UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 26, 1998
Commission File Number 0-28429
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)
Issuer'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 August 6, 1998, the issuer had 7,181,074 shares of Common Stock, no par
value, outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ZOMAX OPTICAL MEDIA, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS Jun. 26, 1998 Dec. 26, 1997
(Unaudited)
------------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $29,856,145 $ 5,213,417
Accounts receivable, net of allowance for doubtful
accounts of $1,224,000 and $881,000 8,486,903 7,160,198
Inventories 1,920,410 1,603,170
Deferred income taxes 1,056,000 897,000
Prepaid expenses and deposits 1,319,648 879,714
----------- -----------
Total current assets 42,639,106 15,753,499
Property and equipment, net of accumulated depreciation
of $5,956,000 and $4,609,000 17,347,285 14,002,694
Goodwill, net 1,192,623 1,228,023
Other assets, net 3,096 42,194
----------- -----------
$61,182,110 $31,026,410
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of notes payable $ 1,997,366 $ 2,293,950
Accounts payable 4,303,527 3,524,892
Accrued expenses:
Accrued royalties 2,429,990 2,994,768
Accrued compensation 1,005,073 1,155,298
Other 420,748 494,882
Income taxes payable -- 240,882
----------- -----------
Total current liabilities 10,156,704 10,704,672
Notes payable, net of current portion 2,121,669 3,103,975
Deferred income taxes 755,000 755,000
Shareholders' Equity:
Common stock, no par value, 15,000,000 authorized
shares, 7,181,074 and 5,250,817 shares issued
and outstanding 42,623,270 12,721,513
Retained earnings 5,525,467 3,741,250
----------- -----------
Total shareholders' equity 48,148,737 16,462,763
----------- -----------
$61,182,110 $31,026,410
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets.
<PAGE>
ZOMAX OPTICAL MEDIA, INC.
Consolidated Statements Of Operations
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Jun. 26 Jun. 27 Jun. 26 Jun. 27
1998 1997 1998 1997
------------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Sales $ 14,546,216 $ 11,540,713 $ 28,778,928 $ 19,493,208
Cost of Sales 10,622,471 8,392,771 20,560,917 14,055,962
------------ ------------ ------------ ------------
Gross Profit 3,923,745 3,147,942 8,218,011 5,437,246
Selling, General and
Administrative Expenses 2,417,587 2,566,071 5,129,623 4,280,706
------------ ------------ ------------ ------------
Operating Income 1,506,158 581,871 3,088,388 1,156,540
Interest Expense (95,052) (111,420) (212,774) (185,895)
Interest Income 142,385 57,550 201,432 139,708
Other income (expense), net -- 36,733 (277,828) 87,425
------------ ------------ ------------ ------------
Income Before Income Taxes 1,553,491 564,734 2,799,218 1,197,778
Provision for Income Taxes 615,000 235,000 1,015,000 415,000
------------ ------------ ------------ ------------
Net Income $ 938,491 $ 329,734 $ 1,784,218 $ 782,778
============ ============ ============ ============
PRO FORMA:
Net income before income taxes 564,734 2,799,218 1,197,778
Provision for income taxes 222,000 1,120,000 473,000
------------ ------------ ------------
Net income 342,734 1,679,218 724,778
============ ============ ============
Earnings Per Share
Basic $ 0.16 $ 0.07 $ 0.30 $ 0.14
============ ============ ============ ============
Diluted $ 0.15 $ 0.07 $ 0.28 $ 0.14
============ ============ ============ ============
Weighted Average Number of
Shares Outstanding
Basic 5,839,844 5,205,330 5,549,476 5,197,916
============ ============ ============ ============
Diluted 6,284,644 5,246,540 5,969,973 5,218,309
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets.
<PAGE>
ZOMAX OPTICAL MEDIA, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the six months ended
----------------------------------
June 26, June 27
1998 1997
---------------- ----------------
<S> <C> <C>
Operating Activities:
Net income $1,784,218 $782,778
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 1,727,106 949,718
Deferred income taxes (159,000) -
Changes in operating assets and liabilities:
Accounts receivable (1,326,705) 232,710
Inventories (317,240) (847,613)
Prepaid expenses and deposits (446,934) (2,687,059)
Accounts payable 778,635 1,510,034
Accrued expenses (789,137) 221,737
Income taxes payable (240,882) -
---------------- ----------------
Net cash provided by operating activities 1,010,061 162,305
---------------- ----------------
Investing Activities:
Purchase of property and equipment (5,028,297) (2,273,092)
Acquistion of businesses, net of cash - (1,956,343)
Change in other assets 38,097 24,565
---------------- ----------------
Net cash used in investing activities (4,990,200) (4,204,870)
---------------- ----------------
Financing Activities:
Issuance of common stock 29,901,757 357,489
Proceeds from notes payable 1,124,346 838,333
Repayment of notes payable (2,403,236) (2,549,830)
Bank borrowings, net - 3,585,754
Dividends and distributions - (841,153)
---------------- ----------------
Net cash provided by financing activities 28,622,867 1,390,593
---------------- ----------------
Net increase (decrease) in cash 24,642,728 (2,651,972)
Cash and Cash Equivalents:
Beginning of period 5,213,417 7,944,699
---------------- ----------------
End of period $29,856,145 $5,292,727
================ ================
Supplemental Cash Flow Disclosures:
Cash paid for interest 212,774 305,549
================ ================
Cash paid for income taxes $1,405,500 $967,623
================ ================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Zomax Optical Media, Inc.
Notes to Consolidated 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 26, 1997.
