As filed with the Securities and Exchange Commission on April 20, 1998.
File No. 0-24030
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. ___)
Filed by the registrant |X|
Filed by a party other than the registrant | |
Check the appropriate box:
_
|_| Preliminary proxy statement
|_| Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|x| Definitive proxy statement
|_| Definitive additional materials
|_| Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
THE PANDA PROJECT, INC.
-------------------------------------------------
(Name of Registrant as Specified in Its Charter)
-------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of filing fee (Check the appropriate box):
|x| No fee required.
| | Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
----------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------
(5) Total fee paid:
----------------------------------------------------
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing.
(1) Amount previously paid:
----------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------
(3) Filing party:
----------------------------------------------------
(4) Date filed:
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<PAGE>
THE PANDA PROJECT, INC.
901 Yamato Road
Boca Raton, Florida 33431
Notice of Annual Meeting of Shareholders to be Held
on Friday, May 15, 1998
The Annual Meeting of Shareholders of The Panda Project, Inc. (the
"Company") will be held on May 15, 1998 at the Marriott Crocker Center
Hotel & Resort, 5150 Town Center Circle, Boca Raton, Florida at 10:00
a.m., local time, to consider and act upon the following matters:
1. To elect one director to serve until the 2001 Annual
Meeting.
2. To approve the continuation of the Company's 1993
Performance Incentive Plan.
3. To approve an amendment to the Company's 1995 Employee
Stock Incentive Plan increasing from 500,000 shares to
1,000,000 shares the number of shares of Common Stock of
the Company authorized for issuance under the plan and
placing a per-participant limit on the number of shares
that may be awarded under the plan in any year.
4. To ratify the selection by the Board of Directors of Price
Waterhouse LLP as the Company's independent accountants for
the current fiscal year.
5. To transact such other business as may properly come before
the meeting or any adjournment thereof.
Shareholders of record at the close of business on March 16, 1998
will be entitled to notice of and to vote at the Annual Meeting or any
adjournment thereof. The stock transfer books of the Company will remain
open following the record date.
All shareholders are cordially invited to attend the Annual Meeting.
By Order of the Board of Directors,
Stanford W. Crane, Jr.
President and Chief Executive Officer
Boca Raton, Florida
April 20, 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED
ENVELOPE IN ORDER TO ENSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE
NEED BE AFFIXED IF THE PROXY IS MAILED IN THE UNITED STATES.
THE PANDA PROJECT, INC.
901 Yamato Road
Boca Raton, Florida 33431
(561) 994-2300
----------------------
PROXY STATEMENT
----------------------
ANNUAL MEETING OF SHAREHOLDERS
May 15, 1998
This Proxy Statement has been prepared and is furnished by the Board
of Directors of The Panda Project, Inc. (the "Company") in connection
with the solicitation of proxies for the Annual Meeting of Shareholders
of the Company to be held on May 15, 1998 (the "Annual Meeting"), and at
any adjournment thereof, for the purposes set forth in the accompanying
Notice of Meeting.
It is anticipated that this Proxy Statement and the accompanying
form of proxy will be mailed to shareholders on or about April 20, 1998.
The Company's Annual Report, including audited financial statements for
the nine months ended December 31, 1997, is being mailed or delivered
concurrently with this Proxy Statement. The Annual Report is not to be
regarded as proxy soliciting material.
A copy of the Company's Transition Report on Form 10-K for the nine
months ended December 31, 1997 as filed with the Securities and Exchange
Commission, except for exhibits, will be furnished without charge to any
shareholder upon written request to The Panda Project, Inc., 901 Yamato
Road, Boca Raton, Florida 33431, Attention: Chief Financial Officer.
Exhibits will be provided upon written request and payment of an
appropriate processing fee.
Only holders of record of the Company's common stock, $.01 par value
(the "Common Stock"), on the books of the Company at the close of
business on March 16, 1998, are entitled to vote at the Annual Meeting.
On that date, there were 12,221,050 issued and outstanding shares of
Common Stock entitled to vote on each matter to be presented at the
Annual Meeting.
Shares represented by a properly executed proxy received in time to
permit its use at the Annual Meeting or any adjournment thereof will be
voted in accordance with the instructions indicated therein. If no
instructions are indicated, the shares represented by the proxy will be
voted FOR the election of the nominee for director, FOR continuation of
the Company's 1993 Performance Incentive Plan, FOR the increase in the
number of shares authorized for issuance under the 1995 Employee Stock
Incentive Plan from 500,000 shares to 1,000,000 shares and the per-
participant limit on awards under the plan described below, FOR the
ratification of the appointment of Price Waterhouse LLP as the
independent certified public accountants of the Company for the fiscal
year ending December 31, 1998, and in the discretion of the proxy holders
as to any other matter which may properly come before the Annual Meeting.
A shareholder who has given a proxy may revoke it at any time before it
is voted at the Annual Meeting by giving written notice of revocation to
the Secretary, by submitting a proxy bearing a later date, or by
attending the Annual Meeting and voting in person.
The expense of soliciting proxies will be borne by the Company.
Proxies will be solicited principally by mail, but directors, officers
and regular employees of the Company may solicit proxies personally, by
telephone or by facsimile transmission. The Company will reimburse
custodians, nominees or other persons for their out-of-pocket expenses in
sending proxy material to beneficial owners.
Abstentions and broker non-votes are counted determining the
presence of a quorum at the Annual Meeting. The Company's By-Laws
provide that the affirmative vote of a majority of the shares
represented, in person or by proxy, and entitled to vote on a matter
shall be the act of the shareholders, except as otherwise provided by
law. The current Florida Business Corporation Act (the "Act") provides
that directors are elected by a plurality of the votes cast and all other
matters are approved if the votes cast in favor of the action exceed the
votes cast against the action (unless the matter is one for which the Act
or the Company's Articles of Incorporation require a greater vote).
Therefore, under the Act, as to all matters to be voted on by
shareholders at the Annual Meeting, abstentions and broker non-votes have
no legal effect on whether a matter is approved.
You are requested, regardless of the number of shares you hold, to
sign the proxy and return it promptly in the enclosed envelope.
PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT
The table below is based on information obtained from the persons
named below with respect to the shares of Common Stock beneficially
owned, as of January 15, 1998 (except as noted below), by (i) each person
known by the Company to be the owner of more than 5% of the outstanding
shares of Common Stock, (ii) each director and nominee for director,
(iii) each executive officer included in the Summary Compensation Table
and (iv) all executive officers and directors of the Company as a group.
Amount and
Nature of Percentage
Beneficial of Outstanding
Name and Address of Beneficial Owner Ownership(1) Shares Owned(2)
- ------------------------------------ ------------ ---------------
Stanford W. Crane, Jr. (3)........... 2,448,860 20.4%
William E. Ahearn (4)................ 33,750 *
C. Daryl Hollis (5).................. 55,500 *
Melissa F. Crane (6)................. 205,860 1.7%
James T.A. Wooder (7)(8)............. 1,943,881 15.9%
Claud L. Gingrich (8)(9)............. 3,000 *
Rao R. Tummala (8)(10)............... 1,000 *
Robert Toda (11)..................... 516 *
Philippi Investments Ltd.
