UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 28, 1997
Commission File Number 0-28426
ZOMAX OPTICAL MEDIA, INC.
(Name of small business issuer in its charter)
Minnesota 41-1833089
(state or other juris- (I.R.S. Employer
diction of incorporation) Identification No.)
5353 Nathan Lane, Plymouth, MN 55442
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code:
(612) 553-9300
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes (x) No ( )
As of May 1, 1997, the Registrant had 4,388,572 shares of Common Stock, no par
value, outstanding.
Transitional Small Business Disclosure Format (check one): Yes ( ) No (x)
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
ZOMAX OPTICAL MEDIA, INC.
(Successor to Zomax Optical Media Limited Partnership)
Balance Sheets
<TABLE>
<CAPTION>
ASSETS Mar. 28, 1997 Dec. 27, 1996
(Unaudited)
<S> <C> <C>
-------------------------------------
Current Assets:
Cash and cash equivalents $5,921,699 $6,914,899
Accounts receivable, net of allowance for doubtful
accounts of $635,000 and $531,000 4,005,611 3,944,929
Inventories 1,612,599 1,262,665
Prepaid expenses and deposits 2,296,957 110,443
-------------------------------------
Total current assets 13,836,866 12,232,936
Property and equipment, net of accumulated depreciation
of $2,338,415 and $1,983,875 7,394,563 7,574,501
Other assets, net 2,667 147,416
-------------------------------------
$21,234,096 $19,954,853
=====================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank line of credit $1,034,000 $0
Current portion of notes payable 1,569,170 1,508,607
Accounts payable 1,891,197 1,590,088
Accrued expenses 1,972,997 1,510,049
Income taxes payable 79,387 513,819
-------------------------------------
Total current liabilities 6,546,751 5,122,563
Notes payable, net of current portion 1,274,381 1,714,374
Shareholders' 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,4,388,572 and 4,385,000 shares issued
and outstanding 12,150,283 12,133,585
Retained earnings 1,262,681 984,331
-------------------------------------
Total shareholders' equity 13,412,964 13,117,916
-------------------------------------
$21,234,096 $19,954,853
=====================================
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
ZOMAX OPTICAL MEDIA, INC.
(Successor to Zomax Optical Media Limited Partnership)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
(Predecessor
Partnership)
Three Months Three Months
Ended Ended
Mar. 28 Mar. 29
1997 1996
------------------ --------------------
<S> <C> <C>
Sales $5,435,571 $3,768,134
Cost of sales 4,086,252 2,700,763
------------------ --------------------
Gross profit 1,349,319 1,067,371
Selling, general and administrative
expenses 896,610 684,868
------------------ --------------------
Operating income 452,709 382,503
Interest expense (74,475) (88,893)
Interest income 80,116 14,232
------------------ --------------------
Income before provision for income taxes 458,350 307,842
Provision for income taxes 180,000
------------------
Net income $278,350
==================
Net income per common share $0.06
==================
Weighted average shares outstanding 4,438,906
==================
Proforma Information:
Provision for income taxes 121,000
--------------------
Net income $186,842
====================
Net income per common share $0.07
====================
Weighted average shares outstanding 2,800,000
====================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
ZOMAX OPTICAL MEDIA, INC.
(Successor to Zomax Optical Media Limited Partnership)
Statements Of Operations
(Unaudited)
<TABLE>
<CAPTION>
(Predecessor
Partnership)
Three Months Three Months
Ended Ended
Mar. 28, 1997 Mar. 29, 1996
<S> <C> <C>
------------------ ------------------
Operating Activities:
Net income $278,350 $307,842
Adjustments to reconcile net income to net
cash used in operating activities-
Depreciation and amortization 355,040 205,346
Changes in operating assets and liabilities:
Accounts receivable (60,682) 196,463
Inventories (349,934) 53,311
Prepaid expenses and deposits (2,186,514) (813,539)
Accounts payable 301,109 (442,350)
Accrued expenses 462,948 190,817
Income taxes payable (434,432) -
----------------- ------------------
Net cash (used in) operating activities (1,634,115) (302,110)
----------------- ------------------
Investing Activities:
Purchase of property and equipment (174,602) (126,076)
Other assets 144,249 7,660
----------------- ------------------
Net cash used in investing activities (30,353) (118,416)
----------------- ------------------
Financing Activities:
Issuance of common stock 16,698 -
Repayment of notes payable (379,430) (293,231)
Bank borrowings 1,034,000 300,000
Distributions to partners - (419,644)
----------------- ------------------
Net cash provided by (used in) financing activities 671,268 (412,875)
----------------- ------------------
Net decrease in cash (993,200) (833,401)
Cash and Cash Equivalents:
Beginning of period 6,914,899 936,662
----------------- ------------------
End of period $5,921,699 $103,261
================= ==================
Supplemental Cash Flow Disclosure:
Cash paid for interest $76,975 $89,374
================= ==================
Cash paid for income taxes $605,432 $0
================= ==================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
ZOMAX OPTICAL MEDIA, INC.
