-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JZxNdYcSS98zAy1RH8B2+9Z5Z5fo0pTsWsGP6rZHIC+TjkQnKD1edDw+D1e1TH15 JWGmKHzn7hA8H3Mf5zH7Dg== /in/edgar/work/0000950130-00-005718/0000950130-00-005718.txt : 20001102 0000950130-00-005718.hdr.sgml : 20001102 ACCESSION NUMBER: 0000950130-00-005718 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20001031 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PNY TECHNOLOGIES INC CENTRAL INDEX KEY: 0001122080 STANDARD INDUSTRIAL CLASSIFICATION: [3577 ] FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-44376 FILM NUMBER: 750215 BUSINESS ADDRESS: STREET 1: 299 WEBRO ROAD CITY: PARSIPPANY STATE: NJ ZIP: 07054 BUSINESS PHONE: 9735605596 MAIL ADDRESS: STREET 1: 299 WEBRO ROAD CITY: PARSIPPANY STATE: NJ ZIP: 07054 S-1/A 1 0001.txt AMENDMENT NO. 2 TO FORM S-1 As filed with the Securities and Exchange Commission on October 31, 2000 Registration No. 333-44376 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- PNY TECHNOLOGIES, INC. (Exact name of Registrant as specified in its charter) Delaware 3577 11-2724278 (State of (Primary Standard Industrial (I.R.S. employer incorporation) Classification code number) identification no.)
299 Webro Road Parsippany, New Jersey 07054 (973) 515-9700 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) Gadi Cohen Chief Executive Officer PNY Technologies, Inc. 299 Webro Road Parsippany, New Jersey 07054 (973) 515-9700 (Name, address, including zip code and telephone number, including area code, of agent for service) Please address a copy of all communications to: Arnold B. Peinado, III, Esq. Jeremy W. Dickens, Esq. Milbank, Tweed, Hadley & McCloy LLP Weil, Gotshal & Manges LLP 1 Chase Manhattan Plaza 767 Fifth Avenue New York, NY 10005 New York, NY 10153 (212) 530-5000 (212) 310-8000
--------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. 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, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) 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 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 this Form is a post-effective amendment filed pursuant to Rule 462(d) 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, check the following box. [_] --------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ + + +The information in this prospectus is not complete and may be changed. We may + +not sell these securities until the registration statement filed with the + +Securities and Exchange Commissionis effective. This prospectus is not an + +offer to sell these securities, and it is not soliciting an offer to buy + +these securities, in any state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ PROSPECTUS Subject to Completion, dated October 31, 2000 8,900,000 Shares [LOGO] PNY TECHNOLOGIES Common Stock - -------------------------------------------------------------------------------- This is our initial public offering of common stock. We are offering up to 8,900,000 shares of common stock. No public market currently exists for our shares. We propose to list our common stock on the Nasdaq National Market under the symbol "PNYT." The anticipated price range is $13.00 to $15.00 per share. Investing in the shares involves risks. "Risk Factors" begin on page 5.
Per Share Total ----- ----- Public Offering Price.......................................... $ $ Underwriting Discount.......................................... Proceeds to PNY Technologies...................................
We have granted the underwriters a 30-day option to purchase up to 1,335,000 additional shares of common stock on the same terms and conditions as set forth above to cover over-allotments, if any. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense. Lehman Brothers, on behalf of the underwriters, expects to deliver the shares on or about , 2000. - -------------------------------------------------------------------------------- Lehman Brothers Robertson Stephens Needham & Company, Inc. Fidelity Capital Markets a division of National Financial Services LLC , 2000 Depicted is a sample of our products, ranging from multimedia products, including in the lower left hand corner, CD Media, Compact Flash and Smart Media, to some of our memory products for desktops, notebooks, workstations and servers. In the upper right hand corner are memory modules for OEM applications. Diagonally descending from left to right are five images of various key departments representing the steps in the manufacturing process. TABLE OF CONTENTS
Page ---- Prospectus Summary................. 1 Risk Factors....................... 5 About this Prospectus.............. 9 Forward-Looking Statements......... 9 Use of Proceeds.................... 10 Dividend Policy.................... 10 Capitalization..................... 11 Dilution........................... 12 Selected Financial Data............ 13 Management's Discussion and Analysis of Financial Condition and Results of Operations ....................... 15 Business........................... 24 Management......................... 33
Page ---- Related Party Transactions.......................................... 40 Principal Stockholders.............................................. 41 Description of Capital Stock........................................ 43 Shares Eligible for Future Sale..................................... 46 United States Federal Income Tax Consequences to Non-U.S. Holders... 48 Underwriting........................................................ 51 Legal Matters....................................................... 54 Experts............................................................. 54 Where You Can Find Additional Information........................................................ 54 Index to Consolidated Financial Statements......................................................... F-1
---------------- You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus regardless of the time of delivery of this prospectus or of any sale of our common stock. Until , 2000, all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. i PROSPECTUS SUMMARY You should read the entire prospectus carefully, including "Risk Factors" and our consolidated financial statements and the related notes beginning on page F-1, before deciding to invest in our common stock. PNY Technologies We are a leading manufacturer of standard and custom memory modules and a provider of related engineering and supply-chain management services to original equipment manufacturers, or OEMs, retailers and other memory module resellers. Our supply-chain management services include coordination and planning, inventory management and materials procurement. Memory modules are compact circuit board assemblies of memory semiconductors and related circuitry. Our memory modules use all major memory technologies based on random access memory, which is a key component in determining the speed and efficiency of many electronic devices. These technologies include dynamic random access memory, or DRAM, which is the most common type of memory semiconductor, static random access memory, or SRAM, and flash technology. Our OEM channel customers use our memory modules in a wide range of applications, from high-end computing and Internet and telecommunications infrastructure equipment, to various consumer and commercial applications. Our reseller channel customers sell our products to consumers and businesses, who use them to improve the speed and performance of their computers, work stations, printers and other electronic devices, such as digital cameras and personal digital assistants. In our OEM channel, we primarily sell to electronics original equipment manufacturers, contract electronics manufacturers, who provide manufacturing services to OEMs on an outsourced basis, and semiconductor manufacturers, generally in the United States and western Europe. OEMs design, build, market and sell products to end users and distributors. We provide a full complement of manufacturing and logistics services to our customers as part of our product offerings. These services, for which we are not separately compensated, include design engineering, inventory forecasting, materials procurement, component assembly and testing, product packaging and distribution. Our OEM channel customers include industry leaders such as Cisco Systems, Inc., Jabil Circuit, Inc., NEC Corporation, Network Appliance, Inc. and Oki Electric Industry Company. We believe that our OEM channel customers rely on us for our superior service, flexibility and responsiveness, as well as our engineering and logistics expertise. Cisco Systems, our largest customer, recently recognized our superior service when it awarded us one of its principal supplier awards in 1999. For the nine months ended September 30, 2000, sales to our OEM channel customers accounted for approximately 61% of our total revenues, compared to 25% for the nine months ended September 30, 1999. We believe that the OEM sales channel represents a significant growth opportunity for our business over the next several years. We are the leading manufacturer of memory modules for the U.S. retail market. According to PC Data, Inc., sales of our memory products accounted for approximately 60% of retail sales for the twelve months ended August 31, 2000. Our memory modules are the primary memory modules sold at several of the largest domestic and international consumer electronics and office supply chains, including Best Buy Co. Inc., CompUSA Inc., Dixons Group plc., Office Depot and Staples, Inc. In addition to the retail channel, we sell our products through other reseller channels, such as mail-order companies, electronics component distributors and e-commerce companies. We believe that our 15 years of experience selling in the reseller channel and our reputation for product quality and availability have generated strong brand recognition among many retail memory module customers. We have recently begun to capitalize on our brand name and our relationships with our large reseller customers to enter into other product areas, such as recordable compact discs and flash memory accessories. The demand for memory modules is growing rapidly. Dataquest, Inc. forecasts that the worldwide market for DRAM memory modules will increase from $20.8 billion in 1999 to $69.4 billion in 2002, which represents 1 a 49.6% compound annual growth rate. Several factors contribute to the increasing use of memory, including: . the development of high-performance computers and servers, . the increased complexity of software, . the development of high-bandwidth and graphics-intensive applications, and . evolving Internet and telecommunications infrastructure requirements. In addition, digital computing and processing have extended beyond traditional applications, like computers and servers, to include a wide array of electronics equipment. These new applications include routers, switches, hubs, digital cameras, personal digital assistants and "smart" appliances. Many OEM channel participants are increasingly outsourcing the production of the memory modules used in their finished products or equipment to specialized memory module manufacturers like ourselves. This trend results from the need for OEM channel participants to: . focus on their core product design, development and marketing competencies, . reduce time-to-market for new products and increase manufacturing flexibility, . maintain a broad range of memory module technologies, and . manage inventory costs. We have established strong relationships with numerous OEMs, contract electronics manufacturers and resellers, many of which are leaders in their respective markets. These relationships are a result of our ability to provide superior service to our customers, based on our: . strong supply-chain management capabilities, . responsiveness and flexible customer service, . comprehensive engineering and testing services, and . broad range of products. We intend to further our position as a leading manufacturer of standard and custom memory modules and provider of related engineering and supply-chain management services. In addition, we intend to enter new product categories in the retail channel. Our strategy is to: . expand sales to rapidly growing OEMs, . continue to focus on both newer, leading-edge and older, trailing-edge technologies, . maintain our core market-leading customer base, . maintain strong vendor relationships, . capitalize on our brand name to expand into other retail product lines, and . pursue acquisitions of complementary businesses and facilities. ---------------- PNY is a Delaware corporation, originally incorporated in 1985. Our principal executive office is located at 299 Webro Road, Parsippany, NJ 07054. Our telephone number is (973) 515-9700. We maintain a website on the Internet at www.pny.com. Our website and the information it contains are not a part of this prospectus. 2 The Offering Common stock offered.................. 8,900,000 shares Common stock to be outstanding after 40,081,378 shares this offering........................ Use of proceeds ...................... We intend to use the net proceeds from this offering to repay a portion of our existing indebtedness, to redeem our Series B preferred stock and Series C preferred stock, and for working capital and general corporate purposes. Proposed Nasdaq National Market "PNYT" symbol............................... The number of shares of common stock to be outstanding after this offering is based on 26,050,050 shares of common stock outstanding as of September 30, 2000 after giving effect to: (1) a 3-for-1 stock split effected in October 2000, (2) the conversion of all of our Series A preferred stock into shares of common stock and the assumed cashless exercise of warrants, which will result in the issuance of an aggregate of 5,131,328 shares of common stock, and (3) the 8,900,000 shares of common stock being sold by us in this offering, and excludes: . 2,629,749 shares of common stock issuable upon exercise of stock options outstanding as of September 30, 2000 under our employee stock option plan, with a weighted average exercise price of $2.66 per share, . 1,243,500 shares of common stock issuable upon exercise of warrants outstanding as of September 30, 2000 which are held by some of our current or former officers and directors, with a weighted average exercise price of $1.03 per share, and . 4,870,251 additional shares of common stock reserved for issuance under our stock option plan. Except as otherwise indicated, all information in this prospectus assumes that the underwriters do not exercise the over-allotment option granted by us. 3 Summary Consolidated Financial Data The following tables set forth summary consolidated financial data and other data for our company as of and for the periods indicated. You should read the summary data set forth below in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes appearing elsewhere in this prospectus. The pro forma net income per share for the year ended December 31, 1999 and for the nine months ended September 30, 2000 reflect the conversion of all of our Series A preferred stock into shares of common stock and the cashless exercise of warrants described under "Capitalization," which will result in the issuance of an aggregate of 5,131,328 shares of common stock, as if they had occurred on the first day of each such period. The pro forma as adjusted consolidated balance sheet data give effect to this offering, the application of the net proceeds as described under "Use of Proceeds," the conversion of shares of our Series A preferred stock and the cashless exercise of warrants as if each had occurred on September 30, 2000, and reflects a 3- for-1 stock split effected in October 2000. All share and per share amounts have been adjusted to give retroactive effect to the stock split.
Nine Months Year Ended December 31, Ended September 30, ---------------------------- -------------------- 1997 1998 1999 1999 2000 -------- -------- -------- --------- --------- (in thousands, except per share amounts) Consolidated Statement of Operations Data: Net sales.................. $270,924 $204,576 $273,571 $ 200,072 $ 343,749 Cost of sales (1).......... 250,306 177,577 233,035 169,592 294,544 -------- -------- -------- --------- --------- Gross profit .............. 20,618 26,999 40,536 30,480 49,205 Operating expenses (1)..... 25,719 22,447 24,321 18,040 28,169 -------- -------- -------- --------- --------- Operating (loss) income.... (5,101) 4,552 16,215 12,440 21,036 Interest and other (expense) income, net..... (3,645) (2,388) (2,477) (1,717) (3,013) -------- -------- -------- --------- --------- (Loss) income before income taxes..................... (8,746) 2,164 13,738 10,723 18,023 Income taxes (benefit)..... 2 120 1,364 1,084 (2,549) -------- -------- -------- --------- --------- Net (loss) income.......... $ (8,748) $ 2,044 $ 12,374 $ 9,639 $ 20,572 ======== ======== ======== ========= ========= Net (loss) income per common share: Basic..................... $ (0.34) $ 0.08 $ 0.48 $ 0.37 $ 0.79 Diluted................... (0.34) 0.07 0.39 0.31 0.61 Shares used in computing net (loss) income per common share: Basic..................... 25,800 25,948 26,050 26,050 26,050 Diluted................... 25,800 30,681 31,506 31,390 33,834 Unaudited pro forma net income per common share: Basic..................... $ 0.40 $ 0.66 Diluted................... 0.38 0.60 Shares used in computing unaudited pro forma net income per common share: Basic..................... 31,181 31,181 Diluted................... 32,540 34,092 Other Data: Depreciation and amortization.............. $ 2,279 $ 2,703 $ 2,776 $ 2,054 $ 2,305 Capital expenditures....... 4,177 3,254 2,105 1,502 4,954
At September 30, 2000 -------------------- Pro Forma Actual As Adjusted -------- ----------- (in thousands) Consolidated Balance Sheet Data: Cash and cash equivalents................................ $ 10,273 $ 42,777 Working capital.......................................... 20,314 115,506 Total assets ............................................ 206,415 238,560 Total debt and capital lease obligations, including current maturities...................................... 68,464 4,079 Redeemable preferred stock............................... 18,060 -- Total stockholders' equity............................... 14,983 129,573
- -------- (1) Stock-based compensation in the nine months ended September 30, 2000 totaled $3,593, $480 of which was included in cost of sales and $3,113 of which was included in operating expenses. 4 RISK FACTORS You should carefully consider the risks described below, as well as the other information in this prospectus, before making a decision to invest in our common stock. The occurrence of any of the following risks could harm our business and prospects. In that event, the trading price of our shares might decline and you could lose all or part of your investment. Risks Related to Our Business Because we depend on a small number of customers for a significant portion of our revenues and we do not have long-term contracts with these customers, the loss of any of these customers will significantly reduce our revenues and profitability. Historically, a small number of customers has accounted for a significant percentage of our revenues. Our largest OEM customer, Cisco Systems, accounted for 45% of our total revenues for the nine months ended September 30, 2000 and could increase as a percentage of total revenues in the future. Our largest reseller channel customer, CompUSA, accounted for 9% of our total revenues for the same period. We do not have long-term contracts with our largest customers. There is a risk that these customers or our other customers will cease to use our products at current levels or at all. Furthermore, consolidation among our customers may result in increased customer concentration and the potential loss of business as a result of acquisitions. The loss of, or a significant reduction in orders by, a major customer would decrease our revenues and our profitability. We expect that sales of our products to a small number of customers will continue to account for a significant percentage of our revenues in the foreseeable future. Therefore, our financial results will depend in significant part upon the success of our customers' businesses. Shortages of, or price fluctuations in, component parts used in our memory products could delay shipments and adversely affect our profitability. Many of the components we use in our memory modules are commodities. Memory semiconductors based on dynamic random access memory, or DRAM, technology represented more than 90% of our component costs in 1999. The market for DRAM semiconductors is volatile. It is often characterized by periods of shortage and high prices and periods of oversupply and low prices. We purchase DRAM semiconductors from a small number of suppliers, such as Infineon Technologies Corporation, Micron Technology, Inc., Toshiba America Electronics Components, Inc., Vanguard International Semiconductor Corp. and other major DRAM manufacturers. We do not have long-term contracts with any of these suppliers. Our dependence on a small number of DRAM suppliers and our lack of long-term contracts expose us to several risks, including the risk that we may be unable to obtain an adequate supply of components or that we will experience uncontrolled price increases and late deliveries. At times, industry capacity shortages have caused some of our DRAM suppliers to curtail shipments of components to their customers, including us. This means that although we may have customer orders, we may not be able to obtain the materials that we need to fill those orders in a timely manner. A disruption or termination of our relationship with any of our significant DRAM suppliers, or our inability to develop new relationships, could cause delays, disruptions or reductions in our product shipments and could require us to redesign some of our products. This could potentially damage our relationships with current or prospective customers, increasing our costs or prices and decreasing our revenues. We have experienced losses in the past, due to the volatile nature of the memory semiconductor market and there is a risk that future volatility could negatively impact our operating results. We have in the past experienced and may in the future experience substantial period-to-period fluctuations in our operating results due to downturns in the memory module market. These downturns are often characterized by accelerated erosion of average sales prices and production overcapacity. At times we have also offered some of our reseller channel customers price protection. In those circumstances, our customers receive credits from us if we reduce the list price of our products. Market downturns, which we experienced in 1996 and 1997, together with the effects of price protection, adversely affected our revenues, gross margins and profitability and contributed to our net losses in those years. 5 Changes in end-user demand for the products sold by any of our key customers could have a rapid and exaggerated effect on that customer's demand for our products in any given period. Also, declines in semiconductor prices could affect the valuation of our inventory, which could harm our financial condition. The execution of our growth strategy depends on our ability to retain key personnel, including our executive officers. In addition, there is a risk that we may be unable to attract and integrate new personnel into our company. Our success depends on the continued contributions of our senior management, including Gadi Cohen, our President, CEO and Chairman of the Board, and other key personnel. We have obtained key man life insurance for Mr. Cohen, but have not entered into an employment agreement with him. Competition for employees in our industry is intense. We have had, and may continue to have, difficulty hiring and retaining the necessary engineering, sales and marketing, and management personnel to support our growth. We have recently hired several of our senior executives, including some who joined us in 2000. These individuals have not previously worked with us or with each other. They also have backgrounds in different parts of the electronics industry. There is a risk that we will not be able to integrate these individuals into our business. In addition, the loss of any key employee, the failure of any key employee to perform in his or her current position, or the inability of our officers and key employees to expand, train and manage our employee base, could harm our ability to compete in the memory module industry. Our President, CEO and Chairman of the Board will have substantial influence over our operations, can control matters requiring stockholder approval, and may have interests that are different from, or in addition to, your interests. His spouse will receive material benefits in connection with this offering. Mr. Cohen, our President, CEO and Chairman of the Board, will beneficially own approximately 60.7% of our common stock following the completion of this offering, or approximately 58.8% if the underwriters exercise their over- allotment option in full. As a result, Mr. Cohen will continue to have the ability to control all matters requiring approval by our stockholders, including the election and removal of directors and approval of significant corporate transactions. Mr. Cohen may have interests that are different from, or in addition to, your interests. We will redeem $18.1 million of our preferred stock owned by Mr. Cohen's spouse with a portion of the net proceeds of this offering. Increased competition may result in a decreased demand or lower prices for our products. Our failure to effectively compete could reduce our profitability. We compete primarily on the basis of service, quality and price. Some of our competitors include large domestic and international companies that may have substantially greater financial, technical, marketing, distribution and other resources, broader product lines, lower cost structures and longer-standing relationships with customers and suppliers. As a result, our competitors may be better able than us to respond to volatile average sales prices, may be able to deliver competitive products at a lower price or may be able to provide services we cannot. Some of our significant suppliers, including Infineon, Micron and Toshiba, are also competitors. These suppliers have the ability to manufacture competitive products at lower costs than we do as a result of their vertical integration. Because they also manufacture the memory semiconductors we use, they have a significant advantage in times of semiconductor shortages. We also face competition in the OEM sales channel from current and prospective customers that evaluate our capabilities against the merits of manufacturing products internally. Our inability to effectively compete in the memory module markets could decrease our revenues and impair our financial results. We have experienced significant growth in a short period of time, particularly in our OEM channel, and we may have trouble managing our expansion. We have grown rapidly in recent years. Our net sales increased approximately 72% in the nine months ended September 30, 2000, over the nine months ended September 30, 1999, primarily as a result of strong 6 growth in our OEM channel business, driven by Cisco Systems. We cannot assure you that we will be able to meet performance expectations without disrupting the quality and reliability of service to our customers or diverting management resources. Our rapid growth may place a significant strain on our management, financial resources and information systems. If we are unable to manage our growth effectively, it may hurt our operating results. As a result of operating our manufacturing facilities located in France and Ireland and our significant foreign-based revenues, we are exposed to risks associated with doing business in foreign countries, particularly foreign currency fluctuations, which could adversely affect our operating results. We currently have manufacturing facilities in France and Ireland and may in the future expand to other countries. General economic conditions and fluctuations in currency exchange rates affect the prices of our products and the prices of the components used in our products. We sell a significant portion of our products in western European markets, such as France, the U.K., Ireland and Germany. A significant portion of our European sales are denominated in local currencies, principally the British pound, euro, French franc and German mark. If there were a significant devaluation of these currencies against the U.S. dollar, the operating results of our European subsidiaries, when expressed in U.S. dollars, could be adversely affected. In addition, we purchase a significant portion of the semiconductors used in our U.S. operations from the U.S.-based affiliates of foreign suppliers. Although these purchases are currently denominated in U.S. dollars, devaluation of the U.S. dollar relative to the currency of a foreign supplier could result in an increase in our component costs, which could harm our operating results. International sales of our products accounted for approximately 12% of our revenues for the nine months ended September 30, 2000 and 17% for the year ended December 31, 1999. We expect our international sales to increase as a result of the recent acquisition of our manufacturing facility in Ireland. We may become involved in litigation over intellectual property rights, which may adversely affect our ability to manufacture and sell our products. The memory semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights. Third parties may bring suits against us. Litigation could result in significant expense to us and divert the efforts of our technical and management personnel. In the event of an adverse result in litigation, we could be required to pay substantial damages, cease the manufacture, use and sale of some products, expend significant resources to develop non-infringing technology, discontinue the use of some processes or obtain licenses to use the infringed technology. Licenses may not be available on commercially reasonable terms, if at all. Our failure to obtain a license or our failure to obtain a license on commercially reasonable terms could cause us to incur substantial costs and suspend manufacturing products using the infringed technology. If we obtain a license, we would likely be required to make royalty payments for sales under the license. These payments would increase our cost of sales and reduce our gross profit. We have limited experience in acquiring and integrating new businesses. We may have difficulty integrating and managing our newly-acquired Irish facility, which may impair our operating results. We recently acquired a memory module assembly facility in Ballivor, Ireland. While we have experience operating similar facilities, we have not previously worked with this facility's employees and have not previously operated a facility in Ireland. There is a risk that we will not be able to effectively integrate the Ballivor facility or any future acquisition into our existing business, which could increase our operating costs. A key component of our strategy is to pursue strategic acquisitions of complementary businesses and facilities. We have limited experience in acquiring other businesses, facilities, product lines and technologies. There is a risk that we would not be successful in overcoming problems encountered in connection with any future acquisitions, and our inability to do so could harm our growth prospects. If we are unable to obtain additional financing, we may not be able to support our future growth. We are a rapidly growing company and may need to raise additional capital through public or private equity offerings or debt financings. We do not know whether additional financing will be available when 7 needed, or, if available, whether the terms of any financing will be favorable to us. If we cannot raise needed funds on acceptable terms, we may not be able to develop or enhance our products, improve our manufacturing lines and testing equipment, take advantage of future opportunities, including acquisitions, or respond to competitive pressures or unanticipated events, all of which could harm our business, financial condition and results of operations. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution and the new equity securities may have rights, preferences or privileges senior to those of our common stock. Risks Related to this Offering An active public market for our common stock may not develop, which could depress our stock price and impede your ability to sell your shares. Before this offering, you could not buy or sell our common stock on the public market. An active public market for our common stock may not develop or be sustained after the offering, which could affect your ability to sell your shares and may depress their market value. The market price of your shares may fall below the initial public offering price. Our management will have broad discretion to use the proceeds from this offering, including the ability to apply the proceeds to uses that do not increase our operating results or market value. Our management will have considerable discretion in the application of the net proceeds of this offering, and you will not have the opportunity, as part of your investment decision, to assess whether the net proceeds are being used appropriately. The net proceeds may be used for corporate purposes that do not increase our operating results or market value. Pending application, the net proceeds of this offering may be placed in investments that do not produce income or that lose value. The failure to apply these funds effectively could impair our financial condition. A substantial amount of our shares will be eligible for sale beginning 180 days after this offering, which could result in a decline in our stock price. If our stockholders sell substantial amounts of our common stock in the public market following this offering, the trading price of our common stock could fall. These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem favorable. After giving effect to this offering based on the number of shares outstanding as of September 30, 2000, and assuming conversion of all our outstanding Series A preferred stock and the cashless exercise of warrants, we will have 40,081,378 shares of common stock outstanding. As of September 30, 2000, all of the shares of our common stock held by existing stockholders were "restricted securities" as that term is defined in Rule 144 under the Securities Act of 1933, and 100% will be available for sale in the public market commencing 180 days after the date of this prospectus, subject to applicable securities laws, or earlier if the underwriters release their lock- up restrictions or in the limited circumstances described in "Underwriting." As of September 30, 2000, there were exercisable options to purchase 517,749 shares of our common stock issued under our stock option plan and exercisable warrants to purchase 913,500 shares. Should the holders of these options and warrants exercise their securities, there will be additional shares eligible for sale 180 days after the date of this prospectus. We intend to file a registration statement on Form S-8 to register the shares of common stock issuable upon exercise of options granted under our stock option plan. In connection with this offering, other than as described under "Underwriting," all of our officers, directors and existing significant stockholders, and substantially all of our option holders and warrant holders, will enter into agreements not to dispose of or hedge any shares of common stock for a period of 180 days after the date of this prospectus without the prior written consent of Lehman Brothers, subject to limited exceptions. We cannot be sure what effect, if any, future sales of our shares or the availability of shares for future sale will have on the market price of our common stock. The market price of our common stock could drop due to sales 8 of a large number of shares in the market after this offering or the perception that sales of large numbers of shares could occur. Purchasers in this offering will suffer immediate and substantial dilution of their investment. The initial public offering price is substantially higher than the pro forma net book value per share of our outstanding common stock. Our existing stockholders have paid an average of $0.51 per share for their common stock, which is considerably less than the amount to be paid for the common stock in this offering. As a result, assuming an initial public offering price of $14.00 per share, investors purchasing common stock in this offering will incur immediate dilution of $10.94 in pro forma net tangible book value per share of common stock. In addition, we have issued options and warrants to acquire common stock at prices significantly below the initial public offering price. To the extent those outstanding options and warrants are ultimately exercised, there will be further dilution to investors in this offering. ABOUT THIS PROSPECTUS This prospectus includes statistical data regarding our company and the memory module market in which we compete. We derived this data from our records or from information published or prepared by various independent sources for market data, including Dataquest, Inc., PC Data, Inc. and the Semiconductor Industry Association. PC Data does not include memory modules sold by Circuit City or Office Depot in their retail sales data and excludes mail-order sales. We have based the market data relating to our relative position in our industry on industry sources that we believe to be reliable and the good faith estimates of our management. Unless otherwise indicated, the information in this prospectus gives effect to a 3-for-1 stock split of our common stock, which we effected in October 2000, and assumes that: . the underwriters do not exercise their over-allotment option, . holders of warrants to purchase an aggregate of 1,462,500 shares of our common stock exercise their warrants in a cashless exercise, resulting in 1,033,928 shares of our common stock being issued, . the initial public offering price of our common stock will be $14.00 per share, which is the midpoint of the range indicated on the cover page of this prospectus, and . we effect the conversion of 13,658 shares of our Series A preferred stock into 4,097,400 shares of common stock. We own or have rights to product names, trade names and trademarks that we use in conjunction with the sale of our products, including the PNY name and logo. This prospectus also contains product names, trade names and trademarks that belong to other organizations. FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements, including statements concerning conditions in the memory, high performance computing, networking and communications and consumer electronics industries, and concerning our business, financial condition, operating strategies, and our operational and legal risks. We use words like "believe," "expect," "anticipate," "intend," "future," "plan" and other similar expressions to identify forward-looking statements. Purchasers of our common stock should not place undue reliance on these forward-looking statements, which speak only as of the date of this prospectus. These forward-looking statements are based on our current expectations and are subject to a number of risks and uncertainties, including those identified under "Risk Factors" and elsewhere in this prospectus. Our actual results could differ materially from those expressed in these forward- looking statements, and any events anticipated in the forward-looking statements may not actually occur. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we undertake no duty to update any forward-looking statements after the date of this prospectus to conform those statements to actual results or to reflect the occurrence of unanticipated events. 9 USE OF PROCEEDS We estimate that the net proceeds from this offering will be approximately $114.6 million, or approximately $132.0 million if the underwriters exercise their over-allotment option in full, based on an assumed public offering price of $14.00 per share and after deducting the underwriting discount and our estimated offering expenses. We intend to use the net proceeds of this offering to repay substantially all of our existing indebtedness under our credit facilities, which was $64.4 million at September 30, 2000, and redeem $15.0 million of our Series B preferred stock and $3.1 million of our Series C preferred stock held by the spouse of our President, CEO and Chairman of the Board. See "Related Party Transactions." The remainder of the net proceeds will be used for working capital (approximately $30 million to $35 million). If suitable opportunities are available, we may use a portion of the net proceeds currently intended for working capital for the acquisition of, or investment in, companies, manufacturing facilities, technologies or other assets that complement our business. We have no present understandings, commitments or agreements to enter into any potential acquisitions or investments. Our U.S. revolving credit facility will be repaid in its entirety with the net proceeds of this offering. As of September 30, 2000, we had $51.3 million outstanding under our U.S. facility. This facility expires on February 23, 2002 and had a blended interest rate of 9.32% at September 30, 2000. Our European credit facilities, which we expect to repay with the net proceeds of this offering, consist of lines of credit with various foreign banks and fixed term bank notes. At September 30, 2000, we had $10.9 million available under those lines, of which $10.7 million has been used. The bank notes, which, at September 30, 2000, had a remaining balance due of $2.4 million and interest rates ranging from 3.88% to 7.50%, have maturities ranging from January 2001 to February 2007. Pending use of the net proceeds as described above, we intend to invest the net proceeds of the offering in short-term interest-bearing securities. We estimate that the net proceeds of the offering will be sufficient to fund our current operations for the next 12 months. DIVIDEND POLICY We have never declared or paid dividends on our capital stock and we do not anticipate paying any dividends on our common stock in the foreseeable future. We currently expect to retain all earnings, if any, for investment in our business. In addition, the terms of our U.S. credit facility prohibit us from paying dividends without our lenders' consent. We will pay dividends on our common stock only if and when declared by our board of directors. The board's ability to declare a dividend is subject to limits imposed by Delaware corporate law. In determining whether to declare dividends, the board will consider these limits, our financial condition, results of operations, working capital requirements, future prospects and other factors it considers relevant. 10 CAPITALIZATION The following table sets forth our cash and cash equivalents and capitalization as of September 30, 2000 on: . an actual basis, and . a pro forma basis to reflect (1) the assumed conversion of 13,658 shares of our Series A preferred stock into 4,097,400 shares of our common stock, (2) the cashless exercise of warrants to purchase 1,462,500 shares of common stock at an exercise price of $4.10 per share, resulting in 1,033,928 shares of our common stock being issued, (3) our proposed sale of shares of common stock in this offering at an assumed initial public offering price of $14.00 per share and (4) our application of the estimated net proceeds of this offering after deducting fees and expenses. See "Use of Proceeds" and "Description of Capital Stock." The capitalization information in the table below is qualified by, and should be read in conjunction with, our consolidated financial statements and related notes appearing elsewhere in this prospectus. The table gives effect to a 3-for-1 stock split of our common shares, which we effected in October 2000. The table does not include 2,629,749 shares of common stock issuable upon exercise of options outstanding as of September 30, 2000, at a weighted average exercise price of $2.66 per share, and warrants to acquire 1,243,500 shares of common stock at a weighted average exercise price of $1.03 per share, held by some of our current or former officers and directors. The following table also assumes that the underwriters do not exercise their over-allotment option.
At September 30, 2000 -------------------- Pro Forma Actual As Adjusted ------- ----------- (in thousands, except share data) Cash and cash equivalents................................. $10,273 $ 42,777 ======= ======== Current maturities of long-term obligations............... $63,743 $ 1,055 ======= ======== Long-term obligations, net of current maturities: Long-term debt.......................................... $ 1,697 $ -- Note payable--acquisition of business................... 1,547 1,547 Capital lease obligations............................... 1,477 1,477 ------- -------- Total long-term obligations, net of current maturities........................................... 4,721 3,024 Redeemable preferred stock................................ 18,060 -- Stockholders' equity: Convertible Series A preferred stock, cumulative, participating, par value $0.01 per share; designated 15,000 shares, 13,658 shares issued and outstanding on an actual basis; none on a pro forma as adjusted basis (preference in liquidation of $15,759)................. -- -- Common stock, $0.01 par value; 125,000,000 shares authorized; 26,050,050 shares issued and outstanding on an actual basis; 40,081,378 shares issued and outstanding on a pro forma as adjusted basis........... 261 401 Deferred stock compensation............................. (8,940) (8,940) Additional paid-in capital.............................. 14,177 128,627 Treasury stock--727 shares of convertible Series A preferred stock, at cost on an actual basis and 218,100 shares of common stock on a pro forma as adjusted basis.................................................. (683) (683) Retained earnings....................................... 10,800 10,800 Accumulated other comprehensive loss ................... (539) (539) Notes receivable........................................ (93) (93) ------- -------- Total stockholders' equity.............................. 14,983 129,573 ------- -------- Total capitalization.................................. $37,764 $132,597 ======= ========
11 DILUTION Our pro forma net tangible book value as of September 30, 2000 was $8.2 million, or $0.26 per share of common stock. We calculate net tangible book value per share by subtracting our total liabilities from our total tangible assets, which equals total assets less intangible assets, and dividing this amount by the number of shares of common stock outstanding on a pro forma basis as of September 30, 2000. The pro forma information gives effect to the conversion of all of our outstanding Series A preferred stock into common stock and assumes that some of our warrant holders exercise their warrants pursuant to a cashless exercise, which will result in an aggregate of 5,131,328 shares of common stock being issued. Assuming we sell 8,900,000 shares of common stock in this offering at an assumed initial public offering price of $14.00 per share, and assuming the application of the estimated net proceeds from this offering as set forth in "Use of Proceeds," our pro forma net tangible book value as of September 30, 2000 would have been $122.8 million, or $3.06 per share of common stock. On the basis of the foregoing assumptions, there will be an immediate increase in pro forma net tangible book value of $2.80 per share to our existing stockholders and an immediate dilution in net tangible book value of $10.94 per share to new investors. The following table illustrates this per share dilution: Assumed initial public offering price per share............. $14.00 Pro forma net tangible book value per share at September 30, 2000................................................. $0.26 Increase per share attributable to this offering.......... 2.80 ----- Pro forma net tangible book value per share after the offering................................................... 3.06 ------ Pro forma net tangible book value dilution per share to new investors.................................................. $10.94 ======
The following table summarizes on a pro forma as adjusted basis, as of September 30, 2000, the difference between our existing stockholders and new investors with respect to the number of shares of common stock purchased from us, the total consideration paid to us, and the average price per share paid. The following table does not include shares subject to outstanding options or reserved for issuance under our Stock Option Plan as of September 30, 2000 or 1,243,500 shares of common stock issuable upon exercise of warrants held by our current and former officers and directors. To the extent that outstanding options or warrants are exercised and shares of common stock are issued, there will be further dilution to new investors.
Shares Purchased Total Consideration ------------------ -------------------- Average Price Number Percent Amount Percent Per Share ---------- ------- ------------ ------- ------------- Existing stockholders .... 31,181,378 77.8% $ 15,821,000 11.3% $ 0.51 New investors............. 8,900,000 22.2 124,600,000 88.7 14.00 ---------- ----- ------------ ----- Total................... 40,081,378 100.0% $140,421,000 100.0% ========== ===== ============ =====
If the underwriters exercise their over-allotment option in full, the number of shares of common stock held by new investors will increase to 10,235,000 shares, or approximately 24.7% of the total number of shares of common stock to be outstanding immediately after this offering. 12 SELECTED FINANCIAL DATA We have derived the consolidated statement of operations data for the years ended December 31, 1997, 1998 and 1999 and the consolidated balance sheet data as of December 31, 1998 and 1999 from our audited consolidated financial statements included elsewhere in this prospectus. We have derived the consolidated statement of operations data for the years ended December 31, 1995 and 1996 and the consolidated balance sheet data as of December 31, 1995, 1996 and 1997 from our audited consolidated financial statements, although those financial statements are not included in this prospectus. We have derived the statement of operations data for the nine months ended September 30, 1999 and 2000 and the balance sheet data as of September 30, 2000 from our unaudited consolidated financial statements included elsewhere in this prospectus. In the opinion of our management, the unaudited consolidated financial statements reflect all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of this information. Results for an interim period are not necessarily indicative of our results to be expected for the full year. The pro forma net income per common share for the year ended December 31, 1999 and for the nine months ended September 30, 2000 reflect the conversion of all of our Series A preferred stock into shares of common stock and the cashless exercise of warrants described under "Capitalization," which will result in the issuance of an aggregate of 5,131,328 shares of common stock, as if they had occurred on the first day of each such period and reflects a 3-for-1 stock split of our common stock effected in October 2000. All share and per share amounts have been adjusted to give retroactive effect to the stock split. You should read the following selected consolidated financial data in conjunction with our consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this prospectus.