70 York Street
Suite 1700
Toronto, Ontario M5J1S9 (12)....... 1,922,449 14.9%
All executive officers and directors
as a group (7 persons) (13).......... 4,528,807 36.9%
- -----------------
* Less than 1%.
(1) The number of shares of Common Stock beneficially owned by each
person is determined under the rules of the Securities and Exchange
Commission, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which the individual has sole or
shared voting power or investment power and also any shares of Common
Stock which the individual has the right to acquire within 60 days after
January 15, 1998 through the exercise of any stock option or other right.
The inclusion herein of any shares of Common Stock deemed beneficially
owned does not constitute an admission of beneficial ownership of those
shares. Unless otherwise indicated, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them.
(2) The number of shares deemed outstanding includes 12,215,522
shares outstanding as of January 15, 1998 plus any shares subject to
options held by the person in question that are currently exercisable
within 60 days after January 15, 1998.
(3) Includes 205,860 shares held by Mr. Crane jointly with his wife,
of which 1,000 shares are issuable upon exercise of a warrant.
(4) Includes 28,000 shares issuable upon exercise of outstanding
stock options exercisable with 60 days after January 15, 1998.
(5) Includes 31,500 shares issuable upon exercise of outstanding
warrants and stock options exercisable within 60 days after January 15,
1998. Excludes 2,000 shares held by Mr. Hollis's wife, as to which he
disclaims beneficial ownership.
(6) Includes 205,860 shares held by Ms. Crane jointly with her
husband, of which 1,000 shares are issuable upon exercise of a warrant.
Excludes 2,283,000 shares held by Ms. Crane's husband, as to which she
disclaims beneficial ownership.
(7) Includes 1,922,449 shares deemed to be beneficially owned by
Philippi Investments Ltd. Mr. Wooder is a Vice President of Helix
Investments (Canada) Inc., the sole shareholder of Helix (PEI) Inc.,
which is the sole shareholder of Philippi Investments Ltd. Also includes
1,500 shares issuable upon exercise of outstanding stock options
exercisable within 60 days after January 15, 1998.
(8) Does not include an option to purchase 4,000 shares of Common
Stock issuable to such director at the Annual Meeting under the Company's
Nonemployee Director Stock Option Plan.
(9) Includes 1,000 shares issuable upon exercise of outstanding stock
options exercisable within 60 days after January 15, 1998.
(10) Includes 1,000 shares issuable upon exercise of outstanding stock
options exercisable within 60 days after January 15, 1998. Excludes 330
shares held by family members of Mr. Tummala, as to which he disclaims
beneficial ownership.
(11) Excludes 1,300 shares held by family members of Mr. Toda, as to
which he disclaims beneficial ownership. Mr. Toda resigned his position
with the Company in November 1997. Does not include 24,000 shares
issuable upon exercise of outstanding stock options which expired in
February 1998.
(12) Includes 654,348 shares issuable upon exercise of outstanding
warrants.
(13) See footnotes (3) through (12) above.
ELECTION OF DIRECTORS
The Company's Articles of Incorporation provide that the Board of
Directors shall consist of not less than three nor more than nine
members, the exact number of directors to be fixed by the Board of
Directors. The Board of Directors has set the number of directors at
four. The Board of Directors has three classes, each of whose members
serve for a staggered three-year term. Currently, the Board consists of
one Class I director (Claud L. Gingrich), one Class II director (Rao R.
Tummala) and two Class III directors (James T. A. Wooder and Stanford W.
Crane, Jr.). At each annual meeting of shareholders, a class of
directors is elected for a three-year term to succeed the directors of
the same class whose terms are expiring. At the Company's upcoming
annual meeting, the Class I director will be elected for a term expiring
at the 2001 Annual Meeting of Shareholders and until his successor is
duly elected and qualified, subject to his earlier death, resignation or
removal. The Board of Directors has nominated Claud L. Gingrich for
election as Class I director at the Annual Meeting.
The persons named in the accompanying form of proxy intend to vote
all valid proxies received in favor of the election of Mr. Gingrich as
Class I director unless authority is withheld.
Set forth below is certain biographical information furnished to the
Company by the director nominee. The nominee currently serves as a
director of the Company. For a summary of stock ownership information
concerning the director nominee, see "Principal Shareholders and Security
Ownership of Management". In the event the nominee is unable or
unwilling to serve, discretionary authority is reserved to the persons
named in the accompanying form of proxy to vote for a substitute nominee.
Management does not anticipate that such an event will occur. Also set
forth below is certain information concerning the Class II and Class III
directors, whose terms of office will continue after the Annual Meeting.
Nominee for Class I Director
Claud L. Gingrich, age 52, has been a director of the Company since
July 1996. Since 1985, Mr. Gingrich has been a Vice President and
partner of L.A. Motley and Company, a consulting and lobbying firm with a
practice in international trade and investment, which Mr. Gingrich co-
founded.
The Board of Directors recommends that shareholders vote "FOR"
the nominee for director.
Continuing Class II Director
Rao R. Tummala, age 55, has been a director since July 1996. Dr.
Tummala has been a member of the faculty of the Georgia Institute of
Technology serving as a Pettit Chair Professor in Electronics Packaging
and Georgia State Research Scholar since 1993. From 1969 to 1993, Dr.
Tummala was employed by International Business Machines Corporation
where, from 1984 to 1993, he was an IBM Fellow.
Continuing Class III Directors
James T.A. Wooder, age 43, has been a director of the Company since
September 1994. Since November 1993, Mr. Wooder has served as Vice
President of Helix Investments (Canada) Inc., and from December 1989 to
November 1993, Mr. Wooder served as Vice President of Citibank Canada.
Helix Investments (Canada) Inc. is sole shareholder of Helix (PEI) Inc.,
which is the sole shareholder of Philippi Investments Ltd., an owner of
more than 5% of the Company's outstanding Common Stock. Mr. Wooder is
also a director of Xinex Networks Inc., an emerging provider of
integrated multimedia platforms (voice, video and data) for the global
workplace based in Vancouver, Canada.
Stanford W. Crane, Jr., age 47, has served as President, Chief
Executive Officer and Chairman of the Board of Directors of the Company
since its inception in April 1992. Mr. Crane is married to Melissa F.
Crane.
Board and Committee Meetings
The Board of Directors of the Company held seven meetings during
1997. The Board has a standing Audit Committee and a standing
Compensation and Stock Option Committee. The Compensation and Stock
Option Committee and the Audit Committee met five times and two times
respectively, during 1997. The Company does not have a nominating
committee. During the most recent fiscal year, each director attended at
least 75% of the meetings of the Board and any committee on which such
director served.
Mr. Gingrich and Mr. Wooder comprise the Audit Committee of the
Board of Directors, the members of which make recommendations concerning
the engagement of independent public accountants, review with the
independent public accountants the results of the audit engagement,
approve professional services provided by the independent accountants,
review the independence of the independent public accountants, consider
the range of audit and non-audit fees and review the adequacy of the
Company's internal accounting controls.
Mr. Gingrich and Dr. Tummala comprise the Compensation and Stock
Option Committee of the Board of Directors, which makes recommendations
to the Board regarding the executive and employee compensation programs
of the Company and which administers the 1993 Performance Incentive Plan,
the 1995 Employee Stock Incentive Plan and the Nonemployee Director Stock
Option Plan. See "Report of Compensation and Stock Option Committee on
Executive Compensation" below.
