SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934 (Amendment No. ____)
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
Zomax Optical Media, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing:
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
ZOMAX OPTICAL MEDIA, INC.
-------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held
May 14, 1998
-------------------
TO THE SHAREHOLDERS OF ZOMAX OPTICAL MEDIA, INC.:
The 1998 Annual Meeting of Shareholders of Zomax Optical Media, Inc. will
be held at the Lutheran Brotherhood Building, 625 Fourth Avenue South,
Minneapolis, Minnesota at 3:30 p.m. on Thursday, May 14, 1998, for the following
purposes:
1. To set the number of members of the Board of Directors at five (5).
2. To elect members of the Board of Directors.
3. To approve amendments to the Company's 1996 Stock Option Plan to
provide for (i) the acceleration of the vesting of options upon a
change of control and (ii) an increase in the number of shares
reserved under the Plan from 850,000 to 1,300,000.
4. To ratify the appointment of the Company's independent public
accountants for the year ending December 25, 1998.
5. To take action on any other business that may properly come before the
meeting or any adjournment thereof.
Accompanying this Notice of Annual Meeting is a Proxy Statement, form of
Proxy and the Company's 1997 Annual Report to Shareholders.
Only shareholders of record as shown on the books of the Company at the
close of business on March 18, 1998 will be entitled to vote at the 1998 Annual
Meeting or any adjournment thereof. Each shareholder is entitled to one vote per
share on all matters to be voted on at the meeting.
You are cordially invited to attend the 1998 Annual Meeting. Whether or not
you plan to attend the 1998 Annual Meeting, please sign, date and mail the
enclosed form of Proxy in the return envelope provided as soon as possible. The
Proxy is revocable and will not affect your right to vote in person in the event
you attend the meeting. The prompt return of proxies will help the Company avoid
the unnecessary expense of further requests for proxies.
BY ORDER OF THE BOARD OF DIRECTORS,
James T. Anderson, President
Dated: April 20, 1998
Plymouth, Minnesota
<PAGE>
ZOMAX OPTICAL MEDIA, INC.
------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
to be held
May 14, 1998
------------------
The accompanying Proxy is solicited by the Board of Directors of Zomax
Optical Media, Inc. (the "Company") for use at the 1998 Annual Meeting of
Shareholders of the Company to be held on Thursday, May 14, 1998, at the
location and for the purposes set forth in the Notice of Annual Meeting, and at
any adjournment thereof.
The cost of soliciting proxies, including the preparation, assembly and
mailing of the proxies and soliciting material, as well as the cost of
forwarding such material to the beneficial owners of stock, will be borne by the
Company. Directors, officers and regular employees of the Company may, without
compensation other than their regular remuneration, solicit proxies personally
or by telephone.
Any shareholder giving a Proxy may revoke it any time prior to its use at
the 1998 Annual Meeting by giving written notice of such revocation to the
Secretary or any other officer of the Company or by filing a later dated written
Proxy with an officer of the Company. Personal attendance at the 1998 Annual
Meeting is not, by itself, sufficient to revoke a Proxy unless written notice of
the revocation or a later dated Proxy is delivered to an officer before the
revoked or superseded Proxy is used at the 1998 Annual Meeting. Proxies will be
voted as directed therein. Proxies which are signed by shareholders but which
lack specific instruction with respect to any proposal will be voted in favor of
such proposal as set forth in the Notice of Annual Meeting or, with respect to
the election of directors, in favor of the number and slate of directors
proposed by the Board of Directors and listed herein.
The presence at the Annual Meeting in person or by proxy of the holders of
a majority of the outstanding shares of the Company's Common Stock entitled to
vote shall constitute a quorum for the transaction of business. If a broker
returns a "non-vote" proxy, indicating a lack of voting instructions by the
beneficial holder of the shares and a lack of discretionary authority on the
part of the broker to vote on a particular matter, then the shares covered by
such non-vote shall be deemed present at the meeting for purposes of determining
a quorum but shall not be deemed to be represented at the meeting for purposes
of calculating the vote required for approval of such matter. If a shareholder
abstains from voting as to any matter, then the shares held by such shareholder
shall be deemed present at the meeting for purposes of determining a quorum and
for purposes of calculating the vote with respect to such matter, but shall not
be deemed to have been voted in favor of such matter. An abstention as to any
proposal will therefore have the same effect as a vote against the proposal.
The mailing address of the principal executive office of the Company is
5353 Nathan Lane, Plymouth, Minnesota 55442. The Company expects that this Proxy
Statement, the related Proxy and Notice of Annual Meeting will first be mailed
to shareholders on or about April 20, 1998.
<PAGE>
OUTSTANDING SHARES AND VOTING RIGHTS
The Board of Directors of the Company has fixed March 18, 1998 as the
record date for determining shareholders entitled to vote at the 1998 Annual
Meeting. Persons who were not shareholders on such date will not be allowed to
vote at the 1998 Annual Meeting. At the close of business on March 18, 1998,
there were 5,273,327 shares of the Company's Common Stock issued and
outstanding. The Common Stock is the only outstanding class of capital stock of
the Company. Each share of Common Stock is entitled to one vote on each matter
to be voted upon at the 1998 Annual Meeting. Holders of Common Stock are not
entitled to cumulative voting rights.