2. Acquisitions
On February 4, 1998, the Company acquired all of the outstanding shares
of Primary Marketing Group, Inc. (PMG), Next Generation Services, LLC (NGS) and
Primary Marketing Group Limited (PMG Ireland) in exchange for 800,002 shares of
the Company's common stock. Prior to the acquisitions, the acquired businesses
consisted of providing manufacturers' representative services and returned
merchandise-processing services for the computer industry. The acquired
businesses were merged into a subsidiary of the Company, which intends to
provide substantially the same products and services the acquired companies
provided prior to these transactions. In connection with the transactions
described above, Zomax acquired certain assets and assumed certain liabilities
from an unrelated third party for $1.1 million. The acquisitions of these
companies have been accounted for as a pooling-of-interests and, accordingly,
the consolidated financial statements for all periods presented have been
restated to reflect the financial effects of the transactions. Prior to the
acquisitions, certain of the acquired companies operated as non-taxable
entities. A pro forma tax provision has been established as if all consolidated
companies were taxable entities for all periods presented.
3. Secondary Stock Offering
On May 21, 1998, the Company completed the sale of 1,600,000 share of
common stock in a secondary public offering. On June 8, 1998, the underwriters
exercised an overallotment option and purchased an additional 300,000 shares.
The Company received proceeds from the offering, net of issuance costs, of
approximately $29,729,000.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
The Company is a leading outsource service provider to software
publishers, computer manufacturers and other producers of multimedia products.
These services include Compact Disc (CD) and Digital Versatile Disc (DVD)
mastering; CD, diskette and cassette replication; graphic design; print
management; CD printing; packaging; warehousing; inventory management;
distribution and fulfillment; and Return Merchandise Authorization (RMA)
processing services. The Company records sales to its customers at the time
merchandise is shipped or as services are rendered. For certain customers,
merchandise is invoiced upon completion of orders with shipment occurring based
on written customer instructions.
The multimedia services industry has been characterized by short lead
times for customer orders. For this reason and because of the timing of orders,
delivery intervals and the possibility of customer changes in delivery
schedules, the Company's backlog as of any particular date has not been
significant and is not a meaningful indicator of future financial results.
On March 31, 1997, the Company acquired the outstanding shares of
Benchmark Media Services, a software media replicator with operations in
Plymouth, Minnesota and Indianapolis, Indiana. The Company agreed to pay
consideration based on revenues of Benchmark in 1997. Revenue levels were not
met; therefore, no consideration was paid. The Benchmark acquisition was
accounted for using the purchase method of accounting.
On May 1, 1997, the Company acquired the outstanding shares of Trotter
Technologies, Inc. (TTI), an RMA processing, warehousing and distribution
company based in San Jose, California, servicing the software publishing market.
The purchase price of TTI was $712,000 cash and 59,268 shares of the Company's
Common Stock. The acquisition of TTI was accounted for using the purchase method
of accounting whereby the purchase price was allocated to net assets acquired
based on estimated fair values and approximately $1.2 million of cost in excess
of net assets acquired was recorded as goodwill.
On February 4, 1998, PMG, NGS and PMG Ireland were merged with and into
a subsidiary of the Company. As a result of these transactions, all ownership
interests in the acquired companies were exchanged for 800,002 shares of the
Company's Common Stock. Prior to these transactions, the businesses of PMG, NGS
and PMG Ireland consisted of providing manufacturer's representative services
and RMA processing services to the computer industry. PMG, NGS and PMG Ireland
operated their respective businesses from facilities located in and around San
Jose, California; Boston, Massachusetts; and Dublin, Ireland. In connection with
the transactions described above, the Company acquired certain assets and
assumed certain liabilities from an unrelated third party for $1.1 million. The
acquisitions of PMG, NGS and PMG Ireland were accounted for using the
pooling-of-interests method of accounting, and accordingly, all periods
presented have been restated to reflect the financial effects of these
transactions.
<PAGE>
Results of Operations
The following table sets forth the three months and six months ended June 26,
1998 and June 27, 1997, certain operating data as a percentage of sales for the
periods presented:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 26, 1998 June 27, 1997 June 26, 1998 June 27, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 73.0 72.7 71.5 72.1
----- ----- ----- -----
Gross profit 27.0 27.3 28.5 27.9
Selling, general and 16.6 22.2 17.8 22.0
admin. expenses
----- ----- ----- -----
Operating income 10.4 5.1 10.7 5.9
Interest expense (0.7) (1.0) (0.7) (1.0)
Interest income 1.0 .5 .7 .7
Other -- .3 (1.0) .5
----- ----- ----- -----
Income before provision 10.7 4.9 9.7 6.1
for income taxes
Pro forma provision for 4.2 1.9 3.9 2.4
income taxes (1)
----- ----- ----- -----
Pro forma net income (1) 6.5% 3.0% 5.8% 3.7%
----- ----- ----- -----
</TABLE>
(1) A pro forma tax provision has been established as if all
consolidated companies were taxable entities for all periods presented.
Sales. The Company's sales for the second quarter of 1998 were $14.5
million, an increase of 26.0% from $11.5 million for the second quarter of 1997.
For the six months ended June 1998, sales were $28.8 million, an increase of
47.6% from sales of $19.5 million for the first six months of 1997. The increase
in total sales for the six month period in 1998 resulted primarily from a 29.1%
increase in CD related sales and the Company began operating a new assembly and
distribution warehouse facility in San Jose, California. This increase was
partially offset by a 42.6% decrease in audio cassette sales, a 13.4% decrease
in diskette related sales and a 9.2% decrease in RMA services fees.