Directors' Compensation
All directors hold office until the next annual meeting of
shareholders and the election and qualification of their successors.
Directors who are not employees and do not otherwise receive compensation
from the Company are entitled to a retainer of $2,000 per month for
serving on the Board of Directors in addition to the reimbursement of
reasonable expenses incurred at any meetings.
In addition, each outside director participates in the Company's
Nonemployee Director Stock Option Plan ("Director Plan"). Under this
plan each outside director receives an option to purchase 4,000 shares of
Common Stock at each annual meeting of shareholders of the Company. Such
options have a per share exercise price equal to the fair market value of
the Common Stock on the date of grant, vest annually in four equal
installments beginning on the first anniversary of grant and, unless
sooner terminated, expire five years from the date of grant. During
1997, Messrs. Gingrich, Tummala and Wooder each received an option to
purchase 4,000 shares of Common Stock under the Director Plan at an
exercise price of $3.81 per share. At the Annual Meeting, an additional
option to purchase 4,000 shares of Common Stock will be granted to each
of such directors.
Section 16 Reporting
Federal securities laws require the Company's directors, certain of
its officers, and persons owning beneficially more than ten percent of
the Company's Common Stock to file reports of initial ownership and
changes in ownership with Securities and Exchange Commission and the
Company is required to disclose into this Proxy Statement any failure of
the foregoing persons to file timely those reports during the year ended
December 31, 1997. To the best of the Company's knowledge, based solely
upon a review of copies of reports furnished to it and written
representations that no other reports were required, all of the Company's
directors, officers required to report, and greater than ten percent
beneficial owners made all such filings timely, except that Dr. Tummala
filed Form 4 late on one occasion.
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation. The following table sets forth the
compensation paid by the Company for services performed on the Company's
behalf during the fiscal year ended March 31, 1997 and the nine-month
transition period ended December 31, 1997 (the "Transition Period") with
respect to the Company's Chief Executive Officer and the Company's four
other most highly compensated executive officers as of December 31, 1997
(the "Named Executive Officers").
<TABLE>
SUMMARY COMPENSATION TABLE
-----------------------------------
<CAPTION>
Annual Long-Term
Fiscal Compensation Compensation All Other
Name and Principal Period Salary Bonus Options (#) Compensation
- ------------------ ------ ----------------------- ----------- ------------
Position
- --------
<S> <C> <C> <C> <C> <C>
Stanford W. Crane, Jr. Transition
President, Chief Period $112,500 $ 283<F1> - $7,200<F2>
Executive Officer and 1997 $150,000 $ 100<F1> - $7,613<F3>
Chairman of the 1996 $150,000 - - $2,344<F4>
Board 1995 $150,000 $25,000 - -
William E. Ahearn Transition
Vice President and Period $ 93,750 $ 283<F1> - $5,400<F2>
Chief Scientist 1997 $143,752 $50,100<F5> 70,000 $4,800<F2>
1996 $ 8,814 - - -
1995 - - - -
C. Daryl Hollis Transition
Executive Vice Period $ 93,750 $10,283<F6> 15,000 $7,200<F2>
President, Secretary 1997 $ 93,754 $25,100<F7> 70,000 $4,800<F2>
Treasurer and Chief 1996 - - - -
Financial Officer 1995 - - - -
Melissa F. Crane Transition
Vice President of Period $ 41,779<F8>$25,155<F9> 50,000 -
Strategic Business 1997 - - - -
1996 - - - -
1995 - - - -
Robert Toda Transition
Former Vice Period $102,843 - - $2,100<F2>
President Sales 1997 $ 85,235 $ 100<F1> - $2,400<F2>
and Marketing <F10> 1996 - - - -
1995 - - - -
<FN>
<F1> Holiday bonus.
<F2> Car allowance.
<F3> Consists of car allowance of $4,800 and Company contribution to 401(k) Plan of $2,183.
<F4> Company contribution to 401(k) Plan.
<F5> $50,000 bonus paid to Mr. Ahearn in connection with achieving certain performance
objectives and $100 holiday bonus.
<F6> $10,000 bonus paid to Mr. Hollis in connection with achieving certain performance
objectives and $283 holiday bonus.
<F7> $25,000 bonus paid to Mr. Hollis in connection with achieving certain performance
objectives and $100 holiday bonus.
<F8> Ms. Crane's employment with the Company commenced on August 13, 1997. Her current
annual salary is $125,000.
<F8> $25,000 bonus paid to Ms. Crane in connection with achieving certain performance
objectives and $155 holiday bonus.
<F10> Mr. Toda resigned his position with the Company in November 1997.
</FN>
</TABLE>
Option Grants. The following table summarizes option grants
during the Transition Period and the fiscal year ended March 31,
1997 to the Named Executive Officers:
<TABLE>
STOCK OPTION GRANTS
<CAPTION>
Potential
Realizable
Percent Value at Assumed
of Total Annual Rates of
Options Stock Price
Options Granted to Exercise Appreciation for
Fiscal Granted Employees Price Expiration Option Term (2)
Name Period (#) In Period ($/Share)(1) Date 5%($) 10%($)
- ---- ------ --- --------- ------------ ---- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Stanford W. Transition
Crane, Jr. Period - - - - - -
1997 - - - - - -
William E. Ahearn Transition
Period - - - - - -
1997 10,000<F3> 1.9% $4.75 1/10/07 $ 29,900 $ 75,700
60,000<F4> 11.5% $7.88 8/6/08 $297,600 $753,600
C. Daryl Hollis Transition
Period 5,000<F3> 2.0% $6.13 9/19/07 $ 19,300 $ 48,850
10,000<F3> 3.9% $4.38 5/8/07 $ 27,500 $ 69,800
1997 20,000<F3> 3.8% $4.75 1/10/07 $ 59,800 $151,400
50,000<F4> 9.6% $7.88 8/6/06 $248,000 $628,000
Melissa F. Crane Transition
Period 50,000<F3> 19.6% $6.13 9/19/07 $193,000 $488,500
1997 - - - - - -
Robert Toda Transition
Period - - - - - -
1997 20,000<F3> 3.8% $4.75 1/10/07 $ 59,800 $151,400
50,000<F4> 9.6% $7.88 8/6/07 $248,000 $628,000
<FN>
<F1> Equals fair market value of Common Stock on the date of grant.
<F2> Amounts represent hypothetical gains that could be achieved for the respective options if
exercised at the end of the option term. These gains are based on assumed rates of stock price
appreciation of 5% and 10% compounded annually from the date of grant to their expiration date.
Actual gains, if any, on stock option exercises will depend upon the future performance of the
Common Stock and the date on which the options are exercised.
<F3> Options to purchase 20% of shares of Common Stock are exercisable six months from the date of
grant; the remainder become exercisable in equal annual installments on the first, second,
third and fourth anniversaries of grant.
<F4> Options to purchase 20% of shares of Common Stock are exercisable as of the date of grant; the
remainder become exercisable in equal annual installments on the first, second, third and
fourth anniversaries of grant.
