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:
[X] Preliminary Proxy Statement
[ ] Confidential for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] 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 3, 1999
-------------------
TO THE SHAREHOLDERS OF ZOMAX OPTICAL MEDIA, INC.:
The 1999 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 Monday, May 3, 1999, for the following
purposes:
1. To set the number of members of the Board of Directors at five (5).
2. To elect members of the Board of Directors.
3. To approve an amendment to the Company's Articles of
Incorporation to change the corporate name from Zomax Optical
Media, Inc. to Zomax Incorporated.
4. To ratify the appointment of the Company's independent public
accountants for the year ending December 31, 1999.
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 1998 Annual Report to Shareholders.
Only shareholders of record as shown on the books of the Company at the
close of business on March 11, 1999 will be entitled to vote at the 1999 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 1999 Annual Meeting. Whether or
not you plan to attend the 1999 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 ___, 1999
Plymouth, Minnesota
<PAGE>
ZOMAX OPTICAL MEDIA, INC.
------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
to be held
May 3, 1999
------------------
The accompanying Proxy is solicited by the Board of Directors of Zomax
Optical Media, Inc. (the "Company") for use at the 1999 Annual Meeting of
Shareholders of the Company to be held on Monday, May 3, 1999, 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 1999 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 1999 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 1999 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 __, 1999.
<PAGE>
OUTSTANDING SHARES AND VOTING RIGHTS
The Board of Directors of the Company has fixed March 11, 1999 as the
record date for determining shareholders entitled to vote at the 1999 Annual
Meeting. Persons who were not shareholders on such date will not be allowed to
vote at the 1999 Annual Meeting. At the close of business on March 11, 1999,
there were 7,268,577 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 1999 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 11, 1999
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) 1,107,512 15.2%
James T. Anderson (2)(4) 487,661 6.5%
Janice Ozzello Wilcox (5) 9,000 *
Robert Ezrilov (6) 11,000 *
Howard P. Liszt (7) 11,000 *
Michelle S. Bedard (2)(8) 487,661 6.5%
James E. Flaherty (9) 14,000 *
Anthony Angelini (10) 126,647 1.7%
Mellon Bank Group (11) 375,025 5.2%
All Executive Officers 1,766,820 23.3%
and Directors as a Group
(8 Individuals) (12)
- ---------------------
* 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 210,000 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 4,000 shares which may
be purchased by Mr. Levin upon exercise of a currently exercisable
option.
(4) Includes 187,500 shares which may be purchased by Mr. Anderson upon
exercise of currently exercisable options and 87,500 shares which may
be purchased by Ms. Bedard, his wife, upon exercise of currently
exercisable options.
(5) Includes 6,000 shares which may be purchased by Ms. Wilcox upon
exercise of a currently exercisable option.
(6) Includes 4,000 shares held through retirement plans for Mr. Ezrilov's
benefit and 6,000 shares which may be purchased by Mr. Ezrilov upon
exercise of a currently exercisable option.
(7) Includes 6,000 shares which may be purchased by Mr. Liszt upon
exercise of a currently exercisable option.
(8) Includes 87,500 shares which may be purchased by Ms. Bedard upon
exercise of currently exercisable options, 212,661 shares held by Mr.
Anderson, her husband, and 187,500 shares which may be purchased by Mr.
Anderson upon exercise of currently exercisable options.
(9) Includes 14,000 shares which may be purchased by Mr. Flaherty upon
exercise of a currently exercisable option.
(10) Includes 4,000 shares which may be purchased by Mr. Angelini upon
exercise of a currently exercisable option.
(11) Represents shares held by Mellon Bank Corporation and its direct or
indirect subsidiaries, Mellon Bank N.A. and Founders Asset Management
LLC (the "Mellon Bank Group"). The Mellon Bank Group is located at One
Mellon Bank Center, Pittsburgh, Pennsylvania 15258. The Mellon Bank
Group holds the shares in a fiduciary capacity, and it has sole voting
and dispositive power over the shares. The Company has relied on
information contained in the Schedule 13G filed with the Securities and
Exchange Commission on February 5, 1999.