(Successor to Zomax Optical Media Limited Partnership)
Notes to Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying interim financial statements of the Company are unaudited;
however, in the opinion of management, all adjustments necessary for a fair
presentation (consisting of only normal recurring adjustments) have been
reflected in the interim periods presented. Due principally to the seasonal
nature of some of the Company's business, results may not be indicative of
results for a full year. The accompanying financial statements should be read in
conjunction with the Company's Form 10-KSB for the year ended December 27, 1996.
The Company was incorporated on February 22, 1996 and completed its initial
public offering of its common stock on May 10, 1996. Upon completion of the
initial public stock offering, the Company received all of the operating assets,
liabilities and debt of Zomax Optical Media Limited Partnership in a tax-free
exchange for 2,800,000 shares of its common stock. Since the exchange created a
new reporting entity, the financial statements of the Partnership prior to the
Offering have been captioned Predecessor Partnership.
2. Purchase of Benchmark Media Services, Inc.
As of March 31, 1997, the Company acquired all of the outstanding shares of
Benchmark Media Services, Inc. (Benchmark). Prior to the acquisition, Benchmark
was a software replicator located in Plymouth, Minnesota with operations offices
in Orlando and Indianapolis.
The purchase price for Benchmark's outstanding capital stock will be based
on revenues of Benchmark during 1997. The consideration payable to the seller
will range from $0 if revenues generated are less than $7.5 million, or up to
$1.25 million if revenues generated are in excess of $13 million. The Company
intends to fund this transaction through working capital. In addition, the
Company paid the seller $1.0 million plus accrued interest as the repayment of
certain debt owed by Benchmark to the seller.
3. Bank Credit Facilities
On April 30, 1997, the Company entered into a new revolving line of credit
facility with a lender for up to $5 million. The facility expires on April 30,
1999 and the interest rate is at the prime rate. Maximum borrowings are limited
to an amount based on a formula using eligible receivables and inventories. On
March 28, 1997, the Company had $1,034,000 outstanding under the prior credit
facility.
In addition, the Company entered into a new capital expenditure term loan
facility with a lender for up to $8 million. Borrowing under the capital
expenditure term loan may be for up to 60 months and interest rates will vary
based on length of the term loans.
4. SFAS 128
The Company will adopt in fiscal year ending December 26, 1997, Statement
of Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS No. 128),
which was issued in February 1997. SFAS No. 128 requires disclosure of basic
earnings per share (EPS) and diluted EPS, which replaces the existing primary
EPS and fully diluted EPS, as defined by APB No. 15. Basic EPS is computed by
dividing net income by the weighted average number of shares of Common Stock
outstanding during the year. Dilutive EPS is computed similar to primary EPS as
previously reported, provided that, when applying the treasury stock method to
common equivalent shares, the Company must use its average share price for the
period rather than the more dilutive greater of the average share price or end
of period share price required by APB No. 15.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
General
The Company is a full-service, turnkey provider of compact discs,
cassettes, diskettes and related services. The Company 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,
publishers, marketing groups and data base suppliers. In addition to actually
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, in 1995 the Company acquired
cassette manufacturing equipment and added diskette manufacturing to its
operations.
Results of Operations
The following table sets forth for the three months ended March 28, 1997
compared to the three months ended March 29, certain operating data as a
percentage of sales for the periods presented:
(Predecessor
Partnership)
Three Months Ended
March 28, March 29,
1997 1996
Sales 100.0% 100.0%
Cost of sales 75.2 71.7
------- ------
Gross profit 24.8 28.3
Selling, general and
administrative expenses 16.5 18.2
------
Operating income 8.3% 10.1%
Interest expense (1.4) (2.3)
Interest income 1.5 .4
------- ------
Income before provision for income taxes 8.4% 8.2%
------
Provision for income taxes 3.3
-------
Net income 5.1%
Sales increased 44% to $5,435,571 for the quarter ended March 28, 1997 from
$3,768,134 for the quarter ended March 29, 1996. The higher sales in the first
quarter of 1997 resulted principally from a 53% increase in sales of CD units
and an increase in diskette sales. The sales unit increases were offset by
price reduction in CD sales.
Cost of sales as a percentage of sales were 75.2% and 71.7% for the three
months ended March 28, 1997 and March 29, 1996, respectively. The increase in
cost of sales percentages was due to 1) operating levels below production
capacity in the seasonally slower first quarter of 1997 (the Company had
increased its production capacity in the second half of 1996) and 2) a general
reduction in product prices in 1997 as compared to 1996.
