SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934 (Amendment No. ____)
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
ZOMAX OPTICAL MEDIA, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing:
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
ZOMAX OPTICAL MEDIA, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held
April 22, 1997
TO THE SHAREHOLDERS OF ZOMAX OPTICAL MEDIA, INC.:
The 1997 Annual Meeting of Shareholders of Zomax Optical Media, Inc.
will be held at the Lutheran Brotherhood Building, 625 Fourth Avenue South,
Minneapolis, Minnesota at 3:30 p.m. on Tuesday, April 22, 1997, for the
following purposes:
1. To set the number of members of the Board of Directors at five
(5).
2. To elect members of the Board of Directors.
3. To approve an increase in the number of shares reserved under
the Company's 1996 Stock Option Plan from 600,000 to 850,000.
4. To ratify the appointment of the Company's independent public
accountants for the year ending December 26, 1997.
5. To take action on any other business that may properly come
before the meeting or any adjournment thereof.
Accompanying this Notice of Annual Meeting is a Proxy Statement, form
of Proxy and the Company's 1996 Annual Report to Shareholders.
Only shareholders of record as shown on the books of the Company at the
close of business on March 3, 1997 will be entitled to vote at the 1997 Annual
Meeting or any adjournment thereof. Each shareholder is entitled to one vote per
share on all matters to be voted on at the meeting.
You are cordially invited to attend the 1997 Annual Meeting. Whether or
not you plan to attend the 1997 Annual Meeting, please sign, date and mail the
enclosed form of Proxy in the return envelope provided as soon as possible. The
Proxy is revocable and will not affect your right to vote in person in the event
you attend the meeting. The prompt return of proxies will help the Company avoid
the unnecessary expense of further requests for proxies.
BY ORDER OF THE BOARD OF DIRECTORS,
James T. Anderson, President
Dated: March 21, 1997
Plymouth, Minnesota
<PAGE>
ZOMAX OPTICAL MEDIA, INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
to be held
April 22, 1997
The accompanying Proxy is solicited by the Board of Directors of Zomax
Optical Media, Inc. (the "Company") for use at the 1997 Annual Meeting of
Shareholders of the Company to be held on Tuesday, April 22, 1997, at the
location and for the purposes set forth in the Notice of Annual Meeting, and at
any adjournment thereof.
The cost of soliciting proxies, including the preparation, assembly and
mailing of the proxies and soliciting material, as well as the cost of
forwarding such material to the beneficial owners of stock, will be borne by the
Company. Directors, officers and regular employees of the Company may, without
compensation other than their regular remuneration, solicit proxies personally
or by telephone.
Any shareholder giving a Proxy may revoke it any time prior to its use
at the 1997 Annual Meeting by giving written notice of such revocation to the
Secretary or any other officer of the Company or by filing a later dated written
Proxy with an officer of the Company. Personal attendance at the 1997 Annual
Meeting is not, by itself, sufficient to revoke a Proxy unless written notice of
the revocation or a later dated Proxy is delivered to an officer before the
revoked or superseded Proxy is used at the 1997 Annual Meeting. Proxies will be
voted as directed therein. Proxies which are signed by shareholders but which
lack specific instruction with respect to any proposal will be voted in favor of
such proposal as set forth in the Notice of Annual Meeting or, with respect to
the election of directors, in favor of the number and slate of directors
proposed by the Board of Directors and listed herein.
The presence at the Annual Meeting in person or by proxy of the holders
of a majority of the outstanding shares of the Company's Common Stock entitled
to vote shall constitute a quorum for the transaction of business. If a broker
returns a "non-vote" proxy, indicating a lack of voting instructions by the
beneficial holder of the shares and a lack of discretionary authority on the
part of the broker to vote on a particular matter, then the shares covered by
such non-vote shall be deemed present at the meeting for purposes of determining
a quorum but shall not be deemed to be represented at the meeting for purposes
of calculating the vote required for approval of such matter. If a shareholder
abstains from voting as to any matter, then the shares held by such shareholder
shall be deemed present at the meeting for purposes of determining a quorum and
for purposes of calculating the vote with respect to such matter, but shall not
be deemed to have been voted in favor of such matter. An abstention as to any
proposal will therefore have the same effect as a vote against the proposal.
The mailing address of the principal executive office of the Company is
5353 Nathan Lane, Plymouth, Minnesota 55442. The Company expects that this Proxy
Statement, the related Proxy and Notice of Annual Meeting will first be mailed
to shareholders on or about March 21, 1997.
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<PAGE>
OUTSTANDING SHARES AND VOTING RIGHTS
The Board of Directors of the Company has fixed March 3, 1997 as the
record date for determining shareholders entitled to vote at the 1997 Annual
Meeting. Persons who were not shareholders on such date will not be allowed to
vote at the 1997 Annual Meeting. At the close of business on March 3, 1997,
there were 4,388,572 shares of the Company's Common Stock issued and
outstanding. The Common Stock is the only outstanding class of capital stock of
the Company. Each share of Common Stock is entitled to one vote on each matter
to be voted upon at the 1997 Annual Meeting. Holders of Common Stock are not
entitled to cumulative voting rights.
PRINCIPAL SHAREHOLDERS AND MANAGEMENT SHAREHOLDINGS
The following table provides information as of March 3, 1997 concerning
the beneficial ownership of the Company's Common Stock by (i) each director of
the Company, (ii) the named executive officers in the Summary Compensation
Table, (iii) the persons known by the Company to own more than 5% of the
Company's outstanding Common Stock, and (iv) all directors and executive
officers as a group. Except as otherwise indicated, the persons named in the
table have sole voting and investment power with respect to all shares of Common
Stock owned by them.
Name (and Address of 5% Number of Shares Percent
Owner) or Identity of Group Beneficially Owned(1) of Class (1)
Phillip T. Levin (2)(3) 1,264,823 28.8%
James T. Anderson (2)(4) 441,061 9.9%
Janice Ozzello Wilcox 1,000 *
Robert Ezrilov 1,000 *
Howard P. Liszt 1,000 *
Michelle S. Bedard (2)(5) 441,061 9.9%
George F. Esbensen (6) 5,000 *
Metacom, Inc. (2) 257,311 5.9%
All Executive Officers 1,714,576 38.6%
and Directors as a Group
(9 Individuals) (7)
- ---------------------
* Less than 1% of the outstanding shares of Common Stock.
(1) Under the rules of the SEC, shares not actually outstanding are deemed
to be beneficially owned by an individual if such individual has the
right to acquire the shares within 60 days. Pursuant to such SEC Rules,
shares deemed beneficially owned by virtue of an individual's right to
acquire them are also treated as outstanding when calculating the
percent of the class owned by such individual and when determining the
percent owned by any group in which the individual is included.
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<PAGE>
(2) Address is 5353 Nathan Lane, Plymouth, Minnesota 55442.
(3) Includes 257,311 shares held by Metacom, Inc., of which Mr. Levin is
the majority shareholder and Chief Executive Officer, and 2,000 shares
held by Mr. Levin as custodian for his children.
(4) Includes 35,000 shares which may be purchased by Mr. Anderson upon
exercise of a currently exercisable option and 15,000 shares which may
be purchased by Ms. Bedard, his spouse, upon exercise of a currently
exercisable option.
(5) Includes 15,000 shares which may be purchased by Ms. Bedard upon
exercise of a currently exercisable option, 391,061 shares held by Mr.
