As filed with the Securities and Exchange Commission on August 28,
1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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The Panda Project, Inc.
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(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
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(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
---------------------------------------------
Kevin J. Calhoun
Chief Financial Officer
The Panda Project, Inc.
901 Yamato Road
Boca Raton, Florida 33431
(561) 994-2300
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(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 ]
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. [ ]
---------------------------------------------
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Title of Each Maximum Maximum
Class of Amount Offering Aggregate Amount of
Securities to to be Price per Offering Registration
be Registered Registered Unit Price Fee(1)
Common Stock,
$.01 par value
per share 4,830,504(2) $.95 $4,588,979 $1,376.69
(1) Estimated solely for the purpose of calculating the registration
fee in accordance with Rule 457(c) and based upon the average of the
high and low prices for the Common Stock on August 26, 1998 reported
on the Nasdaq National Market.
(2) Includes shares of Common Stock which may be offered pursuant to
this Registration Statement consisting of (i) 2,346,626 shares of
Common Stock issued or issuable by the Company in a private placement
completed in August 1998, (ii) 2,346,626 shares of Common Stock
issuable upon exercise of Common Stock Purchase Warrants issued in
connection with the private placement, (iii) 43,252 shares in partial
payment of certain placement fees and (iv) 94,000 shares issuable upon
exercise of Common Stock Purchase Warrants in partial payment of
certain placement fees. In addition to the shares set forth in the
table, the amount to be registered includes an indeterminate number of
shares of Common Stock which may be issued as a result of stock
splits, stock dividends and anti-dilution provisions including "Fill-
Up" provisions described in the Prospectus filed as part of this
Registration Statement) in accordance with Rule 416 under the
Securities Act.
______________________________________________
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.
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 August 28, 1998
Prospectus
4,830,504 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 August 25, 1998, the closing sale price of the
Common Stock on the Nasdaq National Market was $1.28 per share.
The shares of Common Stock offered hereby represent approximately
28% of the total number of shares outstanding at August 21, 1998
assuming the exercise of all warrants included herein for
registration. 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 $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 7.
-----------------------------------
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 August 28, 1998.
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Page 5
TABLE OF CONTENTS
Page
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Available Information....................................... 6
Incorporation of Certain Documents by Reference............. 7
Risk Factors................................................ 7
Year 2000 Issues............................................ 19
Use of Proceeds............................................. 20
Selling Securityholders..................................... 20
Plan of Distribution........................................ 24
Description of Capital Stock................................ 25
Experts..................................................... 29
<PAGE>
Page 6
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 currently 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.
Information contained in the Company's Web site shall not be
deemed to be part of this Prospectus.
<PAGE>
Page 7
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 and Form 10-Q/A
for the quarter ended March 31, 1998 and the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998;
(3) The Company's Current Reports on Form 8-K filed January 14,
1998, February 23, 1998, July 30, 1998 and August 25, 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. 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
effectiveness of the Registration Statement of which this Prospectus
is a part 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.
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
<PAGE>
Page 8
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
and Technology Products, 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 $7,427,350 during the six months ended June 30, 1998,
resulting in an accumulated deficit of $70,292,903 as of June 30,
1998. Inasmuch as the Company expects to continue to incur
substantial operating expenses 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 qualification to its
audit opinion as discussed in Note 2 of Notes to Financial Statements
contained in its Form 10-K for the nine-month transition period ended
December 31, 1997.
3. Significant Capital Requirements; Certain Financing Terms;
Need For Additional Financing. The Company's capital requirements in
connection with its operations and development activities have been
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 August 21, 1998,
the Company raised capital of approximately $76.3 million (after
deduction of underwriting discounts, commissions and other selling
costs) through the sale of Common Stock, Series A-3 Convertible
<PAGE>
Page 9
Preferred Stock ("Series A Preferred"), warrants and subordinated
debentures and from the exercise of stock options and warrants.
The Company has issued 600 shares of Series A Preferred for an
aggregate purchase price of $6,000,000. The terms of the Series A
Preferred, as amended, 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
(collectively, "Nasdaq"), or failure of the Company to convert shares
of Series A Preferred as required, the Company shall pay the holders
$100,000 on the first day of each month until the Triggering Events
have been remedied. Any requirement that the Company pay such amounts
could have a material adverse impact on the Company in the event the
Triggering Event causing such payment is not remedied on a timely
basis. See "Description of Capital Stock--Series A Convertible
Preferred Stock."