Nine Months Ended Year Ended December 31, September 30, ------------------------------------------------ ------------------ 1995 1996 1997 1998 1999 1999 2000 -------- -------- -------- -------- -------- -------- -------- (in thousands, except per share data) Consolidated Statement of Operations Data: Net sales............... $481,445 $325,761 $270,924 $204,576 $273,571 $200,072 $343,749 Cost of sales (1) ...... 451,891 309,768 250,306 177,577 233,035 169,592 294,544 -------- -------- -------- -------- -------- -------- -------- Gross profit ........... 29,554 15,993 20,618 26,999 40,536 30,480 49,205 Operating expenses: Selling (1)............ 11,973 18,573 15,109 13,491 15,082 11,251 15,818 Shipping and warehouse............. 827 1,319 1,662 1,709 1,538 1,122 1,278 General and administrative (1) (2)................... 8,433 8,386 8,948 7,247 7,701 5,667 11,073 -------- -------- -------- -------- -------- -------- -------- Total operating expenses.............. 21,233 28,278 25,719 22,447 24,321 18,040 28,169 -------- -------- -------- -------- -------- -------- -------- Operating income (loss) ....................... 8,321 (12,285) (5,101) 4,552 16,215 12,440 21,036 Interest expense, net... (4,322) (3,524) (3,678) (2,443) (2,648) (1,787) (2,853) Other income (expense), net.................... 168 256 33 55 171 70 (160) -------- -------- -------- -------- -------- -------- -------- Income (loss) before income taxes........... 4,167 (15,553) (8,746) 2,164 13,738 10,723 18,023 Income taxes (benefit).. 526 (111) 2 120 1,364 1,084 (2,549) -------- -------- -------- -------- -------- -------- -------- Net income (loss)....... $ 3,641 $(15,442) $ (8,748) $ 2,044 $ 12,374 $ 9,639 $ 20,572 ======== ======== ======== ======== ======== ======== ======== Net income (loss) per common share: Basic.................. $ 0.14 $ (0.60) $ (0.34) $ 0.08 $ 0.48 $ 0.37 $ 0.79 Diluted................ 0.14 (0.60) (0.34) 0.07 0.39 0.31 0.61 Shares used in computing net income (loss) per common share: Basic.................. 25,800 25,800 25,800 25,948 26,050 26,050 26,050 Diluted................ 25,800 25,800 25,800 30,681 31,506 31,390 33,834 Unaudited pro forma net income per common share: ................ Basic.................. $ 0.40 $ 0.66 Diluted................ 0.38 0.60 Shares used in computing unaudited pro forma net income per common share:................. Basic.................. 31,181 31,181 Diluted................ 32,540 34,092 Other Data: Depreciation and amortization........... $ 1,310 $ 1,927 $ 2,279 $ 2,703 $ 2,776 $ 2,054 $ 2,305 Capital expenditures.... 4,432 4,703 4,177 3,254 2,105 1,502 4,954
13
At December 31, At ----------------------------------------------- September 30, 1995 1996 1997 1998 1999 2000 -------- -------- -------- -------- ------- ------------- (in thousands) Consolidated Balance Sheet Data: Cash and cash equivalents............ $ 3,708 $ 2,754 $ 3,523 $ 1,675 $ 6,496 $ 10,273 Working capital (deficit).............. 39,388 (1,911) (12,352) (10,397) 260 20,314 Total assets............ 124,855 98,294 66,580 65,930 81,143 206,415 Total debt, capital lease obligations and note payable, including current maturities..... 42,788 52,890 32,917 34,974 26,626 68,464 Redeemable preferred stock.................. 15,000 15,000 18,060 18,060 18,060 18,060 Total stockholders' equity (deficiency) ... 305 (13,975) (21,910) (20,559) (8,547) 14,983
- -------- (1) Stock-based compensation for the nine months ended September 30, 2000 was as follows: Cost of sales................$ 480 Selling..................... 212 General and administrative... 2,901 Total stock-based compensation..............$3,593 (2) Includes a charge of $565 in 1995 for the impairment of long-lived assets. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion together with our consolidated financial statements and related notes appearing elsewhere in this prospectus. This discussion contains forward-looking statements regarding the electronics industry, our expectations regarding our future performance, liquidity and capital resources. Our actual results may differ materially from those contained in any forward-looking statements. See "Forward-Looking Statements." Overview We are a leading manufacturer of standard and custom memory modules and a provider of related engineering, manufacturing and supply-chain management services to OEMs, retailers and other memory module resellers. Our four manufacturing facilities are strategically located near our largest customers, with two in the United States, located in Parsippany, New Jersey and Santa Clara, California, and two in western Europe, located in Bordeaux, France and Ballivor, Ireland. The memory semiconductor industry has experienced significant economic swings at various times due to imbalances between available supply and demand of memory semiconductor devices, resulting in significant fluctuations in product availability and average selling prices. From 1991 to 1995, the DRAM market was characterized by generally increasing prices and our revenues and operating income benefited from higher average selling prices. From 1996 through 1998, however, the DRAM market was characterized by rapidly declining prices and, as a result, we experienced declining revenues and lower operating income. Our operating results also suffered during this period due to inventory devaluation and price protection charges. Although the DRAM market was characterized by periodic price fluctuations in 1999 and in the first nine months of 2000, the price at the beginning and the end of this period was approximately the same. Our revenues and operating income improved significantly in 1999 and in the first nine months of 2000. While we are subject to the effect that industry supply and demand of DRAM has on average selling prices and our revenues, we have undertaken steps to limit these effects on other components of our operating results. For example, in mid-1998, we implemented an inventory-management model designed to minimize inventory devaluations by maintaining smaller quantities of on-hand inventory. In addition, beginning in 1998 we began monitoring our reseller customers' unsold on-hand inventory in order to minimize our exposure to sales returns and other customer allowances. In 1999, we attempted to further limit our risk by implementing a cost-plus pricing model with some of our largest OEM customers. Revenues We recognize sales, net of product returns, rebates and price protection, typically at the time of product shipment. Adjustments for product returns, rebates and price protection do not represent a significant portion of our sales. We do not typically enter into long-term sales contracts with our customers. We sell our products through two sales channels: the OEM sales channel and the reseller sales channel. The OEM sales channel consists primarily of OEMs who use memory modules in the manufacture of their electronic products and contract electronics manufacturers who perform manufacturing functions for OEMs on an outsourced basis, as well as electronics component distributors and semiconductor manufacturers who sell memory modules to OEMs. The reseller sales channel consists primarily of the retail sector, which includes consumer electronics and office supply retail chains, as well as mail-order companies, electronics component distributors, value-added resellers and e-commerce companies. For the first nine months of 2000, our OEM channel sales accounted for approximately 61% of our total revenues, compared to 25% for the comparable 1999 period, while sales through our reseller sales channel accounted for approximately 39% of total revenues, compared to 75% for the comparable 1999 period. We expect our OEM business to continue to expand as a percentage of our revenues in the future. 15 Historically, a small number of customers have accounted for a significant percentage of our revenues. Our five largest customers collectively accounted for 69% of our total revenues in the first nine months of 2000 and 58% and 48% in the years ended December 31, 1999 and 1998, respectively. Our largest OEM channel customer, Cisco Systems, accounted for 45% of our total revenues for the nine months ended September 30, 2000 and our largest reseller channel customer, CompUSA, accounted for 9% of our total revenues in that period. A key element of our strategy is to continue to target a small number of core customers that we believe have the potential to generate significant revenue. We expect that sales to a core group of customers will continue to account for a significant percentage of our total revenues for the foreseeable future. Costs and Expenses Our cost of sales includes the cost of components and materials, labor costs and manufacturing overhead. DRAM component costs represent the largest portion of cost of sales, accounting for in excess of 90% of our cost of sales in 1999. We value our memory components using the lower of cost or spot market value. We adjust our raw materials inventory on a weekly basis and our finished goods inventory on a monthly basis. We work to minimize our inventory risk by ordering materials and components only to the extent necessary to satisfy existing customer demand and maintain a relatively small safety stock to enable us to meet unexpected demand. The level of capacity utilization of our manufacturing facilities impacts our operating results. During periods of high capacity utilization, our gross margins generally improve, while during periods of lower capacity utilization, our gross margins usually decline. Selling expenses have both a fixed and variable component and consist primarily of personnel costs and travel expenses for our domestic and international sales and marketing employees, commissions paid to internal salespersons and independent manufacturers' representatives, and marketing programs. Our largest selling expense is advertising. We typically pay our reseller channel customers an advertising fee based on a specified percentage of sales for placing our products in their circulars and flyers. General and administrative expenses consist primarily of personnel costs for our executive and administrative employees, professional fees, information systems, human resources and non-manufacturing facilities expenses. In 2000, we granted options at exercise prices below the deemed fair market value of our common stock for financial reporting purposes. This will result in significant non-cash compensation charges to operations over the vesting periods of these options. Also, in connection with the consummation of this offering, we intend to grant options to purchase up to 324,600 shares at an exercise price of $7.00 per share to existing employees who currently do not hold stock options, we expect to incur stock-based compensation charges of approximately $2.3 million over their four-year vesting period. In addition, in 1996 and 1997 we issued warrants that require variable accounting treatment, which results in non-cash compensation charges equal to the difference between the fair market value of the underlying shares and the amount of cumulative compensation expense recorded through the reporting period. We will incur these non-cash charges until the warrants are exercised or forfeited. See note 9 to our consolidated financial statements appearing elsewhere in this prospectus. International Operations International sales represented 12% of our total revenues for the first nine months of 2000, 17% of our revenues for the year ended December 31, 1999 and 20% for the year ended December 31, 1998. No single foreign country accounted for more than 10% of our revenues in the first nine months of 2000, or in the years ended December 31, 1999 or 1998. Approximately 11.1% of our consolidated sales were denominated in foreign currencies in the nine months ended September 30, 2000. If the value of the U.S. dollar increases relative to a particular foreign currency, our products could become relatively more expensive, which could result in a reduction of sales in a particular country. In addition, we purchase substantially all of the memory semiconductors used in our U.S. manufacturing operations from local distributors of foreign suppliers. 16 Devaluation of the U.S. dollar relative to the currency of a foreign supplier could result in an increase in our cost of memory semiconductors. Our international sales also could be adversely affected by risks including regulatory risks, tariffs and other trade barriers. In accordance with the provisions of Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information," we have reported segment information on the basis of our U.S. operations and European operations. We make decisions regarding the allocation of resources and the location of production of memory products on a world-wide basis, based upon a number of factors, including capacity constraints, the location of our customers and international tax planning. These decisions may result in significant fluctuations in operating results in our geographic segments in each reporting period. For example, the percentage of income before income taxes attributable to U.S. operations decreased from 83% for the year ended December 31, 1999 to 43% in the nine months ended September 30, 2000 as a result of $3.6 million of stock-based compensation expense in our U.S. operations and the increased use of our European facilities to manufacture products sold to our U.S.-based customers. Results of Operations The following table sets forth, for the periods indicated, certain consolidated statement of operations data reflected as a percentage of net sales:
Nine Months Ended September Year Ended December 31, 30, -------------------------- ------------ 1997 1998 1999 1999 2000 ------- ------- ------- ----- ----- Net sales............................ 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales (1).................... 92.4 86.8 85.2 84.8 85.7 ------- ------- ------- ----- ----- Gross profit......................... 7.6 13.2 14.8 15.2 14.3 Operating expenses: Selling (1)........................ 5.6 6.6 5.5 5.6 4.6 Shipping and warehouse............. 0.6 0.8 0.6 0.6 0.4 General and administrative (1)..... 3.3 3.5 2.8 2.8 3.2 ------- ------- ------- ----- ----- Total operating expenses......... 9.5 10.9 8.9 9.0 8.2 ------- ------- ------- ----- ----- Operating (loss) income.............. (1.9) 2.3 5.9 6.2 6.1 Interest expense, net................ (1.3) (1.2) (1.0) (0.9) (0.8) Other income (expense), net.......... 0.0 0.0 0.1 0.0 (0.1) ------- ------- ------- ----- ----- (Loss) income before income taxes.... (3.2) 1.1 5.0 5.3 5.2 Income taxes (benefit)............... 0.0 0.1 0.5 0.5 (0.8) ------- ------- ------- ----- ----- Net (loss) income.................... (3.2)% 1.0% 4.5% 4.8% 6.0% ======= ======= ======= ===== =====
- -------- (1) Included in cost of sales, selling expenses and general and administrative expenses for the nine months ended September 30, 2000 is stock-based compensation of approximately 0.1%, 0.1% and 0.8% of net sales, respectively. Comparison of the Nine Months Ended September 30, 2000 and 1999 Net Sales. Net sales were $343.7 million for the nine months ended September 30, 2000, compared to $200.1 million for the nine months ended September 30, 1999, representing an increase of 71.8%. This increase was due to the growth of our OEM business. For the nine months ended September 30, 2000, net sales to our OEM customers were $208.4 million and sales to our reseller sales channel customers were $135.3 million. Gross Profit. Our gross profit was $49.2 million for the nine months ended September 30, 2000, compared to $30.5 million for the comparable 1999 period, representing an increase of 61.4%. Gross profit as a percentage of revenues was 14.3% for the nine months ended September 30, 2000, compared to 15.2% for the 17 comparable 1999 period. This decrease in gross profit percentage resulted from an increase, particularly in the second and third quarters of 2000, in our OEM business transacted on a cost-plus pricing basis, which typically carries slightly lower margins, and lower average selling prices in the third quarter of 2000 in our reseller business. Cost of sales was $294.5 million for the nine months ended September 30, 2000 and $169.6 million for the nine months ended September 30, 1999. Cost of sales as a percentage of sales was 85.7% for the nine months ended September 30, 2000, compared to 84.8% for the nine months ended September 30, 1999. Selling. Selling expenses were $15.8 million for the nine months ended September 30, 2000, compared to $11.3 million for the nine months ended September 30, 1999. The increase in selling expenses in 2000 is attributable to the increase in variable expenses, such as commissions totaling $3.5 million and advertising expenses totaling $1.0 million, resulting from increased sales volumes. Selling expenses as a percentage of sales were 4.6% for the nine months ended September 30, 2000, compared to 5.6% for the nine months ended September 30, 1999. This decrease resulted from increased economies of scale stemming from growth in our OEM business. Shipping and warehouse. Shipping and warehouse expenses consist primarily of shipping supplies and overhead. Our shipping and warehouse expenses were $1.3 million for the nine months ended September 30, 2000, compared to $1.1 million for the nine months ended September 30, 1999. Shipping and warehouse expenses as a percentage of sales were 0.4% for the nine months ended September 30, 2000, compared to 0.6% for the nine months ended September 30, 1999. Shipping and warehouse expenses increased for the nine months ended September 30, 2000, compared to the comparable 1999 period as a result of the higher volume of shipments, but decreased as a percentage of sales due to the growth of our business. General and administrative. General and administrative expenses were $11.1 million for the nine months ended September 30, 2000, compared to $5.7 million for the nine months ended September 30, 1999. This increase was attributable to increased employee-related costs, including $2.9 million of stock-based compensation. We did not record any stock-based compensation expense for any period prior to January 1, 2000 since the market value of the underlying shares was less than the exercise price. General and administrative expenses as a percentage of revenues were 3.2% for the nine months ended September 30, 2000, compared to 2.8% for the nine months ended September 30, 1999. General and administrative expenses increased as a percentage of revenues due to an increase in employee-related costs described above, partially offset by an increased revenue base. Other income (expense). Other income (expense) consists primarily of interest expense. Interest expense consists of interest related to our U.S. revolving credit facility, as well as interest under our non-U.S. lines of credit. Interest expense was $3.0 million for the nine months ended September 30, 2000, compared to $1.9 million for the comparable 1999 period. Interest expense increased due to higher interest rates, as well as higher debt balances in 2000. Income taxes. Income tax benefit was $2.5 million for the nine months ended September 30, 2000, compared to an income tax expense of $1.1 million for the comparable 1999 period. Our effective tax rate for the year ended December 31, 1999 was approximately 10% as a result of the utilization of U.S. net operating loss carryforwards. The income tax benefit recorded for the nine months ended September 30, 2000 was due to the utilization of net operating loss carryforwards and the reversal of previously established valuation allowances against our current deferred tax assets. We expect to utilize that benefit, including our remaining net operating loss carryforwards, by the end of 2000. That benefit will be offset by higher effective tax rates on income earned by our foreign subsidiaries, state income taxes and alternative minimum taxes. We have established a full valuation allowance against our $1.4 million stock-based compensation deferred tax asset based upon an assessment that it is more likely than not that we will not realize the benefits of these tax deductions in the near future. This assessment is based upon our inability to control the timing of these tax deductions over the course of the ten-year period the stock options are exercisable as well as the current lack of marketability and restrictions on transfer of the underlying stock. 18 Comparison of the Years Ended December 31, 1999, 1998 and 1997 Net sales. Net sales were $273.6 million in 1999, $204.6 million in 1998 and $270.9 million in 1997. Net sales increased 33.7% in 1999 due primarily to growth in our OEM business. Sales decreased 24.5% from 1997 to 1998, due primarily to a decrease in average selling prices, which was partially offset by an increase in units sold. For the years ended December 31, 1999, 1998 and 1997, sales to our OEM channel customers were $87.8 million, $31.8 million and $40.8 million, respectively, and sales to our reseller channel customers were $185.8 million, $172.8 million and $230.1 million, respectively. Gross Profit. Gross profit was $40.5 million in 1999, $27.0 million in 1998 and $20.6 million in 1997. Gross profit as a percentage of sales was 14.8% in 1999, 13.2% in 1998 and 7.6% in 1997. The 5.6% increase in gross profit as a percentage of sales from 1997 to 1998 was due to improved inventory management, which resulted in lower price protection and inventory devaluation charges. Inventory devaluation charges decreased from $11.6 million in 1997 to $2.1 million in 1998. The 1.6% increase in gross profit as a percentage of sales from 1998 to 1999 resulted from revenues increasing by 33.8%, while labor and overhead increased by only 6.0%. Cost of sales was $233.0 million in 1999, $177.6 million in 1998 and $250.3 million in 1997. Cost of sales as a percentage of sales was 85.2% in 1999, 86.8% in 1998 and 92.4% in 1997. Selling. Our selling expenses were $15.1 million in 1999, $13.5 million in 1998 and $15.1 million in 1997. Selling expenses as a percentage of sales were 5.5% in 1999, 6.6% in 1998 and 5.6% in 1997. In the second half of 1998, we downsized our sales department and closed three satellite sales offices. Since then, we have shifted from maintaining a predominantly direct sales force to contracting with independent sales representatives and providing a mix of both direct and indirect sales teams. This shift has significantly reduced our fixed overhead and we believe has improved customer satisfaction by allowing us to place our sales representatives closer to our customers. Shipping and warehouse. Our shipping and warehouse expenses were $1.5 million in 1999, $1.7 million in 1998 and $1.7 million in 1997. Shipping and warehouse expenses as a percentage of revenues were 0.6% in 1999, 0.8% in 1998 and 0.6% in 1997. Shipping and warehouse expenses decreased from 1998 to 1999 as a result of greater automation. General and administrative. General and administrative expenses were $7.7 million in 1999, $7.2 million in 1998 and $8.9 million in 1997. The increase in general and administrative expenses in 1999 is a function of increased employee-related costs. General and administrative expenses decreased between 1997 and 1998 as a result of layoffs of our personnel in the face of adverse economic conditions in the memory module market in 1997 and 1998. General and administrative expenses as a percentage of revenues were 2.8% in 1999, 3.5% in 1998 and 3.3% in 1997. From 1998 to 1999, general and administrative expenses decreased as a percentage of revenues due primarily to a reduction in our workforce and due to an increased revenue base. General and administrative expenses increased as a percentage of revenues from 1997 to 1998 as a result of lower revenues in 1998. Other income (expense). Interest expense was $2.7 million in 1999, $2.5 million in 1998 and $3.8 million in 1997. These fluctuations were due to declining average debt balances, offset by higher interest rates in 1999. Income taxes. Income tax expense was $1.4 million in 1999, increasing from nominal amounts in 1997 and 1998. Foreign taxable income in 1999 increased in connection with the expiration of a French tax holiday. We recognized limited U.S. income taxes over the period from 1997 through 1999 because of the utilization of net operating loss carryforwards throughout the periods. Quarterly Results of Operations The following table sets forth unaudited quarterly consolidated statement of operations data. In the opinion of management, this information has been prepared on a basis substantially consistent with our audited 19 consolidated financial statements appearing elsewhere in this prospectus, and reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the data. The quarterly data should be read together with our consolidated financial statements and related notes appearing elsewhere in this prospectus. The operating results for any one quarter are not necessarily indicative of the results to be expected for any future period.
Quarter Ended --------------------------------------------------------------------- Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, 1999 1999 1999 1999 2000 2000 2000 -------- -------- --------- -------- -------- -------- --------- (in thousands) Statement of Operations Data: Net sales............... $63,364 $59,093 $77,615 $73,499 $88,589 $109,967 $145,193 Cost of sales(1)........ 55,876 49,600 64,116 63,443 74,986 93,741 125,817 ------- ------- ------- ------- ------- -------- -------- Gross profit............ 7,488 9,493 13,499 10,056 13,603 16,226 19,376 Operating expenses: Selling(1)............. 3,203 3,590 4,458 3,831 5,237 4,679 5,902 Shipping and warehouse............. 373 356 393 416 365 422 491 General and administrative(1)..... 1,770 1,922 1,975 2,034 3,390 4,621 3,062 ------- ------- ------- ------- ------- -------- -------- Total operating expenses............ 5,346 5,868 6,826 6,281 8,992 9,722 9,455 ------- ------- ------- ------- ------- -------- -------- Operating income........ $ 2,142 $ 3,625 $ 6,673 $ 3,775 $ 4,611 $ 6,504 $ 9,921 ======= ======= ======= ======= ======= ======== ======== As a Percentage of Net Sales: Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales........... 88.2 83.9 82.6 86.3 84.6 85.2 86.7 ------- ------- ------- ------- ------- -------- -------- Gross profit............ 11.8 16.1 17.4 13.7 15.4 14.8 13.3 Operating expenses: Selling................ 5.1 6.1 5.7 5.2 5.9 4.3 4.1 Shipping and warehouse............. 0.6 0.6 0.5 0.6 0.4 0.4 0.3 General and administrative........ 2.8 3.3 2.5 2.8 3.8 4.2 2.1 ------- ------- ------- ------- ------- -------- -------- Total operating expenses............ 8.5 10.0 8.7 8.6 10.1 8.9 6.5 ------- ------- ------- ------- ------- -------- -------- Operating income........ 3.3% 6.1% 8.7% 5.1% 5.3% 5.9% 6.8% ======= ======= ======= ======= ======= ======== ========
- -------- (1) Stock-based compensation by quarter for the nine months ended September 30, 2000 consists of the following:
Mar. 31, June 30, Sept. 30, 2000 2000 2000 -------- -------- --------- Cost of sales................................. $ 46 $ 237 $197 Selling....................................... 6 49 157 General and administrative.................... 1,360 1,430 111 ------ ------ ---- Total stock-based compensation............... $1,412 $1,716 $465 ====== ====== ====
In the first three quarters of 1999, the cost of DRAM increased, which resulted in increased average selling prices for our memory modules during that period. As we sold our lower-cost layers of inventory during this period, we recognized higher gross profits. DRAM prices declined in the fourth quarter of 1999 and the first quarter of 2000, which led to lower average selling prices. We granted price protection concessions to some of our retail customers for products purchased during 1999 at higher average selling prices and that remained unsold at December 31, 1999. We recorded the expense related to these concessions in the fourth quarter of 1999. Advertising expense represents the largest component of selling expense, and is incurred almost entirely in connection with our reseller channel. The decrease in selling expenses as a percent of revenues during the quarter ended June 30, 2000 resulted from the increase in OEM channel sales, for which advertising costs are negligible. 20 Liquidity and Capital Resources Our principal sources of liquidity have been cash provided by operations and borrowings under our various credit facilities. Our principal uses of cash have been to finance working capital, facility expansions, capital expenditures and debt service requirements. We anticipate these uses will continue to be our principal uses of cash in the future. For the nine months ended September 30, 2000, net cash used by operating activities was $29.5 million. Cash was provided by net income of $20.6 million and higher levels of accounts payable, bank overdrafts and accrued expenses (totaling $59.7 million). These cash inflows were offset by cash outflows needed for increases in working capital assets such as accounts receivable ($32.5 million) and inventory ($78.3 million). The increased levels of accounts receivable and inventory were required to support the significant increase in sales that occurred in the nine months ended September 30, 2000 as compared to the comparable period in the prior year. For the years ended December 31, 1999 and 1997, net cash flows provided by operating activities were $16.2 million and $21.3 million, respectively. For the year ended December 31, 1998, net cash used by operating activities was $1.4 million. Fluctuations in net cash provided by, or used in, operating activities were attributable to increases and decreases in our net income and increased working capital needs due to our rapid growth in OEM sales. Net cash used by investing activities for the nine months ended September 30, 2000 was $5.7 million, compared to $2.5 million in the comparable 1999 period. The increase in net cash used by investing activities in 2000 was primarily due to the acquisition of property and equipment. For the years ended December 31, 1999, 1998 and 1997, we purchased property and equipment for $2.1 million, $3.3 million and $4.2 million, respectively. In 1999, we advanced $1.0 million to one of our stockholders, and in 1998, we received $3.1 million in proceeds from the disposition of assets. For the nine months ended September 30, 2000, net cash provided by financing activities was $39.1 million, compared to $11.3 million in the comparable 1999 period. The use of cash from our operating activities in 2000 required us to temporarily borrow funds from our credit facilities to fund current operations. In 1999 and 1997, we paid down $6.9 million and $17.0 million, respectively, on the outstanding principal of our borrowing facilities. In 1998, there was a nominal decline in our principal balance. As of December 31, 1999 and September 30, 2000, accounts receivable days sales outstanding were approximately 36 and 39, respectively. Our accounts receivable days sales outstanding was unusually low as of December 31, 1999 due to the sale, on a non-recourse basis, of approximately $6.1 million of accounts receivable generated by our European subsidiary. In addition, in November 1999, we offered one of our largest reseller customers an early payment discount on outstanding invoices aggregating approximately $1.7 million. We received the cash for both of these transactions in December 1999, thus reducing our days sales outstanding. Adjusting for these two items, accounts receivable days sales outstanding at December 31, 1999 would have been 45 days, which is consistent with our historical experience. We entered into these transactions to improve our short-term liquidity position at year-end. We had not entered into similar transactions in the past and do not expect to sell our accounts receivable in the future. We may offer early payment discounts to customers in the future depending upon our short-term liquidity needs. At September 30, 2000, our accounts receivable allowance increased $0.3 million from December 31, 1999 due to the establishment of an allowance against a specific account receivable at our European subsidiary, for which collection is uncertain. We are, however, still pursuing collection. The inventory allowance at September 30, 2000 increased $0.3 million from December 31, 1999, while our gross inventory balance increased 207% during the same period. Most of that increase related to the purchase of inventory for our OEM business. Actual write-offs of accounts receivable and inventory were not material for the nine months ended September 30, 2000. 21 At September 30, 2000, December 31, 1999 and December 31, 1998, we had outstanding borrowings under our U.S. revolving credit facility of $51.3 million, $23.9 million and $29.4 million, respectively. We may borrow a maximum of $50.0 million ($60.0 million through November 30, 2000) under this facility. Availability under the facility is based on specified percentages of accounts receivable and inventories. Interest is payable on average amounts outstanding under the revolving credit facility at a rate of either the prime rate plus 1.0% or the eurodollar rate plus 2.25%, at our option. The blended interest rate under the loan agreement relating to the revolving credit agreement was 8.85% at December 31, 1999 and 9.32% at September 30, 2000. The loan agreement contains a number of restrictive covenants, including a prohibition on related party transactions, additional indebtedness and dividend payments, as well as minimum net worth and interest coverage requirements. This facility is secured by our accounts receivable and inventory. We will repay this facility in full with a portion of the net proceeds of this offering. PNY Technologies Europe, our European subsidiary, also has available lines of credit with foreign banks totaling $10.9 million, which expire September 30, 2001. Our European subsidiary had $10.7 million outstanding under those lines at September 30, 2000. Also at September 30, 2000, our European subsidiary had aggregate borrowings totaling $2.4 million of term loans with foreign banks, with interest rates ranging from 3.9% to 7.5% and maturities ranging from January 2001 to February 2007. We expect to repay all of these borrowings with the net proceeds of this offering. We have capital leases for manufacturing and test equipment with terms of 36 and 48 months. Operating leases are primarily for manufacturing, test, engineering and computer equipment. Leases are typically for 48 months and provide for the option to buy at fair-market value, renew the lease or return the equipment at lease end. Our capital expenditures budget for 2000 is approximately $7.5 million. We made capital expenditures of $5.0 million in the nine months ended September 30, 2000. Capital expenditures for the current year are primarily for equipment upgrades, facility expansions and acquisitions. Our capital requirements depend on a number of factors, including changes in memory architecture, demand and volume. We believe that our current cash balances, together with existing credit lines, the net proceeds from this offering and expected cash flow from operations will be sufficient to fund our current operations for at least the next 18 months. Thereafter, we may require additional sources of funds to continue to support our business including in connection with possible future acquisitions. Additional funds, if needed, may not be available at all or on terms acceptable to us. Backlog We sell our memory products under short-term cancelable purchase orders. We include in our backlog only those customer orders for which we have accepted purchase orders and to which we have assigned shipment dates within the upcoming three to six months. Our backlog was approximately $263 million as of September 30, 2000 and approximately $12 million as of September 30, 1999. Because orders constituting our backlog are subject to change due to, among other things, customer cancellations and reschedulings, and our ability to procure necessary components, backlog is not necessarily an indication of future revenues. Impact of Inflation We do not believe that general price inflation has a material adverse effect on our financial condition or results of operations. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk Our exposure to interest rate risk arises principally from the variable rates associated with our credit facilities. On September 30, 2000, we had total borrowings of $64.4 million under our credit facilities, with a 22 blended rate of 8.50%. An adverse change of 1% in the interest rate of all borrowings outstanding at September 30, 2000, which bear interest at variable rates would cause us to incur an increase in interest expense of approximately $0.6 million on an annual basis. Foreign Currency Rate Fluctuations Fluctuations in the rate of exchange between the U.S. dollar and foreign currencies could adversely affect our financial results. Except for sales in western Europe, our sales are principally denominated in U.S. dollars. Costs related to these sales are largely denominated in their respective currencies, thereby limiting our transaction risk exposures. However, for sales not denominated in U.S. dollars, if there is an increase in the rate at which a foreign currency is exchanged for U.S. dollars, it will require more of the foreign currency to equal a specified amount of U.S. dollars than before the rate increase. In such cases, and if we price our products and services in the foreign currency, we will receive less in U.S. dollars than we did before the rate increase went into effect. If we price our products in U.S. dollars and competitors price their products in local currency, an increase in the relative strength of the U.S. dollar could result in our prices being uncompetitive in a market where business is transacted in the local currency. We currently do not hedge our exposure to foreign currency exchange rate fluctuations; we may, however, hedge such exposures in the future. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Financial Instruments and for Hedging Activities" ("SFAS 133"). This statement, which is effective for fiscal years beginning after June 15, 2000, requires the recognition of all derivative financial instruments as either assets or liabilities in the statement of financial position and measurement of those instruments at fair value. Management is in the process of determining the effect, if any, SFAS 133 will have on our financial statements. In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 addresses revenue recognition for transactions not addressed by existing rules and the basic criteria that must be met before registrants can record revenue under existing rules. Our accounting policies are in compliance with the provisions of SAB 101. In March 2000, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 44, "Accounting for Certain Transactions Involving Stock Compensation." The Interpretation provides guidance for certain issues that arose in the application of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." The provisions of this interpretation are effective prospectively after July 1, 2000. 23 BUSINESS Company Overview We are a leading manufacturer of standard and custom memory modules and a provider of related engineering and supply-chain management services to OEMs, retailers and other memory module resellers. Our supply-chain management services include coordination and planning, inventory management and materials procurement. Memory modules are compact circuit board assemblies of memory semiconductors and related circuitry. Our memory modules use all major memory technologies based on random access memory. These technologies include dynamic random access memory, or DRAM, which is the most common variety of memory semiconductor, static random access memory, or SRAM, and flash technology. Our OEM channel customers use our memory modules in a wide range of applications, from high-end computing and Internet and telecommunications infrastructure equipment, to various consumer and commercial applications. Our reseller channel customers sell our products to consumers and businesses, who use them to improve the speed and performance of their computers, work stations, printers and other electronic devices. In our OEM channel, we primarily sell to electronics original equipment manufacturers, contract electronics manufacturers, and semiconductor manufacturers, primarily in the United States and western Europe. OEMs design, build, market and sell products to end users and distributors. Contract electronics manufacturers provide manufacturing services to OEMs on an outsourced basis. Our semiconductor manufacturer customers sell memory modules as part of their product offerings to OEMs and contract electronics manufacturers. We provide a full complement of manufacturing and logistics services to our customers as part of our product offerings. These services, for which we are not separately compensated, include design engineering, inventory forecasting, materials procurement, component assembly and testing, product packaging and distribution. Our OEM channel customers include industry leaders such as Cisco Systems, Jabil, NEC, Network Appliance and Oki. We believe that our OEM channel customers rely on us for our superior service, flexibility and responsiveness, as well as our engineering and logistics expertise. Cisco Systems, our largest customer, recently recognized our superior service when it awarded us one of its principal supplier awards in 1999. For the nine months ended September 30, 2000, sales to our OEM channel customers accounted for approximately 61% of our total revenues, compared to 25% for the nine months ended September 30, 1999. We believe that the OEM sales channel represents a significant growth opportunity for our business over the next several years. We are the leading manufacturer of memory modules for the U.S. retail market. According to PC Data, Inc., sales of our memory products accounted for approximately 60% of retail sales for the twelve months ended August 31, 2000. Our memory modules are the primary memory modules sold at several of the largest domestic and international consumer electronics and office supply chains, including Best Buy, CompUSA, Dixons, Office Depot and Staples. Many of our retail customers have recognized us for providing excellent service and product quality. For example, CompUSA designated us as its "Vendor of the Year' in 1999. In addition to the retail channel, we sell our products through other reseller channels, such as mail-order companies, electronics component distributors and e-commerce companies. The retail market represents the largest part of our reseller channel. We believe that our 15 years of experience selling in the reseller channel and our reputation for product quality and availability have generated strong brand recognition among many retail memory module customers. We have recently begun to capitalize on our brand name and our relationships with our large reseller customers to enter into other product areas. These include recordable compact discs and flash memory accessories for devices such as digital cameras and MP3 players. Industry Overview The demand for memory modules is growing rapidly. Dataquest forecasts that the worldwide market for DRAM memory modules will increase from $20.8 billion in 1999 to $69.4 billion in 2002, which represents a 49.6% compound annual growth rate. Although Dataquest is forecasting DRAM memory module revenue 24 declines in 2003 and 2004 as a result of decreasing DRAM component prices, it is forecasting increasing unit sales in both years. Several factors contribute to the increasing use of memory, including: . the development of high-performance computers and servers, . the greater complexity of software, . the development of high-bandwidth and graphics-intensive applications, and . evolving Internet and telecommunications infrastructure requirements. These factors result in the need for faster, more powerful memory products to meet demand for greater capabilities in the storage, manipulation, transfer and management of digital data. In addition, digital computing and processing have extended beyond traditional applications, like computers and servers, to include a wide array of sophisticated electronics equipment. These new applications include routers, switches, hubs, digital cameras, personal digital assistants and "smart" appliances. Memory Technologies Memory modules typically incorporate some form of random access memory. Random access memory is a key component in determining the speed and efficiency of many electronic devices, shortening processing times and allowing multiple applications to run efficiently at the same time. Dynamic random access memory, or DRAM, and static random access memory are similar types of memory, which require constant power to preserve the stored information in an electronic device. Flash memory has similar capabilities as DRAM, except that it does not require a constant power supply to retain data. DRAM, which accounted for approximately 64% of the total memory semiconductor market by revenue in 1999, according to the Semiconductor Industry Association, can be divided into several architectures. Extended data output, known in the electronics industry as EDO, and fast page, known in the electronics industry as FP, are trailing-edge DRAM technologies. Synchronous DRAM is the basic DRAM technology currently used in most computers. Double data rate, known in the electronics industry as DDR, and Rambus are leading-edge DRAM technologies that offer a significant increase in performance over standard synchronous DRAM. Each memory type has unique characteristics that make it appropriate for a particular application. Industry Dynamics There are two types of memory module manufacturers: (1) memory semiconductor manufacturers, who produce their own silicon chips and assemble them into memory modules, and (2) independent manufacturers like us, who purchase memory semiconductors from third parties and then assemble those semiconductors into memory modules. The memory semiconductor industry is highly concentrated, with a small number of large participants. The independent memory module manufacturer segment, in contrast, is highly fragmented, with numerous participants. Memory semiconductor manufacturers generally focus on high-volume standard memory modules and require long lead times. Independent memory module manufacturers typically are smaller in size and seek to distinguish themselves by reducing lead times and by being more responsive and flexible in the types of products and services they provide. Independent memory module manufacturers sell to original equipment manufacturers, contract electronics manufacturers, distributors and large memory semiconductor manufacturers who have chosen to outsource the manufacture of memory modules that incorporate their own semiconductors. In addition, unlike most memory semiconductor manufacturers, independent memory module manufacturers sell directly into the reseller channel. Dataquest expects independent memory module revenues to grow at a compound annual rate of 53.8% from 1999 through 2002, compared to 47.9% for memory module revenues of semiconductor manufacturers over the same period. We believe that the growth in the independent memory module manufacturer market will disproportionately benefit participants like ourselves, who have the scale, geographic scope and full range of services required by many customers. 