PRINCIPAL SHAREHOLDERS AND MANAGEMENT SHAREHOLDINGS
The following table provides information as of March 18, 1998 concerning
the beneficial ownership of the Company's Common Stock by (i) each director of
the Company, (ii) the named executive officers in the Summary Compensation
Table, (iii) the persons known by the Company to own more than 5% of the
Company's outstanding Common Stock, and (iv) all directors and executive
officers as a group. Except as otherwise indicated, the persons named in the
table have sole voting and investment power with respect to all shares of Common
Stock owned by them.
Name (and Address of 5% Number of Shares Percent
Owner) or Identity of Group Beneficially Owned(1) of Class (1)
- --------------------------- --------------------- ------------
Phillip T. Levin (2)(3) 1,222,823 23.2%
James T. Anderson (2)(4) 500,161 9.2%
Janice Ozzello Wilcox (5) 3,000 *
Robert Ezrilov (6) 5,000 *
Howard P. Liszt (7) 6,000 *
Michelle S. Bedard (2)(8) 500,161 9.2%
James E. Flaherty (9) 7,000 *
George F. Esbensen 0 *
Metacom, Inc. (2) 257,311 4.9%
All Executive Officers 1,959,497 35.8%
and Directors as a Group
(8 Individuals) (10)
- ---------------------
* Less than 1% of the outstanding shares of Common Stock.
(1) Under the rules of the SEC, shares not actually outstanding are deemed
to be beneficially owned by an individual if such individual has the
right to acquire the shares within 60 days. Pursuant to such SEC Rules,
shares deemed beneficially owned by virtue of an individual's right to
acquire them are also treated as outstanding when calculating the
percent of the class owned by such individual and when determining the
percent owned by any group in which the individual is included.
<PAGE>
(2) Address is 5353 Nathan Lane, Plymouth, Minnesota 55442.
(3) Includes 257,311 shares held by Metacom, Inc., of which Mr. Levin is
the majority shareholder and Chief Executive Officer, 2,000 shares held
by Mr. Levin as custodian for his children and 2,000 shares which may
be purchased by Mr. Levin upon exercise of a currently exercisable
option.
(4) Includes 126,250 shares which may be purchased by Mr. Anderson upon
exercise of currently exercisable options and 61,250 shares which may
be purchased by Ms. Bedard, his wife, upon exercise of currently
exercisable options.
(5) Includes 2,000 shares which may be purchased by Ms. Wilcox upon
exercise of a currently exercisable option.
(6) Includes 2,000 shares held through retirement plans for Mr. Ezrilov's
benefit and 2,000 shares which may be purchased by Mr. Ezrilov upon
exercise of a currently exercisable option.
(7) Includes 2,000 shares which may be purchased by Mr. Liszt upon
exercise of a currently exercisable option.
(8) Includes 61,250 shares which may be purchased by Ms. Bedard upon
exercise of currently exercisable options, 312,661 shares held by Mr.
Anderson, her husband, and 126,250 shares which may be purchased by Mr.
Anderson upon exercise of currently exercisable options.
(9) Includes 7,000 shares which may be purchased by Mr. Flaherty upon
exercise of a currently exercisable option.
(10) Includes 202,500 shares which may be purchased by current executive
officers and directors upon exercise of currently exercisable options;
see above footnotes for shares held indirectly of for the benefit of
family members.
ELECTION OF DIRECTORS
(Proposals #1 and #2)
The Bylaws of the Company provide that the number of directors shall be the
number set by the shareholders, which shall be not less than one. The Board of
Directors unanimously recommends that the number of directors be set at five and
that the nominees listed below be elected. Unless otherwise instructed, the
Proxies will be so voted.
Under applicable Minnesota law, approval of the proposal to set the number
of directors at five and the election of the nominees to the Board of Directors
require the affirmative vote of the holders of the greater of (i) a majority of
the voting power of the shares represented in person or by proxy at the Annual
Meeting with authority to vote on such matter, or (ii) a majority of the voting
power of the minimum number of shares that would constitute a quorum for the
transaction of business at the Annual Meeting.
<PAGE>
In the absence of other instruction, the Proxies will be voted for each of
the individuals listed below. If elected, such individuals shall serve until the
next annual meeting of shareholders and until their successors shall be duly
elected and shall qualify. All of the nominees are members of the current Board
of Directors. If, prior to the 1998 Annual Meeting of Shareholders, it should
become known that any one of the following individuals will be unable to serve
as a director after the 1998 Annual Meeting by reason of death, incapacity or
other unexpected occurrence, the Proxies will be voted for such substitute
nominee(s) as is selected by the Board of Directors. Alternatively, the Proxies
may, at the Board's discretion, be voted for such fewer number of nominees as
results from such death, incapacity or other unexpected occurrence. The Board of
Directors has no reason to believe that any of the following nominees will be
unable to serve.
Position with Director
Name Age the Company Since
Phillip T. Levin 54 Chairman of the Board 1996
James T. Anderson 40 President, Chief Executive Officer 1996
and Director
Janice Ozzello Wilcox 44 Director 1996
Robert Ezrilov 53 Director 1996
Howard P. Liszt 51 Director 1996
Business Experience of the Director Nominees
Phillip T. Levin has served as Chairman of the Board of Directors of the
Company since he co-founded it in February 1996. Mr. Levin was Chairman and
Chief Executive Officer of ZOMI Corp., the General Partner of Zomax Optical
Media Limited Partnership (the "Partnership"), the Company's predecessor, from
1993, when he co-founded it and the Partnership, until May 1996. Mr. Levin has
served as a director and officer of Metacom, Inc., a leading distributor of
audio cassettes and a principal shareholder of the Company, since he co-founded
it in 1970. He has served as Metacom's Chief Executive Officer since 1991.