The Company has outstanding loans from Helix (PEI) Inc. ("Helix")
in the aggregate principal amount of $2,000,000. Such loans bear
interest at an annual rate equal to the prime rate of interest payable
by the Royal Bank of Canada plus 2%, are secured by the Company's
intellectual property and are due and payable on February 15, 1999.
The inability of the Company to repay the Helix loans when due would
have a material adverse effect on the Company, including possible loss
of rights to its intellectual property through foreclosure, and could
cause the Company to be unable to implement its business strategy or
force the Company to otherwise significantly curtail or cease its
operations. In connection with the Helix loans, the Company has
issued to Helix warrants to purchase an aggregate of 2,850,000 shares
of Common Stock at exercise prices ranging from $1.63 to $2.125 per
share (collectively, the "Helix Warrants"). The Helix Warrants have
expiration dates ranging from December 19, 1999 to August 7, 2000.
These warrants have been valued at an aggregate of approximately
$4,324,000 and are being charged to amortization expense over the term
of the related notes (including approximately $3,031,000 that will be
amortized during the period from July 1, 1998 through February 15,
1999). This accounting treatment has no impact on the Company's cash
balance. Helix and its affiliates currently hold approximately 8.6%
of the Company's outstanding Common Stock (not including shares
issuable upon exercise of warrants). James T. A. Wooder, a director
of the Company, is a Vice President of Helix's parent, Helix
Investments (Canada), Inc.
On August 14, 1998, the Company completed an agreement for the
sale of 2,346,626 shares of its common stock in a private placement to
accredited investors with gross proceeds of approximately $3.8 million
of which all but $200,000 has been funded as of the date hereof (the
"Private Placement"). In addition to the shares of Common Stock
purchased by each investor in the Private Placement, such investor
received a warrant (the "Private Placement Warrants") to purchase an
equal number of shares of Common Stock, subject to adjustment for
stock splits and similar events, at an exercise price of $2.55 per
share. The Private Placement Warrants expire on August 13, 2003.
Issuance of shares of Common Stock pursuant to exercise of the Private
<PAGE>
Page 10
Placement Warrants is subject to approval of the Company's
shareholders. Under the terms of the Securities Purchase Agreement
relating to the Private Placement, in the event of certain decreases
in the price of the Company's Common Stock from the date of closing of
the Private Placement to the six-month and/or one-year anniversary
dates of such closing, the Company will also be required to issue
certain additional shares of Common Stock to the investors (the
"Fill-Up Shares"). Issuance of the Fill-Up Shares requires the
approval of the Company's shareholders. The Company has agreed to
seek shareholder approval prior to October 31, 1998 of issuance of
Fill-Up Shares and shares of Common Stock issuable pursuant to the
exercise of the Private Placement Warrants. See "Description of
Capital Stock--Private Placement".
In the event (i) the Common Stock is delisted or suspended from
trading on Nasdaq, (ii) the Fill-Up Shares or shares of Common Stock
issuable pursuant to the exercise of the Private Placement Warrants
are not issuable or are not listed with Nasdaq, or (iii) the Company
fails to issue the Fill-Up Shares as required, the Company shall pay
to the investors in the Private Placement $100,000 for each full 30-
day period that the condition continues.
In the event the Company's working capital, as augmented by
proceeds from the recent sale of common stock described above and 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. The Company is dependent upon the success of the efforts
discussed above to expand its marketing activities in order to obtain
additional orders for its VSPA semiconductor package and Computer
Systems, to continue efforts that may lead to the commercialization of
additional products and technologies and to finance other working
capital requirements. 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. Potential for Dilution; Registration Rights; Outstanding
Options and Warrants. As of August 21, 1998, the Company had issued
568,404 shares of Common Stock upon conversion of 115 shares of Series
A Preferred; 485 shares of Series A Preferred remain outstanding. In
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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 based on the market price of
the Common Stock as of August 21, 1998 ($1.67 per share), the
outstanding Series A Preferred would be convertible into approximately
2,958,752 shares of Common Stock. The number of shares issuable upon
conversion of Series A Preferred 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.
