As filed with the Securities and Exchange Commission on May 26, 1998
Registration No. 333-47595
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
---------------------
The Panda Project, Inc.
------------------------------------------------
(name of registrant as specified in its charter)
Florida 65-0323354
- ------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
901 Yamato Road
Boca Raton, Florida 33431
(561) 994-2300
---------------------------------------------
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
---------------------------------------------
C. Daryl Hollis
Executive Vice President and Chief Financial Officer
The Panda Project, Inc.
901 Yamato Road
Boca Raton, Florida 33431
(561) 994-2300
---------------------------------------------
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------------------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes
effective.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, check the
following box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, other than in connection with dividend or
interest reinvestment plans, check the following box. [ X ]
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If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for
the same offering. [ ]
-------
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
-------
If delivery of the Prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
---------------------------------------------
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until
the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of
1933 as amended or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT
BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION - DATED May 26, 1998
Prospectus
2,150,000 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 Shares covered by this Prospectus may be sold from time to
time by the Selling Securityholders, or by their pledgees, donees,
transferees or other successors in interest, on the Nasdaq National
Market, in the over the counter market, through the writing of options
on the Shares, in ordinary brokerage transactions, in negotiated
transactions, or otherwise, at market prices prevailing at the time of
sale or at negotiated prices. See "Plan of Distribution".
The Selling Securityholders and intermediaries through whom the
Shares are sold may be deemed "underwriters" within the meaning of
Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Shares offered, and any profits realized or commissions
received may be deemed underwriting compensation. The Company and the
Selling Securityholders have agreed to certain indemnification
arrangements with respect to the offering. See "Plan of
Distribution".
The Common Stock is traded on the Nasdaq National Market under
the symbol "PNDA". On May 18, 1998, the closing sale price of the
Common Stock on the Nasdaq National Market was $4.50 per share.
The shares of Common Stock offered hereby represent approximately
17.6% of the total number of shares outstanding at April 30, 1998.
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."
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The Company will pay all the expenses, estimated to be $20,000,
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 8.
-----------------------------------
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 May __, 1998.
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TABLE OF CONTENTS
Page
----
Available Information....................................... 6
Incorporation of Certain Documents by Reference............. 7
Risk Factors................................................ 8
Year 2000 Issues............................................ 18
Use of Proceeds............................................. 18
Selling Securityholders..................................... 18
Plan of Distribution........................................ 20
Description of Capital Stock................................ 21
Experts..................................................... 25
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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. 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.
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Information contained in the Company's Web site shall not be
deemed to be part of this Prospectus.
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 Transition Report on Form 10-K for the
transition period from April 1, 1997 through December 31, 1997;
(2) The Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998;
(3) The Company's Current Reports on Form 8-K filed January 14,
1998 and February 11, 1998; and
(4) 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.
<PAGE>
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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. Such forward-looking statements are made only as of
the date of this Prospectus. Without limiting the foregoing, the
words "believes," "anticipates," "plans," "expects," "intends" 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. 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 Computer Systems,
from licensing fees and from the activities associated with its grant
from the Defense Advanced Research Projects Agency. The Company does
not anticipate deriving larger revenues from operations until such
time, if ever, that greater numbers of its Computer Systems,
semiconductor packages and connectors can be sold, as to which there
can be no assurance. 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 $20,874,101 during the fiscal years ended
March 31, 1994, 1995, 1996 and 1997, respectively, $8,949,652 during
the nine months ended December 31, 1997, and $3,811,033 during the
quarter ended March 31, 1998, resulting in an accumulated deficit of
$66,676,586 as of March 31, 1998. Inasmuch as the Company expects to
continue to incur operating expenses totalling approximately
$1,000,000 per month related to its research and development and sales
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. In addition,
the Company received a going concern opinion as discussed in Note 2 of
Form 10-K dated December 31, 1997.
3. Significant Capital Requirements; Possible Need For
Additional Financing. The Company's capital requirements in connection
with its operations and development activities have been significant,
and such requirements may continue to be significant if the Company
receives large numbers of purchase orders for its Computer Systems,
semiconductor packages and connectors. The Company has been dependent
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Page 9
primarily upon the proceeds of sales of its securities to fund its
activities since inception. During the period from inception through
April 30, 1998, the Company raised capital of approximately $69
million (after deduction of underwriting discounts, commissions and
other selling costs) through the sale of Common Stock, Series A
Convertible Preferred Stock, warrants and subordinated debentures and
from the exercise of stock options and warrants. Since June 1996, the
Company has entered into five agreements to license its VSPA and
Compass Connector technologies and has begun to receive revenues under
two of these agreements. 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 has issued 600 shares of Series A-1 Convertible
Preferred Stock ("Series A Preferred") for an aggregate purchase price
of $6,000,000. The terms of the Series A Preferred, as amended May
14, 1998, provide that upon the occurrence of certain "Triggering
Events", including suspension of sales under the Registration
Statement, failure of the Company's Common Stock to be listed, or the
suspension of trading in the Company's Common Stock, on the Nasdaq
National Market or the Nasdaq SmallCap Market, or failure of the
Company to convert shares of Series A Preferred as required, each
holder of Series A Preferred shall have the right, at such holder's
option, to require the Company at its option to pay liquidated damages
or to redeem all or a portion of such holder's Series A Preferred.