Cost of sales. Cost of sales for the second quarter of 1998 was 73.0%
as a percentage of sales as compared to 72.7% for the second quarter of 1997.
For the first six months of 1998, cost of sales was 71.5% as compared to 72.1%
for the same period in 1997. The increase in cost of sales percentage in the
second quarter of 1998 was due to a change in the product mix and start-up costs
incurred by the Company in connection with its new CD manufacturing facility in
San Jose, California. The San Jose facility had its initial production run in
March 1998.
<PAGE>
Selling, general and administrative expense. Selling, general and
administrative expenses for the second quarter of 1998 were $2.4 million, as
compared to $2.6 million for second quarter of 1997. As a percentage of sales,
selling, general and administrative expenses decreased from 22.2% in the second
quarter of 1997 to 16.6% in the second quarter of 1998. Selling, general and
administrative expenses for the first six months of 1998 were $5.1 million, or
17.8% of total sales as compared to $4.3 million or 22.0% for 1997. Selling,
general and administrative expenses have decreased as a percentage of sales in
1998 as sales have increased and the Company has achieved operational
efficiencies from fully integrating its acquisitions.
Interest income and expense. Interest income was $142,000 for the
second quarter of 1998, as compared to $58,000 for the second quarter of 1997.
Interest income was $201,000 for the first six months of 1998 as compared to
$140,000 in 1997. Interest income increased in 1998 with the investment income
earned on the secondary offering and proceeds. Interest expense was $95,000 for
the second quarter of 1998, as compared to $111,000 for the second quarter of
1997. Interest expense was $213,000 for the first six months of 1998 as compared
to $186,000 in 1997.
Other (income) expense, net. In the first quarter of 1998, the Company
incurred expenses totaling $278,000 related to the acquisition of PMG, NGS and
PMG Ireland. These costs were expensed as incurred following the provision of
pooling of interests accounting. In 1997, PMG generated other income as a result
of representing certain manufacturers' products.
Pro forma provision for income taxes. The pro forma effective income
tax rate for the first six months of 1998 was 40.0% as compared to 39.5% for the
first six months of 1997.
Pro forma net income. Pro forma net income for the second quarter of
1998 was $938,000, an increase of 173% from $343,000 for the second quarter of
1997. Pro forma net income for the first six months of 1998 was $1.7 million, an
increase of 134% from $725,000 for the first six months of 1997.
Liquidity and Capital Resources
As of June 26, 1998, the Company had working capital of $32.5 million,
compared to working capital of $5.0 million as of December 26, 1997. The
increase in working capital was primarily due to issuance of common stock in a
secondary offering in which the Company received $29.7 million, net of offering
costs.
As of June 26, 1998, the Company had cash totaling $29.9 million. Cash
generated from operating activities for the first six months of 1998 was $1.0
million compared to $162,000 during the first six months of 1997. The increase
in operating cash flow is consistent with the Company's sales and net income
growth.
<PAGE>
Cash used in investing activities during the first six months of 1998
was $5.0 million compared to $4.2 million for the first six months of 1997. In
1998 the Company used cash primarily to purchase property and equipment
including the construction of a new CD facility in San Jose. In 1997, the
Company used $2.3 million for the purchase of property and equipment and $2.0
million for the acquisition of businesses.
During the first six months of 1998, the Company acquired certain
assets and assumed certain liabilities from an unrelated third party in exchange
for a short-term note in the principal amount of $1.1 million. During the first
six months of 1997, the Company financed equipment purchases with long-term debt
totaling $838,000. During the first six months of 1998, the Company repaid notes
payable totaling $2.4 million as compared to $2.5 million in 1997. PMG and NGS
made distributions to its owners of $841,000 in 1997. These distributions were
made in accordance with the dividend policies of these companies. Zomax Optical
Media, Inc. has never declared or paid dividends on its Common Stock.
The Company has committed to the purchase of new DVD equipment at a
cost of $3.0 million in 1998. The Company plans to finance the purchase of this
equipment with its existing cash. The Company has a revolving line of credit
facility for up to $5.0 million of borrowings. Such borrowings are limited to an
amount based on a formula using eligible accounts receivable and inventories.
There were no borrowings outstanding under the revolving line of credit facility
at June 26, 1998. In addition, the Company has $4.35 million available under a
capital term loan facility at June 26, 1998.
Future liquidity needs will depend on, among other factors, the timing
of capital expenditures and expenditures in connection with any acquisitions,
changes in customer order volume and the timing and collection of receivables.
The Company believes that existing cash balances, anticipated cash flow from
operations and amounts available under existing credit facilities will be
sufficient to fund its operations for the foreseeable future.
Year 2000
The Company believes its systems are Year 2000 compliant. All
expenditures to address this issue are expensed as incurred, while the costs of
new software are capitalized and amortized over the software's useful life.
Anticipated expenditures are not expected to have a significant impact on the
Company's ongoing results of operations. The Company believes that failure by
its customers or suppliers to address this issue in a timely manner will not
have a significant impact on the Company or its operations.
Inflation
Historically, inflation has not had a material impact on the Company.
The cost of the Company's products is influenced by the cost of raw materials
and labor. There can be no assurance that the Company will be able to pass on
increased costs to its customers in the future.
<PAGE>
Seasonality
The demand for CDs and other multimedia consumer products is seasonal,
with increases during the fall reflecting increased demand relative to the new
school year and holiday season purchases. This seasonality could result in
significant quarterly variations in financial results, with the third and fourth
quarters generally being the strongest.
