recruitment process. During 1997, a bonus of $50,000 was
awarded to Mr. Ahearn and a bonus of $25,000 was awarded to Mr. Hollis based
on their respective achievement of specific agreed upon performance
objectives.
The Company's stock option plans are designed to promote the identity of
long-term interests between the Company's employees and its shareholders and
to assist in the retention of executives. The size of option grants is
generally intended by the Committee to reflect the executive's position with
the Company and his or her contributions to the Company. Stock options
generally vest over a four-year period in order to encourage key employees to
continue in the employ of the Company. Stock options are granted at an option
price equal to the fair market value of the Company's Common Stock on the date
of grant; however, the Company reserves the right to grant stock options
having exercise prices less than the fair market value of the Common Stock on
the date of grant, to modify the terms of existing options and to reprice the
options as an incentive for employees to remain with the Company.
BENEFITS
The Company's executive officers are entitled to receive medical and life
insurance benefits and to participate in the Company's 401(k) Retirement
Savings Plan on the same basis as other full-time employees of the Company.
The amount of perquisites, as determined in accordance with the rules of
the Securities Exchange Commission relating to executive compensation, did not
exceed 10% of salary and bonus for 1997 for any of the Named Executive
Officers.
SUMMARY OF COMPENSATION OF CHIEF EXECUTIVE OFFICER.
In 1997, Mr. Crane, the Company's President and Chief Executive Officer,
received a salary of $150,000 and a holiday bonus of $100. The amount of Mr.
Crane's base salary and provisions for bonus payments to him are included in
an employment agreement between the Company and him. See "Employment
Agreement".
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(m)
The Company does not believe Section 162(m) of the Internal Revenue Code,
which disallows a tax deduction for certain compensation in excess of $1
million, will generally have an effect on the Company. The Compensation
Committee intends to review the potential effect of Section 162(m)
periodically and in the future may decide to structure the performance-based
portion of its executive officer compensation to comply with Section 162(m).
COMPENSATION AND STOCK OPTION COMMITTEE
James T. A. Wooder
Claud L. Gingrich
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COMPARATIVE STOCK PERFORMANCE
The graph below compares cumulative total stockholder return on the
Company's Common Stock during the period from May 17, 1994 (the date on which
the Company's Common Stock was first registered under the Securities Exchange
Act of 1934) through March 31, 1997 with the cumulative total return over the
same period of (i) the Nasdaq Computer Index and (ii) a peer group of
publicly-traded companies* selected by the Company for purposes of this
comparison (the "Peer Group"). This graph assumes the investment of $100 at
the close of trading on May 17, 1994 in the Company's Common Stock, the Nasdaq
Computer Index and the Peer Group and assumes reinvestment of dividends.
Measurement points are May 17, 1994, March 31, 1996, March 31, 1996 and March
31, 1997.
COMPARATIVE STOCKHOLDER RETURNS
The Panda Project, Inc., Nasdaq Computer Index and Peer Group*
(Performance results from 5/17/94 through 3/31/97)
___________
* The Peer Group includes the following companies: Adaptec, Inc. (ADPT),
Auspex Systems, Inc. (ASPX), LSI Logic Corporation (LSI), National
Semiconductor Corporation (NSM) and VLSI Technology (VLSI). The stockholder
returns of each such company have been weighted to reflect relative stock
market capitalization.
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COMPENSATION AND STOCK OPTION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation and Stock Option Committee are Claud L.
Gingrich and James T. A. Wooder. No member of the Compensation and Stock
Option Committee was at any time during fiscal year 1996, or formerly, an
officer or employee of the Company or any subsidiary of the Company. Mr.
Wooder 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. See "Principal Shareholders and Security Ownership of
Management" and "Certain Relationships and Related Transactions."
EMPLOYMENT AGREEMENTS
Mr. Crane entered into an employment agreement with the Company on
November 8, 1993, as amended and restated on February 22, 1994, which expires
on January 1, 1999 (subject to certain termination provisions). Under this
agreement Mr. Crane receives an annual base salary of $150,000. Mr. Crane is
also eligible to receive discretionary bonuses as determined by the Board of
Directors. Furthermore, the agreement provides that Mr. Crane is entitled to
participate in any medical, stock option and benefit plans that the Company
may establish.
Mr. Crane's employment is terminable at will by Mr. Crane upon six
months' prior notice, and is terminable by the Company for cause at any time
or in the event that Mr. Crane becomes disabled and, as a result, is unable to
perform his obligations under the agreement for three consecutive months. In
the event that the agreement is terminated other than as a result of Mr.