Any requirement that the Company pay liquidated damages or redeem a
substantial amount of Series A Preferred would have a material adverse
impact on the Company, including possibly requiring the Company to
cease or significantly curtail its operations. See "Description of
Capital Stock -- Series A Convertible Preferred Stock."
In the event 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. In
addition, in the event that the Company receives a larger than
anticipated number of purchase orders for its Computer Systems or VSPA
semiconductor package, 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. There can be no assurance
that such 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.
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The common stock of the Company is listed on the Nasdaq National
Market ("NMS") and as such, the Company must comply with the NMS
listing requirements including the maintenance of net tangible assets
of at least $4,000,000. Assuming the reclassification of the Series A
Preferred Stock to permanent equity, as of March 31, 1998, the Company
believes is was in compliance with the listing requirements of NMS.
However, in the event the Company is unable to maintain such
requirements in the future, its common stock could be subject to
delisting from the NMS. If this were to occur, the Company s common
stock could be adversely affected and the Company's ability to raise
additional capital could be limited.
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 products and technologies until a sufficient number of other
OEMs and VARs have already committed to do so. The Company has hired
sales and marketing personnel for its Computer Systems and for its
VSPA semiconductor package and Compass Connector, and it has
established a network of twelve independent sales organizations to
supplement the Company's internal sales force. The Company's ability
to generate revenue from the sale of Computer Systems or the licensing
or sale of Computer Systems, VSPA semiconductor packages or Compass
Connectors will be dependent upon, among other things, its ability to
effectively use the internal sales force and its network of
independent sales organizations to market its products. There can be
no assurance that the Company's marketing efforts will be successful.
5. Uncertainty Of Product And Technology Development;
Technological Factors; Dependence On Third-Party Product Design
Changes. 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 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
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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 Computer Systems compete with computers offered by such
companies as Silicon Graphics, Inc., Sun Microsystems, Inc., Dell
Computer Corporation, Compaq Computer Corporation, Gateway 2000,
Hewlett-Packard Co. and other smaller companies. The Company's
Technology Products compete with semiconductor packages and connectors
offered by numerous manufacturers. Many 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, 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 the Company's products and technologies.
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,
to adapt its products to be compatible with specific products
manufactured by others, and to successfully develop and market new
products. 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
products and technology obsolete or less marketable or that the
Company will be able to successfully enhance its products or
technology or adapt them satisfactorily.
7. Dependence On Manufacturers And Suppliers; Lack Of
Manufacturing Experience And Capability. The Company has developed the
ability to manufacture the VSPA semiconductor package in its own
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facility in Boca Raton, Florida. The automated machinery used in the
manufacturing process has been designed and built by the Company to
produce VSPA parts based on anticipated customer demand. The machines
have a wide range of flexibility in terms of the pin count of the VSPA
packages they will produce, and expected production capacity ranges
from 235,000 parts per month to 290,000 parts per month, depending
upon the pin count of the package. Two automated machines have been
produced and a third is in production, and commercial scale production
of the VSPA product has recently commenced. There can be no assurance
that the Company will be able to complete additional machines within a
reasonable period of time, or be capable of producing the quantities
of VSPA that are anticipated. In the event the Company is unable to
produce VSPA in high volumes within a reasonable period of time, or at
all, delays in securing alternative manufacturing sources would result
and would have a material adverse effect on the Company's operations.
The Company has developed the capability to manufacture the
Compass Connector products required for its Computer Systems in its
own facility in Boca Raton, Florida. 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. The Company has an
arrangement with LG Cable & Machinery Ltd. to supply the Compass V
Connector which the Company expects to use in certain models of its
Rock City computers. Although the Company anticipates that it will be
able to obtain Compass V Connectors from LG Cable & Machinery Ltd.
under this arrangement, no assurance can be given that the supply of
such component will be in quantities sufficient to meet the Company's
needs.
The Company anticipates that it will be dependent on third
parties for the manufacture and/or assembly of printed circuit boards,
chassis and other subassemblies, as well as for the supply of various
of the components, incorporated into the Computer Systems, and for
performing the final assembly configuration, certain quality control
testing and delivery of such computers. Although the Company has
arrangements with certain contract manufacturers to manufacture
certain subassemblies and to assemble certain models of the Computer
Systems, 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. The
Company believes that these components are available from multiple
sources, and 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 Computer Systems
on commercially reasonable terms, or at 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
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of manufacturing capabilities with respect to the Computer Systems
(and/or their subassemblies or components) is necessary or
appropriate. 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
Computer Systems 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, President 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 which extends to
January 1999, 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, 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. As
of April 30, 1998, the Company had obtained eleven United States
patents and an aggregate of 39 foreign patents. In addition, the
Company had pending a total of 20 United States and 26 foreign patent
applications. These patents and pending applications relate to VSPA,
Compass PGA, various designs of the Computer Systems, the use of the
Compass Connector in Compass PGA and in the Computer Systems, and a
PCB manufacturing technology known as "Well Tech PCB". The Company's
foreign patent filings have been made in selected countries, including
the Republic of China (Taiwan), Germany, the United Kingdom, Ireland
and France. The Company will continue to file applications in certain
foreign jurisdictions to secure protection in those jurisdictions in
accordance with the Patent Cooperation Treaty and the Paris Convention
for the Production of Industrial Property (which allows such filings
to relate back to the original filing date in the United States)
covering the Company's technology and proposed products. 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 pending
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
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if the Company is able 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 relies on confidentiality and nondisclosure
arrangements with its employees, consultants and others involved with
the Company's product and technological development efforts. There
can be no assurance that these agreements will provide meaningful
protection to the Company or that other companies will not acquire
information which the Company considers proprietary. Moreover, there
can be no assurance that other companies will not independently
develop know-how comparable or superior to that of the Company.