Forward-Looking Statements
This filing contains forward-looking statements regarding expansion
into new markets, integration of recent acquisitions and their effect on
operating efficiencies, expansion of facilities, including the building of a new
manufacturing facility in San Jose, CA, the upgrade of equipment and
installation of mastering equipment, among other statements. Such
forward-looking statements 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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended June 26, 1998, the Company issued 2,747 shares
of Common Stock pursuant to the conversion of warrants, in reliance upon Section
4(2) of the Securities Act, which provides an exemption for transactions not
involving a public offering.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's Annual Meeting as adjourned from May 14, 1998,
was reconvened and held on June 11, 1998.
(b) Proxies for the Annual Meeting were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934.
There was no solicitation in opposition to management's
nominees as listed in the proxy statement, and all of such
nominees were elected.
The shareholders set the number of directors at five (5) by a vote of
4,937,248 shares in favor, with 11,492 shares voted against and 3,900 shares
abstaining. The following persons were elected to serve as directors of the
Company until the next annual meeting of shareholders with the following votes:
Number of Number of
Nominees Votes for Votes Withheld
-------- --------- --------------
Philip T. Levin 4,951,040 1,600
James T. Anderson 4,951,040 1,600
Janice Ozzello Wilcox 4,949,740 2,900
Robert Ezrilov 4,951,040 1,600
Howard P. Liszt 4,950,140 2,500
The shareholders approved an amendment to the Company's 1996 Stock
Option Plan to provide for acceleration of options upon a change of control and
increase reserved shares from 850,000 to 1,300,000 by a vote of 2,714,850 shares
in favor, with 112,573 shares voted against, 14,886 shares abstaining and
2,110,331 shares present for determining the quorum but which lacked authority
to vote on this matter (broker non-votes).
The shareholders ratified the appointment of Arthur Andersen LLP as
independent public accountants for the Company by a vote of 4,935,820 shares in
favor, with 12,567 shares against and 4,250 shares abstaining.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibit is included with the Form 10-Q
10.1 1996 Stock Option Plan, as amended through March 9, 1998
10.2 Forms of Incentive and Nonqualified Stock Option Agreements
27 Financial Data Schedule (included in electronic version only)
(b) Reports on Form 8-K.
None
<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: August 6, 1998 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-Q Quarterly Report
For the Quarter Ended June 26, 1998
EXHIBIT INDEX
Exhibit
Number Item
10.1 1996 Stock Option Plan as amended thorough March 9, 1998
10.2 Forms of Incentive and Nonqualified Stock Option Agreements
27 Financial Data Schedule (included in electronic version only)
ZOMAX OPTICAL MEDIA, INC.
1996 STOCK OPTION PLAN
(As Amended Through March 9, 1998)
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.
<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
<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.
<PAGE>
SECTION 6.
STOCK
The Stock to be optioned under this Plan shall consist of authorized
but unissued shares of Option Stock. One million three hundred thousand
(1,300,000) 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.
<PAGE>
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
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
<PAGE>
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.
(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.
<PAGE>
(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
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
<PAGE>
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
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.
<PAGE>
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.
Unless otherwise provided in the stock option agreement, in the event
of an acquisition of the Company through the sale of substantially all of the
Company's assets and the consequent discontinuance of its business or through a
merger, consolidation, exchange, reorganization, reclassification, extraordinary
dividend, divestiture or liquidation of the Company (collectively referred to as
a "transaction"), all outstanding options shall become immediately exercisable,
whether or not such options had become exercisable prior to the transaction;
provided, however, that if the acquiring party seeks to have the transaction
accounted for on a "pooling of interests" basis and, in the opinion of the
Company's independent certified public accountants, accelerating the
exercisability of such options would preclude a pooling of interests under
generally accepted accounting principles, the exercisability of such options
shall not accelerate. In addition to the foregoing, in the event of such a
transaction, the Board may provide for one or more of the following:
(a) 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
transaction);
(b) that Optionees holding outstanding incentive or
nonqualified options shall receive, with respect to each share of
Option Stock subject to such options, as of the effective date of any
such transaction, cash in an amount equal to the excess of the Fair
Market Value of such Option Stock on the date immediately preceding the
effective date of such transaction over the option price per share of
such options; provided that the Board may, in lieu of such cash
payment, distribute to such Optionees shares of stock of the Company or
shares of stock of any corporation succeeding the Company by reason of
such transaction, such shares having a value equal to the cash payment
herein; or
(c) 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 such transaction 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 transaction.
<PAGE>
The Board may restrict the rights of or the applicability of this
Section 13 to the extent necessary to comply with Section 16(b) of the
Securities Exchange Act of 1934, the Internal Revenue Code or any other
applicable law or regulation. 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.
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).
<PAGE>
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.
ZOMAX OPTICAL MEDIA, INC.
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT, made this ________ day of _______________, 19___, by
and between ZOMAX OPTICAL MEDIA, INC., a Minnesota corporation (the "Company"),
and _______________________________ (the "Optionee");
W I T N E S S E T H
WHEREAS, the Optionee on the date hereof is an employee of the Company
or a Subsidiary of the Company;
WHEREAS, to induce the Optionee to continue in its employ and to
further the Optionee's efforts in its behalf, the Company desires to grant to
the Optionee an incentive stock option to purchase shares of its Common Stock;
WHEREAS, the Company's Board of Directors has adopted a stock option
plan providing for the grant of incentive stock options known as "Zomax Optical
Media, Inc. 1996 Stock Option Plan" (hereinafter referred to as the "Plan"); and
WHEREAS, on the date hereof, the Company's Board of Directors (or, if
so appointed and empowered by the Board, the Board's Stock Option Committee)
authorized the grant of this incentive stock option to the Optionee;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Optionee hereby agree as
follows:
1. Grant of Option. The Company hereby grants to the Optionee, on the
date of this Agreement, the option to purchase ___________ shares of Common
Stock of the Company (the "Option Stock") subject to the terms and conditions
herein contained, and subject only to adjustment in such number of shares as
provided in Section 13 of the Plan. This option is intended to be an incentive
stock option within the meaning of Section 422, or any successor provision, of
the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
thereunder.