Anderson, her spouse, and 35,000 shares which may be purchased by Mr.
Anderson upon exercise of a currently exercisable option.
(6) Includes 5,000 shares which may be purchased by Mr. Esbensen upon
exercise of a currently exercisable option.
(7) Includes 55,000 shares which may be purchased by executive officers and
directors upon exercise of currently exercisable options, 257,311
shares held by Metacom, Inc. and 2,000 shares held for the benefit of
family members.
ELECTION OF DIRECTORS
(Proposals #1 and #2)
The Bylaws of the Company provide that the number of directors shall be
the number set by the shareholders, which shall be not less than one. The Board
of Directors unanimously recommends that the number of directors be set at five
and that five directors be elected. Unless otherwise instructed, the Proxies
will be so voted.
All of the nominees are members of the current Board of Directors. Phil
Levin and James Anderson have served as directors since the Company was formed
in February 1996. As permitted by the Company's Bylaws, on September 23, 1996,
the number of directors was increased from two to five and Janice Ozzello
Wilcox, Robert Ezrilov and Howard Liszt were elected as directors.
Under applicable Minnesota law, approval of the proposal to set the
number of directors at five and the election of the nominees to the Board of
Directors require the affirmative vote of the holders of the greater of (i) a
majority of the voting power of the shares represented in person or by proxy at
the Annual Meeting with authority to vote on such matter, or (ii) a majority of
the voting power of the minimum number of shares that would constitute a quorum
for the transaction of business at the Annual Meeting.
In the absence of other instruction, the Proxies will be voted for each
of the individuals listed below. If elected, such individuals shall serve until
the next annual meeting of shareholders and until their successors shall be duly
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<PAGE>
elected and shall qualify. If, prior to the 1997 Annual Meeting of Shareholders,
it should become known that any one of the following individuals will be unable
to serve as a director after the 1997 Annual Meeting by reason of death,
incapacity or other unexpected occurrence, the Proxies will be voted for such
substitute nominee(s) as is selected by the Board of Directors. Alternatively,
the Proxies may, at the Board's discretion, be voted for such fewer number of
nominees as results from such death, incapacity or other unexpected occurrence.
The Board of Directors has no reason to believe that any of the following
nominees will be unable to serve.
Position with Director
Name Age the Company Since
Phillip T. Levin 53 Chairman of the 1996
Board
James T. Anderson 39 President, Chief 1996
Executive Officer and
Director
Janice Ozzello Wilcox 43 Director 1996
Robert Ezrilov 52 Director 1996
Howard P. Liszt 50 Director 1996
Business Experience of the Director Nominees
Phillip T. Levin has served as Chairman of the Board of Directors of
the Company since he co-founded it in February 1996. Mr. Levin was Chairman and
Chief Executive Officer of ZOMI Corp., the General Partner of Zomax Optical
Media Limited Partnership (the "Partnership"), the Company's predecessor, from
1993, when he co-founded it and the Partnership, until May 1996. Mr. Levin has
served as a director and officer of Metacom, Inc., a leading distributor of
audio cassettes and a principal shareholder of the Company, since he co-founded
it in 1970. He has served as Metacom's Chief Executive Officer since 1991.
James T. Anderson has served as President, Chief Executive Officer and
as a director of the Company since he co-founded it in February 1996. He was
President of ZOMI Corp. from 1993, when he co-founded it and the Partnership,
until May 1996. 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.
Janice Ozzello Wilcox has served as Senior Vice President and Chief
Financial Officer of Marquette Bancshares, Inc., a bank holding company in
Minneapolis, Minnesota, since January 1993. From April 1991 to December 1992,
Ms. Wilcox served as Senior Vice President and Chief Financial Officer of
Marquette Bank Minneapolis, N.A. in Minneapolis, Minnesota.
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<PAGE>
Robert Ezrilov has been self-employed as a business consultant since
April 1995, prior to which he was a partner with Arthur Andersen LLP, which
accounting firm he joined in 1969. Mr. Ezrilov also serves on the Board of
Directors of C.H. Robinson Company, a transportation service provider located in
Eden Prairie, Minnesota.
Howard P. Liszt currently serves as Chief Executive Officer of Campbell
Mithun Esty, an advertising agency in Minneapolis, Minnesota, and has been
employed by Campbell Mithun Esty since 1976. Mr. Liszt also serves on the Board
of Directors of Coleman Natural Products, Inc., a Colorado-based supplier and
marketer of branded natural beef products.
BOARD AND COMMITTEE MEETINGS
During fiscal 1996, the Board of Directors held two formal meetings and
took unanimous written action six times. Each director attended all of the
meetings of the Board and the committees on which such director served during
fiscal 1996.
The Company's Board of Directors has two standing committees, the Audit
Committee and Compensation Committee. The Company does not have a nominating
committee.
The Audit Committee was formed on September 25, 1996, and the members
are Robert Ezrilov, Howard Liszt and Janice Wilcox. This committee reviews the
selection and work of the Company's independent auditors and the adequacy of
internal controls for compliance with corporate policies and directives. The
Audit Committee did not meet during fiscal 1996.
The Compensation Committee was formed on September 25, 1996, and the
members are Robert Ezrilov, Howard Liszt and Janice Wilcox. This committee
recommends to the Board of Directors from time to time the salaries to be paid
to executive officers of the Company and any plan for additional compensation it
deems appropriate. In addition, this committee is vested with the same authority
as the Board of Directors with respect to the granting of options and the
administration of the Company's 1996 Stock Option Plan. The Compensation
Committee met once during fiscal 1996.
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<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The names and ages of the Company's current executive officers and the
positions held by such officers are listed below.
Name Age Position
James T. Anderson 39 President, Chief Executive Officer
and Director
Phillip T. Levin 53 Chairman of the Board
James E. Flaherty 43 Chief Financial Officer and
Secretary
Michelle S. Bedard 38 Executive Vice President
George F. Esbensen 37 Vice President of Sales - Software
Manufacturing Group
Joseph Rehak 38 Vice President - Operations
James T. Anderson has served as President, Chief Executive Officer and
as a director of the Company since he co-founded it in February 1996. For
additional business background of Mr. Anderson, see the section of this Proxy
Statement entitled Election of Directors.
Phillip T. Levin has served as Chairman of the Board of the Company
since he co-founded it in February 1996. For additional business background of
Mr. Levin, see the section of this Proxy Statement entitled Election of
Directors.
James E. Flaherty has served as Chief Financial Officer of the Company
since December 1996 and as Secretary since January 1997. From May 1989 until
December 1996, Mr. Flaherty was employed by Racotek Inc., a wireless data
software company in Minneapolis, Minnesota, serving in various capacities
including Chief Financial Officer, Controller and Secretary.
Michelle S. Bedard has served as Executive Vice President of the
Company since its inception in February 1996, prior to which she 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, 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, President and Chief
Executive Officer of the Company.
George F. Esbensen has served as Vice President of Sales--Software
Manufacturing Group of the Company since its inception in February 1996, prior
to which he 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.
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<PAGE>
Joseph Rehak has served as Vice President of Operations of the Company
since its inception in February 1996, prior to which he 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 located in Minneapolis, Minnesota, where he was responsible for the
manufacturing, planning, purchasing, quality control and O.E.M. sales for
Padco's worldwide facilities.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information regarding
compensation paid or accrued during each of the Company's last three fiscal
years to the Chief Executive Officer and to each other executive officer whose
total annual salary and bonus paid or accrued during fiscal year 1996 exceeded
$100,000.