</FN>
</TABLE>
Option Exercises and Year-End Values. None of the Named Executive
Officers exercised any stock options during the Transition Period or the
fiscal year ended March 31, 1997. The following table summarizes the
value of options held by such persons as of December 31, 1997:
YEAR-END OPTION VALUES
Number of Unexercised Value of Unexercised
Options at December 31, 1997 In-the-Money Options
Year-End (#) December 31, 1997 ($) (1)
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
Stanford W.
Crane, Jr. - - - -
William E. Ahearn 26,000 44,000 - -
C. Daryl Hollis 26,000 59,000 $366 1,464
Melissa F. Crane - 50,000 - -
Robert Toda 24,000(2) - - -
- ------------------
(1) As of December 31, 1997, the closing sale price of the Company's
Common Stock was $4.56 per share.
(2) Mr. Toda's options expired in February 1998.
REPORT OF COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation and Stock Option Committee of the Board of Directors (the
"Committee"), which is composed of two non-employee directors. The
Committee is responsible for establishing and administering the policies
which govern both annual compensation and equity ownership programs. All
decisions by the Committee relating to the compensation of the Company's
executive officers are reviewed by the full Board of Directors. This
report is submitted by the Committee and addresses the Company's policies
for 1997 as they apply to Stanford W. Crane, Jr., the President and Chief
Executive Officer of the Company, Messrs. Ahearn and Hollis and Ms.
Crane.
Overview and Philosophy
The Company's executive compensation program is designed to promote
the following objectives:
- To provide competitive compensation that will help attract,
retain and reward highly qualified executives who contribute to
the long-term success of the Company.
- To align management's interests with the success of the Company
by placing a portion of the executive's compensation at risk in
relation to the Company's performance.
- To align management's interests with stockholders by including
long-term equity incentives.
The Committee believes that the Company's executive compensation
program provides an overall level of compensation that is competitive
within its industry and among companies of comparable size and
complexity. To ensure that compensation is competitive, the Company
regularly compares its compensation practices with those of other similar
companies and sets its compensation guidelines based on this review. The
Committee also seeks to achieve an appropriate balance of the
compensation paid to a particular individual and the compensation paid to
other executives both inside the Company and at comparable companies and
attempts to maintain an appropriate mix of salary and incentive
compensation. While compensation data are useful guides for comparative
purposes, the Company believes that a successful compensation program
also requires the application of judgment and subjective determinations
of individual performance.
Executive Compensation Program
The Company's executive compensation program consists of base
salary, periodic incentive compensation and long-term equity incentives
in the form of stock options. Executive officers also are eligible to
participate in certain benefit programs which are generally available to
all employees of the Company, such as medical and 401(k) savings plans.
Base Salary
At the beginning of each fiscal year, the Committee establishes an
annual salary plan for the Company's senior executive officers based on
recommendations made by the Company's Chief Executive Officer. The
Committee attempts to set base salary compensation within its perceived
range of salaries of executive officers with comparable qualifications,
experience and responsibilities at other companies in the same or similar
businesses and of comparable size and success. Because of the Company's
limited operating history, the Committee has not previously reviewed
compensation for comparable positions by reviewing published compensation
data as part of its efforts to set the annual cash compensation for
Company executives. Instead, the Committee has attempted to base salary
determinations both upon the Company's financial performance and upon the
individual's performance as measured by certain subjective non-financial
objectives. These non-financial objectives include the individual's
contribution to the Company as a whole, including his or her ability to
motivate others, develop the skills necessary to grow as the Company
matures, recognize and pursue new business opportunities and initiate
programs to enhance the Company's growth and success.
Annual and Long-Term Incentive Compensation
The Company has no formal bonus program for its key employees,
although the Committee may consider adopting such a program during the
current fiscal year. Occasionally, bonus payments may be made to key
employees based on the achievement of agreed upon performance objectives
or as a part of the recruitment process. During the fiscal year ended
March 31, 1997, a bonus of $50,000 was awarded to Mr. Ahearn and a bonus
of $25,000 was awarded to Mr. Hollis based upon their respective
achievement of agreed upon performance objectives. During the Transition
Period, a bonus of $10,000 was awarded to Mr. Hollis and a bonus of
$25,000 was awarded to Ms. Crane based upon their respective achievement
of agreed upon performance objectives.
The Company's stock option plans are designed to promote the
identity of long-term interests between the Company's employees and its
shareholders and to assist in the retention of executives. The size of
option grants is generally intended by the Committee to reflect the
executive's position with the Company and his or her contributions to the
Company. Stock options generally vest over a four-year period in order
to encourage key employees to continue in the employ of the Company.
Stock options are granted at an option price equal to the fair market
value of the Company's Common Stock on the date of grant; however, the
Company reserves the right to grant stock options having exercise prices
less than the fair market value of the Common Stock on the date of grant,
to modify the terms of existing options and to reprice the options as an
incentive for employees to remain with the Company.
Benefits
The Company's executive officers are entitled to receive medical and
life insurance benefits and to participate in the Company's 401(k)
Retirement Savings Plan on the same basis as other full-time employees of
the Company.
The amount of perquisites, as determined in accordance with the
rules of the Securities Exchange Commission relating to executive
compensation, did not exceed 10% of salary and bonus for 1997 for any of
the Named Executive Officers.
Summary of Compensation of Chief Executive Officer
For the fiscal year ended March 31, 1997, Mr. Crane, the Company's
President and Chief Executive Officer, received a salary of $150,000 and
a holiday bonus of $100. For the Transition Period, Mr. Crane received a
salary of $112,500 and a holiday bonus of $283. The amount of Mr.
Crane's base salary and provisions for bonus payments to him are included
in an employment agreement between the Company and him. See "Employment
Agreements".
Compliance with Internal Revenue Code Section 162(m)
The Company does not believe Section 162(m) of the Internal Revenue
Code, which disallows a tax deduction for certain compensation in excess
of $1 million, will generally have an effect on the Company. The
Compensation Committee intends to review the potential effect of Section
162(m) periodically and in the future may decide to structure the
performance-based portion of its executive officer compensation to comply
with Section 162(m). The Compensation Committee has approved the per-
participant limitations included in the Company's 1993 Performance
Incentive Plan and proposed to be included in the Company's 1995 Employee
Stock Incentive Plan as a means of preserving flexibility in structuring
executive officer compensation.
COMPENSATION AND STOCK OPTION COMMITTEE
Claud L. Gingrich
Rao R. Tummala
Comparative Stock Performance
The graph below compares cumulative total stockholder return on the
Company's Common Stock during the period from May 17, 1994 (the date on
which the Company's Common Stock was first registered under the
Securities Exchange Act of 1934) through December 31, 1997 with the
cumulative total return over the same period of (i) the Nasdaq Computer
Index and (ii) a peer group of publicly-traded companies selected by the
Company for purposes of this comparison (the "Peer Group"). This graph
assumes the investment of $100 at the close of trading on May 17, 1994 in
the Company's Common Stock, the Nasdaq Computer Index and the Peer Group
and assumes reinvestment of dividends. Measurement points are May 17,
1994, March 31, 1996, March 31, 1996, March 31, 1997 and December 31,
1997.
COMPARATIVE STOCKHOLDER RETURNS
The Panda Project, Inc., Nasdaq Computer Index and Peer Group*
(Performance results from 5/17/94 through 12/31/97)
* The Peer Group includes the following companies: Adaptec, Inc.