<PAGE>
Selling, general and administrative (SG&A) expenses as a percentage of
sales were 16.5% and 18.2% for the three months ended March 28, 1997 and March
29, 1996, respectively. Total SG&A expenses increased from $684,868 in the first
quarter of 1996 to $896,610 in the first quarter of 1997. The dollar increase in
1997 resulted from hiring additional corporate staff in sales, customer support
and other administrative functions as Company sales increased.
Interest expense decreased to $74,476 during the first three months of 1997
from $88,893 during the same period in 1996 as the result of reduction in total
borrowings.
Interest income increased to $80,115 during the first three months of 1997
from $14,232 during the same period in 1996 as the result of investing proceeds
from the Company's May 1996 initial public stock offering.
The Company's effective income tax rate for the quarter ended March 28,
1997 was 39.3%. For the quarter ended March 29, 1996, the Company operated as a
partnership for income tax purposes.
Liquidity and Capital Resources
As of March 28, 1997, the Company had cash totaling $5.9 million and
working capital of $7.3 million as compared to cash of $6.9 million and working
capital of $7.1 million as of December 27, 1996. The Company has committed to
the purchase of mastering equipment with an estimated cost of $4 million and
plans to purchase additional CD manufacturing and related equipment totaling $3
million in 1997. The Company plans to finance these purchases with long term
financing and cash. On April 30, 1997, the Company entered into a new line of
credit facility for up to $5 million and a new capital expenditure term loan
facility for up to $8 million. The Company believes that it has sufficient
liquidity and capital resources to meet its operating needs and capital
expenditures requirements for the foreseeable future.
In the first quarter of 1997, the Company used $1.6 million of cash in
operations as compared to $300,000 used in 1996. The use of cash in 1997 was
primarily due to $2.2 million of deposits placed on mastering equipment. The
purchase of property and equipment totaled $175,000 and $126,000 for the first
quarters of 1997 and 1996 respectively. In the first quarter of 1997, the
reduction of long term debt totaled $379,000 as compared to $293,000 in 1996. In
the first quarter of 1996, the Partnership made partner distributions of
$420,000.
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
usually being the strongest.
Forward-Looking Statements
Forward-Looking statements herein are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. There are
certain important factors that could cause results to differ materially from
those anticipated by some of the statements herein. Investors are cautioned that
all forward-looking statements involve risks and uncertainty. Among the factors
that could cause actual results to differ materially are the following: strength
of the CD market, pricing strategies of competitors, manufacturing capacity and
efficiency, overall economic conditions, including inflation and consumer
confidence and other risks identified in filings with the Securities and
Exchange Commission from time to time.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are included with this Form 10-QSB:
Exhibit 10.16 First Amendment to Revolving Credit and Term Loan
Agreement and Basic Documents dated April 30, 1997 with Marquette
Capital Bank, N.A.
Exhibit 27 Financial Data Schedule (included in electronic version
only)
(b) Reports on Form 8-K. On March 17, 1997, the Company filed on Form 8-K
the announcement that it had agreed in principle to acquire all of the
outstanding stock of Benchmark Media Services, Inc. On March 31, 1997,
the Company filed on Form 8-K the announcement that the Company had
completed the purchase of Benchmark Media Services, Inc.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ZOMAX OPTICAL MEDIA, INC.
Date: May 12, 1997 By /s/ James T. Anderson
James T. Anderson, President and
Chief Executive Officer (principal
executive officer)
By /s/ James E. Flaherty,
James E.Flaherty
Chief Financial Officer
(principal financial and accounting officer)
<PAGE>
Zomax Optical Media, Inc.
Form 10-QSB Quarterly Report
For the Quarter Ended March 28, 1997
EXHIBIT INDEX
Exhibit
Number Item
10.16 First Amendment to Revolving Credit and Term Loan Agreement and Basic
Documents dated April 30,1997 with Marquette Capital Bank, N.A.
27 Financial Data Schedule (included in electronic version only)
FIRST AMENDMENT TO REVOLVING CREDIT
AND TERM LOAN AGREEMENT AND BASIC DOCUMENTS
THIS FIRST AMENDMENT TO REVOLVING CREDIT AND TERM LOAN AGREEMENT AND BASIC
DOCUMENTS (the "Amendment") dated as of April 30, 1997, is made by and between
MARQUETTE CAPITAL BANK, N.A., a national banking association under the laws of
the United States of America (the "Lender"), having an office at 4000 Dain
Bosworth Plaza, 60 South Sixth Street, Minneapolis, MN 55402, and ZOMAX OPTICAL
MEDIA, INC., a Minnesota corporation (the "Borrower") having its principal place
of business at 5353 Nathan Lane, Plymouth, MN 55442.