<TABLE>
<CAPTION>
Long Term Compensation
-------------------------------------
Awards Payouts
-------------------------------------
Restricted LTIP All Other
Name and Principal Fiscal Stock Payouts Compen-
Position Year Annual Compensation(1) Awards ($) Options ($) sation ($)
- ---------------------- ----- ---------------------------------------- ---------- ------- ----- ----------
Salary ($) Bonus ($) Other ($)
---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James T. Anderson, 1996 225,533(2) 113,429 -- -- 125,000 -- --
President and Chief 1995 150,000 53,250 -- -- -- -- --
Executive Officer 1994 110,000 73,478 -- -- -- -- --
Michelle S. Bedard, 1996 168,574(3) 20,000 -- -- 75,000 -- --
Executive Vice 1995 130,053(3) 6,475 -- -- -- -- --
President 1994 96,819(3) 12,080 -- -- -- -- --
George F. Esbensen, 1996 108,720(4) -- -- -- 35,000 -- --
Vice President of 1995 104,456(4) 3,650 -- -- -- -- --
Sales--Software 1994 78,446(4) -- -- -- -- -- --
Manufacturing Group
</TABLE>
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(1) All compensation earned prior to May 10, 1996 was earned from Zomax
Optical Media Limited Partnership, the Company's predecessor.
(2) Includes payment for accrued vacation in the amount of $30,533.
(3) Includes commissions of $78,3320, $50,053 and $31,819 for 1996, 1995
and 1994, respectively.
(4) Includes commissions of $28,351, $24,456 and $6,331 for 1996, 1995 and
1994, respectively.
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<PAGE>
Option Grants During 1996 Fiscal Year
The following table provides information regarding stock options
granted during fiscal 1996 to the named executive officers in the Summary
Compensation Table. The Company has not granted any stock appreciation rights.
<TABLE>
<CAPTION>
Percent of
Total Options Exercise or
Options granted Base Price
Name Granted in Fiscal Year Per Share(1) Expiration Date
<S> <C> <C> <C> <C>
James T. Anderson 125,000(2) 31.6% $6.75 05/06/06
Michelle S. Bedard 75,000(3) 19.0% $6.75 05/06/06
George F. Esbensen 35,000(4) 8.9% $6.75 05/06/06
</TABLE>
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(1) Exercise price is equal to the fair market value on the date of grant.
(2) Option becomes exercisable with respect to 35,000 shares on May 7,
1996, the date of grant, and with respect to 30,000 shares on each of
May 7, 1997, 1998 and 1999.
(3) Option becomes exercisable with respect to 15,000 shares on May 7,
1996, the date of grant, and with respect to 20,000 shares on each of
May 7, 1997, 1998 and 1999.
(4) Option becomes exercisable with respect to 5,000 shares on May 7, 1996,
the date of grant, and with respect to 6,000 shares on each of May 7,
1997, 1998, 1999, 2000 and 2001.
Option Exercises During 1996 Fiscal Year and Fiscal Year-End Option Values
The following table provides information as to options exercised by the named
executive officer in the Summary Compensation Table during fiscal 1996 and the
number and value of options at December 27, 1996. The Company does not have any
outstanding stock appreciation rights.
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
Shares December 27, 1996 December 27, 1996
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
<S> <C> <C> <C> <C>
James T. Anderson -- -- 35,000 exercisable (1)
90,000 unexercisable
Michelle S. Bedard -- -- 15,000 exercisable (1)
60,000 unexercisable
George F. Esbensen -- -- 5,000 exercisable (1)
30,000 unexercisable
</TABLE>
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<PAGE>
(1) The options all have an exercise price of $6.75 per share, which
exceeds $5.25, the closing sale price for the Company's Common Stock
at December 27, 1996 as quoted by the Nasdaq National Market.
Compensation to Directors
The Company pays fees to the non-officer members of the Board of
Directors of $500 for each Board meeting and $250 for each Committee meeting
attended. The Company reimburses the directors for out-of-pocket expenses
incurred while attending Board or Committee meetings.
The 1996 Stock Option Plan provides for automatic option grants to each
director who is not an employee of the Company. See Grants to Non-Employee
Directors under Proposal #3 on page 13.
Employment Agreements and Termination of Employment Arrangements
On March 1, 1996, the Company entered into an Employment Agreement,
which was effective on May 10, 1996, the closing date of the Company's public
offering, with James T. Anderson, President and Chief Executive Officer of the
Company, pursuant to which Mr. Anderson is 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 base salary will be reviewed at
least annually by the Board. The agreement also provided him with a ten-year
option to purchase 125,000 shares of the Company's Common Stock at an exercise
price equal to $6.75 per share, 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" (as those terms are defined in the agreement), Mr. Anderson will be
entitled to receive, among other things, (i) an amount equal to 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. If Mr. Anderson's
employment with the Company terminates for any reason, his incentive stock
option granted on May 7, 1996 for the purchase of 125,000 shares of the
Company's Common Stock at $6.75 per share shall continue to be exercisable
during its ten-year term but only to the extent the option was exercisable on
the date of termination of employment, but had not previously been exercised.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC"). Officers, directors and greater than tenpercent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
the Company believes that, during fiscal year 1996, all officers, directors and
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<PAGE>
greater than ten-percent beneficial owners complied with the applicable filing
requirements, except that Mr. Anderson and Ms. Bedard reported one transaction
late, Mr. Levin reported two transactions late, and Ms. Wilcox failed to report
a transaction on a monthly report but did report the transaction on a Form 5,
which was timely filed.
Certain Transactions
In January 1995, Zomax Optical Media Limited Partnership (the
"Partnership"), the Company's predecessor, acquired the entire manufacturing
operation of Metacom, Inc., but not its marketing operation. 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 Chief Executive
Officer and majority 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. This note has been paid in full and cancelled. As
part of the reorganization of the Company and the Partnership, the Company
assumed 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, of which $300,000 were redeemed during
1995. The remaining interests were exchanged for 287,311 shares of the Company's
Common Stock.
As mentioned above, Metacom is a party to a Manufacturing Agreement
with the Company. Additionally, Metacom has entered into a Services Agreement
and Office/Warehouse Lease with the Company. Pursuant to the Manufacturing
Agreement, the Company 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. The Manufacturing
Agreement, as amended, terminates December 31, 2000. Metacom is a significant
customer of the Company, accounting for 19.1% and 8.6% of the Company's revenues
in fiscal 1995 and 1996, respectively.
The Company entered into a Services Agreement with Metacom effective
January 1, 1995. The Services Agreement provides that, as needed, the Company
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 the Company under the
Services Agreement is the sharing of certain telephone personnel and information
and computer services. The Company has purchased the software and hardware
required to perform its own management information services and is in the
process of implementing such system.
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<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 accounts 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
accounts 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.
Metacom currently leases manufacturing (8,998 square feet), office
(10,613 square feet) and warehouse (42,531 square feet) space to the Company
pursuant to an Office/Warehouse Lease which expires in December 1997, subject to
renewal by the Company. The Company 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, the Company is obligated
to pay its proportionate share of taxes and operating expenses.