(ADPT), Auspex Systems, Inc. (ASPX), LSI Logic Corporation (LSI),
National Semiconductor Corporation (NSM) and VLSI Technology (VLSI). The
stockholder returns of each such company have been weighted to reflect
relative stock market capitalization.
Compensation and Stock Option Committee Interlocks and Insider
Participation
The members of the Compensation and Stock Option Committee are Rao
R. Tummala and Claud L. Gingrich. No member of the Compensation and
Stock Option Committee was at any time during the Transition Period,
fiscal year 1997, or formerly, an officer or employee of the Company or
any subsidiary of the Company.
Employment Agreements
Mr. Crane entered into an employment agreement with the Company on
November 8, 1993, as amended and restated on February 22, 1994, which
expires on January 1, 1999 (subject to certain termination provisions).
Under this agreement Mr. Crane receives an annual base salary of
$150,000. Mr. Crane is also eligible to receive discretionary bonuses as
determined by the Board of Directors. Furthermore, the agreement
provides that Mr. Crane is entitled to participate in any medical, stock
option and benefit plans that the Company may establish.
Mr. Crane's employment is terminable at will by Mr. Crane upon six
months' prior notice, and is terminable by the Company for cause at any
time or in the event that Mr. Crane becomes disabled and, as a result, is
unable to perform his obligations under the agreement for three
consecutive months. In the event that the agreement is terminated other
than as a result of Mr. Crane's death or disability or for cause, Mr.
Crane will be entitled to receive an amount equal to the greater of
$150,000 or his annual compensation for the preceding calendar year. In
addition, Mr. Crane has agreed not to compete with the Company for a
period of two years after the termination of his employment provided he
receives payments during that period equal to twice the greater of
$150,000 or his salary at the time of such termination, calculated on an
annualized basis.
Mr. Crane has assigned to the Company all improvements or related
discoveries or inventions developed or conceived by him during the term
of the agreement and the two-year non-competition period which (i) relate
to the technology assigned by Mr. Crane to the Company pursuant to the
assignment by Mr. Crane in November 1993 of all of his rights to certain
prefabricated semiconductor packaging, printed circuit board technology
and computer technologies and products, including VSPA, Compass PGA, Well
Tech printed circuit board technology and Archistrat 4 Computers, as well
as certain other products and technology being developed by him on behalf
of the Company, and all related proprietary information (the "Crane
Assignment"), or (ii) would enable the development of replacements for
the products developed by the Company. See "Certain Relationships and
Related Transactions."
Mr. Crane's employment agreement also provides that he may develop
products or technologies ("Unrelated Investigations") unrelated to the
Company's technology and proposed products provided that the cost to the
Company of such Unrelated Investigations is not significant in the
reasonable judgment of the Company's Board of Directors. Mr. Crane has
agreed to disclose the results of any Unrelated Investigations to the
Company and negotiate in good faith the terms pursuant to which the
Company may participate in any such products or technology. If no
agreement is reached, Mr. Crane may independently commercialize such
products or technology, but will pay the Company a 5% royalty on any
sales, licensing fees or other remuneration he receives with respect to
Unrelated Investigations.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Upon the formation of the Company in April 1992, the Company issued
2,283,000 shares of Common Stock to Mr. Crane in connection with Mr.
Crane's agreement to assign and license to the Company certain technology
and products. Such license agreement (the "Crane-Panda License") was
amended in January 1996.
Under the Crane-Panda License, Mr. Crane has granted the Company the
nonexclusive right to utilize the Compass Connector, a key component in
the commercialization of the Company's Archistrat Computers and the
development and commercialization of the Compass PGA product. The Crane-
Panda License was executed in connection with the conversion to a
nonexclusive license of the 3M License described below. Under the Crane-
Panda License, the Company is required to pay Mr. Crane a royalty on any
sales of Compass Connectors as discrete parts in the amount of 5% of the
net sales price for the first five years of the term of the agreement,
2.5% of the net sales price for the next five years of the term of the
agreement and 2% of the net sales price thereafter, provided that no
royalty is payable until aggregate net sales of the Compass Connector as
discrete parts exceed $100,000. The royalty rate will be reduced after
the fifth anniversary of the agreement if no patent remains in effect
with respect to the Compass Connector. No royalty is payable on sales of
the Compass Connector as incorporated in the Archistrat Computers or
other computer system or assembly. The Company may grant sublicenses
under the Crane-Panda License, but only for the use of products as
incorporated in the Archistrat Computers or other computer system or
assembly. To date, there have been no sales requiring the payment of
royalties to Mr. Crane under the Crane-Panda License. The Crane-Panda
License obligates the Company to maintain proprietary information
relating to the Compass Connector on a confidential basis, notify Mr.
Crane of any evidence of infringement with respect to the Compass
Connector and related technology, and cooperate with Mr. Crane to contest
any such infringement. In the event that the Company becomes bankrupt or
insolvent or defaults in any of its material obligations under the
Crane-Panda License and fails to cure any such defaults within specified
cure periods, Mr. Crane may terminate the Crane-Panda License. The
Company is substantially dependent upon the Crane-Panda License. The
termination of the agreement under any circumstances would have a
material adverse effect on the Company. There can be no assurance that
conflicts of interest will not arise with respect to the Crane-Panda
License or that such conflicts will be resolved in a manner favorable to
the Company. In addition, Mr. Crane retains ownership of the Compass
Connector technology, and has the right to grant licenses to or otherwise
transfer rights to the Compass Connector technology to third parties.
In September 1992, Mr. Crane granted an exclusive license (the "3M
License") to Minnesota Mining and Manufacturing Co. ("3M") to develop,
manufacture, use and sell the Compass Connector other than as part of a
computer system. In February 1996, Mr. Crane and 3M agreed to convert
the 3M License to a nonexclusive license. Pursuant to the 3M License,
Mr. Crane is entitled to receive from 3M, in general, a 5% royalty
(decreasing to 2.5% after five years, and to 2% after ten years) on net
sales of the Compass Connector (including sales to the Company). The 3M
License provides in certain circumstances for the payment of a royalty to
Mr. Crane. As of April 20, 1998, Mr. Crane had received no such
payments.
In October 1993, the Company settled litigation with Jack R. Moore
and Gary Marvel, former officers and promoters of the Company. In
connection with the settlement, the former officers, or their designees,
received 197,860 shares of the Company's Common Stock which were being
held by an escrow agent (the "Escrowed Shares") subject to the Company's
or its assignee's right to repurchase them. In February 1994, the
Company's rights to purchase the Escrowed Shares were assigned to Mr.
Crane in connection with his employment agreement. In March 1996, Mr.
Crane purchased the Escrowed Shares for an aggregate purchase price of
$312,000.
In July 1996, Mr. Crane purchased 1,000 shares of Common Stock from
the Company at a purchase price of $9.00 per share in connection with a
private placement financing and warrants to purchase 1,000 shares of
Common Stock in connection with such purchase having a term of five years
and an exercise price of $11.00 per share.
In October 1996, the Company and Mr. Crane entered into a license
agreement with LG Cable & Machinery Ltd. ("LG") whereby LG was granted a
license with respect to Compass Connector technology owned by Mr. Crane
and certain enhanced Compass Connector technology owned by the Company.
The license granted to LG is non-exclusive except for certain limited
exclusive manufacturing rights with respect to specified Asian countries.