25 The memory module market consists of the OEM sales channel and the reseller sales channel. Sales to the OEM channel typically include both custom and standard memory modules. In contrast, sales to the reseller channel are typically standard DRAM memory modules for sale as upgrades to end users. OEM channel participants typically look to memory module manufacturers to provide a broad range of memory modules to be utilized in their portfolio of products. OEM customers generally require comprehensive engineering, logistics and supply-chain management services, as well as a high level of flexibility and responsiveness. Reseller channel customers require a high level of customer service and reliable, fast and flexible delivery of memory modules. In addition, resellers strongly consider the memory product manufacturer's brand reputation for quality, as well as price. Many OEMs, their contract electronics manufacturers and large memory semiconductor manufacturers are increasingly outsourcing the production of memory modules to specialized memory module manufacturers like ourselves. We believe that the outsourcing trend in the OEM sales channel is driven by the following factors: . Focus on core product design, development and marketing competencies. Faced with increasing competitive pressures, OEM channel participants are increasingly focusing their resources on those areas where they believe they can achieve the greatest competitive advantages. By relying on independent memory module manufacturers, OEM channel participants can take advantage of the latest memory manufacturing technologies without diverting resources from their core competencies of product design, development and marketing. Many contract electronics manufacturers, in turn, are focusing on managing their entire supply chain. These manufacturers often seek to develop external solutions for specialized subassemblies such as memory modules. Semiconductor manufacturers are focusing on developing new technologies to address new applications that require faster, more complex and more diverse memory semiconductor technologies. . Reduce time-to-market for new products and increase manufacturing flexibility. Success for OEM channel participants is increasingly dependent on the ability to rapidly introduce new products and ramp production in times of surging demand. As a result, time-to-market and time-to-volume capabilities throughout the supply chain are critical. OEMs and their contract electronics manufacturers are increasingly looking to independent memory module manufacturers to provide active design, engineering support and to provide the manufacturing flexibility necessary to enable OEMs to deliver their products in volume. Memory semiconductor manufacturers look to independent memory module manufacturers to supplement their production and enable them to become more flexible and responsive in the service they provide to their OEM customers. . Maintain a broad range of memory module technologies. Because of the pace of technological change and because some OEMs commit to service and maintain the equipment they sell for over ten years, OEMs are increasingly required to carry a wide variety of memory modules. We believe that specialized memory module manufacturers are more capable of efficiently maintaining a broad range of design, engineering, procurement, manufacturing and testing capabilities than OEMs and contract electronics manufacturers. . Manage inventory costs. The market for mass produced memory semiconductor components has historically been extremely volatile, characterized by periods of oversupply and rapidly declining prices, as well as by periods of shortages and dramatically increasing prices. Accurately monitoring the memory component market, forecasting memory module demand and managing inventories to minimize exposure to price volatility requires significant expertise, focus, flexibility and strong supplier relationships. OEMs and contract electronics manufacturers are increasingly choosing to rely on memory module manufacturers to perform these demanding functions. 26 The PNY Solution We have established strong relationships with numerous OEMs, contract electronics manufacturers and resellers, many of which are leaders in their respective markets. These relationships are a result of our ability to provide superior service to our customers, based on the following strengths: Strong supply-chain management capabilities. We assist our customers, when requested, in procuring memory modules, managing their inventory levels and reducing the volatility of their inventory costs. We consult with our major customers and provide them with market forecasts. Using our forecasts and insight, we work with our customers to develop a purchasing program that seeks to satisfy their memory module requirements and minimize their costs, while at the same time minimizing our exposure to product returns and other customer allowances. Through our strong relationships with memory semiconductor manufacturers, we are usually able to maintain a source of memory components in periods of market shortage, minimizing disruptions of product deliveries to our customers. We offer competitive and innovative pricing for our customers, including a cost-plus pricing model that we use with some of our OEM customers. Responsiveness and flexible customer service. We provide quick turnaround solutions and just-in-time delivery for our customers so they can maximize production efficiencies. We are able to often process, manufacture and ship orders in the same day. We operate four facilities in the United States and western Europe that are strategically located near many of our largest customers. Our facilities operate under the same manufacturing processes and procedures. This allows us to transfer production from one of our facilities to another to maximize capacity utilization and efficiently meet customer demand. Comprehensive engineering and testing services. We offer our customers integrated engineering and design capabilities. In consultation with our customers, our engineers design and qualify customized memory modules for their specialized needs, emphasizing quality, cost and efficiency. We have field engineers dedicated to our major OEM channel customers and, if business warrants, we staff an engineer on-site to assist our customer in meeting their design requirements and in qualifying our products to meet their specifications. We subject 100% of the products that we manufacture to a comprehensive testing program to ensure that our customers receive top-quality memory modules. Broad range of products. We engineer, manufacture and test both older, trailing-edge and newer, leading-edge memory modules ranging in densities from 1 megabyte to 1 gigabyte or higher. Our modules incorporate DRAM, static random access memory and flash memory technologies. Our broad range of products is particularly important to our OEM customers, who often commit to service and maintain the equipment they sell for over ten years. Our DRAM-based memory modules employ a full range of technologies. These range from older technologies, such as extended data output and fast page, to newer technologies, such as double data rate and Rambus. Our staff of experienced engineering personnel allows us to rapidly qualify our memory modules, whether including new or old technologies, for our customers' product applications, increasing the breadth of products we can provide. Our Strategy We intend to further our position as a leading manufacturer of standard and custom memory modules and provider of related engineering and supply-chain management services to OEMs, retailers and other resellers. In addition, we intend to enter new product categories in the retail channel by capitalizing on our widely-recognized brand name. Our strategy is to: Expand sales to rapidly growing OEMs. We seek to expand our sales to the OEM channel by targeting industry leaders in high-growth sectors within the electronics and high-end computing industries, such as leading providers of networking, telecommunications and Internet infrastructure equipment. We currently serve some of the leaders in these markets, such as Cisco Systems, Lucent and Network Appliance. Sales to our OEM channel customers represent the fastest-growing part of our business, with a growth rate of 176% in the year ended December 31, 1999 and 322% in the nine months ended September 30, 2000 over the comparable prior-year periods. We believe that the OEM sales channel will continue to be a significant growth opportunity in the future. 27 Continue to focus on both leading-edge and trailing-edge technologies. We expect the diversity of memory modules required by OEMs to continue expanding as OEMs are increasingly required to support and service older technology products and equipment. We intend to provide both newer, leading-edge and older, trailing-edge memory modules to meet all of our OEM customers' demands. We are capable of providing a full range of leading-edge memory modules, including Rambus, double data rate and other next-generation memory technologies. We also continue to produce 8 megabyte and 16 megabyte and other low-density memory modules, to support our OEM channel customers' legacy products and for commercial, industrial and other applications. Because many memory semiconductor manufacturers discontinue production of these trailing- edge products, we face less competition in this product sector. Maintain our core market-leading customer base. We intend to pursue strategic relationships with a core group of customers that we believe have the potential to generate significant revenue. By focusing our resources and expertise on providing superior quality and service to a core group who are market-leaders, we believe that we can become their preferred source for memory solutions and become deeply embedded in their businesses. In our OEM business, it is our goal to become qualified in 100% of our customers' new memory modules and in a significant portion of their older technologies. In the reseller channel, we intend to focus on servicing the largest and fastest-growing retail chains. Maintain strong vendor relationships. We maintain strong relationships with many of the largest memory semiconductor manufacturers in the world. To foster these relationships with our suppliers, we have a policy of purchasing at least 80% of our semiconductors from direct suppliers, rather than through the spot market. For the nine months ended September 30, 2000, we purchased 92% of our memory semiconductors directly from semiconductor manufacturers. We provide our primary semiconductor manufacturers with rolling three-month forecasts of our orders. We have a policy of purchasing at least these forecasted quantities. We believe this is important because semiconductor manufacturers take into consideration the purchasing history of their customers when they make product allocation decisions in times of semiconductor shortages. We believe that these strategies increase vendor loyalty and assist us in reducing our exposure to memory semiconductor price volatility because we are not dependent, to any significant degree, on spot market purchases. Capitalize on our brand name to expand into other retail product lines. We believe that our retail channel leadership results from our reputation for quality products, service and logistics. We believe that we have created a brand name that is well known and highly regarded by end users of memory modules. This brand recognition should allow us to sell additional products to our loyal retail customer base. For example, we have recently begun selling PNY-branded writeable and recordable compact discs and flash card readers for digital cameras. We expect that our retail relationships and brand recognition will allow us to generate incremental revenues from these and other new retail product lines without expending significant capital on these product line extensions. Pursue acquisitions of complementary businesses and facilities. We intend to make acquisitions to strengthen our position in our targeted markets, enhance our technology base, increase our production capacity and expand our geographic presence. For example, we recently purchased our Ballivor, Ireland, facility from NEC to strengthen our presence in western Europe and service NEC's memory business in this market. We currently have no commitments or agreements and are not involved in any negotiations to acquire any business or manufacturing facility. Products Memory Modules We sell a wide array of memory modules, ranging from densities of 1 megabyte to 1 gigabyte, or higher, based on DRAM, static random access memory and flash technologies. Memory modules are compact circuit board assemblies of semiconductor memory components and related circuitry. In 1999, approximately 95% of our memory module revenues were based on DRAM technology. We expect to increase our sales of flash 28 memory modules in the future. We sell memory modules primarily using extended data output, fast page and synchronous DRAM technology, but we also produce Rambus memory modules and are capable of producing double data rate memory modules when the market develops. Our memory modules include dual in-line memory modules, single in-line memory modules, small outline dual in-line memory modules and Rambus in-line memory modules. The primary differences among these memory modules are the module size, memory semiconductor technology used and their applications. In the OEM sales channel, we sell memory modules with densities ranging from 1 megabyte to 1 gigabyte or higher. In the reseller channel, we sell memory modules with densities ranging from 4 megabytes to 512 megabytes. The large majority of our memory modules in both sales channels have 32, 64 or 128 megabyte densities. We sell our reseller channel memory modules under our own PNY label, as well as under private labels. Other Products We recently began to utilize our reseller channel leadership to sell media products under the PNY label. We began selling recordable and writeable compact discs to our reseller channel customers in January 2000. Recently, we also began selling flash memory accessories for such devices as digital cameras and MP3 players. We purchase these products from manufacturers and sell them to our reseller channel customers under either the PNY label or under private labels. Supply-Chain Management We assist our customers in procuring memory modules, maintaining their inventory levels and reducing the volatility of their inventory costs. We provide these inventory management services prior to shipment. We do not receive any additional compensation for providing those services, nor are we contractually obligated to provide them. We provide quick turnaround solutions and just-in-time delivery for our customers to maximize production efficiencies. We consult with our OEM channel customers, sharing our DRAM market insights and forecasts so they can more efficiently manage their memory module inventories. We maintain safety reserve inventories that enable us to process, manufacture and ship some orders in the same day. For our reseller channel customers, we have developed comprehensive integrated inventory management systems. We typically receive weekly, and in some cases daily, on-hand inventory reports from our largest customers. We are also connected to several of our largest customers' electronic data interchange systems. These systems notify us as soon as our customers' inventories need to be replenished. Once an order is placed, we can either ship to a customer's warehouse or directly to its stores to reduce turnaround time and storage costs. We also maintain small inventories of memory modules that we can ship overnight to our customers in case of unexpected demand. Engineering, Manufacturing and Testing Engineering We provide comprehensive engineering services to our OEM channel customers. In consultation with a customer, we review their memory module requirements and recommend cost effective and efficient module solutions. We often provide our OEM customers with design assistance, either helping them develop new memory interfaces to work with existing memory modules or to design new memory modules to work with existing memory interfaces. We do not receive any additional compensation for providing our engineering, manufacturing and testing services separate and apart from the revenues derived from our product offerings. OEMs require all memory modules to undergo a rigorous qualification process before they can be used in an application. In the qualification process, every aspect of the memory module, including the semiconductor 29 device itself, must be tested in each possible application before it is approved by the OEM. This process can take between several days and several months, depending on the complexity of the memory module and the number of applications that use it. We offer our OEM customers the services of our field engineers, who provide on-site engineering and qualification assistance. As a member of the Joint Electronic Device Engineering Council and as a participant in two of its key standard-setting committees, we participate in the industry design and standard-setting processes for memory modules. Manufacturing We employ highly automated manufacturing processes that involve the use of surface mount equipment that has been optimized for the production of memory modules. Due to our flexible manufacturing setup, we can offer our customers rapid manufacturing and test cycles on small and large projects. We employ rigorous quality control procedures in each facility and perform statistical process control at various steps of the manufacturing process. In addition, we conduct quality assurance through a process audit to ensure that the final product meets required specifications. We believe that we adhere to the highest quality control standards in every aspect of our operations. We have received ISO registrations for all our facilities. ISO is an international series of quality standards that can improve quality, productivity and customer satisfaction, and reduce waste. Many of our OEM customers require their memory module providers to be ISO registered. To comply with ISO registrations, we continuously monitor and work to improve the design, development, production and testing of our memory modules. We have received NEC's electronics qualification for dual in-line memory module and single in- line memory module manufacturing. Testing We test 100% of the products that we manufacture. We use sophisticated test systems to confirm that our memory modules function properly and meet or exceed our customers' requirements. Customers, Sales and Marketing We currently sell our products to a wide range of customers in the OEM and reseller channels, including some of the largest and best known OEMs and consumer electronics and office supply retailers. OEM Sales Channel We sell our products directly to OEMs, contract electronics manufacturers, electronics component distributors and memory semiconductor manufacturers. In the nine months ended September 30, 2000, we sold our products to more than 20 direct OEM and contract electronics manufacturer customers. We indirectly provide our products to over an additional 50 OEMs and electronics component distributors. We have working relationships with many of our indirect OEM customers, such as Lucent. These indirect customers often direct their contract electronics manufacturers to purchase memory modules from us. 30 Set forth below are our five largest OEM channel customers for the year ended December 31, 1999 and the markets in which they primarily compete:
Customer Primary Fields -------- -------------- Arrow Electronics................ Electronic components distribution Cisco Systems.................... Networking and communications equipment Jabil............................ Contract electronics manufacturing NEC.............................. Semiconductors and high-end computing Network Appliance................ Network-attached data storage
Our OEM business unit uses an internal direct sales force of eight individuals. This sales force is complemented by an external sales force of nine manufacturers' representatives. We believe these combined sales forces have the local presence, market knowledge and strategic insight to allow us to effectively market our products to our OEM channel customers. Reseller Sales Channel In the year ended December 31, 1999, we sold our products to over 40 reseller channel customers through a variety of distribution channels. Our key customers include leading consumer electronics and office supply retail chains such as BestBuy, CompUSA, Dixons, Office Depot and Staples. Our products are sold in over 3,000 retail locations nationwide. In addition to the retail market, we also sell our products through mail-order companies, electronics component distributors, value-added resellers and e-commerce companies. Our reseller channel business unit uses in-house sales representatives and manufacturers' representatives. Some of our reseller channel customers feature our products in their advertisements in exchange for a fee. On our website, our memory configurator software helps customers in the memory module selection process by matching their needs to the right PNY memory module. We offer a toll-free, 24-hour technical support hotline that provides customers with direct access to knowledgeable memory specialists. Suppliers In excess of 95% of our memory modules are based on DRAM technology. We purchase our DRAM semiconductors from a small number of suppliers. These suppliers collectively provide us with a full range of memory semiconductors to support both newer, leading-edge and older, trailing-edge memory modules. Our primary suppliers are Infineon, Micron, Toshiba and Vanguard. We maintain close working relationships with large memory semiconductor manufacturers in the United States, Asia and Europe. Our vendor base represents a cross-section of price leaders, technology leaders, mainstream and trailing- edge product suppliers. We believe that our relationships help us secure allocations in times of semiconductor shortages. In addition to our traditional memory semiconductor suppliers, we also purchase a limited amount of memory semiconductors through the spot market. Our procurement organization operates from offices located near many of our suppliers to help ensure competitive pricing and a dependable supply of materials for our products. Competition We conduct business in a market characterized by intense competition, rapid technological change, evolving industry standards and price volatility. We compete in this market on the basis of service, quality and price. Some of our significant suppliers, such as Infineon, Micron and Toshiba, are also our competitors. Many have the ability to manufacture competitive products at lower costs as a result of their vertical integration. We also face competition from current and prospective OEM customers that evaluate our capabilities against the 31 merits of manufacturing products internally. We also compete for OEM business with independent manufacturers such as Celestica, Inc., Kingston Technology Company, Smart Modular, a division of Solectron Corporation, and Viking Components, Inc. We believe that our primary competitors in the reseller sector include Centon Electronics, Inc., K-byte, a division of Reptron Electronics, Inc., Kingston and Viking. Facilities We occupy four modern manufacturing facilities that have a combined 260,200 square feet of floor space. These facilities are strategically positioned on both coasts of the United States and in Europe to address the global demand for high-quality memory module solutions.
Location Square Footage Lease/Own ISO Status - -------- -------------- ------------- ---------- Parsippany, New Jersey................ 153,500 Lease 9001 (expires 2007) Santa Clara, California............... 46,700 Lease 9002 (expires 2007) Bordeaux, France...................... 41,000 Own 9002 Ballivor, Ireland..................... 19,000 Lease 9002 (expires 2000)*
- -------- * This lease expires on December 31, 2000 and we intend to extend the lease term for at least one additional year. In addition to these facilities, we have a sales office in London and a purchasing representative in Tokyo. We believe that our existing facilities are adequate for our current operations. We are capable of significantly increasing production at each facility by either purchasing additional production lines or increasing the number of shifts. Employees As of September 30, 2000, we had 507 full-time employees. In addition to our full-time employees, we regularly employ temporary and part-time employees at all of our facilities. Our employees in the United States are not represented by any collective bargaining agreements. Two employees in France and all of our employees in Ireland are represented by unions. We have never experienced a work stoppage at any of our facilities. We consider our relationship with our employees to be good. Legal Proceedings As of the date of this prospectus, we are not involved in any material legal proceedings. 32 MANAGEMENT Executive Officers and Directors Set forth below is information concerning our executive officers and directors.
Name Age Position - ---- --- -------- Gadi Cohen.............. 41 Chairman of the Board, President and Chief Executive Officer Jean-Pierre Pucheu...... 53 President of PNY Technologies Europe and Director Mark J. Ciano........... 33 Vice President of Finance and Administrative Services Anthony G. Gomez........ 37 Vice President of Sales and Marketing-Reseller Julian C. Hawkins....... 35 Vice President of Worldwide Sales-OEM John P. Hughes.......... 44 Vice President of Operations and Procurement Mark A. Sawyer.......... 40 Vice President and General Manager of the Santa Clara Facility Robert J. Stone......... 35 Vice President of Manufacturing and Engineering Joseph P. DiSabato...... 33 Director Michael W. Goroff....... 40 Director Igal Lichtman........... 48 Director
Gadi Cohen has served as our Chairman of the Board, President and Chief Executive Officer since he founded PNY in 1985. Prior to founding PNY, Mr. Cohen served for seven years as an officer in the Israeli army. Jean-Pierre Pucheu has served as President of PNY Technologies Europe since 1994 and as a Director since 1998. Mr. Pucheu supervises PNY's European operations from our manufacturing facility in Bordeaux, France. Prior to joining PNY, Mr. Pucheu spent 23 years with IBM, where he attained the position of Director of European Component Purchasing. Mr. Pucheu earned the equivalent of an M.B.A. from L'Ecole Superieure de Commerce et D'Administration in Bordeaux, France. Mark J. Ciano has served as Vice President of Finance and Administrative Services since February 2000. Mr. Ciano is responsible for overseeing all financial, human resources and administrative affairs of the company. Formerly a Senior Auditor with KPMG Peat Marwick, Mr. Ciano joined PNY in 1995 as Assistant Controller, became Controller in 1997 and assumed his present position in February 2000. He has 10 years of finance experience and holds a B.A. in Accounting from William Patterson University. Anthony G. Gomez has served as Vice President of Sales and Marketing-- Reseller since June 2000. Mr. Gomez is responsible for managing and directing PNY's reseller channel sales. Prior to joining PNY, Mr. Gomez was the Vice President of Sales, Media Solutions at Sony Electronics, Inc., where he was responsible for a $300 million strategic business unit, with primary responsibility for managing the sale of consumer analog audio, video and camcorder media. Mr. Gomez has an M.B.A. in Finance from Fairleigh Dickinson University. Julian C. Hawkins has served as Vice President of Worldwide Sales--OEM since August 2000. Mr. Hawkins is responsible for managing and directing PNY's business with OEMs. Prior to joining PNY, Mr. Hawkins held the position of Vice President of Marketing and Vice President of Worldwide Corporation Accounts at Samsung Semiconductor, Inc., where he was responsible for marketing and sales of memory and flat panel display products. During eight years at Samsung, Mr. Hawkins led sales and marketing activities in all three major semiconductor regions--North America, Europe and Asia. Mr. Hawkins has a B.Sc. in Computer Science from the Victoria University of Manchester. John P. Hughes has served as Vice President of Operations and Procurement since 1996. Mr. Hughes oversees PNY's purchasing, packaging and warehouse operations. Formerly Product Manager at Quad Systems Corporation, Mr. Hughes joined PNY in 1991 as Director of Manufacturing, became Director of Operations in 1994 and assumed his present position in 1996. He has approximately 12 years of technology product manufacturing experience and earned a B.S. in Electrical Engineering from Lehigh University. 33 Mark A. Sawyer has served as Vice President and General Manager of our Santa Clara Facility since April 2000. Mr. Sawyer is responsible for managing and directing PNY's manufacturing operations in Santa Clara. Prior to joining PNY, Mr. Sawyer was Vice President of Operations at Digital Microwave Corporation for seven years, where he was responsible for production, materials management, manufacturing engineering and test engineering. Previously, Mr. Sawyer was Director of Total Quality Management and Business Process Re-engineering at Applied Materials Corporation. Robert J. Stone has served as Vice President of Manufacturing and Engineering since 1997. Mr. Stone is responsible for engineering and all aspects of manufacturing, including production management, process development and factory integration. Formerly Vice President of Product Development and Integration at Quad Systems Corporation, Mr. Stone joined PNY in 1994 as Manufacturing Manager, was promoted to Director of Manufacturing in 1996, and to his present position in 1997. He has over 15 years of experience in surface mount technology manufacturing and holds a B.S. degree in Electrical Engineering from the University of Rhode Island. Joseph P. DiSabato has served as a director since 1998. Mr. DiSabato is a Vice President of Goldman, Sachs & Co., in its Merchant Banking Division. Mr. DiSabato holds an M.B.A. from the Anderson Graduate School of Management at the University of California at Los Angeles. He serves on the Board of Directors of numerous portfolio companies on behalf of Goldman, Sachs, including Amscan Holdings, Inc., and Madison River Communications. Michael W. Goroff has served as a director since late 1995. From late 1995 to early 1997, Mr. Goroff served as our Vice President and Chief Operating Officer. He is currently a partner of the law firm Milbank, Tweed, Hadley & McCloy LLP, where he was a partner prior to his joining us as an employee in late 1995. Mr. Goroff holds a B.A. from Harvard College and a J.D. from Harvard Law School. Igal Lichtman has served as a director since 1998. Mr. Lichtman was the founder, Chairman and Chief Executive Officer of Magic Solutions International, a software company which he sold in 1998. He also established a franchise of MicroAge, Inc., a computer local area network business, which he sold in 1997. Mr. Lichtman holds a B.S.E.E degree from Technion Israel Institute of Technology. Board of Directors Following the completion of this offering, our board of directors will have five members, including three directors who are not employees and who are otherwise independent. Our directors will be divided into three classes. Each class will be elected for terms of three years. The initial terms of the Class I, Class II and Class III directors are expected to end at our annual stockholders meeting held in 2001, 2002 and 2003, respectively. In addition, our amended and restated bylaws will provide that the authorized number of directors will be between four and seven, with the exact number to be determined by a majority of our board of directors. Committees of the Board of Directors Following completion of this offering, our board of directors will have an audit committee, a compensation committee and a nominating committee. The board may also establish other committees to assist in the discharge of its responsibilities. The functions of the audit committee, which is expected to consist of Messrs. DiSabato, Goroff and Lichtman, each a non-employee director, include: . reviewing the adequacy of our system of internal accounting controls; . reviewing the results of the independent auditor's annual audit, including any significant adjustments, management judgments and estimates, new accounting policies and disagreements with management; 34 . reviewing our audited financial statements and discussing them with management; . reviewing the audit reports submitted by the independent auditors; . reviewing the disclosures by independent auditors concerning the relationships with our company and the performance of our independent auditors and annually recommending independent auditors; . adopting and annually assessing its charter; and . preparing such reports or statements as may be required by the Nasdaq National Market and applicable securities laws. The compensation committee will provide a general review of our compensation and benefit plans to ensure that they meet corporate objectives. The compensation committee will review our management recommendations on compensation for all our officers and major compensation policies and practices, and then report its recommendations to the full board of directors for approval and authorization. The compensation committee will administer our stock plan and is expected to consist of Messrs. DiSabato, Goroff and Lichtman. Board Compensation Directors are not separately compensated for serving on the board of directors, other than reimbursement for out-of-pocket expenses related to attendance at board and committee meetings. Directors are eligible to receive discretionary option grants pursuant to our employee stock option plan. Compensation Committee Interlocks and Insider Participation We did not have a compensation committee or other board committee performing equivalent functions in 1999. We anticipate that no member of our compensation committee, once established, will serve as a member of the board of directors or compensation committee of any other company that has one or more executive officers serving as a member of our board of directors or compensation committee. Employment Agreements We currently do not have employment agreements with any of our executive officers. Each of our executive officers has entered into a severance agreement that provides for the payment of six months of salary upon termination of employment and contains a one-year non-competition provision. 35 Executive Compensation The following table sets forth information concerning the compensation for the year ended December 31, 1999 for our Chief Executive Officer and our four other most highly compensated executive officers at such date. Annual compensation amounts set forth on the table exclude perquisites and other personal benefits because such compensation did not exceed either $50,000 or 10% of the total annual salary and bonus for any of the named executive officers. All other compensation consists of discretionary matching contributions to our 401(k) plan on behalf of each named executive officer and applicable car allowances. 1999 Summary Compensation Table
Annual Long-Term Compensation Compensation ------------------- --------------------- Restricted Securities Stock Underlying All Other Name and Principal Salary Bonus Awards Options Compensation Position ($) ($) ($) (#) ($) - ------------------ ------- -------- ---------- ---------- ------------ Gadi Cohen............... 300,000 189,000 -- -- 8,000 President and Chief Executive Officer Jean-Pierre Pucheu....... 147,000(1) 100,920 -- -- 23,380 President of PNY Technologies Europe John P. Hughes........... 157,400 97,650 -- 300,000 12,800 Vice President of Operations and Procurement Robert J. Stone ......... 157,400 127,650 -- 300,000 10,661 Vice President of Manufacturing and Engineering Michael Williamson (2)... 170,000 97,650 -- 150,000 12,270 Vice President of Sales and Marketing
- -------- (1) Represents a salary of 960,000 French francs converted at the December 31, 1999 exchange rate of 6.5295 francs per U.S. dollar. (2) Mr. Williamson was employed by us between April 1998 and June 2000. All executive officers are eligible to participate in our employee stock option plan and may participate in other employee benefit plans and programs, such as health insurance plans, that we offer to our other employees. Option Grants in Last Fiscal Year The following table sets forth information regarding grants of stock options to purchase shares of our common stock made to the named executive officers during the year ended December 31, 1999. These options were granted with an exercise price equal to the fair market value of our common stock on the date of grant as determined by our board of directors on the date of grant and are 33.3% vested as of September 30, 2000. Potential realizable values are net of exercise price, but before taxes associated with exercise. Amounts representing hypothetical gains are those that could be achieved for the options if exercised at the end of the option term. Potential realizable value 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 the respective options were granted to their expiration dates based upon an assumed initial public offering price of $14.00 per share, the midpoint of the offering price range on the cover of this prospectus. These assumptions are not intended to forecast future appreciation of our stock price. The potential realizable value computation does not take into account federal or state income tax consequences of option exercises or sales of appreciated stock. 36 Option Grants in Fiscal Year Ended December 31, 1999
Individual Grants ------------------------------------------------ Potential Realizable Potential Value at Assumed Percent Realizable Annual Rates of Number of of Total Exercise Value at Stock Price Securities Options Price Assumed IPO Appreciation for Underlying Granted to Per Share Price Option Term Options Employees in Base Price Expiration ----------- -------------------- Name Granted Fiscal Year (%) ($) Date 0% ($) 5% ($) 10% ($) - ---- ---------- --------------- ---------- ---------- ----------- --------- ---------- Gadi Cohen.............. -- -- -- -- -- -- -- Jean-Pierre Pucheu...... -- -- -- -- -- -- -- John P. Hughes.......... 300,000 17.1% 1.00 6/30/09 3,900,000 6,352,689 10,115,596 Robert J. Stone......... 300,000 17.1% 1.00 6/30/09 3,900,000 6,352,689 10,115,596 Michael Williamson (1).. 150,000 8.6% 1.00 7/05/00 -- -- --
- -------- (1) Mr. Williamson's options were forfeited, before they vested, upon termination of his employment in June 2000. Aggregate Year-End Option Values The table below sets forth the value and number of shares of common stock subject to exercisable and unexercisable options held as of December 31, 1999 by each of the executive officers named in the 1999 Summary Compensation Table. No named executive officer exercised any options in 1999. The value of the unexercised in-the-money options at year end assumes a deemed value for financial reporting purposes at year end of $3.51 per share minus the exercise price. Aggregate Fiscal Year-End Option Values
Number of Shares of Common Stock Underlying Value of Unexercised Unexercised Options In-The-Money Options at Year End At Year-End (1) ------------------------- ------------------------- Name Exercisable Unexercisable Exercisable Unexercisable - ---- ----------- ------------- ----------- ------------- Gadi Cohen................. -- -- $ -- $ -- Jean-Pierre Pucheu......... 600,000 300,000 2,088,000 1,044,000 John P. Hughes............. -- 300,000 -- 754,000 Robert J. Stone............ -- 300,000 -- 754,000 Michael Williamson (1)..... -- 150,000 -- --
- -------- (1) Mr. Williamson's options were forfeited upon termination of his employment in June 2000. Stock Option and Other Benefit Plans Stock Option Plan In June 1999, we adopted a stock option plan, which was amended in October 2000, for directors, officers, employees, consultants and other individuals or entities selected by our board of directors or compensation committee, which provides for nonqualified stock option and incentive stock option grants to our employees and directors. As of September 30, 2000, adjusted to reflect the 3- for-1 stock split effected in October 2000, options for 2,966,250 shares were issued, 336,501 were cancelled and 4,870,251 shares were available for future grants under the plan. The October 2000 amendment increased the number of shares of common stock available for award under the plan from 3,000,000 shares to 7,500,000 shares. Options granted under our plan currently vest over four years. In connection with the consummation of this offering, we intend to grant options to purchase up to 324,600 shares at an exercise price equal to $7.00 per share to existing employees who currently do not hold stock options. We expect to incur a stock-based compensation charge of $2.3 million in connection with this option grant over their four-year vesting period. We also intend to grant options to purchase up to 249,000 shares to new employees at an exercise price equal to the public offering price. 37 Options under the plan generally expire ten years from the date of grant. If a participant's employment or provision of services is terminated for a reason other than as a result of death, disability or retirement, the options expire 30 days after termination, unless extended in accordance with the plan. If a participant's employment is terminated as a result of death, disability or retirement, the options expire 90 days from the date of termination. All shares issued pursuant to the plan are subject to transfer restrictions. 401(k) Profit Sharing Plan We adopted a tax-deferred 401(k) profit sharing plan in September 1996. The plan covers substantially all full-time U.S. employees on our payroll who are at least 21 years of age. Employees become eligible to participate in the first quarterly enrollment date after hire. The plan provides for voluntary employee contributions up to 15% of their annual pre-tax compensation, subject to the maximum limit allowed by the Internal Revenue Service guidelines, which is currently $10,500 annually. The plan is intended to qualify under Section 401 of the Internal Revenue Code so that contributions to the plan, and income earned on the plan contributions, are not taxable to employees until withdrawn from the plan, and contributions by us will be deductible by us when made. The trustee under the plan, at the discretion of each participant, invests the employee contributions to the plan in selected investment options. At our discretion, we make matching contributions to each participating employee based on his or her voluntary contributions to the plan. We currently match one-half of an employee's matchable contributions to the plan, which cannot exceed 3% of their compensation. We may also make, in our discretion, annual profit sharing contributions on behalf of eligible employees. Each employee who is a plan participant on the last day of the plan year and has completed at least 1,000 hours of service during the year is entitled to a share of any profit sharing contribution we make for the plan year. Our matching contribution and profit sharing contributions vest at the rate of 20% per year beginning after the employee's second year of employment with us. Restricted Stock Awards During 1997 and 1998, we granted to specified employees and in one case to a former employee for no consideration the right to receive 1,335,300 shares of common stock, which will be delivered to them when the restriction period described below terminates. These stock awards are subject to a ten-year cliff vesting schedule, based on continued employment. These shares are also subject to certain restrictions on transfer which terminate in part at the end of a restriction period that ends on the earliest to occur of (1) 180 days following the consummation of our initial public offering, (2) immediately prior to a change in control, and (3) ten years after the date of grant. Gadi Cohen has agreed to transfer to us as a contribution of capital, upon the termination of the restriction period, a number of shares of common stock equal to the number of shares of common stock that we have agreed to deliver to the specified employees. As of September 30, 2000 and after giving effect to shares to be issued and shares forfeited during the period beginning in 1997 and ending on September 30, 2000, each of Mr. Cohen and then, in turn, PNY, expects to deliver 580,800 shares to the specified employees upon the termination of the restriction period. Limitation of Directors and Officers Liability Our certificate of incorporation provides that no director will be liable for monetary damages for breach of the director's fiduciary duty to us or our stockholders, except for liability arising from: . breach of the director's duty of loyalty to us or our stockholders, . acts or omissions not in good faith or involving intentional misconduct or owing violations of law, . improper distributions to stockholders and improper purchases or redemptions of stock, and . transactions from which the director derived an improper personal benefit. 38 This provision of our certificate of incorporation does not eliminate the directors' fiduciary duties, and in appropriate circumstances, equitable remedies including an injunction or other forms of non-monetary relief would remain available under Delaware law. This provision also does not affect a director's responsibilities under any other laws, including federal securities laws or state or federal environmental laws. In addition, our bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by Delaware law. We are also empowered under our bylaws to enter into indemnification contracts with our directors and officers and to purchase insurance on behalf of any person we are required or permitted to indemnify. We have obtained directors and officers liability insurance coverage, which covers, among other things, liabilities arising under the Securities Act. 39 RELATED PARTY TRANSACTIONS In August 1995, we entered into a Preferred Stock and Warrant Purchase Agreement with certain affiliates of Goldman, Sachs & Co. and Gadi Cohen. As part of that agreement, we sold 13,000 shares of Series A preferred stock, convertible into 3,900,000 shares of common stock, and warrants to purchase 1,462,500 shares of common stock for an aggregate purchase price of $15.0 million, to affiliates of Goldman, Sachs & Co. Assuming an offering price of $14.00 per share of common stock, the value of the Series A preferred stock held by certain affiliates of Goldman, Sachs & Co. would be $54.6 million. Upon the automatic conversion of the Series A preferred stock upon consummation of this offering and the cashless exercise of these warrants, the affiliates of Goldman, Sachs & Co. will be the beneficial owners of more than 5% of our outstanding shares of common stock. Joseph P. DiSabato, one of our non-employee directors, is employed by Goldman, Sachs & Co. See "Principal Stockholders" for information relating to the beneficial ownership of shares and identification of affiliates of Goldman, Sachs & Co. Pursuant to a Preferred Stock and Warrant Purchase Agreement entered into with Gadi Cohen in August 1995, we issued Mr. Cohen two promissory notes for $18.1 million representing a loan to us by Mr. Cohen in lieu of the distribution to him of all previously taxed earnings accumulated and retained by PNY during the period its income was subject to taxation under Subchapter S of the Internal Revenue Code. Mr. Cohen subsequently gifted these notes to his spouse, Ruth Cohen. Pursuant to exchange agreements entered into in 1996 and 1997, respectively, we cancelled these notes and issued in exchange 15 shares of our Series B preferred stock and 3 shares of our Series C preferred stock, with an aggregate redemption price of $18.1 million including accrued interest. Mr. and Mrs. Cohen were paid an aggregate of $0.1 million in August 1999 representing the total amount of interest accrued and payable on these notes. We intend to redeem the Series B and the Series C preferred stock with a portion of the proceeds of this offering. When we do so, we will net the $18.1 million redemption amount against amounts owed to us under the $2.4 million in notes described in the following paragraph. We loaned Mrs. Cohen $2.4 million in nine separate loans between November 27, 1998 and February 5, 2000. These loans bear interest at a rate of 7.0% per annum and mature three years after their disbursement. The notes evidencing these loans, including estimated accrued and unpaid interest of $0.2 million through December 15, 2000, will be repaid with the proceeds of the redemption of preferred stock described above. We believe that each of the transactions described above was made on terms that were no less favorable to us than could be obtained from unaffiliated parties. 40 PRINCIPAL STOCKHOLDERS The table below sets forth information known to us regarding the beneficial ownership of our common stock as of September 30, 2000, as adjusted to reflect the automatic conversion of outstanding shares of Series A preferred stock into common stock and the cashless exercise of warrants to purchase 1,462,500 shares of common stock prior to the closing of this offering, resulting in the issuance of an aggregate of 5,131,328 shares of our common stock, and to reflect the sale of the common stock offered by this prospectus, by: . each stockholder known by us to be the beneficial owner of more than 5% of our outstanding common stock, . each of our executive officers listed in the 1999 Summary Compensation Table under "Management," . each of our directors, and . all executive officers and directors as a group. Beneficial ownership is determined in accordance with rules of the Securities and Exchange Commission, and generally includes voting power and/or investment power with respect to securities. Shares of common stock subject to options currently exercisable or exercisable within sixty days of the date of this prospectus are deemed outstanding for purposes of computing the beneficial ownership by the person holding such options, but are not deemed outstanding for purposes of computing the percentage beneficially owned by any other person. Except as otherwise noted, the persons or entities named have sole voting and investment power with respect to all shares shown as beneficially owned by them. Unless otherwise indicated, the principal address of each of the stockholders below is c/o PNY Technologies, Inc., 299 Webro Road, Parsippany, NJ 07054.