The Company has registered the Archistrat, VSPA and Rock City
trademarks with the U.S. Patent and Trademark Office and has applied
for appropriate trademark, copyright and other legal protection for
its product names, logos and other identifications. There can be no
assurance that the Company will not be precluded by others from using
any of such identifications or creating proprietary rights with
respect to them.
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 Computer Systems and the
development and commercialization of Compass PGA. The Crane-Panda
License was executed in connection with the conversion to a
<PAGE>
Page 15
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 Computer Systems
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 Computer Systems 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.
Although actions of the Company with respect to the Crane-Panda
License must be authorized by a majority of the Company's independent
directors, and the Company and Mr. Crane would be represented by
separate counsel in the event of a dispute concerning the Crane-Panda
license, 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 April 30,
1998, officers and directors of the Company own of record and
beneficially approximately 36% 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.
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Page 16
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. Potential for Dilution; Registration Rights; Outstanding
Options and Warrants. The Company currently has outstanding an
aggregate of 600 shares of Series A Preferred. In the event certain
conditions are met, the Company has the right to cause the issuance of
an additional 400 shares of Series A Preferred. Shares of Series A
Preferred are convertible into shares of Common Stock pursuant to a
formula whereby the purchase price of the shares to be converted
($10,000 per share) plus any accrued dividends are divided by a
conversion price based on the lesser of a fixed conversion price or a
floating conversion price based on the market price of the Common
Stock. If converted prior to June 20, 1998, the outstanding Series A
Preferred would be convertible into approximately 986,571 shares of
Common Stock using the fixed conversion price of $6.10 per share.
Depending on market conditions at the time of conversion, the number
of shares issuable could prove to be significantly greater in the
event of a decrease in the trading price of the Common Stock.
Purchasers of Common Stock could therefore experience substantial
dilution upon conversion of the Series A Preferred. In addition, an
increase in the amount of Common Stock in the public market as a
result of such conversion could reduce the market price of the Common
Stock.
Pursuant to a Registration Rights Agreement dated February 11,
1998 (the "Registration Rights Agreement"), the shares of Common Stock
into which the outstanding Series A Preferred may be converted plus
shares of Common Stock issuable upon exercise of warrants to purchase
up to 150,000 shares of Common Stock issued in connection with the
sale of the Series A Preferred are being registered by means of the
Registration Statement. In addition, the Company has also granted to
Mr. Crane the right to include up to approximately 496,000 of his
shares of Common Stock (which volume restrictions will be eliminated
after May 16, 1999) each year in certain registration statements which
may be filed by the Company. The possibility that substantial amounts
of Common Stock may be sold in the public market may adversely affect
prevailing market prices for the Common Stock and could impair the
<PAGE>
Page 17
Company's ability in the future to raise additional capital through
the sale of its equity securities.
As of April 30, 1998, the Company has reserved 2,750,321 shares
of Common Stock, including 150,000 shares subject to warrants issued
in connection with the sale of the Series A Preferred, for issuance
upon the exercise of warrants. In the event the 400 additional shares
of Series A Preferred described above are issued, the Company would be
required to issue Warrants to purchase an additional 100,000 shares of
Common Stock. In addition, the Company has reserved 1,160,776 shares
of Common Stock as of April 30, 1998 for issuance to employees,
officers, directors and consultants under its 1995 Employee Stock
Incentive Plan, 1993 Performance Incentive Plan and Non-Employee
Director Stock Option Plan. The price which the Company may receive
for the Common Stock issuable upon exercise of such warrants and
options will, in all likelihood, be less than the market price of the
Common Stock at the time of such exercise. Consequently, for the life
of such warrants and options, the holders thereof may have been given,
at nominal cost, the opportunity to profit from a rise in the market
price of the Common Stock. The exercise of all of the aforementioned
securities may also adversely effect the terms under which the Company
could obtain additional equity capital. Should a significant number
of these securities be exercised, the resulting increase in the amount
of the Common Stock in the public market may reduce the market price
of the Common Stock.
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. Effect of Certain Charter and Bylaw Provisions. The
Company's Amended and Restated Articles of Incorporation authorize the
Board of Directors to issue up to 2,000,000 shares of Preferred Stock
and to determine the price, rights, preferences and privileges,
including voting rights, of those shares without any further vote or
action of the shareholders. The rights of the holders of the
Company's Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock issued
by the Company, including shares of Series A Preferred which are
currently outstanding or may be issued in the future. In addition,
the holders of Series A Preferred have certain liquidated damage,
redemption and other rights that may delay or prevent a merger or
similar transaction. The Company's Amended and Restated Articles of
Incorporation also provide for staggered terms for the members of the
Board of Directors. Certain provisions of the Company's By-laws, the
issuance of Preferred Stock, certain provisions of the Company's
Amended and Restated Articles Incorporation, and the staggered Board
of Directors could have a depressive effect on the Company's stock
price or discourage a hostile bid in which shareholders could receive
<PAGE>
Page 18
a premium for their shares. In addition, these provisions could have
the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company, or delay,
prevent or deter a merger, acquisition, tender offer or proxy contest
for the Company. See "Description of Capital Stock".