The $1 million license fee will be split equally between Mr. Crane and
the Company. In addition, the Company and Mr. Crane are entitled to
receive royalties on sales of the Compass Connector products by LG or its
affiliates, which will be split equally between Mr. Crane and the
Company. As of April 20, 1998, Mr. Crane had received an aggregate of
$200,000 in payments under this Agreement.
In July 1995, Helix (PEI) Inc., a holder of more than 10% of the
Company's outstanding Common Stock and an affiliate of Mr. Wooder,
purchased 54,348 Units from the Company at a purchase price of $73.60 per
Unit in connection with a private placement financing, resulting in the
issuance to Helix (PEI) Inc. of 163,044 shares of Common Stock and
warrants to purchase 54,348 shares of Common Stock for aggregate
consideration of approximately $4.0 million.
In July 1996, Helix (PEI) Inc. purchased 200,000 shares of Common
Stock from the Company at a purchase price of $9.00 per share in
connection with a private placement financing and warrants to purchase
200,000 shares of Common Stock in connection with such purchase having a
term of five years and an exercise price of $11.00 per share.
In December 1997 and January 1998, the Company received loans from
Helix (PEI) Inc. in the aggregate amount of $2 million dollars. In
connection with these loans, the Company also issued Helix warrants
having a term of two years entitling Helix to purchase an aggregate of
400,000 shares of Common Stock at exercise prices ranging from $4.00 to
$4.50 per share. The outstanding principal of these loans was repaid to
Helix in full on February 28, 1998. Interest aggregating $33,945 was
paid in February and March 1998.
In August 1997, the Company hired Melissa Crane, wife of Stanford W.
Crane, Jr., as Director of Strategic Business at an annual salary of
$100,000 per year. In September 1997, Ms. Crane was granted an option to
purchase 50,000 shares of Common Stock at an exercise price of $6.13 per
share. In November 1997, the Board of Directors elected Ms. Crane Vice
President of Strategic Business and authorized an increase in her annual
salary to $125,000 per year. See "Executive Compensation".
With respect to each transaction between the Company and an
affiliate of the Company, a majority of the disinterested members of the
Board of Directors determined that such transactions were on terms at
least as fair as had they been consummated with unrelated third parties.
CONTINUATION OF 1993 PERFORMANCE INCENTIVE PLAN
On December 29, 1993, the Company's Board of Directors adopted and
its shareholders subsequently approved the 1993 Performance Incentive
Plan (the "1993 Incentive Plan"), pursuant to which officers and key
employees of the Company may be granted stock options, stock appreciation
rights and shares of restricted stock. The 1993 Incentive Plan provides
that, at any given time, the maximum number of shares of Common Stock
with respect to which stock options or stock appreciation rights may be
granted or which may be issued pursuant to restricted stock awards will
equal the greater of 5% of the number of shares of Common Stock that were
outstanding in the immediately preceding fiscal year of the Company or
250,000 shares; however, the maximum number of shares issuable pursuant
to the 1993 Incentive Plan will be increased by the number of shares with
respect to which rights previously granted had expired unexercised. As
of February 28, 1998 there were 327,350 shares of Common Stock available
for grant under the 1993 Incentive Plan.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), enacted in 1993, generally disallows a tax deduction to public
companies for compensation in excess of $1 million in any year paid to
the Company's chief executive officer and four other most highly
compensated executive officers. Qualifying performance-based
compensation is not subject to the deduction limit if certain
requirements are met. In particular, income recognized upon the exercise
of a stock option generally is not subject to the deduction limit if the
option was issued under a plan approved by shareholders that provides a
limit to the number of shares that may be issued under the plan to any
individual.
Options granted under the 1993 Incentive Plan to date comply with
Section 162(m) pursuant to a transition rule that temporarily exempts
plans adopted while a company is privately held. To remain in
compliance, the 1993 Incentive Plan must be approved by the Company's
public shareholders no later than the first meeting of shareholders at
which directors are to be elected that occurs after the expiration of
three calendar years following the year in which the Company's initial
public offering was completed. Accordingly, on April 6, 1998, the Board
of Directors voted to present the 1993 Incentive Plan, which includes a
per participant limit in compliance with Section 162(m), to the
shareholders for ratification. The 1993 Incentive Plan provides that the
maximum number of shares of Common Stock with respect to which options
and other stock-based awards may be granted to any participant in a
three-year period shall be 100,000 shares. If the shareholders do not
approve the continuation of the 1993 Incentive Plan, the Company will no
longer grant awards under such plan.
The Compensation and Stock Option Committee (the "Committee")
administers the 1993 Incentive Plan and determines the price and other
terms upon which awards will be made. Stock options may be granted
either in the form of incentive stock options or non-statutory stock
options. The option exercise price of incentive stock options and
options intended to qualify as qualified performance-based compensation
under Section 162(m) of the Code may not be less than the fair market
value of the Common Stock as of the date of grant. While the Company
currently anticipates that most grants under the 1993 Incentive Plan will
consist of stock options, the Company may grant stock appreciation
rights, which represent rights to receive any excess in value of shares
of Common Stock over the exercise price, or restricted stock awards,
which entitle recipients to acquire shares of Common Stock, subject to
the right of the Company to repurchase all or part of such shares at
their purchase price in the event the conditions specified in the awards
are not satisfied. As of February 28, 1998, options to purchase an
aggregate of 327,350 shares of Common Stock at exercise prices ranging
from $2.75 to $14.25 per share were outstanding under the 1993 Incentive
Plan. As awards under the 1993 Incentive Plan are discretionary, the
Company cannot now determine the number of awards to be received by the
Company's named executive officers, by current executive officers as a
group, by non-employee directors as a group or by all non-executive
officers as a group. The number of such awards shall be determined by
the Committee pursuant to the terms of the 1993 Incentive Plan.
Payment of the exercise price for options issued under the 1993
Incentive Plan may be made in full in cash or, with the consent of the
Committee, in Common Stock or by a promissory note payable to the order
of the Company. Such payment may also, with the consent of the
Committee, consist of a cash down payment and delivery of a promissory
note in the amount of the unpaid exercised price. Such payment may also
be made in such other manner the Committee determines is appropriate.
The stock options and stock appreciation rights granted under the
1993 Incentive Plan shall not be transferable other than by will or the
by the laws of descent and distribution. If not sooner terminated, each
stock option and stock appreciation right granted under the 1993
Incentive Plan shall expire not more than ten years from the date of
grant; provided, that incentive stock options granted to optionees who
own more than 10% of the total combined voting stock of the Company shall
expire not more than five years after the date of grant.
The 1993 Incentive Plan may be terminated at any time by the Board
of Directors. Unless sooner terminated, the Plan shall terminate on
December 29, 2003. The Board of Directors shall have the right with or
without approval of the shareholders of the Company, to amend or revise
the terms of the 1993 Incentive Plan at any time, provided that no such
amendment or revision shall (i) increase the maximum number of shares in
the aggregate which are subject to the plan (except in connection with
stock splits or similar events), change the class of persons eligible to
be participants under the plan, materially increase the benefits accruing
to participants under the plan or change the maximum number of shares
subject to stock options, stock appreciation rights and restricted stock
that may be issued to any participant during the three-year period
described above without approval or ratification by the shareholders of
the Company or (ii) change the stock option price (except in connection
with stock splits or similar events) or alter or impair any stock option,
stock appreciation right or restricted stock which shall have been
previously granted or awarded under the plan, without the consent of the
holder.