Crane's death or disability or for cause, Mr. Crane will be entitled to
receive an amount equal to the greater of $150,000 or his annual compensation
for the preceding calendar year. In addition, Mr. Crane has agreed not to
compete with the Company for a period of two years after the termination of
his employment provided he receives payments during that period equal to twice
the greater of $150,000 or his salary at the time of such termination,
calculated on an annualized basis.
Mr. Crane has assigned to the Company all improvements or related
discoveries or inventions developed or conceived by him during the term of the
agreement and the two-year non-competition period which (i) the technology
assigned by Mr. Crane to the Company pursuant to the assignment by Mr. Crane
in November 1993 of all of his rights to certain prefabricated semiconductor
packaging, printed circuit board technology and computer technologies and
products, including VSPA, Compass PGA, Well Tech printed circuit board
technology, and Archistrat 4 Computers, as well as certain other products and
technology being developed by him on behalf of the Company, and all related
proprietary information (the "Crane Assignment"), or (ii) would enable the
development of replacements for the products developed by the Company. See
"Certain Relationships and Related Transactions."
Mr. Crane's employment agreement also provides that he may develop
products or technologies ("Unrelated Investigations") unrelated to the
Company's technology and proposed products provided that the cost to the
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Company of such Unrelated Investigations is not significant in the reasonable
judgment of the Company's Board of Directors. Mr. Crane has agreed to
disclose the results of any Unrelated Investigations to the Company and
negotiate in good faith the terms pursuant to which the Company may
participate in any such products or technology. If no agreement is reached,
Mr. Crane may independently commercialize such products or technology, but
will pay the Company a 5% royalty on any sales, licensing fees or other
remuneration he receives with respect to Unrelated Investigations.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Upon the formation of the Company in April 1992, the Company issued
2,283,000 shares of Common Stock to Mr. Crane in connection with Mr. Crane's
agreement to assign and license to the Company certain technology and
products. Such license agreement (the "Crane-Panda License") was amended in
January 1996.
Under 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 the Compass PGA product. The Crane-Panda License was
executed in connection with the conversion to a nonexclusive license of the 3M
License described below. 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 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
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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 Li-
cense") 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. Pursuant to the 3M License, Mr. Crane is
entitled to receive from 3M, in general, a 5% royalty (decreasing to 2.5%
after five years, and to 2% after ten years) on net sales of the Compass
Connector (including sales to the Company). The 3M License provides in
certain circumstances for the payment of a royalty to Mr. Crane. As of June
27, 1997, Mr. Crane had received no such payments.
In October 1993, the Company settled litigation with Jack R. Moore and
Gary Marvel, former officers and promoters of the Company. In connection with
the settlement, the former officers, or their designees, received 197,860
shares of the Company's Common Stock which were being held by an escrow agent
(the "Escrowed Shares") subject to the Company's or its assignee's right to
repurchase them. In February 1994, the Company's rights to purchase the
Escrowed Shares were assigned to Mr. Crane in connection with his employment
agreement. In March 1996, Mr. Crane purchased the Escrowed Shares for an
aggregate purchase price of $312,000.
In July 1996, Mr. Crane purchased 1,000 shares of Common Stock from the
Company at a purchase price of $9.00 per share in connection with a private
placement financing and warrants to purchase 1,000 shares of Common Stock in
connection with such purchase having a term of five years and an exercise
price of $11.00 per share.
In July 1995, Helix (PEI) Inc., a holder of more than 10% of the
Company's outstanding Common Stock and an affiliate of Mr. Wooder, purchased
54,348 Units from the Company at a purchase price of $73.60 per Unit in
connection with a private placement financing, resulting in the issuance to
Helix (PEI) Inc. of 163,044 shares of Common Stock and warrants to purchase
54,348 shares of Common Stock for an aggregate consideration of approximately
$4.0 million.
In July 1996, Helix (PEI) Inc. purchased 200,000 shares of Common Stock
from the Company at a purchase price of $9.00 per share in connection with a
private placement financing and warrants to purchase 200,000 shares of Common
Stock in connection with such purchase having a term of five years and an
exercise price of $11.00 per share.
In October 1996, the Company and Mr. Crane entered into a license
agreement with LG Cable & Machinery Ltd. ( LG ) whereby LG was granted a non-
exclusive license with respect to Compass Connector Technology owned by Mr.
Crane and certain enhanced Compass Connector Technology owned by the Company.
The $1.0 million license fee will be split equally between Mr. Crane and the
Company. In addition, the Company and Mr. Crane are entitled to receive
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royalties on sales of the Compass Connector products by LG or its affiliates,
which will be split equally between Mr. Crane and the Company.
With respect to each transaction between the Company and an affiliate of
the Company, a majority of the disinterested members of the Board of Directors
determined that such transactions were on terms at least as fair as had they
been consummated with unrelated third parties.