16. 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.
17. 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
Company's financial condition 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.
YEAR 2000 ISSUES
The Company has developed preliminary plans to address the
possible exposures related to the impact on its computer systems of
the Year 2000. Key financial, information and operational systems
will be assessed and plans will be developed to address required
systems modifications. While the Company has not completed its detail
plans with regards to this uncertainty, management believes, based on
discussions with vendors of its major business applications and Year
2000 Compliance certificates received from the related software
developers, that the financial impact of making the required systems
changes, if any, will not be material to the Company's financial
position, results of operations or cash flows.
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. To the best knowledge of the Company, none of the
Selling Securityholders has held any office or maintained any material
relationship with the Company or its predecessors or affiliates over
the past three years.
<PAGE>
Page 19
The following table sets forth information concerning the
beneficial ownership of shares of Common Stock by the Selling
Securityholders as of April 30, 1998 and the number of such shares
included for sale in this Prospectus, assuming the sale of all Shares
being offered by this Prospectus. After giving effect to the
offering, the Selling Securityholders will beneficially own no shares
of Common Stock of the Company. The shares offered hereby consist of
(i) an estimated 2,000,000 shares issuable upon conversion of an
aggregate of 600 shares of Series A Preferred sold in a private
placement completed on February 11, 1998, and (ii) 150,000 shares
issuable upon the exercise of Common Stock Purchase Warrants (the
"Warrants") granted by the Company in connection with such private
placement. The Warrants are exercisable during the period beginning
February 11, 1998 and ending February 11, 2003 at an exercise price of
$6.10 per share.
Shares Owned Shares
Prior Offered Shares Owned
Selling Securityholders to Offering Hereby After Offering
AGR Halifax Fund, Ltd.
(1)(2)(3) 625,377 625,377 --
Leonardo, L.P. (1)(2) 257,508 257,508 --
GAM Arbitrage Investments,
Inc. (1)(2) 27,590 27,590 --
AG Super Fund International
Partners, L.P. (1)(2) 27,590 27,590 --
Raphael, L.P. (1)(2) 55,180 55,180 --
Ramius Fund, Ltd. (1)(2) 91,967 91,967 --
Pine Street Asset Management,
L.P. (1)(2) 18,393 18,393 --
Samuel R. Shipley (1)(4) 7,500 7,500 --
Kevin J. Raidy (1)(4) 7,500 7,500 --
Bradley J. Ackerman (1)(4) 15,000 15,000 --
- ------------------
(1) The number of shares set forth in the table represents an
estimate of the number of shares of Common Stock to be offered by the
Selling Securityholders. The actual number of shares of Common Stock
issuable upon conversion of Series A Preferred is indeterminate, is
subject to adjustment and could be materially less or more than such
estimated number depending on factors which cannot be predicted by the
Company at this time, including, among other factors, the future
market price of the Common Stock. The actual number of shares of
Common Stock offered hereby and included in the Registration
Statement, includes such additional number of shares of Common Stock
as may be issued or issuable upon conversion of the Series A Preferred
<PAGE>
Page 20
or upon exercise of the Warrants by reason of, in the case of the
Series A Preferred, the floating conversion price mechanisms
applicable to the Series A Preferred, or, in the case of Series A
Preferred and the Warrants, by reason of any stock split, stock
dividend or similar transaction involving the Common Stock, in order
to prevent dilution, in accordance with Rule 416 under the Securities
Act.
(2) The number of shares shown includes the following number of
shares of Common Stock issuable upon exercise of Warrants: AGR Halifax
Fund, Ltd., 68,000; Leonardo, L.P., 28,000 shares; GAM Arbitrage
Investments, Inc., 3,000 shares; AG Super Fund International Partners,
L.P., 3,000 shares; Raphael, L.P., 6,000 shares; Ramius Fund, Ltd.,
10,000 shares; and Pine Street Asset Management, L.P., 2,000 shares.
The remainder of the shares shown for the Selling Securityholder is
based on a conversion price of $6.10, which, pursuant to the terms of
the Series A Preferred, would have been the conversion price of the
Series A Preferred had it actually been converted on April 30, 1998.
(3) Pursuant to the terms of the Series A Preferred, the shares of
Series A Preferred are convertible by any holder only to the extent
that the number of shares owned by such holder and its affiliates
would not exceed 4.9% of the then outstanding Common Stock of the
Company. Accordingly, to the extent the number of shares of Common
Stock owned by any Selling Securityholder and its affiliates exceeds
4.9% of the then outstanding Common Stock of the Company, the number
of shares of Common Stock that such Selling Securityholder could
beneficially own at any given time through its ownership of the Series
A Preferred would be limited. In that regard, beneficial ownership of
this Selling Securityholder as set forth in this table is not
determined in accordance with Rule 13d-3 under the Exchange Act.
(4) Shares shown consist solely of shares of Common Stock issuable
upon exercise of Warrants.