(12) Includes 315,000 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.
<PAGE>
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.
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 1999 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 1999 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 55 Chairman of the Board 1996
James T. Anderson 41 President, Chief Executive 1996
Officer and Director
Janice Ozzello Wilcox 45 Director 1996
Robert Ezrilov 54 Director 1996
Howard P. Liszt 52 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.
<PAGE>
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.
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 1998, the Board of Directors held six meetings and took
written action by unanimous consent once. Each director attended more than 75%
of the meetings of the Board and the committees on which such director served
during fiscal 1998.
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 met twice during fiscal
1998.
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 twice during fiscal 1998, and
it took written action by unanimous consent four times.
<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 41 President, Chief Executive Officer
and Director
Phillip T. Levin 55 Chairman of the Board
James E. Flaherty 45 Chief Financial Officer and Secretary
Michelle S. Bedard 40 Executive Vice President - Sales and
Marketing
Anthony Angelini 35 Executive Vice President - Global
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 - Sales and
Marketing 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 Executive Vice President - Global
Operations since January 6, 1999. Mr. Angelini joined the Company as Vice
President - Western U.S. and European Operations on 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 1998 exceeded
$100,000.
<TABLE>
<CAPTION>
Long Term Compensation
------------------------------------
Annual Compensation (1) Awards Payouts
----------------------------------- ------------------------------------
Restricted LTIP All Other
Fiscal Stock Payouts Compensation
Year Salary ($) Bonus ($) Other ($) Awards ($) Options ($) ($)
------- ---------- --------- --------- ---------- ------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James T. Anderson, 1998 248,144 341,067 -- -- 250,000 -- (2)
President and Chief 1997 214,935 204,441 -- -- 125,000 -- --
Executive Officer 1996 225,533 (3) 113,429 -- -- 125,000 -- --
Michelle S. Bedard, 1998 400,749 (4) 28,000 -- -- 50,000 -- --
Executive Vice 1997 356,437 (4) 20,000 -- -- 25,000 -- --
President 1996 168,574 (4) 20,000 -- -- 75,000 -- --
James E. Flaherty 1998 121,404 25,000 -- -- 50,000 -- --
Chief Financial 1997 98,398 15,000 -- -- 35,000 -- --
Officer
Anthony Angelini, 1998 149,077 34,000 -- -- 100,000 -- --
Executive Vice
President - Operations
- -------------------------
</TABLE>
(1) All compensation earned prior to May 10, 1996 was earned from
Zomax Optical Media Limited Partnership, the Company's
predecessor.
(2) Does not include a warrant, transferred to Mr. Anderson by the Company,
to purchase shares of Common Stock of Chumbo Holdings Corporation, of
which the Company holds an equity interest. See "Certain Transactions."
(3) Includes payment for accrued vacation in the amount of $30,533.
(4) Includes commissions of $262,758, $256,233 and $78,320 for 1998, 1997
and 1996 respectively.
<PAGE>
Option Grants During 1998 Fiscal Year
The following table provides information regarding stock options
granted during fiscal year ended December 25, 1998 to the named executive
officers in the Summary Compensation Table. The Company has not granted any
stock appreciation rights.
<TABLE>
<CAPTION>
Individual Grants
- --------------------------------------------------------------------------------- Potential Realizable Value at
% of Total Assumed Annual Rates of Stock
Options Price Appreciation for Option
Granted to Exercise or Term(1)
Options Employees in Base Price Expiration -------------------------------
Name Granted(2) Fiscal Year ($/Sh)(3) Date 5%($) 10%($)
- ----------------- ----------- ------------ --------- ------ -------------------------------
<S> <C> <C> <C> <C> <C> <C>
James T. Anderson 250,000(4) 43.4% $8.81 11/18/08 $1,385,139 $3,510,217
Michelle S. Bedard 50,000(5) 8.7% $8.81 11/18/08 $277,028 $702,043
James E. Flaherty 50,000(5) 8.7% $8.81 11/18/08 $277,028 $702,043
Anthony Angelini 80,000(6) 13.9% $8.81 11/18/08 $443,244 $1,123,269
20,000(7) 3.5% $10.75 02/03/08 $135,212 $342,655
- ----------------------------
</TABLE>
(1) The potential realizable value portion of the foregoing table
illustrates value that might be realized upon exercise of the options
immediately prior to the expiration of their term, assuming the
specified compounded rates of appreciation on the Company's Common
Stock over the term of the options. These numbers do not take into
account provisions of certain options providing for termination of the
option following termination of employment, nontransferability or
vesting over periods of up to five years. If the options are adjusted
as set forth in (2) below, the potential realizable value will be
somewhat less.