The Board believes that the success of the Company depends, in large
part, upon its ability to remain competitive in attracting, retaining and
motivating key personnel. Accordingly, the Board recommends that
shareholders vote "FOR" continuation of the 1993 Incentive Plan.
AMENDMENT OF 1995 EMPLOYEE STOCK INCENTIVE PLAN
On November 2, 1995, the Company's Board of Directors adopted the
1995 Employee Stock Incentive Plan (the "1995 Incentive Plan"), pursuant
to which officers and key employees of the Company may be granted stock
options, stock appreciation rights and shares of restricted stock. The
1995 Incentive Plan was approved by the shareholders on August 16, 1996.
Currently 500,000 shares of Common Stock are authorized for issuance
under the 1995 Incentive Plan. As of February 28, 1998, options to
purchase 330,500 shares of Common Stock were outstanding under the 1995
Incentive Plan. Accordingly, on April 6, 1998, the Board of Directors
voted, subject to shareholder approval, to amend the 1995 Incentive Plan
to authorize the issuance of up to 1,000,000 shares of Common Stock under
the plan.
The 1995 Incentive Plan does not currently contain a per-participant
limit on awards under the plan. Consequently, pursuant to Section 162(m)
of the Code, income in excess of $1 million recognized in any year by the
Company's chief executive officer or four other most highly compensated
executive officers upon exercise of an option or other award issued under
the plan is not deductible by the Company for federal income tax
purposes. See "Continuation of 1993 Performance Incentive Plan" above.
In connection with the increase described above in the number of shares
of Common Stock authorized for issuance under the 1995 Incentive Plan,
the Board of Directors voted, subject to shareholder approval, to amend
the plan to include a per-participant limit on awards so as to permit
deductibility of such income with respect to option shares in excess of
the 500,000 shares of Common Stock currently authorized for issuance. As
amended, the 1995 Incentive Plan thus provides that with respect to the
additional 500,000 shares of Common Stock for which authorization is
being sought at the Annual Meeting, the maximum number of shares of
Common Stock with respect to which future options and stock-based awards
may be granted to any participant in the plan in any calendar year shall
be 200,000 shares.
The Committee administers the 1995 Incentive Plan and determines the
price and other terms upon which awards will be made. Stock options may
be granted either in the form of incentive stock options or non-statutory
stock options. The option exercise price of incentive stock options and
options intended to qualify as performance-based compensation under
Section 162(m) of the Code may not be less than the fair market value of
the Common Stock as of the date of grant. While the Company currently
anticipates that most grants under the 1995 Incentive Plan will consist
of stock options, the Company may grant stock appreciation rights, which
represent rights to receive any excess in value of shares of Common Stock
over the exercise price, or restricted stock awards, which entitle
recipients to acquire shares of Common Stock, subject to the right of the
Company to repurchase all or part of such shares at their purchase price
in the event the conditions specified in the awards are not satisfied.
As of February 28, 1998, options to purchase an aggregate of 330,500
shares of Common Stock at exercise prices ranging from $4.75 to $44.25
per share were outstanding under the 1995 Incentive Plan. As awards
under the 1995 Incentive Plan are discretionary, the Company cannot now
determine the number of awards to be received by the Company's named
executive officers, by current executive officers as a group, by non-
employee directors as a group or by all non-executive officers as a
group. The number of such awards shall be determined by the Committee
pursuant to the terms of the 1995 Incentive Plan.
Payment of the exercise price for options issued under the 1995
Incentive Plan may be made in full in cash or, with the consent of the
Committee, in Common Stock or by a promissory note payable to the order
of the Company. Such payment may also, with the consent of the
Committee, consist of a cash down payment and delivery of a promissory
note in the amount of the unpaid exercised price. Such payment may also
be made in such other manner the Committee determines is appropriate.
The stock options and stock appreciation rights granted under the
1995 Incentive Plan shall not be transferable other than by will or the
by the laws of descent and distribution. If not sooner terminated, each
stock option and stock appreciation right granted under the 1995
Incentive Plan shall expire not more than 10 years from the date of
grant; provided, that incentive stock options granted to optionees who
own more than 10% of the total combined voting stock of the Company shall
expire not more than five years after the date of grant.
The 1995 Incentive Plan may be terminated at any time by Board of
Directors. Unless sooner terminated, the Plan shall terminate on
November 2, 2005. The Board of Directors shall have the right with or
without approval of the shareholders of the Company, to amend or revise
the terms of the 1995 Incentive Plan at any time, provided that no such
amendment or revision shall (i) increase the maximum number of shares in
the aggregate which are subject to the Plan (except in connection with
stock splits or similar events), (ii) change the class of persons
eligible to be participants under the plan, or (iii) or alter or impair
any stock option, stock appreciation right or restrictive stock which
shall have been previously granted or awarded under the plan without the
consent of the holder.
The Board believes that the success of the Company depends, in large
part, upon its ability to remain competitive in attracting, retaining and
motivating key personnel. Accordingly, the Board recommends that
shareholders vote "FOR" the increase in the numbers of shares authorized
for issuance under the 1995 Incentive Plan.
Federal Income Tax Consequences of Stock Plans
The following is a summary of the U.S. federal income tax
consequences that generally will arise with respect to awards granted
under the 1993 Incentive Plan and 1995 Incentive Plan (the "Plans") and
with respect to the sale of Common Stock acquired under the Plans.
Incentive Stock Options
In general, a participant will not recognize regular taxable income
upon the grant or exercise of an incentive stock option. Instead, a
participant will recognize taxable income with respect to an incentive
stock option only upon the sale of Common Stock acquired through the
exercise of the option ("ISO Stock"). The exercise of an incentive stock
option may, however, subject the participant to the alternative minimum
tax.
Generally, the tax consequences of selling ISO Stock will vary with
the length of time that the participant has owned the ISO Stock at the
time it is sold. If the participant sells ISO Stock after having owned
it for at least two years from the date the option was granted (the
"Grant Date") and one year from the date the option was exercised (the
"Exercise Date"), then the participant will recognize long-term capital
gain in an amount equal to the excess of the sale price of the ISO Stock
over the exercise price.
If the participant sells ISO stock for more than the exercise price
prior to having owned it for at least two years from the Grant Date and
one year from the Exercise Date (a "Disqualifying Disposition"), then all
or a portion of the gain recognized by the participant will be ordinary
compensation income and the remaining gain, if any, will be a capital
gain. This capital gain will be a long-term capital gain if the
participant has held the ISO Stock for more than one year prior to the
date of sale.
If a participant sells ISO Stock for less than the exercise price,
then the participant will recognize a capital loss equal to the excess of
the exercise price over the sale price of the ISO Stock. This capital
loss will be a long-term capital loss if the participant has held the ISO
Stock for more than one year prior to the date of sale.
Nonstatutory Stock Options
As in the case of an incentive stock option, a participant will not
recognize taxable income upon the grant of a nonstatutory stock option.