Percentage of Shares Number of Shares Beneficially Owned Beneficially ------------------------------ Beneficial Owner Owned Before Offering After Offering - ---------------- ---------------- --------------- -------------- Executive Officers and Directors: Gadi Cohen (1)................. 25,800,000 79.0% 60.7% Jean-Pierre Pucheu (2)......... 644,100 2.0 1.7 Mark J. Ciano (3).............. 50,000 * * Anthony G. Gomez............... -- -- -- Julian C. Hawkins.............. -- -- -- John P. Hughes (4)............. 123,700 * * Mark A. Sawyer................. -- -- -- Robert J. Stone (5)............ 107,800 * * Joseph P. DiSabato (6)......... -- -- -- Michael W. Goroff (7).......... 195,600 * * Igal Lichtman.................. -- -- -- All executive officers and directors as a group (11 persons).................. 26,921,200 82.5% 63.9% Other stockholders: The Goldman Sachs Group, Inc. (8)........................... 4,933,929 15.1 11.9
- -------- * Less than 1%. (1) Includes 580,800 shares of common stock that will be transferred to PNY employees 180 days following the consummation of this offering. (2) Includes 147 shares of Series A preferred stock, which will automatically convert into 44,100 shares upon consummation of this offering and 600,000 shares that can be acquired upon the exercise of outstanding warrants. (3) Includes 50,000 shares of common stock that can be acquired upon the exercise of outstanding options. 41 (4) Includes 79 shares of Series A preferred stock, which will automatically convert into 23,700 shares of common stock upon consummation of this offering, and 100,000 shares of common stock that can be acquired upon the exercise of outstanding options. (5) Includes 26 shares of Series A preferred stock, which automatically convert into 7,800 shares upon consummation of this offering, and 100,000 shares of common stock that can be acquired upon the exercise of outstanding options. (6) Mr. DiSabato is a Vice President of Goldman, Sachs & Co. and disclaims beneficial ownership of any of our securities except to the extent of his pecuniary interest therein, if any. (7) Includes 87 shares of Series A preferred stock, which automatically convert into 26,100 shares upon consummation of this offering, and 169,500 shares of common stock that can be acquired upon the exercise of outstanding warrants. (8) Includes 648,777 shares of common stock that will be acquired as a result of the cashless exercise of warrants and 8,157 shares of Series A preferred stock, which will automatically convert into 2,447,100 shares of common stock upon consummation of this offering held by GS Capital Partners II, L.P.; 257,898 shares of common stock that will be acquired as a result of the cashless exercise of warrants and 3,242 shares of Series A preferred stock, which will automatically convert into 972,600 shares of common stock upon consummation of this offering held by GS Capital Partners II Offshore, L.P.; 23,967 shares of common stock that will be acquired as a result of the cashless exercise of warrants and 301 shares of Series A preferred stock, which will automatically convert into 90,300 shares of common stock upon consummation of this offering held by Goldman, Sachs & Co. Verwaltungs GmbH; 48,567 shares of common stock that will be acquired as a result of the cashless exercise of warrants and 612 shares of Series A preferred stock, which will automatically convert into 183,600 shares of common stock upon consummation of this offering held by Stone Street Fund 1995, L.P.; and 54,720 shares of common stock that will be acquired as a result of the cashless exercise of warrants and 688 shares of Series A preferred stock, which will automatically convert into 206,400 shares of common stock upon consummation of this offering held by Bridge Street Fund 1995, L.P. Goldman, Sachs and Co. is an indirect wholly-owned subsidiary of The Goldman Sachs Group, Inc. The Goldman Sachs Group, Inc. and Goldman, Sachs & Co. may be deemed to own beneficially and indirectly an aggregate of 4,933,929 shares held by the limited partnerships listed above. Affiliates of Goldman, Sachs & Co. and The Goldman Sachs Group, Inc. are the general partner, managing general partner or investment manager of those partnerships, and an investment committee of Goldman, Sachs & Co., which consists of 15 members, has voting and dispositive authority over the shares held by the limited partnerships. The Goldman Sachs Group, Inc. and Goldman, Sachs & Co. each disclaim beneficial ownership of the shares owned by the limited partnerships to the extent that those shares are attributable to partnership interests therein held by persons other than The Goldman Sachs Group, Inc. and its affiliates. 42 DESCRIPTION OF CAPITAL STOCK General The total amount of our authorized capital stock consists of 125,000,000 shares of common stock, par value $0.01 per share, and 10,000,000 shares of preferred stock. After giving effect to this offering, the 3-for-1 stock split effected in October 2000, the conversion of preferred stock and the exercise of warrants described below, assuming an initial public offering price of $14.00 per share and no exercise of the underwriters' over-allotment option, we will have 40,081,378 shares of common stock outstanding. At the closing of this offering, all of our currently outstanding shares of Series A preferred stock will automatically convert into 4,097,400 shares of common stock and all of our currently outstanding shares of Series B preferred stock and Series C preferred stock will be redeemed with a portion of the proceeds of this offering. After giving effect to these transactions, we will have no shares of any series of preferred stock outstanding. The following summary of provisions of our capital stock describes all material provisions of, but does not purport to be complete and is subject to, and qualified in its entirety by, our amended and restated certificate of incorporation and our bylaws (both of which will be amended at or prior to the consummation of this offering to reflect the following description), and by the provisions of applicable law. Common Stock The holders of our common stock are entitled to: . one vote per share on all matters submitted to a vote of our stockholders, . the payment of any dividends declared by the board of directors out of legally available funds, after the superior rights of any preferred stock holders have been satisfied, and . share ratably in company assets available for distribution to them in the event of our liquidation, dissolution, distribution of assets or winding up. The holders of common stock do not have cumulative voting rights. As a result, the holders of a majority of the outstanding common stock can elect all our directors. The remaining common stock holders will not be able to elect any directors. The holders of common stock have no preemptive or other subscription rights, and there are no conversion, redemption or sinking fund provisions with respect 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. There are provisions in our certificate of incorporation and bylaws that would have the effect of delaying, deterring or preventing a change in control of our management in the case of a hostile takeover or other acquisition. See "Description of Capital Stock--Anti-Takeover Provisions of Delaware Law and Our Charter." Preferred Stock Our board of directors will have the authority, without action by the stockholders, to designate and issue preferred stock in one or more series and to designate the rights, preferences and privileges of each series, any of which may be greater than the rights of the common stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock on the rights of holders of common stock until the board of directors determines the specific rights of the preferred stock. However, the effects might include, among other things, restricting dividends on the common stock, diluting the power of the common stock, impairing liquidation rights of the common stock and delaying or preventing a change of control or the removal of our existing management without further action by the shareholders. We have no present plans to issue any shares of preferred stock. 43 Warrants We have issued warrants to purchase shares of our common stock to members of senior management and the Board of Directors. We issued to a former director a warrant on April 22, 1996 to purchase 360,000 shares of common stock at an exercise price of $3.85 per share (which price automatically increased by 10% as of April 22, 2000 and will increase unless otherwise exercised on each April 22, thereafter). This director forfeited a portion of his warrant equal to 216,000 shares when he resigned in 1998. We issued to another of our directors a warrant to purchase 150,000 shares of common stock on March 4, 1997 at an exercise price of $3.85 per share (which price automatically increased by 10% as of April 22, 2000 and will increase unless otherwise exercised on each April 22, thereafter). On May 1, 1998, we also issued to this director a second warrant to purchase 49,500 shares of our common stock, at an exercise price of $0.03 a share. On May 1, 1998, we issued to another one of our directors, a warrant for the purchase of 900,000 shares of common stock at an exercise price of $0.03 per share. We have reserved 1,243,500 shares of common stock for the exercise of these warrants. No warrants have been exercised through September 30, 2000. On August 4, 1995, we issued warrants to purchase 917,700 shares of our common stock to GS Capital Partners II, L.P., warrants to purchase 364,800 shares of our common stock to GS Capital Partners II Offshore, L.P., warrants to purchase 33,900 shares of our common stock to Goldman, Sachs & Co. Verwaltungs GmbH, warrants to purchase 68,700 shares of our common stock to Stone Street Fund 1995, L.P. and 77,400 shares of our common stock to Bridge Street Fund 1995, L.P. These warrants have an exercise price of $4.10 per share. These Goldman, Sachs affiliates who hold warrants have agreed to exercise their warrants in full, pursuant to a cashless exercise, immediately prior to the effectiveness of this registration statement of which this prospectus forms a part, which will result in the issuance of shares of our common stock. Registration Rights As of the completion of this offering, the holders of an aggregate of 6,404,400 shares of common stock will be entitled to registration rights. These rights are provided under the terms of a registration rights agreement, management stockholders agreement and employee stock option plan between us and the holders of registrable securities, who include the affiliates of Goldman, Sachs mentioned above, current and former members of management and employees who purchased stock under the option plan. This agreement provides demand registration rights to the holders of registrable securities. In addition, the holders of all of the registrable securities are entitled under these agreements, subject to limitations, to require us to include their registrable securities in future registration statements filed by us. The demand registration rights provide that stockholders may request registration of their shares at our expense 180 days after the effective date of the registration statement of which this prospectus is a part, subject to a minimum amount of the requesting stockholder's shares per requested registration, and subject to our right to register our own shares or shares of other requesting stockholders, which may limit the total number of shares that may be sold in a single offering. These rights are being waived in connection with this offering for a period of 180 days after the date of the final prospectus relating to this offering. Holders of registrable securities are entitled to request us to register their securities when we propose or are required to register equity securities under the Securities Act of 1933. We are obligated to provide notice of the registration and the holders of registrable securities may request registration of their shares within 15 days of receipt of the notice. These rights are being waived in connection with this offering for a period of 180 days after the date of the final prospectus relating to this offering. Registration of shares of common stock pursuant to the rights granted in these agreements will result in such shares becoming freely tradeable without restriction under the Securities Act of 1933. All registration expenses incurred in connection with the above registrations will be borne by us. 44 Anti-Takeover Provisions of Delaware Law and Our Charter Delaware Law. In general, Section 203 of the Delaware General Corporation Law prohibits a publicly held Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder unless: . before that date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder, . on consummation of the transaction that resulted in the stockholder's becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding those shares owned by persons who are directors and also officers, and employee stock plans in which employee participants do not have the right to determine confidentially whether shares held under the plan will be tendered in a tender or exchange offer, or . on or after that date, the business combination is approved by the board of directors and authorized at a meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock not owned by the interested stockholder. Section 203 defines "business combination" to include: . any merger or consolidation involving the corporation and the interested stockholder, . any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation, . in general, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, or . the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by the entity or person. Charter Provisions. Our certificate of incorporation and bylaws include a number of provisions that may have the effect of deterring hostile takeovers or delaying or preventing changes in control of our management. First, our certificate of incorporation provides that all stockholder actions upon completion of this offering must be effected at a duly called meeting of holders and not by a consent in writing. Second, our bylaws provide that special meetings of the holders may be called only by the chairman of the board of directors, the chief executive officer or our board of directors under a resolution adopted by a majority of the total number of authorized directors. Third, our certificate of incorporation and bylaws provide for a classified board of directors in which approximately one-third of the directors would be elected each year. Consequently, any potential acquirer would need to successfully complete two proxy contests in order to take control of the board of directors. As a result of the provisions of the certificate of incorporation and Delaware law, stockholders will not be able to cumulate votes for directors. Finally, our bylaws establish procedures, including advance notice procedures, with regard to the nomination of candidates for election as directors and stockholder proposals. These provisions of our certificate of incorporation and bylaws could discourage potential acquisition proposals and could delay or prevent a change in control of our management. Transfer Agent and Registrar American Stock Transfer and Trust Corp. has been appointed as the transfer agent and registrar for our common stock. 45 SHARES ELIGIBLE FOR FUTURE SALE The sale of a substantial amount of our shares in the public market after this offering could adversely affect the prevailing market price of our shares. Furthermore, the sale of a substantial amount of shares in the public market after the contractual and legal restrictions on resale described below lapse could adversely affect the prevailing market price of our shares and our ability to raise equity capital in the future. Upon completion of this offering, we will have outstanding an aggregate of 40,081,378 shares, assuming the exercise of the warrants held by affiliates of Goldman, Sachs and Co., no exercise of the underwriters' over-allotment option and no exercise of outstanding options and reflecting a 3-for-1 stock split that we effected in October 2000. Of these shares, all of the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless the shares are purchased by our "affiliates" as that term is defined in Rule 144 under the Securities Act. Any shares purchased by an affiliate may not be resold except pursuant to an effective registration statement or an applicable exemption from registration, including an exemption under Rule 144 of the Securities Act. The remaining shares of common stock held by existing stockholders are "restricted securities" as that term is defined in Rule 144 under the Securities Act. These restricted securities may be sold in the public market only if they are registered or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act. These rules are summarized below. Assuming the conversion of the Series A preferred stock and the exercise of all outstanding and vested warrants and options, upon the expiration of the lock-up agreements described below and subject to the provisions of Rule 144 and Rule 701, restricted shares totaling 32,942,628 will be available for sale in the public market 180 days after the date of this prospectus. The sale of these restricted securities is subject to the volume restrictions contained in those rules. Some of these restricted shares, described as not being eligible for sale until 180 days after the date of this prospectus, may become eligible for sale at an earlier date, as described in "Underwriting." Lock-up Agreements We, our directors and executive officers and substantially all of our significant stockholders, who own or have the right to purchase in the aggregate 35,054,628 shares of our common stock, have entered into lock-up agreements with the underwriters. Under those agreements, subject to limited exceptions, neither we nor any of our directors or executive officers nor any of those stockholders may dispose of or hedge any shares of common stock or securities convertible into or exchangeable for shares of common stock. These restrictions will be in effect for a period of 180 days after the date of this prospectus. At any time and without notice, Lehman Brothers may release all or some of the securities from these lock-up agreements. See "Underwriting." Rule 144 In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who has beneficially owned shares of our common stock for at least one year from the later of the date those shares of common stock were acquired from us or from an affiliate of ours would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: . one percent of the number of shares of common stock then outstanding, which will equal approximately 400,814 shares immediately after this offering; or . the average weekly trading volume of the common stock on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale of any shares of common stock. The sales of any shares of common stock under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us. Rule 144(k) Under Rule 144(k), a person who is not one of our affiliates at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years from the later of 46 the date such shares of common stock were acquired from us or from an affiliate of ours, including the holding period of any prior owner other than an affiliate, is entitled to sell those shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Immediately upon completion of this offering, 7,165,478 shares will be eligible for sale under Rule 144(k). Rule 701 In general, under Rule 701 of the Securities Act as currently in effect, each of our employees, consultants or advisors who purchased shares from us in connection with a compensatory stock plan or other written agreement is eligible to resell those shares 90 days after the effective date of this offering in reliance on Rule 144, but without compliance with some of the restrictions, including the holding period, contained in Rule 144. No precise prediction can be made as to the effect, if any, that market sales of shares or the availability of shares for sale will have on the market price of our common stock prevailing from time to time. We are unable to estimate the number of our shares that may be sold in the public market pursuant to Rule 144 or Rule 701 because this will depend on the market price of our common stock, the personal circumstances of the sellers and other factors. After this offering, there will be 517,749 shares available for sale under Rule 701. Nevertheless, sales of significant amounts of our common stock in the public market could adversely affect the market price of our common stock. Stock Plans We intend to file a registration statement under the Securities Act covering 7,500,000 shares of common stock reserved for issuance under our stock option plan. This registration statement is expected to be filed as soon as practicable after the effective date of this offering. As of September 30, 2000, there are options to purchase 2,629,749 shares of our common stock outstanding under our stock option plan. In connection with the consummation of this offering, we intend to grant options to purchase up to 324,600 shares at an exercise price equal to $7.00 per share to existing employees who currently do not hold stock options. Also, in connection with the consummation of this offering, we intend to grant options to purchase an additional 249,000 shares of our common stock to new employees at an exercise price equal to the public offering price. All of these shares will be eligible for sale in the public market from time to time, subject to vesting provisions, Rule 144 volume limitations applicable to our affiliates and, in the case of some of the options, the expiration of lock-up agreements. 47 UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS The following is a general discussion of certain U.S. federal income and estate tax consequences of the ownership and disposition of common stock applicable to non-U.S. holders of our common stock who acquire and own it as a capital asset within the meaning of Section 1221 of the Internal Revenue Code. A "non-U.S. holder" is any person other than: . a citizen or resident of the United States, . a corporation or partnership created or organized in the United States or under the laws of the United States or of any state, . an estate whose income is includable in gross income for United States federal income tax purposes regardless of its source, or . a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust. This discussion does not consider specific facts and circumstances that may be relevant to a particular non-U.S. holder's tax position, including the fact that in the case of a non-U.S. holder that is a partnership, the U.S. tax consequences of holding and disposing of shares of common stock may be affected by certain determinations made at the partner level. Further, it does not consider U.S. state and local or non-U.S. tax consequences, nor does it consider non-U.S. holders subject to special tax treatment under the federal income tax laws, including banks and insurance companies, dealers in securities, and holders of securities held as part of a "straddle," "hedge" or "conversion transaction". In addition, persons that hold the common stock through "hybrid entities" may be subject to special rules and may not be entitled to the benefits of their country's income tax treaty, if any, with the United States. The following discussion is based on provisions of the Internal Revenue Code and administrative and judicial interpretations as of the date hereof, all of which are subject to change, possibly on a retroactive basis, and any change could affect the continuing validity of this discussion. The following summary is included herein for general information. Accordingly, if you are a non-U.S. holder, we urge you to consult a tax advisor with respect to the United States federal tax consequences of holding and disposing of our common stock, as well as any tax consequences that may arise under the laws of any U.S. state, local or non-U.S. taxing jurisdiction. Dividends. In general, assuming we have, and to the extent of, tax earnings and profits at the time of any dividends, dividends paid to a non-U.S. holder will be subject to withholding of U.S. federal income tax at a 30% rate unless this rate is reduced by an applicable income tax treaty with the United States. Dividends that are effectively connected with the holder's conduct of a trade or business in the United States, or, if a tax treaty applies, attributable to a permanent establishment or in the case of an individual a "fixed base," in the United States ("U.S. trade or business income") are generally subject to U.S. federal income tax at regular rates and are not generally subject to withholding if the non-U.S. holder files the appropriate form (currently Internal Revenue Service Form W-8ECI) with the payor. Any U.S. trade or business income received by a non-U.S. corporation may also, under certain circumstances, be subject to an additional "branch profits tax" at a 30% rate, or any lower rate that may be applicable under an income tax treaty. Under current law, dividends paid to an address in a foreign country are presumed, absent actual knowledge to the contrary, to be paid to a resident of that country for purposes of the withholding discussed above, and under the current interpretation of U.S. Treasury regulations, for purposes of determining the applicability of a tax treaty rate. Under final U.S. Treasury regulations, effective January 1, 2001, however, a non-U.S. holder of common stock who wishes to claim the benefit of an applicable treaty rate would be required to satisfy applicable certification and other requirements, which would include the requirement that the non-U.S. holder file a Form W-8 BEN which contains the holder's name and address. 48 A non-U.S. holder of common stock that is eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts currently withheld by filing an appropriate claim for a refund with the U.S. Internal Revenue Service. Disposition of Common Stock. Except as described below, a non-U.S. holder generally will not be subject to U.S. federal income tax in respect of gain recognized on a disposition of common stock provided that: . the gain is not U.S. trade or business income, . the non-U.S. holder is not an individual who is present in the United States for 183 or more days in the taxable year of the disposition and who meets certain other requirements, . the non-U.S. holder is not subject to tax pursuant to the provisions of U.S. tax law applicable to certain United States expatriates, and . PNY has not been and does not become a "United States real property holding corporation" for U.S. federal income tax purposes. We believe that we have not been, are not currently, and are not likely to become, a United States real property holding corporation. However, we cannot assure you that we will not be a United States real property corporation when a non-U.S. holder sells its shares of our common stock. If we were to be treated as a United States real property holding corporation, a non-U.S. holder who holds, directly or indirectly, more than 5% of our stock generally will be subject to U.S. federal income taxation on any gain realized from the sale or exchange of the stock, unless an exemption is provided under an applicable treaty. Federal Estate Taxes. In general, an individual who is a non-U.S. holder for U.S. estate tax purposes will incur liability for U.S. federal estate tax if the fair market value of property included in the individual's taxable estate for U.S. federal estate tax purposes exceeds the statutory threshold amount. For these purposes, common stock owned, or treated as owned, by an individual who is a non-U.S. holder at the time of death will be included in the individual's gross estate for U.S. federal tax purposes, unless an applicable estate tax treaty provides otherwise. U.S. Information Reporting Requirements and Backup Withholding Tax. We are required to report annually to the Internal Revenue Service and to each non- U.S. holder the amount of dividends paid to, and the tax withheld with respect to, each non-U.S. holder. These reporting requirements apply regardless of whether withholding was reduced or eliminated by an applicable tax treaty. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities in the country in which the non-U.S. holder resides. Under current regulations, the U.S. backup withholding tax, which generally is a withholding tax imposed at the rate of 31% on certain payments to persons that fail to satisfy the information reporting requirements, will generally not apply to dividends paid on the common stock to a non-U.S. holder at an address outside the United States. Under final Treasury regulations, effective January 1, 2001, a non-U.S. holder generally would not be subject to backup withholding at a 31% rate if the beneficial owner certifies to that owner's foreign status on a valid Form W-8 BEN. Non-U.S. holders will not be subject to information reporting or backup withholding with respect to the payment of proceeds from the disposition of common stock effected by a foreign office of a foreign broker provided however that if the broker is a U.S. person or a "U.S. related person," information reporting but not backup withholding would apply unless the broker receives a statement from the owner, signed under penalties of perjury, certifying its foreign status or otherwise establishing an exemption or the broker has documentary evidence in its files as to the non-U.S. holder's foreign status and the broker has no actual knowledge to the contrary. For this purpose, a "U.S. related person" is: . a "controlled foreign corporation" for U.S. federal income tax purposes, 49 . a foreign person 50% or more of whose gross income from all sources for the three-year period ending with the close of its taxable year preceding the payment (or for the part of the period that the broker has been in existence) is derived from activities that are effectively connected with the conduct of a U.S. trade or business, . a foreign partnership that is either engaged in a U.S. trade or business or in which U.S. persons hold more than 50% of the income or capital interest, or . certain U.S. branches of foreign banks or insurance companies. Non-U.S. holders will be subject to information reporting and backup withholding at a rate of 31% with respect to the payment of proceeds from the disposition of common stock effected by to or through the United States office of a broker, U.S. or foreign, unless the non-U.S. holder certifies as to its foreign status under penalties of perjury or otherwise establishes an exemption. Any amounts withheld under the backup withholding rules from a payment to a non-U.S. holder will be allowed as a credit against the non-U.S. holder's U.S. federal income tax, and any amounts withheld in excess of the non-U.S. holder's federal income tax liability will be refunded, provided that the required information is furnished to the Internal Revenue Service. 50 UNDERWRITING Under the underwriting agreement, which is filed as an exhibit to the registration statement relating to this prospectus, Lehman Brothers Inc., Robertson Stephens, Inc., Needham & Company, Inc. and Fidelity Capital Markets, a division of National Financial Services LLC, are acting as representatives of each of the underwriters named below. Under the underwriting agreement, each of the underwriters has agreed to purchase from us the respective number of shares of common stock shown opposite its name below:
Number of Underwriters Shares - ------------ --------- Lehman Brothers Inc. ............................................... Robertson Stephens, Inc. ........................................... Needham & Company, Inc. ............................................ Fidelity Capital Markets, a division of National Financial Services LLC................................................................ --------- Total............................................................. 8,900,000 =========
The underwriting agreement provides that the underwriters' obligations to purchase shares of common stock depend on the satisfaction of the conditions contained in the underwriting agreement and that, if any of the shares of common stock are purchased by the underwriters under the underwriting agreement, all of the shares of common stock that the underwriters have agreed to purchase under the underwriting agreement must be purchased. The conditions contained in the underwriting agreement include the requirement that the representations and warranties we make to the underwriters are true, that there is no material adverse change in the financial markets and that we deliver to the underwriters customary closing documents. The following table shows the underwriting fees to be paid to the underwriters by us in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares described below. The underwriting fee is the difference between the public offering price and the amount the underwriters pay to us to purchase the shares from us. On a per share basis, the underwriting fee is % of the initial public offering price.
No Full Exercise Exercise -------- -------- Per share.............................................. $ $ Total.................................................. $ $
The representatives have advised us that the underwriters propose to offer the shares of common stock directly to the public at the initial public offering price set forth on the cover page of this prospectus, and to dealers, who may include the underwriters, at this public offering price less a selling concession not in excess of $ per share. The underwriters may allow, and the dealers may re-allow, a concession not in excess of $ per share to brokers and dealers. After the offering, the underwriters may change the offering price and other selling terms. We estimate that the total expenses of this offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding underwriting discounts, will be approximately $1.6 million. We have granted to the underwriters an option to purchase up to 1,335,000 additional shares of common stock, exercisable to cover over-allotments, if any, at the initial public offering price less the underwriting discounts shown on the cover page of this prospectus. The underwriters may exercise this option at any time until thirty days after the date of the underwriting agreement. If this option is exercised, each underwriter will be committed, so long as the conditions of the underwriting agreement are satisfied, to purchase a number of additional shares of common stock proportionate to the underwriter's initial commitment as indicated in the 51 table above and we will be obligated, under the over-allotment option, to sell the shares of common stock to the underwriters. If the over-allotment option is less than fully exercised, the underwriters may, in their discretion, purchase the over-allotment shares either solely from us, subject to the aggregate number of shares offered. We have agreed that, without the consent of Lehman Brothers Inc., we will not, directly or indirectly, offer, sell or otherwise dispose of any shares of common stock or any securities that may be converted into or exchanged for any shares of common stock for a period of 180 days from the date of this prospectus. All of our executive officers and directors and substantially all of our material shareholders and option holders have agreed under lock-up agreements that, without the prior written consent of Lehman Brothers Inc., they will not, directly or indirectly, offer, sell or otherwise dispose of any shares of common stock or any securities that may be converted into or exchanged for any shares of common stock for the period ending 180 days after the date of this prospectus, including through hedging transactions. The 180- day restriction relating to shares beneficially owned by some of our non- employee shareholders will expire as to 33 1/3% of those shares, or 1,787,293 shares in the aggregate, if for 20 of 30 consecutive trading days the last bid price of our common stock reported on the Nasdaq National Market during normal trading hours has, at any time after the later of (1) the 90th day after the date of this prospectus and (2) the second trading day after we have made public our earnings results for the year ending December 31, 2000, exceeded twice the initial public offering price per share. Before the offering, there has been no public market for the shares of our common stock. The initial public offering price has been negotiated between the representatives and us. The material factors considered in determining the initial public offering price of the common stock, in addition to prevailing market conditions, were: . our historical performance and capital structure, . estimates of our business potential and earning prospects, . an overall assessment of our management, and . the above factors in relation to market valuation of companies in related businesses. Fidelity Capital Markets, a division of National Financial Services LLC, is acting as an underwriter of this offering and will be facilitating electronic distribution through the Internet. We have applied for quotation of our common stock on the Nasdaq National Market under the symbol "PNYT." We have agreed to indemnify the underwriters against liabilities under the Securities Act and liabilities arising from breaches of the representations and warranties contained in the underwriting agreement, and to contribute to payments that the underwriters may be required to make for these liabilities. Until the distribution of the common stock is completed, rules of the Commission may limit the ability of the underwriters and selling group members to bid for and purchase shares of common stock. As an exception these rules, the representatives are permitted to engage in transactions that stabilize the price of the common stock. These transactions may consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of the common stock. The underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. "Covered" short sales are sales made in an amount not greater than the underwriters' option to purchase additional shares from the issuer in the offering. The underwriters may close out any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. 52 In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. "Naked" short sales are any sales in excess of the overallotment option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of common stock made by the underwriters in the open market before the completion of the offering. Similar to other purchase transactions, the underwriters' purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of the common stock or preventing or retarding a decline in the market price of the common stock. As a result, the price of the common stock may be higher than the price that might otherwise exist in the open market. The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of that underwriter in stabilizing or short covering transactions. Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the common stock. In addition, neither we nor the underwriters make any representation that the representatives will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice. Any offers in Canada will be made only under an exemption from the requirements to file a prospectus in the relevant province of Canada in which the sale is made. Purchasers of the shares of common stock offered in this prospectus may be required to pay stamp taxes and other charges under the laws and practices of the country of purchase, in addition to the offering price listed on the cover page of this prospectus. Accordingly, we urge you to consult a tax advisor with respect to whether you may be required to pay such taxes or charges, as well as any other tax consequences that may arise under the laws of the country of purchase. The representatives have informed us that they do not intend to confirm the sales of shares of common stock offered by this prospectus to any accounts over which they exercise discretionary authority in excess of 5% of shares offered by them. At our request, the underwriters have reserved up to 890,000 shares or 10% of the common stock offered by this prospectus for sale to our directors, employees, existing stockholders and other persons having an established business relationship with us at the initial public offering price set forth on the cover page of this prospectus. These persons must commit to purchase no later than the close of business on the day following the date of this prospectus. The number of shares available for sale to the general public will be reduced to the extent these persons purchase the reserved shares. 53 LEGAL MATTERS The validity of the common stock offered hereby will be passed upon for us by Milbank, Tweed, Hadley & McCloy LLP, New York, New York. Legal matters in connection with this offering will be passed upon for the underwriters by Weil, Gotshal & Manges LLP, New York, New York. Michael W. Goroff, a partner of Milbank, Tweed, Hadley & McCloy LLP and one of our directors, beneficially owns 87 shares of Series A preferred stock, convertible into 26,100 shares of our common stock, and warrants to purchase 199,500 shares of our common stock. EXPERTS Ernst & Young LLP, independent auditors, have audited our consolidated financial statements as of December 31, 1998 and 1999 and for each of the three years in the period ended December 31, 1999 as set forth in their report. We have included our financial statements in this prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's report given on their authority as experts in accounting and auditing. WHERE YOU CAN FIND ADDITIONAL INFORMATION We have filed with the Commission a registration statement on Form S-1 under the Securities Act of 1933 with respect to the common stock offered by this prospectus. While the information contained in this prospectus is materially complete, this prospectus does not contain all the information set forth in the registration statement and its exhibits and schedules. For further information with respect to our Company and the common stock offered by this prospectus, we refer you to the registration statement and to the exhibits. The exhibits to the registration statement include the full text of contracts, agreements and other documents described in this prospectus. You should refer to these exhibits when reading the descriptions of these documents contained in this prospectus. You should be aware that when we discuss these contracts or documents in this prospectus we are assuming that you will read the exhibits to the registration statement for a more complete understanding of the contract or document. Following the offering we will become subject to the reporting requirements of the Securities Exchange Act. In accordance with that law, we will be required to file reports and other information with the Commission. The registration statement and exhibits, as well as those reports and other information when so filed, may be inspected without charge at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further information on the operation of the public reference facilities. Copies of all or any part of the registration statement may be obtained from the Commission's offices on payment of fees prescribed by the Commission. The Commission maintains a World Wide Website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of the site is http://www.sec.gov. We will furnish our shareholders annual reports and unaudited quarterly reports for the first three quarters of each fiscal year. Annual reports will include audited consolidated financial statements prepared in accordance with generally accepted accounting principles. The consolidated financial statements included in the annual reports will be examined and reported on, with an opinion expressed, by our independent auditors. 54 PNY TECHNOLOGIES, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Report of Independent Auditors ......... . . . . . . . . . . . . . . . . . F-2 Consolidated Balance Sheets as of December 31, 1998 and 1999 and September 30, 2000 (unaudited) .............................. . . . . F-3 Consolidated Statements of Operations for the years ended December 31, 1997, 1998 and 1999 and for the nine-month periods ended September 30, 1999 and 2000 (unaudited) ... . . . . . . . . . . . . . F-4 Consolidated Statements of Stockholders' (Deficiency) Equity for the years ended December 31, 1997, 1998 and 1999 and for the nine-month period ended September 30, 2000 (unaudited) .. . . . . . . . . . . F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1998 and 1999 and for the nine-month periods ended September 30, 2000 and 1999 (unaudited) ... . . . . . . . . . . . . F-6 Notes to Consolidated Financial Statements ..... . . . . . . . . . . . . . F-7
F-1 REPORT OF INDEPENDENT AUDITORS To the Stockholders and Board of Directors of PNY Technologies, Inc. We have audited the accompanying consolidated balance sheets of PNY Technologies, Inc. as of December 31, 1998 and 1999, and the related consolidated statements of operations, stockholders' (deficiency) equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of PNY Technologies, Inc. at December 31, 1998 and 1999 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP MetroPark, New Jersey March 31, 2000 F-2 PNY TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts)