(2) In the event of a change of control of the Company, any unexercisable
portion of the options will become immediately exercisable. See "Change
of Control Arrangements."
(3) Exercise price is equal to the fair market value on the date of grant.
(4) Option was granted on November 19, 1998 and becomes exercisable with
respect to 62,500 shares on each of November 19, 1999, 2000, 2001 and
2002. The option does not terminate upon termination of employment but
is only exercisable to the extent the option was vested on date of
termination of employment.
(5) Option was granted on November 19, 1998 and becomes exercisable with
respect to 12,500 shares on each of November 19, 2000, 2001, 2002 and
2003. The option terminates on the three-month anniversary date of
optionee's termination of employment.
(6) Option was granted on November 19, 1998 and becomes exercisable with
respect to 20,000 shares on each of November 19, 2000, 2001, 2002 and
2003. The option terminates on the three-month anniversary date of
optionee's termination of employment.
(7) Option was granted on February 4, 1998 and became exercisable with
respect to 4,000 shares on February 4, 1999 and will become exercisable
with respect to 4,000 shares on each of February 4, 2000, 2001, 2002
and 2003. The option terminates on the three-month anniversary date of
optionee's termination of employment.
<PAGE>
Option Exercises During 1998 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 1998 and
the number and value of options at December 25, 1998. The Company does not have
any outstanding stock appreciation rights.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised Options In-the Money Options at
Shares at December 25, 1998 December 25, 1998(1)
Acquired on Value Realized ------------------------------ ----------------------------
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ -------------- ------------------------------ ----------------------------
<S> <C> <C> <C> <C> <C> <C>
James T. Anderson -- -- 126,250 373,750 $820,297 $1,914,952
Michelle S. Bedard -- -- 61,250 88,750 $386,827 $469,622
James E. Flaherty -- -- 14,000 71,000 $107,632 $367,848
Anthony Angelini -- -- 0 100,000 $0 $374,000
</TABLE>
(1) Value is calculated on the basis of the difference between the option
exercise price and $12.938, the closing sale price for the Company's
Common Stock at December 25, 1998 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 $1,500 for each Board meeting and $500 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 (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 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.
<PAGE>
Compensation Committee Report on Executive Compensation
Compensation Committee Interlocks and Insider Participation. The
Compensation Committee of the Board of Directors of the Company is composed of
directors Robert Ezrilov, Janice Ozzello Wilcox and Howard P. Liszt. Mr.
Ezrilov, is also the President and a director of Metacom, Inc., a shareholder of
the Company. Metacom and the Company are parties to a Manufacturing Agreement,
pursuant to which the Metacom has agreed to purchase certain compact discs and
cassettes from the Company at the same price as Metacom could obtain such
products and services from an unrelated third party. See the section of this
Proxy Statement entitled Executive Compensation - Certain Transactions.
Overview and Philosophy. The Compensation Committee's executive
compensation policies are designed to enhance the financial performance of the
Company, and thus shareholder value, by significantly aligning the financial
interests of the Company's key executives with those of the Company's
shareholders. Compensation of the Company's executive officers is comprised of
four parts: base salary, annual incentive bonuses, fringe benefits and long-term
incentive opportunity in the form of stock options.