APPROVAL OF AN INCREASE IN THE NUMBER OF SHARES
RESERVED UNDER THE COMPANY'S 1996 STOCK OPTION PLAN
(Proposal #3)
Amendment
As of March 10, 1997, the Company had outstanding incentive and
nonqualified options for the purchase of an aggregate of 395,000 shares of the
Company's common stock with an average exercise price of $6.34 per share granted
under the Company's 1996 Stock Option Plan adopted on March 1, 1996 by the Board
of Directors and the shareholders (the "1996 Plan"). A total of 600,000 shares
were originally reserved for issuance under the 1996 Plan. No options granted
under the 1996 Plan have been exercised as of March 10, 1997. In order to
provide sufficient shares for future options, the Board of Directors increased
the number of shares reserved under the 1996 Plan from 600,000 to 850,000 shares
on March 6, 1997. The Board believes that granting fairly-priced stock options
to employees and directors is an effective means to promote the future growth
and development of the Company. Such options, among other things, increase
employees' and directors' proprietary interest in the Company's success and
enables the Company to attract and retain qualified personnel. The Board
therefore recommends that all shareholders vote in favor of increasing the
number of shares reserved under the 1996 Plan from 600,000 to 850,000.
Summary of 1996 Stock Option Plan
A general description of the basic features of the 1996 Plan is
presented below, but such description is qualified in its entirety by reference
to the full text of the 1996 Plan, a copy of which may be obtained without
charge upon written request to James E. Flaherty, the Company's Chief Financial
Officer.
Purpose. The purpose of the 1996 Plan is to promote the success of the
Company by facilitating the employment and retention of competent personnel and
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by furnishing incentive to directors, officers and employees of the Company and
consultants and advisors to the Company, upon whose efforts the success of the
Company will depend to a large degree.
Term. Incentive stock options may be granted pursuant to the 1996 Plan
during a period of ten (10) years from the date the 1996 Plan was adopted by the
Board of Directors (until March 1, 2006), and nonqualified stock options may be
granted until the 1996 Plan is discontinued or terminated by the Board of
Directors.
Administration. The 1996 Plan was administered by the Board until
September 25, 1996, when the Board appointed the Compensation Committee and
authorized it to administer the 1996 Plan. On March 6, 1997, the Board amended
the 1996 Plan to change the definition of committee to comply with Rule 16b-3 of
the Securities Exchange Act of 1934 (the "Act"). With the exception of the stock
options automatically issued to Non-Employee Directors as described below, the
1996 Plan is administered by the Compensation Committee of the Board of
Directors, all of the members of which are "non-employee directors" under Rule
16b-3 of the Act. The 1996 Plan gives broad powers to the Committee to
administer and interpret the 1996 Plan, including the authority to select the
individuals to be granted options and to prescribe the particular form and
conditions of each option granted.
Eligibility. All employees of the Company or any subsidiary are
eligible to receive incentive stock options pursuant to the 1996 Plan. All
employees, officers and directors of and consultants and advisors to the Company
or any subsidiary are eligible to receive nonqualified stock options. As of
March 10, 1997, the Company had approximately 150 employees, of which five are
officers, and four directors who are not employees.
Options. When an option is granted under the 1996 Plan, the Committee,
at its discretion, specifies the option price and the number of shares of Common
Stock which may be purchased upon exercise of the option. The exercise price of
an incentive stock option may not be less than 100% of the fair market value of
the Company's Common Stock, as that term is defined in the 1996 Plan. Unless
otherwise determined by the Committee, the exercise price of a nonqualified
stock option will not be less than 100% of the fair market value on the date of
grant. The period during which an option may be exercised and whether the option
will be exercisable immediately, in stages, or otherwise is set by the
Committee. An incentive stock option may not be exercisable more than ten (10)
years from the date of grant. Optionees may pay for shares upon exercise of
options with cash, certified check or Common Stock of the Company valued at the
stock's then "fair market value" as defined in the 1996 Plan. Each option
granted under the 1996 Plan is nontransferable during the lifetime of the
optionee.
Generally, under the form of option agreement which the Committee is
currently using for options granted under the 1996 Plan, if the optionee's
affiliation with the Company terminates before expiration of the option for
reasons other than death, the optionee has a right to exercise the option for
three months after termination of such affiliation or until the option's
original expiration date, whichever is earlier. If the termination is because of
death, the option typically is exercisable until its original stated expiration
or until the 12-month anniversary of the optionee's death, whichever is earlier.
The Committee may impose additional or alternative conditions and restrictions
on the incentive or nonqualified stock options granted under the 1996 Plan;
however, each incentive option must contain such limitations and restrictions
upon its exercise as are necessary to ensure that the option will be an
incentive stock option as defined under the Internal Revenue Code.
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<PAGE>
Grants to Non-Employee Directors. The 1996 Stock Option Plan provides
for automatic option grants to each director who is not an employee of the
Company (a "Non-Employee Director"). Each Non-Employee Director who was elected
for the first time as a director on or after the adoption of the 1996 Plan on
March 1, 1996 was granted a nonqualified option to purchase 10,000 shares of the
Common Stock. Such option is exercisable to the extent of 2,000 shares on each
of the first five anniversaries of the date of grant. Each NonEmployee Director
who is re-elected as a director of the Company or whose term of office continues
after a meeting of shareholders at which directors are elected shall, as of the
date of such re-election or shareholder meeting, automatically be granted a
nonqualified option to purchase 2,000 shares of the Common Stock. A Non-Employee
Director who receives a 10,000-share option upon initial election to the Board
may not receive a 2,000-share option for at least twelve (12) months. All
options granted pursuant to these provisions are granted at a per share exercise
price equal to 100% of the fair market value of the Common Stock on the date of
grant, and they expire on the earlier of (i) three months after the optionee
ceases to be a director (except by death) and (ii) ten (10) years after the date
of grant. In the event of the death of a Non-Employee Director, any option
granted to such Non-Employee Director pursuant to this formula plan may be
exercised at any time within twelve (12) months of the death of such
Non-Employee Director or until the date on which the option, by its terms,
expires, whichever is earlier.
In addition to the automatic grants of nonqualified options, the
Non-Employee Directors are eligible to receive additional nonqualified stock
options pursuant to the 1996 Plan in the sole discretion of the Committee.
Amendment. The Board of Directors may from time to time suspend or
discontinue the 1996 Plan or revise or amend it in any respect; provided,
however, that no such revision or amendment may impair the terms and conditions
of any outstanding option to the material detriment of the optionee without the
consent of the optionee, except as authorized in the event of a sale, merger,
consolidation or liquidation of the Company. The 1996 Plan may not be amended in
any manner that will cause incentive stock options to fail to meet the
requirements of Code Section 422, and may not be amended in any manner that
will: (i) materially increase the number of shares subject to the 1996 Plan
except as provided in the case of stock splits, consolidations, stock dividends
or similar events; (ii) change the designation of the class of employees
eligible to receive options; (iii) decrease the price at which options will be
granted; or (iv) materially increase the benefits accruing to optionees under
the 1996 Plan, without the approval of the shareholders, if such approval is
required to comply with Code Section 422 or the requirements of Section 16(b) of
the Act.
The Board of Directors will equitably adjust the maximum number of
shares of Common Stock reserved for issuance under the 1996 Plan, the number of
shares covered by each outstanding option and the option price per share in the
event of stock splits or consolidations, stock dividends or other transactions
in which the Company receives no consideration. Generally, the Board of
Directors may also provide for the protection of optionees in the event of a
merger, liquidation or reorganization of the Company.