December 31, Pro Forma ----------------- September 30, September 30, 2000 1998 1999 2000 (Note 1) -------- ------- ------------- ------------- (unaudited) (unaudited) Assets Current assets: Cash and cash equivalents ..... $ 1,675 $ 6,496 $ 10,273 $ 10,273 Accounts receivable, less allowance for doubtful accounts of $916, $1,059 and $1,335 at December 31, 1998 and 1999, and September 30, 2000, respectively ........... 31,214 28,035 59,752 59,752 Inventories, net .............. 21,817 34,805 110,793 110,793 Refundable income taxes ....... 78 39 279 279 Deferred income taxes ......... -- -- 6,425 6,425 Prepaid expenses and other..... 549 719 1,185 1,185 -------- ------- -------- -------- Total current assets ........... 55,333 70,094 188,707 188,707 Property, plant and equipment, net ........................... 10,203 9,129 14,809 14,809 Notes due from related party ... 250 1,318 2,430 2,430 Deposits and other ............. 144 602 469 469 -------- ------- -------- -------- $ 65,930 $81,143 $206,415 $206,415 ======== ======= ======== ======== Liabilities and stockholders' (deficiency) equity Current liabilities: Current portion of long-term debt ......................... $ 31,914 $24,585 $ 62,688 $ 62,688 Current portion of capital lease obligations ............ 749 545 1,055 1,055 Accounts payable .............. 21,721 24,671 72,419 72,419 Bank overdrafts ............... 1,564 4,179 10,388 10,388 Accrued expenses .............. 4,503 5,861 9,832 9,832 Customer allowances ........... 4,850 8,326 8,699 8,699 Income taxes payable .......... 125 1,079 2,854 2,854 Other ......................... 304 588 458 18,518 -------- ------- -------- -------- Total current liabilities ...... 65,730 69,834 168,393 186,453 Long-term debt ................. 1,081 741 1,697 1,697 Capital lease obligations ...... 1,230 755 1,477 1,477 Note payable--acquisition of business....................... -- -- 1,547 1,547 Other long-term liabilities .... 388 300 258 258 Redeemable preferred stock: Series B preferred stock, cumulative, par value $.01 per share; 15 shares issued and outstanding (liquidation preference of $15,000)........ 15,000 15,000 15,000 -- Series C preferred stock, cumulative, par value $.01 per share; 3 shares issued and outstanding (liquidation preference of $3,060)......... 3,060 3,060 3,060 -- Stockholders' (deficiency) equity: Convertible Series A preferred stock cumulative, participating, par value $.01 per share; issued and outstanding, 13,841 shares in 1998, 13,658 shares in 1999 and 2000, none on a pro forma basis (liquidation preference of $15,759 at September 30, 2000) ........................ -- -- -- -- Common stock--par value $.01 per share; authorized 125,000,000 shares, issued and outstanding 26,050,050 shares in 1998, 1999 and 2000, and 31,181,378 shares on a pro forma basis .................. 261 261 261 312 Deferred stock compensation ... -- -- (8,940) (8,940) Additional paid-in capital .... 1,644 1,644 14,177 14,126 Treasury stock, at cost--544 shares in 1998 and 727 shares in 1999 and 2000 of Series A preferred stock, and 218,100 shares of common stock on a pro forma basis .............. (622) (683) (683) (683) (Accumulated deficit) retained earnings...................... (22,146) (9,772) 10,800 10,800 Accumulated other comprehensive income (loss) ................ 522 96 (539) (539) -------- ------- -------- -------- (20,341) (8,454) 15,076 15,076 Notes receivable .............. (218) (93) (93) (93) -------- ------- -------- -------- Total stockholders' (deficiency) equity ........................ (20,559) (8,547) 14,983 14,983 -------- ------- -------- -------- $ 65,930 $81,143 $206,415 $206,415 ======== ======= ======== ========
See accompanying notes. F-3 PNY TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts)
Year Ended December 31, Nine Months Ended September 30, ------------------------------------- ------------------------------- 1997 1998 1999 1999 2000 ----------- ----------- ----------- --------------- --------------- (unaudited) Net sales .............. $ 270,924 $ 204,576 $ 273,571 $ 200,072 $ 343,749 Cost of sales .......... 250,306 177,577 233,035 169,592 294,544 ----------- ----------- ----------- --------------- --------------- Gross profit ........... 20,618 26,999 40,536 30,480 49,205 Operating expenses: Selling .............. 15,109 13,491 15,082 11,251 15,818 Shipping and warehouse............ 1,662 1,709 1,538 1,122 1,278 General and administrative ...... 8,948 7,247 7,701 5,667 11,073 ----------- ----------- ----------- --------------- --------------- 25,719 22,447 24,321 18,040 28,169 ----------- ----------- ----------- --------------- --------------- Operating (loss) income ....................... (5,101) 4,552 16,215 12,440 21,036 Other (expense) income: Interest income ...... 88 33 90 70 120 Interest expense ..... (3,766) (2,476) (2,738) (1,857) (2,973) Other income, net .... 97 77 171 109 422 Foreign exchange loss................. (64) (22) -- (39) (582) ----------- ----------- ----------- --------------- --------------- (3,645) (2,388) (2,477) (1,717) (3,013) ----------- ----------- ----------- --------------- --------------- (Loss) income before income taxes........... (8,746) 2,164 13,738 10,723 18,023 Income taxes (benefit) ....................... 2 120 1,364 1,084 (2,549) ----------- ----------- ----------- --------------- --------------- Net (loss) income ...... $ (8,748) $ 2,044 $ 12,374 $ 9,639 $ 20,572 =========== =========== =========== =============== =============== Net (loss) income per common share: Basic ................ $ (0.34) $ 0.08 $ 0.48 $ 0.37 $ 0.79 Diluted .............. (0.34) 0.07 0.39 0.31 0.61 Shares used in computing net (loss) income per common share: Basic ................ 25,800,000 25,948,000 26,050,000 26,050,000 26,050,000 Diluted .............. 25,800,000 30,681,000 31,506,000 31,390,000 33,834,000 Unaudited pro forma net income per common share (Note 1): Basic ................ $ 0.40 $ 0.66 Diluted .............. 0.38 0.60 Shares used in computing unaudited pro forma net income per common share (Note 1): Basic ................ 31,181,000 31,181,000 Diluted .............. 32,540,000 34,092,000
See accompanying notes. F-4 PNY TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIENCY) EQUITY (in thousands, except share amounts)
Convertible Series A Preferred Treasury Stock (Accumulated Accumulated Stock Common Stock Deferred Additional Preferred Series A Deficit) Other -------------- ----------------- Stock Paid-In --------------------- Retained Comprehensive Shares Amount Shares Amount Compensation Capital Shares Amount Earnings Income (Loss) ------ ------ ---------- ------ ------------ ---------- --------- ---------- ------------ ------------- Balance at January 1, 1997.. 14,385 $ -- 25,800,000 $258 $ -- $ 1,550 -- $ -- $(15,442) $ 338 Contributed capital......... 96 Repurchase of preferred stock........... (544) 544 (622) Repayments on notes receivable...... Net loss........ (8,748) Currency transaction adjustment...... 39 Comprehensive loss............ ------ ----- ---------- ---- ------- ------- -------- ---------- -------- ----- Balance at December 31, 1997............. 13,841 -- 25,800,000 258 -- 1,646 544 (622) (24,190) 377 Stock issued.... 250,050 3 (2) Repayments of notes receivable...... Net income...... 2,044 Currency translation adjustment...... 145 Comprehensive income.......... ------ ----- ---------- ---- ------- ------- -------- ---------- -------- ----- Balance at December 31, 1998............. 13,841 -- 26,050,050 261 -- 1,644 544 (622) (22,146) 522 Repurchase of preferred stock........... (183) 183 (61) Cancellation of notes receivable charged to compensation expense......... Net income...... 12,374 Currency translation adjustment...... (426) Comprehensive income.......... ------ ----- ---------- ---- ------- ------- -------- ---------- -------- ----- Balance at December 31, 1999............. 13,658 -- 26,050,050 261 -- 1,644 727 (683) (9,772) 96 Compensatory stock option grants.......... (9,686) 9,686 Stock-based compensation.... 746 2,847 Net income...... 20,572 Currency translation adjustment...... (635) Comprehensive income.......... ------ ----- ---------- ---- ------- ------- -------- ---------- -------- ----- Balance at September 30, 2000 (unaudited)...... 13,658 $ -- 26,050,050 $261 $(8,940) $14,177 727 $(683) $ 10,800 $(539) ====== ===== ========== ==== ======= ======= ======== ========== ======== ===== Total Stockholders' Notes (Deficiency) Receivable Equity ---------- ------------- Balance at January 1, 1997.. $(651) $(13,947) Contributed capital......... 96 Repurchase of preferred stock........... 390 (232) Repayments on notes receivable...... 5 5 Net loss........ (8,748) Currency transaction adjustment...... 39 ------------- Comprehensive loss............ (8,709) ---------- ------------- Balance at December 31, 1997............. (256) (22,787) Stock issued.... 1 Repayments of notes receivable...... 38 38 Net income...... 2,044 Currency translation adjustment...... 145 ------------- Comprehensive income.......... 2,189 ---------- ------------- Balance at December 31, 1998............. (218) (20,559) Repurchase of preferred stock........... 61 -- Cancellation of notes receivable charged to compensation expense......... 64 64 Net income...... 12,374 Currency translation adjustment...... (426) ------------- Comprehensive income.......... 11,948 ---------- ------------- Balance at December 31, 1999............. (93) (8,547) Compensatory stock option grants.......... -- Stock-based compensation.... 3,593 Net income...... 20,572 Currency translation adjustment...... (635) ------------- Comprehensive income.......... 19,937 ---------- ------------- Balance at September 30, 2000 (unaudited)...... $ (93) $ 14,983 ========== =============
See accompanying notes. F-5 PNY TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Nine Months Ended Year Ended December 31, September 30, --------------------------- ------------------ 1997 1998 1999 1999 2000 -------- ------- -------- -------- -------- (unaudited) Cash flows from operating activities Net (loss) income ........... $ (8,748) $ 2,044 $ 12,374 $ 9,639 $ 20,572 Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Depreciation and amortization .............. 2,279 2,703 2,776 2,054 2,305 Stock-based compensation ... -- 1 -- -- 3,593 Non-cash compensation....... -- -- 64 64 -- Interest receivable from stockholders............... -- -- (68) (61) (154) Deferred taxes ............. -- -- -- -- (6,425) Purchases of marketable securities ................ -- -- (1,424) (1,424) (3,619) Proceeds from sales of marketable securities ..... -- -- 1,437 1,147 3,900 (Gain) loss on sales of marketable securities...... -- -- (13) 1 (281) Loss (gain) on disposal of assets .................... 137 272 74 (1) 88 Changes in operating assets and liabilities: Accounts receivable ...... 23,618 1,733 198 (18,082) (32,507) Inventories .............. 10,157 (4,482) (13,491) (20,496) (78,277) Refundable income taxes .. 1,895 39 40 52 (240) Prepaid expenses and other ......................... 778 172 (646) (722) (323) Accounts payable.......... (8,199) (2,248) 5,902 7,244 49,252 Bank overdrafts .......... -- 1,564 2,615 2,705 6,209 Accrued expenses ......... (715) 517 1,590 1,888 4,218 Income taxes payable ..... -- (270) 3,476 3,195 1,972 Customer allowances ...... (67) (3,212) 1,023 4,299 373 Other current liabilities ......................... 142 (200) 274 (278) (122) -------- ------- -------- -------- -------- Net cash provided by (used in) operating activities.... 21,277 (1,367) 16,201 (8,776) (29,466) Cash flows from investing activities Acquisition of property and equipment .................. (4,177) (3,254) (2,105) (1,502) (4,954) Proceeds from disposal of assets ..................... -- 3,119 6 6 249 Payments of notes receivable ............................ 5 38 -- -- -- Advances to stockholder ..... -- (250) (1,000) (1,000) (1,000) -------- ------- -------- -------- -------- Net cash used in investing activities ................. (4,172) (347) (3,099) (2,496) (5,705) Cash flows from financing activities (Repayment) proceeds of loans payable .................... (17,033) (109) (6,926) 11,831 39,793 Paydown of capital lease obligations ................ (219) -- (755) (575) (701) -------- ------- -------- -------- -------- Net cash (used in) provided by financing activities..... (17,252) (109) (7,681) 11,256 39,092 Effect of exchange rate changes on cash and cash equivalents ................ 916 (25) (600) (132) (144) -------- ------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents... 769 (1,848) 4,821 (148) 3,777 Cash and cash equivalents at beginning of period ........ 2,754 3,523 1,675 1,675 6,496 -------- ------- -------- -------- -------- Cash and cash equivalents at end of period .............. $ 3,523 $ 1,675 $ 6,496 $ 1,527 $ 10,273 ======== ======= ======== ======== ======== Supplemental disclosure of cash flow information Cash paid for: Interest ................... $ 3,795 $ 2,477 $ 2,790 $ 1,999 $ 2,971 ======== ======= ======== ======== ======== Income taxes ............... $ 35 $ -- $ 377 $ 206 $ 2,304 ======== ======= ======== ======== ======== Noncash financing activities Acquisition of machinery under capital leases ....... $ -- $ 1,870 $ 346 $ 346 $ 2,040 ======== ======= ======== ======== ========
See accompanying notes. F-6 PNY TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share amounts) (information as of and relating to the nine months ended September 30, 1999 and 2000 is unaudited) 1. Summary of Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements include the accounts of PNY Technologies, Inc. (the "Company") and its majority-owned subsidiary P.N.Y. Technologies Europe, S.A.S. ("PNY Europe"). PNY Europe has three wholly-owned subsidiaries, PNY Technologies GmbH ("PNY Germany"), PNY Technologies (UK) Limited ("PNY UK"), and PNY Technologies Ireland Limited ("PNY Ireland"). PNY Europe, PNY Germany, PNY UK and PNY Ireland are referred to collectively as the "Subsidiaries." All significant intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Interim Financial Statements The accompanying unaudited interim financial statements as of September 30, 2000 and for each of the nine-month periods ended September 30, 1999 and 2000 include all adjustments which, in the opinion of management, are necessary for a fair presentation of the Company's financial position, results of operations and cash flows for the periods presented. All such adjustments are of a normal recurring nature. The results of the Company's operations for the nine months ended September 30, 1999 and 2000 are not necessarily indicative of the results of operations for a full fiscal year. Revenue Recognition Sales are recognized upon shipment of goods to customers. The Company accrues for rebate arrangements and estimated future returns at the time of sale. Fair Value of Financial Instruments The Company's financial instruments consist mainly of cash, accounts receivable and accounts payable. The carrying amounts of these financial instruments approximate fair value due to their short-term nature. The carrying amounts of long-term debt and capital lease obligations are estimated to approximate their fair values as the stated rates approximate current rates. Redeemable preferred stock is carried at redemption value. Cash and Cash Equivalents Cash and cash equivalents consist of liquid investments with original maturities of three months or less. Cash and cash equivalents in excess of Federal Deposit Insurance Corporation's insurance limits were approximately $1,500, $6,300 and $7,800 at December 31, 1998 and 1999, and September 30, 2000, respectively. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or market. The Company provides reserves for excess and obsolete inventories in the period in which excess/obsolescence is determined. F-7 PNY TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands, except share and per share amounts) (information as of and relating to the nine months ended September 30, 1999 and 2000 is unaudited) Marketable Securities Marketable securities consist of marketable equity securities acquired and generally held for a short period of time to make a profit from short-term movements in market prices. In accordance with Statement of Financial Accounting Standard ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities," management determines the appropriate classification of marketable securities at the time of purchase and reevaluates such designations as of each balance sheet date. These investments are classified as trading securities and carried at fair value, with unrealized holding gains and losses included in earnings. Property, Plant and Equipment Property, plant and equipment is stated at cost. Depreciation and amortization is computed using straight-line and accelerated methods over the estimated useful lives of the related assets as follows:
Number of Years --------- Building and improvements............................................. 20 years Machinery and equipment .............................................. 3-7 years Computer equipment and software ...................................... 3-5 years Furniture and fixtures ............................................... 7 years
Long-Lived Assets The Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the estimated cash flows to be generated by such assets are less than their book values. Foreign Currency Translation The financial statements of the Company's foreign subsidiaries have been translated in accordance with SFAS No. 52, "Foreign Currency Translation." The subsidiaries' assets and liabilities are translated into U.S. Dollars at the rate of exchange at the balance sheet date. Monthly income and expense items are translated at the average exchange rate for the month. The resulting foreign currency translation adjustment is included in stockholders' equity as accumulated other comprehensive income (loss). Income Taxes Deferred income taxes are provided for differences between financial statement and income tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The Company periodically reviews the adequacy of the valuation allowance and recognizes these benefits only as reassessment indicates that it is more likely than not that the benefits will be realized. Stock-Based Compensation As permitted by Financial Accounting Standards Board ("FASB") Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which establishes a fair value based method of accounting for stock-based compensation plans, the Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), for recognizing stock- based compensation expense for financial statement purposes. F-8 PNY TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands, except share and per share amounts) (information as of and relating to the nine months ended September 30, 1999 and 2000 is unaudited) Advertising Costs Advertising costs are expensed as incurred. In 1997, 1998 and 1999 advertising expense was approximately $5,029, $4,934 and $6,437, respectively. Segment Information The Company follows the provisions of SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 replaces the "industry segment" approach with the "management" approach of reporting segment information. The management approach designates the internal information used by management for making operating decisions and assessing performance as the source of the Company's reportable segments. The Company derives its revenue solely from the sale of memory products produced in two geographic areas, the United States and Europe. The Company reports its segment information on the basis of these two geographic areas. Comprehensive Income (Loss) The Company follows the provisions of SFAS No. 130, "Reporting Comprehensive Income," which established standards for reporting and display of comprehensive income and its components. Comprehensive income reflects the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. For the Company, comprehensive income represents net income adjusted for foreign currency translation adjustments. In accordance with SFAS No. 130, the Company has chosen to disclose comprehensive income (loss) in the consolidated statement of stockholders' (deficiency) equity. Stock Split and Recapitalization In October 2000, the Company's stockholders approved a 3-for-1 common stock split and increased the authorized shares of the common stock to 125,000,000 shares and preferred stock to 10,000,000 shares. All shares and per share information presented have been retroactively restated to give effect to this stock split. Earnings (Loss) Per Share The Company computes net income (loss) per share under the provisions of SFAS No. 128 "Earnings per Share" and Securities and Exchange Commission ("SEC") Staff Accounting Bulletin ("SAB") No. 98. Under the provisions of SFAS 128 and SAB 98, basic and diluted net income (loss) per share is computed by dividing the net income (loss) available to common stockholders for the period by the weighted-average number of shares of common stock outstanding during the period. The calculation of diluted net income (loss) per share excludes potential common shares if the effect is anti- dilutive. Basic earnings per share is computed by dividing income or loss applicable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is determined in the same manner as basic earnings per share except that the number of shares is increased assuming exercise of dilutive stock options and warrants using the treasury stock method and assuming conversion of the Company's preferred stock. Unaudited Pro Forma Information The Company is planning to file a registration statement with the SEC that would permit the Company to sell shares of common stock in the offering. All outstanding Series A preferred stock will convert into common F-9 PNY TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands, except share and per share amounts) (information as of and relating to the nine months ended September 30, 1999 and 2000 is unaudited) stock on a one hundred-to-one basis upon the closing of this offering. In addition, the holders of warrants to purchase 1,462,500 common shares at an exercise price of $4.10 have indicated their intent to exercise, on a cashless basis, these warrants prior to the consummation of the offering. The unaudited pro forma balance sheet information at September 30, 2000 and the unaudited pro forma net income per share reflect the effect of the automatic conversion of the Series A preferred stock of the Company to common stock, the cashless exercise of the warrants upon the closing of the offering based upon the deemed fair value of the common stock at September 30, 2000 and the current obligation to redeem the Series B and C preferred stock upon consummation of the offering. Unaudited Pro Forma Net Income Per Share Unaudited pro forma basic net income per share is computed using the weighted-average number of common shares outstanding, including the unaudited pro forma effects of the automatic conversion of the Company's Series A Preferred Stock into shares of the Company's common stock and the cashless exercise of the warrants as if such conversion and such exercise occurred at the date of original issuance. The resulting unaudited pro forma adjustment is an increase in the weighted-average shares used to compute basic earnings per share of 5,131,328 shares for the periods ended December 31, 1999 and September 30, 2000. New Accounting Pronouncements In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities. It requires an entity recognize all derivatives as either assets or liabilities at fair value. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 2000 and is therefore effective for the Company beginning January 1, 2001. Based upon the nature of the financial instruments and hedging activities in effect as of September 30, 2000, this pronouncement would not have a material impact on the Company's financial position or results of operations. In December 1999, the SEC issued SAB No. 101, "Revenue Recognition in Financial Statements." The SAB explains how the SEC staff believes revenue should be recognized for transactions not addressed by existing rules and the basic criteria that must be met before registrants can record revenue under existing rules. The Company's accounting policies are in compliance with SAB 101. In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation." The Interpretation provides guidance for certain issues that arose in the application of APB Opinion No. 25, "Accounting for Stock Issued to Employees." In general, the provisions of this interpretation are effective prospectively after July 1, 2000. Reclassifications Certain prior amounts have been reclassified to conform with the current year's presentation. 2. Accounts Receivable and Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade receivables. Sales of the Company's products are concentrated among specific customers in the same industry. The Company generally does not require collateral or other security with regard to balances due from customers. The Company extends credit to its customers in the normal course of business and performs periodic credit evaluations of its customers, maintaining allowances for potential credit losses. The Company considers concentrations of credit risk in establishing the allowance for doubtful accounts and believes the recorded amount is adequate. F-10 PNY TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands, except share and per share amounts) (information as of and relating to the nine months ended September 30, 1999 and 2000 is unaudited) Certain customers accounted for more than 10% of consolidated net sales as follows:
Nine Months Ended Year Ended December 31, September 30, -------------------------- ----------------- 1997 1998 1999 1999 2000 -------- ------- -------- -------- -------- Customer A....................... 16% 25% 24% 26% 9% Customer B....................... 12 9 10 11 8 Customer C....................... -- -- 14 10 45 -------- ------- -------- -------- -------- 28% 34% 48% 47% 62% ======== ======= ======== ======== ========
Aggregate accounts receivable from these customers represented 48%, 51% and 62% of total accounts receivable as of December 31, 1998 and 1999, and September 30, 2000, respectively. 3. Inventories Inventories consist of:
December 31, ----------------- September 30, 1998 1999 2000 ------- -------- ----------------- Raw materials and components.......... $12,729 $ 21,114 $ 65,908 Work in process....................... 1,010 3,392 12,042 Finished goods........................ 11,740 12,396 35,202 ------- -------- --------- 25,479 36,902 113,152 Reserves.............................. (3,662) (2,097) (2,359) ------- -------- --------- $21,817 $ 34,805 $ 110,793 ======= ======== ========= 4. Property, Plant and Equipment Property, plant and equipment consists of: December 31, ----------------- September 30, 1998 1999 2000 ------- -------- ------------- Land.................................. $ 50 $ 43 $ 39 Building and improvements............. 3,632 3,645 4,094 Machinery and equipment............... 8,871 9,819 14,146 Machinery and equipment under capital lease................................ 2,630 2,342 3,963 Computer equipment and software....... 1,791 1,971 2,260 Furniture and fixtures................ 1,383 1,433 1,428 ------- -------- --------- 18,357 19,253 25,930 Less accumulated depreciation and amortization......................... (8,154) (10,124) (11,121) ------- -------- --------- $10,203 $ 9,129 $ 14,809 ======= ======== =========
Accumulated depreciation and amortization above includes amortization of property under capital leases of $650, $1,042 and $1,431 at December 31, 1998 and 1999, and September 30, 2000, respectively. F-11 PNY TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands, except share and per share amounts) (information as of and relating to the nine months ended September 30, 1999 and 2000 is unaudited) 5. Government Grants The French Government provided monetary grants totaling approximately $1,100 to PNY Europe based on employment and investment requirements. At December 31, 1998 and 1999, approximately $315 and $227 of the grants, respectively, have been deferred and will be recognized as income over the useful lives of the related assets. 6. Long-Term Debt and Capital Leases The Company has a U.S. bank financing agreement (the "Agreement") originally dated February 23, 1996, as amended and restated through October 16, 2000. The maximum amount available under the line, as amended, is $50,000 ($60,000 through November 30, 2000) and the term of the Agreement extends to February 23, 2002. The agreement specifies interest rates, at the option of the Company, of prime rate plus 1.00% and eurodollar rate plus 2.25%. The blended interest rate under this Agreement was 8.85% at December 31, 1999 and 9.32% at September 30, 2000. At December 31, 1998 and 1999, and September 30, 2000, $29,384, $23,887 and $51,259, respectively, was outstanding under the Agreement. Availability under the Agreement is based on defined percentages of eligible accounts receivable and inventories. Amounts outstanding under the Agreement are collateralized by accounts receivable and inventories. The Agreement contains certain restrictive covenants, the most significant of which pertain to related party transactions, additional indebtedness, dividend payments and minimum net worth and interest coverage requirements. Although the Agreement expires in February 2002, generally accepted accounting principles require borrowings under the Agreement to be classified as current. PNY Europe also has available lines of credit as of September 30, 2000 with foreign banks totaling approximately $10,903, which expire through September 30, 2001. As of December 31, 1999 and September 30, 2000, borrowings outstanding under these lines totaled $507 and $10,692, respectively, with interest rates at the average monthly money market rate plus 1.0%-1.25% (4.4% at December 31, 1999). In addition, PNY Europe has various loans payable to foreign banks, aggregating $932 and $2,434 at December 31, 1999, and September 30, 2000, respectively at interest rates ranging between 3.9% and 7.5% and maturing between January 6, 2001 and February 5, 2007. Annual maturities of long-term debt, excluding capital leases at December 31, 1999, are as follows: 2000........................................... $24,585 2001........................................... 179 2002........................................... 104 2003........................................... 103 2004........................................... 105 Thereafter..................................... 250 ------- $25,326 =======
F-12 PNY TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands, except share and per share amounts) (information as of and relating to the nine months ended September 30, 1999 and 2000 is unaudited) The following is a schedule as of December 31, 1999 of future minimum lease payments under capital leases together with the present value of net minimum lease payments: 2000............................................ $ 634 2001............................................ 506 2002............................................ 285 2003............................................ 7 ------ Total minimum lease payments ................... 1,432 Less amounts representing interest ............. (132) ------ Present value of minimum lease payments......... $1,300 ======
7. Employee Benefit Plan The Company has a tax deferred savings plan covering substantially all U.S. employees of the Company under Section 401(k) of the Internal Revenue Code. The Company matches one-half of the first 6% of employee contributions and makes additional contributions to the Plan annually at the discretion of the Board of Directors. Contributions to the tax deferred savings plan were $340, $322 and $352 for the years ended December 31, 1997, 1998 and 1999, respectively. 8. Redeemable Preferred Stock Each share of Series B preferred stock has a liquidation preference of $1,000,000, plus accrued and unpaid dividends, if any. The Series B preferred stock, which may be redeemed at any time at the Company's option, is required to be redeemed on August 3, 2005, and upon consummation of a qualified initial public offering ("IPO") by the Company. During 1997, a $3,060 note payable to a stockholder was exchanged for three shares of Series C preferred stock. Each share of Series C preferred stock has a liquidation preference of $1,020,000, plus accrued and unpaid dividends, if any. The Series C preferred stock, which may be redeemed at any time at the Company's option, is required to be redeemed on August 3, 2002, and upon consummation of a qualified IPO by the Company. The Series B and Series C preferred stock are owned by the spouse of the principal stockholder. The Series B and Series C preferred stock are not convertible into common stock and are generally not entitled to vote on matters presented to stockholders. The Series B and Series C preferred stock are entitled to cumulative dividends, payable semi-annually at a rate equal to 7.5% of the liquidation preference, which dividend rate increases to 8.0% following a public offering by the Company. The holder of all outstanding shares of Series B and C preferred stock has irrevocably waived the rights to all dividends through December 31, 2000. The Series B and Series C preferred stock rank pari passu with the Preferred Stock Series A. 9. Stockholders' Equity Capital Stock During 1997 the Company amended its certificate of incorporation. The amendment authorized the Company to issue 75,025,000 shares of all classes of capital stock, 75,000,000 as common. The Company has authorized 25,000 shares of preferred stock, of which 15,000 shares are designated Series A, 15 shares are designated Series B, and 3 shares are designated Series C. In October 2000, the Company amended and restated its capital accounts. See Note 18, "Subsequent Events". F-13 PNY TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands, except share and per share amounts) (information as of and relating to the nine months ended September 30, 1999 and 2000 is unaudited) Each share of common stock is entitled to one vote and each share of Preferred Stock Series A entitles the stockholder to votes equal to the number of shares of common stock into which the shares of Series A preferred stock is convertible. Each share of Series A preferred stock is convertible at the option of the holder, at any time, into fully paid and nonassessable shares of common stock, at a three hundred-to-one conversion ratio. Such conversion ratio is subject to adjustment based on future dilution of common stock. In the event the Company completes a public offering for at least $15,000 in common stock, the Series A preferred stock automatically converts into common stock at the then existing conversion ratio. Each share of Series A preferred stock has a preference in liquidation equal to the original price per share ($1,153.85 per share), plus accrued and unpaid dividends, if any. The Series A preferred stock stockholders are entitled to participate in dividends declared and paid to common stockholders, on the basis of the number of shares of common stock into which the Series A preferred stock is convertible. In addition, commencing on January 1, 2000, the Series A preferred stock stockholders are entitled to cumulative dividends, payable ratably as and when dividends are paid to the Series B and C preferred stock stockholders at the rate equal to 7.5% of the per share liquidation preference of the Series A preferred stock. Warrants In connection with the issuance of Series A preferred stock to certain investors, the Company issued warrants exercisable through August 4, 2002 to purchase 1,462,500 shares of common stock at a price per share of $4.10, as adjusted. At time of issuance, the fair value of these warrants was not material and therefore no allocation of any of the proceeds from the Series A preferred stock was made to these warrants. The warrants may be exercised, in whole or in part, at the warrantholder's option: (1) in cash, (2) by surrender of a number of shares of preferred stock or common stock or a combination thereof with an aggregate fair market value equal to the exercise price or (3) a combination of (1) and (2). The warrantholders may also exercise their warrants, without the payment of any cash or the surrender of shares of preferred stock or common stock, by surrender of warrants for a number of shares equal to the product of a fraction, the numerator of which shall be the excess of the fair market value of a share of common stock on the date preceding the date of such exercise of the warrant over the then exercise price per warrant share and the denominator of which shall be the fair market value of a share of common stock on such date, times the number of warrant shares as to which the warrant is being exercised. The holders of the Series A preferred stock and related warrants have certain registration rights. Certain members of senior management and the Board of Directors have been issued warrants to purchase shares of common stock of the Company. The first such warrant was issued on November 1, 1995 and provides for the purchase of 240,000 shares of common stock at an exercise price of $3.85 per share, is subject to pro rata vesting over a five year period and is exercisable through November 1, 2005. This warrant to purchase common stock was exchanged on March 4, 1997 for a new warrant to purchase 150,000 shares of common stock at an exercise price of $3.85 per share (which price automatically increases by 10% as of April 22, 2000 and on each April 22 thereafter). The second such warrant was issued as of April 22, 1996 and provides for the purchase of 360,000 shares of common stock at an exercise price of $3.85 per share (which price automatically increases by 10% as of April 22, 2000 and on each April 22 thereafter), is subject to pro rata vesting over a five year period and is exercisable through April 22, 2006. Under APB 25, the accounting for these warrants requires recognition of compensation expense for an amount equal to the difference between the exercise price and fair market value of the underlying shares. Compensation expense of $2,847 was recorded during the period ended September 30, 2000 in connection with these warrants. No compensation expense has been recorded for any period prior to January 1, 2000 since the fair market value of the underlying shares was less F-14 PNY TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands, except share and per share amounts) (information as of and relating to the nine months ended September 30, 1999 and 2000 is unaudited) than the exercise price. During 1998, upon the resignation of a member of senior management, a portion of the second warrant, representing 216,000 shares of common stock (100% of non-vested shares under the warrant) was forfeited. In May 1998 a member of senior management and a member of the Board of Directors were issued warrants to purchase 949,500 shares of common stock of the Company. The first such warrant provides for the purchase of 49,500 shares of common stock at an exercise price of $0.03 per share. Shares under this warrant were immediately vested. The second such warrant provides for the purchase of 900,000 shares of common stock at an exercise price of $0.03 per share and is subject to pro rata vesting over two and one-half years. Both warrants issued in 1998 are exercisable through May 1, 2008. No compensation expense has been recorded since the fair market value of the underlying shares was less than the exercise price at the date of grant. No warrants have been exercised through September 30, 2000. Restricted Stock Awards During 1997 and 1998, the Company granted for no consideration the right to receive 1,335,300 shares of common stock to certain employees. At the time these awards were made, the Company's principal stockholder agreed to transfer to the Company the number of shares of common stock equal to the number of shares of common stock which are no longer subject to restrictions. Compensation expense was recorded in connection with these stock awards in accordance with Staff Accounting Bulletin Topic 5T. The compensation expense recorded and the increase to stockholders' equity was not material. These awards are subject to a ten-year cliff vesting schedule, based on continued employment. The shares are also subject to certain restrictions on transfer during a defined restriction period. The restriction period terminates on the earliest to occur of (1) 180 days following the consummation of an IPO, (2) immediately prior to a change in control, and (3) ten years after the date of grant. The following table summarizes the activity related to these employee stock awards:
Year Ended December 31, Nine Months Ended -------------------------- September 30, 1997 1998 1999 2000 ------- -------- -------- ----------------- Beginning of period............ -- 817,800 760,800 609,300 Shares granted............... 817,800 517,500 -- -- Shares forfeited............. -- (574,500) (151,500) (28,500) ------- -------- -------- ----------------- End of period.................. 817,800 760,800 609,300 580,800 ======= ======== ======== =================
In addition, in January 1998, the Company separately granted, for no consideration, 900,000 shares of common stock to a key employee. Compensation expense recorded in connection with this stock grant was not material. During 1998 such employee resigned from the Company and, at the time of his departure, 649,950 shares of common stock (representing 100% of non-vested shares) were forfeited and retired. Common Stock Reserved At September 30, 2000, the Company has reserved shares of common stock as follows: Series A Preferred Stock.................... 4,500,000 Exercise of warrants........................ 2,706,000 Employee stock options...................... 7,500,000 ---------- 14,706,000 ==========
F-15 PNY TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands, except share and per share amounts) (information as of and relating to the nine months ended September 30, 1999 and 2000 is unaudited) 10. Notes Receivable--Related Parties Notes receivable from various stockholders are due on demand with interest at 8.0% per annum and represent loans to purchase Series A preferred stock. The portion of such notes not repaid are reflected as a component of stockholders' (deficiency) equity. Notes due from related party consist of notes receivable and accrued interest due from the holder of Series B and C preferred stock. Such notes accrue interest at 7.0% per annum and mature in 2001 and 2003. 11. Management Stock Purchase Plan In 1996, the Company adopted a Management Stock Purchase Plan (the "1996 Plan") whereby certain officers and key employees (i.e., "management stockholders") of the Company were provided an opportunity to purchase shares of the Company's Series A preferred stock at pre-determined prices. The shares owned by the participants in the 1996 Plan have certain registration rights and are subject to certain transfer restrictions (including a three year mandatory holding period) and certain put and call rights which become effective in connection with the participants' termination of employment. All sales of stock are subject to the Company's right of first refusal. Should the Company's stock be publicly traded subsequent to the expiration of the mandatory holding period, all transfer restrictions and put and call rights cease to be effective. In June 1999 the Company repurchased 183 shares of Series A preferred stock issued under the 1996 Plan. In exchange for the shares, the Company forgave $125 of outstanding promissory notes. The treasury shares were recorded at their fair market value of $61, and $64 was charged to general and administrative expenses. 12. Employee Stock Option Plan In June 1999 the Company adopted a Stock Option Plan for Directors, Officers and Employees (the "1999 Plan") which provides for nonqualified stock option grants. Options granted in June 1999 have an exercise price of $1.00 per share and vest ratably over three years, provided the participant remains employed by the Company. In the event of death, disability or retirement of a participant, all shares vest immediately. At September 30, 2000, options for 2,629,749 shares were issued and 4,870,251 shares were available for future grants under the 1999 Plan. The options generally expire 10 years from the date of grant. However, in the event a participant's employment is terminated without cause or for good reason, as defined, the options expire 30 days after termination. If a participant's employment is terminated as a result of death, disability or retirement, the options expire 90 days from the date of termination. All shares issued pursuant to the 1999 plan are subject to transfer restrictions and certain put and call rights which become effective in connection with the participant's termination of employment. These rights cease to be effective when the Company's stock is publicly traded. During the nine months ended September 30, 2000, 1,185,000 options were granted. In accordance with APB 25, the Company recorded compensation expense of approximately $746 for the nine months ended September 30, 2000 because the fair market value of the underlying stock on the date of grant exceeded the exercise price. Based on the vesting schedules of these grants, the Company will recognize additional compensation expense of $1,278 in the fourth quarter of 2000, and $2,423, $2,420, $2,416 and $403 in 2001, 2002, 2003 and 2004, respectively. In accordance with APB 25, no compensation expense was recognized related to grants issued prior to January 1, 2000 because the exercise price of the stock options granted was equal to the fair value of the underlying stock on the date of grant. F-16 PNY TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands, except share and per share amounts) (information as of and relating to the nine months ended September 30, 1999 and 2000 is unaudited) If the Company had recognized compensation expense based on the fair value of the options at the grant date as prescribed by FAS 123, net income and earnings per share would have been reduced to the pro forma amounts indicated in the table below.