James T. Anderson has served as President, Chief Executive Officer and as a
director of the Company since he co-founded it in February 1996. He was
President of ZOMI Corp. from 1993, when he co-founded it and the Partnership,
until May 1996. Mr. Anderson served with Metacom from May 1982 to June 1993,
including five years as Vice President of Manufacturing where he was responsible
for all manufacturing activities, including purchasing, inventory control,
production, warehousing and distribution. Mr. Anderson is married to Michelle S.
Bedard, the Executive Vice President of the Company.
Janice Ozzello Wilcox has served as Senior Vice President and Chief
Financial Officer of Marquette Bancshares, Inc., a bank holding company in
Minneapolis, Minnesota, since January 1993. From April 1991 to December 1992,
Ms. Wilcox served as Senior Vice President and Chief Financial Officer of
Marquette Bank Minneapolis, N.A. in Minneapolis, Minnesota.
<PAGE>
Robert Ezrilov has served as President of Metacom, Inc. since July 1997.
Mr. Ezrilov was self-employed as a business consultant from April 1995 to July
1997. Prior to April 1995, he was a partner with Arthur Andersen LLP, which
accounting firm he joined in 1966. Mr. Ezrilov also serves on the Board of
Directors of C.H. Robinson Worldwide, Inc., a transportation service provider
located in Eden Prairie, Minnesota.
Howard P. Liszt currently serves as Chief Executive Officer of Campbell
Mithun Esty, an advertising agency in Minneapolis, Minnesota, and has been
employed by Campbell Mithun Esty since 1976.
BOARD AND COMMITTEE MEETINGS
During fiscal 1997, the Board of Directors held five meetings. Each
director attended more than 75% of the meetings of the Board and the committees
on which such director served during fiscal 1997.
The Company's Board of Directors has two standing committees, the Audit
Committee and Compensation Committee. The Company does not have a nominating
committee.
The members of the Audit Committee are Robert Ezrilov, Howard Liszt and
Janice Wilcox. This committee reviews the selection and work of the Company's
independent auditors and the adequacy of internal controls for compliance with
corporate policies and directives. The Audit Committee did not meet during
fiscal 1997.
The members of the Compensation Committee are Robert Ezrilov, Howard Liszt
and Janice Wilcox. This committee recommends to the Board of Directors from time
to time the salaries to be paid to executive officers of the Company and any
plan for additional compensation it deems appropriate. In addition, this
committee is vested with the same authority as the Board of Directors with
respect to the granting of options and the administration of the Company's 1996
Stock Option Plan. The Compensation Committee met once during fiscal 1997, and
it took written action by unanimous consent twice.
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The names and ages of the Company's current executive officers and the
positions held by such officers are listed below.
Name Age Position
James T. Anderson 40 President, Chief Executive Officer and Director
Phillip T. Levin 54 Chairman of the Board
James E. Flaherty 44 Chief Financial Officer and Secretary
Michelle S. Bedard 39 Executive Vice President
Anthony Angelini 34 Vice President - Western U.S. and European
Operations
James T. Anderson has served as President, Chief Executive Officer and as a
director of the Company since he co-founded it in February 1996. For additional
business background of Mr. Anderson, see the section of this Proxy Statement
entitled Election of Directors.
Phillip T. Levin has served as Chairman of the Board of the Company since
he co-founded it in February 1996. For additional business background of Mr.
Levin, see the section of this Proxy Statement entitled Election of Directors.
James E. Flaherty has served as Chief Financial Officer of the Company
since December 1996 and as Secretary since January 1997. From May 1989 until
December 1996, Mr. Flaherty was employed by Racotek Inc., a wireless data
software company in Minneapolis, Minnesota, serving in various capacities
including Chief Financial Officer, Controller and Secretary.
Michelle S. Bedard has served as Executive Vice President of the Company
since its inception in February 1996, prior to which she served as Vice
President of Sales and National Sales Manager of the Partnership since its
inception in 1993. From June 1991 to August 1993, Ms. Bedard was National Sales
Manager of Metacom, where she was responsible for sales revenue and staff,
including eight inside sales representatives and thirteen independent sales
groups, the customer service department and various support staff, for all four
sales divisions. Ms. Bedard is married to James T. Anderson, President and Chief
Executive Officer of the Company.
Anthony Angelini has served as Vice President - Western U.S. and European
Operations since February 4, 1998, when the Company acquired Primary Marketing
Group ("PMG"), Primary Marketing Group Ltd. ("PMG Ltd.") and Next Generation
Services LLC ("NGS"). Mr. Angelini co-founded PMG, PMG Ltd. and NGS in October
1989, September 1995 and May 1996, respectively. Mr. Angelini served as Vice
President of PMG, a Director of PMG Ltd. and Manager of NGS, and he was a major
equity owner of each.
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information regarding compensation
paid or accrued during each of the Company's last three fiscal years to the
Chief Executive Officer and to each other executive officer whose total annual
salary and bonus paid or accrued during fiscal year 1997 exceeded $100,000.