PLAN OF DISTRIBUTION
The Shares may be offered for sale from time to time by the
Selling Securityholders, or by their pledgees, donees, transferees or
other successors in interest, to various purchasers, 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, or to
pledgees, donees or other transferees, in each case without the
participation of underwriters, brokers or dealers. The Selling
Securityholders, or their pledgees, donees, transferees or other
successors in interest, may also from time to time offer the Shares
through brokers, dealers or agents, or through underwriters, who may
receive underwriting discounts, concessions or commissions from the
Selling Securityholders, or their pledgees, donees, transferees or
other successors in interest, 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
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Page 21
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, or their pledgees, donees,
transferees or other successors in interest, such brokers or dealers
may arrange for other brokers or dealers to participate.
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 and any other persons participating
in the sale or distribution of the Shares will be subject to
applicable provisions of the Exchange Act and the rules and
regulations thereunder, which provisions may limit the timing of
purchases and sales of any of the Shares by the Selling
Securityholders or any other such person. The foregoing may affect
the marketability of the Shares.
The Company has agreed to indemnify the Selling Securityholders,
or their transferees or assignees, against certain liabilities,
including liabilities under the Securities Act, or to contribute to
payments the Selling Securityholders or their prospective pledgees,
donees, transferees or other successors in interest, may be required
to make in respect thereof.
The public offering of the Shares by the Selling Securityholders
will terminate on the earlier of (a) five years from the date of this
Prospectus (subject to extension in the event dispositions of Shares
under the Registration Statement of which this Prospectus is a part
are suspended by the Company as permitted under the Registration
Rights Agreement), or (b) the date on which all Shares have been sold
by the Selling Securityholders.
The Company will pay certain expenses incidental to the offering
and sale of the Shares to the public estimated to be approximately
$20,000. The Company will not pay for, among other expenses, selling
expenses or underwriting discounts, if applicable.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of
50,000,000 shares of Common Stock, $.01 par value, and 2,000,000
shares of Preferred Stock, $.01 par value ("Preferred Stock").
<PAGE>
Page 22
COMMON STOCK
As of April 30, 1998, there were 12,233,601 shares of Common
Stock outstanding and held of record by 280 shareholders.
The holders of Common Stock are entitled to one vote for each
share held. Holders of Common Stock are entitled to receive such
dividends as may be declared by the Board of Directors out of funds
legally available therefor. In the event of a liquidation,
dissolution or winding up of the Company, holders of Common Stock are
entitled to receive all assets of the Company available for
distribution to shareholders, subject to any preferential rights of
any then outstanding Preferred Stock. Holders of Common Stock have no
preemptive rights and no right to convert their Common Stock into any
other securities. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock
are, and all shares of Common Stock to be outstanding upon completion
of this offering, will be fully paid and non-assessable.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 2,000,000
shares of Preferred Stock in one or more series and to fix the voting
powers, designations, preferences and relative participating, optional
or other special rights, and qualifications, limitations or
restrictions thereof, including without limitation, dividend rights,
conversion rights, redemption privileges and liquidation preferences,
without any further vote or action by shareholders. The issuance of
Preferred Stock could adversely effect the voting power of holders of
Common Stock and the likelihood that such holders will receive
dividend payments and payments upon liquidation and could have the
effect of delaying, deterring or preventing a change in control of the
Company.
SERIES A CONVERTIBLE PREFERRED STOCK
The Board of Directors of the Company has designated 1,000 shares
of the Preferred Stock as Series A-1 Convertible Preferred Stock
("Series A Preferred") with the rights, preferences, privileges and
terms set forth in the Company's Fifth Articles of Amendment of
Amended and Restated Articles of Incorporation ("Articles of
Amendment"). The Company has issued 600 shares of Series A Preferred
for an aggregate purchase price of $6,000,000. In the event certain
conditions are met, the Company has the right to cause the issuance of
400 additional shares of Series A Preferred.
Holders of Series A Preferred are entitled to receive a dividend
of 5% per annum of the purchase price of such shares, payable
quarterly, at the option of the Company either in cash or as an
accrual to the purchase price utilized in computing the number of
shares of Series A Preferred issuable on conversion. So long as any
Series A Preferred is outstanding, no dividends may be paid nor shall
any distribution be made, on Common Stock or other shares junior in
<PAGE>
Page 23
rank to the Series A Preferred ("Junior Shares") unless all dividends
for all past quarterly dividend periods have been paid or declared and
a sum of cash or amount of shares sufficient for the payment thereof
set apart.
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders of Series A
Preferred are entitled to receive in cash from the assets of the
Company, before any amount shall be paid to holders of Junior Shares,
an amount per share of Series A Preferred equal to the sum of (i) the
purchase price for such share and (ii) any accrued but unpaid
dividends thereon. If the amounts available for distribution are
insufficient to pay the full amount due to holders of Series A
Preferred, and shares of other classes or series of preferred stock of
the Company that are of equal rank to the Series A Preferred then each
holder of Series A Preferred and such other shares shall receive a
percentage of the amounts available for distribution ratably in
proportion to the respective amounts of such assets to which they
otherwise would be entitled.
Holders of Series A Preferred shall have no voting rights except
as required by law or as specified in the Articles of Amendment.