Federal Income Tax Consequences of the 1996 Plan. Under present law, an
optionee will not realize any taxable income on the date a nonqualified stock
option is granted to the optionee pursuant to the 1996 Plan. Upon exercise of
the nonqualified stock option, however, the optionee will realize, in the year
of exercise, ordinary income to the extent of the difference between the option
price and the fair market value of the Company's Common Stock on the date of
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exercise. Upon the sale of the shares, any resulting gain or loss will be
treated as capital gain or loss. The Company will be entitled to a tax deduction
in its fiscal year in which nonqualified stock options are exercised, equal to
the amount of compensation required to be included as ordinary income by those
optionees exercising such options.
Incentive stock options granted pursuant to the 1996 Plan are intended
to qualify for favorable tax treatment to the optionee under Code Section 422.
Under Code Section 422, an employee realizes no taxable income when the
incentive stock option is granted. If the employee has been an employee of the
Company or any subsidiary at all times from the date of grant until three months
before the date of exercise, the employee will realize no taxable income when
the option is exercised. If the employee does not dispose of shares acquired
upon exercise for a period of two years from the granting of the incentive stock
option and one year after receipt of the shares, the employee may sell the
shares and report any gain as capital gain. The Company will not be entitled to
a tax deduction in connection with either the grant or exercise of an incentive
stock option. If the employee should dispose of the shares prior to the
expiration of the two-year or one-year periods described above, the employee
will be deemed to have received compensation taxable as ordinary income in the
year of the early sale in an amount equal to the lesser of (i) the difference
between the fair market value of the Company's Common Stock on the date of
exercise and the option price of the shares, or (ii) the difference between the
sale price of the shares and the option price of shares. In the event of such an
early sale, the Company will be entitled to a tax deduction equal to the amount
recognized by the employee as ordinary income. The foregoing discussion ignores
the impact of the alternative minimum tax, which may particularly be applicable
to the year in which an incentive stock option is exercised.
Plan Benefits. Because future grants of stock options are subject to
the discretion of the Committee, the future benefits under the 1996 Plan cannot
be determined at this time, except for the automatic grants to Non-Employee
Directors as set forth above. The table below shows the total number of shares
underlying stock options that have been granted under the 1996 Plan as of March
10, 1997 to the named executive officers and the groups set forth.
Shares of Common Stock
Name and Position/Group Underlying Options Received
James T. Anderson 125,000
President and Chief Executive Officer
Michelle S. Bedard 75,000
Chief Financial Officer
George F. Esbensen 35,000
Vice President of Sales -
Software Manufacturing Group
Current Executive Officers 305,000
as a Group (6 persons)
Current Directors who are not 30,000
Executive Officers as a Group (3 persons)
Current Employees who are not 60,000
Executive Officers or Directors
as a Group (145 persons)
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Vote Required. The Board of Directors recommends that the shareholders
approve the amendment to the 1996 Plan to increase the number of shares reserved
for issuance under the 1996 Plan from 600,000 to 850,000. Under applicable
Minnesota law, approval of the amendment to the 1996 Plan requires the
affirmative vote of the holders of the greater of (i) a majority of the voting
power of the shares represented in person or by proxy at the Annual Meeting with
authority to vote on such matter, or (ii) a majority of the voting power of the
minimum number of shares that would constitute a quorum for the transaction of
business at the Annual Meeting.
INDEPENDENT PUBLIC ACCOUNTANT
(Proposal #4)
Arthur Andersen LLP has served as the Company's independent public
accountants since its inception in February 1996 and served as the Partnership's
independent public accountants from its inception in 1993 to the reorganization
of the Company and the Partnership in May 1996. A representative of Arthur
Andersen LLP is expected to be present at the 1997 Annual Meeting and will be
given an opportunity to make a statement regarding financial and accounting
matters of the Company, if he or she so desires, and will be available to
respond to appropriate questions from the Company's shareholders.
The Board of Directors recommends that the shareholders ratify the
appointment of Arthur Andersen LLP as the Company's independent public
accountants for the Company for the year ending December 26, 1997. The
ratification of Arthur Andersen LLP as independent public accountants for the
Company requires the affirmative vote of a majority of the shares represented in
person or by proxy at the Annual Meeting.
OTHER BUSINESS
Management knows of no other matters to be presented at the 1997 Annual
Meeting. If any other matter properly comes before the 1997 Annual Meeting, the
appointees named in the proxies will vote the proxies in accordance with their
best judgment.
SHAREHOLDER PROPOSALS
Any appropriate proposal submitted by a shareholder of the Company and
intended to be presented at the 1998 Annual Meeting must be received by the
Company by November 15, 1997 to be included in the Company's proxy statement and
related proxy for the 1998 Annual Meeting.
ANNUAL REPORT
A copy of the Company's Annual Report to Shareholders for the fiscal
year ended December 27, 1996, including financial statements, accompanies this
Notice of Annual Meeting and Proxy Statement. No portion of the Annual Report is
incorporated herein or is to be considered proxy soliciting material.
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<PAGE>
FORM 10-KSB
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS
BEING SOLICITED, UPON WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 27,
1996, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE
FINANCIAL STATEMENTS AND A LIST OF EXHIBITS TO SUCH FORM 10-KSB. THE COMPANY
WILL FURNISH TO ANY SUCH PERSON ANY EXHIBIT DESCRIBED IN THE LIST ACCOMPANYING
THE FORM 10-KSB UPON THE ADVANCE PAYMENT OF REASONABLE FEES. REQUESTS FOR A COPY
OF THE FORM 10-KSB AND/OR ANY EXHIBIT(S) SHOULD BE DIRECTED TO THE CHIEF
FINANCIAL OFFICER OF ZOMAX OPTICAL MEDIA, INC., 5353 NATHAN LANE, PLYMOUTH,
MINNESOTA 55442. YOUR REQUEST MUST CONTAIN A REPRESENTATION THAT, AS OF MARCH 3,
1997, YOU WERE A BENEFICIAL OWNER OF SHARES ENTITLED TO VOTE AT THE 1997 ANNUAL
MEETING OF SHAREHOLDERS.
BY ORDER OF THE BOARD OF DIRECTORS
James T. Anderson, President
Dated: March 21, 1997
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<PAGE>
ZOMAX OPTICAL MEDIA, INC.
PROXY
for Annual Meeting to be held April 22, 1997
The undersigned hereby appoints JAMES T. ANDERSON and JAMES E. FLAHERTY, and
each of them, with full power of substitution, his or her Proxies to represent
and vote, as designated below, all shares of the Common Stock of Zomax Optical
Media, Inc. registered in the name of the undersigned at the 1997 Annual Meeting
of Shareholders of the Company to be held at the Lutheran Brotherhood Building
located at 625 Fourth Avenue South, Minneapolis Minnesota at 3:30 p.m., on
Tuesday, April 22, 1997, and at any adjournment thereof. The undersigned hereby
revokes all proxies previously granted with respect to such Annual Meeting.
The Board of Directors recommends that you vote "FOR" each proposal.
1. Set the number of directors at five (5).
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Elect Directors. Nominees: Phillip T. Levin, James T. Anderson, Janice
Ozzello Wilcox, Robert Ezrilov, Howard P. Liszt
[ ] FOR all nominees listed above [ ] WITHHOLD AUTHORITY to
(except those whose names have vote for all nominees
been written on the line below) listed above.
