ZOMAX OPTICAL MEDIA INC, 424B1, 1996-05-08

ZOMAX OPTICAL MEDIA INC
424B1, 1996-05-08
PHONOGRAPH RECORDS & PRERECORDED AUDIO TAPES & DISKS

Previous: DESIGNER HOLDINGS LTD, S-1/A, 1996-05-08

Next: FNB CORP VA, S-4/A, 1996-05-08

<PAGE>
FILED PURSUANT TO RULE 424(B)(1) FILE NUMBER: 333-02430

PROSPECTUS

1,400,000 SHARES OF COMMON STOCK

[LOGO]

All of the 1,400,000 shares of Common Stock (the "Shares") offered hereby
(the "Offering") are being sold by Zomax Optical Media, Inc. ("Zomax" or the
"Company"). Prior to this Offering, there has been no public market for the
Common Stock of the Company. See "Underwriting" for the factors considered in
determining the initial public offering price. The Company's Common Stock has
been approved for designation as a Nasdaq National Market security under the
symbol "ZOMX."
---------------------

THE COMMON STOCK OFFERED BY THIS PROSPECTUS IS SPECULATIVE AND INVOLVES A HIGH
DEGREE OF RISK AND DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 6 AND
"DILUTION."
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRE SENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Share...................... $6.75 $.6075 $6.1425
Total(3)...................... $9,450,000 $850,500 $8,599,500
</TABLE>

(1) The Company has agreed to pay R. J. Steichen & Company, as representative of
the several Underwriters (the "Representative"), a nonaccountable expense
allowance in an amount equal to 2.0% of the gross proceeds of this Offering.
The Company has also agreed to sell to the Representative, for a nominal
purchase price, a five-year warrant to purchase up to 140,000 shares of the
Common Stock, exercisable at 120% of the Price to Public. In addition, the
Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

(2) Before deducting expenses payable by the Company, estimated at $460,000
(including the Representative's nonaccountable expense allowance referenced
in note 1 above). See "Underwriting."

(3) The Company has granted the Underwriters a 45-day option to purchase up to
210,000 additional shares of Common Stock solely to cover overallotments, if
any. If such option is exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $10,867,500, $978,075
and $9,889,425, respectively. See "Underwriting."

The Shares are being offered by the several Underwriters subject to prior
sale, to withdrawal, cancellation or modification of the offer without notice,
to delivery to and acceptance by the Underwriters and to certain other
conditions. It is expected that delivery of the Shares will be made on or about
May 10, 1996 in Minneapolis, Minnesota.

[LOGO]

The date of this Prospectus is May 7, 1996.
<PAGE>

[Photograph of the injection [Photograph of an example of
molding portion of the robotics used in the manufacturing
manufacturing process] process]
AUTOMATED CD ROBOTIC MANUFACTURING
INJECTION MOLDING TECHNOLOGY
[Photograph of some custom inks [Photograph of the six-color CD
and color samples] printing machine]
CUSTOM INKS MIXED ON-SITE
TO MATCH ANY PMS COLOR SIX COLOR CD PRINTING
[Photograph of examples of CD and
[Photograph of hand holding a CD] cassette packages]
100% INSPECTION PROVIDES COMPLETE PACKAGING
CONSISTENT QUALITY DESIGN SERVICES

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY

THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
AND PRO FORMA FINANCIAL STATEMENTS OF THE COMPANY AND ITS PREDECESSOR AND THE
NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, ALL INFORMATION HEREIN ASSUMES (I) NO EXERCISE OF THE UNDERWRITERS'
OVERALLOTMENT OPTION (210,000 SHARES), THE REPRESENTATIVE'S WARRANT (140,000
SHARES) OR THE OPTIONS TO BE OUTSTANDING UPON THE COMPLETION OF THIS OFFERING
(345,000 SHARES) AND (II) THE COMPLETION OF THE REORGANIZATION AT THE PRICE TO
PUBLIC OF $6.75 PER SHARE. REFERENCES HEREIN TO THE "COMPANY" OR TO "ZOMAX"
INCLUDE ITS PREDECESSOR UNLESS OTHERWISE INDICATED. SEE "PROSPECTUS SUMMARY --
THE REORGANIZATION," "DESCRIPTION OF SECURITIES" AND "UNDERWRITING."

THE COMPANY

Zomax Optical Media, Inc. ("Zomax" or the "Company") is a full-service,
turnkey provider of high quality compact discs ("CDs"), cassettes, diskettes as
well as a full complement of related services. Zomax services the multimedia
needs of a wide variety of customers, including software publishers, computer
manufacturers, recording studios, book publishers, marketing groups, data base
suppliers and other producers of multimedia products for retail distribution. In
addition to manufacturing CDs, cassettes and diskettes, the Company offers
customers a "one-stop shop" with a full range of related services such as
packaging design, graphics design, printing, packaging, warehousing and shipping
services. Zomax's marketing strategy is to focus on offering "one-stop shopping"
to a niche of various media markets, such as multimedia software publishers and
independent record labels, that may require flexibility, fast turn-around time
and the extra personal services the Company offers. Its marketing strategy also
includes cross-marketing to customers who may require other multimedia products
manufactured by the Company. For example, software publishers often need
diskettes as well as CD-ROM units and independent record labels frequently
require cassettes as well as CD-Audio units.

Originally introduced in 1982, CD technology is becoming the medium of
choice for the portable storage of digital information. CD technology is the
dominant format in the music market ("CD-Audio") and is becoming a leading
technology in the data storage and retrieval markets ("CD-ROM"). Industry
sources estimated that 1995 sales in the U.S. consisted of approximately 928
million CDs (CD-ROM and CD-Audio units) and approximately 345 million audio
cassettes. Industry sources estimated that 1994 sales in the U.S. consisted of
approximately one billion diskettes. In 1995, the Company sold approximately 10
million CDs (primarily CD-ROM), 3.5 million audio cassettes and began diskette
manufacturing. The Company intends to use proceeds of this Offering to increase
its manufacturing capability and capacity and marketing efforts to reach a
broader portion of the market.

In addition to providing its multimedia customers with a broad range of
high-speed CD, cassette and diskette manufacturing services, the Company also
provides pre-mastering, cassette mastering, high-speed replicating, printing,
packaging, warehousing and shipping services. With a portion of the Offering
proceeds, the Company intends to acquire CD mastering equipment, which will
enable the Company to more efficiently offer a complete package of services to
its CD customers. The Company can offer production runs of as few as 500 units
or as many as one million or more units. With this flexibility, the Company has
broadened its market position with independent record labels and CD-ROM
customers with a complete "one-stop shopping" environment. The Company also
offers its customers a wide variety of services such as custom packaging
configurations which enable them to design their finished products to facilitate
an effective retail marketing presentation. Zomax's customer service department
works closely with its customers to ensure their needs are being met. Print
material can be stored for customers to facilitate timely and cost effective
reordering. Zomax also provides complete CD-ROM services to customers, ranging
from technical and business consultation on the use of data and applications
through the conversion of raw data to the replication of information on disc.
Other services offered by the Company include regular CD-ROM updates, data
conversion and indexing, authoring, pre-mastering and data verification.

3
<PAGE>
The Company was incorporated in Minnesota on February 22, 1996 as the
successor to the business of Zomax Optical Media Limited Partnership, a
Minnesota limited partnership (the "Partnership"). The Company's executive
offices are located at 5353 Nathan Lane, Plymouth, Minnesota 55442 and its
telephone number is (612) 553-9300. See "Prospectus Summary -- The
Reorganization."

THE OFFERING

<TABLE>
<S> <C>
COMMON STOCK OFFERED......................... 1,400,000 Shares
COMMON STOCK OUTSTANDING AFTER
THIS OFFERING............................... 4,200,000 shares
USE OF PROCEEDS.............................. Purchase of mastering, manufacturing and
packaging equipment and working capital and
general corporate purposes. See "Use of
Proceeds."
NASDAQ NATIONAL MARKET SYMBOL................ ZOMX
</TABLE>

THE REORGANIZATION

Simultaneously with the closing of this Offering of 1,400,000 Shares of
Common Stock, the Company will issue to the Partnership an aggregate of
2,800,000 shares of Common Stock of the Company in exchange for the assets and
liabilities of the Partnership (the "Reorganization"). As part of the
Reorganization, the Partnership will terminate, liquidate and dissolve and
distribute the 2,800,000 shares to its partners pursuant to the terms of the
Amended Partnership Agreement. The Reorganization also involves the issuance by
the Company of up to 1,100,000 shares of its Common Stock to the shareholders of
the Partnership's General Partner, ZOMI Corp. (the "General Partner"), in
exchange for the shareholders' shares of the General Partner's common stock.
Following this exchange, the General Partner will be a wholly-owned subsidiary
of the Company. As part of the liquidation of the Partnership, the General
Partner will receive a number of shares of the Company's Common Stock equal to
the number of shares of the Company's Common Stock issued to the shareholders of
the General Partner as part of their exchange with the Company. The shares
issued to the General Partner will be cancelled as part of the merger of the
General Partner into the Company, which merger is expected to occur immediately
following the Reorganization, leaving 2,800,000 shares outstanding prior to this
Offering. The effect of these transactions is to convert the Partnership to a C
corporation and convert the partners' relative interests in the Partnership to a
proportional common share interest in the Company. All of the information set
forth in this Prospectus assumes that the transactions contemplated by the
Reorganization have been completed.

4
<PAGE>
SUMMARY FINANCIAL DATA

The following table sets forth summary financial data for the periods
indicated for the Partnership, the predecessor of the Company, for the periods
indicated. This information should be read in conjunction with the Unaudited Pro
Forma Financial Statements and the Financial Statements and related Notes
appearing elsewhere herein and "Management's Discussion and Analysis of Results
of Operations and Financial Condition." The summary financial data have been
derived from the Partnership's financial statements which have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report included elsewhere herein. Pursuant to the Reorganization, the
Partnership will transfer its assets and liabilities to the Company in exchange
for 2,800,000 shares of Common Stock of the Company. The transfer will be
accounted for at historical cost with no change in the book and tax bases of the
assets contributed and liabilities and debts assumed, except for tax effects
resulting from converting from a partnership to a corporation.

<TABLE>
<CAPTION>
PERIOD FROM INCEPTION YEAR ENDED DECEMBER 31,
(AUGUST 6, 1993) THROUGH ---------------------------
DECEMBER 31, 1993 1994 1995
------------------------ ------------ -------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales................................................... $ 2,794,180 $ 9,842,095 $ 13,217,539
Gross profit............................................ 297,738 2,339,523 3,180,548
Selling, general and administrative expense............. 318,465 1,254,040 2,053,443
Operating income (loss)................................. (20,727) 1,085,483 1,127,105
Net income (loss)....................................... (56,068) 885,011 879,974
PRO FORMA STATEMENT OF OPERATIONS DATA(1):
Pro forma net income (loss)(1).......................... (35,068) 545,011 539,974
Pro forma weighted average number of common shares
outstanding(2)......................................... 2,870,831
Pro forma net income (loss) per share(2)................ $.19
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....................................................... $ 375,312 $ 420,268 $ 1,019,496
Total assets.......................................................... 2,639,556 5,958,279 9,904,406
Notes payable, less current portion................................... 1,167,604 2,152,923 2,589,218
Total partners' capital............................................... 930,637 1,634,632 3,489,257
</TABLE>

ESTIMATED FIRST QUARTER 1996 RESULTS

The Partnership's financial statements for the three months ended March 31,
1996 are not yet finalized; however, based on preliminary financial information,
the Partnership expects to report sales of approximately $3,768,000 for the
period, representing an increase of 58.5% over sales of $2,378,000 for the first
quarter ended March 31, 1995. The Partnership expects to report net income of
approximately $310,000 for the three months ended March 31, 1996, representing
an increase of 74.2% over net income of $178,000 for the first quarter of 1995.
- ---------------------------
(1) The pro forma statement of operations data reflect the effects on the
historical statement of operations data of the Partnership for each of the
periods presented as if the Partnership had been treated as a taxable
entity for income tax purposes (assuming a 39% effective tax rate). See
"Unaudited Pro Forma Financial Statements."

(2) Pro forma net income (loss) per share is based on pro forma net income
(loss) and the pro forma weighted average number of shares of Common Stock
expected to be issued to current partners in the Reorganization. Pro forma
net income (loss) per common share is not necessarily indicative of what
actual net income (loss) per common share would have been if the
Reorganization had occurred on the basis assumed. See "Unaudited Pro Forma
Financial Statements."

5
<PAGE>
RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY BY POTENTIAL PURCHASERS IN EVALUATING AN
INVESTMENT IN THE COMMON STOCK OF THE COMPANY.

DECLINING COMPACT DISC PRICES

Over the past year, prices paid to CD manufacturers for CDs have declined
due to increased competition. The Company has been able to maintain
profitability by offsetting these declining prices through increases in sales
volume and improvements in manufacturing efficiencies but may not be able to do
so in the future. It is expected that the entry of new manufacturers into the
market will continue, and there can be no assurance that the market for CDs will
continue to grow at all or at the same rate. As a result, the prices paid to CD
manufacturers may continue to decline. Further, there can be no assurance that
the Company will be able to continue to reduce its costs or increase its volume
to offset this continued decline in prices. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

COMPETITION

The CD manufacturing industry is highly competitive. CD-ROM and CD-Audio
manufacturing is highly concentrated among the CD manufacturing affiliates of
major international music companies, such as Sony Music Entertainment, Inc.
("Sony"), PolyGram Holdings, Inc. ("PolyGram"), Warner Music ("Warner"), BMG
Music ("BMG") and EMI Music ("EMI"). Collectively, these CD manufacturers,
together with the largest independent CD manufacturers, produced a majority of
the 1994 world output of CD-ROM and CD-Audio. The remaining CD-ROM and CD-Audio
world output is produced by many small and medium scale CD manufacturing
operations. Many of these competitors are, and future potential competitors may
be, larger and more established with greater financial and other resources than
the Company. As a result, such competitors may be able to respond more quickly
to market changes or to devote greater resources to the manufacture, promotion
and sale of their products than can the Company. See "Business -- Industry" and
"Business -- Competition."

TECHNOLOGICAL CHANGE

The market for information distribution services incorporating CD technology
is based upon a sophisticated technology and is subject to change as the
technology is enhanced or new technology is developed, new applications are
created and customer needs shift. There can be no assurance that the Company
will be able to adapt to such technological changes. Further, there can be no
assurance that over time CD technology will not be replaced by another form of
information storage and retrieval technology, such as on-line information
services. Failure by the Company to adapt to such technological changes in a
timely manner could have a material adverse effect on its operations and
profitability. See "Business -- Competition."

RISKS ASSOCIATED WITH ADDITION OF MASTERING OPERATIONS

The Company anticipates using a portion of the proceeds from this Offering
to expand its manufacturing operations to include the mastering process during
which the master image of the CD is formed. Such change will require a
significant expenditure of time, effort and capital by the Company. The
Company's operations may be adversely affected until such time as the Company
integrates the mastering process into its current manufacturing operations.
There can be no assurance that the Company will be able to successfully and
profitably achieve such integration. Although the Company believes that the
addition of mastering equipment will reduce the Company's need to outsource its
mastering operations and thus improve margins, there can be no assurance that
the Company will be able to generate sufficient additional income to offset the
expenditures incurred in connection with the purchase of the mastering
equipment. Failure to successfully integrate the mastering process or to offset
these additional expenditures could have a material adverse effect on the
Company's results of operations. See "Use of Proceeds," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business --
Manufacturing."

DEPENDENCE ON NEW CD PRODUCTS AND APPLICATIONS

The Company's future growth prospects are to a large degree dependent on the
development by software and hardware developers of new products and applications
that create additional demand for CDs. There can be no assurance that such
developers will be successful in these efforts. Demand for such products

6
<PAGE>
and applications is dependent on, among other factors, the installed base of
CD-ROM drives and CD-Video and other interactive disc players and the ability of
developers to create products and applications for CDs that achieve market
acceptance. See "Business -- Industry."

DEPENDENCE ON TECHNOLOGY LICENSES

The Company manufactures CDs using patented technology primarily under
nonexclusive licenses from U.S. Philips Corporation ("Philips") and Discovision
Associates ("DVA"). These licenses generally provide for the payment of
royalties based upon the number, type and size of CDs sold. The Company's
license from Philips expires in 2006 and the license from DVA continues until
the expiration of the last DVA patent covered by the license, which is currently
in 2010. Termination of a license to use the patented technology in the
manufacture of CDs or successful litigation for infringement by the holders of
other patents could have a material adverse effect on the Company's results of
operations. In July 1995, the Company received a notice from Thomson Multimedia
S.A. ("Thomson"), a French company which claims it has rights to certain U.S.
patented CD technology that it alleges is being used by the Company and others
in the industry. If it were determined that Thomson does have some rights to
U.S. patented CD technology, the Company may be required to enter into a license
with Thomson, which license has been offered by Thomson under terms similar to
those of the licenses to which the Company is a party with Philips and DVA. The
Company believes that entering into a license with Thomson will not materially
adversely affect the Company's financial position and results of operations. If
the Company is unsuccessful in negotiating a license with Thomson and if the
Company is found to have infringed Thomson's patents, the Company may have to
pay damages to Thomson. There can be no assurance that the Company will obtain a
license with Thomson at all or on terms acceptable to the Company. Although the
Company expects to obtain licenses from the owners of CD-Video technology to
manufacture CD-Video discs pursuant to the recently agreed upon CD-Video format,
no assurances can be made that such licenses will be obtained and the Company
cannot predict the amount of the royalty that will be payable under any such
license. See "Business -- Proprietary Rights."

DEPENDENCE ON KEY PERSONNEL

The Company's success depends to a significant degree upon the continued
contributions of its key management, operations, sales and marketing personnel
including James T. Anderson, President and Chief Executive Officer, Stephan P.
Jones, Chief Financial Officer, Michelle S. Bedard, Executive Vice President,
Joseph Rehak, Vice President of Operations, and George F. Esbensen, Vice
President of Sales -- Software Manufacturing Group. The Company does not have
employment agreements with its key personnel, other than with Mr. Anderson. The
Company does not maintain key person life insurance policies other than a policy
on Mr. Anderson. The Company believes that its future success will also depend
in large part on its ability to attract and retain highly skilled managerial,
engineering, operations and marketing personnel, who are in great demand.
Failure to attract and retain key personnel could have a material adverse effect
on the Company's results of operations. See "Management."

DEPENDENCE ON KEY CUSTOMERS

A substantial portion of the Company's revenues in 1994 and 1995 were from
sales to two key customers. Sales to Metacom, Inc. ("Metacom"), a company owned
by the Company's Chairman, Phillip T. Levin, accounted for 43.7% and 19.1% of
the Company's revenues in 1994 and 1995, respectively. Sales to Gateway 2000
("Gateway"), a distributor of Microsoft-Registered Trademark- products,
accounted for 16.4% and 15.9% of the Company's revenues in 1994 and 1995,
respectively. The Company's revenues would be materially adversely affected if
it were to lose either of these customers or if the amounts of their orders were
to significantly decline.