2. Option Price. During the term of this option, the purchase price for
the shares of Option Stock granted herein is $_________ per share (not less than
the fair market value as of date of grant), subject only to adjustment of such
price as provided in Section 13 of the Plan.
3. Term of Option. Unless terminated earlier under the provisions of
Paragraphs 10, 11 or 12 below, this option shall terminate as of the close of
business on _____________________. During the first year after the date of this
<PAGE>
Agreement, this option shall not be exercisable. Thereafter, this option shall
be exercisable to the extent of _____________ percent (_____%) of such total
number of shares during each succeeding year until the earlier of the time this
option shall have become exercisable to the extent of one hundred percent (100%)
of the total number of shares granted or its termination as provided herein. If
the Optionee does not purchase the full number of shares which the Optionee is
entitled to purchase upon an exercise of this option, the Optionee may purchase
upon any subsequent exercise prior to the option's termination such previously
unpurchased shares in addition to those the Optionee is otherwise entitled to
purchase. If this option has been granted prior to approval of the Plan by the
Company's shareholders, this option shall not be exercisable until such approval
is obtained.
4. Personal Exercise by Optionee. This option shall, during the
lifetime of the Optionee, be exercisable only by said Optionee, or by the
Optionee's guardian or other legal representative, and shall not be transferable
by the Optionee, in whole or in part, other than by will or by the laws of
descent and distribution.
5. Manner of Exercise of Option.
a. The option may be exercised only by Optionee (or other
proper party in the event of death), subject to the conditions of the Plan and
subject to such other administrative rules as the Board of Directors may deem
advisable, by delivering a written notice of exercise to the Company at its
principal office. The notice shall state the number of shares as to which the
option is being exercised and shall be accompanied by payment in full of the
option price for all shares designated in the notice. The exercise of the option
shall be deemed effective upon receipt of such notice by the Company and upon
payment that complies with the terms of the Plan and this Agreement. The option
may be exercised with respect to any number or all of the shares as to which it
can then be exercised and, if partially exercised, may be so exercised as to the
unexercised shares any number of times during the exercise period as provided
herein.
b. Payment of the option price by Optionee shall be in the
form of cash, certified check or previously acquired shares of Common Stock of
the Company, or any combination thereof; provided, however, that the Board or
any Committee appointed by the Board to administer the Plan may, in its sole
discretion, limit the form of payment to cash or certified check and may
exercise its discretion any time prior to the termination of this option or upon
any exercise of this option by the Optionee. Any stock so tendered as part of
such payment shall be valued at its fair market value as provided in the Plan.
As soon as practicable after the effective exercise of all or any part of the
option, the Optionee shall be recorded on the stock transfer books of the
Company as the owner of the shares purchased, and the Company shall deliver to
the Optionee one or more duly issued stock certificates evidencing such
ownership. All requisite original issue or transfer documentary stamp taxes
shall be paid by the Company.
6. Employment; Rights as a Shareholder. This Agreement shall not confer
on Optionee any right with respect to continuance of employment by the Company
or any of its Subsidiaries, nor will it interfere in any way with the right of
the Company to terminate such employment. The Optionee or a transferee of this
option shall have no rights as a shareholder with respect to any shares covered
by this option until the date of the issuance of a stock certificate for such
shares. No adjustment shall be made for dividends (ordinary or extraordinary,
<PAGE>
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 issued,
except as provided in Section 13 of the Plan.
7. 1996 Stock Option Plan. The option evidenced by this Agreement is
granted pursuant to the Plan, a copy of which Plan has been made available to
the Optionee and is hereby made a part of this Agreement. This Agreement is
subject to and in all respects limited and conditioned as provided in the Plan.
The Plan governs this option, and, in the event of any question as to the
construction of this Agreement or of a conflict between the Plan and this
Agreement, the Plan shall govern, except as the Plan otherwise provides.
8. Withholding Taxes on Disqualifying Disposition by Optionee. In the
event of a disqualifying disposition of Option Stock by Optionee, Optionee
hereby agrees to inform the Company of such disposition. Upon notice of a
disqualifying disposition or upon independently learning of such a disposition,
the Company may take such action as it deems appropriate to insure that, if
necessary to provide the Company with the opportunity to claim the benefit of
any income tax deduction which may be available to it upon such disqualifying
disposition and to comply with all applicable federal or state income tax laws
or regulations, all applicable federal and state payroll, income or other taxes
are withheld from any amounts payable by the Company to Optionee. If the Company
is unable to withhold such federal and state taxes, for whatever reason, the
Optionee hereby agrees to pay to the Company an amount equal to the amount the
Company would otherwise be required to withhold under federal or state law. The
Optionee may, subject to the approval and discretion of the Board of Directors
or such other administrative rules it may deem advisable, elect to have all or a
portion of such tax withholding obligations satisfied by delivering shares of
the Company's Common Stock having a fair market value equal to such obligations.
9. Securities Law Compliance. The exercise of all or any parts of this
option shall only be effective at such time as counsel to the Company shall have
determined that the issuance and delivery of Common Stock pursuant to such
exercise will not violate any state or federal securities or other laws.