3. Approve an increase of shares reserved under the Company's 1996 Stock Option
Plan from 600,000 to 850,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Ratify the appointment of Arthur Andersen LLP as the Company's independent
auditors for the year ending December 26, 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. Other Matters. In their discretion, the Proxies are authorized to vote upon
such other business as may properly come before the Annual Meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL SPECIFICALLY IDENTIFIED ABOVE.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Date: , 1997
--------------------------
--------------------------------------------
--------------------------------------------
PLEASE DATE AND SIGN ABOVE exactly as name
appears at the left, indicating, where
proper, official position or representative
capacity. For stock held in joint tenancy,
each joint owner should sign.
<PAGE>
ZOMAX OPTICAL MEDIA, INC.
1996 STOCK OPTION PLAN
(As Amended March 7, 1997)
SECTION 1.
DEFINITIONS
As used herein, the following terms shall have the meanings indicated
below:
(a) The "Company" shall mean Zomax Optical Media, Inc., a Minnesota
corporation.
(b) A "Subsidiary" shall mean any corporation of which fifty percent
(50%) or more of the total voting power of outstanding stock is owned,
directly or indirectly in an unbroken chain, by the Company.
(c) "Option Stock" shall mean Common Stock of the Company (subject to
adjustment as described in Section 13) reserved for options pursuant to
this Plan.
(d) The "Plan" means the Zomax Optical Media, Inc. 1996 Stock Option
Plan, as amended hereafter from time to time, including the form of
Option Agreements as they may be modified by the Board from time to
time.
(e) Non-Employee Directors shall mean members of the Board who are not
employees of the Company or any Subsidiary.
(f) The "Optionee" for purposes of Section 9 is an employee of the
Company or any Subsidiary to whom an incentive stock option has been
granted under the Plan. For purposes of Section 10, the "Optionee" is a
consultant or advisor to or an employee, officer or director of the
Company or any Subsidiary to whom a nonqualified stock option has been
granted. For purposes of Section 11, the "Optionee" is a Non-Employee
Director to whom a nonqualified stock option has been granted.
(g) "Committee" shall mean a Committee of two or more directors who
shall be appointed by and serve at the pleasure of the Board. As long
as the Company's securities are registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended, then, to the extent
necessary for compliance with Rule 16b-3, or any successor provision,
each of the members of the Committee shall be a "Non-Employee
Director." For purposes of this Section 1(g) "Non-Employee Director"
shall have the same meaning as set forth in Rule 16b-3, or any
successor provision, as then in effect, of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended.
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<PAGE>
(h) The "Internal Revenue Code" is the Internal Revenue Code of 1986,
as amended from time to time.
SECTION 2.
PURPOSE
The purpose of the Plan is to promote the success of the Company and
its subsidiaries by facilitating the employment and retention of competent
personnel and by furnishing incentive to directors, officers, employees,
consultants, and advisors upon whose efforts the success of the Company and its
subsidiaries will depend to a large degree.
It is the intention of the Company to carry out the Plan through the
granting of stock options which will qualify as "Incentive Stock Options" under
the provisions of Section 422 of the Internal Revenue Code, and through the
granting of "Nonqualified Stock Options" pursuant to Sections 10 and 11 of this
Plan. Adoption of this Plan shall be and is expressly subject to the condition
of approval by the shareholders of the Company within twelve (12) months before
or after the adoption of the Plan by the Board of Directors. In no event shall
any stock options be exercisable prior to the date this Plan is approved by the
shareholders of the Company. If shareholder approval of this Plan is not
obtained within twelve (12) months after the adoption of the Plan by the Board
of Directors, any stock options previously granted shall be revoked.
SECTION 3.
EFFECTIVE DATE OF PLAN
The Plan shall be effective as of the date it is adopted by the Board
of Directors of the Company, subject to approval by the shareholders of the
Company as required in Section 2.
SECTION 4.
ADMINISTRATION
The Plan shall be administered by the Board of Directors of the Company
(hereinafter referred to as the "Board") or by a Stock Option Committee
(hereinafter referred to as the "Committee" and as defined in Section 1(g) of
this Plan) which may be appointed by the Board from time to time. The Board or
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<PAGE>
the Committee, as the case may be, shall have all of the powers vested in it
under the provisions of the Plan, including but not limited to exclusive
authority (where applicable and within the limitations described herein) to
determine, in its sole discretion, whether an incentive stock option or
nonqualified stock option shall be granted, the individuals to whom, and the
time or times at which, options shall be granted, the number of shares subject
to each option and the option price and terms and conditions of each option. The
Board, or the Committee, shall have full power and authority to administer and
interpret the Plan, to make and amend rules, regulations and guidelines for
administering the Plan, to prescribe the form and conditions of the respective
stock option agreements (which may vary from Optionee to Optionee) evidencing
each option and to make all other determinations necessary or advisable for the
administration of the Plan. The Board's, or the Committee's, interpretation of
the Plan, and all actions taken and determinations made by the Board or the
Committee pursuant to the power vested in it hereunder, shall be conclusive and
binding on all parties concerned. No member of the Board or the Committee shall
be liable for any action taken or determination made in good faith in connection
with the administration of the Plan.
In the event the Board appoints a Committee as provided hereunder, any
action of the Committee with respect to the administration of the Plan shall be
taken pursuant to a majority vote of the Committee members or pursuant to the
written resolution of all Committee members.
SECTION 5.
PARTICIPANTS
The Board or the Committee, as the case may be, shall from time to
time, at its discretion and without approval of the shareholders, designate
those employees, directors, officers, consultants or advisors of the Company or
of any Subsidiary to whom nonqualified stock options shall be granted under this
Plan; provided, however, that consultants or advisors shall not be eligible to
receive stock options hereunder unless such consultant or advisor renders bona
fide services to the Company or Subsidiary and such services are not in
connection with the offer or sale of securities in a capital-raising
transaction. The Board or the Committee, as the case may be, shall, from time to
time, at its discretion and without approval of the shareholders, designate
those employees of the Company or any Subsidiary to whom incentive stock options
shall be granted under this Plan.
The Board or the Committee may grant additional incentive stock options
or nonqualified stock options under this Plan to some or all participants then
holding options or may grant options solely or partially to new participants. In
designating participants, the Board or the Committee shall also determine the
number of shares to be optioned to each such participant. The Board may from
time to time designate individuals as being ineligible to participate in the
Plan.
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<PAGE>
SECTION 6.
STOCK
The Stock to be optioned under this Plan shall consist of authorized
but unissued shares of Option Stock. Eight hundred fifty thousand (850,000)
shares of Option Stock shall be reserved and available for options under the
Plan; provided, however, that the total number of shares of Option Stock
reserved for options under this Plan shall be subject to adjustment as provided
in Section 13 of the Plan. In the event that any outstanding option under the
Plan for any reason expires or is terminated prior to the exercise thereof, the
shares of Option Stock allocable to the unexercised portion of such option shall
continue to be reserved for options under the Plan and may be optioned
hereunder.
SECTION 7.
DURATION OF PLAN
Incentive stock options may be granted pursuant to the Plan from time
to time during a period of ten (10) years from the earlier of the date the Plan
is approved by the Board or the date it is approved by the shareholders of the
Company. Nonqualified stock options may be granted pursuant to the Plan from
time to time after the Plan is adopted by the Board and until the Plan is
discontinued or terminated by the Board.