In connection with the Private Placement, the Company agreed that
in the event of decreases in the average closing bid price of the
Common Stock for the twenty trading days immediately preceding the
six-month and/or one-year anniversaries of the closing of the Private
Placement, the Company would, subject to shareholder approval, issue
to investors in the Private Placement a number of Fill-Up Shares which
would in effect cause the investors to have acquired the number of
shares of Common Stock which they would have purchased had the
purchase price paid by investors in the Private Placement as of the
closing date been the same as the twenty-day average closing bid price
of the Common Stock as of such anniversary dates. The number of Fill-
Up Shares to be issued could be substantial in the event of
significant decreases in the market price of the Common Stock; for
example, if the twenty-day average closing bid price of the Common
Stock as of the six-month and/or one-year anniversaries of the closing
of the Private Placement has decreased by 50% from the purchase price
paid by investors in the Private Placement ($1.63 per share), such
investors would be entitled to receive 2,346,626 Fill-Up Shares. Such
an increase in the amount of Common Stock in the public market could
reduce the market price of the Common Stock and possibly result in a
change in control of the Company.
As of August 21, 1998, the Company has reserved 7,366,738 shares
of Common Stock, including 150,000 shares subject to warrants issued
in connection with the sale of the Series A Preferred, 2,346,626
shares subject to the Private Placement Warrants and 2,850,000 shares
subject to the Helix Warrants, 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 745,100 shares of Common
Stock as of August 21, 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
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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 affect 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.
5. Compliance with Nasdaq Listing Requirements. The Common
Stock of the Company is listed on the Nasdaq National Market ("NMS")
and the Company must comply with NMS listing requirements, including
the maintenance of net tangible assets of at least $4,000,000. On
August 25, 1998, the Company announced it had received a letter from
the Nasdaq Stock Market stating that continued listing of the Common
Stock on NMS was no longer warranted. The Company has appealed this
decision and the Common Stock remains listed on NMS pending resolution
of the appeal. There can be no assurance the Company will be
successful in maintaining the listing of the Common Stock on NMS. In
the event the Company's Common Stock is delisted from NMS, the Company
plans to make application for listing on the Nasdaq SmallCap Market.
There can be no assurance the Company's Common Stock will be listed on
the Nasdaq SmallCap Market. The delisting of the Company's Common
Stock from Nasdaq may adversely affect the liquidity of the Company's
Common Stock and the ability of the Company to raise capital. In
addition, if the Company's Common Stock were no longer to be listed on
Nasdaq, and the trading price of the Common Stock were to fall below
$5.00 per share, trading in the Common Stock would be subject to the
requirements of certain rules promulgated under the exchange Act,
which impose additional sales practice requirements on broker-dealers.
For transactions covered by these rules, a broker-dealer must make a
special suitability determination of the purchaser and have received
the purchaser's written consent to the transaction prior to sale. The
additional burdens imposed upon broker-dealers by such requirements
may discourage broker-dealers from effecting transactions in the
Common Stock, which could severely limit the market liquidity of the
Common Stock and the ability of purchasers in this offering to sell
the Common Stock in the secondary market. In addition, failure of the
Common Stock to be listed on NMS or the Nasdaq SmallCap Market could
require the payment of penalties to holders of the Series A Preferred
and holders of shares of Common Stock issued in the Private Placement.
See "Description of Capital Stock".
6. 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
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Page 13
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 currently has
established a network of three 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.
7. 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
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.
8. 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
<PAGE>
Page 14
Computer Corporation, Compaq Computer Corporation, Gateway, 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.
9. Dependence On Manufacturers And Suppliers; Lack Of
Manufacturing Experience And Capability. Although the Company has
developed the ability to manufacture the VSPA semiconductor package
and has made arrangements with third-party manufacturers to produce
certain versions of the VSPA semiconductor package, there can be no
assurance that sufficient quantities of VSPA will be able to be
produced to meet demand. In the event the Company's current sources
are unable to produce VSPA in sufficient 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
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,
<PAGE>
Page 15
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.
10. 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.
11. 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 August 26, 1998, the Company had obtained 13 United
States patents and an aggregate of 39 foreign patents. In addition,
the Company had pending a total of 18 United States and 28 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
<PAGE>
Page 16
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
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
<PAGE>
Page 17
assurance that the Company will not be precluded by others from using
any of such identifications or creating proprietary rights with
respect to them.
12. 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
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
<PAGE>
Page 18
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.