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------------
Annual Compensation(1) Awards Payouts
---------------------- -----------------------------------
Restricted LTIP All Other
Name and Principal Fiscal Stock Payouts Compensation
Position Year Salary ($) Bonus ($) Other ($) Awards ($) Options ($) ($)
- ------------------- --------- ---------- --------- --------- ---------- ------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
James T. Anderson, 1997 214,935 204,441 -- -- 125,000 -- --
President and Chief 1996 225,533(2) 113,429 -- -- 125,000 -- --
Executive Officer 1995 150,000 53,250 -- -- -- -- --
Michelle S. Bedard, 1997 356,437(3) 20,000 -- -- 25,000 -- --
Executive Vice 1996 168,574(3) 20,000 -- -- 75,000 -- --
President 1995 130,053(3) 6,475 -- -- -- -- --
James E. Flaherty 1997 98,398 15,000 -- -- 35,000 -- --
Chief Financial
Officer
George F. Esbensen, 1997 105,750(4) -- -- -- -- -- --
Former Vice President 1996 108,720(4) -- -- -- 35,000 -- --
of Sales--Software 1995 104,456(4) 3,650 -- -- -- -- --
Manufacturing Group
- -------------------------
</TABLE>
(1) All compensation earned prior to May 10, 1996 was earned from Zomax
Optical Media Limited Partnership, the Company's predecessor.
(2) Includes payment for accrued vacation in the amount of $30,533.
(3) Includes commissions of $256,233, $78,320 and $50,053 for 1997, 1996
and 1995, respectively.
(4) Includes commissions of $25,266, $28,351 and $24,456 for 1997, 1996,
and 1995, respectively.
<PAGE>
Option Grants During 1997 Fiscal Year
The following table provides information regarding stock options granted
during fiscal year ended December 26, 1997 to the named executive officers in
the Summary Compensation Table. The Company has not granted any stock
appreciation rights.
<TABLE>
<CAPTION>
Perent of Total Exercise or
Options Options granted Base Price Per
Name Granted in Fiscal Year Share(1) Expiration Date
- ---- ------- -------------- -------- ---------------
<S> <C> <C> <C> <C>
James T. Anderson 125,000(2) 42.1% $5.50 05/01/07
Michelle S. Bedard 25,000(3) 8.4% $5.50 05/01/07
James E. Flaherty 35,000(4) 11.8% $5.25 12/29/06
George F. Esbensen -- -- -- --
- --------------------
</TABLE>
(1) Exercise price is equal to the fair market value on the date of grant.
(2) Option becomes exercisable with respect to 31,250 shares on each of
May 2, 1998, 1999, 2000 and 2001.
(3) Option becomes exercisable with respect to 6,250 shares on each of
May 2, 1998, 1999, 2000 and 2001.
(4) Option becomes exercisable with respect to 7,000 shares on each of
December 30, 1997, 1998, 1999, 2000, and 2001.
Option Exercises During 1997 Fiscal Year and Fiscal Year-End Option Values
The following table provides information as to options exercised by the
named executive officer in the Summary Compensation Table during fiscal 1997 and
the number and value of options at December 26, 1997. The Company does not have
any outstanding stock appreciation rights.
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised In-the-Money
Options at Options at
Shares December 26, 1997 December 26, 1997
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable(1)
- ---- ----------- -------- ------------- ----------------
<S> <C> <C> <C> <C>
James T. Anderson -- -- 65,000 exercisable $156,390 exercisable
185,000 unexercisable $601,672 unexercisable
Michelle S. Bedard -- -- 35,000 exercisable $84,210 exercisable
65,000 unexercisable $187,640 unexercisable
James E. Flaherty -- -- 7,000 exercisable $27,342 exercisable
28,000 unexercisable $109,368 unexercisable
George F. Esbensen -- -- 11,000 exercisable $26,466 exercisable
24,000 unexercisable $57,744 unexercisable
- --------------------
</TABLE>
<PAGE>
(1) Value is calculated on the basis of the difference between the option
exercise price and $9.156, the closing sale price for the Company's
Common Stock at December 26, 1997 as quoted by the Nasdaq National
Market, multiplied by the number of shares of Common Stock underlying
the option.
Compensation to Directors
The Company pays fees to the non-officer members of the Board of Directors
of $500 for each Board meeting and $250 for each Committee meeting attended. The
Company reimburses the directors for out-of-pocket expenses incurred while
attending Board or Committee meetings.
The 1996 Stock Option Plan provides for automatic option grants to each
director who is not an employee of the Company. See Grants to Non-Employee
Directors under Proposal #3 on page 11.
Employment Agreements and Termination of Employment Arrangements
On March 1, 1996, the Company entered into an Employment Agreement, which
was effective on May 10, 1996, the closing date of the Company's public
offering, with James T. Anderson, President and Chief Executive Officer of the
Company. Pursuant to the terms of the agreement, the base annual salary is to be
reviewed at least annually by the Board, and has been determined by the Board to
be $250,000 for 1998. In addition, Mr. Anderson is entitled to a bonus equal to
five percent of the Company's earnings before taxes, as defined in the
agreement. The agreement also provided him with a ten-year option to purchase
125,000 shares of the Company's Common Stock at an exercise price equal to $6.75
per share, vesting 35,000 shares immediately and 30,000 shares each year for
three years. Upon Mr. Anderson's termination for any reason, such option shall
continue to be exercisable during its term but only to the extent the option was
exercisable on the date of termination of employment, but had not previously
been exercised. Mr. Anderson is required by the agreement to maintain
confidentiality of all Company trade secrets and upon termination of employment
will be prohibited from participating in a competing venture for a period of one
year. The initial term of the agreement will end on December 31, 1998 unless
terminated earlier in accordance with the provisions of the agreement. If the
Company terminates Mr. Anderson without "cause" or if Mr. Anderson resigns for
"good reason" or within one year after a "change in control" (as those terms are
defined in the agreement), Mr. Anderson will be entitled to receive, among other
things, (i) an amount equal to twice any bonus payments earned by him for the
immediately preceding fiscal year and (ii) an amount equal to twice the base
salary in effect at that time.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC"). Officers, directors and greater than ten-percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
<PAGE>
Based solely on its review of the copies of such forms received by it, the
Company believes that, during fiscal year 1997, all officers, directors and
greater than ten-percent beneficial owners complied with the applicable filing
requirements.