AMENDMENT TO THE COMPANY'S
AMENDED AND RESTATED ARTICLES OF INCORPORATION
TO ESTABLISH A CLASS OF PREFERRED STOCK
CONSISTING OF 2,000,000 SHARES
On May 8, 1997 the Company's Board of Directors has adopted a resolution
recommending that the shareholders adopt an amendment to Article III of the
Company's Amended and Restated Articles of Incorporation (the "Articles of
Incorporation") to establish a class of Preferred Stock consisting of
2,000,000 shares, par value $.01 per share. If this amendment is approved,
the Board of Directors would have the authority, without action by the
shareholders, to designate and issue such Preferred Stock in one or more
series and to designate the dividend rate, voting rights and other rights,
preferences and restrictions of each series, any or all of which may be
greater than the rights of the Common Stock. A copy of the proposed amendment
is attached to this Proxy Statement as Exhibit A, and shareholders are urged
to review carefully the text of such amendment.
The Company's Articles of Incorporation currently do not authorize the
issuance of any shares of Preferred Stock. The Board of Directors believes
that a class of Preferred Stock will add flexibility to the Company's capital
structure by allowing the Company to issue Preferred Stock for such purposes
as public or private sale of Preferred Stock for cash as a means of obtaining
additional capital for use in the Company's business and operations, and
issuance of Preferred Stock as part or all of the consideration required to be
paid by the Company for acquisitions of other business or properties. If the
proposed amendment is approved, the Board of Directors would be empowered to
authorize the issuance of the Preferred Stock from time to time for any proper
corporate purpose without the delay and expense of seeking shareholder
approval each time, unless required by applicable laws or regulations or stock
exchange rules. The Company does not currently have any agreements,
understandings or arrangements which would result in the issuance of any
shares of Preferred Stock.
The amendment would authorize the Board of Directors to determine, among
other things, with respect to each series of Preferred Stock that may be
issued: (a) the distinctive designation and number of shares constituting
such series; (b) whether, and upon what terms and conditions, the shares of
that series would be redeemable; (c) whether dividends would be cumulative,
noncumulative, or partially cumulative; (d) whether the shares will have
preference over any other class, classes or series of shares as to the payment
of dividends; (e) whether the shares will have preference in the assets of the
<PAGE>
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Company over any other class, classes or series of shares upon the voluntary
or involuntary liquidation of the Company; (f) whether, and upon what terms
and conditions the shares of that series would be exchangeable for shares,
obligations, indebtedness, evidence of ownership, rights to purchase
securities of the Company or for other property, or for any combination of the
foregoing; (g) whether, and upon what terms and conditions, the shares of that
series would be convertible into shares of any other class or series; (h)
whether the holders of such securities would have voting rights and the extent
of those voting rights; and (i) whether any of the designations, preferences,
limitations, and relative rights, including voting rights, of that series is
dependent upon facts ascertainable outside the Articles of Incorporation;
provided, however, that the manner in which such facts operate upon the series
of shares must be clearly and expressly set forth. Each series of Preferred
Stock could, as determined by the Board of Directors at the time of issuance,
rank, with respect to dividends and redemption and liquidation rights, senior
to the Company's Common Stock. Holders of the Company's Common Stock have no
preemptive right to purchase or otherwise acquire any Preferred Stock that may
be issued in the future.
It is not possible to state the precise effect of the authorization of
the Preferred Stock upon the rights of holders of Common Stock until the Board
of Directors determines the respective preferences, limitations and relative
rights of the holders of one or more series of the Preferred Stock. However,
such effect might include: (a) reduction of the amount otherwise available
for payment of dividends on Common Stock, to the extent dividends are payable
on any issued shares of Preferred Stock, and restrictions on dividends on
Common Stock if dividends on the Preferred Stock are in arrears; (b) dilution
of the voting power of the Common Stock to the extent that the Preferred Stock
has voting rights; and (c) the holders of Common Stock not being entitled to
share in the Company's assets upon liquidation until satisfaction of any
liquidation preference granted to the Preferred Stock.
The authorization of Preferred Stock may be viewed as having the effect
of discouraging an unsolicited attempt by another person or entity to acquire
control of the Company. Issuances of authorized preferred shares can be
implemented, and have been implemented by some companies in recent years with
voting or conversion privileges intended to make acquisition of the company
more difficult or more costly. Such an issuance could discourage or limit the
shareholders' participation in certain types of transactions that might be
proposed (such as a tender offer), whether or not such transactions were
favored by the majority of the shareholders, and could enhance the ability of
officers and directors to retain their positions.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE AMENDMENT OF THE
ARTICLES OF INCORPORATION TO ESTABLISH A CLASS OF PREFERRED STOCK CONSISTING
OF 2,000,000 SHARES.