13. Substantial Control By Management. As of August 21, 1998,
officers and directors of the Company own of record and beneficially
approximately 26% 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. Exercise by Helix of the Helix Warrants or
other warrants held by Helix or its affiliates would increase Helix's
percentage ownership of the Company.
14. 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.
15. 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.
16. 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,
<PAGE>
Page 19
without the prior written approval of the holders of 66 2/3% of the
Series A Preferred shares, the Company shall not (1) consolidate or
merge with another corporation or other entity or person, whereby the
shareholders of the Company own in the aggregate less than 50% of the
ultimate parent or surviving entity, (2) transfer all or substantially
all of the Company's assets to another corporation or other entity or
person, or (3) fix a record date for the declaration of a distribution
or dividend, whether payable in cash, securities or assets (other than
shares of Common Stock). 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
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".
17. 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.
18. 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 detailed 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 all phases of its
plans with regard 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.
<PAGE>
Page 20
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, except as set
forth below, 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.
The following table sets forth information concerning the
beneficial ownership of shares of Common Stock by the Selling
Securityholders as of August 25, 1998 and the number of such shares
included for sale in this Prospectus, assuming the sale of all Shares
being offered by this Prospectus. The shares offered hereby consist of
(i) 2,346,626 shares of Common Stock issued or issuable by the Company
in the Private Placement, (ii) 2,346,626 shares of Common Stock
issuable upon exercise of the Private Placement Warrants, (iii) 43,252
shares issuable in partial payment of certain placement fees in
connection with the Private Placement and (iv) 94,000 shares issuable
upon exercise of Common Stock Purchase Warrants in partial payment of
certain placement fees. In addition to the shares set forth in the
table, the amount to be registered includes an indeterminate number of
Fill-Up Shares. The Fill-Up Shares consist of shares of Common Stock
issuable in the event of certain decreases in the price of the
Company's Common Stock from the date of closing of the Private
Placement to the six-month and/or one-year anniversary dates of such
closing. The number of Fill-Up Shares to be issued will vary
depending on the twenty-day average closing bid price of the Common
Stock as of the six-month and one-year anniversary dates of the
closing of the Private Placement. For purposes of the table set forth
below, the Company has assumed that the twenty-day average closing bid
price of the Common Stock on the six-month and one-year anniversaries
of the closing of the Private Placement will be $1.625, which was the
closing bid price of the Common Stock on August 21, 1998; such a price
level would result in the issuance of an aggregate of 595,682 Fill-Up
Shares. The twenty-day average closing bid price of the Common Stock
as of such anniversary dates could be more or less than such assumed
price. 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 by virtue of
the formula for computing the number of Fill-Up Shares to be issued
and 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. Issuance of the
Fill-Up Shares and shares of Common Stock issuable upon exercise of
the Private Placement Warrants requires the approval of the Company's
shareholders. The Company has agreed to seek shareholder approval
prior to October 31, 1998 of issuance of Fill-Up Shares and shares of
Common Stock issuable pursuant to the exercise of the Private
Placement Warrants. See "Description of Capital Stock--Private
Placement" and "Risk Factors--Significant Capital Requirements;
Certain Financing Terms; Need for Additional Financing".
Pursuant to the terms of the Private Placement, the Fill-Up
shares are issuable to any holder only to the extent that the number
<PAGE>
Page 21
of shares owned by such holder and its affiliates would not exceed
4.9% of the then outstanding Common Stock of the Company (the "4.9%
Limit"), provided that this condition may be waived in the sole
discretion of the applicable Holder (except that a Holder that is
subject to the Bank Holding Company Act of 1956, as amended may not
waive this condition except to the extent permitted under such act and
the regulations thereunder),or Holder in its discretion may, by notice
to the Company, defer such Holder's receipt of such number of Common
Shares as indicated by it for a period of up to 180 days from the date
of determination that such shares are due for delivery. In the event
Fill-Up shares issuable to any holder exceeds the 4.9% Limit and such
holder does not waive the condition that limits such issuance, there
shall be no further obligation to the Company with respect to the
issuance of such Fill-Up shares in excess of the 4.9% Limit. In
addition, the terms of the Series A Preferred provide that 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 number of shares of
Common Stock of the Company. Accordingly, to the extent the number of
shares of Common Stock owned together with its affiliates by a Selling
Securityholder which holds shares of Common Stock purchased in the
Private Placement and/or holds shares of Series A Preferred exceeds
4.9% of the then outstanding Common Stock of the Company, the number
of shares of Common Stock that Selling Securityholder could
beneficially own at any given time in respect of Fill-Up shares
issuable to it or through its ownership of Series A Preferred would be
limited. In that regard, beneficial ownership of such Selling
Securityholders as set forth in the table below is not determined in
accordance with Rule 13d-3 under the Exchange Act.
