424B3
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 20, 1997, the last reported sale price of the Common Stock on the Nasdaq
National Market was $5.50 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 22, 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 22, 1997.
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TABLE OF CONTENTS
PAGE
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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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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 22, 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
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<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>
<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> <C>
John J. Seaman 0 310 310 0 310(12) 310 0
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.
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<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.
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