RECITALS
WHEREAS, Zomax Optical Media Limited Partnership, a Minnesota limited
partnership (the "Partnership") and Lender entered into a Revolving Credit and
Term Loan Agreement dated as of December 31, 1995 (the "Loan Agreement") whereby
Lender agreed to provide to the Partnership a revolving line of credit in the
amount of $ 1,500,000 (the "Revolving Credit Commitment") and a discretionary
term loan in the amount of $3,000,000 (the "Original Capital Expenditures Term
Loan Commitment"), advances under both beingo at the sole discretion of Lender;
and
WHEREAS, in order to secure advances made pursuant to the Revolving Credit
Commitment and the Original Capital Expenditures Term Loan Commitment, the
Partnership and Lender entered into a Security Agreement dated as of December
31, 1995 (the "Security Agreement"); and
WHEREAS, pursuant to an Assignment and Assumption Agreement dated as of May
7, 1996, by and among the Partnership, the Borrower and the Lender (the
"Assignment"), the Borrower replaced the Partnership as "Borrower" (as such term
is defined in the Loan Agreement) under the Loan Agreement and agreed to perform
all of the Partnership's obligations under the Loan Agreement and the Security
Agreement; and
WHEREAS, pursuant to the Original Capital Expenditures Term Loan
Commitment, Lender loaned to Borrower the sum of $790,500, as evidenced by a
Promissory Note in the original principal amount of $790,500, executed by
Borrower in favor of Lender and dated May 10, 1996 (the "Original Capital
Expenditures Term Note"); and
WHEREAS, Borrower and Lender have agreed to amend the Loan Agreement
pursuant to the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
<PAGE>
Section 1. Modification and Amendment to Loan Agreement.
(a) Section 1.1 - Defined Terms. The defined term: "Borrower" in Section
1.1 of the Loan Agreement is hereby amended and modified in its entirety to read
as follows:
"Borrower": shall mean Zomax Optical Media, Inc., a Minnesota
corporation.
(b) Section 1.1 - Defined Terms. The defined term: "Borrowing Base" in
Section 1.1 of the Loan Agreement is hereby amended and modified in its entirety
to read as follows:
"Borrowing Base": shall mean as of any given date, the lesser of
(i) the Revolving Credit Commitment as set forth in Section
2.1(a), or (ii) an amount equal to the sum of eighty percent
(80%) of Eligible Accounts Receivable (provided that no more than
Seven Hundred Fifty Thousand and 00/100 Dollars ($750,000.00) of
the Borrowing Base may be attributable to Eligible Accounts owing
from Metacom) plus fifty percent (50%) of Eligible Inventory
(provided that the Eligible Inventory component of the Borrowing
Base shall not exceed One Million and no/100 Dollars
$1,000,000.00).
(c) Section 1.1 - Defined Terms. The defined term: "Capital Expenditures
Term Loan Commitment" in Section 1.1 of the Loan Agreement is hereby amended and
modified in its entirety to read as follows:
"Capital Expenditures Term Loan Commitment" shall mean the
Lender's obligation to make one or more capital expenditures term
loans pursuant to Section 2.1(c) of this Agreement.
(d) Section 1.1 - Defined Terms. The defined term: "Eligible Accounts
Receivable" in Section 1.1 of the Loan Agreement is hereby amended and modified
by deleting subparagraph (f) of such definition in its entirety and inserting
the following in place thereof:
(f) Fewer than one hundred twenty (120) days have elapsed since
such Accounts invoice date (provided that any Account shall be
excluded from Eligible Accounts Receivable in the event the
account debtor in total owes to Borrower Accounts ten percent
(10%) or more of which are otherwise not Eligible Accounts); and
<PAGE>
(e) Section 1.1 - Defined Terms. The defined terms: "Maturity Option A"
9and "Maturity Option B" in Section 1.1 of the Loan Agreement are hereby amended
by deleting such defined terms and inserting in their place the following:
"Maturity Date": shall mean, with respect to the Capital
Expenditures Term Loans up to five (5) years from the date of any
Capital Expenditures Advance.
(f) Section 1.1 - Defined Terms. The defined term: "Termination Date" in
Section 1.1 of the Loan Agreement is hereby amended and modified in its entirety
to read as follows:
"Termination Date": shall mean the following: (i) with respect to
the Revolving Credit Commitment and the Revolving Credit Loans
thereunder, April 30, 1999 (or such other date to which the
Termination Date may be extended by the Lender in its discretion
in accordance with Section 2.2(d) of this Agreement); and (ii)
with respect to the Capital Expenditures Term Loan Commitment,
April 30, 1998.
(g) Section 2.1(a) - Revolving Credit Commitment. Section 2.1(a) of the
Loan Agreement is hereby amended and modified in its entirety to read as
follows:
(a) Revolving Credit Commitment. The Lender agrees, upon the
terms of this Agreement, to make loans to the Borrower from the
Agreement Date to the Termination Date in an aggregate principal
amount at any one time outstanding, up to but not exceeding Five
Million and no/100 Dollars ($5,000,000.00).