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AMENDMENTS CONCERNING CLASSIFICATION
OF THE BOARD OF DIRECTORS AND RELATED MATTERS
GENERAL
This group of proposals would amend the Articles of Incorporation of the
Company to (i) classify the Board of Directors into three classes, each of
which will serve for three years, with one class being elected each year; (ii)
provide that directors may be removed, with or without cause, with the
approval of holders of at least a majority of the shares then entitled to vote
at an election of directors; provided that so long as the Board is classified,
stockholders may effect such removal only for cause; (iii) provide that any
vacancy on the Board shall be filled only by the majority of the directors
then in office, even though less than a quorum; and (iv) increase the
shareholder vote required to alter, amend or repeal the foregoing amendments
or related amendments to the Articles of Incorporation or By-Laws, to 66-2/3%
of the outstanding shares of the Company.
The Board also has approved conforming amendments to the By-Laws of the
Company relating to numbers, election, classification and removal of directors
and the filling of vacancies which will become effective upon the
effectiveness of the proposed amendments to the Articles of Incorporation.
The full text of the proposed amendments to the Articles of Incorporation are
attached to this Proxy Statement as Exhibit B, and shareholders are urged to
review carefully the text of such amendments.
These proposed amendments relating to the classification of the Board,
the removal of directors and the filling of vacancies in the Board are being
presented to shareholders of the Company for their approval as a single
proposal. As discussed more fully below, the Board of Directors believes that
the proposed amendments, taken together, would, if adopted, enhance the
likelihood of continuity and stability in the composition of the Company's
Board of Directors and in the policies formulated by the Board and, at the
same time, effectively reduce the possibility that a third party could effect
a sudden change in majority control of the Company's Board of Directors
without the support of the incumbent Board. However, adoption of the proposed
amendments may have significant effects on the ability of shareholders of the
Company to change the composition of the incumbent Board of Directors and to
benefit from certain transactions which are opposed by the incumbent Board.
DESCRIPTION OF THE PROPOSED AMENDMENTS
CLASSIFICATION OF THE BOARD OF DIRECTORS. The By-Laws of the Company
currently provide that all directors are to be elected to the Company's Board
of Directors annually for a term of one year. Proposed Article VIII of the
Articles of Incorporation provides that the Board shall be divided into three
classes of directors, each class to be as nearly equal in number of directors
as possible. If the proposed amendments are adopted, the Company's directors
will be divided into three classes and one director will be elected for a one-
year term expiring at the 1998 Annual Meeting of Shareholders, one director
will be elected for a two-year term expiring at the 1999 Annual Meeting of
Shareholders and the remaining two directors will be elected for a three-year
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Page 24
term expiring at the 2000 Annual Meeting of Shareholders (in each case, until
their respective successors are duly elected and qualified). Starting with
the 1998 Annual Meeting of Shareholders, one class of directors will be
elected each year for a three-year term. In the event of any increase or
decrease in the authorized number of directors, the Board of Directors shall
apportion the newly created or eliminated directorships resulting from such
increase or decrease to ensure that no one class has more than one director
more than any other class. For information regarding the current nominees for
election at the 1997 Annual Meeting of Shareholders and the terms for which
each of them will initially serve if the proposed amendments are adopted. See
"Election of Directors". If the proposed amendments are not adopted, all
directors elected at the 1997 Annual Meeting of Shareholders will be elected
for a term expiring at the 1998 Annual Meeting of Shareholders and until their
successors are duly elected and qualified.
The classification provisions, by staggering the terms of classes of
directors, will have the effect of lengthening the time necessary to change
the composition of the Board of Directors. At least two shareholder meetings,
instead of one, will be required to effect a change in the majority control of
the Board, except in the event vacancies resulting from removal or other
reasons (in which case the remaining directors are authorized to fill the
vacancies so created). The Board of Directors, the Board believes that the
longer time required to elect a majority of the classified Board will help to
assure the continuity and stability of the Company's affairs and policies in
the future, as a majority of the directors at any given time will have prior
experience as directors of the Company.
These classification provisions will apply to every election of
directors, whether or not a change in the Board might arguably be beneficial
to the Company and its shareholders and whether or not a majority of the
Company's shareholders believes that such a change might be desirable.
REMOVAL OF DIRECTORS; FILLING VACANCIES ON THE BOARD OF DIRECTORS; SIZE
OF THE BOARD. Proposed Article VII of the Articles of Incorporation provides
that a director, or the entire Board of Directors, may be removed, with or
without cause, by the holders of a majority of the shares then entitled to
vote at an election of directors; provided, that so long as the Company has a
classified Board of Directors shareholders may effect such removal only for
cause. Currently, the By-Laws provide that a director may be removed with or
without cause by vote of a majority of the outstanding shares of stock of the
Company entitled to vote.