Shares Owned
Prior Shares Owned
to Offering Shares After Offering
Selling ----------- Offered --------------
Securityholders Number Percentage Hereby Number Percentage
- --------------- ------ ---------- ------- ------ ----------
C.A. Delaney
Management Ltd.(1) (SUBJECT TO 1,382,728 (SUBJECT TO
BT Holdings COMPLETION) COMPLETION)
(New York), Inc. (2) 1,175,319
Sheldon Inwentash (3) 311,114
Thomas Claeys (4) 69,136
Donald L. Winton (5) 69,136
AGR Halifax Fund,
Ltd. (6) 1,037,046
Leonardo, L.P. (7) 691,364
Raphael, L.P. (8) 138,273
Ramius Fund, Ltd. (9) 207,409
Samuel R. Shipley (10) 17,000
Kevin J. Raidy (10) 34,000
Bradley J. Ackerman (10) 41,000
Carol A. Adaman (10) 2,000
Shipley Raidy
Capital Partners, LP (11) 43,252
________________________
* Less than 1%
<PAGE>
Page 22
(1) Shares owned includes 613,497 shares of Common Stock acquired in
the Private Placement, 613,497 shares of Common Stock issuable upon
exercise of Private Placement Warrants and 155,734 Fill-Up Shares.
(2) Shares owned includes 521,472 shares of Common Stock acquired in
the Private Placement, 521,472 shares of Common Stock issuable upon
exercise of Private Placement Warrants and 132,374 Fill-Up Shares.
(3) Shares owned includes 138,037 shares of Common Stock acquired in
the Private Placement, 138,037 shares of Common Stock issuable upon
exercise of Private Placement Warrants and 35,040 Fill-Up Shares.
(4) Shares owned includes 30,675 shares of Common Stock acquired in
the Private Placement, 30,675 shares of Common Stock issuable upon
exercise of Private Placement Warrants and 7,787 Fill-Up Shares.
(5) Shares owned includes 30,675 shares of Common Stock acquired in
the Private Placement, 30,675 shares of Common Stock issuable upon
exercise of Private Placement Warrants and 7,787 Fill-Up Shares.
(6) Shares owned includes 460,123 shares of Common Stock acquired in
the Private Placement, 460,123 shares of Common Stock issuable upon
exercise of Private Placement Warrants and 116,800 Fill-Up Shares.
Shares owned also includes an estimated 1,860,659 shares of Common
Stock issuable upon conversion of Series A Preferred, based upon an
assumed average closing bid price for the Common Stock for the five
days preceding conversion of $1.856; the actual shares of Common Stock
issuable upon conversion of Series A Preferred will fluctuate
according to the average closing bid price of the Common Stock for the
five days preceding conversion.
(7) Shares owned includes 306,748 shares of Common Stock acquired in
the Private Placement, 306,748 shares of Common Stock issuable upon
exercise of Private Placement Warrants and 77,867 Fill-Up Shares.
Shares owned also includes an estimated 701,560 shares of Common Stock
issuable upon conversion of Series A Preferred, based upon an assumed
average closing bid price for the Common Stock for the five days
preceding conversion of $1.856; the actual shares of Common Stock
issuable upon conversion of Series A Preferred will fluctuate
according to the average closing bid price of the Common Stock for the
five days preceding conversion.
(8) Shares owned includes 61,350 shares of Common Stock acquired in
the Private Placement, 61,350 shares of Common Stock issuable upon
exercise of Private Placement Warrants and 15,573 Fill-Up Shares.
Shares owned also includes an estimated 122,010 shares of Common Stock
issuable upon conversion of Series A Preferred, based upon an assumed
average closing bid price for the Common Stock for the five days
preceding conversion of $1.856; the actual shares of Common Stock
issuable upon conversion of Series A Preferred will fluctuate
according to the average closing bid price of the Common Stock for the
five days preceding conversion.
<PAGE>
Page 23
(9) Shares owned includes 92,025 shares of Common Stock acquired in
the Private Placement, 92,025 shares of Common Stock issuable upon
exercise of Private Placement Warrants and 23,360 Fill-Up Shares.