(h) Section 2.1(e) - Capital Expenditures Term Loan Commitment. A new
Section 2.1(c) is hereby added to the Loan Agreement to read as follows:
(c) Capital Expenditures Term Loan Commitment. The Lender agrees,
upon the terms of this Agreement, to make loans to the Borrower
from the Agreement Date to the Termination Date in an aggregate
principal amount up to but not exceeding Eight Million and no/100
Dollars ($8,000,000.00).
(i) Section 2.3(c). Section 2.3(c) of the Loan Agreement is hereby amended
and modified in its entirety to read as follows:
<PAGE>
(c) Each Capital Expenditures Advance by the Lender to the
Borrower pursuant to this Agreement shall constitute a Capital
Expenditures Loan from the Lender to the Borrower as of the date
of such Capital Expenditures Advance, and shall, from the date of
such Capital Expenditures Advance until the same shall be paid in
full, bear interest, subject to Section 2.7 of this Agreement, at
all interest rate equal to a fixed rate of interest equal to the
yield as of such date on United States Treasury Obligations
scheduled to mature on or about the Maturity Date plus two and
one-quarter percent (2.25%), or such other interest rate as is
provided ill such Capital Expenditures Term Note. Such interest
shall be payable monthly, in arrears, based on a three hundred
sixty (360) day year counting the actual number of days elapsed.
Each Capital Expenditure Term Note shall be secured by the
equipment purchased with the proceeds of such Note pursuant to a
separate security agreement (in form and substance reasonably
acceptable to both Borrower and Lender) to be executed in
connection with such Note.
(j) Section 2.5(b). Section 2.5(b) of the Loan Agreement is hereby amended
and modified in its entirety to read as follows:
(b) Subject to Section 2.5(d), the principal amount of the
Capital Expenditures Term Note, together with interest thereon,
shall be fully amortized and payable in up to sixty (60) equal
monthly installments, with the first such installment due and
payable on the last day of the calendar month next following the
Capital Expenditures Advance.
(k) Section 2.5(c). Section 2.5(c) of the Loan Agreement is hereby amended
and modified in its entirety to read as follows:
(c) Subject to Section 2.5(d), such Capital Expenditures Term
Loan shall, from the date of such Capital Expenditures Advance
until the same shall be paid in full, bear interest on the
outstanding principal amount of each such Capital Expenditures
Term Note at a fixed rate of interest equal to the yield as of
such date on United States Treasury Obligations scheduled to
mature on or about the Maturity Date plus two and one-quarter
percent(2.25%), or such other interest rate as is provided in
such Capital Expenditures Term Note.
(l) Section 2.5(d). A new Section 2.5(d) is hereby added to the Loan
Agreement to read as follows:
<PAGE>
(d) Upon the written request of Borrower, Lender shall allow
Borrower a period of up to six (6) months within which to fully
fund any particular Capital Expenditures Advance (such period
referred to herein as the "Capital Expenditures Advance Period").
The Capital Expenditures Advance Period shall commence as of the
date of the initial funding of a portion of any particular
Capital Expenditures Advance (the "Initial Capital Expenditures
Advance") and shall continue until the particular Capital
Expenditures Advance is fully funded or for a period of six
months, whichever is first to occur. During the Capital
Expenditures Advance Period, any Capital Expenditures Advance
amounts (any such amounts shall be referred to herein as "Interim
Capital Expenditures Advance Amounts") shall, from the date of
the Initial Capital Expenditures Advance, bear interest, subject
to Section 2.7 of this Agreement, at an interest rate equal to
the Prime Rate of interest. Upon expiration of the Capital
Expenditures Advance Period, the Capital Expenditures Advance
shall bear interest on the outstanding principal amount at a
fixed rate of interest pursuant to Section 2.5(c) of this
Agreement. During the Capital Expenditures Advance Period, any
outstanding Interim Capital Expenditures Advance Amounts shall
bear interest only and shall not be amortized. At the
commencement of the Capital Expenditures Advance Period, Borrower
shall execute and deliver to Lender an "Interim Revolving Note"
in the form attached hereto as Exhibit A-3. At the end of the
Capital Expenditures Advance Period, Borrower shall execute and
deliver to Lender the Capital Expenditures Advance Term Note,
which Capital Expenditures Advance Term Note, together with
interest thereon, shall be amortized in accordance with Section
2.5(b).