The By-Laws currently provide that a vacancy on the Board may be filled
by the remaining directors although less than a quorum, until the next
election of directors by the shareholders. Proposed Article VII provides that
a vacancy on the Board occurring during the course of the year, including a
vacancy resulting any increase in the number of directors, may be filled only
by vote of at least a majority of the directors then in office, although less
than a quorum. This provision would not permit shareholders to fill vacancies
in the Board, including vacancies resulting from removal of directors. In
addition, the proposed amendments to Article VII provide that any new director
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Page 25
elected to fill a vacancy on the Board will serve for the remainder of the
full term of the class in which the vacancy occurred rather than (as presently
the case) until the next Annual Meeting of Shareholders. They also provide
that no decrease in the number of directors shall shorten the term of any
incumbent. Conforming amendments to the By-Laws will be made if the proposed
amendments to the Articles of Incorporation relating to the election and
removal of directors are adopted.
These proposed amendments relating to the removal of directors and the
filling of vacancies on the Board both preclude a third party from removing
incumbent directors except for cause and simultaneously gaining control of the
Board by filling the vacancies created by such removal with its own nominees.
These provisions will also reduce the power of shareholders, even those with a
majority of the voting power, to remove incumbent directors. Under the
proposed amendments, stockholders will have the power to remove directors only
for cause, and only a majority of the remaining directors may elect a
successor to fill the vacancies created by such removal.
With respect to the number of directors on the Board and the manner for
determining such number, the By-Laws currently provide that the Board of
Directors shall be composed of not less than three persons or more than seven
persons and that the number of directors shall be fixed by the shareholders at
the annual meeting. The proposed amendments would provide that (a) the Board
of Directors shall consist of not less than three nor more than nine members
and (b) the exact number of directors within the minimum and maximum
limitations shall be fixed by the Board of Directors pursuant to a resolution
adopted by a majority of the directors then in office. The Board has
currently set the number of directors at four. The requirement that only a
majority of the directors can fix the number of directors within the minimum
and maximum limitations (together with the provision discussed above that
newly created directorships may be filled only by the Board) would prevent a
third party seeking majority representation on the Board of Directors from
obtaining such representation simply by enlarging the Board and filling the
new directorships created with its own nominees.
VOTE REQUIRED TO AMEND OR REPEAL. Proposed Article VII includes a
provision that any repeal or further amendment to the provisions relating to
classification of the Board, the removal of directors and the filling of
vacancies will require the affirmative vote of the holders of 66% of all
shares entitled to vote in any election of directors. The requirement of an
increased shareholder vote is designed to prevent a shareholder with the
majority of the voting power of the Company from avoiding the requirements of
the proposed amendments by simply repealing them.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE AMENDMENT OF THE
ARTICLES OF INCORPORATION AND BY-LAWS TO ESTABLISH A CLASSIFIED BOARD OF
DIRECTORS AND EFFECT THE RELATED PROVISIONS DESCRIBED ABOVE.
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AMENDMENT OF NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
On December 29, 1993, the Company adopted and its shareholders approved a
Nonemployee Director Stock Option Plan (the "nonemployee Director Plan")
pursuant to which certain directors of the Company may be granted nonstatutory
stock options to purchase Common Stock of the Company. The Director Plan
provides that on the date of each annual meeting of shareholders, eligible
directors will be granted nonstatutory stock options to purchase 2,000 shares
of Common Stock at an exercise price equal to the fair market value of the
Common Stock at the time of grant. Options granted under the Director Plan
vest annually in four equal installments beginning in the first anniversary of
grant and, unless sooner terminated, expire five years from the date of grant.
An aggregate of 50,000 shares of Common Stock are authorized to be issued to
eligible nonemployee directors under the Director Plan. As of May 31, 1997,
options to purchase 14,000 shares of Common Stock were outstanding under the
Director Plan, at exercise prices ranging from $7.88 to $ 42.00 per share.
Currently, Mr. Wooder, Mr. Gingrich and Mr. Tummala are the only directors
eligible to participate in the Director Plan. On August 9, 1995, Mr. Wooder
received an option under the Director Plan to purchase 2,000 shares of Common
Stock of the Company at an exercise price of $42.00 per share. On August 16,
1996, Messrs. Wooder, Gingrich and Tummala each received, subject to
shareholder approval of the amendments to the Director Plan discussed below,
an option under the Nonemployee Director Plan to purchase 2,000 shares of
Common Stock of the Company and on November 13, 1996 an option to purchase an
additional 2,000 shares of Common Stock, each at an exercise price of $7.88
per share, which was the fair market value of the Common Stock on the date of
the 1996 Annual Meeting.