The Company is aware that Metacom is not in compliance with the covenants of
its loan agreement with its bank and is currently negotiating with the bank to
reform its loan agreement. Based on discussions to date, Metacom has advised the
Company that Metacom believes that a new loan agreement will be negotiated,
although there is no assurance that such accommodation with the bank can be
reached. While the Company's dependence on Metacom is decreasing significantly,
the Company's sales and earnings in 1996 would be materially adversely affected
if it were to lose Metacom as a customer. See "Business -- Sales and Marketing."

7
<PAGE>
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

The Company may experience variability in its net sales and net income on a
quarterly basis as a result of many factors, including the condition of the CD
and multimedia products industry in general, shifts in demand for software and
hardware products, technological changes and industry announcements of new
products and upgrades. If revenues do not meet expectations in any given quarter
and the Company is unable to adjust spending in a timely manner, operating
results may be materially adversely affected.

The demand for CD and other multimedia consumer products is seasonal, with
increases in the fall reflecting increased demand relative to the new school
year and holiday gift purchases. This seasonality could result in significant
quarterly variations in financial results, with the third and fourth quarters
generally being the strongest. As a result of the potential fluctuations in
quarterly operating results, the Company believes that period-to-period
comparisons of its financial results should not be relied upon as an indication
of future performance. Further, it is possible that in some future quarters the
Company's operating results will be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
would likely be materially adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business --
Sales and Marketing."

DEPENDENCE ON SUPPLIERS

The Company is dependent on certain suppliers for delivery of components,
such as stampers which contain the master image, and raw materials, such as the
polycarbonate from which CDs are made. The Company does not have long-term
agreements with any of its suppliers. The Company believes that alternative
suppliers for these components are available. Recently, however, the worldwide
supply of polycarbonate has been limited and there can be no assurance that such
supply will increase in the future. Any interruption of supply from current
vendors could cause significant delays in the shipment of the Company's
products. The Company intends to use proceeds of this Offering to expand its
manufacturing operations to include the mastering process in which stampers are
created. However, there can be no assurance that the Company will be successful
in integrating the mastering process into its operations and, if not successful,
the Company will remain dependent on third party suppliers for stampers. See
"Use of Proceeds" and "Business -- Manufacturing."

SINGLE-SITE MANUFACTURING FACILITY

All of the Company's manufacturing services are performed at its
manufacturing facility in Plymouth, Minnesota, which is capable of operating
seven days a week, 24 hours a day, depending on work requirements and amount of
downtime, if any. In the event this facility is damaged by fire or other
casualty, which damage could not be repaired within a short period of time, the
Company's manufacturing services would be substantially interrupted and such
casualty loss and business interruption would have a material adverse effect on
the Company's operations and profitability. The Company maintains business
interruption insurance but there can be no assurance that such coverage will be
sufficient to cover the Company's losses or that the Company will be able to
regain its market share or customer base after resuming operations.

POSSIBLE ACQUISITIONS

Although the Company may explore potential acquisitions, no acquisition
targets have been identified, no acquisitions are currently being negotiated and
no portion of the proceeds of the Offering has been allocated to specific
acquisitions. The Company's expansion plans may include acquisitions, which will
subject it to all of the risks inherent in acquiring another business and
attempting to integrate such new business with the Company's existing
operations, such as unforeseen expenses, difficulties, complications and delays.
No assurance can be given that the Company will be successful in integrating any
such newly acquired business or in meeting the Company's business objectives. In
addition, no assurance can be given that the Company will pursue or consummate
such future business opportunities, if any, or that such business opportunities,
if consummated, will ultimately be advantageous for the Company.

CONTROL BY MANAGEMENT

Upon completion of this Offering, the Company's executive officers and
directors will beneficially own approximately 40.5% of the issued and
outstanding shares of Common Stock. As a result of such ownership,

8
<PAGE>
such shareholders may have the ability to elect or remove all members of the
Board of Directors and thereby control the affairs and management of the Company
and may have the power to approve most actions requiring shareholder approval.
Such a level of ownership can have the effect of delaying, deferring or
preventing a change in control of the Company and can adversely affect the
voting and other rights of the other holders of Common Stock. See "Principal
Shareholders."

NO PRIOR PUBLIC MARKET

Prior to this Offering, there has been no public market for the Company's
Common Stock. There can be no assurance that an active trading market for the
Common Stock will develop or be sustained after this Offering.

DETERMINATION OF OFFERING PRICE

The initial public offering price for the Shares has been determined by
negotiation between the Company and the Representative. Such price may bear no
relationship to the book value of the Company or the market price of the Shares
subsequent to this Offering. See "Underwriting."

POSSIBLE VOLATILITY OF STOCK PRICE

The stock market has from time to time experienced significant price and
volume fluctuations that may be related or unrelated to the operating
performance of particular companies. These broad market fluctuations may
adversely affect the market price of the Company's Common Stock. In addition,
the market price of the shares of Common Stock of the Company may be highly
volatile. Factors such as a small market float, fluctuations in the Company's
operating results, announcements of technological innovations or new products by
the Company or its competitors, developments with respect to patents or
proprietary rights, changes in stock market analyst recommendations regarding
the Company, its competitors or the industry generally, and general market
conditions may have a significant effect on the market price of the Company's
Common Stock.

SHARES ELIGIBLE FOR FUTURE SALE

The availability for sale of certain shares of Common Stock held by
shareholders of the Company after this Offering could adversely affect the
market price of the Common Stock. All of the 4,200,000 shares of Common Stock to
be outstanding following this Offering will be freely tradeable without
restrictions or additional registration under the Securities Act of 1933, as
amended (the "Securities Act"). Holders of 2,800,000 of these shares have agreed
not to offer, sell or otherwise dispose of any of their shares for a period of
180 days after the effective date of this Offering, without the prior written
consent of the Representative. Further, officers and directors of the Company,
who currently beneficially hold 1,699,884 shares of the Company's Common Stock,
are subject to the restrictions of Rule 144 of the Securities Act with respect
to the sale of such shares. Sales of a substantial amount of the currently
outstanding shares of Common Stock in the public market may adversely affect the
market price of the Common Stock. See "Description of Securities," "Shares
Eligible for Future Sale" and "Underwriting."

ANTI-TAKEOVER LAWS

The effect of certain provisions of the Minnesota Business Corporation Act
and the ability of the Board of Directors of the Company to issue preferred
stock without shareholder approval may have the effect of delaying or preventing
a change in control or merger of the Company, which could operate to the
detriment of other shareholders. Further, the anti-takeover effects of the
issuance of undesignated shares may deny shareholders the receipt of a premium
on their Common Stock and may also have a depressive effect on the market price.
See "Description of Securities."

POSSIBLE CLAIMS OF LIMITED PARTNERS

As part of the Reorganization, the 2,800,000 shares of the Company's Common
Stock to be issued to the Partnership in exchange for the assets and liabilities
of the Partnership will be subsequently distributed to the partners upon the
dissolution of the Partnership. Pursuant to the terms of the Amended Partnership
Agreement, the approval of the General Partner and holders of a majority of the
limited partnership interests is required to approve the dissolution of the
Partnership, although the General Partner has the authority to sell the
Partnership's assets and liabilities without the approval of the limited
partners. The

9
<PAGE>
partners have met and approved the dissolution of the Partnership subject to the
completion of the transfer of the Partnership assets and liabilities to the
Company and the closing of this Offering. The Partnership does not become
obligated to transfer its assets and liabilities in exchange for shares of the
Company's Common Stock unless and until the General Partner signs the agreement
with the Company at the closing of the Offering. However, the approval by the
partners of the dissolution of the Partnership prior to the effectiveness of the
Registration Statement covering the shares to be issued to the partners upon
dissolution may be deemed a sale in technical violation of Section 5(a) of the
Securities Act. In such event, the partners may have certain claims against the
Company. If all or a substantial portion of the limited partners were successful
in their claims against the Company and were entitled to any remedies, including
rescission rights, the financial condition of the Company could be materially
adversely affected.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,400,000 Shares of
Common Stock offered to the public hereby at the Price to Public of $6.75 per
share are estimated to be $8,139,500 ($9,401,075 if the Underwriters'
overallotment option is exercised in full) after deducting the underwriting
discount and estimated Offering expenses payable by the Company. The Company
currently intends to apply these proceeds approximately as follows:

<TABLE>
<S> <C>
Purchase of mastering equipment......................... $3,500,000
Purchase of CD manufacturing and packaging equipment.... 3,000,000
Working capital and general corporate purposes.......... 1,639,500
---------
Total............................................... $8,139,500
---------
---------
</TABLE>

With approximately $3,500,000 of the proceeds of this Offering, the Company
plans to purchase mastering equipment and to prepare its manufacturing facility
for mastering operations. Another estimated $3,000,000 of the Offering proceeds
is intended to be used to purchase other CD manufacturing and packaging
equipment. The remainder of the proceeds is intended to be used for working
capital and general corporate purposes, including the addition of sales and
marketing personnel, increased marketing expense, support for increased
inventory and receivables and payment of expenses incurred by the Partnership in
connection with the Reorganization, which expenses will have been assumed by the
Company as part of the Reorganization. Any additional proceeds received upon the
exercise of the overallotment option or the Representative's Warrant will be
used for working capital and general corporate purposes. Although the Company
may explore potential acquisitions, no acquisition targets have been identified,
no acquisitions are currently being negotiated and no portion of the proceeds
has been allocated to specific acquisitions.

Pending utilization of the net proceeds of this Offering, the Company plans
to invest such net proceeds in short-term money market investments, including
certificates of deposit and interest-bearing bank accounts.

DIVIDEND POLICY

The Company has never declared or paid a cash dividend on its Common Stock.
The Company currently intends to retain any earnings for use in the operation
and expansion of its business and therefore does not anticipate paying any cash
dividends in the foreseeable future.

10
<PAGE>
DILUTION

The following gives effect to the issuance of the 1,400,000 Shares offered
hereby at the Price to Public of $6.75 per Share, but does not give effect to
any exercise of options to purchase an aggregate of 345,000 shares of Common
Stock. The pro forma net tangible book value of the Company's Common Stock at
December 31, 1995 was $2,293,590 or $.82 per share. "Pro forma net tangible book
value" represents the pro forma tangible assets less total pro forma liabilities
of the Company adjusted for the Reorganization, and "pro forma net tangible book
value per share" was determined by dividing the pro forma net tangible book
value of the Company by the pro forma number of shares of Common Stock
outstanding on December 31, 1995. See "Capitalization." "Pro forma net tangible
book value dilution" represents the difference between the Price to Public per
Share and the pro forma net tangible book value per share after this Offering.
Without taking into account any changes in the Company's pro forma net tangible
book value per share after December 31, 1995, other than to give effect to the
sale of the Shares offered hereby at the Price to Public of $6.75 per Share (net
of underwriting commissions and estimated Offering expenses of $460,000), the
net tangible book value of the Company at December 31, 1995 would have been
$10,433,090 or $2.48 per Share. This represents an immediate increase in pro
forma net tangible book value to the existing shareholders of $1.66 per Share
and an immediate pro forma net tangible book value dilution to purchasers of the
Shares of $4.27 per share, as illustrated by the following table:

<TABLE>
<S> <C> <C>
Price to Public per Share................................... $ 6.75
Pro forma net tangible book value per share at December
31, 1995................................................. $ .82
Increase per share attributable to the Offering........... 1.66
---------
Pro forma net tangible book value per share after
Offering................................................... 2.48
---------
Pro forma net tangible book value dilution per Share to new
investors.................................................. $ 4.27
---------
---------
</TABLE>

The following table summarizes, on a pro forma basis, the difference between
the number of shares of Common Stock purchased from the Company by officers,
directors and principal shareholders, other current shareholders and by new
investors in this Offering, the total consideration paid to the Company and the
average price paid per share. The table assumes that none of the 1,400,000
Shares offered hereby are purchased in this Offering by existing shareholders.
To the extent existing shareholders purchase in this Offering, their percentage
ownership, total consideration and average consideration per share will be
greater than is shown.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- -------------------------- CONSIDERATION
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Officers, directors and
principal shareholders..... 1,861,502 44.3% $ 467,265 3.9% $ .25
Other current
shareholders............... 938,498 22.4 2,137,970 17.7 $ 2.28
New investors............... 1,400,000 33.3 9,450,000 78.4 $ 6.75
---------- ----- ------------- -----
Total................... 4,200,000 100.0% $ 12,055,235 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>

11
<PAGE>
CAPITALIZATION

The following table sets forth the pro forma capitalization of the Company
as of December 31, 1995 and as adjusted to reflect the sale by the Company of
the 1,400,000 Shares offered to the public hereby at the Price to Public of
$6.75 per Share and the anticipated use of the net proceeds therefrom. See "Use
of Proceeds."

<TABLE>
<CAPTION>
PRO FORMA(1) AS ADJUSTED
------------- -------------
<S> <C> <C>
Current portion of long-term debt................................................ $ 1,216,375 $ 1,216,375
------------- -------------
------------- -------------
Long-term debt................................................................... $ 2,589,218 $ 2,589,218
Shareholders' equity:
Undesignated Stock, no par value; 10,000,000 shares authorized; no shares
issued and outstanding........................................................ -- --
Common Stock, no par value; 15,000,000 shares authorized; 2,800,000 shares
issued and outstanding on a pro forma basis; 4,200,000 shares issued and
outstanding, as adjusted...................................................... 2,298,757 10,438,257
Retained earnings.............................................................. -- --
------------- -------------
Total shareholders' equity................................................... 2,298,757 10,438,257
------------- -------------
Total capitalization......................................................... $ 4,887,975 $ 13,027,475
------------- -------------
------------- -------------
</TABLE>

- ---------------------------
(1) Pro forma information assumes the transactions contemplated by the
Reorganization occurred as of December 31, 1995, which transactions are to
occur simultaneously with the closing of this Offering. See "Prospectus
Summary -- The Reorganization" and "Unaudited Pro Forma Financial
Statements."

12
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS

The following Unaudited Pro Forma Financial Statements of the Company
include the Historical Financial Statements of Zomax Optical Media Limited
Partnership and give effect to the transactions and events described in the
notes accompanying the Unaudited Pro Forma Financial Statements as if the
transactions and events referred to therein were initiated at the beginning of
the period of the Unaudited Pro Forma Statement of Operations and as of December
31, 1995 for the Unaudited Pro Forma Balance Sheet.

The Unaudited Pro Forma Financial Statements give effect to the following
transactions and events: (i) the issuance of 2,800,000 shares of common stock to
the partners of Zomax Optical Media Limited Partnership (the Partnership) in
exchange for all of the assets and liabilities of the Partnership, and (ii) the
estimated income tax effects of the pro forma adjustments.

The pro forma adjustments are based on available information and certain
estimates and assumptions. Therefore, it is likely that the actual adjustments
will differ from the pro forma adjustments. The Company believes that such
assumptions provide a reasonable basis for presenting all of the significant
effects of the transactions and events and that the pro forma adjustments give
appropriate effect to those assumptions and are properly applied in the
Unaudited Pro Forma Financial Statements.

The Unaudited Pro Forma Financial Statements should be read in conjunction
with the Historical Financial Statements and related notes included elsewhere in
this Prospectus and "Management's Discussion and Analysis of Results of
Operations and Financial Condition." THE UNAUDITED PRO FORMA FINANCIAL
STATEMENTS ARE PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE
CONSTRUED TO BE INDICATIVE OF THE COMPANY'S RESULTS OF OPERATIONS OR THE
COMPANY'S FINANCIAL POSITION HAD THE TRANSACTIONS AND EVENTS DESCRIBED ABOVE
BEEN CONSUMMATED ON THE DATES ASSUMED AND DO NOT PROJECT THE COMPANY'S FINANCIAL
POSITION OR RESULTS OF OPERATIONS FOR ANY FUTURE DATE OR PERIOD.

13
<PAGE>
ZOMAX OPTICAL MEDIA, INC.

PRO FORMA BALANCE SHEET

AS OF DECEMBER 31, 1995

ASSETS

<TABLE>
<CAPTION>
PRO FORMA
---------- PRO FORMA ADJUSTMENTS
THE ----------------------------
COMPANY HISTORICAL(1) ADJUSTMENTS PRO FORMA
---------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
Cash....................................................................... $ 7 $ 936,662 $ (7)(3) $ 936,662
Accounts receivable, net................................................... -- 2,954,032 -- 2,954,032
Inventories................................................................ -- 787,198 -- 787,198
Other current assets....................................................... -- 167,535 -- 167,535
---------- ------------- ------------ ----------
Total current assets................................................. 7 4,845,427 (7) 4,845,427
Property and equipment, net................................................ -- 4,662,406 -- 4,662,406
Other assets............................................................... -- 396,573 -- 396,573
---------- ------------- ------------ ----------
$ 7 $9,904,406 $ (7) $9,904,406
---------- ------------- ------------ ----------
---------- ------------- ------------ ----------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities........................................................ $-- $3,702,702 $ -- $3,702,702
Shareholder distributions payable.......................................... -- 123,229 1,105,000(2) 1,228,229
Deferred income taxes...................................................... -- -- 85,500(4) 85,500
Notes payable, net......................................................... -- 2,589,218 -- 2,589,218
Shareholders' equity:
Undesignated stock, no par value, 10,000,000 authorized shares; no shares --
issued and outstanding.................................................. -- -- --
(1,105,000)(2)
Common stock, no par value, 15,000,000 authorized shares; 1 share issued (7)(3)
and outstanding, 2,800,000 shares issued and outstanding pro forma...... 7 3,489,257 (85,500)(4) 2,298,757
Retained earnings........................................................ -- -- -- --
---------- ------------- ------------ ----------
Total shareholders' equity........................................... 7 3,489,257 (1,190,507) 2,298,757
---------- ------------- ------------ ----------
$ 7 $9,904,406 $ (7) $9,904,406
---------- ------------- ------------ ----------
---------- ------------- ------------ ----------
</TABLE>

- ---------------------------
(1) Historical balance sheet of Zomax Optical Media Limited Partnership (the
Partnership) as of December 31, 1995.

(2) Payment of distributions of $296,000 and $809,000 that will have taken
place prior to the Partnership being transferred to the Company.

(3) Repurchase and cancellation of one share of the Company's stock.

(4) Establishment of deferred income taxes as of December 31, 1995.

The accompanying notes are an integral part of this pro forma balance sheet.

14
<PAGE>
ZOMAX OPTICAL MEDIA, INC.

PRO FORMA STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
PRO FORMA PRO FORMA ADJUSTMENTS
----------- ---------------------------
THE COMPANY HISTORICAL(1) ADJUSTMENTS PRO FORMA
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Sales................................................ $ -- $ 13,217,539 $ -- $ 13,217,539
Cost of sales........................................ -- 10,036,991 -- 10,036,991
----------- ------------- ------------ -------------
Gross profit..................................... -- 3,180,548 -- 3,180,548
Selling, general and administrative expenses......... -- 2,053,443 -- 2,053,443
----------- ------------- ------------ -------------
Operating income................................. -- 1,127,105 -- 1,127,105
Interest expense..................................... -- (318,087) -- (318,087)
Interest income...................................... -- 70,956 -- 70,956
----------- ------------- ------------ -------------
Income before provision for income taxes......... -- 879,974 -- 879,974
Provision for income taxes........................... -- -- 340,000(2) 340,000
----------- ------------- ------------ -------------
Net income..................................... $ -- $ 879,974 $ (340,000) $ 539,974
----------- ------------- ------------ -------------
----------- ------------- ------------ -------------
Net income per common share.......................... $ .19
-------------
-------------
Weighted average shares outstanding.................. 2,870,831
-------------
-------------
</TABLE>

- ---------------------------
(1) Historical income statement of Zomax Optical Media Limited Partnership for
the year ended December 31, 1995.