Pursuant to the Articles of Amendment, the affirmative vote of the
holders of at least two-thirds of the outstanding shares of Series A
Preferred is required for (i) any amendment to the Company's Articles
of Incorporation which would alter the rights and preferences of the
Series A Preferred or otherwise impair the rights of the holders of
Series A Preferred relative to the holders of the Common Stock or the
holders of any other class of capital stock, or (ii) any issuance of
more than the 1,000 shares of Series A Preferred.
Shares of Series A Preferred are convertible into shares of
Common Stock pursuant to a formula whereby the purchase price of the
shares to be converted plus accrued dividends are divided by a
conversion price defined as the lower of (i) $6.10, subject to
adjustment in the event of certain dilutive issuances of securities by
the Company or for stock splits or similar events (the "Fixed
Conversion Price"), or (ii) a percentage of the average closing bid
price of the Common Stock for the five days immediately preceding
conversion equal to 92%, if conversion occurs during the period
beginning 120 days and ending 180 days after issuance of the Series A
Preferred, or 90%, if conversion occurs after 180 days from issuance
of the Series A Preferred. The conversion of Series A Preferred into
shares of Common Stock may not occur during the period prior to 120
days after issuance except at the Fixed Conversion Price. All
outstanding Series A Preferred will automatically convert into Common
Stock, at the then applicable conversion price, on the fifth
anniversary of issuance. In addition, the Company has the right to
require that all unconverted shares of Series A Preferred be converted
to Common Stock at any time if the closing bid price of the Common
Stock is equal to $12.00 per share for a period of twenty consecutive
trading days.
In the event of a merger or other transaction which results in
the shareholders of the Company owning less than 50% of the voting
power or common equity of the Company, a transfer by the Company of
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Page 24
all or substantially all of its assets or the fixing of a record date
for the declaration of a distribution or dividend (other than a
dividend payable in Common Stock), the holders of Series A Preferred
may, at their option, participate in any such transaction as a class
with the holders of Common Stock, or may require that the Company at
its option (i) pay to the holder as liquidated damages an amount equal
to 120% of the purchase price of such Series A Preferred Shares, or
(ii) redeem such Series A Preferred at a redemption price equal to
120% of such holders' purchase price plus accrued but unpaid
dividends. In addition, upon the occurrence of certain "Triggering
Events", including suspension for a period of 30 consecutive days of a
registration statement covering shares issuable upon conversion of
Series A Preferred, failure of the Common Stock to be listed, or
suspension of trading in the Company's Common Stock on the Nasdaq
National Market or the Nasdaq SmallCap Market for a period of five
consecutive days or notice by the Company to any holder of Series A
Preferred of its intention not comply with proper requests for
conversion of Series A Preferred, each holder of Series A Preferred
shall have the right at such holder's option, to require the Company
at its option to (i) pay to the Holder as liquidated damages an amount
equal to the greater of (A) 125% of the purchase price of such Series
A Preferred shares, and (B) the product of the applicable conversion
rate multiplied by the closing bid price of the Common Stock
calculated as of the date immediately preceding such Triggering Event,
or (ii) to redeem all or a portion of such holder's Series A Preferred
shares at a price (the "Redemption Price") equal to the greater of (i)
the sum of 125% of the purchase price of such Series A Preferred
shares plus any accrued but unpaid dividends thereon and (ii) the
product of the applicable conversion rate for such Series A Preferred
multiplied by the closing bid price of the Common Stock as of the date
immediately preceding such Triggering Event. In no event shall the
Company be obligated to issue upon conversion of the Series A
Preferred, in the aggregate, more than a number of shares of Common
Stock which, when added to the number of shares issuable upon exercise
of the Warrants, shall equal 19.99% of the outstanding shares of
Common Stock of the Company (the "Exchange Cap"). If after the fourth
anniversary of issuance of the Series A Preferred, conversion of the
Series A Preferred would result in the issuance of a number of shares
of Common Stock in excess of the Exchange Cap, and the Company is not
able to secure shareholder approval of such issuance or a waiver of
applicable Nasdaq rules, the Company at its option shall be required
within 120 days thereafter to pay liquidated damages or redeem all of
the Series A Preferred at the Redemption Price, calculated as of the
date the holder requested conversion.
FLORIDA LAW AND CERTAIN ANTI-TAKEOVER CHARTER PROVISIONS
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
shareholders. The Florida Affiliated Transactions Act generally
requires supermajority approval by disinterested directors or
shareholders of certain specified transactions between a corporation
<PAGE>
Page 25
and holders of more than 10% of the outstanding voting shares of the
corporation or their affiliates.
The Company's Amended and Restated Articles of Incorporation
provide that the authorized number of directors may be changed only by
resolution of the Board of Directors, that the Board of Directors is
classified into three classes, only one of which shall be elected at
any given annual meeting and that directors can only be removed for
cause. These provisions, which require the vote of at least two-
thirds of the shareholders to amend, could have the effect delaying,
deterring or preventing a change in control of the Company or depress
any market price of the Common Stock or discouraging hostile bids in
which shareholders of the Company could receive a premium for their
shares of Common Stock.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company has been appointed as the
transfer agent and the registrar for the Company's Common Stock.
EXPERTS
The financial statements incorporated in this Prospectus by
reference to the Transition Report on Form 10-K of The Panda Project,
Inc. for the transition period ended December 31, 1997 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 2 to the financial statements) of
Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
<PAGE>
Page 26
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses in connection
with the sale and distribution of the securities being registered,
other than the underwriting discounts and commissions. All these
expenses will be paid by the Company.