Certain Transactions
Metacom, Inc., a significant shareholder of the Company, is a party to a
Manufacturing Agreement with the Company. Phillip T. Levin, the Chairman of the
Board and a significant shareholder of the Company, is the Chief Executive
Officer and majority shareholder of Metacom; and Robert Ezrilov, a director of
the Company, is President of Metacom. Pursuant to the Manufacturing Agreement,
the Company will provide Metacom with its full requirement of compact discs and
audio cassettes at the same price as Metacom could obtain such products and
services from an unrelated third party. The Manufacturing Agreement, as amended,
terminates December 31, 2000. Metacom is a significant customer of the Company,
accounting for 8.6% and 2.5% of the Company's revenues in fiscal 1996 and 1997,
respectively. Metacom has not met its obligations under the Manufacturing
Agreement and is finalizing a settlement on such default with the Company.
Neither Mr. Levin nor Mr. Ezrilov participate in Board or management discussions
regarding Metacom or vote as a Company director on any matter involving Metacom.
On January 1, 1995, the Company entered into an Office/Warehouse Lease with
Metacom, which lease was amended on October 28, 1997 and subsequently assigned
to Nathan Lane Partnership, LLP, a Minnesota limited liability partnership of
which Mr. Levin owns a one-third interest. Pursuant to the Office/Warehouse
Lease, as amended (the "Lease"), the Company leases manufacturing (10,286 square
feet), office (8,286 square feet) and warehouse (45,911 square feet) space. The
Lease expires on December 31, 2000. The Company pays a base rent of $8.06 per
net rentable square foot per annum for the office space and the allocated
portion of the common area; $5.38 per net rentable square foot of production
space per annum; and $3.76 per net rentable square foot of warehouse space per
annum. Additionally, the Company is obligated to pay its proportionate share of
taxes and operating expenses.
On February 4, 1998, the Company acquired Primary Marketing Group, a
California corporation ("PMG"), Primary Marketing Group Ltd., an Ireland
corporation ("PMG Ltd.") and Next Generation Services LLC, a California limited
liability company ("NGS"). In connection with such acquisitions, Anthony
Angelini, who became the Company's Vice President Western U.S. and European
Operations on the date of the acquisitions, received 215,513 of the 800,002
shares of the Company's Common Stock issued to the equity owners of PMG, PMG
Ltd. and NGS as consideration in connection with the acquisitions.
APPROVAL OF AMENDMENTS TO THE COMPANY'S 1996 STOCK OPTION PLAN
(Proposal #3)
Amendments
On January 21, 1998, the Board amended the Company's 1996 Stock Option Plan
(the "Plan") to provide for the automatic acceleration of options upon the
change of control; and, on March 9, 1998, the Board amended the Plan to
increase the shares reserved under the Plan from 850,000 to 1,300,000 shares
(the "Amendments"). As of April 20, 1998, the Company had outstanding incentive
and nonqualified options for the purchase of an aggregate of 688,000 shares of
<PAGE>
the Company's common stock with an average exercise price of $7.06 per share
granted under the Company's 1996 Stock Option Plan adopted on March 1, 1996 by
the Board of Directors and the shareholders (the "1996 Plan"). Options to
purchase 17,000 shares under the 1996 Plan have been exercised as of April 20,
1998. The increase of shares is necessary to provide sufficient shares for
future options. The Board believes that granting fairly-priced stock options to
employees and directors is an effective means to promote the future growth and
development of the Company. Such options, among other things, increase
employees' and directors' proprietary interest in the Company's success and
enables the Company to attract and retain qualified personnel. The Board
therefore recommends that all shareholders vote in favor of the Amendments.
Summary of 1996 Stock Option Plan
A general description of the basic features of the 1996 Plan is presented
below, but such description is qualified in its entirety by reference to the
full text of the 1996 Plan, a copy of which may be obtained without charge upon
written request to James E. Flaherty, the Company's Chief Financial Officer.
Purpose. The purpose of the 1996 Plan is to promote the success of the
Company by facilitating the employment and retention of competent personnel and
by furnishing incentive to directors, officers and employees of the Company and
consultants and advisors to the Company, upon whose efforts the success of the
Company will depend to a large degree.
Term. Incentive stock options may be granted pursuant to the 1996 Plan
during a period of ten (10) years from the date the 1996 Plan was adopted by the
Board of Directors (until March 1, 2006), and nonqualified stock options may be
granted until the 1996 Plan is discontinued or terminated by the Board of
Directors.