(2) Represents the establishment of provision for income taxes for the year
ended December 31, 1995 at a 39% effective tax rate assuming the change
from a partnership to a corporation occurred as of the beginning of the
year.

The accompanying notes are an integral part of this pro forma financial
statement.

15
<PAGE>
ZOMAX OPTICAL MEDIA, INC.

NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS

DECEMBER 31, 1995

1. ORGANIZATION:
Zomax Optical Media, Inc. (the Company) was incorporated on February 22,
1996 and, except for organizational matters and activities undertaken in
connection with the proposed initial public offering of its common stock (the
Offering), has been inactive since that date. As a result, the Company has not
had any revenue or expenses.

2. PLANNED TRANSACTIONS:
The Company intends to enter into an agreement pursuant to which all the
operating assets, liabilities and debt related to Zomax Optical Media Limited
Partnership (the Partnership) will be transferred to the Company in exchange for
2,800,000 shares of common stock of the Company. The Partnership will then
liquidate and distribute approximately 1,100,000 and 1,700,000 shares of common
stock of the Company to ZOMI Corp. (the General Partner) and the limited
partners, respectively. The shareholders of the General Partner will contribute
their shares in the General Partner to the Company in exchange for approximately
1,100,000 common shares of the Company. The Company will then initiate a
subsidiary merger with the General Partner and the approximately 1,100,000
shares of common stock held by the General Partner will be canceled. After this
cancellation, the Company will have 2,800,000 common shares outstanding.
Simultaneous with these transactions, the Company will undertake the Offering
for 1,400,000 shares of its common stock to the public.

3. INCOME TAXES:
Components of the pro forma provision for income taxes for the year ended
December 31, 1995 are as follows:

<TABLE>
<S> <C>
Current:
Federal......................................... $ 187,800
State........................................... 36,700
---------
Total current............................... 224,500
Deferred.......................................... 115,500
---------
Total provision............................. $ 340,000
---------
---------
</TABLE>

A reconciliation between the federal statutory income tax rate and the
Company's pro forma effective rate for the year ended December 31, 1995 is as
follows:

<TABLE>
<S> <C>
Statutory rate....................................... 34%
State income taxes, net of federal benefit........... 4
Other................................................ 1
--
Effective rate................................. 39%
--
--
</TABLE>

16
<PAGE>
ZOMAX OPTICAL MEDIA, INC.

NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1995

3. INCOME TAXES: (CONTINUED)
Deferred tax assets and liabilities reflect differences between the amounts
reported for financial reporting and income tax purposes, primarily relating to
long-lived assets. Components of the pro forma net deferred tax liability as of
December 31, 1995 are as follows:

<TABLE>
<S> <C>
Allowance for doubtful accounts................... $ (41,800)
Accrued liabilities............................... (94,500)
Long-lived assets................................. 221,800
---------
$ 85,500
---------
---------
</TABLE>

17
<PAGE>
SELECTED FINANCIAL DATA

The following table sets forth selected financial data for the periods
indicated for the Partnership, the predecessor of the Company, for the periods
indicated. This information should be read in conjunction with the Unaudited Pro
Forma Financial Statements and the Financial Statements and related Notes
appearing elsewhere herein and "Management's Discussion and Analysis of Results
of Operations and Financial Condition." The selected financial data have been
derived from the Partnership's financial statements which have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report included elsewhere herein. Pursuant to the Reorganization, the
Partnership will transfer its assets and liabilities to the Company in exchange
for 2,800,000 shares of Common Stock of the Company. The transfer will be
accounted for at historical cost with no change in the book and tax bases of the
assets contributed and liabilities and debts assumed, except for tax effects
resulting from converting from a partnership to a corporation.

- ---------------------------
(1) The pro forma statement of operations data reflect the effects on the
historical statement of operations data of the Partnership for each of the
periods presented as if the Partnership had been treated as a taxable
entity for income tax purposes (assuming a 39% effective tax rate). See
"Unaudited Pro Forma Financial Statements."

18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

The Company is a full-service, turnkey provider of CDs, cassettes, diskettes
and related services. The Company services the multimedia needs of a wide
variety of customers, including software distributors, computer manufacturers,
recording studios and other producers of multimedia products for retail
distribution, publishers, marketing groups and data base suppliers. In addition
to replicating information on CDs, cassettes, and diskettes, the Company offers
its customers a "one-stop shop" with a full range of related services such as
package design, graphics design, printing, packaging, warehousing and drop
shipping. The Company began manufacturing CDs in 1993. To further its reputation
as a full-service provider of multimedia products, on January 1, 1995, Zomax
acquired Metacom's cassette manufacturing operation. As a result of the common
control of the Company and Metacom, the transaction was accounted for
essentially as a pooling of interests and all financial data has been restated
as if the transaction occurred at the beginning of such periods. Also in 1995,
the Company added diskette manufacturing capabilities to its operations.

Pursuant to the Reorganization, the Partnership, the predecessor to the
Company, will transfer its assets and liabilities to the Company in exchange for
2,800,000 shares of Common Stock of the Company. This transfer will be accounted
for at historical cost with no change in the book and tax bases of the assets
contributed and liabilities and debts assumed, except for tax effects resulting
from converting from a partnership to a corporation. For additional information
see the Partnership's historical Financial Statements and Notes thereto, pro
forma financial statements and Capitalization tables, all of which are contained
elsewhere herein. The information herein assumes completion of the
Reorganization and references to the Company include its predecessor unless
otherwise indicated.

ESTIMATED FIRST QUARTER 1996 RESULTS

RESULTS OF OPERATIONS

The following table sets forth certain operating data as a percentage of
sales for the periods indicated:

<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED
INCEPTION DECEMBER 31,
(AUGUST 6, 1993 TO ---------------
DECEMBER 31, 1993) 1994 1995
------------------ ------ ------
<S> <C> <C> <C>
Sales................................... 100.0% 100.0% 100.0%
Cost of goods sold...................... 89.3 76.2 76.0
----- ------ ------
Gross profit............................ 10.7 23.8 24.0
Selling, general and administrative
expense................................ 11.4 12.8 15.5
----- ------ ------
Operating income (loss)................. (0.7) 11.0 8.5
Interest expense........................ (1.4) (2.4) (2.4)
Interest income......................... 0.1 0.4 0.5
----- ------ ------
Net income (loss)....................... (2.0)% 9.0% 6.6%
----- ------ ------
----- ------ ------
</TABLE>

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

Sales increased 34.3% to $13,217,539 in 1995 from $9,842,095 in 1994. The
higher sales in 1995 resulted principally from a 74.5% increase in CD unit sales
between years. The Company believes the growth in CD unit sales resulted from
increased production capacity which allowed the Company to manufacture more CDs
and thereby compete more effectively in the rapidly growing CD-ROM market, the
hiring of two

19
<PAGE>
additional salespersons, increased marketing efforts, and providing the complete
range of multimedia products and related services discussed above. The increase
in CD unit sales in 1995 was somewhat offset by lower selling prices which
resulted from an increase in the number of CD manufacturers and higher
production capacity for existing manufacturers. Cassette unit sales declined
approximately 10% in 1995 principally due to lower sales to Metacom. In 1996,
the Company plans to more aggressively market its cassette manufacturing
business and has hired an additional salesperson dedicated to cassette sales.
See "Business -- Sales and Marketing."

Cost of goods sold as a percentage of sales was 76.0% and 76.2% for 1995 and
1994 respectively. Despite the decrease in CD sales prices in 1995 the Company
was able to slightly decrease the cost of goods sold percentage through
increased production and improved plant efficiency. There were some increases in
raw material costs in 1995; however, raw material costs have subsequently
stabilized or, in some cases, declined. As is common in the industry, the
Company "outsources" some of its CD manufacturing to other CD replicators when
necessitated by the timing of orders. The cost for such "outsourced" production
is significantly higher than the cost of CDs produced by the Company. The
Company "outsourced" approximately 35% of its CD production in 1994 and 1995.
The Company plans to increase its CD manufacturing capacity by approximately 8.0
million units in 1996 through the purchase of new machinery, which it believes
will substantially reduce its need for "outsourcing" production and,
consequently, reduce cost of goods sold.

Selling, general and administrative expense increased as a percentage of
sales to 15.5% in 1995 from 12.8% in 1994. The increase in 1995 resulted
principally from an increase in salary expense, resulting from hiring additional
corporate staff in sales, customer service, accounting and other administrative
functions. The Company believes it has an organization in place that will
support a substantial increase in sales growth with a minimum increase in
salaried personnel. As a result, the Company believes selling, general and
administrative expenses will decrease in 1996 as a percentage of sales.

Interest expense increased to $318,087 in 1995 from $236,665 in 1994 as the
result of increased borrowing used to finance purchases of manufacturing
equipment during the latter part of 1994 and during 1995.

PERIOD FROM INCEPTION (AUGUST 6, 1993) THROUGH DECEMBER 31, 1993

The Company was formed on August 6, 1993 to manufacture and sell CDs. The
Company purchased its first CD manufacturing system in August of 1993 and spent
several weeks setting up and testing the equipment. The Company recorded its
first CD sales in October of 1993 and had total CD and cassette sales of
$2,794,180 for its period of operations from August 6, 1993 to December 31,
1993. Cost of goods sold was 89.3% and includes the cost inefficiencies
associated with starting up CD manufacturing operations. Selling, general and
administrative expense as a percentage of sales was 11.4% in 1993.

LIQUIDITY AND CAPITAL RESOURCES

Since its formation in August 1993, the Company has satisfied its liquidity
needs through capital contributions by partners, cash flows from operations and
borrowing arrangements for its significant equipment purchases. The Company's
cash and cash equivalents decreased to $936,662 at December 31, 1995 from
$1,116,687 at December 31, 1994. The Company used cash in operating activities
of $181,654 in 1995. This resulted principally from a $1.9 million increase in
accounts receivable and a $0.6 million decrease in amounts due to an affiliate,
which were offset by net income of $0.9 million, depreciation and amortization
of $0.5 million and an increase in accounts payable of $1.1 million.

The Company purchased approximately $2.4 million of equipment in 1995 and
since its inception in 1993 has purchased a total of approximately $5.3 million
of equipment which has been principally financed through long-term loans. The
Company disbursed $129,855 of preferential distributions to its limited partners
in 1995, $123,229 in preferential distributions to its limited partners in
February 1996 and plans an additional distribution of approximately $1,105,000
to all its partners prior to the Reorganization and the Offering. The Company
plans to purchase approximately $3.0 million of additional CD manufacturing
equipment and $3.5 million of mastering equipment in 1996 and plans to finance
these purchases with proceeds from the Offering. The Company has a revolving
line-of-credit facility for up to $1.5 million of

20
<PAGE>
borrowings limited to an amount based on a formula using eligible accounts
receivable and inventories, and a $3.0 million capital expenditure term loan
facility with its bank. There were no borrowings under either the capital term
loan facility or the revolving line-of-credit facility at December 31, 1995. The
Company believes that it has sufficient liquidity and capital resources to meet
its operating needs and capital expenditure requirements for the foreseeable
future.

FINANCIAL REPORTING STANDARDS

DERIVATIVE FINANCIAL INSTRUMENTS. Statement of Financial Accounting
Standards No. 119 (SFAS No. 119), "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments" requires disclosures about
derivative financial instruments, including futures, forwards, swaps and option
contracts and other financial instruments. As of December 31, 1994 and 1995, the
Company held no derivative or other related investments.

LONG-LIVED ASSETS. During 1995, the Company adopted Financial Accounting
Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" (Statement No. 121).
Long-lived assets of the Company primarily consist of property. As required by
Statement No. 121, in the event that facts and circumstances indicate that the
carrying amount of property may not be recoverable, an evaluation of
recoverability would be performed. If an evaluation is required, the sum of
estimated future undiscounted cash flows associated with property would be
compared to the carrying amount to determine if a write-down to market value or
the sum of discounted cash flows is required. The adoption of Statement No. 121
had no impact on results of operations or financial position of the Company.

STOCK-BASED COMPENSATION. Financial Accounting Standards Board Statement
No. 123, "Accounting for Stock-Based Compensation" (Statement No. 123) effective
for fiscal years beginning after December 15, 1995, encourages, but does not
require, a fair value based method of accounting for employee stock options or
similar equity instruments. It also allows an entity to elect to continue to
measure compensation cost under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB No. 25), but requires pro forma
disclosures of net income and earnings per share as if the fair value based
method of accounting had been applied. The Company expects to adopt the
Statement in 1996. While the Company is still evaluating Statement No. 123, it
currently expects to elect to continue to measure compensation cost under APB
No. 25 and comply with the pro forma disclosure requirements. If this election
is made, this statement will have no impact on results of operations or
financial position.

SEASONALITY

The demand for CDs and other multimedia consumer products is seasonal, with
increases in the fall reflecting increased demand relative to the new school
year and holiday season purchases. This seasonality could result in significant
quarterly variations in financial results, with the third and fourth quarters
generally being the strongest.

INFLATION

Historically, inflation has not had a material impact on the Company. The
cost of the Company's products is influenced by the cost of raw materials and
labor. There can be no assurance that the Company will be able to pass on
increased costs to its customers in the future.

21
<PAGE>
BUSINESS

GENERAL

Zomax Optical Media, Inc. ("Zomax" or the "Company") is a full-service,
turnkey provider of high quality compact discs ("CDs"), cassettes and diskettes
and related services to a wide variety of customers, including software
publishers, computer manufacturers, recording studios, book publishers,
marketing groups, data base suppliers and other producers of multimedia products
for retail distribution. The Company began manufacturing CDs in 1993. To further
its reputation as a full-service provider of multimedia products, in 1995 Zomax
acquired Metacom's cassette manufacturing operation and added diskette
manufacturing to its operations. In addition to replicating information on the
CDs, cassettes and diskettes, the Company offers its customers a "one-stop shop"
with a full range of related services such as packaging design, graphics design,
printing, packaging, warehousing and drop shipping. The Company focuses its
marketing efforts primarily on multimedia software developers and independent
record labels who desire high quality product in a short turn-around time, a
high level of customer service and competitive prices.

INDUSTRY

Originally introduced in 1982, CD technology evolved from serving a narrow
set of applications to being the preferred medium for the portable storage of
digital information. Industry sources estimated that 1995 sales in the U.S.
consisted of approximately 928 million CDs (CD-ROM and CD-Audio). Despite the
surge in CD sales, the need for audio cassettes and computer diskettes remains
strong. As a full-service, turnkey multimedia products provider, Zomax offers
its customers cassettes and diskettes as well as CDs.

CD-ROM AND DISKETTE MARKET

CD-ROM (compact disc-read only memory) technology offers the massive storage
memory needed to integrate sound, video, pictures and text. Retaining the
standard compact disc size, a single CD-ROM can store approximately 630
megabytes of information (the equivalent of 200,000 pages of text) and provide a
sophisticated multimedia environment of high definition images, data, stereo
sound, video and text. CD-ROM is ideally suited to applications involving the
storage of large amounts of stable information in a form which can be
distributed to a diverse user population, including businesses, educational
institutions and consumers.

Industry sources report that computers can be found in 30% of all U.S.
households. In the United States, based on industry sources, the installed base
of CD-ROM drives grew from approximately 26.9 million in 1994 to an estimated
49.5 million by the end of 1995. The increasingly widespread presence of
personal computers that include CD-ROM drives reflects consumer demand for
applications that are generally most readily available on CD-ROM, such as
interactive video games, retail catalogs, encyclopedias and other software or
digital information. In 1994, industry sources reported that 30% of retail
software sales were on CD-ROM. In 1995, CD-ROMs are believed to have accounted
for 60% of retail software sales.

A majority of the Company's revenues are generated from CD-ROM orders. The
Company's ability to efficiently offer turnkey services in a short turn-around
time has attracted CD-ROM customers whose specialized applications typically
require more complex production runs than CD-Audio. Further, some CD-ROM
customers also need diskettes containing the same or similar information. Few of
the Company's competitors offer customers a "one-stop shop" for CD-ROMs and
diskettes. Industry sources estimated that 1994 sales in the U.S. consisted of
approximately one billion diskettes.

As the multimedia applications for CD-ROMs expand and become more complex,
so does the need for improvements in the storage capacity of CD-ROM units.
Recently, a new format was introduced called high-density compact disc
("HD-CD"). HD-CDs can hold up to 14 times as much data as today's CD-ROMs. The
Company intends to modify its equipment and processes to manufacture HD-CDs as
market demand for such CDs dictates. Given the recent introduction of HD-CDs,
the Company is not currently able to estimate the costs of any such equipment
modifications. In addition to expanding the uses of CD-ROM, HD-CD is likely to
be the format used to create CD-Videos.

22
<PAGE>
CD-AUDIO AND CASSETTE MARKET

The first major application of CD technology was in the prerecorded music
market. Consumer acceptance of CD-Audio has been driven by its demonstrated
advantages over other formats in sound quality, random accessing and indexing of
data and by the market penetration of CD players. CD-Audio has become the
standard for home audio systems with 65% of U.S. households now having CD-Audio
players according to industry sources. Additional significant market expansion
has resulted from increased sales of in-car and portable players.

The audio cassette is still very prominent in the market and is expected to
continue to be significant, particularly in the audio book and spoken word
market. Industry sources estimated that 1995 sales in the U.S. consisted of
approximately 345 million audio cassettes. A high level of hardware penetration
and evolution in cassette technology indicate a continuing demand for audio
cassettes, such as those manufactured by the Company, for at least the next
several years. However, there can be no assurance that audio cassettes will
continue to be in demand in the future.

CD-VIDEO MARKET

The Company believes that full motion video on compact disc ("CD-Video") is
a logical extension of CD technology. The new HD-CDs are capable of holding a
full length motion picture (135 minutes) on a standard-sized CD with video and
audio quality superior to current videocassette technology. The new format
agreed upon by the creators of CD-Video technology requires far greater
information density as well as a new playback technology. The creators of
CD-Video technology have agreed on a format capable of meeting the technological
goals mentioned above. Although the Company is not yet technically capable of
manufacturing the new format CDs, it expects to develop the capability to offer
these manufacturing services. Given the recent development of CD-Video, the
Company is not currently able to estimate the costs of developing such
manufacturing capability. Industry sources anticipate the market introduction of
CD-Video to occur by 1997.

THE ZOMAX STRATEGY

Zomax's objective is to be a leading full-service provider of multimedia
products and related services. The Company's strategy for achieving this
objective includes the following:

- EXPAND PRODUCTION OF CD-ROMS AND DISKETTES. CD-ROM is currently the
Company's fastest growing product, due in part to the Company's ability to
provide CD-ROM customers high quality product at a competitive price and
in a short turn-around time. Zomax intends to continue its focus on
meeting the needs of its existing CD-ROM and diskette customers as well as
seeking a broader range of customers. To achieve this goal, the Company
intends to increase the size of its CD-ROM and diskette manufacturing
capacity by purchasing additional equipment, and to increase its sales and
marketing staff.