SECTION 8.
PAYMENT
Optionees may pay for shares upon exercise of options granted pursuant
to this Plan with cash, certified check, Common Stock of the Company valued at
such stock's then "fair market value" as defined in Section 9 below, or such
other form of payment as may be authorized by the Board or the Committee. The
Board or the Committee may, in its sole discretion, limit the forms of payment
available to the Optionee and may exercise such discretion any time prior to the
termination of the Option granted to the Optionee or upon any exercise of the
Option by the Optionee.
SECTION 9.
TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS
Each incentive stock option granted pursuant to the Plan shall be
evidenced by a written stock option agreement (the "Option Agreement"). The
Option Agreement shall be in such form as may be approved from time to time by
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the Board or the Committee and may vary from Optionee to Optionee; provided,
however, that each Optionee and each Option Agreement shall comply with and be
subject to the following terms and conditions:
(a) Number of Shares and Option Price. The Option Agreement shall state
the total number of shares covered by the incentive stock option. The
option price per share shall not be less than one hundred percent
(100%) of the fair market value of the Common Stock per share on the
date the Board or the Committee, as the case may be, grants the option;
provided, however, that if an Optionee owns stock possessing more than
ten percent (10%) of the total combined voting power of all classes of
stock of the Company or of its parent or any Subsidiary, the option
price per share of an incentive stock option granted to such Optionee
shall not be less than one hundred ten percent (110%) of the fair
market value of the Common Stock per share on the date of the grant of
the option. For purposes hereof, if such stock is then reported in the
national market system or is listed upon an established exchange or
exchanges, "fair market value" of the Common Stock per share shall be
the highest closing price of such stock in such national market system
or on such stock exchange or exchanges on the date the option is
granted or, if no sale of such stock shall have occurred on that date,
on the next preceding day on which there was a sale of stock. If such
stock is not so reported in the national market system or listed upon
an exchange, "fair market value" shall be the mean between the "bid"
and "asked" prices quoted by a recognized specialist in the Common
Stock of the Company on the date the option is granted, or if there are
no quoted "bid" and "asked" prices on such date, on the next preceding
date for which there are such quotes. If such stock is not publicly
traded as of the date the option is granted, the "fair market value" of
the Common Stock shall be determined by the Board, or the Committee, in
its sole discretion by applying principles of valuation with respect to
all such options. The Board or the Committee, as the case may be, shall
have full authority and discretion in establishing the option price and
shall be fully protected in so doing.
(b) Term and Exercisability of Incentive Stock Option. The term during
which any incentive stock option granted under the Plan may be
exercised shall be established in each case by the Board or the
Committee, as the case may be, but in no event shall any incentive
stock option be exercisable during a term of more than ten (10) years
after the date on which it is granted; provided, however, that if an
Optionee owns stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of its
parent or any Subsidiary, the incentive stock option shall be
exercisable during a term of not more than five (5) years after the
date on which it is granted. The Option Agreement shall state when the
incentive stock option becomes exercisable and shall also state the
maximum term during which the option may be exercised. In the event an
incentive stock option is exercisable immediately, the manner of
exercise of the option in the event it is not exercised in full
immediately shall be specified in the Option Agreement. The Board or
the Committee, as the case may be, may accelerate the exercise date of
any incentive stock option granted hereunder which is not immediately
exercisable as of the date of grant.
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<PAGE>
(c) Other Provisions. The Option Agreement authorized under this
Section 9 shall contain such other provisions as the Board or the
Committee, as the case may be, shall deem advisable. Any such Option
Agreement shall contain such limitations and restrictions upon the
exercise of the option as shall be necessary to ensure that such option
will be considered an "Incentive Stock Option" as defined in Section
422 of the Internal Revenue Code or to conform to any change therein.
(d) Holding Period. The disposition of any shares of Common Stock
acquired by an Optionee pursuant to the exercise of an option described
above shall not be eligible for the favorable taxation treatment of
Section 421(a) of the Internal Revenue Code unless any shares so
acquired are held by the Optionee for at least two (2) years from the
date of the granting of the option under which the shares were acquired
and at least one year after the acquisition of such shares pursuant to
the exercise of such option, or such other periods as may be prescribed
by the Internal Revenue Code. In the event of an Optionee's death, such
holding period shall not be applicable pursuant to Section 421(c)(1) of
the Internal Revenue Code.
SECTION 10.
TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTIONS
Each nonqualified stock option granted pursuant to the Plan shall be
evidenced by a written Option Agreement. The Option Agreement shall be in such
form as may be approved from time to time by the Board or the Committee and may
vary from Optionee to Optionee; provided, however, that each Optionee and each
Option Agreement shall comply with and be subject to the following terms and
conditions:
(a) Number of Shares and Option Price. The Option Agreement shall state
the total number of shares covered by the nonqualified stock option.
The option price per share shall be equal to one hundred percent (100%)
of the fair market value of the Common Stock per share on the date the
Board or the Committee grants the option unless otherwise determined by
the Board or the Committee, as the case may be; provided, however, that
the option price per share shall be equal to at least eighty-five
percent (85%) of the fair market value of the Common Stock per share on
the date of grant. For purposes hereof, the "fair market value" of a
share of Common Stock shall have the same meaning as set forth under
Section 9(a) herein.
(b) Term and Exercisability of Nonqualified Stock Option. The term
during which any nonqualified stock option granted under the Plan may
be exercised shall be established in each case by the Board or the
Committee, as the case may be, but in no event shall any option be
exercisable during a term of more than ten (10) years after the date on
which it was granted. The Option Agreement shall state when the
nonqualified stock option becomes exercisable and shall also state the
maximum term during which the option may be exercised. In the event a
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nonqualified stock option is exercisable immediately, the manner of
exercise of the option in the event it is not exercised in full
immediately shall be specified in the Option Agreement. The Board or
the Committee, as the case may be, may accelerate the exercise date of
any nonqualified stock option granted hereunder which is not
immediately exercisable as of the date of grant.
(c) Withholding. In the event the Optionee is required under the Option
Agreement to pay the Company, or make arrangements satisfactory to the
Company respecting payment of, any federal, state, local or other taxes
required by law to be withheld with respect to the option's exercise,
the Board or the Committee, as the case may be, may, in its discretion
and pursuant to such rules as it may adopt, permit the Optionee to
satisfy such obligation, in whole or in part, by electing to have the
Company withhold shares of Common Stock otherwise issuable to the
Optionee as a result of the option's exercise equal to the amount
required to be withheld for tax purposes. Any stock elected to be
withheld shall be valued at its "fair market value," as provided under
Section 9(a) hereof, as of the date the amount of tax to be withheld is
determined under applicable tax law. The Optionee's election to have
shares withheld for this purpose shall be made on or before the date
the option is exercised or, if later, the date that the amount of tax
to be withheld is determined under applicable tax law. Such election
shall also comply with such rules as may be adopted by the Board or the
Committee to assure compliance with Rule 16b-3, as then in effect, of
the General Rules and Regulations under the Securities Exchange Act of
1934, if applicable.
(d) Other Provisions. The Option Agreement authorized under this
Section 10 shall contain such other provisions as the Board, or the
Committee, as the case may be, shall deem advisable.