Administration. With the exception of the stock options automatically
issued to Non-Employee Directors as described below, the 1996 Plan is
administered by the Compensation Committee of the Board of Directors, all of the
members of which are "non-employee directors" under Rule 16b-3 of the Act. The
1996 Plan gives broad powers to the Committee to administer and interpret the
1996 Plan, including the authority to select the individuals to be granted
options and to prescribe the particular form and conditions of each option
granted.
Eligibility. All employees of the Company or any subsidiary are eligible to
receive incentive stock options pursuant to the 1996 Plan. All employees,
officers and directors of and consultants and advisors to the Company or any
subsidiary are eligible to receive nonqualified stock options. As of March 18,
1998, the Company had approximately 430 employees, of which five are officers,
and four directors who are not employees.
Options. When an option is granted under the 1996 Plan, the Committee, at
its discretion, specifies the option price and the number of shares of Common
Stock which may be purchased upon exercise of the option. The exercise price of
an incentive stock option may not be less than 100% of the fair market value of
the Company's Common Stock, as that term is defined in the 1996 Plan. Unless
otherwise determined by the Committee, the exercise price of a nonqualified
<PAGE>
stock option will not be less than 100% of the fair market value on the date of
grant. The period during which an option may be exercised and whether the option
will be exercisable immediately, in stages, or otherwise is set by the
Committee. An incentive stock option may not be exercisable more than ten (10)
years from the date of grant. Optionees may pay for shares upon exercise of
options with cash, certified check or Common Stock of the Company valued at the
stock's then "fair market value" as defined in the 1996 Plan. Each option
granted under the 1996 Plan is nontransferable during the lifetime of the
optionee.
Generally, under the form of option agreement which the Committee is
currently using for options granted under the 1996 Plan, if the optionee's
affiliation with the Company terminates before expiration of the option for
reasons other than death, the optionee has a right to exercise the option for
three months after termination of such affiliation or until the option's
original expiration date, whichever is earlier. If the termination is because of
death, the option typically is exercisable until its original stated expiration
or until the 12-month anniversary of the optionee's death, whichever is earlier.
The Committee may impose additional or alternative conditions and restrictions
on the incentive or nonqualified stock options granted under the 1996 Plan;
however, each incentive option must contain such limitations and restrictions
upon its exercise as are necessary to ensure that the option will be an
incentive stock option as defined under the Internal Revenue Code.
Grants to Non-Employee Directors. The 1996 Stock Option Plan provides for
automatic option grants to each director who is not an employee of the Company
(a "Non-Employee Director"). Each Non-Employee Director who was elected for the
first time as a director on or after the adoption of the 1996 Plan on March 1,
1996 was granted a nonqualified option to purchase 10,000 shares of the Common
Stock. Such option is exercisable to the extent of 2,000 shares on each of the
first five anniversaries of the date of grant. Each Non-Employee Director who is
re-elected as a director of the Company or whose term of office continues after
a meeting of shareholders at which directors are elected shall, as of the date
of such re-election or shareholder meeting, automatically be granted a
nonqualified option to purchase 2,000 shares of the Common Stock. A Non-Employee
Director who receives a 10,000-share option upon initial election to the Board
may not receive a 2,000-share option for at least twelve (12) months. All
options granted pursuant to these provisions are granted at a per share exercise
price equal to 100% of the fair market value of the Common Stock on the date of
grant, and they expire on the earlier of (i) three months after the optionee
ceases to be a director (except by death) and (ii) ten (10) years after the date
of grant. In the event of the death of a Non-Employee Director, any option
granted to such Non-Employee Director pursuant to this formula plan may be
exercised at any time within twelve (12) months of the death of such
Non-Employee Director or until the date on which the option, by its terms,
expires, whichever is earlier.
In addition to the automatic grants of nonqualified options, the
Non-Employee Directors are eligible to receive additional nonqualified stock
options pursuant to the 1996 Plan in the sole discretion of the Committee.
Change of Control. Pursuant to the Amendment which the shareholders are
being asked to approve, a section has been added to the Plan to provide the
following. 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 ("change of control"), all outstanding options shall become exercisable
in full. The acceleration of the exercisability of outstanding options may be
<PAGE>
limited, however, if (i) the acquiring party seeks to account for the change of
control transaction on a "pooling of interests" basis which would be precluded
if such options are accelerated, or (ii) if such acceleration would subject a
participant to an excise tax imposed upon "excess parachute payments." The Board
may also decide to take certain additional actions, such as termination of the
Plan, providing cash or stock valued at the amount equal to the excess of the
fair market value of the stock over the exercise price, or allow exercise of the
options for stock of the succeeding company.
Amendment. The Board of Directors may from time to time suspend or
discontinue the 1996 Plan or revise or amend it in any respect; provided,
however, that no such revision or amendment may impair the terms and conditions
of any outstanding option to the material detriment of the optionee without the
consent of the optionee, except as authorized in the event of a sale, merger,
consolidation or liquidation of the Company. The 1996 Plan may not be amended in
any manner that will cause incentive stock options to fail to meet the
requirements of Code Section 422, and may not be amended in any manner that
will: (i) materially increase the number of shares subject to the 1996 Plan
except as provided in the case of stock splits, consolidations, stock dividends
or similar events; (ii) change the designation of the class of employees
eligible to receive options; (iii) decrease the price at which options will be
granted; or (iv) materially increase the benefits accruing to optionees under
the 1996 Plan, without the approval of the shareholders, if such approval is
required to comply with Code Section 422 or the requirements of Section 16(b) of
the Act.