Year Ended Nine Months December 31, Ended September 30, 1999 2000 ------------ ------------------- Net income, as reported............... $12,374 $20,572 Net income, pro forma... 12,200 20,252 Basic earnings per share, as reported..... $ 0.48 $ 0.79 Basic earnings per share, pro forma....... 0.47 0.78 Diluted earnings per share, as reported..... $ 0.39 $ 0.61 Diluted earnings per share, pro forma....... 0.39 0.60
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
1999 2000 ------- ------- Expected dividend yield.................................. 0.00% 0.00% Expected stock price volatility.......................... 0.78 0.78 Risk-free interest rate.................................. 5.90% 5.90% Expected life of options................................. 4 years 4 years
Activity under the 1999 Plan is as follows:
Year Ended Nine Months Ended December 31, 1999 September 30, 2000 -------------------- -------------------- Weighted- Weighted- Average Average Exercise Exercise Options Price Options Price --------- --------- --------- --------- Outstanding, beginning of period -- $-- 1,751,250 $1.00 Granted ....................... 1,781,250 1.00 1,185,000 4.70 Exercised ..................... -- -- -- -- Cancelled ..................... (30,000) 1.00 (306,501) 1.02 --------- --------- Outstanding, end of period .... 1,751,250 1.00 2,629,749 2.66 ========= ========= Exercisable, end of period .... -- -- 517,749 1.00 ========= =========
At September 30, 2000, for each of the following classes of options as determined by exercise price, the information regarding weighted-average exercise prices and weighted-average remaining contractual lives of each said class is as follows:
Options Outstanding --------------------------------------------- Weighted-Average Option Number Remaining Options Price of Options Contractual Life Exercisable ------ ---------- ---------------- ----------- $ 1.00 1,549,749 8.7 years 517,749 1.33 306,000 9.5 years -- 3.84 570,000 9.8 years -- 14.00 204,000 9.9 years --
F-17 PNY TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands, except share and per share amounts) (information as of and relating to the nine months ended September 30, 1999 and 2000 is unaudited) 13. Income Taxes Income (loss) before income taxes consists of:
Nine Months Ended Year Ended December 31, September 30, --------------------------- ------------------ 1997 1998 1999 1999 2000 -------- ------- -------- -------- -------- U.S....................... $(9,921) $ 465 $ 11,382 $ 9,143 $ 7,696 Foreign .................. 1,175 1,699 2,356 1,580 10,327 -------- ------- -------- -------- -------- $(8,746) $ 2,164 $ 13,738 $ 10,723 $ 18,023 ======== ======= ======== ======== ======== Income taxes (benefit) consist of: Nine Months Ended Year Ended December 31, September 30, --------------------------- ------------------ 1997 1998 1999 1999 2000 -------- ------- -------- -------- -------- Current: Federal ................ $ -- $ -- $ 331 $ 323 $ 132 State .................. 2 -- 94 92 368 Foreign ................ -- 120 939 669 3,376 Deferred taxes: Federal ................ -- -- -- -- (5,353) State .................. -- -- -- -- (1,072) -------- ------- -------- -------- -------- $ 2 $ 120 $ 1,364 $ 1,084 $ (2,549) ======== ======= ======== ======== ======== Income taxes (benefit) reconciled to the amount computed at federal statutory tax rates are as follows: Nine Months Ended Year Ended December 31, September 30, --------------------------- ------------------ 1997 1998 1999 1999 2000 -------- ------- -------- -------- -------- Computed expected (benefit) tax ........... $ (3,373) $ 736 $ 4,812 $ 3,756 $ 6,000 Increase (decrease): State income taxes, net of federal benefit ..... (588) 20 475 368 342 Foreign tax rate differential ........... -- -- -- -- (135) Utilization of foreign net operating losses.... -- (458) -- -- -- Valuation allowance ..... 3,936 (120) (5,243) (4,100) (8,600) Reduction of fully reserved deferred tax assets.............. -- -- 1,343 1,040 -- Other ................... 27 (58) (23) 20 (156) -------- ------- -------- -------- -------- $ 2 $ 120 $ 1,364 $ 1,084 $ (2,549) ======== ======= ======== ======== ========
F-18 PNY TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands, except share and per share amounts) (information as of and relating to the nine months ended September 30, 1999 and 2000 is unaudited) Significant components of the Company's deferred tax assets and liabilities are as follows:
December 31, --------------------------- September 30, 1997 1998 1999 2000 -------- -------- ------- ------------- Deferred tax assets: Net operating loss carryforwards ................................. $10,119 $ 11,868 $ 5,263 $ 756 Inventory reserves ............... 1,405 1,439 798 793 Price protection and sales allowances ...................... 3,027 1,206 2,286 2,373 Allowance for doubtful accounts . ................................. 347 230 404 406 Asset impairment reserve ......... 281 -- -- -- Stock-based compensation ......... -- -- -- 1,350 Tax credits ...................... -- -- 439 399 Inventory capitalization ......... 20 20 54 118 Other ............................ 114 430 706 1,580 -------- -------- ------- ------- Total deferred tax assets .......... 15,313 15,193 9,950 7,775 Valuation allowance ................ (15,313) (15,193) (9,950) (1,350) -------- -------- ------- ------- -- -- -- 6,425 Total deferred tax liabilities ..... -- -- -- -- -------- -------- ------- ------- Net deferred tax assets ............ $ -- $ -- $ -- $ 6,425 ======== ======== ======= =======
At December 31, 1999, the Company had U.S. federal net operating loss carryforwards of approximately $14,000, which expire between 2012 and 2018. The Company has established a full valuation allowance against its stock- based compensation deferred tax asset based upon an assessment that it is more likely than not that it will not realize the benefits of these tax deductions in the near future. This assessment is based upon the Company's inability to control the timing of these tax deductions over the course of the ten-year period the stock options are exercisable as well as the current lack of marketability and restrictions of transfer of the underlying stock. 14. Commitments and Contingencies Leases The Company has entered into operating leases for equipment, manufacturing and office facilities which expire on various dates through March 2007. The future minimum annual rental commitments under non-cancelable operating facilities leases, net of rental income at December 31, 1999, are as follows: 2000........................................... $ 1,654 2001........................................... 1,652 2002........................................... 1,707 2003........................................... 1,608 2004........................................... 1,293 Thereafter..................................... 3,650 ------- $11,564 =======
Rent expense, net of rental income, for the years ended December 31, 1997, 1998 and 1999 was approximately $2,800, $3,200 and $3,536, respectively. F-19 PNY TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands, except share and per share amounts) (information as of and relating to the nine months ended September 30, 1999 and 2000 is unaudited) In February 1999, the Company entered into a non-cancelable sublease agreement for office facilities. Rental income for the year ended December 31, 1999 was $87. The lease expires February 28, 2005 and provides for monthly rental payments of $27. The lease may be extended through February 28, 2007 at the lessee's option at terms comparable to the initial term of the lease. Legal Matters In the ordinary course of conducting business, the Company becomes involved in lawsuits, administrative and other proceedings. Some of these proceedings may result in fines, penalties or judgments being assessed against the Company which, from time to time, may have an impact on its operations and financial position. The Company does not believe these pending proceedings, individually, or in the aggregate, would have a material adverse effect on its operations or financial position. 15. Segment Information The Company is a manufacturer of standard and custom memory products which it sells to OEMs, retailers and other memory product resellers. The Company's memory modules are used in computers, workstations, printers and other electronic devices. The Company has two reportable segments: U.S. operations and European operations. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The following is a summary of financial information concerning each of the Company's reportable segments:
December 31, 1997 -------------------------------------------- U.S. Europe Eliminations Consolidated -------- ------- ------------ ------------ Net sales: Sales to external customers................ $226,605 $44,319 $ -- $270,924 Intersegment sales........ 4,311 1,848 (6,159) -- -------- ------- ------- -------- 230,916 46,167 (6,159) 270,924 Cost of sales............... 217,282 39,183 (6,159) 250,306 -------- ------- ------- -------- Gross profit................ 13,634 6,984 -- 20,618 Operating expenses.......... 20,515 5,204 -- 25,719 -------- ------- ------- -------- Operating (loss) income..... (6,881) 1,780 -- (5,101) Other income (expense): Interest income........... 58 30 -- 88 Interest expense.......... (2,831) (935) -- (3,766) Other income, net......... -- 97 -- 97 Foreign exchange (loss) gain..................... (267) 203 -- (64) -------- ------- ------- -------- (Loss) income before income taxes...................... (9,921) 1,175 -- (8,746) Income taxes................ 2 -- -- 2 -------- ------- ------- -------- Net (loss) income........... $ (9,923) $ 1,175 $ -- $ (8,748) ======== ======= ======= ======== Depreciation and amortization............... $ 1,414 $ 865 $ -- $ 2,279 ======== ======= ======= ======== Acquisition of property and equipment.................. $ 3,242 $ 935 $ -- $ 4,177 ======== ======= ======= ========
F-20 PNY TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands, except share and per share amounts) (information as of and relating to the nine months ended September 30, 1999 and 2000 is unaudited)
December 31, 1998 -------------------------------------------- U.S. Europe Eliminations Consolidated -------- ------- ------------ ------------ Net sales: Sales to external customers................ $167,653 $36,923 $ -- $204,576 Intersegment sales........ 2,588 723 (3,311) -- -------- ------- ------- -------- 170,241 37,646 (3,311) 204,576 Cost of sales............... 150,447 30,441 (3,311) 177,577 -------- ------- ------- -------- Gross profit................ 19,794 7,205 -- 26,999 Operating expenses.......... 17,509 4,938 -- 22,447 -------- ------- ------- -------- Operating income............ 2,285 2,267 -- 4,552 Other income (expense): Interest income........... 33 -- -- 33 Interest expense.......... (1,863) (613) -- (2,476) Other income, net......... 10 67 -- 77 Foreign exchange loss..... -- (22) -- (22) -------- ------- ------- -------- Income before income taxes.. 465 1,699 -- 2,164 Income taxes................ -- 120 -- 120 -------- ------- ------- -------- Net income.................. $ 465 $ 1,579 $ -- $ 2,044 ======== ======= ======= ======== Assets...................... $ 54,917 $13,977 $(2,964) $ 65,930 ======== ======= ======= ======== Depreciation and amortization............... $ 1,233 $ 1,470 $ -- $ 2,703 ======== ======= ======= ======== Acquisition of property and equipment.................. $ 1,320 $ 1,934 $ -- $ 3,254 ======== ======= ======= ========
F-21 PNY TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands, except share and per share amounts) (information as of and relating to the nine months ended September 30, 1999 and 2000 is unaudited)
December 31, 1999 -------------------------------------------- U.S. Europe Eliminations Consolidated -------- ------- ------------ ------------ Net sales: Sales to external customers................ $231,191 $42,380 $ -- $273,571 Intersegment sales........ 4,246 7,523 (11,769) -- -------- ------- -------- -------- 235,437 49,903 (11,769) 273,571 Cost of sales............... 202,345 42,459 (11,769) 233,035 -------- ------- -------- -------- Gross profit................ 33,092 7,444 -- 40,536 Operating expenses.......... 19,454 4,867 -- 24,321 -------- ------- -------- -------- Operating income............ 13,638 2,577 -- 16,215 Other income (expense): Interest income........... 90 -- -- 90 Interest expense.......... (2,448) (290) -- (2,738) Other income, net......... 102 69 -- 171 -------- ------- -------- -------- Income before income taxes.. 11,382 2,356 -- 13,738 Income taxes................ 425 939 -- 1,364 -------- ------- -------- -------- Net income.................. $ 10,957 $ 1,417 $ -- $ 12,374 ======== ======= ======== ======== Assets...................... $ 70,775 $16,507 $ (6,139) $ 81,143 ======== ======= ======== ======== Depreciation and amortization............... $ 1,367 $ 1,409 $ -- $ 2,776 ======== ======= ======== ======== Acquisition of property and equipment.................. $ 1,560 $ 545 $ -- $ 2,105 ======== ======= ======== ========
F-22 PNY TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands, except share and per share amounts) (information as of and relating to the nine months ended September 30, 1999 and 2000 is unaudited)
September 30, 1999 -------------------------------------------- U.S. Europe Eliminations Consolidated -------- ------- ------------ ------------ Net sales: Sales to external customers................ $168,644 $31,428 $ -- $200,072 Intersegment sales........ 1,589 1,280 (2,869) -- -------- ------- ------- -------- 170,233 32,708 (2,869) 200,072 Cost of sales............... 144,960 27,501 (2,869) 169,592 -------- ------- ------- -------- Gross profit................ 25,273 5,207 -- 30,480 Operating expenses.......... 14,592 3,448 -- 18,040 -------- ------- ------- -------- Operating income............ 10,681 1,759 -- 12,440 Other income (expense): Interest income........... 70 -- -- 70 Interest expense.......... (1,664) (193) -- (1,857) Other (expense) income, net...................... 56 53 -- 109 Foreign exchange gain..... -- (39) -- (39) -------- ------- ------- -------- Income before income taxes.. 9,143 1,580 -- 10,723 Income taxes................ 415 669 -- 1,084 -------- ------- ------- -------- Net income.................. $ 8,728 $ 911 $ -- $ 9,639 ======== ======= ======= ======== Depreciation and amortization............... $ 985 $ 1,069 $ -- $ 2,054 ======== ======= ======= ======== Acquisition of property and equipment.................. $ 1,066 $ 436 $ -- $ 1,502 ======== ======= ======= ========
F-23 PNY TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands, except share and per share amounts) (information as of and relating to the nine months ended September 30, 1999 and 2000 is unaudited)
September 30, 2000 -------------------------------------------- U.S. Europe Eliminations Consolidated -------- ------- ------------ ------------ Net sales: Sales to external customers................ $305,655 $38,094 $ -- $343,749 Intersegment sales........ 1,152 70,658 (71,810) -- -------- ------- -------- -------- 306,807 108,752 (71,810) 343,749 Cost of sales............... 273,290 93,064 (71,810) 294,544 -------- ------- -------- -------- Gross profit................ 33,517 15,688 -- 49,205 Operating expenses.......... 23,665 4,504 -- 28,169 -------- ------- -------- -------- Operating income............ 9,852 11,184 -- 21,036 Other income (expense): Interest income........... 120 -- -- 120 Interest expense.......... (2,664) (309) -- (2,973) Other income, net......... 388 34 -- 422 Foreign exchange loss..... -- (582) -- (582) -------- ------- -------- -------- Income before income taxes.. 7,696 10,327 -- 18,023 Income taxes (benefit)...... (5,925) 3,376 -- (2,549) -------- ------- -------- -------- Net income.................. $ 13,621 $ 6,951 $ -- $ 20,572 ======== ======= ======== ======== Assets...................... $157,395 $63,828 $(14,808) $206,415 ======== ======= ======== ======== Depreciation and amortization............... $ 1,206 $ 1,099 $ -- $ 2,305 ======== ======= ======== ======== Stock-based compensation.... $ 3,593 $ -- $ -- $ 3,593 ======== ======= ======== ======== Acquisition of property and equipment.................. $ 1,479 $ 3,475 $ -- $ 4,954 ======== ======= ======== ========
For the nine-month period ended September 30, 2000 and for the years ended December 31, 1997, 1998 and 1999, international sales comprised 12%, 21%, 20% and 17% of the Company's revenues, respectively. During these periods, no single foreign country accounted for more than 10.0% of total revenues. Foreign sales are shipped directly from the Company's foreign subsidiaries, while export sales are shipped from the United States to the Company's foreign customers. Financial information regarding the Company's international revenues is shown in the following table:
Nine Months Year Ended December 31, Ended ------------------------------ September 30, 1997 1998 1999 2000 --------- --------- ---------- ------------- Export........................ $ 11,964 $ 4,878 $ 4,886 $ 2,303 Foreign....................... 44,319 36,923 42,380 38,093 --------- --------- ---------- ---------- $ 56,283 $ 41,801 $ 47,266 $ 40,396 ========= ========= ========== ==========
December 31, September 30, 1999 2000 ------------ ------------- Property, plant and equipment, net: United States................................. $ 5,428 $ 6,033 Europe ....................................... 3,701 8,776 ---------- ---------- $ 9,129 $ 14,809 ========== ==========
F-24 PNY TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands, except share and per share amounts) (information as of and relating to the nine months ended September 30, 1999 and 2000 is unaudited) 16. Diluted Earnings Per Share The reconciliation of shares used to calculate basic and diluted earnings per common share consists of the following:
December 31, September 30, -------------------------------- --------------------- 1997 1998 1999 1999 2000 ---------- ---------- ---------- ---------- ---------- Weighted-average common shares outstanding used to calculate basic earnings per share .... 25,800,000 25,948,000 26,050,000 26,050,000 26,050,000 Conversion of Series A preferred stock ....... -- 4,151,000 4,134,000 4,146,000 4,097,000 Net effect of dilutive warrants and employee stock options based on treasury stock method using average fair val- ue: Warrants ............. -- -- 932,000 932,000 1,875,000 Employee stock options.............. -- -- 390,000 262,000 1,812,000 Restricted stock ..... -- 582,000 -- -- -- ---------- ---------- ---------- ---------- ---------- Weighted average common shares and common share equivalents used to calculate diluted earnings per common share ................. 25,800,000 30,681,000 31,506,000 31,390,000 33,834,000 ========== ========== ========== ========== ==========
In 1997, diluted net loss per share equals basic net loss per share because the impact of the assumed conversion of Series A preferred stock of 4,206,000 weighted-average shares is anti-dilutive. During the years 1997, 1998 and 1999, warrants to purchase 2,062,500, 2,706,000 and 1,756,500 common shares at weighted average prices of $4.04, $2.65 and $4.06, respectively, were not included in the computation of diluted earnings per common share because the exercise price of the warrants was greater than the fair value of the common shares and, therefore, the effect would be anti-dilutive. 17. Supplemental Cash Flow Information The Company purchased inventory from vendors valued at approximately $2,100, $12,900 and $11,400 during 1997, 1998 and 1999, respectively, in exchange for reductions in trade accounts receivable arising from sales transactions to those same vendors. 18. Business Acquisition In July 2000, the Company purchased all equipment and inventories relating to the memory module manufacturing operations of a semiconductor manufacturer located in Ireland for approximately $4.0 million. No material amount of goodwill is anticipated. The purchase price is subject to adjustment in the event the seller fails to meet specified monthly minimum throughput targets. F-25 Depicted in the center is a globe surrounded by pictures of our four manufacturing facilities located in Parsippany, New Jersey, Bordeaux, France, Santa Clara, California, and Ballivor, Ireland. Depicted in the center of the globe is the caption "Worldwide Presence". 8,900,000 Shares [LOGO] PNY TECHNOLOGIES Common Stock ---------- PROSPECTUS , 2000 ---------- Lehman Brothers Robertson Stephens Needham & Company, Inc. Fidelity Capital Markets a division of National Financial Services LLC PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13: Other Expenses of Issuance and Distribution The following table sets forth the expenses (other than the underwriting discount and commissions) expected to be incurred by the Registrant while issuing and distributing the securities registered pursuant to this Registration Statement. All amounts other than the SEC registration fee, NASD filing fee and Nasdaq National Market listing fee are estimates. Registration fee............................................... $ 40,531 NASD filing fee................................................ 15,853 Nasdaq National Market listing fee............................. 90,000 Legal fees and expenses........................................ 800,000 Accounting fees and expenses................................... 450,000 Printing and engraving......................................... 150,000 Blue sky fees and expenses (including legal fees).............. 25,000 Transfer agent fees............................................ 15,000 Miscellaneous.................................................. 13,616 ---------- Total........................................................ $1,600,000 ==========
Item 14: Indemnification of Directors and Officers Section 145 of the Delaware General Corporation Law permits indemnification of the Registrant's officers and directors under certain conditions and subject to certain limitations. Section 145 of the Delaware General Corporation Law also provides that a corporation has the power to purchase and maintain insurance on behalf of its officers and directors against any liability asserted against such person and incurred by him or her in such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of Section 145 of the Delaware General Corporation Law. Article V of the Registrant's Restated Bylaws provides that the Registrant shall indemnify its directors and executive officers to the fullest extent authorized by the Delaware General Corporation Law. The rights to indemnity thereunder continue as to a person who has ceased to be a director, officer, employee or agent and inure to the benefit of the heirs, executors and administrators of the person. In addition, expenses incurred by a director or executive officer in defending any civil, criminal, administrative or investigative action, suit or proceeding by reason of the fact that he or she is or was a director or officer of the Registrant (or was serving at the Registrant's request as a director or officer of another corporation) shall be paid by the Registrant in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Registrant as authorized by the relevant section of the Delaware General Corporation Law. As permitted by Section 102(b)(7) of the Delaware General Corporation Law, Article IX of the Registrant's Amended and Restated Certificate of Incorporation provides that a director of the Registrant shall not be personally liable for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in good faith or acts or omissions that involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived any improper personal benefit. II-1 The Registrant has purchased directors' and officers' liability insurance. The underwriting agreement (Exhibit 1.1 hereto) contains provisions by which the underwriters have agreed to indemnify the Registrant, each person, if any, who controls the Registrant within the meaning of Section 15 of the Securities Act, each director of the Registrant, and each officer of the Registrant who signs this registration statement, with respect to information furnished in writing by or on behalf of the underwriters for use in the registration statement. Item 15: Recent Sales of Unregistered Securities The following is a summary of transactions, adjusted to reflect a 3-for-1 stock split effected in October 2000, by the Registrant during the past three years involving sales and issuances of securities that were not registered under the Securities Act of 1933. In January 1998, the Registrant granted, for no consideration, 900,000 shares of common stock to a key employee. 649,950 shares of common stock (representing 100% of non-vested shares) were forfeited and retired when this employee resigned from the Registrant. In May 1998, the Registrant issued warrants to purchase 949,500 shares of its common stock, at an exercise price of $0.03 per share to two of our directors. Neither of these warrants have been exercised. From June 30, 1999 to December 31, 1999, the Registrant granted options to purchase an aggregate of 1,781,250 shares of common stock to its employees at a weighted average exercise price of $1.00 per share. None of these shares have been exercised. From January 1, 2000 to September 30, 2000, the Registrant granted options to purchase an aggregate of 1,185,000 shares of common stock to its employees at a weighted average price of $4.70 per share. None of these shares have been exercised. On October 26, 2000, the Registrant effected a 3-for-1 stock split. The issuance was exempt from registration by virtue of Section 3(a)(9) of the Securities Act of 1933. Except as otherwise described above, the sale and issuance of securities in the above transactions were deemed to be exempt from registration under the Securities Act of 1933 by virtue of Section 4(2) or Rule 701 thereof, as transactions by an issuer not involving a public offering under the Securities Act of 1933. Appropriate legends have been or will be affixed to the certificates issued in such transactions. Prior to the closing of this offering, the Registrant intends to issue and grant options to purchase an aggregate of approximately 573,600 shares of common stock to employees under its employee stock option plan. The issuance of these securities will be deemed to be exempt from registration by virtue of Rule 701 under the Securities Act of 1933. II-2 Item 16: Exhibits and Financial Statements; Schedules (a) Exhibit Index
Number Description ------ ----------- 1.1 Form of Underwriting Agreement* 3.1 Restated Articles of Incorporation of the Registrant as amended, as currently in effect 3.2 Bylaws of the Registrant, as currently in effect 4.1 See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated Ar- ticles of Incorporation and Amended and Restated Bylaws for the Regis- trant defining the rights of holders of Common Stock of the Registrant 4.2 Specimen Stock Certificate+ 5.1 Opinion of Milbank, Tweed, Hadley & McCloy LLP with respect to the va- lidity of the securities offered+ 8.1 Tax Opinion of Milbank, Tweed, Hadley & McCloy LLP+ 10.1 Amended and Restated Loan Agreement as amended, dated February 23, 1996, among Corestates Bank, N.A. Congress Financial Corporation and the Registrant+ 10.2 Security Agreement, dated January 26, 1996, by the Registrant in favor of Congress Financial Corporation+ 10.3 Registration Rights Agreement, dated August 4, 1995, among the Regis- trant, GS Capital Partners II, L.P. and Affiliated Parties and Gadi Co- hen+ 10.4 Amended Employee Stock Option Plan 21.1 List of subsidiaries of the Registrant+ 23.1 Consent of Ernst & Young LLP 23.2 Consent of Counsel (included in Exhibits 5.1 and 8.1)+ 23.3 Consent of Gartner Group, Inc.+ 23.4 Consent of Semiconductor Industry Association+ 23.5 Consent of PC Data, Inc.+ 24.1 Power of Attorney (see page II-7)+
- -------- + Previously filed. * To be filed by amendment. (b) Financial Statement Schedules: Schedule II--Consolidated Valuation and Qualifying Accounts and Reserves Schedules other than those referred to above have been omitted because they are not applicable, are not required or because the information is included elsewhere in the Consolidated Financial Statements or the notes thereto. Item 17: Undertakings The following undertakings correspond to the specified paragraph designation from Item 512 of Regulation S-K. (a) Equity Offering of Nonreporting Registrant. The undersigned Registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. (b) Acceleration of Effectiveness. Insofar as indemnification for liabilities arising under the Securities Act of 1933 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 II-3 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 Act and will be governed by the final adjudication of such issue. (c) Rule 430A. 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 registrant 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. (2) For the purpose 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. II-4 REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE To the Stockholders and Board of Directors of PNY Technologies, Inc. We have audited the consolidated financial statements of PNY Technologies, Inc. as of December 31, 1998 and 1999, and for each of the three years in the period ended December 31, 1999, and have issued our report dated March 31, 2000 (included elsewhere in this Registration Statement). Our audits also included the financial statement schedule listed in Item 16(b) of this Registration Statement. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP MetroPark, New Jersey March 31, 2000 II-5 PNY TECHNOLOGIES, INC. SCHEDULE II--CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS AND RESERVES For the Years Ended December 31, 1997, 1998 and 1999 (in thousands)
Accounts Inventory Receivable Valuation Allowance Allowance ---------- --------- Balance, December 31, 1996................................. $ 1,024 $ 1,076 Charged to operations...................................... 1,213 2,359 Write-offs................................................. (1,370) (113) ------- ------- Balance, December 31, 1997................................. 867 3,322 Charged to operations...................................... 1,398 550 Write-offs................................................. (1,349) (210) ------- ------- Balance, December 31, 1998................................. 916 3,662 Charged to operations...................................... 441 555 Write-offs................................................. (298) (2,120) ------- ------- Balance, December 31, 1999................................. $ 1,059 $ 2,097 ======= =======
II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Parsippany and State of New Jersey on the 31st day of October, 2000. PNY TECHNOLOGIES, INC. /s/ Mark J. Ciano By: _______________________________________ Mark J. Ciano Vice President of Finance and Administrative Services
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated as of the 31st day of October, 2000.
Signature Title --------- ----- * Chairman of the Board, Director, ___________________________________________ President and Chief Executive Officer Gadi Cohen (Principal Executive Officer) /s/ Mark J. Ciano Vice President of Finance and ___________________________________________ Administrative Services (Principal Mark J. Ciano Financial Officer and Principal Accounting Officer) * Director ___________________________________________ Jean Pierre Pucheu * Director ___________________________________________ Michael Goroff * Director ___________________________________________ Igal Lichtman * Director ___________________________________________ Joseph DiSabato
/s/ Mark J. Ciano *By: ________________________________ Mark J. Ciano Attorney-in-Fact II-7 EX-3.1 2 0002.txt RESTATED CERTIFICATE OF INCORPORATION RESTATED CERTIFICATE OF INCORPORATION OF P.N.Y. ELECTRONICS, INC. P.N.Y. Electronics, Inc. (the "Corporation"), organized and existing under and by virtue of the laws of the State of Delaware, HEREBY CERTIFIES AS FOLLOWS: 1. The name of the Corporation is P.N.Y. Electronics, Inc. The date of filing of its original Certificate of Incorporation by the Secretary of State was July 26, 1995. 2. This Restated Certificate of Incorporation restates, integrates and further amends the Certificate of Incorporation to read in its entirety as follows: FIRST: The name of the Corporation is P.N.Y. Electronics, Inc. ----- SECOND: The address of the Corporation's registered office in the ------ State of Delaware is Corporation Trust Center, 1209 Orange Street in the City of Wilmington, County of New Castle, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful ----- act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: 1. Authorized Capital. The total number of shares of all ------ ------------------ classes of capital stock which the Corporation has authority to issue is 275,000 shares, par value $.01 per share, consisting of(i) 250,000 shares of Common Stock, par value $.01 per share (the "Common Stock") and (ii) 25,000 shares of Preferred Stock, par value $.01 per share (the 'Preferred Stock"). 2. Terms of the Common Stock. ------------------------- 2.1 Dividends. Subject to the rights of the Preferred --------- Stock described in Section 3.2 of this Article FOURTH, dividends may be paid on the Common Stock as and when declared by the Board of Directors of the Corporation. Dividends payable in shares of Common Stock or Junior Stock (as defined in Section 3.10 below) can be paid or set apart for payment to holders of Common Stock or Junior Stock. 2.2 Ratable Treatment. The Corporation shall not pay a ----------------- dividend, make a distribution (as defined in Section 3.10 below), or effect a stock split-up, combination, reclassification or recapitalization, in each case, with respect to its outstanding shares of Common Stock, unless all of its outstanding shares of Common Stock participate on the same basis in such dividend, distribution, split-up, combination, reorganization, reclassification or recapitalization. 2.3 Voting Rights. Each holder of Common Stock shall be ------------- entitled to one vote for each share of Common Stock held. Except as required by law, or as otherwise set forth in this Article FOURTH or as provided by the Board of Directors in its designation of any series of Preferred Stock pursuant to Section 3.1 of this Article FOURTH, the holders of shares of Preferred Stock and Common Stock shall vote as separate classes and shall not vote together as a single class. 2.4 Liquidation Rights. Subject to the rights of the ------------------ holders of the Preferred Stock described in Section 3.5 of this Article FOURTH and any other prior and/or superior rights of such holders as provided by law, upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the holders of Common Stock shall be entitled to receive that portion of any remaining funds and other assets of the Corporation to be distributed. Such funds and other assets shall be distributed to holders of the Common Stock on a ratable basis. 2.5 Conversion. No holder of Common Stock shall have the ---------- right to convert such shares into any other class of stock of the Corporation. 3. Terms of the Preferred Stock. ---------------------------- 3.1 Designation and Number. There is hereby designated a ---------------------- series of Preferred Stock to be known as "Series A Preferred Stock". The number of shares constituting the Series A Preferred Stock shall be 14,000. The Board of Directors of the Corporation, by vote of a majority of its members, is authorized in accordance with and subject to limitations prescribed by law and the provisions of Section 3.9 of this Article FOURTH, to provide by resolution for the issuance of additional shares of Preferred Stock in series, to establish from time to time the number or shares to be included in each such series and to fix the designations, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. 3.2 Dividends. (a) The holders of shares of Series A --------- Preferred Stock shall be entitled to receive dividends for all periods during which Series A Preferred Stock is outstanding, for so long as that certain note issued August 3, 1995 to Gadi Cohen ("Cohen") in the initial principal amount of $15,000,000 (the "Note") is outstanding, commencing with any period commencing on or after January 1, 1996. Such dividends shall be paid semi-annually on the same date on which interest on the Note is paid, at a rate per annum per share equal to the interest rate paid or payable for the same period on the Note, less one hundred fifty (150) basis points, applied to the Preferred Amount Per Share. Any dividends to the holders of shares of Series A Preferred Stock payable pursuant to this Section 3.2(a) may be paid in cash or, at the Corporation's option, may be paid to any or all of such holders in subordinated promissory notes 2 of the Corporation, which notes shall have a principal amount equal to the amount of the dividend due to any such holder and not being paid in cash and shall have substantially the same terms and conditions as the Note (provided that the interest rate on any such note shall automatically be deemed to have increased or decreased in the event of and contemporaneously with any increase or decrease in the rate of interest on the Note (including by amendment thereof) and provided further that any mandatory prepayment of such notes shall automatically be deemed to have been waived in proportion to any waiver of prepayment of the Note). (b) In addition, the holders of shares of Series A Preferred Stock shall be entitled to dividends when and as declared by the Board of Directors; provided, however, that holders of Series A Preferred Stock shall be -------- ------- entitled to receive dividends equivalent on a per share basis to any dividends received by the holders of Common Stock, based upon the number of full shares of Common Stock into which such shares of Series A Preferred Stock could be converted pursuant to the provisions of Section 3.6 of this Article FOURTH, at the record date for the determination of shareholders entitled to such dividends. 3.3 Voting Rights. In addition to any voting rights ------------- provided by law, the holder of each share of Series A Preferred Stock shall be entitled to vote on all matters and shall be entitled to the number of votes equal to the number of votes a holder of the shares of Common Stock, whole or fractional, into which such share of Series A Preferred Stock is convertible pursuant to Section 3.6 of this Article FOURTH is entitled to, at the record date for the determination of the stockholders entitled to vote on all matters or, if no such record date is established, at the date such vote is taken or any written consent of stockholders is solicited. Except as required by law, or as otherwise set forth in this Article FOURTH or as provided by the Board of Directors in its designation of any series of Preferred Stock pursuant to Section 3.1 of this Article FOURTH, the holders of shares of Series A Preferred Stock and Common Stock shall vote together as a single class and not as separate classes. 3.4 Reacquired Shares. Except as provided herein, any ----------------- shares of Series A Preferred Stock converted, purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. None of such shares of Series A Preferred Stock shall be reissued by the Corporation, except that shares of Series A Preferred Stock issued to members of key management of the Corporation pursuant to Section 4.3 of the Preferred Stock and Warrant Purchase Agreement, dated as of August 4, 1995, by and among the Corporation, Goldman Sachs Capital Partners II, L.P. ("GSCP"), GS Capital Partners II Offshore, L.P., Goldman, Sachs & Co. Verwaltungs GmbH, Stone Street Fund 1995, L.P., Bridge Street Fund 1995, L.P. and Cohen (the "Purchase Agreement"), which are subsequently repurchased by the Corporation from one or more of such members of key management, may be reissued from time to time to any other member of key management of the Corporation at the time of such reissuance. 3 3.5 Liquidation, Dissolution or Winding Up. (a) Upon the -------------------------------------- voluntary or involuntary dissolution, liquidation or winding up (each, a "Liquidation") of the Corporation, the holders of the shares of the Series A Preferred Stock shall be entitled to receive and to be paid out of the assets of the Corporation available for distribution to its stockholders, before any payment or distribution shall be made on any Junior Stock, the Preferred Amount Per Share (as defined below) with respect to each outstanding share of Series A Preferred Stock; provided, however, that, if the amount which would have been -------- ------- paid in such liquidation, dissolution or winding up in respect of the number of shares of Common Stock into which the Preferred Stock is then convertible, divided by the number of shares of Series A Preferred Stock issued by the Corporation, is greater than the Preferred Amount Per Share, then the holders of Preferred Stock shall be entitled to receive in such liquidation, dissolution or winding up such greater amount for each share of Preferred Stock then issued and outstanding. (b) If, upon any such Liquidation, whether voluntary or involuntary, the assets to be distributed to the holders of the Series A Preferred Stock shall be insufficient to permit payment of the full amount of the Preferred Amount Per Share with respect to each share of Series A Preferred Stock, then the entire assets of the Corporation to be distributed among the holders of the Series A Preferred Stock shall be distributed ratably among such holders. (c) After the payment to the holders of shares of the Series A Preferred Stock of the full amount of the liquidating distribution to which they are entitled under this Section 3.5, the holders of the Series A Preferred Stock as such shall have no right or claim to any of the remaining assets of the Corporation. (d) Neither the consolidation, merger or other business combination of the Corporation with or into any other Person (as defined in Section 3.10 below) or Persons nor the sale of all or substantially all the assets of the Corporation shall be deemed to be a Liquidation for purposes of this Section 3.5 of this Article FOURTH. (e) "Preferred Amount Per Share" shall mean, with respect to each share of Series A Preferred Stock, $1,153.85. 3.6 Conversion. (a) Each share of Series A Preferred Stock shall ---------- automatically be converted into a number of shares of Common Stock, equal to the quotient of the Preferred Amount Per Share divided by the Conversion Price (as defined in Section 3.10 below) (such quotient being referred to herein as the "Conversion Ratio"), upon the consummation of a Qualified IPO (as defined in Section 3.10 below). In addition, at the option of the holder of any Series A Preferred Stock, such holder shall have the right, at any time and from time to time prior to the consummation of a Qualified IPO, by written notice to the Corporation, to convert any share of Series A Preferred Stock owned by such holder into a number of shares of Common Stock, at the then effective Conversion Ratio. 4 (b) The Corporation shall at all times reserve and keep available for issuance upon the conversion of the Series A Preferred Stock, free from any preemptive rights, such number of its authorized but unissued shares of Common Stock as will from time to time be necessary to permit the conversion of all outstanding shares of Series A Preferred Stock into shares of Common Stock, and shall take all action required to increase the authorized number of shares of Common Stock if necessary to permit the conversion of all outstanding shares of Series A Preferred Stock. (c) The Conversion Price shall be subject to adjustment from time to time as follows: (i) In case the Corporation shall at any time or from time to time after the date hereof (A) pay any dividend, or make any distribution, on the outstanding shares of Common Stock in shares of Common Stock, (B) subdivide the outstanding shares of Common Stock, (C) combine the outstanding shares of Common Stock into a smaller number of shares or (D) issue by reclassification of the shares of Common Stock any shares of capital stock of the Corporation, then, and in each such case, the Conversion Price in effect on the record date therefor, if applicable, or the effective date thereof, whichever is earlier, shall be adjusted so that the holder of any shares of Series A Preferred Stock thereafter convertible into Common Stock pursuant to this Section 3.6 of this Article FOURTH shall be entitled to receive the number and type of shares of Common Stock or other securities of the Corporation which such holder would have owned or have been entitled to receive after the happening of any of the events described above, had such shares of Series A Preferred Stock been converted into Common Stock immediately prior to the happening of such event or the record date therefor, as applicable. An adjustment made pursuant to this clause (i) shall become effective (x) in the case of any such dividend or distribution, immediately after the close of business on the record date for the determination of holders of shares of Common Stock entitled to receive such dividend or distribution, or (y) in the case of such subdivision, reclassification or combination, at the close of business on the day upon which such corporate action becomes effective. (ii) Except with respect to Excluded Securities (as defined below), in case the Corporation shall issue any shares of Common Stock (or Common Stock Equivalents) after the date the first share of Series A Preferred Stock is issued (the "Issue Date") at a price per share (or having a conversion or exercise price per share) more than one percent (1%) less than the current Conversion Price, in each such case, the Conversion Price shall be appropriately reduced to a price (calculated to the nearest cent) determined by dividing (x) the sum of (A) the number of shares of Common Stock outstanding (calculated as set forth in Section 3.6(c)(iii) hereof) immediately prior to such issue or sale, multiplied by the then existing Conversion Price, plus (B) the difference between (a) the consideration received by the Corporation upon issue or sale of additional shares of Common Stock or Common Stock Equivalents since the Issue Date and (b) the value of dividends paid (other than dividends paid in cash out of retained earnings or in Common Stock) since the Issue Date, by (y) the total number 5 of shares of Common Stock outstanding after such issue or sale. No adjustment of the Conversion Price shall be required unless such adjustment would require a change in the amount of at least one percent (1%) of the Conversion Price; provided, however, that any such lesser adjustment not made -------- ------- shall be carried forward and shall be made at the time that such adjustment together with any adjustments to the Series A Preferred Stock, as applicable, shall amount to one percent (1%) of the Conversion Price or more. An adjustment made pursuant to this clause (ii) shall be made on the next Business Day following the date on which any such issuance is made and shall be effective retroactively to the close of business on the date of such issuance. For purposes of this clause (ii), the consideration receivable by the Corporation in connection with the issuance of additional shares of Common Stock or of Common Stock Equivalents since the Issue Date shall be deemed to be equal to the sum of the aggregate offering price (before deduction of underwriting discounts or commissions and expenses payable to third parties, if any) of all such Common Stock and/or Common Stock Equivalents plus the minimum aggregate amount, if any, payable upon conversion, exchange or exercise of any such Common Stock Equivalents. The issuance or reissuance of any shares of Common Stock (whether treasury shares or newly issued shares) pursuant to a dividend or distribution on, or subdivision, combination or reclassification of, the outstanding shares of Common Stock requiring an adjustment in the Conversion Price pursuant to clause (i) of this paragraph (c) of this Section 3.6 of this Article FOURTH, shall not be deemed to constitute an issuance of Common Stock or Common Stock Equivalents by the Corporation to which this clause (ii) applies. Upon the expiration or termination of any unconverted, unexchanged or unexercised Common Stock Equivalents for which an adjustment has been made pursuant to this clause (ii), the adjustments shall forthwith be reversed to effect such Conversion Price as would have been in effect at the time of such expiration or termination had such Common Stock Equivalents, to the extent outstanding immediately prior to such expiration or termination, never been issued. "Excluded Securities" shall mean (i) shares of Common Stock and/or Common Stock Equivalents issuable or issued to employees or outside directors of the Corporation directly or pursuant to a stock option plan, restricted stock plan or similar employee plan or agreement (including any employment agreement) approved by the Board in accordance with Section 9 of the Stockholder Agreement, dated as of August 4, 1995, by and among the Corporation, Goldman Sachs Capital Partners II, L.P., GS Capital Partners II Offshore, LP., Goldman, Sachs & Co. Verwaltungs GmbH, Stone Street Fund 1995, L.P., Bridge Street Fund 1995, L.P. and Cohen (the "Stockholder Agreement"), if applicable, the primary purpose of which is not to raise additional equity capital for the Corporation; (ii) Common Stock issued or issuable upon conversion or exercise of any securities outstanding upon the Issue Date, upon conversion or exercise of the Common Stock Equivalents referred to in clauses (i), (iii), (iv) or (v) hereof or upon exercise of securities issued or issuable pursuant to the Stockholder Agreement; (iii) Common Stock and/or Common Stock Equivalents issued or issuable as direct consideration for the acquisition by the Corporation of capital stock or assets of another business entity or in connection with a merger or consolidation; (iv) Common Stock and/or Common Stock Equivalents issued in any registered public offering of the Corporation's securities; or (v) Series A Preferred Stock issued or issuable 6 to key members of management, as contemplated by the Purchase Agreement, the total number of such shares not to exceed one percent (1%) of the number of shares of Common Stock outstanding (calculated as set forth in Section 3.6(c)(iii) hereof). (iii) For purposes of this paragraph (c) of this Section 3.6 of this Article FOURTH, the number of shares of Common Stock at any time outstanding shall mean the aggregate of all shares of Common Stock then outstanding (other than any shares of Common Stock then owned or held by or for the account of the Corporation) treating for purposes of this calculation all Common Stock Equivalents then outstanding as having been converted, exchanged or exercised. (iv) If the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution and shall thereafter, and before such dividend or distribution is paid or delivered to stockholders entitled thereto, legally abandon its plan to pay or deliver such dividend or distribution, then no adjustment in the Conversion Price then in effect shall be made by reason of the taking of such record, and any such adjustment previously made as a result of the taking of such record shall be reversed. (d) The issuance of certificates for shares of Common Stock upon conversion of the Series A Preferred Stock shall be made without charge to the holders thereof for any issuance tax in respect thereof, provided that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the Series A Preferred Stock which is being converted. (e) The Corporation will at no time close its transfer books against the transfer of any Series A Preferred Stock, or of any shares of Common Stock issued or issuable upon the conversion of any shares of Series A Preferred Stock in any manner which interferes with the timely conversion of such Series A Preferred Stock, except as may otherwise be required to comply with applicable securities laws. (f) As used in this paragraph 3, the term "Common Stock" shall mean and include the Corporation's authorized Common Stock, par value $.01 per share, as constituted on the date of filing of this Certificate of Incorporation, and shall also include any capital stock of any class of the Corporation thereafter authorized which shall neither be limited to a fixed sum or percentage in respect of the rights of the holders thereof to participate in dividends nor be entitled to a preference in the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, provided that the shares of Common Stock receivable upon conversion of shares of Series A Preferred Stock shall include only shares designated as Common Stock of the Corporation on the date of filing of this 7 instrument, or in case of any reorganization or reclassification of the outstanding shares thereof, the stock, securities or assets to be issued in exchange for such Common Stock pursuant thereto. (g) In the case of a Sale of the Corporation (as defined in Section 3.10 below) or a proposed reorganization of the Corporation or a proposed reclassification or recapitalization of the capital stock of the Corporation (except a transaction for which provision for adjustment is otherwise made in this Section 3.6), each share of Series A Preferred Stock shall thereafter be convertible into the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock of the Corporation deliverable upon conversion of such Series A Preferred Stock would have been entitled upon such Sale of the Corporation, reorganization, reclassification or recapitalization; and, in any such case, appropriate adjustment (as determined by the Board of Directors) shall be made in the application of the provisions herein set forth with respect to the rights and interest thereafter of the holders of the Series A Preferred Stock, to the end that the provisions set forth herein (including provisions with respect to changes in and other adjustments of the applicable conversion price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the conversion of the Series A Preferred Stock. The Corporation shall not effect any such Sale of the Corporation unless prior to or simultaneously with the consummation thereof the successor corporation or purchaser, as the case may be, shall assume by written instrument the obligation to deliver to the holders of the Series A Preferred Stock such shares of stock, securities or assets as, in accordance with the foregoing provisions, each such holder is entitled to receive. (h) The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 3.6 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Series A Preferred Stock against impairment. (i) With the agreement of the Corporation and GSCP, the Series A Preferred Stock may be exchanged into convertible subordinated debt on such terms as are agreed by the Corporation and GSCP. 3.7 Reports as to Adjustment. Upon any adjustment of the ------------------------ Conversion Price then in effect pursuant to the provisions of Section 3.6 of this Article FOURTH, then, and in each such case, the Corporation shall promptly deliver to the Transfer Agent of the Series A Preferred Stock and the Common Stock and to each of the holders of the Series A Preferred Stock and the Common Stock, a certificate signed by the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant 8 Secretary of the Corporation setting forth in reasonable detail the event requiring the adjustment, the method by which such adjustment was calculated and the Conversion Price then in effect following such adjustment. Where appropriate, such notice to holders of the Series A Preferred Stock may be given in advance. 