SECTION 11.
GRANTING OF OPTIONS TO NON-EMPLOYEE DIRECTORS
(a) Upon Joining Board. Each Non-Employee Director whose initial
election or appointment to the Board of Directors occurs after the date
this Plan is adopted by the Board of Directors shall, as of the date of
such election or appointment to the Board, automatically be granted an
option to purchase 10,000 shares of the Common Stock at an option price
per share equal to one hundred percent (100%) of the fair market value
of the Common Stock on the date of such election or appointment. Such
option shall become exercisable to the extent of 2,000 shares on each
of the first, second, third, fourth and fifth anniversaries of the date
of grant.
(b) Upon Re-election to Board. Each Non-Employee Director who, after
the date this Plan is adopted by the Board of Directors, is re-elected
as a Non-Employee Director of the Company or whose term of office
continues after a meeting of shareholders at which directors are
elected shall, as of the date of such re-election or shareholder
meeting, automatically be granted an option to purchase 2,000 shares of
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Common Stock at an option price per share equal to one hundred percent
(100%) of the fair market value of the Common Stock on the date of such
re-election or shareholder meeting; provided that a Non-Employee
Director who receives an option pursuant to subsection (a) above shall
not be entitled to receive an option pursuant to this subsection (b)
until at least twelve (12) months after such Non-Employee Director's
initial election to the Board. Options granted pursuant to this
subsection (b) shall be immediately exercisable in full.
(c) General. Non-Employee Directors shall not receive more than one
option to purchase 2,000 shares pursuant to this Section 11 in any one
fiscal year. All options granted pursuant to this Section 11 shall be
designated as nonqualified options and shall be subject to the same
terms and provisions as are then in effect with respect to granting of
nonqualified options to officers and employees of the Company, except
that the option shall expire on the earlier of (i) three months after
the optionee ceases to be a director (except by death) and (ii) ten
(10) years after the date of grant. Notwithstanding the foregoing, in
the event of the death of a Non-Employee Director, any option granted
to such Non-Employee Director may be exercised at any time within
twelve (12) months of the death of such Non-Employee Director or on the
date on which the option, by its terms expire, whichever is earlier.
SECTION 12.
TRANSFER OF OPTION
No option shall be transferable, in whole or in part, by the Optionee
other than by will or by the laws of descent and distribution and, during the
Optionee's lifetime, the option may be exercised only by the Optionee. If the
Optionee shall attempt any transfer of any option granted under the Plan during
the Optionee's lifetime, such transfer shall be void and the option, to the
extent not fully exercised, shall terminate.
SECTION 13.
RECAPITALIZATION, SALE, MERGER, EXCHANGE OR LIQUIDATION
In the event of an increase or decrease in the number of shares of
Common Stock resulting from a subdivision or consolidation of shares or the
payment of a stock dividend or any other increase or decrease in the number of
shares of Common Stock effected without receipt of consideration by the Company,
the number of shares of Option Stock reserved under Section 6 hereof and the
number of shares of Option Stock covered by each outstanding option and the
price per share thereof shall be adjusted by the Board to reflect such change.
Additional shares which may be credited pursuant to such adjustment shall be
subject to the same restrictions as are applicable to the shares with respect to
which the adjustment relates.
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Unless otherwise provided in the Option Agreement, in the event of the
sale by the Company of substantially all of its assets and the consequent
discontinuance of its business, or in the event of a merger, exchange,
reorganization, reclassification, extraordinary dividend, divestiture (including
a spin-off), or liquidation of the Company, the Board may, in connection with
the Board's adoption of the plan for such transaction, provide for one or more
of the following: (i) the equitable acceleration of the exercisability of any
outstanding options hereunder; (ii) the complete termination of this Plan and
cancellation of outstanding options not exercised prior to a date specified by
the Board (which date shall give Optionees a reasonable period of time in which
to exercise the options prior to the effectiveness of such sale, merger,
exchange, reorganization, reclassification, extraordinary dividend, divestiture
(including a spin-off), or liquidation); and (iii) the continuance of the Plan
with respect to the exercise of options which were outstanding as of the date of
adoption by the Board of such plan for sale, merger, exchange, reorganization,
reclassification, extraordinary dividend, divestiture (including a spin-off), or
liquidation and provide to Optionees holding such options the right to exercise
their respective options as to an equivalent number of shares of stock of the
corporation succeeding the Company by reason of such sale, merger, exchange,
reorganization, reclassification, extraordinary dividend, divestiture (including
a spin-off), or liquidation. The grant of an option pursuant to the Plan shall
not limit in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge, exchange or consolidate or to dissolve, liquidate, sell
or transfer all or any part of its business or assets.
SECTION 14.
INVESTMENT PURPOSE
No shares of Common Stock shall be issued pursuant to the Plan unless
and until there has been compliance, in the opinion of Company's counsel, with
all applicable legal requirements, including without limitation those relating
to securities laws and stock exchange listing requirements. As a condition to
the issuance of Option Stock to an Optionee, the Board or the Committee may
require the Optionee to (a) represent that the shares of Option Stock are being
acquired for investment and not resale and to make such other representations as
the Board, or the Committee, as the case may be, shall deem necessary or
appropriate to qualify the issuance of the shares as exempt from the Securities
Act of 1933 and any other applicable securities laws, and (b) represent that
Optionee shall not dispose of the shares of Option Stock in violation of the
Securities Act of 1933 or any other applicable securities laws. The Company
reserves the right to place a legend on any stock certificate issued upon
exercise of an option granted pursuant to the Plan to assure compliance with
this Section 14.
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SECTION 15.
RIGHTS AS A SHAREHOLDER
An Optionee (or the Optionee's successor or successors) shall have no
rights as a shareholder with respect to any shares covered by an option until
the date of the issuance of a stock certificate evidencing such shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property), distributions or other rights for which the
record date is prior to the date such stock certificate is actually issued
(except as otherwise provided in Section 13 of the Plan).
SECTION 16.
AMENDMENT OF THE PLAN
The Board may from time to time, insofar as permitted by law, suspend
or discontinue the Plan or revise or amend it in any respect; provided, however,
that no such revision or amendment, except as is authorized in Section 13, shall
impair the terms and conditions of any option which is outstanding on the date
of such revision or amendment to the material detriment of the Optionee without
the consent of the Optionee. Notwithstanding the foregoing, no such revision or
amendment shall (i) materially increase the number of shares subject to the Plan
except as provided in Section 12 hereof, (ii) change the designation of the
class of employees eligible to receive options, (iii) decrease the price at
which options may be granted, or (iv) materially increase the benefits accruing
to Optionees under the Plan, unless such revision or amendment is approved by
the shareholders of the Company. Furthermore, the Plan may not, without the
approval of the shareholders, be amended in any manner that will cause incentive
stock options to fail to meet the requirements of Section 422 of the Internal
Revenue Code. In addition to and notwithstanding the foregoing, the provisions
of Section 11 shall not be amended more than once every six months, other than
to comport with changes in the Internal Revenue Code, the Employee Retirement
Income Security Act, or the rules thereunder.
SECTION 17.
NO OBLIGATION TO EXERCISE OPTION
The granting of an option shall impose no obligation upon the Optionee
to exercise such option. Further, the granting of an option hereunder shall not
impose upon the Company or any Subsidiary any obligation to retain the Optionee
in its employ for any period.
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