Shares owned also includes an estimated 91,508 shares of Common Stock
issuable upon conversion of Series A Preferred, based upon an assumed
average closing bid price for the Common Stock for the five days
preceding conversion of $1.856; the actual shares of Common Stock
issuable upon conversion of Series A Preferred will fluctuate
according to the average closing bid price of the Common Stock for the
five days preceding conversion.
(10) Shares owned includes 17,000, 34,000, 41,000 and 2,000 shares of
Common Stock respectively, issuable to Messrs. Shipley, Raidy,
Ackerman and Ms. Adaman upon exercise of warrants issued to such
individuals as partial payment of placement fees in connection with
the Private Placement. Such warrants are exercisable at a price of
$2.55 per share and expire on August 13, 2003.
(11) Shares owned includes 43,252 shares of Common Stock issued to
Shipley Raidy Capital Partners, LP as partial payment of placement
fees in connection with the Private Placement.
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
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.
<PAGE>
Page 24
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").
COMMON STOCK
As of August 21, 1998, there were 14,780,362 shares of Common
Stock outstanding and held of record by 296 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
<PAGE>
Page 25
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,
and conversion rights, 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-3 Convertible Preferred Stock
("Series A Preferred") with the rights, preferences, privileges and
terms set forth in the Company's Seventh Articles of Amendment of
Amended and Restated Articles of Incorporation ("Articles of
Amendment"). On February 11, 1998, the Company 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. As
of August 21, 1998, 115 shares of Series A Preferred had been
converted into an aggregate of 568,404 shares of Common Stock and 485
shares of Series A Preferred remained outstanding. As of August 21,
1998 there were no shares of Preferred Stock outstanding other than
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
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
<PAGE>
Page 26
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. In addition,
without the prior written approval of the holders of 66 2/3% of the
Series A Preferred shares, the Company shall not (1) consolidate or
merge with another corporation or other entity or person, whereby the
shareholders of the Company own in the aggregate less than 50% of the
ultimate parent or surviving entity, (2)transfer all or substantially
all of the Company's assets to another corporation or other entity or
person, or (3) fix a record date for the declaration of a distribution
or dividend, whether payable in cash, securities or assets (other than
shares of common stock).
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) $3.50, 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. 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.
The terms of the Series A Preferred, 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, the Company shall pay the holders $100,000 on
the first day of each month until the Triggering Events have been
remedied.
<PAGE>
Page 27
PRIVATE PLACEMENT
On August 14, 1998, the Company completed an agreement for the
sale of 2,346,626 shares of its common stock in a private placement to
accredited investors with gross proceeds of approximately $3.8 million
of which all but $200,000 has been funded as of the date hereof (the
"Private Placement"). Expenses of the Private Placement were
approximately $230,000. In addition to the shares of Common Stock
purchased by each investor in the Private Placement, such investor
received a warrant (the "Private Placement Warrants") to purchase an
equal number of shares of Common Stock, subject to adjustment for
stock splits and similar events, at an exercise price of $2.55 per
share. Upon exercise of the Private Placement Warrants, an investor
may elect to receive a reduced number of shares of Common Stock in
lieu of tendering the warrant exercise price in cash. The Private
Placement Warrants have a term of five years expiring August 13, 2003.
Issuance of shares of Common Stock pursuant to exercise of the Private
Placement Warrants requires the approval of the Company's
shareholders.
Under the terms of the Securities Purchase Agreement relating to
the Private Placement, if on either the six-month or the one-year
anniversary of the date of closing of the Private Placement (each an
"Anniversary Date"), the average closing bid price of the Common Stock
for the twenty-trading day period ending on the trading day
immediately prior to the applicable Anniversary Date is less than the
closing price ($2.0375) or the prior Anniversary Price in the event
the six-month Anniversary Price is less than the closing price,
respectively, the Company is required to issue a number of shares of
Common Stock within ten days after the Anniversary Date, equal to the
product of (i) (x) the difference between the closing price (or if the
measurement date is the one-year Anniversary Date, the six-month
Anniversary Price if the six-month Anniversary Price is less than the
closing price) and the applicable Anniversary Price, multiplied by
.85, multiplied by (y) the number of shares of Common Stock purchased
by the investors in the Private Placement and not sold or assigned to
non-affiliated third parties, divided by (ii)(x) the applicable
Anniversary Price multiplied by (y) .85. The shares issuable pursuant
to this formula are referred to in this Registration Statement as the
"Fill-Up Shares". Issuance of the Fill-up shares pursuant to these
provisions requires the approval of the Company's shareholders.