- TARGET SELECTED CD-AUDIO AND CASSETTE CUSTOMERS. The Company's marketing
efforts will remain focused on independent record companies (the fastest
growing segment of the recording industry) who value the Company's short
turn-around, inventory tracking and control, specialized packaging and
shipping services. In addition, the Company intends to solicit additional
cassette sales from the audio book and spoken word markets. Finally, Zomax
intends to capitalize on its CD-ROM expertise in marketing CD or CD-Plus
manufacturing capabilities (I.E., CD-ROM with an audio component such as
music video). CD-Plus can not only be played in a standard audio CD
player, but can include special CD-ROM information for computer users
equipped with a CD-ROM drive.

- ADAPT TO CHANGING TECHNOLOGIES. The market for information distribution
services incorporating CD technology is based upon sophisticated
technology that is subject to change as new or enhanced technologies are
developed, new applications are created and customer needs shift. The
Company intends to adapt its operations as these technologies change. For
example, the Company expects to update its equipment to allow for the
manufacture of HD-CDs, which are anticipated to broaden the uses of
CD-ROMs and to be used in the development of the CD-Video market.

23
<PAGE>
- POSITION ZOMAX FOR THE EMERGING CD-VIDEO MARKET. The Company continues to
monitor the CD-Video market development, positioning itself to be a
participant in that market. As the market develops, the Company intends to
upgrade its production systems so that it is technically capable of
manufacturing discs in the recently agreed upon industry format. CD
manufacturers, including the Company, are expected to enter into required
licenses to use the agreed-upon format for CD-Video for a yet-to-be
determined royalty.

- CONTINUE EMPHASIS ON CUSTOMER SERVICE. The Company intends to continue its
emphasis on providing value-added services to complement its core CD,
cassette and diskette manufacturing capabilities. Zomax's customer service
staff is in daily contact with customers to ensure their needs are being
met. The Company will continue to provide its customers with turnkey
services such as comprehensive print and packaging management, and special
assembly and shipping according to the customer's direction. Additionally,
the Company will continue to invest in, and maximize the efficiency of,
equipment, systems, processes and personnel. For example, the planned
acquisition of mastering equipment is intended to improve manufacturing
efficiencies and turn-around time.

MANUFACTURING

COMPACT DISCS

A compact disc is an injection molded plastic product that has digital
information stored on it through a series of microscopic indentations called
"pits" that can be "read" by a laser. The CD manufacturing process consists of
three stages: (i) preproduction, (ii) replication and printing and (iii)
packaging and fulfillment. Except for preproduction, the manufacturing process
is the same for both CD-Audio and CD-ROM.

PREPRODUCTION. Preproduction of CDs consists of three distinct processes:
pre-mastering, mastering and electroplating. Through these processes, metal
stampers are created which contain the bytes of data in a digital format. The
metal stampers are then mounted in the plastic injection molding equipment to
create the disc. The preproduction process is critical to establishing the
quality of the final product.

For CD-Audio, the pre-mastering process consists of reviewing the customer
supplied material to ensure that no discernible defects occurred during the
recording process. Once the material has passed the quality control process, the
editor creates a table of contents to indicate the start and stop times of each
audio track and downloads the data into a digital data format to be used in the
mastering process.

CD-ROM preproduction begins with customer data supplied in any number of
approved input media. The data is processed through a pre-mastering computer
system where the data is formatted into the desired CD-ROM structure to ensure
that the finished disc will be compatible with the intended operating system.
The CD-ROM pre-master is then downloaded for mastering.

The mastering process forms the master image of the CD from which the
polycarbonate replicas are molded. A laser beam recorder transfers the digital
information onto a photo-sensitive coating applied to a glass mastering
substrate. This process creates the "glass master" with the characteristic CD
pits etched in the photo-sensitive coating. The mastering process is a key
element in product quality. Any defect on the master will be replicated on all
production discs, therefore, the mastering process takes place in an environment
free of microscopic containments which can obscure large amounts of data. Using
the electroforming process, the glass master yields nickel stampers in the image
of the master. These stampers are mounted into injection molding machines to
replicate CDs. The Company does not currently have mastering equipment but
intends to use proceeds from this Offering to purchase such equipment. Given the
complexity of the mastering process, there can be no assurance that the Company
will be able to successfully integrate mastering into its manufacturing
operations.

REPLICATING AND PRINTING. The replication of CDs utilizes a fully
integrated robotic line process which incorporates a plastic injection molding
press and metalizing, lacquering and inspection equipment. High quality,
CD-grade polycarbonate is injected into the mold cavity where the metal stamper
has been mounted. The Company's technology allows for press cycle times of less
than five seconds per disc. The clear polycarbonate disc containing all of the
digitized data is then covered with a metallic coating to provide for

24
<PAGE>
reflection of the reading laser beam in the player. A thin layer of lacquer is
then applied over the metal to protect it and to serve as a base for printing on
the disc. Unacceptable CDs are detected and discarded through the inline
inspection process.

The Company owns four inline compact disc machines, each of which integrates
the molding, metalizing, lacquering and inspection processes. The machines
feature full robotics and automated computer controls and can run 24 hours a day
depending on the number of orders and amount of downtime, if any. Each machine
has a theoretical capacity of over 5,000,000 units per year; however, a more
practical capacity is approximately 4,000,000 units per year. In addition to
maintenance and repairs, the actual capacity is impacted by the quantity of each
CD manufactured. The larger the run size per title, the less impact the setup
time has upon actual capacity. Owning multiple machines provides the Company
with backup capability in case of downtime on any of the machines. Management
expects this mechanical redundancy to increase the number of major customers
placing orders and lead to the designation of the Company as a primary or
secondary supplier. The production lines are fully staffed during all shifts by
a qualified crew of operators and technicians.

Printing, which is the final production process, is performed in batches
off-line in order to take advantage of the high speed nature of the printing
process while avoiding the production delays typically required for printer
setup. The Company's printing equipment includes screen printing presses with
capabilities of up to six color printing. The Company produces its own screens
and can reuse a screen up to four times. High demand colors are purchased
pre-mixed in order to reduce ink waste. Custom colors are mixed in-house.
Automated label and print quality inspection equipment is integrated with the
screen printers to ensure high quality control and reduce the need for manual
quality inspection.

PACKAGING AND FULFILLMENT. The Company maintains equipment to provide for
most customer requested packaging configurations. Currently, the standard CD
packaging configuration is the plastic "jewel box" with customer or Zomax
supplied print material in the bottom and top of the box. The jewel box is
generally shrink or polywrapped for protection using automatic assembly and
polywrap equipment. The standard audio cassette packaging is the "Norelco box."
Zomax can also accommodate most unique packaging needs of its customers. As part
of its dedication to providing full customer service, the Company works with its
customers to develop sophisticated retail packaging configurations with many
components. Product is generally shipped by common carrier. The Company does,
however, provide for other methods of transport to ensure that critical delivery
dates are met. The Company also offers other services, including warehousing and
pick, pack and ship services.

CASSETTES

Audio cassettes are mass-duplicated from a master tape which is run on an
endless loop on a high speed duplicating system comprised of a master unit which
feeds audio programming to "slave" units. The slave units make copies as the
master unit runs and reruns the tape, creating large reels or "pancakes" of tape
recorded with information. The tape is then fed into cassette loaders which
remove the duplicated tape off the reel and place it into cassette housings.
These housings are then labelled or imprinted and combined with graphics. The
final step in the manufacturing process is the packaging and shipping of the
cassettes.

DISKETTES

The computer diskette is duplicated on multiple duplicating drives which are
connected to a PC-based controller. The master diskette is read into the system
and the controller sends the image of the master to each duplicating drive. The
operator loads blank diskettes into a hopper on each duplicating drive and the
system writes the information to the blank diskettes. Each diskette is verified
after being duplicated to assure that what was written matches the master image.
Each drive can duplicate and verify a full diskette in about 12 seconds. All
rejects are discharged into a separate "reject" chute. After duplication, the
diskettes are labeled at a labeling machine. The labels may be purchased on
rolls, ready to apply at the machine, or they may be overprinted from rolls of
blank stock on the Company's high speed thermal transfer printer. After
labeling, if the order calls for several diskettes to be assembled into a
multi-disk set, the diskettes are collated by an automatic collator which can
handle sets of up to six discs in a single operation. Diskettes or sets of
diskettes are forwarded to the Company's packaging area if retail packaging is
necessary.

25
<PAGE>
SALES AND MARKETING

The Company markets and sells its multimedia products and services to a wide
variety of customers, including software publishers, computer manufacturers,
recording studios and other producers for retail distribution, book publishers,
marketing groups and data base suppliers. Zomax's marketing strategy is to focus
on a niche of various media markets, such as multimedia software publishers and
independent record labels, that require personal service, flexibility, fast
turn-around time and the turnkey services the Company offers such as packaging
design, graphics design, printing, packaging, warehousing and drop shipping. The
Company has successfully marketed itself to these target market groups by
emphasizing its ability to take the information to be duplicated and perform, or
arrange for the performance of, all of the steps in the process from replication
to packaging to delivery. As part of its strategy the Company also intends to
continue cross-marketing to customers who may require other multimedia products
manufactured by the Company. For example, software publishers often need
diskettes as well as CD-ROM units and independent record labels frequently
require cassettes as well as CD-Audio units.

The Company has obtained select authorized replicator status with Microsoft,
Inc. that allows the Company to replicate Microsoft-Registered Trademark-
products for Gateway 2000, a licensee of Microsoft-Registered Trademark-
products. In addition, the Company has passed the rigorous testing required to
become an Apple-Registered Trademark--approved vendor, however, no significant
sales to date have resulted from attaining this status.

Two of the Company's primary customers have been, and are expected to
continue to be, Metacom, a supplier of audio cassettes, and Gateway, a major
manufacturer of IBM-compatible personal computers. Metacom is a significant
shareholder of the Company and an affiliate of another significant shareholder
of the Company who is also the Company's Chairman of the Board, Phillip T.
Levin. In 1994 and 1995, Metacom accounted for 43.7% and 19.1% of the Company
total revenues, respectively. Gateway accounted for 16.4% and 15.9% of the
Company's total revenues in 1994 and 1995, respectively.

The Company is aware that Metacom is not in compliance with its loan
agreement with its bank and is currently negotiating with the bank to reform its
loan agreement. Metacom has advised the Company that, based on its discussions
with its bank to date, it believes that a new loan agreement will be negotiated.
There is no assurance, however, that such accommodation with the bank can be
reached. While the Company's dependence on Metacom is decreasing significantly,
the Company's sales and earnings in 1996 would be materially adversely affected
if it were to lose Metacom as a customer.

The Company's sales representatives are responsible for maintaining
relationships with their existing customers and developing new business
relationships. The sales representatives are supported by a customer service
staff that is responsible for ensuring that each order is processed on a timely
basis, that all required support materials are in place and that quality levels
are achieved.

COMPETITION

Competition is intense in the multimedia products and services market. The
entire industry is experiencing rapid growth, evidenced by the increase in the
number of businesses becoming CD manufacturers, a trend which may continue.
There are a number of national and regional companies which manufacture CDs,
cassettes and diskettes, many with significantly greater resources than the
Company.

CD-ROM and CD-Audio manufacturing is dominated by manufacturing
organizations affiliated with major international music companies, such as Sony,
PolyGram, Warner, BMG and EMI. Independent multimedia and record producers are
generally serviced by the "non-affiliated" or independent CD manufacturers
(including the Company) because of their smaller average unit runs and their
greater need for a broad range of services such as pre-mastering, mastering
replicating, packaging and shipping in addition to short turn-around times. The
major international music company CD manufacturers and independent CD
manufacturers collectively produced a majority of the 1994 worldwide output of
CD-ROM and CD-Audio. The remaining 1994 CD-ROM and CD-Audio worldwide output was
produced by many small and medium scale CD manufacturing operations. In the
United States, the Company's independent competitors include

26
<PAGE>
Disctronics, Inc. ("Disctronics"), Disc Manufacturing Inc. (a subsidiary of
Quixote Corporation) ("DMI"), JVC America, Inc., Denon Electronics, Inc., KAO
Infosystems Company ("KAO"), Minnesota Mining & Manufacturing, Inc. and Nimbus
CD International, Inc.

The Company believes that the principal competitive factors in its market
are quality, service, reliability, price and timely delivery of product. The
Company believes that it competes favorably with its competitors with respect to
each of these factors. To enhance its competitive position, the Company also
offers a full range of services to customers including design, preparation and
printing of artwork and packaging, warehousing and shipping. The Company also
believes that its competitive position is enhanced by its ability to provide its
customers with both cassettes and diskettes as well as CDs. With the increased
production capacity in the market, CD prices have declined and CD pricing has
become an increasingly important factor in obtaining sales. The Company believes
that the quality of its products and services and its ability to accommodate
tight delivery schedules to some extent offset the price competition currently
existing in the market.

Other existing technologies also compete with the Company's products which
deliver digital information. Portable media, such as digital audio tape, digital
compact cassette and mini-disc have already been introduced commercially but
have not yet achieved widespread consumer acceptance. In addition, one-time
recordable CDs ("CD-R") are available and are often used to replicate short run
products that are more expensive to manufacture in the traditional manner. The
Company does not expect any of these technologies to expand beyond their current
market niches in the near future.

Electronic on-line delivery of digital information, such as through the
Internet, is a potential future competitor of CD-ROM. The Company believes that
current and projected transmission speeds and infrastructure limitations of
on-line delivery systems will prevent them from replacing CD-ROM in the
foreseeable future. In addition, future advances in CD-ROM technology such as
higher speed drives and greater data compression could increase CD-ROM's
advantages over potential competitive technologies.

PROPRIETARY RIGHTS

Zomax, like most other CD manufacturers, uses patented technology primarily
under nonexclusive licenses. These licenses generally provide for the payment of
royalties based upon the number, size and use of CDs sold and terminate either
upon the expiration of the patent being licensed or on a date certain.

Zomax currently has license agreements with U.S. Philips Corporation
("Philips") and Discovision Associates ("DVA"). The Philips license grants to
Zomax a non-exclusive, non-transferable license to make, use and sell licensed
products in the United States. The license further provides that any patent
rights not yet licensed which are essential to the manufacturing, use or sale of
licensed products, which Sony or Philips may acquire in the future, will be
licensed to Zomax on reasonable, non-discriminatory terms. Under the license
agreement, Zomax is obligated to make certain royalty payments to Philips. The
amount of the payment is determined by the number of CDs manufactured, their
size and their use. The Company's license from Philips expires in 2006.

Similarly, DVA has granted Zomax a non-exclusive, royalty bearing license to
make, use, rent, lease or sell CDs which make use of the DVA patents. The
royalty payments due under the DVA license depends of the number of CDs
manufactured, their size and their use. The term of the DVA license continues
until the expiration of the last DVA patent covered by the license which is
currently in 2010. This date may change in the event of a patent invalidity
ruling, premature expiration of a currently licensed patent or the subsequent
issuance of a related patent.

In July 1995, the Company received a notice from a French company, Thomson
Multimedia S.A. ("Thomson"), which claims that it also owns rights to certain
U.S. patented CD manufacturing technology. This notice also offered the Company
a license to such technology on terms similar to those of the licenses with
Philips and DVA. The Company believes that entering into a license with Thomson
will not materially adversely affect the Company's financial condition and
results of operations. If Thomson were to pursue any action against the Company,
it is expected that a license could be negotiated, although there can be no

27
<PAGE>
assurance that a license could be negotiated on terms favorable to the Company
or at all. If the Company is unsuccessful in negotiating a license with Thomson
and if the Company is found to have infringed the Thomson patents, the Company
may be required to pay damages to Thomson.

The Company has applied for trademark registrations in the U.S. for the name
"Zomax Optical Media" and for the logo containing the same name.

EMPLOYEES

The Company has approximately 120 full-time employees and hires temporary
employees as the need arises. The Company currently operates 24 hours a day,
seven days a week. The Company believes that its relations with its employees
are good. None of the Company's employees is covered by a collective bargaining
agreement. Pursuant to a Services Agreement with Metacom, the Company receives
for cost certain management information and related computer services. During
1996, the Company intends to purchase the software and hardware required to
perform such services in-house. See "Certain Transactions."

FACILITIES

The Company leases manufacturing, office and warehouse space from Metacom
pursuant to a lease which expires on December 31, 1997, but is subject to three
renewals, each for a three-year period, at the option of Zomax. The Company
occupies approximately 3,000 square feet of office space, 10,000 square feet of
production space and 28,000 square feet of warehouse space. Also, the Company
has the option to rent additional office and warehouse space as its needs
dictate and expects it will exercise such option as it expands its operations.
Management believes this arrangement will provide adequate facilities for the
Company for the foreseeable future. See "Certain Transactions."

LEGAL PROCEEDINGS

The Company is not a party to any litigation that would have a material
adverse effect on its financial condition or results of operations.

28
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- --------------------------------------------------
<S> <C> <C>
Phillip T. Levin 53 Chairman of the Board of Directors
James T. Anderson 38 President, Chief Executive Officer and Director
Stephan P. Jones 49 Chief Financial Officer
Michelle S. Bedard 37 Executive Vice President
Joseph Rehak 37 Vice President of Operations
George F. Esbensen 36 Vice President of Sales -- Software Manufacturing Group
</TABLE>

All directors hold office until the next annual meeting of shareholders or
until their successors have been duly elected and qualified. Executive officers
of the Company are appointed by and serve at the discretion of the Board of
Directors. Within 90 days of the completion of this Offering, the Board of
Directors intends to add three additional outside directors and to establish a
Compensation Committee, which will provide recommendations concerning salaries
and incentive compensation for employees of the Company, and an Audit Committee,
which will review the results and scope of the audit and other services provided
by the Company's independent public accountants. The majority of the members of
these committees will be outside directors.

PHILLIP T. LEVIN has been Chairman of the Board of Directors of the Company
since he co-founded it in 1996. Mr. Levin was Chairman and Chief Executive
Officer of the General Partner since he co-founded it and the Partnership in
1993. Mr. Levin has served as a director and officer of Metacom, a leading
distributor of audio cassettes, since he co-founded it in 1970. He has served as
Metacom's Chief Executive Officer since 1991.

JAMES T. ANDERSON has been a director and President and Chief Executive
Officer of the Company since he co-founded it in 1996. He was President of the
General Partner since he co-founded it and the Partnership in 1993. Mr. Anderson
served with Metacom from May 1982 to June 1993, including five years as Vice
President of Manufacturing where he was responsible for all manufacturing
activities, including purchasing, inventory control, production, warehousing and
distribution. Mr. Anderson is married to Michelle S. Bedard, the Executive Vice
President of the Company.

STEPHAN P. JONES has been Chief Financial Officer of the Company since its
inception and held the same position with the Partnership since July 1995. From
August 1994 to June 1995, Mr. Jones was self-employed, providing accounting
services to various types of businesses. Mr. Jones served as Chief Financial
Officer of Discus Acquisition Corporation, a publicly-owned franchisee of
Fuddruckers Restaurants, from 1985 to August 1994.