(m) Section 5.4 - Reporting. Section 5.4 of the Loan Agreement is hereby
amended and modified in its entirety to read as follows:
Reporting. Furnish to the Lender:
(a) Annual. As soon as available and in any event within ------
one hundred twenty (120) days after the close of each of
Borrower's fiscal years, the audited consolidated balance sheet
of the Borrower and its Subsidiaries as at the end of such year,
and the consolidated reviewed statement of income and retained
earnings for Borrower and its Subsidiaries for such year,
prepared by independent certified public accountants of
recognized standing selected by Borrower and acceptable to the
Lender. Such statement shall be accompanied by the written
statement of such accountants that in making the examination
necessary for their certification of such financial statements
they have obtained no knowledge of any default by Borrower (or
the continuance thereof) in the performance of any of the
financial covenants contained in this Agreement, or if such
accountants shall have obtained knowledge of any such default or
the continuance thereof, they shall disclose in such statement
such default or defaults or the continuance thereof, it being
understood that such accountants shall not be liable for failure
to obtain knowledge of any such default or the continuance
thereof. Borrower shall deliver to Lender with such statement all
management letters addressed to the Borrower that have been
prepared by such accountants.
(b) Monthly. As soon as available and in any event within -------
thirty (30) days after the end of each fiscal month, Borrower's
internally prepared balance sheet as of the end of such month and
statement of income and retained earnings for the portion of the
fiscal year then ended (such financial statement to be in a
format substantially similar to that of internally prepared
financial statements previously delivered to the Lender), all in
reasonable detail but subject to inventory and other year-end
audit adjustments and certified as accurate by the Borrower's
Chief Financial Officer or Controller.
(c) Borrowing Base and Compliance Certificate. As soon as
available and in any event within thirty (30) days after the end
of each month, a completed Borrowing Base and Compliance
Certificate as of the end of such month, in the form annexed
hereto as Exhibit D.
<PAGE>
(d) Accounts Receivable Aging Reports. As soon as available and
in any event within thirty (30) days after the end of each month,
an accounts receivable aging summary setting forth by account
debtor the amounts and aging of all accounts receivable of
Borrower and a full accounts receivable report from which such
summaries were prepared.
(e) Inventory Reports. As soon as available and in any event
within thirty (30) days after the end of each month, an inventory
report setting forth by category and location the inventory of
the Borrower.
(f) Annual Budget. As soon as available and in any event within
sixty (60) days prior to the commencement of each fiscal year of
the Borrower, Borrower's internally prepared financial budget for
the coming fiscal year.
(g) 10-Q Reports. As soon as available and in any event within
ten (10) days after the date of filing, Borrower's 10-Q report.
(h) 10-K Reports. As soon as available and in any event within
ten (10) days after the date of filing, Borrower's 10-K report.
(i) Analyst Reports. As soon as available, any analyst reports
regarding Borrower, or any written information provided to
investors or potential investors by any market maker for the
Borrower's stock.
(j) Government Filings. As soon as available, any other filings
by Borrower with the United States' Securities and Exchange
Commission or state regulatory agencies.
(k) Other. From time to time such other information pertaining to
Borrower and any Subsidiary and their respective financial
condition as the Lender may reasonably request.
(n) Section 5.7 - Maintain Accounts with Lender. Section 5.7 of the Loan
Agreement is hereby amended and modified in its entirety to read as follows:
<PAGE>
Use the Lender or a specified agent of the Lender (as the Lender
may, from time to time, specify) as the principal depository of
the Borrower's corporate funds.
(o) Section 5.9 - Financial Covenants. Section 5.9 of the Loan Agreement is
hereby amended and modified in its entirety to read as follows:
(a) Tangible Net Worth. Maintain at all times during the one (1)
year period commencing April 30, 1997, a Tangible Net Worth in an
amount equal to or in excess of Eleven Million Five Hundred
Thousand and no/100 Dollars ($11,500,000.00). The amount of such
Tangible Net Worth requirement shall increase each subsequent one
(1) year period by an amount equal to One Million and no/100
Dollars ($1,000,000.00).
(b) Total Liabilities to Tangible Net Worth Ratio. Maintain at
all times a Total Liability to Tangible Net Worth Ratio of not
greater than 1.25 to 1.00.
(c) Debt Service Coverage Ratio. Maintain as of the last day of
any fiscal quarter of Borrower a Debt Service Coverage Ratio of
not less than 1.25 to 1.00.
(d) Minimum Profitability. Maintain profitability, determined in
accordance with GAAP, of at least $1.00 in each fiscal quarter of
the Borrower.
(p) Section 6.6 - Dissolution/Sale/Acquisition/Merger. Section 6.6 of the
Loan Agreement is hereby amended and modified in its entirety to read as
follows:
Dissolution/Sale/Merger. Dissolve or liquidate, or consolidate or
merge with or into, sell all or substantially all of the assets
of the Borrower to any other Person.