The Company has agreed to seek the necessary shareholder approval
prior to October 31, 1998 of issuance of shares of Fill-Up Shares and
common stock issuable upon exercise of the Private Placement Warrants.
In the event (i) the Common Stock is delisted or suspended from
trading on Nasdaq, (ii) the Fill-Up Shares and shares issuable upon
exercise of the Private Placement Warrants are not issuable or are not
listed with Nasdaq, or (iii) if the Company fails to issue Fill-Up
Shares as required, then the Company shall pay to the initial
investors $100,000 for each full 30-day period that the condition
continues.
The Company has agreed to file a registration statement with the
Securities and Exchange Commission to effect the registration for
resale of the Common Stock issued in the Private Placement and the
Common Stock issuable upon exercise of the Private Placement Warrants
<PAGE>
Page 28
and pursuant to the Fill-Up provisions. If the registration statement
is not declared effective by the SEC within 90 days after the closing
of the Private Placement, the Company may be liable to investors for
penalty payments for each month that such registration statement has
not been declared effective. The Company shall pay to the holders of
the common stock an amount ranging from 1% to 3% of the purchase
price paid for the common shares issued multiplied by: (i) the number
of months (prorated for partial months) after the end of such 90-day
period and prior to the date the Registration Statement is declared
effective by the SEC exclusive of certain delays which are
attributable to the holders, (ii) exclusive of Allowed Delays (as
defined), the number of months (prorated for partial months) that
sales cannot be made pursuant to the Registration Statement after the
Registration Statement has been declared effective and (iii) exclusive
of Allowed Delays the number of months (prorated for partial months)
that the Common Stock is not listed or included for quotation on the
Nasdaq, NYSE or AMEX or that trading thereon is halted after the
Registration Statement has been declared effective.
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
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.
<PAGE>
Page 29
EXPERTS
The financial statements incorporated in this Prospectus by
reference to the Transition Report on Form 10-K of The Panda Project,
Inc. as of and for the nine-month 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 PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as
experts in auditing and accounting.
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................................... $ 1,377
Legal and accounting fees and expenses................. 15,000 *
Miscellaneous.......................................... 1,751 *
---------
TOTAL $ 3,623 *
* 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
<PAGE>
Page 30
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
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; 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
<PAGE>
Page 31
law, unless the director had reasonable cause to believe his conduct
was lawful or had no reasonable cause to believe his conduct was
unlawful; (2) a transaction from which the director derived an
improper personal benefit, either directly or indirectly; (3) a
circumstance under which the liability provisions regarding unlawful
distributions are applicable; (4) in a proceeding by or in the right
of someone other than the corporation or a shareholder, recklessness
or an act or omission which was committed in bad faith or with
malicious purpose or in a manner exhibiting wanton and willful
disregard of human rights, safety or property.
Articles of Incorporation of the Registrant
The Articles of Incorporation of the Registrant (the "Articles")
provide that, to the fullest extent permitted by applicable law, as
amended from time to time, the Registrant will indemnify any person
who is or was a party or is threatened to be made a party to an
action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that such person 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
<PAGE>
Page 32
connection with such proceeding, including any appeal thereof
(collectively, the "Covered Matters"). Pursuant to the Agreements,
the directors are presumed to be entitled to indemnification
irrespective of whether the Covered Matter involves allegations of
intentional misconduct, alleged violations of Section 16(b) of the
Exchange Act, alleged violations of Section 10(b) of the Exchange Act
(including Rule 10b-5 thereunder), breach of the director's fiduciary
duties (including duties of loyalty or care) or any other claim.
In addition to the foregoing, the Company maintains a director
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
<PAGE>
Page 33
be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
The Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Exchange Act (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at the
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
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 34
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 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 27th day of August, 1998.
THE PANDA PROJECT, INC.
By: /s/ Stanford W. Crane, Jr.
-----------------------------
Stanford W. Crane, Jr.
President
POWER OF ATTORNEY
We, the undersigned officers and directors of The Panda Project,
Inc., hereby severally constitute Stanford W. Crane, Jr., Kevin J.