On November 13, 1996, the Board of Directors adopted an amendment to the
Director Plan, which replaces the provisions for option grants described
above. The amendment provides for the grant to each Nonemployee Director on
the date of the Annual Meeting of Shareholders a non-statutory option
exercised before 4,000 shares of Common Stock and an exercise price equal the
fair market value of the Common Stock at the time of grant. In addition to
the options for 1996 granted on November 13, 1996, if the proposed amendment
to the Director Plan is approved by the shareholders, additional options to
purchase 4,000 shares of the Common Stock of the Company will be granted to
each eligible director on the date of the 1997 Annual Meeting. If the
amendment is not approved, each eligible Director will be granted will be
granted a non-statutory stock option to purchase 2,000 shares of Common Stock
at an exercise price equal to the fair market value of the Common Stock as of
the date of the 1996 Annual Meeting and an option to purchase 2,000 shares of
Common Stock at an exercise price equal to the fair market value equal of the
Common Stock as of the date of the 1997 Annual Meeting. The Board believes
that adoption of the amendment to the Director Plan described above is
essential to recruiting and retaining qualified Directors.
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FEDERAL INCOME TAX CONSEQUENCES OF NONEMPLOYEE DIRECTOR PLAN
The Company understands that, under current federal income tax rules,
awards under the Nonemployee Director Plan have the consequences described
below:
The holder of a nonstatutory stock option will not be treated as
receiving taxable income upon the grant of such option. Upon exercise thereof
the optionee will realize ordinary income (except where restricted stock is
acquired upon exercise of the option) in an amount measured by the excess of
the fair market value of the shares on the date of exercise over the option
price, and the Company will be entitled to a corresponding deduction.
Assuming the shares of Common Stock received upon exercise of a nonstatutory
stock option constitute capital assets in the optionee's hands, any gain or
loss upon disposition of the shares will be treated as capital gain or loss,
which will be long-term if the shares of Common Stock have been held longer
than one year.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF THE
AMENDMENT TO THE DIRECTOR PLAN DESCRIBED ABOVE.
RATIFICATION OF APPOINTMENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has appointed the firm of Price Waterhouse LLP to
continue as independent certified public accountants for the Company for the
fiscal year ending March 31, 1997. Price Waterhouse LLP has been acting as
independent certified public accounts of the Company since 1993. Unless
otherwise indicated, properly executed proxies will be voted for the
ratification of the appointment of Price Waterhouse LLP, independent certified
public accountants, to audit the books and accounts of the Company for the
fiscal year ending March 31, 1998.
Representatives of Price Waterhouse LLP are expected to be present at the
Annual Meeting, will be given an opportunity to make a statement if they
desire to do so, and will also be available to respond to appropriate
questions from shareholders.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF PRICE WATERHOUSE LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE
COMPANY FOR THE FISCAL YEAR ENDING MARCH 31, 1998.
SHAREHOLDER PROPOSALS
Shareholder proposals which are to be considered for inclusion in the
proxy materials of the Company for its 1998 Annual Meeting of Shareholders
must be received by the Company by March 20, 1998.
<PAGE>
Page 28
ADDITIONAL INFORMATION
The Board of Directors is not aware of any matters to be presented at the
meeting other than the matters described herein and does not intend to bring
any other matters before the meeting. However, if any other matters should
come before the meeting, or any adjournment thereof, the persons named in the
enclosed proxy will have discretionary authority to vote all proxies in
accordance with their best judgment.
Kindly date, sign and return the enclosed proxy card.
By Order of the Board of Directors
STANFORD W. CRANE, JR.
President and Chief Executive Officer
<PAGE>
Page 29
PRELIMINARY COPY FOR INFORMATION OF
SECURITIES AND EXCHANGE COMMISSION
EXHIBIT A
---------
Article III of the Articles of Incorporation shall be deleted in its entirety
and the following shall be inserted in lieu thereof:
ARTICLE III--CAPITAL STOCK
--------------------------
A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 52,000,000 shares, consisting of
(i) 50,000,000 shares of Common Stock, $.01 par value (the "Common Stock") and
(ii) 2,000,000 shares of Preferred Stock, $.01 par value ("Preferred Stock").
B. The designations, powers, preferences and relative, participating,
optional or other special rights of, and the qualifications, limitations or
restrictions upon, each class or series of stock shall be as follows:
1. COMMON STOCK.
------------
(a) GENERAL. The voting, dividend and liquidation rights of the
holders of the Common Stock are subject to and qualified by the rights of the
holders of the Preferred Stock of any series as may be designated by the Board
of Directors upon any issuance of the Preferred Stock of any series.