(q) Section 6.7 - Dividends/Redemption. Section 6.7 of the Loan Agreement
is hereby amended and modified in its entirety to read as follows:
Declare or pay any dividends; or purchase, redeem, retire or
otherwise acquire for value any of its stock now or hereafter
outstanding; or make any distribution of assets to its
stockholders as such whether in cash, assets or obligations of
the Borrower; or allocate or otherwise set apart any sum for the
payment of any dividend or distribution on, or for the purpose
of, redemption or retirement of any shares of stock; or make any
other distribution by reduction of capital or otherwise in
respect of otherwise acquire for value any stock of the Borrower
or another Subsidiary.
<PAGE>
(r) Section 6.14 - Capital Expenditures. Section 6.14 of the Loan Agreement
is hereby amended and modified in its entirety to read as follows:
Make any Capital Expenditures which, for any Fiscal Year, shall
exceed Three Million Five Hundred Thousand and no/100 Dollars
($3,500,000.00) in the aggregate.
(s) Section 6.15 - Acquisition. A new Section 6.15 is hereby added to the
Loan Agreement to read as follows:
Section 6.15 - Acquisitions. Acquire all or substantially all of
the securities, assets or properties of, any other Person, in the
event such acquisition is in excess of $2,500,000, without the
express written consent of Lender.
(t) Exhibits. Exhibit A-I, Exhibit A-2, and Exhibit D of the Loan Agreement
are hereby amended and modified in their entirety to read as set forth on the
attached Exhibit A-1, Exhibit A-2, and Exhibit D, respectively, and attached
Exhibit A-3 is hereby added to the Loan Agreement.
(u) Section 10.11 - Assignment. A new Section 10.11 is hereby added to the
Loan Agreement to read as follows:
Section 10.11 - Assignment. Each Capital Expenditures Term Loan
and its related Capital Expenditures Term Note and Security
Agreement are assignable by Lender without the consent of
Borrower and, to the extent of any such assignment, Lender shall
be fully discharged from all responsibility. Lender's assignee
shall be vested with all of the powers and rights of Lender
thereunder and the assignee may fully enforce such rights and
powers as Lender and all references to Lender shall mean and
refer to such assignee. Without limiting the foregoing, the
Borrower understands and agrees that Lender may, from time to
time, sell, pledge, grant a security interest and collaterally
assign, transfer and deliver or otherwise encumber or dispose of
its interest in the Capital Expenditures Term Loan, the Capital
Expenditures Term Notes, their related security agreements and
its rights and powers thereunder. Lender's assignee shall have no
other powers and rights under the Loan Agreement or any other
Basic Document. Borrower may not, in whole or in part, directly
or indirectly, assign the Loan Agreement or any Basic Document or
its rights hereunder or thereunder or delegate its duties
hereunder or thereunder without, in each instance, the specific
prior written consent of Lender, which consent may be withheld or
delayed in Lender's sole discretion.
<PAGE>
Section 2. Original Capital Expenditures Term Loan Commitment. The Borrower
and the Lender hereby acknowledge and agree that with the exception of the loan
evidenced by the Original Capital Expenditures Term Note, there are no advances
outstanding pursuant to the Original Capital Expenditures Term Loan Commitment
(Section 2.1(b) of the Loan Agreement). The Borrower and the Lender further
acknowledge and agree that there shall be no further advances under the Original
Capital Expenditures Term Loan Commitment, and that the Bank shall have no
further obligations under the Original Capital Expenditures Term Loan Commitment
to advance any amounts or to make any loans to the Borrower. The Original
Capital Expenditures Term Note dated May 10, 1996, executed and delivered by
Borrower to Lender, shall not be modified or amended by this Amendment and shall
continue to be paid by Borrower in accordance with its terms.
Section 3. Reaffirmation of Representations and Warranties. Borrower hereby
repeats and reaffirms each and every representation and warranty contained in
Article 3 of the Loan Agreement and Section 4 of the Security Agreement and
states that each such representation and warranty is true and correct as of the
date hereof, except as set forth below:
(a) All references to the limited partnership status and good standing of
the limited partnership in Minnesota and foreign jurisdictions shall be deemed
to be references to corporate status of the Borrower, and all references to
partnership action shall be deemed to be references to corporate action of the
Borrower.
(b) All references in Section 3.7 to financial statements of the Borrower
shall be deemed to be references to financial statements most recently delivered
by the Borrower to Lender.
Section 4. Additional Representations and Warranties. In order to induce
Lender to enter into this Amendment and to amend the Basic Documents in the
manner provided herein, Borrower does hereby represent and warrant to the Lender
(all of which representations and warranties shall survive the effective date of
this Amendment and shall continue in effect until the later of (i) Termination
Date or (ii) the repayment by the Borrower of all of the Obligations) on the
date hereof as follows:
<PAGE>
(a) Shareholder Agreements. Borrower has entered into no agreements with
the shareholders of Borrower other than as has been disclosed to Lender, and has
been notified of no shareholder claims, and has entered into no other
contractual obligations, which would result in a violation of any of Borrower's
covenants contained in this Amendment or any of the Basic Documents or would
result in any representation made by Borrower in this Amendment or any of the
Basic Documents to be untrue.