MICHELLE S. BEDARD has been Executive Vice President of the Company since
its inception in 1996. Prior to that, Ms. Bedard served as Vice President of
Sales and National Sales Manager of the Partnership since its inception in 1993.
From June 1991 to August 1993, Ms. Bedard was National Sales Manager of Metacom,
Inc., where she was responsible for sales revenue and staff, including eight
inside sales representatives and thirteen independent sales groups, the customer
service department and various support staff, for all four sales divisions. Ms.
Bedard is married to James T. Anderson, the President and Chief Executive
Officer of the Company.

JOSEPH REHAK has been Vice President of Operations of the Company since its
inception and held the same position with the Partnership since June 1995. From
April 1989 to June 1995, Mr. Rehak served as Vice President of Padco Inc., an
international manufacturer of paint applicators, in Minneapolis, Minnesota,
where he was responsible for the manufacturing, planning, purchasing, quality
control and O.E.M. sales for the company's worldwide facilities.

29
<PAGE>
GEORGE F. ESBENSEN has been Vice President of Sales -- Software
Manufacturing Group of the Company since its inception in 1996. Prior to that,
Mr. Esbensen served as National Sales Manager -- Software Manufacturing Group of
the Partnership since January 1994. From July 1984 to December 1993, Mr.
Esbensen served as Vice President of Sales of Cycle Software Services, Inc., a
software manufacturing company.

SUMMARY COMPENSATION

The following table sets forth certain information regarding compensation
earned or awarded to the President and Chief Executive Officer and each
executive officer of the Company who received annual salary and bonus
compensation in excess of $100,000 for 1995 (the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)
- ------------------------------------- ------- ----------- ---------
<S> <C> <C> <C>
James T. Anderson, 1995 150,000 53,250
President and Chief 1994 110,000 73,478
Executive Officer 1993(1) 41,250

Michelle S. Bedard, 1995 130,053(2) 6,475
Executive Vice 1994 96,819(2) 12,080
President 1993(1) 27,000

George F. Esbensen, 1995 104,456(3) 3,650
Vice President of 1994 78,446(3) --
Sales -- Software
Manufacturing Group
</TABLE>

- ---------------------------
(1) From inception (August 6, 1993) to December 31, 1993.

(2) Includes commissions of $50,053 and $31,819 for 1995 and 1994 respectively.

(3) Includes commissions of $24,456 and $6,331 for 1995 and 1994, respectively.

COMPENSATION OF DIRECTORS

Nonemployee directors are expected to be paid $500 for each Board meeting
attended and $250 for each Committee meeting attended, plus reimbursement of
expenses. The Board of Directors has approved the automatic grant to nonemployee
directors upon his or her initial election as a director of a nonqualified
option to purchase, at the then fair market value, 10,000 shares of the
Company's Common Stock, vesting 2,000 shares per year over five years, and, upon
each re-election thereafter, of a nonqualified option to purchase, at the then
fair market value, 2,000 shares of Common Stock, vesting immediately upon grant.

EMPLOYMENT AGREEMENT

On March 1, 1996, the Company entered into an Employment Agreement, which
will be effective upon closing of the Offering, with James T. Anderson,
President and Chief Executive Officer of the Company, pursuant to which Mr.
Anderson will be entitled to an initial annual base salary of $195,000 and a
bonus equal to five percent of the Company's earnings before taxes, as defined
in the agreement. The agreement also provides him with a ten-year option to
purchase 125,000 shares of the Company's Common Stock at an exercise price equal
to the Price to Public, vesting 35,000 shares immediately and 30,000 shares each
year for three years. Mr. Anderson will be required by the agreement to maintain
confidentiality of all Company trade secrets and upon termination of employment
will be prohibited from participating in a competing venture for a period of one
year. The initial term of the agreement will end on December 31, 1998 unless
sooner terminated in accordance with the provisions of the agreement. If the
Company terminates Mr. Anderson without "cause" or if Mr. Anderson resigns for
"good reason" or within one year after a "change in control," Mr. Anderson will
be entitled to receive, among other things, (i) an amount equal to

30
<PAGE>
twice any bonus payments earned by him for the immediately preceding fiscal year
and (ii) an amount equal to twice the base salary in effect at that time, unless
such termination or resignation occurs prior to the end of 1996, in which event
the amount Mr. Anderson will be entitled to receive shall be equal to the
monthly base salary then in effect multiplied by the number of months remaining
in his initial term of employment. The agreement generally defines "cause" as
(i) gross misconduct, dishonesty or disloyalty; (ii) willful and material breach
of the agreement by Mr. Anderson; or (iii) conviction or entry of a plea of
guilty or nolo contendere by Mr. Anderson to any felony or to any misdemeanor
involving fraud, misrepresentation or theft. "Good reason" is defined to include
the following events unless corrected by the Company within two weeks of notice
from Mr. Anderson: (i) a substantial reduction in the nature or status of Mr.
Anderson's responsibilities under the Agreement; (ii) a reduction by the Company
in Mr. Anderson's base salary except as otherwise permitted by the agreement;
(iii) the failure by the Company to allow Mr. Anderson to participate to the
full extent in all plans, programs or benefits in accordance with the terms of
the agreement; and (iv) relocation of Mr. Anderson's principal office more than
20 miles from its current location. Pursuant to the agreement, a "change of
control" shall be deemed to have occurred if (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 20% or more of the
combined voting power (with respect to the election of directors) of the
Company's then outstanding securities other than Phillip T. Levin; (ii) at any
time after the execution of the agreement, individuals who as of the date of the
execution of the agreement constitute the Board (and any new director whose
election to the Board or nomination for election to the Board by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office) cease for any reason to constitute a majority of
the Board; (iii) the consummation of a merger or consolidation of the Company
with or into any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than 70% of
the combined voting power (with respect to the election of directors) of the
securities of the Company or of such surviving entity outstanding immediately
after such merger or consolidation; or (iv) the consummation of a plan of
complete liquidation of the Company or of an agreement for the sale or
disposition by the Company of all or substantially all of the Company's business
or assets.

STOCK OPTIONS

On March 1, 1996, the Board of Directors and sole shareholder of the Company
adopted the 1996 Stock Option Plan (the "Plan") in order to provide for the
granting of stock purchase options to employees, directors and officers of the
Company. The Plan permits the granting of incentive stock options meeting the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended,
and also nonqualified stock options which do not meet the requirements of
Section 422. The Company has reserved 600,000 shares of its Common Stock for
issuance upon exercise of options granted under the Plan. Upon completion of
this Offering, the Company will have outstanding options to purchase an
aggregate of 345,000 shares under the Plan. Each outstanding option will be
exercisable at a per share price equal to the price per Share in this Offering
and will expire on its tenth anniversary.

EMPLOYEE STOCK PURCHASE PLAN

On March 4, 1996, the Board of Directors of the Company adopted an Employee
Stock Purchase Plan effective July 1, 1996. The Plan enables employees to
contribute up to 10% of their compensation toward the purchase of the Company's
Common Stock at 85% of the lower of the closing price for a share of the
Company's Common Stock as reported on the Nasdaq National Market on the
commencement date of the phase or on the termination date of the phase six
months later. A total of 250,000 shares have been reserved for issuance under
this plan.

LIMITATION OF LIABILITY AND INDEMNIFICATION

The Company's Articles of Incorporation, as amended, limit the liability of
directors in their capacity as directors to the Company or its shareholders to
the full extent permitted by Minnesota law. The Articles provide that a director
shall not be liable to the Company or its shareholders for monetary damages for
breach of fiduciary duty as a director, except (i) for any breach of the
director's duty of loyalty to the

31
<PAGE>
Company or its shareholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
dividends, stock repurchases and other distributions made in violation of
Minnesota law or for violations of the Minnesota securities laws, (iv) for any
transaction from which the director derived an improper personal benefit or (v)
for any act or omission occurring prior to the effective date of the provision
in the Company's Articles of Incorporation, as amended, limiting such liability.
These provisions do not affect the availability of equitable remedies, such as
an action to enjoin or rescind a transaction involving a breach of fiduciary
duty, although, as a practical matter, equitable relief may not be available.
The above provisions also do not limit liability of the directors for violations
of, or relieve them from the necessity of complying with, the federal securities
law.

The Articles of Incorporation of the Company, as amended, also provide that
the Company will exercise, to the extent permitted by law, its power of
indemnification, and that the foregoing right of indemnification shall not be
exclusive of other rights to which a person shall be entitled as a matter of
law. Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission (the "Commission")
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.

CERTAIN TRANSACTIONS

In January 1995, the Company's predecessor, the Partnership, acquired the
entire manufacturing operation of Metacom, but not its marketing operation (the
"Acquisition"). Metacom is a significant shareholder of the Company. Phillip T.
Levin, the Chairman of the Board and a significant shareholder of the Company,
is the sole shareholder of Metacom. Certain assets of the manufacturing
operation of Metacom were purchased by the Partnership and others were
contributed to the Partnership in exchange for limited interests in the
Partnership. The assets purchased include, among other things, specified
production, warehouse, transfer room and office equipment. The total purchase
price for the specified production, warehouse and transfer room equipment was
$492,085, payable with $300,000 cash, assumption of $42,085 in Metacom
liabilities and a two-year promissory note for $150,000 bearing interest at 8.5%
per annum and payable monthly. As part of the Reorganization, the Company will
assume the Partnership's obligations under this note. The total purchase price
for the office equipment was $75,341, payable with $18,000 cash and a one-year
promissory note for $57,341 bearing interest at 8.5% per annum and payable
monthly. This note has been paid in full and cancelled. The assets assigned to
the Partnership in exchange for Limited Interests in the Partnership pursuant to
an Assignment and Assumption Agreement dated January 1, 1995 include, among
other things, certain of Metacom's inventory, records, know-how and goodwill. In
addition, Metacom has entered into the Manufacturing Agreement described below.
In consideration for this contract and the assignment of the other assets of
Metacom, the Partnership issued to Metacom $1,360,000 of limited interests in
the Partnership at $60,000 per interest (the "Metacom Limited Interests"), of
which $300,000 were redeemed during 1995. See "Principal Shareholders."

As mentioned above, Metacom is a party to a Manufacturing Agreement with
Zomax. Additionally, Metacom has entered into a Services Agreement and
Office/Warehouse Lease with Zomax. Pursuant to the Manufacturing Agreement,
Zomax will provide Metacom with its full requirement of compact discs and audio
cassettes at the same price as Metacom could obtain such products and services
from an unrelated third-party. This agreement terminates December 31, 1997.
Metacom is a significant customer of Zomax, accounting for 43.7% and 19.1% of
the Company's revenues in 1994 and 1995, respectively.

Zomax entered into a Services Agreement with Metacom effective January 1,
1995. The Agreement provides that, as needed, Zomax may purchase at cost from
Metacom, telephone, information, accounting, regulatory, human resource,
management and other miscellaneous services. Currently, the only services that
Metacom provides to Zomax under the Agreement is the sharing of certain
management information system personnel and certain telephone personnel. Zomax
intends to purchase the software and hardware required to perform its own
management information services ("MIS") and is currently investigating various
MIS software and hardware packages. See "Business -- Sales and Marketing" and
Note 8 to the Financial Statements.

32
<PAGE>
The Company is aware that Metacom is not in compliance with its loan
agreement with its bank and is currently negotiating with the bank to reform the
loan agreement. Metacom's account payable for products and services purchased
from the Company generally ranges in amounts from $400,000 to $1,000,000. If
Metacom were to default on any of its obligations to the Company, whether on its
account payable or under any agreement with the Company, the Company's
determination as to the course of action to take will be made on an arm's length
basis by its Board of Directors. Phillip T. Levin, the Company's Chairman of the
Board of Directors and sole shareholder of Metacom, will not participate in
Board or management discussions regarding Metacom or vote as a Company director
on any matter involving Metacom. See "Business -- Sales and Marketing."

Metacom leases manufacturing, office and warehouse space to Zomax pursuant
to a lease which expires in 1997, subject to renewal by the Company. Zomax is
obligated to pay Metacom base rent of $7.50 per net rentable square foot of
office space per annum; $5.00 per net rentable square foot of production space
per annum; and $3.50 per net rentable square foot of warehouse space per annum.
Additionally, Zomax is obligated to pay its proportionate share of taxes and
operating expenses. See "Business -- Facilities" and Note 8 to the Financial
Statements.

PRINCIPAL SHAREHOLDERS

The following table sets forth as of the date of the Prospectus, and as
adjusted to reflect the Reorganization and the sale of the Shares offered
hereby, certain information regarding beneficial ownership of the Company's
Common Stock by (i) each person known by the Company to be the beneficial owner
of more than 5% of the outstanding Common Stock, (ii) each director of the
Company, (iii) each Named Executive Officer and (iv) all executive officers and
directors of the Company as a group. The following information assumes that the
named individuals will not be purchasing any Shares in this Offering.

<TABLE>
<CAPTION>
SHARES PERCENT BEFORE PERCENT AFTER
NAME AND ADDRESS BENEFICIALLY OWNED(1) OFFERING(1) OFFERING(1)
- ------------------------------------------------------------ --------------------- -------------- -------------
<S> <C> <C> <C>
Phillip T. Levin(2)(3)...................................... 1,292,823 46.2% 30.8%
James T. Anderson(2)(4)..................................... 457,061 16.0% 10.8%
Michelle S. Bedard(2)(5).................................... 457,061 16.0% 10.8%
George F. Esbensen(2)(6).................................... 5,000 * *
Metacom, Inc.(2)............................................ 287,311 10.3% 6.8%
John M. Hundley(7).......................................... 161,618 5.8% 3.8%
All executive officers and directors as a group (6
persons)(8)................................................. 1,754,884 61.5% 41.2%
</TABLE>

- ---------------------------
* Less than one percent.

(1) Shares not outstanding but deemed beneficially owned by virtue of the
individual's right to acquire them as of the date of the Prospectus, or
within 60 days of such date, are treated as outstanding when determining the
percent of the class owned by such individual and when determining the
percent owned by the group. For purposes of calculating the percent of class
owned after this Offering, it was assumed that the officers, directors and
principal shareholders will not be purchasing Shares in this Offering.
Unless otherwise indicated, each person named or included in the group has
sole voting and investment power with respect to the shares of Common Stock
set forth opposite the shareholder's name.

(2) The address of each director and officer of the Company and of Metacom, Inc.
is 5353 Nathan Lane, Plymouth, MN 55442.

(3) Includes 287,311 shares held by Metacom, a company of which Mr. Levin is the
sole shareholder, director and officer.

(4) Includes 35,000 shares issuable to Mr. Anderson pursuant to a currently
exercisable option and 15,000 shares issuable to Ms. Bedard, his spouse,
pursuant to a currently exercisable option.

(5) Includes 15,000 shares issuable to Ms. Bedard pursuant to a currently
exercisable option, 407,061 shares held by Mr. Anderson, her spouse, and
35,000 shares issuable to Mr. Anderson pursuant to a currently exercisable
option.

(6) Represents shares issuable to Mr. Esbensen pursuant to a currently
exercisable option.

(7) Mr. Hundley's address is 1202 Huntington, Duncanville, Texas 75237.

(8) Includes 55,000 shares issuable pursuant to currently exercisable options.

33
<PAGE>
DESCRIPTION OF SECURITIES

The authorized capital stock of the Company will consist of 25,000,000
shares of capital stock without par value, of which 15,000,000 shares are Common
Stock and 10,000,000 shares are not designated as to terms and preferences.

COMMON STOCK

The Company has 2,800,000 shares of Common Stock issued and outstanding. The
holders of the Common Stock: (i) have equal ratable rights to dividends from
funds legally available therefor, when, as and if declared by the Board of
Directors of the Company; (ii) are entitled to share ratably in all the assets
of the Company available for distribution to holders of the Common Stock upon
liquidation, dissolution or winding up of the affairs of the Company; (iii) do
not have preemptive, subscription or conversion rights and there are no
redemption or sinking fund provisions applicable thereto; and (iv) are entitled
to one vote per share on all matters which shareholders may vote on at all
meetings of shareholders. All shares of the Common Stock now outstanding are
fully paid and nonassessable.

The holders of the Common Stock do not have cumulative voting rights, which
means that the holders of more than 50 percent of such outstanding shares voting
for the election of directors can elect all of the directors of the Company to
be elected, if they so choose. In such event, the holders of the remaining
shares will not be able to elect any of the Company's directors.

UNDESIGNATED STOCK

Under governing Minnesota law and the Company's Articles of Incorporation,
no action by the Company's shareholders is necessary, and only action of the
Board of Directors is required, to authorize the issuance of any of the
undesignated stock. The Board of Directors is empowered to establish, and to
designate the name of, each class or series of the undesignated shares and to
set the terms of such shares (including terms with respect to redemption,
sinking fund, dividend, liquidation, preemptive, conversion and voting rights
and preferences). Accordingly, the Board of Directors, without shareholder
approval, may issue undesignated stock with terms (including terms with respect
to redemption, sinking fund, dividend, liquidation, preemptive, conversion and
voting rights and preferences) that could adversely affect the voting power and
other rights of holders of the Common Stock.

The existence of undesignated stock may have the effect of discouraging an
attempt, through acquisition of a substantial number of shares of Common Stock,
to acquire control of the Company with a view to effecting a merger, sale or
exchange of assets or a similar transaction. The anti-takeover effects of the
undesignated shares may deny shareholders the receipt of a premium on their
Common Stock and may also have a depressive effect on the market price of the
Common Stock.

MINNESOTA BUSINESS CORPORATION ACT

Section 302A.671 of the Minnesota Business Corporation Act provides that,
unless the acquisition of certain new percentages of voting control of the
Company (in excess of 20%, 33 1/3% or 50%) by an existing shareholder or other
person is approved by the holders of a majority of the outstanding voting stock
other than shares held by the acquirer (if already a shareholder) and officers
and directors who are also employees of the Company, the shares acquired above
any such new percentage level of voting control will not be entitled to voting
rights. In addition, if the requirements of this Section are not satisfied, the
Company may redeem the shares so acquired by the acquirer at their market value.
Section 302A.671 generally does not apply to a cash offer to purchase all shares
of voting stock of the issuing corporation if such offer has been approved by a
majority vote of disinterested directors of the issuing corporation.

Section 302A.673 of the Minnesota Business Corporation Act restricts certain
transactions between the Company and a shareholder who becomes the beneficial
holder of 10% or more of any class of the Company's outstanding voting stock (an
"interested shareholder") unless a majority of the disinterested directors of
the Company have approved, prior to the date on which the shareholder acquired a
10% interest, either the business combination transaction suggested by such a
shareholder or the acquisition of shares that made such a shareholder a
statutory interested shareholder. If such prior approval is not obtained, this

34
<PAGE>
section imposes a four-year prohibition from the interested shareholder's share
acquisition date on mergers, sales of substantial assets, loans, substantial
issuance of stock and various other transactions involving the Company and the
interested shareholder or its affiliates.

In the event of certain tender offers for stock of the Company, Section
302A.675 of the Minnesota Business Corporation Act precludes the tender offeror
from acquiring additional shares of stock (including acquisitions pursuant to
mergers, consolidations or statutory share exchanges) within two years following
the completion of such an offer unless the selling shareholders are given the
opportunity to sell the shares on terms that are substantially equivalent to
those contained in the earlier tender offer. The Section does not apply if a
committee of the Board consisting of all of its disinterested directors
(excluding present and former officers of the corporation) approves the
subsequent acquisition before the shares are acquired pursuant to the earlier
tender offer.