NATURE OF EXPENSE
- -----------------
SEC registration fee................................... $ 3,006
Legal and accounting fees and expenses................. 15,000 *
Miscellaneous 1,994 *
---------
TOTAL $ 20,000 *
* Estimated =========
Item 15. Indemnification of Directors and Officers.
Florida Business Corporation Act.
Section 607.0850(1) of the Florida Business Corporation Act (the
"FBCA") provides that a Florida corporation, such as the Registrant,
shall have the power to indemnify any person who is or was a party to
any proceeding (other than an action by, or in the right of, the
corporation), by reason of the fact that he is or was a director,
officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or
other enterprise, against liability incurred in connection with such
proceeding, including any appeal thereof, if he acted in good faith
and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the corporation and, with respect to any
criminal action of proceeding, had no reasonable cause to believe his
conduct was unlawful.
Section 607.0850(2) of the FBCA provides that a Florida
corporation shall have the power to indemnify any person who is or was
a party to any proceeding by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or
was a director, officer, employee or agent of the corporation or is or
was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses and amounts paid in
settlement not exceeding, in the judgment of the board of directors,
the estimated expense of litigating the proceeding to conclusion,
actually and reasonably incurred in connection with the defense or
settlement of such proceeding, including any appeal thereof. Such
indemnification shall be authorized if such person acted in good faith
and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the corporation, except that no indemnification
shall be made under Section 607.0850(2) in respect of any claim, issue
or matter as to which such person shall have been adjudged to be
<PAGE>
Page 27
liable unless, and only to the extent that, the court in which such
proceeding was brought, or any other court of competent jurisdiction,
shall determine upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which
such court shall deem proper.
Section 607.0850 of the FBCA further provides that, to the extent
that a director, officer, employee or agent of a corporation has been
successful on the merits or otherwise in defense of any proceeding
referred to in subsection (1) or subsection (2), or in defense of any
claim, issue or matter therein, he shall be indemnified against
expenses actually and reasonably incurred by him in connection
therewith; that indemnification provided pursuant to Section 607.0850
is not exclusive; and that the corporation may purchase and maintain
insurance on behalf of a director, officer, employee or agent of the
corporation against any liability asserted against him or incurred by
him in any such capacity or arising out of his status as such whether
or not the corporation would have the power to indemnify him against
such liabilities under Section 607.0850.
Notwithstanding the foregoing, Section 607.0850 of the FBCA
provides that indemnification of advancement of expenses shall not be
made to or on behalf of any director, officer, employee or agent if a
judgment or other final adjudication establishes that his actions, or
omissions to act, were material to the cause of action so adjudicated
and constitute: (a) a violation of the criminal law, unless the
director, officer, employee or agent had reasonable cause to believe
his conduct was lawful or had no reasonable cause to believe his
conduct was unlawful; (b) a transaction from which the director,
officer, employee or agent derived an improper personal benefit; (c)
in the case of a director, a circumstance under which the liability
provisions regarding unlawful distributions are applicable; or (d)
willful misconduct or a conscious disregard for the best interests of
the corporation in a proceeding by or in the right of the corporation
to procure a judgment in its favor or in a proceeding by or in the
right of a shareholder.
Section 607.0831 of the FBCA provides that a director of a
Florida corporation is not personally liable for monetary damages to
the corporation or any other person for any statement, vote, decision,
or failure to act, regarding corporate management or policy, by a
director, unless: (a) the director breached or failed to perform his
duties as a director, and (b) the director's breach of, or failure to
perform, those duties constitutes: (1) a violation of the criminal
law, unless the director had reasonable cause to believe his conduct
was lawful or had no reasonable cause to believe his conduct was
unlawful; (2) a transaction from which the director derived an
improper personal benefit, either directly or indirectly; (3) a
circumstance under which the liability provisions regarding unlawful
distributions are applicable; (4) in a proceeding by or in the right
of someone other than the corporation or a shareholder, recklessness
or an act or omission which was committed in bad faith or with
malicious purpose or in a manner exhibiting wanton and willful
disregard of human rights, safety or property.
<PAGE>
Page 28
Articles of Incorporation of the Registrant
The Articles of Incorporation of the Registrant (the "Articles")
provide that, to the fullest extent permitted by applicable law, as
amended from time to time, the Registrant will indemnify any person
who is or was a party or is threatened to be made a party to an
action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that such person is or was a
director, officer, employee or agent of the Registrant or serves or
served any other enterprise at the request of the Registrant. This
indemnification includes the right to advancement of expenses when
allowed pursuant to applicable law.
In addition, the Articles provide that a director of the
Registrant shall not be personally liable to the Registrant or its
shareholders for monetary damages for breach of the director's
fiduciary duty. However, the Articles do not eliminate or limit the
liability of a director for any of the following reasons: (i) a breach
of the director's duty of loyalty to the Registrant or its
shareholders; (ii) acts or omissions not in good faith or that involve
intentional misconduct or knowing violation of law; (iii) a violation
under Section 607.0834 of the FBCA (which imposes liability upon
directors for unlawful distributions); (iv) a transaction from which
the director derived an improper personal benefit; or (v) an act or
omission occurring before the effective date of the Articles.