(b) Violations. To the best of Borrower's knowledge, Borrower is in full
compliance with all United States Securities and Exchange Commission regulations
and reporting requirements. In addition, to the best of Borrower's knowledge,
the transfer of assets from the Partnership to the Borrower, which transfer is
referenced in the Assignment, constituted a tax free exchange under the Internal
Revenue Code of 1986, as amended.
(c) Absence of Default. No event has occurred and is continuing or will
result from the consummation of the transactions contemplated by this Amendment
which would constitute an Event of Default, and no event that with the passage
of time or the giving of notice or both has occurred which would constitute an
Event of Default.
Section 5. Corporate Status. Any references in the Loan Agreement or other
Basic Documents to Borrower's status as a partnership shall be denied to be
references to the corporate status of Borrower, and any provisions of the Loan
Agreement that require amendment or modification as a result of Borrower's
corporate status, shall be deemed to have been appropriately amended or modified
as the context so requires.
Section 6. Fees. Borrower shall pay or reimburse Lender for all costs,
expenses and other charges incurred or payable in connection with this
Amendment, including, but not limited to, search fees, recording fees, and legal
fees and disbursements of counsel to the Lender; provided, however, the Lender
hereby waives the Borrower's obligation to pay legal fees exceeding One Thousand
Five Hundred and no/100 Dollars ($1,500.00) incurred by counsel to the Lender in
connection with the preparation of this Amendment.
Section 7. Conditions to Effectiveness. This Amendment shall become
effective on the date that the following conditions are satisfied, such date
being referred to herein as the "Amendment Effective Date":
(a) On or before the Amendment Effective Date, the Borrower shall deliver
to the Lender, each, unless otherwise noted, dated the Amendment Effective Date:
(i) Copies of this Amendment executed by Borrower;
(ii) Executed Amended and Restated Revolving Credit Note;
(iii) Opinion of Borrower's counsel addressed to Lender in form
and substance satisfactory to Lender and its counsel;
(iv) Copies of certified resolutions of Borrower authorizing this
Amendment; and
(v) Such additional documents, agreements and certificates as
Lender shall reasonably request.
<PAGE>
Section 8. Binding Nature of Basic Documents. Borrower acknowledges and
agrees that the terms, conditions and provisions of the Loan Agreement and each
other Basic Document executed and delivered in connection therewith are fully
binding and enforceable agreements, and are not subject to any defense,
counterclaim, set off or other claim of any kind or nature. Borrower hereby
reaffirms and restates its duties, obligations and liability under the Loan
Agreement and all other Basic Documents executed by it in connection with the
Loan Agreement, as amended hereby.
Section 9. Scope of Amendment. Except and to the extent amended hereby, the
terms conditions and provisions of the Loan Agreement and the Basic Documents
shall remain unchanged and shall be of full force and effect.
Section 10. Defined Terms. Any capitalized term not otherwise defined
herein shall have the meaning ascribed to it in the Loan Agreement.
Section 11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same instrument. Any executed counterpart of this
Agreement delivered by facsimile or other electronic transmission to a party
hereto shall constitute an original counterpart of this Agreement.
Section 12. Recitals. The recitals to this Agreement are hereby
incorporated into and made a part of this Agreement as if fully set forth
herein.
(Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their duly authorized representatives as of the day and year
first set forth above.
ZOMAX OPTICAL MEDIA, INC.,
a Minnesota corporation
By: /s/ James T. Anderson
Its: Chief Executive Officer
MARQUETTE CAPITAL BANK, N.A.
a national banking association
By: /s/ Margaret Mary Yanez
Its: Vice President
<TABLE> <S> <C>
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<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-26-1997
<PERIOD-START> DEC-28-1996
<PERIOD-END> MAR-28-1997
<EXCHANGE-RATE> 1
<CASH> 5,921,699
<SECURITIES> 0
<RECEIVABLES> 4,640,611
<ALLOWANCES> 635,000
<INVENTORY> 1,612,599
<CURRENT-ASSETS> 13,836,866
<PP&E> 9,732,978
<DEPRECIATION> 2,338,415
<TOTAL-ASSETS> 21,234,096
<CURRENT-LIABILITIES> 6,546,751
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0
0
<COMMON> 12,150,283
<OTHER-SE> 1,262,681
<TOTAL-LIABILITY-AND-EQUITY> 21,234,096
<SALES> 5,435,571
<TOTAL-REVENUES> 5,515,687
<CGS> 4,086,252
<TOTAL-COSTS> 4,982,862
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 74,475
<INCOME-PRETAX> 458,350
<INCOME-TAX> 180,000
<INCOME-CONTINUING> 278,350
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<NET-INCOME> 278,350
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