The Compensation Committee believes, but has not conducted any formal
survey, that the base salaries of the Company's executive officers (plus sales
commissions for certain executive officers) are generally comparable to base
salaries of executive officers of comparable publicly-held companies. Executive
officers also have the opportunity to earn cash bonuses if certain Company
financial performance goals are met. Long-term incentives are based on stock
performance through stock options under the Company's 1996 Stock Option Plan
("1996 Plan"). The Compensation Committee believes that stock ownership by the
Company's executive officers is beneficial in aligning management's and
shareholders' interests in the enhancement of shareholder value. Overall, the
intent is to have a significant emphasis on variable compensation components and
less on fixed cost components. The Compensation Committee believes this
philosophy and structure are in the best interests of the Company's
shareholders.
Bonuses. The Company has followed a policy of awarding bonuses to its
executive officers, at the discretion of the Compensation Committee, based on
the individual performance of the executive officers as well as the overall
performance of the Company.
Stock Options and Other Incentives. The Company's stock option program
is the Company's long-term incentive plan for executive officers and key
employees. The objectives of the program are to align executive and shareholder
long-term interests by creating a strong and direct link between executive pay
and shareholder return, and to enable executives to develop and maintain a
significant, long-term ownership position in the Company's Common Stock.
The Company's 1996 Plan authorizes the Compensation Committee of the
Board of Directors to award stock options to executive officers and other
employees. Stock options are generally granted each year, at an option price
equal to the fair market value of the Company's Common Stock on the date of
grant, and vest over a period of three to five years. The amount of stock
options awarded is generally a function of the recipient's salary and position
in the Company. Awards are intended to be generally competitive with other
companies of comparable size and complexity, although the Compensation Committee
has not conducted any thorough comparative analysis.
<PAGE>
Benefits. The Company provides medical and insurance benefits to its
executive officers which are generally available to all Company employees. The
Company has a 401(k) plan in which all qualified employees, including the
executive officers, may participate. The amounts of perquisites allowed to
executive officers, as determined in accordance with rules of the Securities and
Exchange Commission, did not exceed 10% of salary in fiscal 1998.
Chief Executive Officer Compensation. James T. Anderson served as the
Company's Chief Executive Officer in fiscal 1998. His compensation was
determined in accordance with the policies described above as applicable to all
executive officers. His base salary was increased from $215,000 in fiscal 1997
to $250,000 in fiscal 1998 in light of the Company's increase in revenues and
earnings. Mr. Anderson also received a bonus of $341,067 in fiscal 1998 compared
to a bonus of $204,441 in fiscal 1997. The bonus amount is based on the
Company's earnings, in accordance with the terms of Mr. Anderson's Employment
Agreement, as described in the section of this Proxy Statement entitled
Executive Compensation - Employment Agreements and Termination of Employment
Arrangements. As noted in such section, Mr. Anderson's Employment Agreement
terminated on December 31, 1998. The Compensation Committee, with the assistance
of an outside consultant, is currently negotiating a new Employment Agreement
with Mr. Anderson.
In November 1998, the Compensation Committee granted Mr. Anderson an
option to purchase an aggregate of 250,000 shares of the Common Stock of the
Company at $8.81 per share, the fair market value on the date of grant. The
option is contingent on continued employment by the Company and will vest to the
extent of 62,500 shares on the first four anniversary dates of the date of
grant. The option will expire in November of 2008.
Summary. Aggregate executive compensation increased moderately in
fiscal 1998 and the Company awarded stock options to officers because the
Company achieved record revenues and earnings. The Compensation Committee
intends to continue its policy of paying relatively moderate base salaries,
basing bonuses on performance and granting options to provide long-term
incentive.
Robert Ezrilov
Janice Ozzello Wilcox
Howard P. Liszt
Members of the
Compensation Committee
<PAGE>
Stock Performance Chart
The following graph compares the yearly percentage change in the
cumulative total stockholder return on the Company's Common Stock during the
three fiscal years ended December 25, 1998 with the cumulative total return on
the S&P 500 Composite Stock Index and the S&P SmallCap Computer (Software and
Services) Index. The comparison assumes $100 was invested on May 7, 1996 (the
date that the Company's stock began to be publicly traded) in the Company's
Common Stock and in each of the foregoing indices and assumes reinvestment of
dividends.