Calhoun and Gilbert B. Kaplan and any of them singly, are true and
lawful attorneys with full power to them, and each of them singly, to
sign for us and in our names in the capacities indicated below, the
Registration Statement on Form S-3 filed herewith and any and all
subsequent amendments to said Registration Statement (including post-
effective amendments, exhibits thereto and other documents in
connection therewith) and any subsequent registration statement filed
by the Registrant pursuant to Rule 462(b) of the Securities Act of
1933, as amended, which relates to this Registration Statement, and to
file the same, with all exhibits thereto and all documents in
connection therewith, with the Securities and Exchange Commission, and
generally to do all such things in our names and behalf in our
capacities as officers and directors to enable The Panda Project, Inc.
to comply with all requirements of the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they may
be signed by said attorneys, or any of the, to said Registration
Statement and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Stanford W. Crane, Jr.
- -------------------------- Chief Executive Officer, ) August 27, 1998
(Principal Executive )
Officer) )
)
/s/ Kevin J. Calhoun )
- -------------------------- Chief Financial ) August 27, 1998
Kevin J. Calhoun Officer (Principal )
Financial and )
Accounting Officer) )
<PAGE>
Page 35
)
/s/ James T. A. Wooder )
- -------------------------- Director ) August 27, 1998
James T. A. Wooder )
)
)
/s/ Claud L. Gingrich )
- -------------------------- Director ) August 27, 1998
Claud L. Gingrich )
)
/s/ Rao R. Tummala )
- -------------------------- Director ) August 27, 1998
Rao R. Tummala )
<PAGE>
Page 36
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 and
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 and
Restated Articles of Incorporation (filed as
Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q filed May 20, 1998) *
3.5 -- Sixth Articles of Amendment of Amended and
Restated Articles of Incorporation (filed as
Exhibit 3.2 to the Company's Quarterly
Report on Form 10-Q/A filed July 2, 1998) *
3.6 -- Seventh Articles of Amendment of Amendment
and Restated Articles of Incorporation
(filed as Exhibit 3.5 to the Company's
Quarterly Report on Form 10-Q filed
August 19, 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 LLP
23.1 -- Consent of Holland & Knight LLP (included in
Exhibit 5.1)
23.2 -- Consent of PricewaterhouseCoopers LLP
24.1 -- Power of Attorney (included on page 34)
- ------------------------------
* Incorporated herein by reference.
<PAGE>
Page 37
Exhibit 5.1
Opinion of Holland & Knight LLP
August 28, 1998
The Panda Project, Inc.
901 Yamato Road
Boca Raton, Florida 33431
RE: The Panda Project, Inc. (the "Company") - Registration Statement
on Form S-3
Ladies and Gentlemen:
You have requested our opinion in connection with the above-
referenced registration statement (the "Registration Statement") under
which certain securityholders of the Company intend to offer and sell,
from time to time, an aggregate of 4,830,504 shares of the Common
Stock, $.01 par value per share, of the Company (the "Common Stock"),
consisting of: (i) 2,389,878 shares of Common Stock (the "Shares"),
and (ii) 2,440,626 shares of Common Stock (the "Warrant Shares ")
issuable upon exercise of certain outstanding warrants (the
"Warrants").
We have reviewed copies of the Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws of the Company, and have
examined such corporate documents and records and other certificates,
and have made such investigations of law, as we have deemed necessary
in order to render the opinions hereinafter set forth.
Based upon and subject to the foregoing, we render the following
opinions:
The Shares are duly authorized, validly issued, fully paid and
nonassessable.
The Warrant Shares are duly authorized, and when and if issued in
accordance with the terms of the Warrants against payment of the
exercise price therefor, will be, assuming no change in the applicable
law or pertinent facts, validly issued, fully paid and nonassessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not hereby
admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or
the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
/s/ Holland & Knight LLP
Holland & Knight LLP
<PAGE>
Page 38
Exhibit 23.2
Consent of Independent Certified Public Accounts
We hereby consent to the incorporation by reference in the
Prospectus constituting part of this Registration Statement on Form S-
3 of our report dated March 10, 1998, appearing of page F-2 of The
Panda Project Inc.'s Transition Report on Form 10-K as of and for the
nine-month transition period ended December 31, 1997. We also consent
to the incorporation by 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/ PricewaterhouseCoopers LLP
--------------------------
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
August 26, 1998