The Board of Directors will equitably adjust the maximum number of shares
of Common Stock reserved for issuance under the 1996 Plan, the number of shares
covered by each outstanding option and the option price per share in the event
of stock splits or consolidations, stock dividends or other transactions in
which the Company receives no consideration. Generally, the Board of Directors
may also provide for the protection of optionees in the event of a merger,
liquidation or reorganization of the Company.
Federal Income Tax Consequences of the 1996 Plan. Under present law, an
optionee will not realize any taxable income on the date a nonqualified stock
option is granted to the optionee pursuant to the 1996 Plan. Upon exercise of
the nonqualified stock option, however, the optionee will realize, in the year
of exercise, ordinary income to the extent of the difference between the option
price and the fair market value of the Company's Common Stock on the date of
exercise. Upon the sale of the shares, any resulting gain or loss will be
treated as capital gain or loss. The Company will be entitled to a tax deduction
in its fiscal year in which nonqualified stock options are exercised, equal to
the amount of compensation required to be included as ordinary income by those
optionees exercising such options.
Incentive stock options granted pursuant to the 1996 Plan are intended to
qualify for favorable tax treatment to the optionee under Code Section 422.
Under Code Section 422, an employee realizes no taxable income when the
incentive stock option is granted. If the employee has been an employee of the
Company or any subsidiary at all times from the date of grant until three months
before the date of exercise, the employee will realize no taxable income when
the option is exercised. If the employee does not dispose of shares acquired
upon exercise for a period of two years from the granting of the incentive stock
option and one year after receipt of the shares, the employee may sell the
shares and report any gain as capital gain. The Company will not be entitled to
a tax deduction in connection with either the grant or exercise of an incentive
stock option. If the employee should dispose of the shares prior to the
expiration of the two-year or one-year periods described above, the employee
<PAGE>
will be deemed to have received compensation taxable as ordinary income in the
year of the early sale in an amount equal to the lesser of (i) the difference
between the fair market value of the Company's Common Stock on the date of
exercise and the option price of the shares, or (ii) the difference between the
sale price of the shares and the option price of shares. In the event of such an
early sale, the Company will be entitled to a tax deduction equal to the amount
recognized by the employee as ordinary income. The foregoing discussion ignores
the impact of the alternative minimum tax, which may particularly be applicable
to the year in which an incentive stock option is exercised.
Plan Benefits. Because future grants of stock options are subject to the
discretion of the Committee, the future benefits under the 1996 Plan cannot be
determined at this time, except for the automatic grants to Non-Employee
Directors as set forth above. The table below shows the total number of shares
underlying stock options that have been granted under the 1996 Plan as of April
20, 1998 to the named executive officers and the groups set forth.
Shares of Common Stock
Name and Position/Group Underlying Options Received(1)
- ------------------------ ---------------------------
James T. Anderson 250,000
President and Chief Executive Officer
Michelle S. Bedard 100,000
Executive Vice President
James E. Flaherty 35,000
Chief Financial Officer
George F. Esbensen 35,000
Former Vice President of Sales -
Software Manufacturing Group
Current Executive Officers 407,000
as a Group (5 persons)
Current Directors who are not 30,000
Executive Officers as a Group (3 persons)
Current Employees who are not 261,000
Executive Officers or Directors
as a Group (430 persons)
- -------------------
(1) Includes options which have been exercised.
Vote Required. The Board of Directors recommends that the shareholders
approve the amendment to the 1996 Plan to provide for the (i) acceleration of
the vesting of options upon a change of control and (ii) increase the number of
shares reserved for issuance under the 1996 Plan from 850,000 to 1,300,000.
Under applicable Minnesota law, approval of the amendment to the 1996 Plan
requires the affirmative vote of the holders of the greater of (i) a majority of
the voting power of the shares represented in person or by proxy at the Annual
Meeting with authority to vote on such matter, or (ii) a majority of the voting
power of the minimum number of shares that would constitute a quorum for the
transaction of business at the Annual Meeting.
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANT
(Proposal #4)
Arthur Andersen LLP has served as the Company's independent public
accountants since its inception in February 1996 and served as the Partnership's
independent public accountants from its inception in 1993 to the reorganization
of the Company and the Partnership in May 1996. A representative of Arthur
Andersen LLP is expected to be present at the 1998 Annual Meeting and will be
given an opportunity to make a statement regarding financial and accounting
matters of the Company, if he or she so desires, and will be available to
respond to appropriate questions from the Company's shareholders.
The Board of Directors recommends that the shareholders ratify the
appointment of Arthur Andersen LLP as the Company's independent public
accountants for the Company for the year ending December 25, 1998. The
ratification of Arthur Andersen LLP as independent public accountants for the
Company requires the affirmative vote of a majority of the shares represented in
person or by proxy at the Annual Meeting.
OTHER BUSINESS
Management knows of no other matters to be presented at the 1998 Annual
Meeting. If any other matter properly comes before the 1998 Annual Meeting, the
appointees named in the proxies will vote the proxies in accordance with their
best judgment.
SHAREHOLDER PROPOSALS
Any appropriate proposal submitted by a shareholder of the Company and
intended to be presented at the 1999 Annual Meeting must be received by the
Company by December 11, 1998 to be included in the Company's proxy statement and
related proxy for the 1999 Annual Meeting.