3.8 Certain Covenants. Any registered holder of Series A ----------------- Preferred Stock may proceed to protect and enforce its rights and the rights of any other holders of Series A Preferred Stock with any and all remedies available at law or in equity. 3.9 Protective Provision. So long as shares of Series A -------------------- Preferred Stock are outstanding, the Corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series A Preferred Stock: (a) alter or change the rights, preference or privileges of the shares of Series A Preferred Stock or otherwise amend this Certificate of Incorporation so as to affect adversely the shares of Series A Preferred Stock; or (b) increase the authorized number of shares of Series A Preferred Stock; or (c) create or designate, or authorize the issuance of, any new class or series of stock (i) ranking senior or having a preference over, or being on a parity with, the Series A Preferred Stock with respect to dividends or upon liquidation, (ii) having rights similar to any rights of the Series A Preferred Stock under Section 3.3 hereof or (iii) convertible into any such class or series of stock. 3.10 Definitions. In addition to any other terms defined ----------- herein, for purposes of this Section 3.10 of this Article FOURTH, the following terms shall have the meanings indicated: "Business Day" shall mean any day other than a Saturday, Sunday or a day on which banking institutions in the State of New York or New Jersey are authorized or obligated by law or executive order to close. "Commission" shall mean the Securities and Exchange Commission, and any successor agency. "Common Stock Equivalent" shall mean securities convertible into, or exchangeable or exercisable for, shares of Common Stock. 9 "Conversion Price," determined as of any date, shall initially equal $1,153.85 and shall be subject to adjustment as provided in paragraph (c) of Section 3.6 of this Article FOURTH. The term "distribution" shall include the transfer of cash or property to the holders of a class of capital stock of the Corporation, without consideration, whether by way of dividend or otherwise (except a dividend in shares of such class of stock), or the purchase or redemption of shares of the Corporation, for cash or property, including such transfer, purchase or redemption by a subsidiary of the Corporation. The time of any distribution by way of dividends shall be the date of declaration thereof, and the time of any distribution by purchase or redemption of shares shall be the date on which cash or property is transferred by the Corporation, whether or not pursuant to a contract of an earlier date; provided, however, that, where a debt -------- ------- security is issued in exchange for shares, the time of the distribution is the date when the Corporation acquires the shares for such exchange. "Filing Date" shall mean the date of filing of this Certificate of Incorporation. "Junior Stock" shall mean any capital stock of the Corporation ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Preferred Stock. "Person" shall mean any individual, firm, corporation, partnership or other entity, and shall include any successor (by merger or otherwise) of such entity. "Qualified IPO" shall mean a bona fide, firm commitment, underwritten public offering pursuant to an effective registration statement under the Securities Act resulting in at least $15,000,000 of gross proceeds to the sellers (including the Corporation) before deducting underwriting discounts and commissions and offering expenses "Sale of the Corporation" shall mean consolidation or merger of the Corporation with or into any other corporation or corporations. or a sale, conveyance or disposition of all or substantially all of the assets of the Corporation. "Securities Act" shall mean the Securities Act of 1993, as amended. FIFTH: The name and mailing address of the Incorporator is as ----- follows: 10 Name Mailing Address ---- --------------- Jeffrey C. Goldberg c/o Milbank, Tweed, Hadley & McCloy One Chase Manhattan Plaza New York, New York 10005 SIXTH: The Board of Directors is expressly authorized to adopt, ----- amend, or repeal the by-laws of the Corporation unless the by-laws of the Corporation shall otherwise provide. SEVENTH: Elections of directors need not be by written ballot ------- unless the by-laws of the Corporation shall otherwise provide. EIGHTH: A director of the Corporation shall not be personally ------ liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that the foregoing shall not -------- ------- eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. If the General Corporation Law of Delaware is hereafter amended to permit further elimination or limitation of the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of Delaware as so amended. Any repeal or modification of this Article EIGHTH by the stockholders of the Corporation or otherwise shall not adversely affect any right or protection of a director of the Corporation exiting at the time of such repeal or modification. NINTH: The Corporation reserves the right to amend, alter. ----- change. or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. 3. This Restated Certificate of Incorporation was duly adopted in accordance with Section 245 of the General Corporation Law of the State of Delaware. P.N.Y. ELECTRONICS, INC. By: /s/ GADI COHEN ----------------------------- Name: Gadi Cohen Title: President and Chief Executive Officer 11 IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by its President and Chief Executive Officer and attested by its Secretary, this 4th day of August, 1995. P.N.Y. ELECTRONICS, INC. By: /s/ GADI COHEN ------------------------------ Name: Gadi Cohen Title: President and Chief Executive Officer ATTEST: /s/ STEVEN HALPERN - ------------------------------ Name: Steven Halpem Title: Secretary CERTIFICATE OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION OF P.N.Y. ELECTRONICS, INC. P.N.Y. ELECTRONICS, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: FIRST: The name of the Corporation is P.N.Y. Electronics, Inc. ----- SECOND: The Board of Directors of the Corporation, acting by ------ unanimous written consent pursuant to Section 141(f) of the General Corporation Law of the State of Delaware, did duly consent to, approve and adopt the following resolution: RESOLVED, that the Board of Directors hereby finds it to be advisable and in the best interests of the Corporation that the Restated Certificate of Incorporation of the Corporation be amended in the following manner: The second sentence of Section 3.1 of Article Fourth of the Restated Certificate of Incorporation is hereby amended and restated in its entirety to read as follows: "The number of shares constituting the Series A Preferred Stock shall be 15,000." 12 THIRD: The stockholders of the Corporation acting by written consent ----- pursuant to Section 228(a) of the General Corporation Law of the State of Delaware, did duly consent to, approve and adopt the aforesaid amendment to the Restated Certificate of Incorporation of the Corporation. FOURTH: The aforesaid amendment has been duly adopted in accordance ------ with the provisions of Section 242, 141(f) and 228 (a) of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed on its behalf by Gadi Cohen, its President, and attested by Steven Halpern, its Secretary, on this 17th day of January, 1996. P.N.Y. ELECTRONICS, INC. By: /s/ GADI COHEN ------------------------------ Name: Gadi Cohen Title: President ATTEST: /s/ STEVEN HALPERN - ---------------------- Name: Steven Halpern Title: Secretary CERTIFICATE OF DESIGNATIONS OF SERIES B CUMULATIVE REDEEMABLE PREFERRED STOCK OF P.N.Y. ELECTRONICS, INC (Pursuant to Section 151 of the Delaware General Corporation Law) P.N.Y. Electronics, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the "Corporation") hereby certifies that the following resolution was adopted by the Board of Directors of the Corporation as required by Section 151 of the General Corporation Law at a meeting duly called and held on May 21, 1996: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of this Corporation (hereinafter called the "Board of Directors" or the "Board") in accordance with the provisions of the Restated Certificate of Incorporation, the Board of Directors hereby creates a series of Preferred Stock, par value $.01 per share (the "Preferred Stock"), of the Corporation and hereby states the designation and number of shares, and fixes the relative rights, preferences, and limitations thereof as follows: 13 Series B Cumulative Redeemable Preferred Stock: Section 1. Designation and Amount: Effective Date of Issuance. -------------------------------------------------- (A) The shares of such series shall be designated as "Series B Preferred Stock" (the "Series B Preferred Stock") and the number of shares constituting the Series B Preferred Stock shall be fifteen (15). (B) The Series B Preferred Stock shall only be issued pursuant to and in accordance with the Exchange Agreement, dated as of June 13. 1996, between the Corporation and Ruth Cohen. It is specifically intended that, for all corporate purposes, the Series B Preferred Stock shall be deemed to have been issued as of December 31,1995, and shall be so reflected in the financial statements of the Corporation. Section 2. Dividends and Distributions. --------------------------- (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series B Preferred Stock with respect to dividends, the holders of shares of Series B Preferred Stock, in preference to the holders of Common Stock, par value $.01 per share (the "Common Stock"), of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, semi-annual dividends payable in cash on the last business day of June and December in each year (each such date being referred to herein as a "Dividend Payment Date"), commencing on June 28, 1996, in an amount per share (rounded to the nearest cent) equal to 7.5% of the Series B Preferred Amount Per Share (as hereinafter defined); provided, however, that from and after the date upon which the Corporation receives proceeds from the initial underwritten public offering of shares of Common Stock or other equity securities issued by the Corporation pursuant to an effective registration under the Securities Act, the rate of dividends payable on the outstanding shares of Series B Preferred Stock shall equal 8% of the Series B Preferred Amount Per Share. (B) Dividends shall begin to accrue and be cumulative on outstanding shares of Series B Preferred Stock commencing as of December 31,1995. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series B Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series B Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. (C) "Series B Preferred Amount Per Share" shall mean, with respect to each share of Series B Preferred Stock, $1,000,000. Section 3. Voting Rights. Except as set forth herein, or as ------------- otherwise provided by law, holders of Series B Preferred Stock shall have no voting rights and their consent shall not be required for taking any corporate action. 14 Section 4. Certain Restrictions. -------------------- (A) Whenever dividends or other dividends or distributions payable on the Series B Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, of shares of Series B Preferred Stock outstanding shall have been paid in full, the Corporation shall not; (i) declare or pay dividends, or make any other distributions, or any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series B Preferred Stock, except for any such dividend or distribution in the form of shares of stock ranking junior (as to dividends and upon dissolution, liquidation or winding up) to the Series B Preferred Stock; (ii) declare or pay dividends, or make any other distributions on any shares of Series A Preferred Stock or any other stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series B Preferred Stock, except dividends paid ratably on the Series B Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled. Section 5. Reacquired Shares. Any shares of Series B Preferred ----------------- Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall, upon their cancellation, become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Restated Certificate of Incorporation, or in any other Certificate of Designations creating a series of Preferred Stock or any similar stock or as otherwise required by law. Section 6. Liquidation, Dissolution or Winding Up. Upon any -------------------------------------- liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares to stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series B Preferred Stock unless, prior thereto, the holders of shares of Series B Preferred Stock shall have received in respect of each share the Series B Preferred Amount Per Share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, or (2) to the holders of shares of Series A Preferred Stock or any other stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with a Series B Preferred Stock, except distributions made ratably on the Series B Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. Section 7. Redemption. ---------- (A) The shares of Series B Preferred Stock shall be redeemable at any time, at the option of the Corporation, for a redemption price per share, payable in cash, equal to Series B 15 Preferred Amount Per Share, plus an amount equal to accrued and unpaid dividends and distributions, whether or not declared, thereon to the date of redemption (the "Per Share Redemption Price"). (B) The Corporation shall, to the extent it is legally permitted to do so and has sufficient funds legally available therefor, redeem all of the outstanding shares of Series B Preferred Stock on August 3, 2005 (or, if it is not leg ally permitted to do so and/or does not have sufficient funds legally available therefor at such time, as promptly thereafter as it is legally permitted to do so and has sufficient funds legally available therefor) at a redemption price, payable in cash, equal to the Per Share Redemption Price. (C) Upon its receipt of proceeds from any underwritten public offering of shares of Common Stock or other equity securities issued by the Corporation pursuant to an effective registration statement under the Securities Act (a "Public Offering"), if any, the Corporation shall apply to the --------------- redemption of shares of Series B Preferred Stock an amount (up to but not exceeding the Redemption Price Per Share multiplied by the number of shares of Series B Preferred Stock then outstanding), equal to fifty percent (50%) of the net proceeds received by the Corporation in such Public Offering; provided, ------- however, that if, at the time of the initial Public Offering, the Subordinated - ------- Note having an initial principal amount of $5,140,000 and issued to Gadi Cohen on August 3, 1995 remains outstanding, then in the case of such initial Public Offering, the Corporation shall apply to the redemption of shares of Series B Preferred Stock an amount (up to but not exceeding the Redemption Price Per Share multiplied by the number of shares of Series B Preferred Stock then outstanding) equal to thirty-four percent (34%) of the net proceeds received by the Corporation in such initial Public Offering. (D) QIn the event of a Sale of the Corporation in which the shares of Common Stock are exchanged for or changed into cash or other property (other than consideration consisting solely of common stock of the acquiring or surviving entity), then prior to or upon consummation of such transaction the Corporation shall redeem all of the then outstanding shares of Series B Preferred Stock at a redemption price, payable in cash, equal to the Per Share Redemption Price. (E) Notwithstanding any provision hereof to the contrary, the holders of shares of the Series B Preferred Stock, by delivery of written notice to the Corporation executed by the holders of at least a majority of such shares, may require that the Corporation not redeem the shares of Series B Preferred stock (regardless of whether the Corporation is required to offer such redemption pursuant to the terms hereof) unless at such time the Corporation redeems all of the shares of Series B Preferred Stock then outstanding. Section 8. Rank. The Series B Preferred Stock shall rank, with ---- respect to the payment of dividends and the distribution of assets, on a parity to the Series A Preferred Stock and junior to all series of any other class of the Corporation's Preferred Shares which rank junior to the Series A Preferred Stock. 16 Section 9. Amendment. The Restated Certificate of Incorporation of --------- the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series B Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least a majority of the outstanding shares of Series B Preferred Stock, voting together as a single class. Section 10. Certain Defined Terms. All capitalized terms used herein --------------------- without definition shall have the meanings given to such terms in the Restated Certificate of Incorporation. IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Corporation by its President and attested by its Secretary this 13th day of June, 1996. Attest: P.N.Y. Electronics, Inc. /s/ STEVEN HALPERN By: /s/ GADI COHEN - ----------------------------- --------------------------- Secretary: Steven Halpern President: Gadi Cohen CERTIFICATE OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION OF P.N.Y. ELECTRONICS, INC. P.N.Y. ELECTRONICS, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify: FIRST: The name of the Corporation is P.N.Y. Electronics, Inc. ----- SECOND: The Board of Directors of the Corporation, acting by ------ unanimous written consent pursuant to Section 141(f) of the General Corporation Law of the State of Delaware, did duly consent to, approve and adopt the following resolution: RESOLVED, that the Board of Directors hereby finds it to be advisable and in the best interests of the Corporation that the Restated Certificate of Incorporation of the Corporation be amended in the following manner: The second sentence of Section 3.1 of Article FOURTH of the Restated Certificate of Incorporation is hereby amended and restated in its entirety to read as follows: The number of shares constituting the Series A Preferred Stock shall be 16,000. Section 3.2(a) of Article FOURTH of the Restated Certificate of Incorporation is hereby amended and restated in its entirety to read as follows: 17 3.2 Dividends. (a) (i) The holders of shares of Series A Preferred --------- Stock shall be entitled to receive when, as and if declared by the Board of Directors out of funds legally available therefor, cumulative dividends payable in cash for all periods during which Series A Preferred Stock is outstanding, commencing as of January 1,1996 and ending at such time as all the Corporation's Series B Cumulative Redeemable Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"), is redeemed or otherwise ceases to be outstanding. Such dividends shall be payable semi-annually, on the same date on which dividends on the Series B Preferred Stock are paid (including upon redemption of the Series B Preferred Stock), at a rate per annum per share equal to 6% of the Preferred Amount Per Share. (ii) In the event that shares of Series A Preferred Stock are converted into shares of Common Stock or otherwise cease to be outstanding, then dividends on such shares payable pursuant to the foregoing Section 3.2(a)(i) shall cease to accrue. If at such time there are accrued and unpaid dividends on shares of Series A Preferred stock, such accrued and unpaid dividends shall thereafter be paid to the former holders of such shares at such time as accrued and unpaid dividends are paid on the Series B Preferred Stock (including upon redemption of the Series B Preferred Stock). (iii) Whenever dividends or distributions payable on the Series B Preferred Stock as provided in Section 3(a)(i) or (ii) are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not declare or pay dividends, or make any other distributions on any shares of Series B Preferred Stock except dividends paid ratably on the Series A Preferred Stock and the Series B Preferred Stock in proportion to the total amounts to which the holders (or former holders, in the case of dividends payable pursuant to Section 3(a)(ii)) of all such shares are then entitled. THIRD: The stockholders of the Corporation, acting by written consent ----- pursuant to Section 228(a) of the General Corporation Law of the State of Delaware, did duly consent to, approve and adopt the aforesaid amendment to the Restated Certificate of Incorporation of the Corporation. FOURTH: The aforesaid amendment has been duly adopted in accordance ------ with the provisions of Section 242, 141(f) and 228(a) of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed on its behalf by Gadi Cohen, its President, and attested by Steven Halpern, its Secretary, this 13th day of June, 1996. ATTEST: P.N.Y. ELECTRONICS, INC. /s/ STEVEN HALPERN By: /s/ GADI COHEN - -------------------------- --------------------------- Steven Halpem, Secretary Gadi Cohen, President 18 CERTIFICATE OF AMENDMENT TO CERTIFICATE OF INCORPORATION OF P.N.Y. ELECTRONICS, INC. P.N.Y. Electronics, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the Board of Directors of P.N.Y. Electronics, Inc., by the unanimous written consent of its members, filed with the minutes of the Board adopted a resolution proposing and declaring advisable the following amendment to the Certificate of Incorporation of said corporation: RESOLVED, That the Certificate of Incorporation of this corporation be amended by changing the First Article thereof so that, as amended said Article shall be and read as follows: "FIRST: The name of the Corporation is PNY Technologies, Inc." ----- SECOND: That in lieu of a meeting and vote of stockholders, the stockholders have given written consent to said amendment in accordance--with the provisions of Section 228 of the General Corporation Law of the State of Delaware and written notice of the adoption of the amendment has been given as provided in Section 228 of the General Corporation Law of the State of Delaware to every stockholder entitled to such notice. THIRD: That said amendment was duly adopted in accordance with the provisions of Sections 242 and 228 of the General Corporation Law of the State of Delaware. 19 IN WITNESS WHEREOF, said corporation has caused this certificate to be signed by Gadi Cohen, its President, this 27 day of January l997. P.N.Y. Electronics, Inc. By: /s/ GADI COHEN -------------------- Name: Gadi Cohen Title: President CERTIFICATE OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION OF PNY TECHNOLOGIES, INC. PNY TECHNOLOGIES, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify: FIRST: The name of the Corporation is PNY TECHNOLOGIES, Inc. ----- SECOND: The Board of Directors of the Corporation, acting by ------ unanimous written consent pursuant to Section 141(f) of the General Corporation Law of the State of Delaware, did duly consent to, approve and adopt the following resolution: RESOLVED, that the Board of Directors hereby finds it to be advisable and in the best interests of the Corporation that the Restated Certificate of Incorporation of the Corporation be amended in the following manner: Section 3.2(a) of Article FOURTH of the Restated Certificate of Incorporation is hereby amended and restated in its entirety to read as follows: 3.2 Dividends. (a) (i) The holders of shares of Series A Preferred --------- Stock shall be entitled to receive when, as and if declared by the Board of Directors out of funds legally available therefor, cumulative dividends payable in cash for all periods during which Series A Preferred Stock is outstanding, commencing as of January 1, 1997 and ending at such time as all the Corporation's Series B Cumulative Redeemable Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"), is redeemed or otherwise ceases to be outstanding. Such dividends shall be payable semi-annually, on the same date on which dividends on the Series B Preferred Stock are paid (including upon redemption of the Series B Preferred Stock), at a rate per annum per share equal to 7.5% of the Preferred Amount Per Share. No such dividends shall accrue in respect of periods ending on or prior to December 31, 1996. 20 Section 7 of the Certificate of Designations of the Series B Cumulative Redeemable Preferred Stock is hereby amended to add to the end thereof the following: (F) Notwithstanding any provisions hereof to the contrary, the Corporation shall not redeem shares of Series B Preferred Stock unless, substantially contemporaneously therewith, the Corporation also offers to purchase from the holders of Series A Preferred Stock a proportionate amount of the then outstanding shares of Series A Preferred Stock at a purchase price per share, payable in cash, equal to the Preferred Amount Per Share (as such term is defined in Section 3.5(e) of Article FOURTH of the Restated Certificate of Incorporation) plus an amount equal to accrued and unpaid dividends and distributions, whether or not declared, thereon to the date of purchase. Written notice of such an offer to purchase shall be given to each holder of Series A Preferred Stock not less than twenty (20) business days prior to the date upon which the purchase of shares of Series A Preferred Stock is to be consummated. THIRD: The stockholders of the Corporation, acting by written consent ----- pursuant to Section 228(a) of the General Corporation Law of the State of Delaware, did duly consent to, approve and adopt the aforesaid amendment to the Restated Certificate of Incorporation of the Corporation. FOURTH: The aforesaid amendment has been duly adopted in accordance with ------ the provisions of Section 242, 141(f) and 228 (a) of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed on its behalf by Gadi Cohen, its President, and attested by Steven Halpem, its Secretary, this 28th day of February, 1997. ATTEST: PNY TECHNOLOGIES, INC. /s/ STEVEN HALPERN By: /s/ GADI COHEN - --------------------------- ---------------------- Steven Halpern, Secretary Gadi Cohen: President CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF PNY TECHNOLOGIES, INC. PNY Technologies, Inc. (the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware ("DGCL"), DOES HEREBY CERTIFY: 1. The name of the corporation is "PNY Technologies, Inc." 2. The original Certificate of Incorporation of the corporation was filed with the Secretary of State of the State of Delaware on July 26, 1995. A Restated 21 Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on August 4, 1995. 3. This Certificate of Amendment has been duly proposed by resolutions adopted and declared advisable unanimously by the Board of Directors of the Corporation, duly adopted by written consent of the stockholders of the Corporation, and duly executed and acknowledged by the officers of the Corporation in accordance with the provisions of Sections 103, 141, 228 and 242 of the DGCL. 4. Upon the filing (the "Effective Time") of this Certificate of Amendment pursuant to the DGCL, each share of the Corporation's Common Stock, par value $.0l per share ("Common Stock"), issued and outstanding immediately prior to the Effective Time shall be split into 100 validly issued, fully paid, and non-assessable shares of Common Stock, without any action on the part of the holder thereof. Each certificate that theretofore represented a share or shares of Common Stock shall thereafter represent that number of shares of Common Stock into which the share or shares of Common Stock represented by such certificate shall have been split. 5. The text of Section 1 of Article FOURTH of the Certificate of Incorporation of the Corporation is hereby amended to read in its entirety as follows: " FOURTH: 1. Authorized Capital. The total number of shares ------ ------------------ of allclasses of capital stock which the Corporation has authority to issue is 25,025,000 shares, consisting of (i) 25,000,000 shares of Common Stock, par value $.01 per share (the "Common Stock") and (ii) 25,000 shares of Preferred Stock, par value $.01 per share (the "Preferred Stock"). Upon the amendment of this article, each outstanding share of Common Stock is split up and converted into one hundred (100) shares of Common Stock". IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed by its authorized officer as of December 18, 1997. PNY TECHNOLOGIES, INC. By: /s/ LUKE M. BESHAR ------------------------ Name: Luke M. Beshar Title: Sr. Vice President CERTIFICATE OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION OF PNY TECHNOLOGIES, INC. PNY TECHNOLOGIES, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation") does hereby certify: FIRST: The name of the Corporation is PNY TECHNOLOGIES, Inc. ----- 22 SECOND: The Board of Directors of the Corporation, acting by unanimous ------ written consent pursuant to Section 141(f) of the General Corporation Law of the State of Delaware, did duly consent to, approve and adopt the following resolution: RESOLVED; that the Board of Directors hereby finds it to be advisable and in the best interests of the Corporation that the Restated Certificate of Incorporation be amended in the following manner; in its entirety to read as follows: Section 3.2(a) of Article FOURTH of the Restated Certificate of Incorporation is hereby amended in its entirety to read as follows: 3.2 Dividends. (a)(i) The holders of shares of Series A Preferred Stock --------- shall be entitled to receive when, as and if declared by the Board of Directors out of funds legally available therefor, cumulative dividends payable in cash for all periods during which Series A Preferred Stock is outstanding, commencing as of January 1, 1998 and ending at such time as all the Corporation's Series B Cumulative Redeemable Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"), is redeemed or otherwise ceases to be outstanding. Such dividends shall be payable semi-annually, on the same date on which dividends on the Series B Preferred Stock are paid (including upon redemption of the Series B Preferred Stock), at a rate per annum per share equal to 7.5% of the Preferred Amount Per Share. No such dividends shall accrue in respect of periods ending on or prior to December 31, 1997. Section 2 of the Certificate of Designations of the Series B Cumulative Redeemable Preferred Stock is hereby amended in its entirety to read as follows: Section 2. Dividends and Distributions. --------------------------- (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series B Preferred Stock with respect to dividends, the holders of shares of Series B Preferred Stock, in preference to the holders of Common Stock, par value $.01 per share (the "Common Stock"), of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, semi-annual dividends payable in cash on the last business day of June and December in each year (each such date being referred to herein as a "Dividend Payment Date"), in an amount per share (rounded to the nearest cent) equal to 7.5% of the Series B Preferred Amount Per Share (as hereinafter defined); provided, however, that from and after the date upon which the Corporation receives proceeds from the initial underwritten public offering of shares of Common Stock or other equity securities issued by the Corporation pursuant to an effective registration under the Securities Act, the rate of dividends payable on the outstanding shares of Series B Preferred Stock shall equal 8% of the Series B Preferred Amount Per Share. (B) Dividends shall begin to accrue and be cumulative on outstanding shares of Series B Preferred Stock commencing as of January 1, 1998, and shall not accrue in respect of any period prior to such date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series C Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share- by-share basis 23 among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series B Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. (C) "Series B Preferred Amount Per Share" shall mean, with respect to each share of Series B Preferred Stock, $1,000,000. THIRD: The stockholders of the Corporation, acting by written consent ----- pursuant to Section 228(a) of the General Corporation Law of the State of Delaware, did duly consent to, approve and adopt the aforesaid amendment to the Restated Certificate of Incorporation of the Corporation. FOURTH: The aforesaid amendment has been duly adopted in accordance ------ with the provisions of Section 242, 141(f) and 228(a) of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed on its behalf by Gadi Cohen, its President, and attested by Heidi Stuto, its Secretary, this 8th day of August, 1997. ATTEST: PNY TECHNOLOGIES, INC. /s/ HEIDI STUTO /s/ GADI COHEN - ---------------------- ---------------------- Heidi Stuto, Secretary Gadi Cohen, President CERTIFICATE OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION OF PNY TECHNOLOGIES, INC. PNY TECHNOLOGIES, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the Corporation) does hereby certify: FIRST: The name of the Corporation is PNY TECHNOLOGIES. Inc. ----- SECOND: The Board of Directors of the Corporation, acting by unanimous ------ written consent pursuant to Section 141(f) of the General Corporation Law of the State of Delaware, did duly consent to, approve and adopt the following resolution: RESOLVED, that the Board of Directors hereby finds it to be advisable and in the best interests of the Corporation that the Restated Certificate of Incorporation of the Corporation be amended in the following manner; and restated in its entirety to read as follows: 24 Section 3.2(a) of Article FOURTH of the Restated Certificate of Incorporation is hereby amended and restated in its entirety to read as follows: 3.2 Dividends. (a) (i) The holders of shares of Series A Preferred Stock --------- shall be entitled to receive when, as and if declared by the Board of Directors out of funds legally available therefor, cumulative dividends payable in cash for all periods during which Series A Preferred Stock is outstanding, commencing as of January 1, 1999 and ending at such time as all the Corporation's Series B Cumulative Redeemable Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"), is redeemed or otherwise ceases to be outstanding. Such dividends shall be payable semi-annually, on the same date on which dividends on the Series B Preferred Stock are paid (including upon redemption of the Series B Preferred Stock), at a rate per annum per share equal to 7.5% of the Preferred Amount Per Share. No such dividends shall accrue in respect of periods ending on or prior to December 31, 1998. THIRD: The stockholders of the Corporation, acting by written consent ----- pursuant to Section 228(a) of the General Corporation Law of the State of Delaware, did duly consent to, approve and adopt the aforesaid amendment to the Restated Certificate of Incorporation of the Corporation. FOURTH: The aforesaid amendment has been duly adopted in accordance with ------ the provisions of Section 242, 141(f) and 228(a) of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed on its behalf by Gadi Cohen, its President, and attested by Luke M. Beshar, its Assistant Secretary, this 20th day of August, 1998. ATTEST: PNY TECHNOLOGIES, INC. /s/ LUKE M. BESHAR By: /s/ GADI COHEN - ------------------------------- ------------------------ Luke M. Beshar, Asst. Secretary Gadi Cohen, President CERTIFICATE OF AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION OF PNY TECHNOLOGIES, INC. PNY Technologies, Inc. (the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware ("DGCL"), DOES HEREBY CERTIFY: 1. The name of the Corporation is PNY Technologies, Inc. The date of filing of its original Certificate of Incorporation by the Secretary of State was July 26, 1995. 2. This Certificate of Amendment has been duly proposed by resolutions, adopted and declared advisable unanimously by the Board of Directors of the Corporation, duly adopted by written consent of the stockholders of the Corporation, and duly executed and acknowledged by the officers of the Corporation in accordance with the provisions of Sections 103, 141, 228 and 242 of the DGCL. 3. The text of Section 1 of Article FOURTH of the Restated Certificate of Incorporation of the Corporation is hereby amended to read in its entirety as follows: "FOURTH: 1. Authorized Capital. The total number of shares of all ------------------ classes of capital stock which the Corporation has authority to issue is one hundred thirty-five million (135,000,000) shares, consisting of (i) one hundred twenty-five million (125,000,000) shares of Common Stock, par value $.01 per share (the "Common Stock") and (ii) ten million (10,000,000) shares of Preferred Stock, par value $.01 per share. 4. Upon the filing of this Certificate of Amendment to the Restated Certificate of Incorporation pursuant to the DGCL, each share of the Common Stock issued and outstanding immediately prior to the filing shall be split into three (3) validly issued, fully paid, and non-assessable shares of Common Stock, without any action on the part of the holder thereof. Each certificate that theretofore represented a share or shares of Common Stock shall thereafter represent that number of shares of Common Stock into which the share or shares of Common Stock represented by such certificate shall have been split. IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by its President and Chief Executive Officer and attested by its Secretary this 26th day of October, 2000. PNY TECHNOLOGIES, INC. By: /s/ GADI COHEN ----------------------- Name: Gadi Cohen Title: President ATTEST /s/ HEIDI STUTO - --------------------------- Name: Heidi Stuto Title: Secretary 25 EX-3.2 3 0003.txt BY-LAWS OF P.N.Y. ELECTRONICS, INC. Exhibit B --------- BY-LAWS OF P.N.Y. ELECTRONICS, INC. (A Delaware Corporation) ARTICLE I Offices SECTION 1. Registered Office. The registered office in the State of ----------------- Delaware is Corporation Trust Center, 1209 Orange Street in the City of Wilmington, County of New Castle, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company. SECTION 2. Other Offices. The Corporation may also have an office or ------------- offices other than said registered office at such place or places, either within or without the State of Delaware, as the Board of Directors shall from time to time determine or the business of the Corporation may require. ARTICLE II Meetings of Stockholders SECTION 1. Place of Meetings. All meetings of the stockholders for ----------------- the election of directors or for any other purpose shall be held at any such place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of meeting or in a duly executed waiver thereof. SECTION 2. Annual Meeting. The annual meeting of stockholders, -------------- commencing with the year 1996, shall be held at such date and time as shall be designated from time to time by the Board of Directors and stated in the notice of meeting or in a duly executed waiver thereof. At such annual meeting, the stockholders shall elect, by a plurality vote, a Board of Directors and transact such other business as may properly be brought before the meeting. SECTION 3. Special Meetings. Special meetings of stockholders, ---------------- unless otherwise prescribed by statute, may be called at any time by the Board of Directors or the Chairman of the Board, if one shall have been elected, or the President and shall be called by the Secretary upon the request in writing of a stockholder or stockholders holding of record at least a majority of the voting power of the issued and outstanding shares of stock of the Corporation entitled to vote at such meeting. SECTION 4. Notice of Meetings. Except as otherwise expressly ------------------ required by statute, written notice of each annual and special meeting of stockholders stating the date, place and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each stockholder of record entitled to vote thereat not less than ten (10) nor more than sixty (60) days before the date of the meeting. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Notice shall be given personally or by mail and, if by mail, shall be sent in a postage prepaid envelope, addressed to the stockholder at his address as it appears on the records of the Corporation. Notice by mail shall be deemed given at the time when the same shall be deposited in the United States mail, postage prepaid. Notice of any meeting shall not be required to be given to any person who attends such meeting, except when such person attends the meeting in person or by proxy for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, or who, either before or after the meeting, shall submit a signed written waiver of notice, in person or by proxy. Neither the business to be transacted at, nor the purpose of, an annual or special meeting of stockholders need be specified in any written waiver of notice. SECTION 5. List of Stockholders. The officer who has charge of the -------------------- stock ledger of the Corporation shall prepare and make, at least ten days before each meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city, town or village where the meeting is to be held, which place shall be specified in the notice of meeting, or, if not specified, at the place where the meeting is to be held. The list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 6. Quorum; Adjournments. The holders of a majority of the -------------------- voting power of the issued and outstanding stock of the Corporation entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of stockholders, except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum shall not be present or represented by proxy at any meeting of stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented by proxy. At such adjourned meeting at which a quorum shall be present or represented by proxy, any business may be transacted which might have been transacted at the meeting as originally called. If the adjournment is for more than thirty days, or if after adjournment a new record date is set, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. SECTION 7. Organization. At each meeting of stockholders, the ------------ Chairman of the Board, if one shall have been elected, or, in his absence or if one shall not have been elected, the President shall act as chairman of the meeting. The Secretary or, in his absence or inability to act, the person whom the chairman of the meeting shall appoint secretary of the meeting shall act as secretary of the meeting and keep the minutes thereof. SECTION 8. Order of Business. The order of business at all meetings ----------------- of the stockholders shall be as determined by the chairman of the meeting. SECTION 9. Voting. Except as otherwise provided by statute or the ------ Certificate of Incorporation, each stockholder of the Corporation shall be entitled at each meeting of stockholders to one vote for each share of capital stock of the Corporation standing in his name on the record of stockholders of the Corporation: (a) on the date fixed pursuant to the provisions of Section 7 of Article V of these By-Laws as the record date for the determination of the stockholders who shall be entitled to notice of and to vote at such meeting; or (b) if no such record date shall have been so fixed, then at the close of business on the day next preceding the day on which notice thereof shall be given, or, if notice is waived, at the close of business on the date next preceding the day on which the meeting is held. Each stockholder entitled to vote at any meeting of stockholders may authorize another person or persons to act for him by a proxy signed by such stockholder or his attorney-in-fact, but no proxy shall be voted after three years from its date, unless the proxy provides for a longer period. Any such proxy shall be delivered to the secretary of the meeting at or prior to the time designated in the order of business for so delivering such proxies. When a quorum is present at any meeting, the affirmative vote of the holders of a majority of the voting power of the issued and outstanding stock of the Corporation entitled to vote thereon, present in person or represented by proxy, shall decide any question brought before such meeting, unless the question is one upon which by express provision of statute or of the Certificate of Incorporation or of these By-Laws, a different vote is required, in which case such express provision shall govern and control the decision of such question. Unless required by statute, or determined by the chairman of the meeting to be advisable, the vote on any question need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and shall state the number of shares voted. SECTION 10. Inspectors. The Board of Directors may, in advance of ---------- any meeting of stockholders, appoint one or more inspectors to act at such meeting or any adjournment thereof. If any of the inspectors so appointed shall fail to appear or act, the chairman of the meeting shall, or if inspectors shall not have been appointed, the chairman of the meeting may, appoint one or more inspectors. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors shall determine the number of shares of capital stock of the Corporation outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the results, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the chairman of the meeting, the inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as an inspector of an election of directors. Inspectors need not he stockholders. SECTION 11. Action by Consent. Whenever the vote of stockholders at ----------------- a meeting thereof is required or permitted to be taken for or in connection with any corporate action, by any provision of statute or of the Certificate of Incorporation or of these By-Laws, the meeting and vote of stockholders may be dispensed with, and the action taken without such meeting and vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of stock of the Corporation entitled to vote thereon were present and voted. ARTICLE III Board of Directors SECTION 1. General Powers. The business and affairs of the -------------- Corporation shall be managed by or under the direction of the Board of Directors. The Board of Directors may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by statute or the Certificate of Incorporation directed or required to be exercised or done by the stockholders. SECTION 2. Number, Qualifications, Election and Term of Office. The --------------------------------------------------- number of directors constituting the initial Board of Directors shall be four (4) and shall include the director elected by Goldman Sachs Capital Partners II, L.P. ("GSCP"), pursuant to the terms of the Stockholder Agreement, dated as of August 4, 1995, by and among the Corporation, Gadi Cohen ("Cohen"), GSCP, GS Capital Partners II Offshore, L.P., Goldman, Sachs & Co. Verwaltungs GmbH, Stone Street Fund 1995, L.P., and Bridge Street Fund 1995, L.P. (the "Stockholder Agreement"). Thereafter, the number of directors may be fixed, from time to time, by the affirmative vote of a majority of the entire Board of Directors or by action of the stockholders of the Corporation. Any decrease in the number of directors shall be effective at the time of the next succeeding annual meeting of stockholders unless there shall be vacancies in the Board of Directors, in which case such decrease may become effective at any time prior to the next succeeding annual meeting to the extent of the number of such vacancies. Directors need not be stockholders. Except as otherwise provided by statute, these By-Laws or the initial organizational minutes of the incorporator and the directors, the directors shall be elected at the annual meeting of stockholders. Each director shall hold office until his successor shall have been elected and qualified, or until his death, or until he shall have resigned, or have been removed, as hereinafter provided in these By-Laws. SECTION 3. Place of Meetings. Meetings of the Board of Directors ----------------- shall be held at such place or places, within or without the State of Delaware, as the Board of Directors may from time to time determine or as shall be specified in the notice of any such meeting. SECTION 4. Annual Meeting. The Board of Directors shall meet for the -------------- purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each annual meeting of stockholders, on the same day and at the same place where such annual meeting shall be held. Notice of such meeting need not be given. In the event such annual meeting is not so held, the annual meeting of the Board of Directors may be held at such other time or place (within or without the State of Delaware) as shall be specified in a notice thereof given as hereinafter provided in Section 7 of this Article III. SECTION 5. Regular Meeting. Regular meetings of the Board of --------------- Directors shall be held at such time and place as the Board of Directors may fix. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day. Notice of regular meetings of the Board of Directors need not be given except as otherwise required by statute or these By-Laws. SECTION 6. Special Meeting. Special meetings of the Board of --------------- Directors may be called by the Chairman of the Board, if one shall have been elected, by the President or by two or more directors of the Corporation. SECTION 7. Notice of Meetings. Notice of each special meeting of the ------------------ Board of Directors (and of each regular meeting for which notice shall be required) shall be given by the Secretary as hereinafter provided in this Section 7, in which notice shall be stated the time and place of the meeting. Except as otherwise required by these By-Laws, such notice need not state the purposes of such meeting. Notice of each such meeting shall be mailed, postage prepaid, to each director, addressed to him at his residence or usual place of business, by first class mail, at least seven days before the day on which such meeting is to be held, or shall be sent addressed to him at such place by telegraph, cable, telex, telecopier or other similar means, or be delivered to him personally or be given to him by telephone or other similar means, at least four days before the time at which such meeting is to be held. Notice of any such meeting need not be given to any director who shall, either before or after the meeting, submit a signed waiver of notice or who shall attend such meeting, except when he shall attend for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. SECTION 8. Quorum and Manner of Acting. A majority of the entire --------------------------- Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors; provided, however, that, for so long as -------- ------- GSCP is entitled to elect a director or directors, pursuant to the Stockholder Agreement ("GSCP Director(s)"), at least one GSCP Director shall be present (in person or by telephone) at any meeting of the Board of Directors of the Corporation to constitute a quorum. GSCP shall be entitled to waive the requirements of this Section 8 retroactively or prospectively, with respect to any particular meeting of the Board of Directors. Except as otherwise expressly required by statute or the Certificate of Incorporation or these By-Laws, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. In the absence of a quorum at any meeting of the Board of Directors, a majority of the directors present thereat may adjourn such meeting to another time and place. Notice of the time and place of any such adjourned meeting shall be given to all of the directors unless such time and place were announced at the meeting at which the adjournment was taken, in which case such notice shall only be given to the directors who were not present thereat. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. The directors shall act only as a Board, and the individual directors shall have no power as such. SECTION 9. Organization. At each meeting of the Board of Directors, ------------ the Chairman of the Board or, in the absence of the Chairman of the Board, if one shall have been elected, or if one shall not have been elected, the President (or, in his absence, another director chosen by a majority of the directors present) shall act as chairman of the meeting and preside thereat. The Secretary or, in his absence, any person appointed by the chairman shall act as secretary of the meeting and keep the minutes thereof. SECTION 10. Resignations. Any director of the Corporation may resign ------------ at any time by giving written notice of his resignation to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 11. Vacancies. Any vacancy in the Board of Directors, --------- whether arising from death, resignation, removal (with or without cause), an increase in the number of directors or any other cause, may be filled by the vote of a majority of the directors then in office, though less than a quorum, or by the sole remaining director or by the stockholders at the next annual meeting thereof; or at a special meeting thereof; provided, however, that a -------- ------- vacancy arising from death, resignation, removal or increase in the number of Goldman Directors may be filled only by vote or written consent of GSCP. Each director so elected shall hold office until his successor shall have been elected and qualified. SECTION 12. Removal of Directors. Any director may be removed, -------------------- either with or without cause, at any time, by the holders of a majority of the voting power of the issued and outstanding capital stock of the Corporation entitled to vote at an election of directors; provided, however, that Goldman ------- Directors may be removed only by vote or written consent of GSCP. SECTION 13. Compensation. The Board of Directors shall have ------------ authority to fix the compensation, including fees and reimbursement of expenses, of directors for services to the Corporation in any capacity. SECTION 14. Committees. The Board of Directors may, by resolution ---------- passed by a majority of the entire Board of Directors, designate one or more committees, including an executive committee, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In addition, in the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. A Goldman Director shall be entitled to be a member of all Board committees (other than any special committee formed for the purpose of acting with respect to transactions between the Corporation and GSCP and its Affiliates, as such term is defined in the Stockholder Agreement). Except to the extent restricted by statute or the Certificate of Incorporation, each such committee, to the extent provided in the resolution creating it. shall have and may exercise all the powers and authority of the Board of Directors and may authorize the seal of the Corporation to be affixed to all papers which require it. Each such committee shall serve at the pleasure of the Board of Directors and have such name as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors. SECTION 15. Action by Consent. Unless restricted by the Certificate ----------------- of Incorporation, any action required or permitted to be taken by the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board of Directors or such committee, as the case may be. SECTION 16. Telephonic Meeting. Unless restricted by the Certificate ------------------ of Incorporation, any one or more members of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation by such means shall constitute presence in person at a meeting. SECTION 17. Major Transactions. Pursuant to the Stockholder ------------------ Agreement, a copy of which is on file with the Corporation, the Corporation has certain contractual obligations including, without limitation, restrictions upon its ability to enter into certain transactions which are not included in the Corporation's Certificate of Incorporation or these By-Laws. The foregoing is solely for the purpose of notice, and the obligations and restrictions referred to in the foregoing shall not be deemed to be incorporated in these By-Laws by virtue of the foregoing. ARTICLE IV Officers SECTION 1. Number and Qualifications. The officers of the ------------------------- Corporation shall be elected by the Board of Directors and shall include the President, one or more Vice-Presidents, the Secretary and the Treasurer. If the Board of Directors wishes, it may also elect as an officer of the Corporation a Chairman of the Board and may elect other officers (including one or more Assistant Treasurers and one or more Assistant Secretaries) as may be necessary or desirable for the business of the Corporation. Any two or more offices may be held by the same person, and no officer except the Chairman of the Board need be a director. Each officer shall hold office until his successor shall have been duly elected and shall have qualified, or until his death, or until he shall have resigned or have been removed, as hereinafter provided in these By-Laws. SECTION 2. Resignations. Any officer of the Corporation may resign ------------ at any time by giving written notice of his resignation to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon receipt. Unless otherwise specified therein, the acceptance of any such resignation shall not be necessary to make it effective. SECTION 3. Removal. Any officer of the Corporation may be removed, ------- either with or without cause, at any time, by the Board of Directors at any meeting thereof. SECTION 4. Chairman of the Board. The Chairman of the Board, if one --------------------- shall have been elected, shall be a member of the Board of Directors, an officer of the Corporation and, if present, shall preside at each meeting of the Board of Directors or the stockholders. Lie shall advise and counsel with the President, and in his absence, with other executives of the Corporation, and shall perform such other duties as may from time to time be assigned to him by the Board of Directors. SECTION 5. The President. The President shall be the chief executive ------------- officer of the Corporation. He shall, in the absence of the Chairman of the Board, Or if a Chairman shall not have been elected, preside at each meeting of the Board of Directors or the stockholders. He shall perform all duties incident to the office of President and chief executive officer and such other duties as may from time to time be assigned to him by the Board of Directors. SECTION 6. Vice-President. Each Vice-President shall perform all -------------- such duties as from time to time may be assigned to him by the Board of Directors or the President. At the request of the President or in his absence or in the event of his inability or refusal to act, the Vice-President, or, if there shall be more than one, the Vice-Presidents in the order determined by the Board of Directors (or, if there be no such determination, then the Vice- Presidents in the order of their election), shall perform the duties of the President, and, when so acting, shall have the powers of and be subject to the restrictions placed upon the President in respect of the performance of such duties. SECTION 7. Treasurer. The Treasurer shall: --------- (a) have charge and custody of, and be responsible for, all of the funds and securities of the Corporation; (b) keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation; (c) deposit all moneys and other valuables to the credit of the Corporation in such depositaries as may be designated by the Board of Directors or pursuant to its direction; (d) receive, and give receipts for, moneys due and payable to the Corporation from any source whatsoever; (e) disburse the funds of the Corporation and supervise the investments of its funds, taking proper vouchers therefor; (f) render to the Board of Directors, whenever the Board of Directors may require, an account of the financial condition of the Corporation; and (g) in general, perform all duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board of Directors. SECTION 8. Secretary. The Secretary shall: --------- (a) keep or cause to be kept in one or more books provided for the purpose, the minutes of all meetings of the Board of Directors, the committees of the Board of Directors and the stockholders; (b) see that all notices are duly given in accordance with the provisions of these By-Laws and as required by law; (c) be custodian of the records and the seal of the Corporation and affix and attest the seal to all certificates for shares of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal; (d) see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and (e) in general, perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board of Directors. SECTION 9. The Assistant Treasurer. The Assistant Treasurer, or, if ----------------------- there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or, if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as from time to time may be assigned by the Board of Directors. SECTION 10. The Assistant Secretary. The Assistant Secretary, or, if ----------------------- there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or, if there be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties as from time to time may be assigned by the Board of Directors. SECTION 11. Officers' Bonds or Other Security. If required by the --------------------------------- Board of Directors, any officer of the Corporation shall give a bond or other security for the faithful performance of his duties, in such amount and with such surety as the Board of Directors may require. SECTION 12. Compensation. The compensation of the officers of the ------------ Corporation for their services as such officers shall be fixed from time to time by the Board of Directors. An officer of the Corporation shall not be prevented from receiving compensation by reason of the fact that he is also a director of the Corporation. ARTICLE V Stock Certificates and Their Transfer SECTION 1. Stock Certificates. Every holder of stock in the ------------------ Corporation shall be entitled to have a certificate, signed by, or in the name of the Corporation by, the Chairman of the Board or the President or a Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation. If the Corporation shall authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restriction of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the General Corporation Law of the State of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. SECTION 2. Facsimile Signatures. Any or all of the signatures on a -------------------- certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. SECTION 3. Lost Certificates. The Board of Directors may direct a ----------------- new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to give the Corporation a bond in such sum as it may direct sufficient to indemnify it against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. SECTION 4. Transfers of Stock. Upon surrender to the Corporation or ------------------ the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its records; provided, however, that the Corporation shall be entitled to recognize and enforce any lawful restriction on transfer. Whenever any transfer of stock shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of transfer if, when the certificates are presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so. SECTION 5. Transfer Agents and Registrars. The Board of Directors ------------------------------ may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars. SECTION 6. Regulations. The Board of Directors may make such ----------- additional rules and regulations, not inconsistent with these By-Laws, as it may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation. SECTION 7. Fixing the Record Date. In order that the Corporation may ---------------------- determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 8. Registered Stockholders. The Corporation shall be ----------------------- entitled to recognize the exclusive right of a person registered on its records as the owner of shares of stock to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments a person registered on its records as the owner of shares of stock, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares of stock on the part of any other person, whether or not it shall have express or other notice thereof, except as other-wise provided by the laws of Delaware. ARTICLE VI Indemnification of Directors and Officers SECTION 1. General. The Corporation shall indemnify any person who ------- was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (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 expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding 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 or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a ---- ---------- presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. SECTION 2. Derivative Actions. The Corporation shall indemnify any ------------------ person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit 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, provided that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. SECTION 3. Indemnification in Certain Cases. To the extent that a -------------------------------- director, officer, employee or agent of the Corporation has been successful on the, merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article VI, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. SECTION 4. Procedure. Any indemnification under Sections 1 and 2 of --------- this Article VI (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in such Sections 1 and 2. Such determination shall be made (a) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (c) by the stockholders. SECTION 5. Advances for Expenses. Expenses incurred in defending a --------------------- civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall be ultimately determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VI. SECTION 6. Rights Not Exclusive. The indemnification and advancement -------------------- of expenses provided by, or granted pursuant to, the other subsections of this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any law, by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. SECTION 7. Insurance. The Corporation shall have power to purchase --------- and maintain insurance on behalf of any person who 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 any liability asserted against him and 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 liability under the provisions of this Article VI. SECTION 8. Definition of Corporation. For the purposes of this ------------------------- Article VI, references to "the Corporation" include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation so that any person who is or was a director, officer, employee or agent of such a constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article VI with respect to the resulting or surviving corporation as he would if he had served the resulting or surviving corporation in the same capacity. SECTION 9. Survival of Rights. The indemnification and advancement ------------------ of expenses provided by, or granted pursuant to this Article VI shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. ARTICLE VII General Provisions SECTION 1. Dividends. Subject to the provisions of statute and the --------- Certificate of Incorporation, dividends upon the shares of capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting. Dividends may be paid in cash, in property or in shares of stock of the Corporation, unless otherwise provided by statute or the Certificate of incorporation. SECTION 2. Reserves. Before payment of any dividend, there may be -------- set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors may, from time to time, in its absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors may think conducive to the interests of the Corporation. The Board of Directors may modify or abolish any such reserves in the manner in which it was created. SECTION 3. Seal. The seal of the Corporation shall be in such form ---- as shall be approved by the Board of Directors. SECTION 4. Fiscal Year. The fiscal year of the Corporation shall end ----------- on December 31 and may be changed by resolution of the Board of Directors. SECTION 5. Checks, Notes, Drafts, Etc. All checks, notes, drafts or -------------------------- other orders for the payment of money of the Corporation shall be signed, endorsed or accepted in the name of the Corporation by such officer, officers, person or persons as from time to time may be designated by the Board of Directors or by an officer or officers authorized by the Board of Directors to make such designation. SECTION 6. Execution of Contracts, Deeds, Etc. The Board of Directors ---------------------------------- may authorize any officer or officers, agent or agents, in the name and on behalf of the Corporation to enter into or execute and deliver any and all deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances. SECTION 7. Voting of Stock in Other Corporations. Unless otherwise ------------------------------------- provided by resolution of the Board of Directors, the Chairman of the Board or the President, from time to time, may (or may appoint one or more attorneys or agents to) cast the votes which the Corporation may be entitled to cast as a shareholder or otherwise in any other corporation, any of whose shares or securities may be held by the Corporation, at meetings of the holders of the shares or other securities of such other corporation. In the event one or more attorneys or agents are appointed, the Chairman of the Board or the President may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent. The Chairman of the Board or the President may, or may instruct the attorneys or agents appointed to, execute or cause to be executed in the name and on behalf of the Corporation and under its seal or otherwise, such written proxies, consents, waivers or other instruments as may be necessary or proper in the circumstances. ARTICLE VIII Amendments For so long as GSCP is entitled to elect a Goldman Director and until the completion of a Qualified IPO (as such term is defined in the Stockholder Agreement), the Corporation shall not, directly or indirectly, amend, repeal or otherwise modify these By-Laws without the prior written approval of at least 51% of the Board of Directors of the Corporation, which must include the approval of at least one Goldman Director. EX-10.4 4 0004.txt AMENDED EMPLOYEE STOCK OPTION PLAN EXHIBIT 10.4 PNY TECHNOLOGIES, INC. 1999 STOCK OPTION PLAN (As Amended and Restated, October 27, 2000) * * * * * 1. Purpose. The purpose of the PNY Technologies, Inc. 1999 Stock ------- Option Plan (the "Plan") is to further and promote the interests of PNY Technologies, Inc. (the "Company"), its Subsidiaries and its shareholders by enabling the Company and its Subsidiaries to attract, retain and motivate key employees, non-employee directors, consultants or other individuals or entities or those who will become employees, non-employee directors or consultants, and to align the interests of those individuals and the Company's shareholders. 2. Definitions. For purposes of the Plan, the following terms ----------- shall have the meanings set forth below: 2.1 "Award Agreement" means the agreement executed by a Participant pursuant to Sections 3.2 of the Plan in connection with the granting of a Stock Option. 2.2 "Board" means the Board of Directors of the Company, as constituted from time to time. 2.3 "Closing" means the occurrence of the closing of the initial public offering by the Company of the Common Stock. 2.4 "Code" means the Internal Revenue Code of 1986, as in effect and as amended from time to time, or any successor statute thereto, together with any rules, regulations and interpretations promulgated thereunder or with respect thereto. 2.5 "Common Stock" means the Common Stock, par value $.01 per share, of the Company or any security of the Company issued by the Company in substitution or exchange therefor. 2.6 "Disability" means a permanent physical or mental "disability", as defined under the Company's long-term disability plan, if any. If the Company does not maintain a long-term disability plan, "Disability" shall mean any physical or mental disability which is determined to be total and permanent by a physician selected in good faith by the Company. -2- 2.7 "Exchange Act" means the Securities Exchange Act of 1934, as in effect and as amended from time to time, or any successor statute thereto, together with any rules, regulations and interpretations promulgated thereunder or with respect thereto. 2.8 "Fair Market Value" means on, or with respect to, any given date, the closing market price of the Common Stock, as reported on the transaction reporting system for the exchange or market upon which the Common Stock is traded for such date or, if the Common Stock was not traded on such date, on the next preceding day or days on which the Common Stock was traded. If at any time the Common Stock is not traded on such exchange, the Fair Market Value of a share of the Common Stock shall be determined in good faith by the Board. 2.9 "Incentive Stock Option" means any stock option granted pursuant to the provisions of Section 6 of the Plan (and the relevant Award Agreement) that is intended to be (and is specifically designated as) an "incentive stock option" within the meaning of Section 422 of the Code. 2.10 "Non-Qualified Stock Option" means any stock option granted pursuant to the provisions of Section 6 of the Plan (and the relevant Award Agreement) that is not (and is specifically designated as not being) an Incentive Stock Option. 2.11 "Participant" means any individual who is selected from time to time under Section 5 to receive an award under the Plan. 2.12 "Retirement" means the voluntary retirement by the Participant from active employment with the Company and its Subsidiaries on or after the attainment of (i) age 65, or (ii) 60, with the consent of the Board. 2.13 "Subsidiary(ies)" means any corporation (other than the Company) in an unbroken chain of corporations, including and beginning with the Company, if each of such corporations, other than the last corporation in the unbroken chain, owns, directly or indirectly, more than fifty percent (50%) of the voting stock in one of the other corporations in such chain. 3. Administration. -------------- 3.1 The Committee. The Plan shall be administered by a ------------- committee (the "Committee"). The Committee shall be appointed from time to time by the Board and shall, after the Closing, be comprised of not less than two (2) of the then members of the Board who qualify as (a) Non-Employee Directors (as defined by Rule 16b-3(b)(3) promulgated under the Exchange Act) and (b) Outside Directors (as defined in Treasury Regulation 1.162-27(e)(3)). Consistent with the Bylaws of the Company, members of the Committee shall serve at the pleasure of the Board and the Board, subject to the -3- immediately preceding sentence, may at any time and from time to time remove members from, or add members to, the Committee. 3.2 Plan Administration and Plan Rules. The Committee is ---------------------------------- authorized to construe and interpret the Plan and to promulgate, amend and rescind rules and regulations relating to the implementation, administration and maintenance of the Plan. Subject to the terms and conditions of the Plan, the Committee shall make all determinations necessary or advisable for the implementation, administration and maintenance of the Plan including, without limitation, (a) selecting the Plan's Participants, (b) making awards in such amounts and form as the Committee shall determine, (c) imposing such restrictions, terms and conditions upon such awards as the Committee shall deem appropriate, and (d) correcting any technical defect(s) or technical omission(s), or reconciling any technical inconsistency(ies), in the Plan and/or any Award Agreement. The Committee may designate persons other than members of the Committee to carry out the day-to-day ministerial administration of the Plan under such conditions and limitations as it may prescribe, except that the Committee shall not delegate its authority with regard to the selection for participation in the Plan and/or the granting of any awards to Participants. The Committee's determinations under the Plan need not be uniform and may be made selectively among Participants, whether or not such Participants are similarly situated. Any determination, decision or action of the Committee in connection with the construction, interpretation, administration, implementation or maintenance of the Plan shall be final, conclusive and binding upon all Participants and any person(s) claiming under or through any Participants. The Company shall effect the granting of awards under the Plan, in accordance with the determinations made by the Committee, by execution of written agreements and/or other instruments in such form as is approved by the Committee. 3.3 Liability Limitation. Neither the Board nor the Committee, -------------------- nor any member of either, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with the Plan (or any Award Agreement), and the members of the Board and the Committee shall be entitled to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, attorneys' fees) arising or resulting therefrom to the fullest extent permitted by law and/or under any directors and officers liability insurance coverage which may be in effect from time to time. 3.4 Pre-IPO Administration. Notwithstanding anything in the ---------------------- Plan to the contrary and prior to the Closing (the "Pre-IPO Period"), the Plan may also be administered by the Board. During the Pre-IPO Period (but not beyond), the Board shall have all the authority, rights and powers set forth in Sections 3.1, 3.2 and 3.3 of the Plan and may make any and all determinations, and take any and all other actions, which may or could be made, or taken, by the Committee under the Plan. 4. Term of Plan/Common Stock Subject to Plan. The Plan shall terminate ----------------------------------------- on December 31, 2009, except with respect to awards then outstanding. After such -4- date no further awards shall be granted under the Plan. The maximum number of shares of Common Stock in respect of which awards may be granted or paid out under the Plan, subject to adjustment as provided in Section 9.2 of the Plan, shall not exceed 7,500,000 shares (which includes an adjustment for the stock split implemented prior to the Closing). In the event of a change in the Common Stock of the Company that is limited to a change in the designation thereof to "Capital Stock" or other similar designation, or to a change in the par value thereof, or from par value to no par value, without increase or decrease in the number of issued shares, the shares resulting from any such change shall be deemed to be the Common Stock for purposes of the Plan. Common Stock which may be issued under the Plan may be either authorized and unissued shares or issued shares which have been reacquired by the Company (in the open-market or in private transactions) and which are being held as treasury shares. No fractional shares of Common Stock shall be issued under the Plan. 5. Eligibility. Individuals eligible for awards under the Plan shall ----------- consist of all employees, non-employee directors, consultants and other individuals or entities, or those who will become employees, non-employee directors, or consultants of the Company and/or its Subsidiaries, who are responsible for the management, growth and protection of the business of the Company and/or its Subsidiaries or whose performance or contribution, in the sole discretion of the Committee, benefits or will benefit the Company. 6. Stock Options. ------------- 6.1 Terms and Conditions. Awards of stock options granted -------------------- under the Plan shall be in respect of Common Stock and may be in the form of Incentive Stock Options or Non-Qualified Stock Options (sometimes referred to collectively herein as the "Stock Option(s))". Such Stock Options shall be subject to the terms and conditions set forth in this Section 6 and any additional terms and conditions, not inconsistent with the express terms and provisions of the Plan, as the Committee shall set forth in the relevant Award Agreement. 6.2 Grant. Stock Options may be granted under the Plan in such ----- form as the Committee may from time to time approve. Special provisions shall apply to Incentive Stock Options granted to any employee who owns (within the meaning of Section 422(b)(6) of the Code) more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or its parent corporation or any subsidiary of the Company, within the meaning of Sections 424(e) and (f) of the Code (a "10% Shareholder"). 6.3 Exercise Price. The exercise price per share of Common -------------- Stock subject to a Stock Option shall be determined by the Committee; provided, -------- however, that the exercise price of an Incentive Stock Option shall not be less - ------- than one hundred percent (100%) of the Fair Market Value of the Common Stock on the date of the grant of such Incentive Stock Option; provided, further, -------- ------- however, that, in the case of a 10% - ------- -5- Shareholder, the exercise price of an Incentive Stock Option shall not be less than one hundred ten percent (110%) of the Fair Market Value of the Common Stock on the date of grant. 6.4 Term. The term of each Stock Option shall be such period ---- of time as is fixed by the Committee; provided, however, that the term of any Incentive Stock Option shall not exceed ten (10) years (five (5) years, in the case of a 10% Shareholder) after the date immediately preceding the date on which the Incentive Stock Option is granted. 6.5 Method of Exercise. A Stock Option may be exercised, in ------------------ whole or in part, by giving written notice of exercise to the Secretary of the Company, or the Secretary's designee, specifying the number of shares to be purchased. Such notice shall be accompanied by payment in full of the exercise price in cash, by certified check, bank draft or money order payable to the order of the Company or, if permitted by the Committee (in its sole discretion) and applicable law, by delivery of, alone or in conjunction with a partial cash or acceptable instrument payment, (a) a fully-secured promissory note or notes, (b) shares of Common Stock already owned by the Participant for at least six (6) months, or (c) some other form of payment acceptable to the Committee. The Committee may also permit Participants (either on a selective or group basis) to utilize a broker other than the Company or any of its Subsidiaries to simultaneously exercise Stock Options and sell or surrender the shares of Common Stock thereby acquired, pursuant to a "cashless exercise" arrangement or program maintained by such broker, selected by and approved of in all respects in advance by the Committee. Payment instruments shall be received by the Company subject to collection. The proceeds received by the Company upon exercise of any Stock Option may be used by the Company for general corporate purposes. Any portion of a Stock Option that is exercised may not be exercised again. 6.6 Exercisability. In respect of any Stock Option granted -------------- under the Plan, unless otherwise (a) determined by the Committee (in its sole discretion) at any time and from time to time in respect of any such Stock Option, or (b) provided in the Award Agreement or in the Participant's employment agreement (if any) in respect of any such Stock Option, such Stock Option shall become exercisable as to the aggregate number of shares of Common Stock underlying such Stock Option, as determined on the date of grant, as follows: o 25% on the first anniversary of the date of grant of the Stock Option, provided the Participant is then employed by the Company and/or one of its Subsidiaries; o 50 %, on the second anniversary of the date of grant of the Stock Option, provided the Participant is then -6- employed by the Company and/or one of its Subsidiaries; o 75%, on the third anniversary of the date of grant of the Stock Option, provided the Participant is then employed by the Company and/or one of its Subsidiaries; o 100%, on the fourth anniversary of the date of grant of the Stock Option, provided the Participant is then employed by the Company and/or one of its Subsidiaries. In no event shall any Stock Option become exercisable as to more than 100% of the aggregate number of shares of Common Stock underlying such Stock Option. Notwithstanding anything to the contrary contained in this Section 6.6, a Stock Option shall become one hundred percent (100%) exercisable as to the aggregate number of shares of Common Stock underlying such Stock Option upon the death, Disability or Retirement of the Participant. 7. Termination of Employment or Provision of Services. Except as -------------------------------------------------- provided in an Award Agreement and subject to any determination of the Committee pursuant to Section 6.6 of the Plan, if a Participant's employment with, or provision of services to, the Company terminates for any reason, any of the then unexercisable Stock Options shall be forfeited and canceled by the Company. Except as otherwise provided in this Section 7 or in any Award Agreement, if a Participant's employment with, or provision of services to, the Company and its Subsidiaries terminates for any reason, such Participant's rights, if any, to exercise any then exercisable Stock Options, if any, shall terminate thirty (30) days after the date of such termination (but not beyond the stated term of any such Stock Option as determined under Sections 6.4) and thereafter such Stock Options shall be forfeited and canceled by the Company. The Committee, in its sole discretion, may determine that any such Participant's Stock Options, if any, to the extent exercisable immediately prior to any termination of employment or the provision of services (other than a termination due to death, Retirement or Disability), may remain exercisable for an additional specified time period after such thirty (30) day period expires (subject to any other applicable terms and provisions of the Plan and the relevant Award Agreement), but not beyond the stated term of any such Stock Option. Except as provided in any Award Agreement, if any termination of employment or the provision of services is due to death, Retirement or Disability, a Participant (and such Participant's estate, designated beneficiary or other legal representative, as the case may be and as determined by the Committee) shall have the right, to the extent exercisable as of the date of any such termination, to exercise such Stock Options, if any, at any time within the ninety (90) day period following such termination due to -7- death, Retirement or Disability (but not beyond the term of any such Stock Option as determined under Sections 6.4). 8. Non-transferability of Awards. ----------------------------- 8.1 Stock Options. Unless otherwise provided in the Award ------------- Agreement, no Stock Option under the Plan or any Award Agreement, and no rights or interests herein or therein, shall or may be assigned, transferred, sold, exchanged, encumbered, pledged, or otherwise hypothecated or disposed of by a Participant or any beneficiary(ies) of any Participant, except by testamentary disposition by the Participant or the laws of intestate succession. No such interest shall be subject to execution, attachment or similar legal process, including, without limitation, seizure for the payment of the Participant's debts, judgements, alimony, or separate maintenance. Unless otherwise provided in the Award Agreement, during the lifetime of a Participant, Stock Options are exercisable only by the Participant. 8.2 Option Shares. No voluntary or involuntary transfer or ------------- pledge of shares of the Company after issuance thereof to the Participant (or of any shares subsequently issued in relation to such shares, whether as a stock dividend or otherwise) may be made or suffered by the Participant except pursuant to the terms of Stock Option Plan Stockholders Agreement (the "Stockholders Agreement"), in the form attached hereto as Exhibit "A." The Participant shall execute and deliver to the Company a counterpart to the Stockholders Agreement at the time of and in connection with the grant of any Stock Option to such Participant, unless the Participant has previously executed the Stockholders Agreement. Notwithstanding any provision hereof to the contrary, the Company shall be entitled to treat any Stock Option as void unless and until the Participant has executed and delivered to the Company a counterpart to the Stockholders Agreement. 9. Changes in Capitalization and Other Matters. ------------------------------------------- 9.1 No Corporate Action Restriction. The existence of the ------------------------------- Plan, any Award Agreement and/or the awards granted hereunder shall not limit, affect or restrict in any way the right or power of the Board or the shareholders of the Company to make or authorize (a) any adjustment, recapitalization, reorganization or other change in the Company's or any Subsidiary's capital structure or its business, (b) any merger, consolidation or change in the ownership of the Company or any Subsidiary, (c) any issue of bonds, debentures, capital, preferred or prior preference stocks ahead of or affecting the Company's or any Subsidiary's capital stock or the rights thereof, (d) any dissolution or liquidation of the Company or any Subsidiary, (e) any sale or transfer of all or any part of the Company's or any Subsidiary's assets or business, or (f) any other corporate act or proceeding by the Company or any Subsidiary. No Participant, beneficiary or any other person shall have any claim against any member of the Board or the Committee, the Company or any Subsidiary, or any employees, officers or agents of the Company or any subsidiary, as a result of any such action. -8- 9.2 Recapitalization Adjustments. In the event of any change ---------------------------- in capitalization affecting the Common Stock of the Company, including, without limitation, a stock dividend or other distribution, stock split, reverse stock split, recapitalization, consolidation, subdivision, split-up, spin-off, split-off, combination or exchange of shares or other form of reorganization or recapitalization, or any other change affecting the Common Stock, the Board shall authorize and make such proportionate adjustments, if any, as the Board deems appropriate to reflect such change, including, without limitation, with respect to the aggregate number of shares of the Common Stock for which Stock Options in respect thereof may be granted under the Plan, the maximum number of shares of the Common Stock which may be granted or awarded to any Participant, the number of shares of the Common Stock covered by each outstanding Stock Options, and the exercise price per share of Common Stock in respect of outstanding Stock Options. 9.3 Certain Mergers. --------------- 9.3.1 If the Company effects any merger, reorganization or other business combination with any person or entity (such merger, reorganization or other business combination to be referred to herein as a "Merger Event") and as a result of any such Merger Event the Company will be or is the surviving corporation, a Participant shall be entitled, as of the date of the Merger Event (the "Execution Date") and with respect to both exercisable and unexercisable Stock Options (but only to the extent not previously exercised), to receive substitute stock options in respect of the shares of the surviving corporation on such terms and conditions, as to the number of shares, pricing and otherwise, which shall substantially preserve the value, rights and benefits of any affected Stock Options granted hereunder as of the date of the consummation of the Merger Event. Notwithstanding anything to the contrary in this Section 9.3, if any Merger Event occurs, the Company shall have the right, but not the obligation, to pay to each affected Participant an amount in cash or check equal to the excess of the Fair Market Value of the Common Stock underlying any affected unexercised Stock Options as of the Execution Date (whether then exercisable or not) over the aggregate exercise price of such unexercised Stock Options, and upon any such payment by the Company, such affected Stock Options shall be immediately cancelled. 9.3.2 If, in the case of a Merger Event in which the Company will not be, or is not, the surviving corporation, and the Company determines not to make the cash or check payment described in Section 9.3.1 of the Plan, the Company shall compel and obligate, as a condition of the consummation of the Merger Event, the surviving or resulting corporation and/or the other party to the Merger Event, as necessary, or any parent, subsidiary or acquiring corporation thereof, to grant, with respect to both exercisable and unexercisable Stock Options (but only to the extent not previously exercised), substitute stock options -9- in respect of the shares of common or other capital stock of such surviving or resulting corporation on such terms and conditions, as to the number of shares, pricing and otherwise, which shall substantially preserve the value, rights and benefits of any affected Stock Options previously granted hereunder as of the date of the consummation of the Merger Event. 9.3.3 Upon receipt by any affected Participant of any such cash, check, or substitute stock options or stock appreciation rights as a result of any such Merger Event, such Participant's affected Stock Options for which such cash, check or substitute awards was received shall be thereupon canceled without the need for obtaining the consent of any such affected Participant. 9.3.4 The foregoing adjustments and the manner of application of the foregoing provisions, including, without limitation, the issuance of any substitute stock options, shall be determined in good faith by the Committee in its sole discretion. Any such adjustment may provide for the elimination of fractional shares. 10. [RESERVED] 11. Amendment, Suspension and Termination. The Board may suspend or ------------------------------------- terminate the Plan (or any portion thereof) at any time and may amend the Plan at any time and from time to time in such respects as the Board may deem advisable to insure that any and all Stock Option awards conform to or otherwise reflect any change in applicable laws or regulations, or to permit the Company or the Participants to benefit from any change in applicable laws or regulations, or in any other respect the Board may deem to be in the best interests of the Company or any Subsidiary. No such amendment, suspension or termination shall materially adversely effect the rights of any Participant under any outstanding Stock Options, without the consent of such Participant. The Committee may (in its sole discretion) amend or modify at any time and from time to time the terms and provisions of any outstanding Stock Options, in any manner to the extent that the Committee under the Plan or any Award Agreement could have initially determined the restrictions, terms and provisions of such Stock Options, including, without limitation, changing or accelerating the date or dates as of which such Stock Options shall become exercisable. No such amendment or modification shall, however, materially adversely affect the rights of any Participant under any such award without the consent of such Participant. 12. Miscellaneous. ------------- 12.1 Tax Withholding. The Company shall have the right to --------------- deduct from any payment or settlement under the Plan, including, without limitation, the exercise of any Stock Option, any federal, state, local or other taxes of any kind which the Committee, in its sole discretion, deems necessary to be withheld to comply with the -10- Code and/or any other applicable law, rule or regulation. If the Committee, in its sole discretion, permits shares of Common Stock to be used to satisfy any such tax withholding, such Common Stock shall be valued based on the Fair Market Value of such stock as of the date the tax withholding is required to be made, such date to be determined by the Committee. The Committee may establish rules limiting the use of Common Stock to meet withholding requirements by Participants who are subject to Section 16 of the Exchange Act. In addition, the Company shall have the right to require payment from a Participant to cover any applicable withholding or other employment taxes due upon any payment or settlement under the Plan. 12.2 No Right to Employment. Neither the adoption of the Plan, ---------------------- the granting of any award, nor the execution of any Award Agreement, shall confer upon any employee of the Company or any Subsidiary any right to continued employment with the Company or any Subsidiary, as the case may be, nor shall it interfere in any way with the right, if any, of the Company or any Subsidiary to terminate the employment of any employee at any time for any reason. 12.3 Other Company Benefit and Compensation Programs. Payments ----------------------------------------------- and other benefits received by a Participant under an award made pursuant to the Plan shall not be deemed a part of a Participant's compensation for purposes of the determination of benefits under any other employee welfare or benefit plans or arrangements, if any, provided by the Company or any Subsidiary unless expressly provided in such other plans or arrangements, or except where the Board expressly determines in writing that inclusion of an award or portion of an award should be included to accurately reflect competitive compensation practices or to recognize that an award has been made in lieu of a portion of competitive annual base salary or other cash compensation. 12.4 Listing, Registration and Other Legal Compliance. No ------------------------------------------------ awards or shares of the Common Stock shall be required to be issued or granted under the Plan unless legal counsel for the Company shall be satisfied that such issuance or grant will be in compliance with all applicable federal and state securities laws and regulations and any other applicable laws or regulations. The Committee may require, as a condition of any payment or share issuance, that certain agreements, undertakings, representations, certificates, and/or information, as the Committee may deem necessary or advisable, be executed or provided to the Company to assure compliance with all such applicable laws or regulations. Certificates for shares of the Common Stock delivered under the Plan may be subject to such stock-transfer orders and such other restrictions as the Committee may deem advisable under the rules, regulations, or other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock is then listed, and any applicable federal or state securities law. In addition, if, at any time specified herein (or in any Award Agreement or otherwise) for (a) the making of any award, or the making of any determination, (b) the issuance or other distribution of Common Stock, or (c) the payment of amounts to or through a Participant with respect to any award, any law, rule, regulation or other -11- requirement of any governmental authority or agency shall require either the Company, any Subsidiary or any Participant (or any estate, designated beneficiary or other legal representative thereof) to take any action in connection with any such determination, any such shares to be issued or distributed, any such payment, or the making of any such determination, as the case may be, shall be deferred until such required action is taken. 12.5 Designation of Beneficiary. Each Participant to whom an -------------------------- award has been made under the Plan may designate a beneficiary or beneficiaries to exercise any option or to receive any payment which under the terms of the Plan and the relevant Award Agreement may become exercisable or payable on or after the Participant's death. At any time, and from time to time, any such designation may be changed or canceled by the Participant without the consent of any such beneficiary. Any such designation, change or cancellation must be on a form provided for that purpose by the Committee and shall not be effective until received by the Committee. If no beneficiary has been designated by a deceased Participant, or if the designated beneficiaries have predeceased the Participant, the beneficiary shall be the Participant's estate. If the Participant designates more than one beneficiary, any payments under the Plan to such beneficiaries shall be made in equal shares unless the Participant has expressly designated otherwise, in which case the payments shall be made in the shares designated by the Participant. 12.6 Governing Law. The Plan and all actions taken thereunder ------------- shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to the principles of conflict of laws thereof. Any titles and headings herein are for reference purposes only, and shall in no way limit, define or otherwise affect the meaning, construction or interpretation of any provisions of the Plan. 12.7 Effective Date. The Plan as amended and restated shall be -------------- effective upon its approval by the Board and adoption by the Company, subject to the approval of the Plan by the Company's shareholders in accordance with Section 422 of the Code. IN WITNESS WHEREOF, this Plan is adopted by the Company as of the 30th day of JUNE, 1999 and amended on February 4, 2000 and October 27, 2000. PNY Technologies, Inc. By: /s/ GADI COHEN --------------------------------------- Name: Gadi Cohen Title: President & Chief Executive Officer EX-23.1 5 0005.txt CONSENT OF ERNST & YOUNG LLP Exhibit 23.1 Consent of Independent Auditors We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated March 31, 2000, with respect to the financial statements and schedule of PNY Technologies, Inc. included in the Amendment No. 2 to Registration Statement (Form S-1 No. 333-44376) and related Prospectus of PNY Technologies, Inc. dated October 31, 2000 for the registration of 8,900,000 shares of its common stock. Ernst & Young LLP MetroPark, New Jersey October 31, 2000 -----END PRIVACY-ENHANCED MESSAGE-----