These statutory provisions could have the effect of delaying or preventing a
change in the control of the Company in a transaction or series of transactions
not approved by the Board of Directors.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar with respect to the Company's Common Stock
is Norwest Bank Minnesota, N.A.

SHARES ELIGIBLE FOR FUTURE SALE

The Company has outstanding 2,800,000 shares of Common Stock. In addition,
as of the date of this Prospectus, the Company has outstanding 345,000 shares
reserved for issuance upon exercise of options granted under the Company's 1996
Stock Option Plan. All of the 4,200,000 shares to be outstanding after the
Offering will be freely tradeable without restrictions or registration under the
Securities Act, except as follows. Of these shares, 2,800,000 are subject to
lockup agreements pursuant to which the holders of such shares agreed not to
offer, sell or otherwise dispose of any of their shares for a period of 180 days
after the effective date of this Offering, without the prior written consent of
the Representative. Further, officers and directors of the Company, who
currently beneficially hold 1,699,884 shares of the Company's Common Stock, are
subject to the restrictions of Rule 144 of the Securities Act with respect to
the sale of such shares.

In general, under Rule 144 a person (or persons whose sales are aggregated)
who beneficially owns shares acquired privately from the Company or an affiliate
of the Company at least two years previously and an affiliate of the Company who
beneficially owns shares acquired (whether or not such shares were acquired
privately) from the Company or an affiliate of the Company at least two years
previously, are entitled to sell within any three-month period a number of
shares that does not exceed the greater of 1% of the then outstanding shares of
the Company's Common Stock or the average weekly trading volume in the Company's
Common Stock during the four calendar weeks preceding the filing of notice with
the Commission in connection with such sale. Sales under Rule 144 are also
subject to certain manner-of-sale provisions, notice requirements and the
availability of current public information about the Company. A person who has
not been an affiliate of the Company at any time during the three months
preceding a sale and who beneficially owns shares acquired from the Company or
an affiliate of the Company at least three years previously is entitled to sell
all such shares under Rule 144 without regard to any of the limitations of the
Rule.

In addition, Rule 144A under the Securities Act, as currently in effect, in
general, permits unlimited resales of certain restricted securities of any
issuer provided that the purchaser is an institution that owns and invests on a
discretionary basis at least $100 million in securities or is a registered
broker-dealer that owns and invests $10 million in securities. Rule 144A allows
the existing shareholders of the Company to sell their shares to such
institutions and registered broker-dealers without regard to any volume or other
restrictions. Unlike under Rule 144, restricted securities sold under Rule 144A
to nonaffiliates do not lose their status as restricted securities.

The Company cannot predict the effect, if any, that sales of the securities
subject to the previously described lockup or Rule 144 restrictions or the
availability of such securities for sale could have on the

35
<PAGE>
market price, if any, prevailing from time to time. Nevertheless, sales of
substantial amounts of the Company's securities, including the securities
offered hereby, could adversely affect prevailing market prices of the Company's
securities and the Company's ability to raise additional capital by occurring at
a time when it would be beneficial for the Company to sell securities.

UNDERWRITING

The Underwriters named below, for which R. J. Steichen & Company is acting
as representative (the "Representative"), have severally agreed, subject to the
terms and conditions of the Underwriting Agreement with the Company to purchase
from the Company the 1,400,000 shares of Common Stock offered hereby. The number
of Shares that each Underwriter has agreed to purchase is set forth opposite its
name below:

<TABLE>
<CAPTION>
UNDERWRITING NUMBER OF SHARES
- ------------------------------------------------------------------------------------ ------------------
<S> <C>
R. J. Steichen & Company............................................................ 1,200,000
John G. Kinnard and Company, Incorporated........................................... 40,000
Smith, Moore & Co................................................................... 40,000
Marche Securities, Inc.............................................................. 20,000
Summit Investment Corporation....................................................... 20,000
W. J. Nolan & Company............................................................... 20,000
Frederick & Company................................................................. 20,000
H. J. Meyers & Co., Inc............................................................. 20,000
Equity Securities Trading Co., Inc.................................................. 20,000
------------------
Total............................................................................. 1,400,000
------------------
------------------
</TABLE>

The Underwriting Agreement provides that the several Underwriters will be
obligated to purchase all of the 1,400,000 Shares offered hereby, if any are
purchased.

The Underwriters propose to offer the shares to the public at the Price to
Public set forth on the cover page of this Prospectus and to dealers at such
price less a concession not in excess of $.36 per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $.05 per
share to certain other brokers and dealers. After the initial public offering,
the Price to Public, concession and reallowance may be changed by the
Representative. Additionally, the Company has agreed to pay the Representative a
nonaccountable expense allowance equal to 2% of the aggregate public offering
price. The Company has paid the Representative $10,000 as an advance against
this nonaccountable expense allowance.

The Company has granted the Underwriters an option exercisable within 45
days after the effective date of the Registration Statement of which this
Prospectus is a part, to purchase up to an additional 210,000 shares of Common
Stock at the Price to Public, less the Underwriting Discount shown on the cover
page of this Prospectus. The Underwriters may exercise such option only for the
purpose of covering any overallotments in the sale of the Shares of Common Stock
offered hereby.

The Company has agreed to sell to the Representative, for nominal
consideration, a warrant to purchase up to 140,000 shares of Common Stock (the
"Representative's Warrant"). The Representative's Warrant may be exercised in
whole or in part commencing twelve months after the effective date of the
Registration Statement of which this Prospectus is a part and for a period of
four years thereafter, at an exercise price equal to 120% of the Price to
Public. The Representative's Warrant may not be transferred, sold, assigned or
hypothecated for a period of one year from the effective date of this Offering
except to officers of the Representative or members of the underwriting
syndicate or the selling group. The Representative's Warrant contains
anti-dilution provisions providing for appropriate adjustments on the occurrence
of certain events, and contains customary demand and participatory registration
rights. Any profits realized by the Representative upon the sale of such warrant
or the securities issuable upon exercise thereof may be deemed to constitute
additional underwriting compensation.

The Representative has informed the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.

36
<PAGE>
The Underwriting Agreement provides for reciprocal indemnification between
the Company, the Underwriters and their controlling persons against civil
liabilities in connection with the Offering, including liabilities under the
Securities Act of 1933, as amended. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted pursuant to the
foregoing provisions, the Company has been informed that, in the opinion of the
Commission, such indemnification is against public policy as expressed in such
Act and is therefore unenforceable.

Holders of Common Stock of the Company, who beneficially own in the
aggregate 2,800,000 shares, have agreed that they will not, without the prior
consent of the Representative, publicly offer, sell or grant any option to sell
any securities of the Company in the open market or otherwise for a period of
180 days from the effective date of this Offering.

Prior to this Offering there has been no public trading market for the
Common Stock. The initial public offering price of the Shares has been
determined by negotiations between the Company and the Representative and bears
no relation to the Company's current earnings, book value, net worth or
financial statement criteria of value.

The foregoing is a brief summary of the provisions of the Underwriting
Agreement and the Representative's Warrant and does not purport to be a complete
statement of their terms and conditions. The Underwriting Agreement and the
Representative's Warrant have been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Fredrikson & Byron, P.A. Certain federal income tax consequences in
connection with the Reorganization will be passed upon for the Partnership by
Fredrikson & Byron, P.A. Certain legal matters for the Underwriters will be
passed upon by Briggs & Morgan, Professional Association.

EXPERTS

The audited financial statements of the Company and the Partnership included
in this Prospectus and elsewhere in the Registration Statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.

AVAILABLE INFORMATION

Prior to this Offering, the Company has not been subject to the reporting
requirements of the Securities Exchange Act of 1934. The Company has filed with
the Washington, D.C. Office of the Commission a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
sale of the Shares. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain portions of which have been omitted
as permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Shares, reference is made to the
Registration Statement, including the exhibits thereto. Statements contained in
this Prospectus as to the contents of any contract or other document referred to
are not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement. The Registration Statement may be inspected by anyone without charge
at the principal office of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, or at one of the Commission's regional offices: 500 West Madison,
Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, 13th Floor,
New York, New York, 10048. Copies of all or any part of such material may be
obtained upon payment of the prescribed fees from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.

The Company intends to distribute to its shareholders annual reports
containing audited financial statements and interim reports containing unaudited
financial statements.

37
<PAGE>
INDEX TO FINANCIAL STATEMENTS

ZOMAX OPTICAL MEDIA, INC.

<TABLE>
<CAPTION>
PAGE
---------

<S> <C>
Report of Independent Public Accountants................................................................... F-2

Balance Sheet as of March 1, 1996.......................................................................... F-3

Notes to Financial Statements.............................................................................. F-4
</TABLE>

ZOMAX OPTICAL MEDIA LIMITED PARTNERSHIP

<TABLE>
<CAPTION>
PAGE
---------

<S> <C>
Report of Independent Public Accountants................................................................... F-6

Balance Sheets as of December 31, 1994 and 1995............................................................ F-7

Statements of Operations For the Period from Inception (August 6, 1993) through December 31, 1993 and for
the Years Ended December 31, 1994 and 1995................................................................ F-8

Statements of Changes in Partners' Capital For the Period from Inception (August 6, 1993) through December
31, 1993 and for the Years Ended December 31, 1994 and 1995............................................... F-9

Statements of Cash Flows For the Period from Inception (August 6, 1993) through December 31, 1993 and for
the Years Ended December 31, 1994 and 1995................................................................ F-10

Notes to Financial Statements.............................................................................. F-11
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Zomax Optical Media, Inc.:

We have audited the accompanying balance sheet of Zomax Optical Media, Inc.
(a Minnesota corporation) as of March 1, 1996. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is 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 audit provides a reasonable basis for our opinion.

In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Zomax Optical Media, Inc. as of
March 1, 1996, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Minneapolis, Minnesota,
March 4, 1996

F-2
<PAGE>
ZOMAX OPTICAL MEDIA, INC.

BALANCE SHEET

MARCH 1, 1996

ASSETS

<TABLE>
<S> <C>
Cash.............................................. $ 7
----
Total assets.................................... $ 7
----
----

SHAREHOLDER'S EQUITY

Undesignated stock, no par value, 10,000,000
authorized shares; no shares issued and
outstanding...................................... $--
Common stock, no par value, 15,000,000 authorized
shares; 1 share issued and outstanding........... 7
Retained earnings................................. --
----
Total shareholder's equity...................... $ 7
----
----
</TABLE>

The accompanying notes are an integral part of this balance sheet.

F-3
<PAGE>
ZOMAX OPTICAL MEDIA, INC.

NOTES TO BALANCE SHEET

MARCH 1, 1996

2. SHAREHOLDER'S EQUITY:
The authorized capital stock of the Company consists of 15,000,000 shares of
common stock with no par value and 10,000,000 undesignated shares with no par
value. On March 1, 1996, the initial capitalization of the Company occurred with
the sale of one share of common stock for $7.

STOCK OPTION PLAN

On March 1, 1996, the Board of Directors and sole shareholder of the Company
adopted the 1996 Stock Option Plan (the Plan) in order to provide for the
granting of stock purchase options to employees of the Company. The Company has
reserved 600,000 shares of its common stock for issuance upon the exercise of
options granted under the Plan. Upon closing of the proposed initial public
stock offering, the Company will have outstanding options to purchase an
aggregate of 345,000 common shares under the Plan at the price per share in the
Offering with 62,500 shares vested with the remaining vesting over the next five
years. These options expire on March 1, 2006.

EMPLOYEE STOCK PURCHASE PLAN

3. PROPOSED INITIAL PUBLIC STOCK OFFERING:
On December 28, 1995, Zomax Optical Media Limited Partnership (the
Partnership) signed a letter of intent to file with the Securities and Exchange
Commission a Form S-1 Registration Statement for an initial public stock
offering of 4,200,000 shares of common stock (excluding the underwriter's
overallotment option to purchase an additional 210,000 shares of common stock)
of the Company. Existing interests in the Partnership will be exchanged for
2,800,000 shares of the common stock with the remaining 1,400,000 shares to be
sold to the underwriter. The proceeds from the Offering will be used to purchase
mastering equipment, additional compact disc manufacturing and packaging
equipment, and for working capital. In connection with the proposed offering,
the underwriter will be granted warrants to purchase 10% of the shares sold in
the Offering, exercisable for a period of five years, commencing one year from
the Offering date, at an exercise price equal to 120% of the public offering
price.

There can be no assurance that the transaction described above will be
completed, or completed under the described terms.

The Company has agreed to enter into an agreement pursuant to which all the
operating, assets, liabilities and debt related to the Partnership will be
transferred to the Company in exchange for 2,800,000 shares of common stock of
the Company. The Partnership will then liquidate and distribute approximately
1,100,000 and 1,700,000 shares of common stock of the Company to ZOMI Corp. (the
General Partner) and to the limited partners, respectively. Pursuant to the
terms of the Amended Partnership Agreement, the approval of the General Partner
and holders of a majority of the limited partnership interests is required to
approve the dissolution of the Partnership, although the General Partner has the
authority to sell the Partnership's assets and liabilities without the approval
of the limited partners. The partners have met and approved the dissolution of
the Partnership subject to the completion of the transfer of the Partnership

F-4
<PAGE>
ZOMAX OPTICAL MEDIA, INC.

NOTES TO BALANCE SHEET (CONTINUED)

MARCH 1, 1996

3. PROPOSED INITIAL PUBLIC STOCK OFFERING: (CONTINUED)
assets and liabilities to the Company and the closing of this Offering. The
Partnership does not become obligated to transfer its assets and liabilities in
exchange for shares of the Company's Common Stock unless and until the General
Partner signs the agreement with the Company at the closing of this Offering.
However, the approval by the partners of the dissolution of the Partnership
prior to the effectiveness of the Registration Statement covering the shares to
be issued to the partners upon dissolution may be deemed a sale in technical
violation of Section 5(a) of the Securities Act. In such event, the partners may
have certain claims against the Company. If all or a substantial portion of the
limited partners were successful in their claims against the Company and were
entitled to any remedies, including rescission rights, the financial condition
of the Company could be materially adversely affected.

The shareholders of the General Partner will contribute their interests in
the General Partner to the Company in exchange for approximately 1,100,000
common shares of the Company. The Company will then initiate a subsidiary merger
with the General Partner and approximately 1,100,000 shares of common stock held
by the General Partner will be canceled. After this cancellation, the Company
will have 2,800,000 common shares outstanding.

On March 1, 1996, the Company entered into an employment agreement, which
will be effective upon closing of the Offering, with its President and Chief
Executive Officer, pursuant to which the executive will be entitled to an
initial annual base salary of $195,000 and a bonus equal to five percent of the
Company's earnings before taxes, as defined in the agreement. The agreement also
provides the executive with a ten-year option to purchase 125,000 shares of the
Company's Common Stock at an exercise price equal to the Price to Public,
vesting 35,000 shares immediately and 30,000 shares each year for three years.
These options will be issued pursuant to the Stock Option Plan described in Note
2, and are included in the outstanding options described therein. The executive
will be required by the agreement to maintain confidentiality of all Company
trade secrets and upon termination of employment will be prohibited from
participating in a competing venture for a period of one year. The initial term
of the agreement will end on December 31, 1998 unless sooner terminated in
accordance with the provisions of the agreement. If the Company terminates the
executive without "cause" or if the executive resigns for "good reason" or
within one year after a "change in control," as such terms are defined in the
agreement, the executive will be entitled to receive, among other things, (i) an
amount equal to twice any bonus payments earned by the executive for the
immediately preceding fiscal year and (ii) an amount equal to twice the base
salary in effect at that time, unless such termination or resignation occurs
prior to the end of 1996, in which event the amount the executive will be
entitled to receive shall be equal to the monthly base salary then in effect
multiplied by the number of months remaining in the executive's initial term of
employment.

F-5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Zomax Optical Media
Limited Partnership:

We have audited the accompanying balance sheets of Zomax Optical Media
Limited Partnership, a Minnesota Limited Partnership, as of December 31, 1994
and 1995, and the related statements of operations, changes in partners' capital
and cash flows for the period from inception (August 6, 1993) through December
31, 1993 and the years ended December 31, 1994 and 1995. These financial
statements are the responsibility of the Partnership's General Partner. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present fairly,
in all material respects, the financial position of Zomax Optical Media Limited
Partnership, a Minnesota Limited Partnership, as of December 31, 1994 and 1995,
and the results of its operations and its cash flows for the period from
inception (August 6, 1993) through December 31, 1993 and the years ended
December 31, 1994 and 1995, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Minneapolis, Minnesota,
March 4, 1996

F-6
<PAGE>
ZOMAX OPTICAL MEDIA LIMITED PARTNERSHIP,
A MINNESOTA LIMITED PARTNERSHIP

BALANCE SHEETS

AS OF DECEMBER 31

ASSETS

<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents...................................... $1,116,687 $ 936,662
Accounts receivable --
Trade, less allowance for doubtful accounts of $110,000 in
1995........................................................ 960,476 2,413,044
Affiliate.................................................... 99,282 540,988
Other........................................................ -- 65,301
Inventories.................................................... 411,710 787,198
Prepaid expenses............................................... 2,837 102,234
---------- ----------
Total current assets....................................... 2,590,992 4,845,427
Property and Equipment, net of accumulated depreciation of
$398,782 and $938,904........................................... 2,840,845 4,662,406
Other Assets:
Restricted cash (Note 2)....................................... 519,275 391,406
Organization costs, net........................................ 7,167 5,167
---------- ----------
$5,958,279 $9,904,406
---------- ----------
---------- ----------
LIABILITIES AND PARTNERS' CAPITAL

Current Liabilities:
Due to affiliate (Note 4)...................................... $ 318,000 $ --
Current portion of notes payable --
Affiliate.................................................... -- 78,174
Other........................................................ 622,448 1,138,201
Preferential distributions payable to partners................. 100,000 123,229
Accounts payable............................................... 704,480 1,767,262
Accrued liabilities............................................ 425,796 719,065
---------- ----------
2,170,724 3,825,931
Notes Payable, net of current portion............................ 2,152,923 2,589,218
---------- ----------
Commitments and Contingencies (Note 7)
Partners' Capital:
General Partner................................................ 351,902 621,003
Limited partners............................................... 1,282,730 2,868,254
---------- ----------
Total partners' capital...................................... 1,634,632 3,489,257
---------- ----------
$5,958,279 $9,904,406
---------- ----------
---------- ----------
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-7
<PAGE>
ZOMAX OPTICAL MEDIA LIMITED PARTNERSHIP,
A MINNESOTA LIMITED PARTNERSHIP

STATEMENTS OF OPERATIONS

FOR THE PERIOD FROM INCEPTION (AUGUST 6, 1993) THROUGH DECEMBER 31, 1993
AND THE YEARS ENDED DECEMBER 31, 1994 AND 1995

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(AUGUST 6,
1993)
THROUGH DECEMBER 31
DECEMBER 31, -----------------------
1993 1994 1995
------------ ---------- -----------
<S> <C> <C> <C>
Sales.................................................. $ 2,794,180 $9,842,095 $13,217,539
Cost of Sales.......................................... 2,496,442 7,502,572 10,036,991
------------ ---------- -----------
Gross profit....................................... 297,738 2,339,523 3,180,548
Selling, General and Administrative Expenses........... 318,465 1,254,040 2,053,443
------------ ---------- -----------
Operating income (loss)............................ (20,727) 1,085,483 1,127,105
Interest Expense....................................... (38,500) (236,665) (318,087)
Interest Income........................................ 3,159 36,193 70,956
------------ ---------- -----------
Net income (loss).................................. $ (56,068) $ 885,011 $ 879,974
------------ ---------- -----------
------------ ---------- -----------
</TABLE>

The accompanying notes are an integral part of these statements.