Optionee may be required by the Company, as a condition of the effectiveness of
any exercise of this option, to agree in writing that all Common Stock to be
acquired pursuant to such exercise shall be held, until such time that such
Common Stock is registered and freely tradable under applicable state and
federal securities laws, for Optionee's own account without a view to any
further distribution thereof, that the certificates for such shares shall bear
an appropriate legend to that effect and that such shares will be not
transferred or disposed of except in compliance with applicable state and
federal securities laws.
10. Termination of Employment (Other than for Death or Change of
Control). If Optionee ceases to be an employee of the Company or any Subsidiary
for any reason, other than because of a "change of control transaction" as
described in Paragraph 11 or because of death, this Option shall completely
terminate on the earlier of (i) the close of business on the three-month
anniversary date of such termination of employment, and (ii) the expiration date
of this Option stated in Paragraph 3 above. In such period following such
termination of employment, this option shall be exercisable only to the extent
the option was exercisable on the date of termination of employment, but had not
previously been exercised.
<PAGE>
11. Change of Control. If Optionee's employment with the Company or any
Subsidiary is terminated because of a "change of control transaction," this
Option shall completely terminate on the earlier of (i) the close of business on
the three-month anniversary date of such termination of employment and (ii) the
expiration date of this Option stated in Paragraph 3 above; provided, however,
that if (a) such transaction is treated as a "pooling of interests" under
generally accepted accounting principles and (b) Optionee is an "affiliate" of
the Company or Subsidiary under applicable legal and accounting principles, this
Option shall completely terminate on the later of (A) the close of business on
the three-month anniversary date of such termination of employment or (B) the
close of business on the date that is sixty (60) days after the date on which
affiliates are no longer restricted from selling, transferring or otherwise
disposing of the shares of stock received in the change of control transaction.
In such period following the termination of Optionee's
employment upon a change of control transaction, this Option shall be fully
exercisable unless the acceleration of the exercisability of this Option has
been prevented as provided in Section 13 of the Plan, in which case, this Option
shall be exercisable only to the extent the Option was exercisable on the
vesting date immediately preceding such termination of employment, but had not
previously been exercised. To the extent this Option was not exercisable upon
such termination of employment or if Optionee does not exercise the Option
within the time specified in this Paragraph 11, all rights of Optionee under
this Option shall be forfeited. If Optionee exercises this Option on a date that
is after the three-month anniversary date of the termination of Optionee's
employment or on a date that is more than ten years (or five years, if
applicable) after the Date of Grant, this Option shall not be treated as an
incentive stock option within the meaning of Code Section 422.
For purposes of this Paragraph 11, a "change of control
transaction" means an acquisition of the Company through the sale of
substantially all of the Company's assets and the consequent discontinuance of
its business or through a merger, consolidation, exchange, reorganization,
reclassification, extraordinary dividend, divestiture (including a spin-off) or
liquidation of the Company.
12. Death of Optionee. If the Optionee dies (i) while in the employ of
the Company or any Subsidiary, or (ii) within the period of three months after
the termination of employment with the Company or any Subsidiary as provided in
Paragraph 10, this option shall terminate on the earlier of (i) the close of
business on the twelve-month anniversary date of the Optionee's death, and (ii)
the expiration date under this option. In such period following the Optionee's
death, this option may be exercised by the person or persons to whom the
Optionee's rights under this option shall have passed by the Optionee's will or
by the laws of descent and distribution only to the extent the option was
exercisable on the date of death but had not previously been exercised. To the
extent this option was not exercisable upon Optionee's death, or if the option
is not exercised within the time specified in this Paragraph 12, all rights
under this option shall be forfeited.
13. Recapitalizations, Sales, Mergers, Exchanges, Consolidations,
Liquidation. Pursuant and subject to Section 13 of the Plan, certain changes in
the number or character of the Common Stock of the Company (through sale,
<PAGE>
merger, consolidation, exchange, reorganization, divestiture (including a
spin-off), liquidation, recapitalization, stock split, stock dividend or
otherwise) shall result in an adjustment, reduction or enlargement, as
appropriate, in Optionee's rights with respect to any unexercised portion of the
option (i.e., Optionee shall have such "anti-dilution" rights under the option
with respect to such events, but shall not have "preemptive" rights).
14. Scope of Agreement. This Agreement shall bind and inure to the
benefit of the Company and its successors and assigns and the Optionee and any
successor or successors of the Optionee permitted by Paragraph 4 hereof.
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Agreement in the manner appropriate to each, as of the day and year first above
written.
ZOMAX OPTICAL MEDIA, INC.
By _____________________________________
Its_____________________________________
COMPANY
_____________________________________
OPTIONEE
<PAGE>
ZOMAX OPTICAL MEDIA, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, made this ______ day of _____________, 19___, by and
between ZOMAX OPTICAL MEDIA, INC., a Minnesota corporation (the "Company"), and
_________________________ (the "Optionee");
W I T N E S S E T H
WHEREAS, the Optionee on the date hereof is an employee, officer,
director, consultant or advisor of the Company or a Subsidiary of the Company;
WHEREAS, to induce the Optionee to further the Optionee's efforts in
its behalf, the Company desires to grant to the Optionee a nonqualified stock
option to purchase shares of its Common Stock;
WHEREAS, the Company's Board of Directors has adopted a stock option
plan providing for the grant of nonqualified stock options known as "Zomax
Optical Media, Inc. 1996 Stock Option Plan" (hereinafter referred to as the
"Plan"); and
WHEREAS, on the date hereof, the Company's Board of Directors (or, if
so appointed and empowered by the Board, the Board's Stock Option Committee)
authorized the grant of this nonqualified stock option to the Optionee;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Optionee hereby agree as
follows:
1. Grant of Option. The Company hereby grants to the Optionee, on the
date of this Agreement, the option to purchase _________ shares of Common Stock
of the Company (the "Option Stock") subject to the terms and conditions herein
contained, and subject only to adjustment in such number of shares as provided
in Section 13 of the Plan. This option is a nonqualified stock option and will
not be treated as an incentive stock option, as defined under Section 422, or
any successor provision, of the Internal Revenue Code of 1986, as amended (the
"Code"), and the regulations thereunder.