Indemnification
The Registrant has entered into or intends to enter into
Indemnification Agreements with its directors (collectively, the
"Agreements") which provide that each director is entitled to
indemnification to the fullest extent permitted by applicable law.
Such indemnification will cover all expenses, liabilities, judgments
(including punitive and exemplary damages), penalties, fines
(including excise taxes relating to employee benefit plans and civil
penalties) and amounts paid in settlement which are incurred or
imposed upon the director if the director is a party or threatened to
be made a party to any threatened, pending or completed action, suit
or proceeding of any kind, whether civil, criminal, administrative or
investigative (including actions by or in the right of the Registrant
and any preliminary inquiry or claim by any person or authority), by
reason of the fact that the director is or was a director, officer,
employee or agent of the Registrant or is or was serving at the
Registrant's request as a director, officer, employee or agent of
another corporation (including a subsidiary), partnership, joint
venture, trust or other enterprise against liability incurred in
connection with such proceeding, including any appeal thereof
(collectively, the "Covered Matters"). Pursuant to the Agreements,
the directors are presumed to be entitled to indemnification
irrespective of whether the Covered Matter involves allegations of
intentional misconduct, alleged violations of Section 16(b) of the
Exchange Act, alleged violations of Section 10(b) of the Exchange Act
(including Rule 10b-5 thereunder), breach of the director's fiduciary
duties (including duties of loyalty or care) or any other claim.
<PAGE>
Page 29
In addition to the foregoing, the Company maintains a director
and officer liability insurance policy insuring directors and officers
of the Registrant against certain liabilities.
Item 16. Exhibits.
See the Exhibit Index included immediately preceding the Exhibits
to this Registration Statement, which is incorporated herein by
reference.
Item 17. Undertakings.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this Registration Statement (or
the most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the information
set forth in this Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the
Company pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") that are
incorporated by reference in this Registration Statement.
(2) That, for the purposes of determining any liability under
the Securities Act, each post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
<PAGE>
Page 30
The Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Exchange Act (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at the
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this Registration Statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
Company pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective; and
(2) For purposes of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
<PAGE>
Page 31
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-3
and has duly caused this Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boca Raton, State of Florida, on this 26th
day of May, 1998.
THE PANDA PROJECT, INC.
By: /S/ Stanford W. Crane, Jr.
-----------------------------
Stanford W. Crane, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment No. 1 to the Registration Statement has been
signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
- --------- ----- ----
/s/ Stanford W. Crane, Jr.
- -------------------------- Chief Executive Officer, ) May 26, 1998
Stanford W. Crane, Jr. President and Director )
(Principal Executive )
Officer) )
)
/s/ C. Daryl Hollis )
- -------------------------- Executive Vice President ) May 26, 1998
C. Daryl Hollis and Chief Financial )
Officer (Principal )
Financial and )
Accounting Officer) )
)
/s/ James T. A. Wooder )
- -------------------------- Director ) May 26, 1998
James T. A. Wooder )
)
)
/s/ Claud L. Gingrich )
- -------------------------- Director ) May 26, 1998
Claud L. Gingrich )
)
/s/ Rao R. Tummala )
- -------------------------- Director ) May 26, 1998
Rao R. Tummala )
<PAGE>
<PAGE>
Page 32
Exhibit Index
Exhibit Description of Exhibit Page
- ------- ---------------------- ----
3.1 -- Amended and Restated Articles of
Incorporation of the Company,
as amended (filed as Exhibit 3.1 to
the Company's Registration Statement
on Form S-3 filed November 3, 1997
(File No. 333-39287)) ............... *
3.2 -- Amended and Restated By-Laws of the
Company (filed as Exhibit 3.2 to the
Company's Registration Statement on
Form S-3 filed November 3, 1997
(File No. 333-39287)) .............. *
3.3 -- Fourth Articles of Amendment of Amended
Restated Articles of Incorporation (filed as
Exhibit 4.1 to the Company's Current Report
on Form 8-K filed February 23, 1998) *
3.4 -- Fifth Articles of Amendment of Amended
Restated Articles of Incorporation (filed as
Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q filed May 20, 1998) *
4.1 -- Specimen Certificate of Common Stock of
the Company (filed as Exhibit 4.1 to the
Company's Registration Statement on
Form SB-2 (File No. 33-76694-A)) *
5.1 -- Opinion of Holland & Knight +
23.1 -- Consent of Holland & Knight (included in
Exhibit 5.1) +
23.2 -- Consent of Price Waterhouse LLP
24.1 -- Power of Attorney +
- ------------------------------
* Incorporated herein by reference.
+ Previously filed.
<PAGE>
Page 33
Exhibit 23.2
Consent of Independent Certified Public Accounts
We hereby consent to the incorporation by reference in the
Prospectus constituting part of this Amendment No. 1 to the
Registration Statement of Form S-3 (No. 333-47595) of our report dated
March 10, 1998, appearing of page F-2 of The Panda Project Inc.'s
Transition Report on Form 10-K for the transition period ended
December 31, 1997. We also consent to the reference of our report on
the Financial Statement Schedule, which appears on page F-25 of such
Transition Report on Form 10-K. We also consent to the reference to
us under the heading "Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
--------------------
Price Waterhouse LLP
Fort Lauderdale, Florida
May 26, 1998