F-8
<PAGE>
ZOMAX OPTICAL MEDIA LIMITED PARTNERSHIP,
A MINNESOTA LIMITED PARTNERSHIP

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL

FOR THE PERIOD FROM INCEPTION (AUGUST 6, 1993) THROUGH DECEMBER 31, 1993
AND THE YEARS ENDED DECEMBER 31, 1994 AND 1995

<TABLE>
<CAPTION>
1993 1995
SPECIAL REGULAR REGULAR METACOM
GENERAL LIMITED LIMITED LIMITED LIMITED
PARTNER PARTNERS PARTNERS PARTNERS PARTNER TOTAL
-------- -------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, as previously reported (August 6,
1993)....................................... $ -- $ -- $ -- $ -- $ -- $ --
Distribution on purchase of Metacom
manufacturing assets (Note 4)............. -- -- -- -- (62,810) (62,810)
-------- -------- ---------- ---------- --------- ----------
Balance, as restated
(August 6, 1993)............................ -- -- -- -- (62,810) (62,810)
Capital contributions, net of issuance
costs..................................... 10,934 271,363 795,203 -- -- 1,077,500
Net income (loss).......................... (853) (21,168) (62,032) -- 27,985 (56,068)
Distribution to Metacom.................... -- -- -- -- (27,985) (27,985)
-------- -------- ---------- ---------- --------- ----------
Balance, December 31, 1993................... 10,081 250,195 733,171 -- (62,810) 930,637
Net income................................. 341,821 151,356 310,818 -- 81,016 885,011
Distributions to partners.................. -- -- (100,000) -- -- (100,000)
Distribution to Metacom.................... -- -- -- -- (81,016) (81,016)
-------- -------- ---------- ---------- --------- ----------
Balance, December 31, 1994................... 351,902 401,551 943,989 -- (62,810) 1,634,632
1995 limited partner capital contributions,
net of issuance
costs..................................... -- -- -- 1,527,735 -- 1,527,735
Repurchase of Metacom limited interests
(Note 4).................................. -- -- -- -- (300,000) (300,000)
Net income................................. 340,519 130,017 225,474 100,382 83,582 879,974
Distributions to partners.................. (71,418) (27,270) (108,050) (46,346) -- (253,084)
-------- -------- ---------- ---------- --------- ----------
Balance, December 31, 1995................... $621,003 $504,298 $1,061,413 $1,581,771 $(279,228) $3,489,257
-------- -------- ---------- ---------- --------- ----------
-------- -------- ---------- ---------- --------- ----------
</TABLE>

The accompanying notes are an integral part of these statements.

F-9
<PAGE>
ZOMAX OPTICAL MEDIA LIMITED PARTNERSHIP,
A MINNESOTA LIMITED PARTNERSHIP

STATEMENTS OF CASH FLOWS

FOR THE PERIOD FROM INCEPTION (AUGUST 6, 1993) THROUGH DECEMBER 31, 1993
AND THE YEARS ENDED DECEMBER 31, 1994 AND 1995

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(AUGUST 6, 1993) DECEMBER 31
THROUGH DECEMBER ------------------------
31, 1993 1994 1995
---------------- ----------- -----------
<S> <C> <C> <C>
Operating Activities:
Net income (loss)............................................................. $ (56,068) $ 885,011 $ 879,974
Adjustments to reconcile net income (loss) to net cash from operating activities
--
Depreciation and amortization............................................... 76,325 325,290 542,122
Changes in operating assets and liabilities:
Trade accounts receivable................................................. (332,761) (726,997) (1,894,274)
Inventories............................................................... (76,968) (91,742) (375,488)
Prepaid expenses.......................................................... (30,800) 27,963 (99,397)
Other receivables......................................................... -- -- (65,301)
Accounts payable.......................................................... 220,330 484,150 1,062,782
Accrued liabilities....................................................... 61,537 322,174 335,354
Due to affiliate.......................................................... -- -- (567,426)
---------------- ----------- -----------
Net cash provided by (used in) operating
activities............................................................. (138,405) 1,225,849 (181,654)
---------------- ----------- -----------
Investing Activities:
Purchases of property and equipment........................................... (1,585,327) (1,392,684) (2,361,683)
Sale of financial instruments................................................. -- -- 519,275
Purchase of financial instruments............................................. (266,737) (252,538) (391,406)
---------------- ----------- -----------
Net cash used in investing activities................................... (1,852,064) (1,645,222) (2,233,814)
---------------- ----------- -----------
Financing Activities:
Capital contributions, net of issuance costs.................................. 1,077,500 -- 1,527,735
Proceeds from notes payable --
Affiliate................................................................... -- -- 207,341
Other....................................................................... 1,406,450 1,448,717 1,845,171
Repayment of notes payable --
Affiliate................................................................... -- -- (129,167)
Other....................................................................... (42,208) (244,929) (685,782)
Repurchase of Metacom limited interests....................................... -- -- (300,000)
Distributions to partners..................................................... (27,985) (81,016) (229,855)
Payment of organization costs................................................. (10,000) -- --
---------------- ----------- -----------
Net cash used in financing activities................................... 2,403,757 1,122,772 2,235,443
---------------- ----------- -----------
Net increase (decrease) in cash......................................... 413,288 703,399 (180,025)
Cash and Cash Equivalents:
Beginning of period........................................................... -- 413,288 1,116,687
---------------- ----------- -----------
End of period................................................................. $ 413,288 $ 1,116,687 $ 936,662
---------------- ----------- -----------
---------------- ----------- -----------
Supplemental Cash Flow Disclosure:
Cash paid for interest........................................................ $ 38,499 $ 203,178 $ 296,524
---------------- ----------- -----------
---------------- ----------- -----------
</TABLE>

The accompanying notes are an integral part of these statements.

F-10
<PAGE>
ZOMAX OPTICAL MEDIA LIMITED PARTNERSHIP,
A MINNESOTA LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1994 AND 1995

1. ORGANIZATION:
Zomax Optical Media Limited Partnership, a Minnesota Limited Partnership
(the Partnership), organized on August 6, 1993, is a full-service provider of
compact discs, cassettes, diskettes and related services to a variety of
customers. ZOMI Corp. is the General Partner of the Partnership.

The Partnership was established with initial capital contributions from its
General Partner and limited partners. In 1995, the Partnership received
additional capital contributions from certain existing and new limited partners.
The Limited Partnership Agreement of Zomax Optical Media Limited Partnership
(the Partnership Agreement) provides for the dissolution and termination of the
Partnership at the earlier of December 31, 2015 or the occurrence of certain
defined events.

The Partnership is in the process of participating in a registration
statement relating to the initial public offering of common stock of Zomax
Optical Media, Inc. (the Offering). Zomax Optical Media, Inc. (Zomax) was formed
on February 22, 1996. Zomax's initial capitalization took place on March 1,
1996. Simultaneous with the Offering, substantially all of the operating assets,
liabilities and debt directly related to the Partnership will be transferred to
Zomax in exchange for 2,800,000 shares of common stock of Zomax (see Note 9).

These transactions will be accounted for at historical cost with no change
in the book and tax bases of the assets contributed and liabilities assumed,
except for the recognition of tax effects resulting from conversion from a
partnership to a corporate form.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF ACCOUNTING

The Partnership's financial statements are prepared on the accrual basis of
accounting.

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 reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Ultimate results could differ from those
estimates.

REVENUE RECOGNITION

The Partnership records sales to its customers at the time merchandise is
shipped. One unaffiliated customer accounted for 16% of sales in each of the
years ended December 31, 1994 and December 31, 1995.

The Partnership sells compact discs and cassettes to Metacom, Inc. (Metacom)
(see Notes 4 and 8). In 1993, 1994 and 1995, 93%, 44% and 19% of the
Partnership's revenues, respectively, were from sales to Metacom.

CASH EQUIVALENTS

Cash equivalents consist of short-term investments with original maturities
of three months or less and are recorded at cost, which approximates market
value.

INVENTORIES

Inventories, consisting of material, labor and overhead, are stated at the
lower of first-in, first-out cost or market.

F-11
<PAGE>
ZOMAX OPTICAL MEDIA LIMITED PARTNERSHIP,
A MINNESOTA LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1994 AND 1995

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Inventories as of December 31 are as follows:

<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Raw materials......................................................... $ 407,058 $ 663,707
Finished goods........................................................ 4,652 109,272
Work in process....................................................... -- 14,219
---------- ----------
$ 411,710 $ 787,198
---------- ----------
---------- ----------
</TABLE>

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Repairs and maintenance are
charged to expense as incurred, while significant betterments are capitalized.
Depreciation is calculated using the straight-line method for financial
reporting purposes over the following estimated useful lives:

<TABLE>
<S> <C>
Manufacturing equipment....................................... 7 years
Office equipment.............................................. 5-7 years
Building improvements......................................... Lease term
</TABLE>

Property and equipment consisted of the following at December 31:

<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Manufacturing equipment........................................... $ 3,176,126 $ 5,360,874
Office equipment.................................................. -- 129,174
Building improvements............................................. 63,501 111,262
------------ ------------
3,239,627 5,601,310
Less -- Accumulated depreciation.................................. (398,782) (938,904)
------------ ------------
Property and equipment, net....................................... $ 2,840,845 $ 4,662,406
------------ ------------
------------ ------------
</TABLE>

RESTRICTED CASH

Restricted cash represents amounts invested in certificates of deposit and
Treasury bills held as collateral for notes payable (see Note 5). The rights to
the certificates of deposit ($128,187) and Treasury bills ($263,219) have been
assigned to the lender until December 1996 and June 1996, respectively.

ORGANIZATION COSTS

Organization costs are amortized over five years. At December 31, 1994 and
1995, accumulated amortization was $2,833 and $4,833, respectively.

ACCRUED EXPENSES

Accrued expenses consisted of the following at December 31:

<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Accrued royalties..................................................... $ 228,053 $ 283,000
Accrued payroll, vacation and sick pay................................ 185,427 300,731
Other................................................................. 12,316 135,334
---------- ----------
$ 425,796 $ 719,065
---------- ----------
---------- ----------
</TABLE>

The Partnership accrues for all known potential royalties using estimated
rates on all units manufactured. Currently, the Partnership has license
agreements for certain CD manufacturing technology with two

F-12
<PAGE>
ZOMAX OPTICAL MEDIA LIMITED PARTNERSHIP,
A MINNESOTA LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1994 AND 1995

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
companies. In 1995, a third company approached the Partnership and claimed it
owns rights to certain patented CD manufacturing technology. The Partnership is
currently negotiating with this company. If the Partnership is unsuccessful in
negotiating a license with this company and if the Partnership is found to have
infringed on this company's patents, the Partnership may be required to pay
damages. The Partnership believes that the resolution of this matter will not
have a material effect on the Partnership's financial position or results of
operations. Royalty payments for 1994 and 1995 totaled $137,000 and $333,000,
respectively. No royalties were paid in 1993.

INCOME TAXES

A provision for income taxes is not included in the accompanying financial
statements since the Partnership's earnings and losses are allocated to the
partners for inclusion in their respective income tax returns.

FINANCIAL INSTRUMENTS

For most instruments, including cash and cash equivalents, receivables,
restricted cash, accounts payable and accruals, and short-term debt, the Company
has assumed that the carrying amounts approximate fair value because of their
short-term nature.

CONCENTRATIONS OF CREDIT RISK

The Partnership markets and sells its multimedia products and services
through its own sales force to a wide variety of customers, including recording
studios and other producers for retail distribution, distributors, software
developers, publishers, marketing groups and database suppliers.

As of December 31, 1995, Metacom accounted for 17% of the Partnership's
accounts receivable and two unaffiliated customers accounted for 15% and 10% of
accounts receivable, respectively.

DERIVATIVE FINANCIAL INSTRUMENTS

As of December 31, 1994 and 1995, the Partnership held no derivative or
other related investments.

LONG-LIVED ASSETS

During 1995, the Partnership adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Long-lived assets of the Partnership primarily consist of property and
equipment. As required by SFAS No. 121, in the event that facts and
circumstances indicate that the carrying amount of property and equipment may
not be recoverable, an evaluation of recoverability would be performed. If an
evaluation is required, the sum of estimated future undiscounted cash flows
associated with property and equipment would be compared to the carrying amount
to determine if a write-down to market value or the sum of discounted cash flows
is required. The adoption of SFAS No. 121 had no impact on results of operations
or financial position of the Partnership.

3. PARTNERS' CAPITAL:
The Partnership's losses are allocated among the partners on the basis of
each partner's capital account immediately prior to such allocation. The
Partnership's income is allocated among the partners, first to all partners in
an amount equal to prior net losses previously allocated to each partner, then
to the Limited Partners in the amount of preferential distributions, as defined
($100,000 for 1994 and $123,229 for 1995), and the remaining balance as follows:

<TABLE>
<S> <C>
Limited partners.................................................... 55%
General Partner..................................................... 45%
</TABLE>

F-13
<PAGE>
ZOMAX OPTICAL MEDIA LIMITED PARTNERSHIP,
A MINNESOTA LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1994 AND 1995

3. PARTNERS' CAPITAL: (CONTINUED)
The preferential distributions were paid in February 1995 and March 1996.
The General Partner, at its sole discretion, determines when and in what amounts
distributions from the Partnership will be made. Distributions will be made
first to the limited partners up to a preferential distribution amount, as
defined. Any distributions in excess of the preferential distribution to the
limited partners, as defined, are allocated in accordance with the above
percentages. The Partnership also made distributions to its partners of $129,855
in excess of the preferential distributions in 1995. Metacom retained the
earnings of the manufacturing operation described in Note 4 in 1993 and 1994.

The above is summarized information only and is not intended to be a
complete description of distributions and allocations. A more thorough
description of distributions and allocations is provided in the Partnership
Agreement.

4. PURCHASE OF METACOM, INC. MANUFACTURING ASSETS:
In January 1995, the Partnership acquired the entire manufacturing operation
of Metacom. Certain assets of the manufacturing operation of Metacom were
purchased by the Partnership and others were contributed to the Partnership in
exchange for limited interests in the Partnership. The assets purchased include,
among others, specified production, warehouse, transfer room and office
equipment. The total purchase price for the specified production, warehouse and
transfer room equipment was $492,085, payable with $300,000 cash, assumption of
$42,085 in Metacom liabilities and a two-year promissory note for $150,000
bearing interest at 8.5% per annum and payable monthly. The total purchase price
for the office equipment was $75,341 payable with $18,000 cash and a one-year
promissory note for $57,341 bearing interest at 8.5% per annum and payable
monthly. This note was paid in full and cancelled in 1995. The assets assigned
to the Partnership in exchange for limited interests in the Partnership pursuant
to an Assignment and Assumption Agreement dated January 1, 1995 include, among
others, certain of Metacom's inventory, records, know-how and goodwill. In
addition, Metacom has entered into the Manufacturing Agreement described below.
In consideration for this contract and the assignment of the other assets of
Metacom, the Partnership issued to Metacom 22.67 limited partnership units in
the Partnership with a deemed value of $1,360,000, of which 5 units were
redeemed for $300,000 in 1995.

As a result of the common control of the Partnership and Metacom, the
acquisition was accounted for essentially as a pooling of interests and,
therefore, all prior period financial statements have been restated as if the
transaction took place at the beginning of such periods. No value was assigned
to the limited partnership units issued in the transaction. The difference of
$62,810 between the cash and note payable consideration, the assumed liability
and Metacom's historical net book value of the net assets of the manufacturing
operation received has been treated as a distribution of partners' capital in
the accompanying financial statements.

The Manufacturing Agreement provides that Metacom must purchase its supply
of compact discs and audio cassettes exclusively from the Partnership. For each
of the three years, Metacom has agreed to purchase a minimum of 2 million audio
cassettes and 1 million compact discs from the Partnership at the same price as
Metacom could obtain such products and services from an unrelated third party.

F-14
<PAGE>
ZOMAX OPTICAL MEDIA LIMITED PARTNERSHIP,
A MINNESOTA LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1994 AND 1995

5. NOTES PAYABLE:
At December 31, notes payable consisted of the following:

<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Installment promissory note, interest at 9.4%, principal and interest due in monthly
installments through November 1999, collateralized by certain equipment and two
certificates of deposit of $33,491 and $94,696, respectively......................... $ -- $ 1,249,999
Installment promissory note, interest at 10.5%, principal and interest due in monthly
installments through June 1998, collateralized by certain equipment and a $263,219
Treasury bill........................................................................ 1,224,573 919,045
Installment promissory note, interest at 9.7%, principal and interest due in monthly
installments through August 1998, collateralized by certain equipment................ 1,064,198 810,118
Installment promissory note, interest at 8.8%, principal and interest due in monthly
installments through October 1998, collateralized by certain equipment............... -- 531,838
Installment promissory note, interest at 9.7%, principal and interest due in monthly
installments through February 1999, collateralized by certain equipment.............. 175,853 139,846
Installment promissory notes to affiliated entity (see Note 4), interest at 8.5%,
principal and interest due in monthly installments through December 1996............. 207,341 78,174
Installment promissory note, interest at 9.7%, principal and interest due in monthly
installments through May 1998, collateralized by certain equipment................... 103,406 76,573
------------ ------------
2,775,371 3,805,593
Less -- Current portion............................................................... (622,448) (1,216,375)
------------ ------------
$ 2,152,923 $ 2,589,218
------------ ------------
------------ ------------
</TABLE>

Future scheduled maturities of notes payable are as follows as of December
31, 1995:

6. BANK CREDIT FACILITIES:
On December 31, 1995, the Partnership entered into a revolving
line-of-credit facility with a lender for up to $1,500,000, with all borrowings
due on or before April 30, 1997. The interest rate is at prime (8.5% at December
31, 1995). Maximum borrowings are limited to an amount based on a formula using
eligible accounts receivable and inventories ($1,500,000 as of December 31,
1995).

F-15
<PAGE>
ZOMAX OPTICAL MEDIA LIMITED PARTNERSHIP,
A MINNESOTA LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1994 AND 1995

6. BANK CREDIT FACILITIES: (CONTINUED)
In addition, the Partnership entered into a capital expenditure term loan
facility with the lender for up to $3,000,000. Borrowings under the capital
expenditure term loan may be for either 48 months or 60 months and interest
rates will vary based on the length of the term loan and the interest rate
structure selected. The interest rate structure that can be selected by the
Partnership varies from a variable rate of prime plus 1/4% or a fixed rate equal
to the three-year U.S. Treasury rate plus 3%.

At December 31, 1995, there were no borrowings under either the revolving
line-of-credit facility or the capital expenditure term loan facility.

7. COMMITMENTS AND CONTINGENCIES:
The Partnership is committed under an operating lease with Metacom dated
January 1, 1995, for the rental of manufacturing, warehouse and office
facilities. The lease term is for three years and provides for renewal options
of three 3-year periods. In addition, the Partnership is obligated to pay a
proportionate share of real estate taxes, insurance, utilities, repairs and
maintenance, and common area costs. Based on current space rented, annual
minimum rental payments are $182,736.