(b) VOTING. The holders of the Common Stock are entitled to one vote
for each share held at all meetings of shareholders (and written actions in
lieu of meetings). There shall be no cumulative voting.
(c) DIVIDENDS. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
(d) LIQUIDATION. Upon the dissolution or liquidation of the
Corporation, whether voluntary or involuntary, holders of Common Stock will be
entitled to receive all assets of the Corporation available for distribution
to its shareholders, subject to any preferential rights of any then
outstanding Preferred Stock.
2. PREFERRED STOCK.
---------------
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in
the resolution or resolutions providing for the issue of such series adopted
by the Board of Directors of the Corporation as hereinafter provided. Any
<PAGE>
Page 30
shares of Preferred Stock which may be redeemed, purchased or acquired by the
Corporation may be reissued except as otherwise provided by law. Different
series of Preferred Stock shall not be construed to constitute different
classes of shares for the purposes of voting by classes unless expressly
provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing
for the issue of the shares thereof, to determine and fix such voting powers,
full or limited, or no voting powers, and such designations, preferences and
relative participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, including without limitation thereof,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, as shall be stated and expressed in such resolutions, all to the
full extent now or hereafter permitted by the Florida Business Corporation
Act. Except as provided herein or to the extent class or series voting is
otherwise required by law or agreement, without limiting the generality of the
foregoing, the resolutions providing for issuance of any series of Preferred
Stock may provide that such series shall be superior or rank equally or be
junior to the Preferred Stock of any other series to the extent permitted by
law. Except as provided herein or to the extent class or series voting is
otherwise required by law or agreement, no vote of the holders of the
Preferred Stock or Common Stock shall be a prerequisite to the issuance of any
shares of any series of the Preferred Stock authorized by and complying with
the conditions of the Articles of Incorporation, the right to have such vote
being expressly waived by all present and future holders of the capital stock
of the Corporation.
<PAGE>
Page 31
EXHIBIT B
---------
The following is hereby added as new Article VII of the Articles of
Incorporation:
ARTICLE VII--DIRECTORS
----------------------
This Article is inserted for the management of the business and for the
conduct of the affairs of the Corporation, and it is expressly provided that
it is intended to be in furtherance and not in limitation or exclusion of the
powers conferred by the statutes of Florida.
A. NUMBER OF DIRECTORS. The number of directors which shall constitute
the whole Board of Directors shall be determined by resolution of a majority
of the Board of Directors, but in no event shall be less than three nor more
than nine. The number of directors may be decreased at any time and from time
to time by a majority of the directors then in office, but only to eliminate
vacancies existing by reason of death, resignation, removal or expiration of
the term of one or more directors. The directors shall be elected at the
annual meeting of shareholders by such shareholders as have the right to vote
on such election. Directors need not be shareholders of the Corporation.
B. CLASSES OF DIRECTORS. The Board of Directors shall be and is
divided into three classes: Class I, Class II and Class III. No one class
shall have more than one director more than any other class. If a fraction is
contained in the quotient arrived at by dividing the authorized number of
directors by three, then, if such fraction is one-third, the extra director
shall be a member of Class III and, if such fraction is two-thirds, one of the
extra directors shall be a member of Class II and the other extra director
shall be a member of Class III, unless otherwise provided for from time to
time by resolution adopted by a majority of the Board of Directors.
C. TERMS OF OFFICE. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; provided, however, that each initial director in Class I
shall serve for a term ending on the date of the annual meeting next following
the end of the Corporation's fiscal year ending March 31, 1998; each initial
director in Class II shall serve for a term ending on the date of the annual
meeting next following the end of the Corporations fiscal year ending March
31, 1999; and each initial director in Class III shall serve for a term ending
on the date of the annual meeting next following the end of the Corporation's
fiscal year ending March 31, 2000.
D. ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF INCREASES OR
DECREASES IN THE NUMBER OF DIRECTORS. In the event of any increase or
decrease in the authorized number of directors, (i) each director then serving
as such shall nevertheless continue as director of the class of which he is a
member until the expiration of his current term or his prior death,
retirement, or resignation and (ii) the newly created or eliminated
<PAGE>
Page 32
directorships resulting from such increase or decrease shall be apportioned by
the Board of Directors among the three classes of directors so as to ensure
that no one class has more than one director more than any other class. To
the extent possible, consistent with the foregoing rule, any newly created
directorships shall be added to those classes whose terms of office are to
expire at the latest dates following such allocation, and any newly eliminated
directorships shall be subtracted from those classes whose terms of office are
to expire at the earliest dates following such allocation, unless otherwise
provided for from time to time by resolution adopted by a majority of the
directors then in office, although less than a quorum.
E. TENURE. Notwithstanding any provisions to the contrary contained
herein, each director shall hold office until his successor is elected and
qualified, or until his earlier death, resignation or removal.