2. Option Price. During the term of this option, the purchase price for
the shares of Option Stock granted herein is $___________ per share, subject
only to adjustment of such price as provided in Section 13 of the Plan.
3. Term of Option. Unless terminated earlier under the provisions of
Paragraphs 10, 11 or 12 below, this option shall terminate as of the close of
business on _________________. During the first year after the date of this
<PAGE>
Agreement, this option shall not be exercisable. Thereafter, this option shall
be exercisable to the extent of ____________ percent (____%) of such total
number of shares during each succeeding year until the earlier of the time this
option shall have become exercisable to the extent of one hundred percent (100%)
of the total number of shares granted or its termination as provided herein. If
the Optionee does not purchase the full number of shares which the Optionee is
entitled to purchase upon an exercise of this option, the Optionee may purchase
upon any subsequent exercise prior to the option's termination such previously
unpurchased shares in addition to those the Optionee is otherwise entitled to
purchase. If this option has been granted prior to approval of the Plan by the
Company's shareholders, this option shall not be exercisable until such approval
is obtained.
4. Personal Exercise by Optionee. This option shall, during the
lifetime of the Optionee, be exercisable only by said Optionee, or by the
Optionee's guardian or other legal representative, and shall not be transferable
by the Optionee, in whole or in part, other than by will or by the laws of
descent and distribution.
5. Manner of Exercise of Option.
a. The option may be exercised only by Optionee (or other
proper party in the event of death), subject to the conditions of the Plan and
subject to such other administrative rules as the Board of Directors may deem
advisable, by delivering a written notice of exercise to the Company at its
principal office. The notice shall state the number of shares as to which the
option is being exercised and shall be accompanied by payment in full of the
option price for all shares designated in the notice. The exercise of the option
shall be deemed effective upon receipt of such notice by the Company and upon
payment that complies with the terms of the Plan and this Agreement. The option
may be exercised with respect to any number or all of the shares as to which it
can then be exercised and, if partially exercised, may be so exercised as to the
unexercised shares any number of times during the exercise period as provided
herein.
b. Payment of the option price by Optionee shall be in the
form of cash, certified check or previously acquired shares of Common Stock of
the Company, or any combination thereof; provided, however, that the Board or
any Committee appointed by the Board to administer the Plan may, in its sole
discretion, limit the form of payment to cash or certified check and may
exercise its discretion any time prior to the termination of this option or upon
any exercise of this option by the Optionee. Any stock so tendered as part of
such payment shall be valued at its fair market value as provided in the Plan.
As soon as practicable after the effective exercise of all or any part of the
option, the Optionee shall be recorded on the stock transfer books of the
Company as the owner of the shares purchased, and the Company shall deliver to
the Optionee one or more duly issued stock certificates evidencing such
ownership. All requisite original issue or transfer documentary stamp taxes
shall be paid by the Company.
6. Employment; Rights as a Shareholder. This Agreement shall not confer
on Optionee any right with respect to continuance of employment, if so employed,
by the Company or any of its Subsidiaries, nor will it interfere in any way with
the right of the Company to terminate such employment. The Optionee or a
<PAGE>
transferee of this option shall have no rights as a shareholder with respect to
any shares covered by this option until the date of the issuance of a stock
certificate for 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 issued, except as provided in Section 13 of the Plan.
7. 1996 Stock Option Plan. The option evidenced by this Agreement is
granted pursuant to the Plan, a copy of which Plan has been made available to
the Optionee and is hereby made a part of this Agreement. This Agreement is
subject to and in all respects limited and conditioned as provided in the Plan.
The Plan governs this option, and, in the event of any question as to the
construction of this Agreement or of a conflict between the Plan and this
Agreement, the Plan shall govern, except as the Plan otherwise provides.
8. Withholding Taxes. In order to provide the Company with the
opportunity to claim the benefit of any income tax deduction which may be
available to it upon the exercise of this option and to permit the Company to
comply with all applicable federal or state income tax laws or regulations, the
Company may take such action as it deems appropriate to insure that, if
necessary, all applicable federal or state payroll, income or other taxes are
withheld from any amounts payable by the Company to the Optionee. If the Company
is unable to withhold such federal and state taxes, for whatever reason, the
Optionee hereby agrees to pay to the Company an amount equal to the amount the
Company would otherwise be required to withhold under federal or state law. The
Optionee may, subject to the discretion of the Board of Directors or such other
administrative rules it may deem advisable, elect to have all or a portion of
such tax withholding obligations satisfied by delivering shares of the Company's
Common Stock having a fair market value equal to such obligations.
9. Securities Law Compliance. The exercise of all or any parts of this
option shall only be effective at such time as counsel to the Company shall have
determined that the issuance and delivery of Common Stock pursuant to such
exercise will not violate any state or federal securities or other laws.