In February 1996, the Partnership committed to the purchase of approximately
$1,000,000 of manufacturing equipment to increase its production capacity and in
March 1996, the Partnership made a $790,500 advance payment on this equipment.
The Partnership plans to finance the equipment on a long-term basis through its
capital expenditure term loan facility or another long-term lending source.

8. RELATED-PARTY TRANSACTIONS:
The holder of the majority interest in the General Partner (the Majority
Holder) is also the sole shareholder of Metacom, which prior to 1995 provided
personnel to the Partnership and for 1993 through 1995 provided certain
administrative functions, including costs of occupancy, to the Partnership for a
monthly fee. Charges for these services were as follows:

<TABLE>
<CAPTION>
1993 1994 1995
---------- ------------ ----------
<S> <C> <C> <C>
Personnel.............................................. $ 180,351 $ 1,185,994 $ --
Administrative support................................. -- 216,394 139,670
Occupancy.............................................. -- 151,062 380,780
---------- ------------ ----------
$ 180,351 $ 1,553,450 $ 520,450
---------- ------------ ----------
---------- ------------ ----------
</TABLE>

In addition, the Partnership reimbursed Metacom $6,235, $164,410 and $56,622
in 1993, 1994 and 1995, respectively, for certain expenditures for the
Partnership.

The Partnership also purchased $98,476 and $167,988 of inventory from
Metacom in 1993 and 1994, respectively. The Partnership had sales to Metacom of
$2,610,370, $4,303,477 and $2,524,301 in 1993, 1994 and 1995, respectively.
Management believes that charges for all such activities described above are at
terms no less favorable than those for similar transactions with unaffiliated
third parties. The Partnership has never paid any fees to its General Partner.

Certain of the installment promissory notes have been guaranteed by the
Majority Holder (see Note 5).

9. PROPOSED INITIAL PUBLIC STOCK OFFERING:
On December 28, 1995, the Partnership signed a letter of intent to file with
the Securities and Exchange Commission a Form S-1 Registration Statement for an
initial public stock offering of 4,200,000 shares of common stock (excluding the
underwriter's overallotment option to purchase an additional 210,000 shares

F-16
<PAGE>
ZOMAX OPTICAL MEDIA LIMITED PARTNERSHIP,
A MINNESOTA LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1994 AND 1995

9. PROPOSED INITIAL PUBLIC STOCK OFFERING: (CONTINUED)
of common stock) in a new corporation to be formed. Existing interests in the
Partnership will be exchanged for 2,800,000 shares of the common stock, with the
remaining 1,400,000 shares to be sold to the underwriter. The proceeds from the
Offering will be used to purchase mastering equipment, additional compact disc
manufacturing and packaging equipment, and for working capital. In connection
with the Offering, the underwriter will be granted warrants to purchase 10% of
the shares sold in the Offering, exercisable for a period of five years,
commencing one year from the Offering date, at an exercise price equal to 120%
of the public offering price. There can be no assurance that the Offering
described above will be completed, or completed under the described terms.

F-17
<PAGE>

[Photograph of the
Company headquarters]

ZOMAX HEADQUARTERS

[Photograph of [Photograph of
CD metalizing customer service
process] representative on
the telephone]

CD METALIZING PROCESS PERSONALIZED CUSTOMER
SERVICE

[Photograph of
warehouse and
distribution center]

WAREHOUSE AND DISTRIBUTION
CENTER
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE AFFAIRS OF THE COMPANY SINCE THAT DATE HEREOF OR THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 6
Use of Proceeds................................. 10
Dividend Policy................................. 10
Dilution........................................ 11
Capitalization.................................. 12
Unaudited Pro Forma Financial Statements........ 13
Selected Financial Data......................... 18
Management's Discussion and Analysis
of Financial Condition and
Results of Operations.......................... 19
Business........................................ 22
Management...................................... 29
Certain Transactions............................ 32
Principal Shareholders.......................... 33
Description of Securities....................... 34
Shares Eligible for Future Sale................. 35
Underwriting.................................... 36
Legal Matters................................... 37
Experts......................................... 37
Available Information........................... 37
Index to Financial Statements................... F-1
</TABLE>

------------------------

UNTIL JUNE 1, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

1,400,000 SHARES

[LOGO]

COMMON STOCK

------------------

PROSPECTUS

------------------

[LOGO]

MAY 7, 1996

- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
[Additional cover page]

PROSPECTUS

3,900,000 SHARES OF COMMON STOCK

[LOGO]

This Prospectus relates to the issuance to the partners of Zomax Optical
Media Limited Partnership, a Minnesota limited partnership (the "Partnership"),
of an aggregate of 2,800,000 shares of Common Stock of Zomax Optical Media, Inc.
("Zomax" or the "Company") pursuant to the acquisition by the Company of all of
the assets and assumption of all of the liabilities of the Partnership and the
subsequent termination, dissolution and liquidation of the Partnership (the
"Reorganization"). This prospectus also relates to the issuance by the Company
of up to 1,100,000 shares of its Common Stock to the shareholders of the
Partnership's General Partner, ZOMI Corp. (the "General Partner"), in exchange
for the shareholders' shares of the General Partner's common stock. The number
of shares of the Company's Common Stock issued to the General Partner pursuant
to the liquidation of the Partnership will be equal to the number of shares of
the Company's Common Stock issued to the shareholders of the General Partner and
will be immediately cancelled as part of the merger into the Company of the
General Partner, which following the Reorganization will be a wholly-owned
subsidiary of the Company.

The shares of Common Stock offered hereby are being issued directly by the
Company without the services of an underwriter or dealer. No commissions or
other form of remuneration will be paid to anyone in connection with the
issuance of the shares of Common Stock offered hereby. The expenses of the
registration of the shares offered hereby, including legal and accounting fees,
will be paid by the Company.

The shares of Common Stock offered hereby have been registered with the
Securities and Exchange Commission concurrent with the registration by the
Company of 1,400,000 shares of Common Stock to be sold to the public by the
Company as set forth in the attached Prospectus. Pursuant to the terms of the
Reorganization, the partners and the shareholders of the General Partner will be
prohibited, for a period of 180 days after the date of this Prospectus, from
offering, selling or otherwise disposing of any of the shares they receive as
part of the Reorganization in the open market or otherwise, without the prior
written consent of R. J. Steichen & Company.

Prior to the Offering described in the attached Prospectus, there has been
no public market for the Company's Common Stock and no assurance can be given
that one will develop. The Company's Common Stock has been approved for
designation as a Nasdaq National Market security under the symbol "ZOMX."
------------------------

THIS PROSPECTUS MAY NOT BE USED BY ANY PERSON FOR
RESALES OF THE COMMON STOCK OFFERED HEREBY
------------------------

THE COMMON STOCK OFFERED BY THIS PROSPECTUS IS SPECULATIVE AND INVOLVES A
HIGH DEGREE OF RISK AND DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 6 AND
"DILUTION."
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus is May 7, 1996
<PAGE>
[Additional pages to be inserted in
the Reorganization Prospectus for the partners]

THE REORGANIZATION

Simultaneously with the closing of the Offering to the public of 1,400,000
Shares of Common Stock, the Company will issue to the Partnership an aggregate
of 2,800,000 shares of Common Stock of the Company in exchange for the assets
and liabilities of the Partnership (the "Reorganization"), allowing the Company
to acquire and continue the business of the Partnership. As part of the
Reorganization, the Partnership will terminate, liquidate and dissolve and
distribute the 2,800,000 shares to its partners pursuant to the terms of the
Amended Partnership Agreement. The Reorganization also involves the issuance by
the Company of 1,084,327 shares of its Common Stock to the shareholders of the
Partnership's general partner, ZOMI Corp. (the "General Partner"), in exchange
for the shareholders' shares of the General Partner's common stock. The number
of shares of the Company's Common Stock issued to the General Partner pursuant
to the liquidation of the Partnership will be equal to the number of shares of
the Company's Common Stock issued to the shareholders of the General Partner and
will be immediately cancelled as part of the merger into the Company of the
General Partner, which will be a wholly-owned subsidiary of the Company as a
result of the transfer of all of the outstanding shares of the General Partner
by its shareholders to the Company. Pursuant to the terms of the Reorganization,
the partners and the shareholders of the General Partner will be prohibited, for
a period of 180 days after the date of this Prospectus, from offering, selling
or otherwise disposing of any of the shares they receive as part of the
Reorganization in the open market or otherwise, without the prior written
consent of R. J. Steichen & Company.

At the meeting of the partners of the Partnership held Friday, April 26,
1996 at the Partnership's offices at 9:00 a.m. (Central time) the partners
approved the Reorganization, subject to completion of the offering to the public
of 1,400,000 shares of Common Stock, including termination, dissolution and
liquidation of the Partnership.

BACKGROUND

The Partnership began operations in August 1993. During 1993, the
Partnership raised $800,000 through a private placement of its 1993 Regular
Limited Interests, and $273,000 through a private placement of its Special
Limited Partner Interests. In 1995, the Partnership issued $1,360,000 of Metacom
Limited Partner Interests in connection with the Partnership's acquisition of
Metacom's cassette manufacturing operations. The Partnership has since redeemed
$300,000 of these Metacom Limited Partner Interests. Also in 1995, the
Partnership raised $1,545,750 through a private placement of its 1995 Regular
Limited Interests. All of these funds have been invested in the operations of
the Partnership. See "Certain Transactions" and "Financial Statements."

The General Partner, a corporation owned by Messrs. Levin and Anderson,
determined it was in the best interests of the business and the partners if the
Partnership were reorganized as a public corporation. No acquisition, merger or
similar offers from unaffiliated third parties were received by the Partnership.
The General Partner recommends approval of the Reorganization and believes that
the Reorganization is fair to the partners.

ALLOCATION IN LIQUIDATION

The value of each share to be issued by the Company to the Partnership and
to the shareholders of the General Partner in the Reorganization shall be deemed
to be the same as the value of each share being offered to the public. After the
exchange, the Partnership will liquidate and distribute the 2,800,000 shares to

S-1
<PAGE>
[Additional pages to be inserted in
the Reorganization Prospectus for the partners]
its partners on the basis of their capital accounts as computed pursuant to the
Amended Partnership Agreement. At the Price to Public of $6.75 per share,
partners will receive the following allocation of shares in the liquidation that
would follow the Reorganization:

<TABLE>
<CAPTION>
TOTAL NUMBER
PARTNER CLASS OF SHARES
- ------------------------------------------------------------------------------- -------------
<S> <C>
General Partner*............................................................... 1,084,327
Special Limited Partners....................................................... 459,545
1993 Regular Limited Partners (18,260 shares for each $25,000 contributed)..... 584,333
1995 Regular Limited Partners (15,534 shares for each $62,500 contributed)..... 384,485
Metacom Limited Partner........................................................ 287,311
</TABLE>

- ------------------------
* The shares of Common Stock issued to the General Partner will subsequently be
cancelled as part of the subsidiary merger of the General Partner into the
Company.

RISKS RELATED TO THE REORGANIZATION

In addition to the risks related to the business of the Company set forth
above and the other information in this Prospectus, the following factors should
be considered carefully by partners of the Partnership in connection with the
Reorganization.

ELIMINATION OF CASH DISTRIBUTIONS. To date, the Partnership has made cash
distributions to its partners aggregating approximately $350,000. Cash
distributions aggregating approximately $660,000 for earnings through December
31, 1995 and an additional $345,000 for earnings from January 1, 1996 through
March 31, 1996 will have been made to the partners prior to the consummation of
the Reorganization. After the Reorganization, the Partnership will be dissolved
and the partners of the Partnership will receive shares of the Company's Common
Stock. The Company has not paid, and does not anticipate paying in the
foreseeable future, any cash dividends on its Common Stock. See "Dividend
Policy."

LACK OF ARM'S LENGTH NEGOTIATIONS TO DETERMINE VALUE OF PARTNERSHIP
ASSETS. The value of the Partnership assets transferred to the Company in
exchange for shares of the Company's Common Stock was determined by the Company
and the General Partner, each of which are under the common control of Messrs.
Levin and Anderson. Neither an independent appraisal nor a fairness opinion was
obtained in connection with the Reorganization. Although the valuation was made
in good faith and in a manner deemed fair to the partners as well as other
potential investors in the Company, no assurance can be given that the valuation
would be comparable to an independent valuation of such assets or the value
obtained in a sale of the assets to a non-affiliated third party.

POTENTIAL BENEFITS OF ALTERNATIVES TO THE REORGANIZATION. Instead of the
Reorganization, the Partnership could continue to operate as a limited
partnership or seek to liquidate its assets and distribute the cash liquidation
proceeds in accordance with its Partnership Agreement. In the case of a
liquidation, the partners would be able to reinvest the liquidation proceeds as
they desire and avoid market and other risks associated with the ownership of
Zomax Common Stock to be received in the Reorganization. The General Partner
rejected the alternatives of continuation and liquidation based on its analysis
of the comparative results and values of each alternative and made the
determination that the Reorganization was the appropriate choice to make. The
General Partner believes that if the Partnership liquidated it would not
recognize the long-term potential of the business. Further, the General Partner
believes that the business needs retained earnings and additional sources of
financing to expand, both of which objectives can be better met through
corporate entity rather than continuing as a partnership. There can be no
assurance that such analysis will prove to be correct. Partners have no
dissenter's rights in the Reorganization, and therefore cannot elect to receive
cash in lieu of shares of the Company's Common Stock.

S-2
<PAGE>
[Additional pages to be inserted in
the Reorganization Prospectus for the partners]

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The following general description of the federal income tax consequences of
the Reorganization does not take into account the facts and circumstances of any
particular partner of the Partnership or shareholders of the General Partner.
Each such partner or shareholder should consult his or her advisor about the
specific tax consequences to him or her of the proposed transactions, including
the application and effect of state, local, foreign and other tax laws. The
Company has not sought a ruling from the Internal Revenue Service with respect
to the income tax consequences of the Reorganization and related transactions,
and there can be no assurance that the Internal Revenue Service will not take a
different view of the transaction.

Fredrikson & Byron, P.A., counsel to the Partnership, has advised the
Partnership concerning the United States federal income tax consequences of the
proposed Reorganization. In the opinion of Fredrikson & Byron, P.A., the federal
income tax consequences of the proposed Reorganization will be:

(a) The Reorganization will be treated as a tax-free exchange pursuant
to the provisions of Section 351 of the Internal Revenue Code of 1986, as
amended (the "Code"). In addition, as to the Company and the shareholders of
the General Partner, the Reorganization will be treated as a tax-free
reorganization pursuant to the provisions of Section 368(a)(1)(B) of the
Code.

(b) The merger of the General Partner into the Company subsequent to the
Reorganization, and the cancellation of the Common Stock of the Company held
by the General Partner pursuant to such merger, will be treated as tax-free
liquidation of the General Partner pursuant to the provisions of Section 332
of the Code.

(c) Under Section 351 of the Code, no gain or loss will be recognized by
the Partnership upon its receipt of Common Stock of the Company in exchange
for the assets of the Partnership. Upon the subsequent liquidation of the
Partnership, under Section 731 of the Code, no gain or loss will be
recognized by the partners of the Partnership upon their receipt of Common
Stock of the Company in exchange for the surrender and termination of their
Partnership interests.

(d) No gain or loss will be recognized by the shareholders of the
General Partner upon their receipt of Common Stock of the Company in
exchange for their Common Stock of the General Partner, in accordance with
Section 354 of the Code.

(e) Under Section 358 of the Code, the aggregate basis of the Common
Stock of the Company to be received by the Partnership pursuant to the
Reorganization will be the same as the aggregate basis of the Partnership's
assets transferred to the Company in exchange therefor, decreased by any
liabilities transferred from the Partnership to the Company. Upon the
subsequent liquidation of the Partnership, under Section 732 of the Code,
the aggregate basis of the Common Stock of the Company to be received by a
partner of the Partnership will be the same as the aggregate basis of such
partner's Partnership interest surrendered in exchange therefor. For
purposes of determining a partner's basis in his or her Partnership
interest, under Sections 358, 732 and 752 of the Code, the assumption by the
Company of any liabilities of the Partnership pursuant to the Reorganization
will be treated as the payment of money to the Partnership, which will
reduce a partner's share of Partnership liabilities and result in a
corresponding reduction in the basis of such partner's Partnership interest
only if and to the extent that any portion of such partner's basis is
attributable to the liabilities of the Partnership being assumed by the
Company.

(f) The aggregate basis of the Common Stock of the Company to be
received by a shareholder of the General Partner pursuant to the
Reorganization will be the same as the aggregate basis of such shareholder's
Common Stock of the General Partner surrendered in exchange therefor, in
accordance with Section 358 of the Code.

(g) Under Section 1223 of the Code, the holding period of the Common
Stock of the Company to be received by the Partnership pursuant to the
Reorganization will include the Partnership's holding period in the capital
assets and certain assets used in the Partnership's trade or business that
are transferred to the Company; to the extent that the Partnership receives
Common Stock of the Company

S-3
<PAGE>
[Additional pages to be inserted in
the Reorganization Prospectus for the partners]
in exchange for any other assets transferred to the Company, the
Partnership's holding period with respect to such Common Stock shall begin
on the day following its transfer of assets to the Company pursuant to the
Reorganization. Under Section 1223 of the Code, the holding period of the
Common Stock of the Company to be received by a limited partner of the
Partnership pursuant to the liquidation of the Partnership will include the
holding period of such partner's Partnership interest surrendered in
exchange therefor, provided that the Partnership interest was held as a
capital asset on the date of the exchange.

(h) Under Section 1223 of the Code, the holding period of the Common
Stock of the Company to be received by a shareholder of the General Partner
pursuant to the Reorganization will include the holding period of such
shareholder's Common Stock of the General Partner surrendered in exchange
therefor, provided that such shareholder's Common Stock of the General
Partner was held as a capital asset on the date of the exchange.

In describing its conclusions as to the federal income tax consequences of
the proposed Reorganization, Fredrikson & Byron, P.A. is relying on certain
representations of the General Partner.

THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. THE
DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING AND
PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND
COURT DECISIONS, ALL OF WHICH ARE SUBJECT TO CHANGE. ANY SUCH CHANGE, WHICH MAY
OR MAY NOT BE RETROACTIVE, COULD ALTER THE TAX CONSEQUENCES TO THE PARTNERS OF
THE PARTNERSHIP OR THE SHAREHOLDERS OF THE GENERAL PARTNER DESCRIBED ABOVE. THE
FOREGOING DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES, IF ANY, OF THE
REORGANIZATION UNDER APPLICABLE STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
PARTNERS OF THE PARTNERSHIP AND SHAREHOLDERS OF THE GENERAL PARTNER ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF
THE REORGANIZATION, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE
APPLICABILITY AND EFFECT OF FOREIGN, STATE, LOCAL AND OTHER APPLICABLE TAX LAWS
AND THE POSSIBLE EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS.

S-4
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------

[Additional back cover page]

------------------------

TABLE OF CONTENTS

------------------------

3,900,000 SHARES

[LOGO]

COMMON STOCK

------------------

PROSPECTUS

------------------

MAY 7, 1996

- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------