F. VACANCIES. Any vacancy in the Board of Directors, however
occurring, including a vacancy resulting from an enlargement of the Board, may
be filled only by vote of a majority of the directors then in office, although
less than a quorum, or by a sole remaining director. A director elected to
fill a vacancy shall be elected for the unexpired term of his predecessor in
office, if applicable, and a director chosen to fill a position resulting from
an increase in the number of directors shall hold office until the next
election of the class for which such director shall have been chosen and until
this successor is elected and qualified, or until his earlier death,
resignation or removal.
G. QUORUM. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such
director so disqualified; provided, however, that in no case shall less than
one-third (1/3) of the number so fixed constitute a quorum. In the absence of
a quorum at any such meeting, a majority of the directors present may adjourn
the meeting from time to time without further notice other than announcement
at the meeting, until a quorum shall be present.
H. ACTION AT MEETING. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law or
the Corporation's Certificate of Incorporation or By-Laws.
I. REMOVAL. Any one or more of the directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to
vote at an election of directors; provided that, if and for so long as the
Board of Directors is classified pursuant to Section 607.0806 of the Florida
Business Corporation Act, or any successor statute, shareholders may effect
such removal only for cause.
J. AMENDMENTS TO ARTICLE. Notwithstanding any other provisions of law,
these Amended and Restated Articles of Incorporation or the Corporation's
By-Laws, as amended, and notwithstanding the fact that a lesser percentage may
<PAGE>
Page 33
be specified by law, the affirmative vote of the holders of at least sixty-six
and two-thirds percent (66 2/3%) of the votes which all the shareholders would
be entitled to cast at any annual election of directors or class of directors
shall be required to amend or repeal, or to adopt any provision inconsistent
with, this Article VII.
<PAGE>
Page 34
Preliminary Copy
CONFIDENTIAL
For use of
the Commission Only
PROXY THE PANDA PROJECT, INC. PROXY
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD AUGUST 12, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned, revoking all prior proxies, hereby appoint(s) Stanford
W. Crane, Jr. and C. Daryl Hollis, and each of them, with full power of
substitution, as proxies to represent and vote, as designated herein, all
shares of stock of The Panda Project, Inc. (the "Company") which the
undersigned would be entitled to vote if personally present at the Annual
Meeting of Shareholders of the Company to be held at the Marriott Crocker
Center Hotel & Resort, 5150 Town Center Circle, Boca Raton, Florida on
Tuesday, August 12, 1997, at 10:00 a.m., local time, and at any adjournment
thereof (the "Meeting").
In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting or any adjournment thereof.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. If no direction is given, this proxy
will be voted FOR all proposals. Attendance of the undersigned at the meeting
or at any adjournment thereof will not be deemed to revoke this proxy unless
the undersigned shall revoke this proxy in writing or shall deliver a
subsequently dated proxy to the Secretary of the Company or shall vote in
person at the Meeting.
PLEASE FILL IN, DATE, SIGN AND MAIL THIS PROXY IN THE ENCLOSED POSTAGE-PAID
RETURN ENVELOPE.
1. To elect the following four (4) directors (except as marked below) for
the ensuing year.
NOMINEES: Stanford W. Crane, Jr., James T.A. Wooder, Claud Gingrich and
Rao R. Tummala.
/ / FOR all nominees / / WITHHOLD authority to vote
(except as marked below) for all nominees
<PAGE>
Page 35
For all nominees except the following nominee(s):
------------------------------------------------------------------------
(Continued, and to be signed, on reverse side)
2. To approve an amendment to the Company's Amended and Restated
Articles of Incorporation establishing a class of Preferred Stock
consisting of 2,000,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
3. To approve an amendment to the Company's Amended and Restated
Articles of Incorporation and By-Laws providing for the
classification of the Board of Directors into three classes and
providing for amended procedures for changing the number of
directors, filling vacancies on the Board and other related matters.
/ / FOR / / AGAINST / / ABSTAIN
4. To approve an amendment to the Company's Nonemployee Director Stock
Option Plan providing for the annual grant to each participant in
the plan of an option to purchase 4,000 shares of Common Stock of
the Company.
/ / FOR / / AGAINST / / ABSTAIN
5. To ratify the selection by the Board of Directors of Price Water
house LLP as the Company's independent accountants for the current
fiscal year.
/ / FOR / / AGAINST / / ABSTAIN
Dated ......................................, 1997
..................................................
Signature
..................................................
Signature if held jointly
Please sign exactly as name appears hereon. If the
stock is registered in the names of two or more
persons, each should sign. Executors,
administrators, trustees, guardians, attorneys and
corporate officers should add their titles.