Optionee may be required by the Company, as a condition of the effectiveness of
any exercise of this option, to agree in writing that all Common Stock to be
acquired pursuant to such exercise shall be held, until such time that such
Common Stock is registered and freely tradable under applicable state and
federal securities laws, for Optionee's own account without a view to any
further distribution thereof, that the certificates for such shares shall bear
an appropriate legend to that effect and that such shares will be not
transferred or disposed of except in compliance with applicable state and
federal securities laws.
10. Termination of Relationship With Company (Other than Because of
Death or Change of Control). If the Optionee ceases to be an employee or
director of or a consultant or advisor to the Company or any Subsidiary for any
reason, other than because of a "change of control transaction" as described in
Paragraph 11 or because of death, this Option shall completely terminate on the
earlier of (i) the close of business on the three-month anniversary date of such
termination of such relationship, and (ii) the expiration date of this Option
stated in Paragraph 3 above. In such period following termination of such
relationship, this option shall be exercisable only to the extent the option was
exercisable on the date of termination of such relationship, but had not
previously been exercised.
<PAGE>
11. Change of Control. If the Optionee ceases to be an employee or
director of or a consultant or advisor to the Company or any Subsidiary because
of a "change of control transaction," this Option shall completely terminate on
the earlier of (i) the close of business on the three-month anniversary date of
such termination of employment and (ii) the expiration date of this Option
stated in Paragraph 3 above; provided, however, that if (a) such transaction is
treated as a "pooling of interests" under generally accepted accounting
principles and (b) Optionee is an "affiliate" of the Company or Subsidiary under
applicable legal and accounting principles, this Option shall completely
terminate on the later of (A) the close of business on the three-month
anniversary date of such termination or (B) the close of business on the date
that is sixty (60) days after the date on which affiliates are no longer
restricted from selling, transferring or otherwise disposing of the shares of
stock received in the change of control transaction.
In such period following the termination of Optionee's
employment upon a change of control transaction, this Option shall be fully
exercisable unless the acceleration of the exercisability of this Option has
been prevented as provided in Section 13 of the Plan, in which case, this Option
shall be exercisable only to the extent the Option was exercisable on the
vesting date immediately preceding such termination of employment, but had not
previously been exercised. To the extent this Option was not exercisable upon
termination of such relationship or if Optionee does not exercise the Option
within the time specified in this Paragraph 11, all rights of Optionee under
this Option shall be forfeited.
For purposes of this Paragraph 11, a "change of control
transaction" means an acquisition of the Company through the sale of
substantially all of the Company's assets and the consequent discontinuance of
its business or through a merger, consolidation, exchange, reorganization,
reclassification, extraordinary dividend, divestiture (including a spin-off) or
liquidation of the Company.
12. Death of Optionee. If the Optionee dies (i) while an employee or
director of or consultant or advisor to the Company or any Subsidiary, or (ii)
within the period of three months after the termination of Optionee's
relationship with the Company or any Subsidiary as provided in Paragraph 10,
this option shall terminate on the earlier of (i) the close of business on the
twelve-month anniversary date of the Optionee's death, and (ii) the expiration
date under this option. In such period following the Optionee's death, this
option may be exercised by the person or persons to whom the Optionee's rights
under this option shall have passed by the Optionee's will or by the laws of
descent and distribution only to the extent the option was exercisable on the
date of death but had not previously been exercised. To the extent this option
was not exercisable upon Optionee's death, or if the option is not exercised
within the time specified in this Paragraph 12, all rights under this option
shall be forfeited.
13. Recapitalizations, Sales, Mergers, Exchanges, Consolidations,
Liquidation. Pursuant and subject to Section 13 of the Plan, certain changes in
the number or character of the Common Stock of the Company (through sale,
merger, consolidation, exchange, reorganization, divestiture (including a
spin-off), liquidation, recapitalization, stock split, stock dividend or
otherwise) shall result in an adjustment, reduction or enlargement, as
<PAGE>
appropriate, in Optionee's rights with respect to any unexercised portion of the
option (i.e., Optionee shall have such "anti-dilution" rights under the option
with respect to such events, but shall not have "preemptive" rights).
14. Scope of Agreement. This Agreement shall bind and inure to the
benefit of the Company and its successors and assigns and the Optionee and any
successor or successors of the Optionee permitted by Paragraph 4 hereof.
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Agreement in the manner appropriate to each, as of the day and year first above
written.
ZOMAX OPTICAL MEDIA, INC.
By _____________________________________
Its_____________________________________
COMPANY
_____________________________________
OPTIONEE
<TABLE> <S> <C>
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<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-25-1998
<PERIOD-START> DEC-27-1997
<PERIOD-END> JUN-26-1998
<EXCHANGE-RATE> 1
<CASH> 29,856,145
<SECURITIES> 0
<RECEIVABLES> 9,710,903
<ALLOWANCES> 1,224,000
<INVENTORY> 1,920,410
<CURRENT-ASSETS> 42,639,106
<PP&E> 23,303,285
<DEPRECIATION> 5,956,000
<TOTAL-ASSETS> 61,182,110
<CURRENT-LIABILITIES> 10,156,704
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0
0
<COMMON> 42,623,270
<OTHER-SE> 5,525,467
<TOTAL-LIABILITY-AND-EQUITY> 61,182,110
<SALES> 28,778,928
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<CGS> 20,560,917
<TOTAL-COSTS> 25,690,540
<OTHER-EXPENSES> 277,828
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<INTEREST-EXPENSE> 212,774
<INCOME-PRETAX> 2,799,218
<INCOME-TAX> 1,015,000
<INCOME-CONTINUING> 1,784,218
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<NET-INCOME> 1,784,218
<EPS-PRIMARY> .30
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</TABLE>