ANNUAL REPORT
A copy of the Company's Annual Report to Shareholders for the fiscal year
ended December 26, 1997, including financial statements, accompanies this Notice
of Annual Meeting and Proxy Statement. No portion of the Annual Report is
incorporated herein or is to be considered proxy soliciting material.
<PAGE>
FORM 10-KSB
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS BEING
SOLICITED, UPON WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 26, 1997, AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE FINANCIAL
STATEMENTS AND A LIST OF EXHIBITS TO SUCH FORM 10-KSB. THE COMPANY WILL FURNISH
TO ANY SUCH PERSON ANY EXHIBIT DESCRIBED IN THE LIST ACCOMPANYING THE FORM
10-KSB UPON THE ADVANCE PAYMENT OF REASONABLE FEES. REQUESTS FOR A COPY OF THE
FORM 10-KSB AND/OR ANY EXHIBIT(S) SHOULD BE DIRECTED TO THE CHIEF FINANCIAL
OFFICER OF ZOMAX OPTICAL MEDIA, INC., 5353 NATHAN LANE, PLYMOUTH, MINNESOTA
55442. YOUR REQUEST MUST CONTAIN A REPRESENTATION THAT, AS OF MARCH 18, 1998,
YOU WERE A BENEFICIAL OWNER OF SHARES ENTITLED TO VOTE AT THE 1998 ANNUAL
MEETING OF SHAREHOLDERS.
BY ORDER OF THE BOARD OF DIRECTORS
James T. Anderson, President
Dated: April 20, 1998
<PAGE>
ZOMAX OPTICAL MEDIA, INC.
------------------
PROXY
for Annual Meeting to be held May 14, 1998
------------------
The undersigned hereby appoints JAMES T. ANDERSON and JAMES E. FLAHERTY, and
each of them, with full power of substitution, his or her Proxies to represent
and vote, as designated below, all shares of the Common Stock of Zomax Optical
Media, Inc. registered in the name of the undersigned at the 1998 Annual Meeting
of Shareholders of the Company to be held at the Lutheran Brotherhood Building
located at 625 Fourth Avenue South, Minneapolis Minnesota at 3:30 p.m., on
Thursday, May 14, 1998, and at any adjournment thereof. The undersigned hereby
revokes all proxies previously granted with respect to such Annual Meeting.
The Board of Directors recommends that you vote "FOR" each proposal.
1. Set the number of directors at five (5).
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Elect Directors. Nominees: Phillip T. Levin, James T. Anderson,
Janice Ozzello Wilcox, Robert Ezrilov,
Howard P. Liszt
[ ] FOR all nominees listed above [ ] WITHHOLD AUTHORITY to
(except those whose names have vote for all nominees
been written on the line below) listed above
------------------------------------------------------------------
3. Approve the amendments to the Company's 1996 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Ratify the appointment of Arthur Andersen LLP as the Company's
independent auditors for the year ending December 25, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. Other Matters. In their discretion, the Proxies are authorized to
vote upon such other business as may properly come before the Annual
Meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL SPECIFICALLY IDENTIFIED ABOVE.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Date:______________, 1998
PLEASE DATE AND SIGN ABOVE
exactly as name appears at
the left, indicating, where
proper, official position
or representative capacity.
For stock held in joint
tenancy, each joint owner
should sign.
<PAGE>
ZOMAX OPTICAL MEDIA, INC.
1996 STOCK OPTION PLAN
(As Amended 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
<PAGE>
of all classes of stock of the Company or of its parent or any Subsidiary,
the incentive stock option shall be exercisable during a term of not more
than five (5) years after the date on which it is granted. The Option
Agreement shall state when the incentive stock option becomes exercisable
and shall also state the maximum term during which the option may be
exercised. In the event an incentive stock option is exercisable
immediately, the manner of exercise of the option in the event it is not
exercised in full immediately shall be specified in the Option Agreement.
The Board or the Committee, as the case may be, may accelerate the exercise
date of any incentive stock option granted hereunder which is not
immediately exercisable as of the date of grant.
(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
<PAGE>
share shall be equal to at least eighty-five percent (85%) of the fair
market value of the Common Stock per share on the date of grant. For
purposes hereof, the "fair market value" of a share of Common Stock shall
have the same meaning as set forth under Section 9(a) herein.
(b) Term and Exercisability of Nonqualified Stock Option. The term during
which any nonqualified stock option granted under the Plan may be exercised
shall be established in each case by the Board or the Committee, as the
case may be, but in no event shall any option be exercisable during a term
of more than ten (10) years after the date on which it was granted. The
Option Agreement shall state when the nonqualified stock option becomes
exercisable and shall also state the maximum term during which the option
may be exercised. In the event a 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
<PAGE>
the date of such election or appointment to the Board, automatically be
granted an option to purchase 10,000 shares of the Common Stock at an
option price per share equal to one hundred percent (100%) of the fair
market value of the Common Stock on the date of such election or
appointment. Such option shall become exercisable to the extent of
2,000 shares on each of the first, second, third, fourth and fifth
anniversaries of the date of grant.
(b) Upon Re-election to Board. Each Non-Employee Director who,
after the date this Plan is adopted by the Board of Directors, is
re-elected as a Non-Employee Director of the Company or whose term of
office continues after a meeting of shareholders at which directors are
elected shall, as of the date of such re-election or shareholder
meeting, automatically be granted an option to purchase 2,000 shares of
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.