Unlike the case of an incentive stock option, however, a participant who
exercises a nonstatutory stock option generally will recognize ordinary
compensation income in an amount equal to the excess of the fair market
value of the Common Stock acquired through the exercise of the option
("NSO Stock") on the Exercise Date over the exercise price.
With respect to any NSO Stock, a participant will have a tax basis
equal to the exercise price plus any income recognized upon the exercise
of the option. Upon selling NSO Stock, a participant generally will
recognize capital gain or loss in an amount equal to the excess of the
sale price of the NSO Stock over the participant's tax basis in the NSO
Stock. This capital gain or loss will be a long-term gain or loss if the
participant has held the NSO Stock for more than one year prior to the
date of the sale.
Stock Appreciation Rights
A participant will not recognize taxable income upon the grant of a
stock appreciation right. Instead, a participant generally will recognize
as ordinary compensation income any cash delivered and the fair market
value of any Common Stock delivered in payment of an amount due under a
stock appreciation right.
Upon selling any Common Stock received by a participant in payment
of an amount due under a stock appreciation right, the participant
generally will recognize a capital gain or loss in an amount equal to the
difference between the sale price of the Common Stock and the
participant's tax basis in the Common Stock. This capital gain or loss
will be long-term or loss if the participant has held the Common Stock
for more than one year prior to the date of sale.
Restricted Stock
A participant will not recognize taxable income upon the grant of a
restricted stock award, unless the participant makes an election under
Section 83(b) of the Code (a "Section 83(b) Election"). If the
participant makes a Section 83(b) Election within 30 days of the date of
the grant, then the participant will recognize ordinary compensation
income, for the year in which the award is granted, in an amount equal to
the difference between the fair market value of the Common Stock at the
time the award is granted and the purchase price paid for the Common
Stock. If a Section 83(b) Election is not made, then the participant
will recognize ordinary compensation income, at the time that the
forfeiture provisions or restrictions on transfer lapse, in an amount
equal to the difference between the fair market value of the Common Stock
at the time of such lapse and the original purchase price paid for the
Common Stock. The participant will have a tax basis in the Common Stock
acquired equal to the sum of the price paid and the amount of ordinary
compensation income recognized.
Upon the disposition of the Common Stock acquired pursuant to a
restricted stock award, the participant will recognize a capital gain or
loss equal to the difference between the sale price of the Common Stock
and the participant's tax basis in the Common Stock. The gain or loss
will be a long-term gain or loss if the shares are held for more than one
year. For this purpose, the holding period shall begin just after the
date on which the forfeiture provisions or restrictions lapse if a
Section 83(b) Election is not made, or just after the award is granted if
a Section 83(b) Election is made.
Tax Consequences to the Company
The grant of an award under the Plans will have no tax consequences
to the Company. Moreover, in general, neither the exercise of an
incentive stock option nor the sale of any Common Stock acquired under
the Plans will have any tax consequences to the Company. The Company
generally will be entitled to a business-expense deduction, however, with
respect to any ordinary compensation income recognized by a participant
under the Plan, including as a result of the exercise of a nonstatutory
stock option, a Disqualifying Disposition, or a Section 83(b) Election.
Any such deduction will be subject to the limitation of Section 162(m) of
the Code.
RATIFICATION OF APPOINTMENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has appointed the firm of Price Waterhouse
LLP to continue as independent certified public accountants for the
Company for the fiscal year ending December 31, 1998. Price Waterhouse
LLP has been acting as independent certified public accountants of the
Company since 1993. Unless otherwise indicated, properly executed
proxies will be voted for the ratification of the appointment of Price
Waterhouse LLP, independent certified public accountants, to audit the
books and accounts of the Company for the fiscal year ending December 31,
1998.
Representatives of Price Waterhouse LLP are expected to be present
at the Annual Meeting, will be given an opportunity to make a statement
if they desire to do so, and will also be available to respond to
appropriate questions from shareholders.
The Board recommends that shareholders vote "FOR" the ratification
of the appointment of Price Waterhouse LLP as independent public
accountants for the Company for the fiscal year ending December 31, 1998.
SHAREHOLDER PROPOSALS
Shareholder proposals which are to be considered for inclusion in
the proxy materials of the Company for its 1999 Annual Meeting of
Shareholders must be received by the Company by December 16, 1998.
ADDITIONAL INFORMATION
The Board of Directors is not aware of any matters to be presented
at the meeting other than the matters described herein and does not
intend to bring any other matters before the meeting. However, if any
other matters should come before the meeting, or any adjournment thereof,
the persons named in the enclosed proxy will have discretionary authority
to vote all proxies in accordance with their best judgment.
Kindly date, sign and return the enclosed proxy card.
By Order of the Board of Directors
STANFORD W. CRANE, JR.
President and Chief Executive Officer
April 20, 1998
<PAGE>
PROXY THE PANDA PROJECT, INC. PROXY
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 15, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE
COMPANY
The undersigned, revoking all prior proxies, hereby appoint(s)
Stanford W. Crane, Jr. and C. Daryl Hollis, and each of them, with full
power of substitution, as proxies to represent and vote, as designated
herein, all shares of stock of The Panda Project, Inc. (the "Company")
which the undersigned would be entitled to vote if personally present at
the Annual Meeting of Shareholders of the Company to be held at the
Marriott Crocker Center Hotel & Resort, 5150 Town Center Circle, Boca
Raton, Florida on Tuesday, May 15, 1998, at 10:00 a.m., local time, and
at any adjournment thereof (the "Meeting").
In their discretion, the proxies are authorized to vote upon such
other matters as may properly come before the Meeting or any adjournment
thereof.
This proxy, when properly executed, will be voted in the manner
directed herein by the undersigned shareholder. If no direction is
given, this proxy will be voted FOR all proposals. Attendance of the
undersigned at the meeting or at any adjournment thereof will not be
deemed to revoke this proxy unless the undersigned shall revoke this
proxy in writing or shall deliver a subsequently dated proxy to the
Secretary of the Company or shall vote in person at the Meeting.
----------------------------------------------------------------
(Continued, and to be signed, on reverse side)
1. To elect the following nominee to serve as a director until the 2001
Annual Meeting of Shareholders
NOMINEE: Claud L. Gingrich
/ / FOR the nominee / / WITHHOLD authority to vote
for the nominee
2. To approve the continuation of the Company's 1993 Performance
Incentive Plan.
/ / FOR / / AGAINST / / ABSTAIN
3. To approve an amendment to the Company's 1995 Employee Stock
Incentive Plan increasing from 500,000 to 1,000,000 shares in the number
of shares of Common Stock issuable under the Plan and placing a per
participant limit on the number of shares that may be awared under the
Plan in any year.
/ / FOR / / AGAINST / / ABSTAIN
4. To ratify the selection by the Board of Directors of Price
Waterhouse LLP as the Company's independent accountants for the current
fiscal year.
/ / FOR / / AGAINST / / ABSTAIN
PLEASE FILL IN, DATE, SIGN AND MAIL IN THIS PROXY IN THE ENCLOSED
POSTAGE-PAID RETURN ENVELOPE.
Dated ......................................, 1998
..................................................
Signature
..................................................
Signature if held jointly
Please sign exactly as name appears hereon. If the
stock is registered in the names of two or more
persons, each should sign. Executors,
administrators, trustees, guardians, attorneys and
corporate officers should add their titles.