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
05/07/96 12/27/96 12/26/97 12/25/98
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Zomax Optical Media $100.00 $ 77.78 $135.64 $191.67
S&P 500 Composite Stock Index $100.00 $119.94 $147.87 $194.38
S&P SmallCap Computer (Software & Services) $100.00 $ 73.34 $ 74.41 $ 99.51
</TABLE>
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
<PAGE>
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.
As noted above, Mr. Anderson's Employment Agreement terminated on
December 31, 1998. The Compensation Committee, with the assistance of an outside
consultant, is currently negotiating a new Employment Agreement with Mr.
Anderson.
Change of Control Arrangements
The Company's 1996 Stock Option Plan (the "Plan") provides that, 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 under the Plan shall become exercisable in
full. The acceleration of the exercisability of outstanding options may be
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.
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.
Based solely on its review of the copies of such forms received by it,
the Company believes that, during fiscal year 1998, all officers, directors and
greater than ten-percent beneficial owners complied with the applicable filing
requirements, except that Anthony Angelini reported one transaction late on a
Form 5 which was timely filed. Subsequently, Phillip Levin reported two
transactions on a Form 4 which was not timely filed.
Certain Transactions
Metacom, Inc., a 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 who also serves on the Company's Compensation Committee, is
President of Metacom. Pursuant to the Manufacturing Agreement, Metacom has
agreed to purchase certain compact discs and cassettes from the Company 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's purchases of $411,000 from the Company in fiscal 1998 accounted
<PAGE>
for 0.7% of the Company's revenues in fiscal 1998. As a result of Metacom not
meeting its prior obligations under the Manufacturing Agreement, Metacom has
agreed to pay the Company $350,000 under a payment schedule through 1999.
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 October 2, 1998, the Company transferred a warrant to purchase
906,350 shares of Chumbo Holdings Corporation ("Chumbo") Common Stock (the
"Warrant") to James T. Anderson, the Company's President and Chief Executive
Officer, in consideration for Mr. Anderson's additional responsibilities as
Chief Executive Officer of Chumbo, of which the Company owns a 35.6% interest.
The Company acquired the Warrant when it purchased 4,310,345 shares of Chumbo
Common Stock for an investment of $5,000,000. The Warrant is exercisable for a
ten-year period at a per share exercise price of $1.16.
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.
AMENDMENT TO ARTICLES TO CHANGE NAME
(Proposal #3)
On January 20, 1999, the Board of Directors unanimously approved an
amendment to the Company's Articles of Incorporation which amends Article 1 of
the Articles of Incorporation to change the Company's name from Zomax Optical
Media, Inc. to Zomax Incorporated in order to better associate the Company with
its business, which has expanded beyond optical media.
Vote Required. The Board of Directors recommends that the shareholders
approve the name change of the Company. Under applicable Minnesota law and the
Company's current Articles of Incorporation, approval of the name change
amendment 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 independent
public accountants of the Partnership, the Company's predecessor, 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 1999 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 31, 1999. 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 1999 Annual
Meeting. If any other matter properly comes before the 1999 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 2000 Annual Meeting must be received by the
Company by December __, 1999 to be included in the Company's proxy statement and
related proxy for the 2000 Annual Meeting. Shareholder proposals intended to be
presented at the 2000 Annual Meeting but not included in the Company's proxy
statement and proxy will be considered untimely if received by the Company after
_____________, 1999.
ANNUAL REPORT
A copy of the Company's Annual Report to Shareholders for the fiscal
year ended December 25, 1998, 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-K
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-K FOR THE FISCAL YEAR ENDED DECEMBER 25,
1998, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE
FINANCIAL STATEMENTS AND A LIST OF EXHIBITS TO SUCH FORM 10-K. THE COMPANY WILL
FURNISH TO ANY SUCH PERSON ANY EXHIBIT DESCRIBED IN THE LIST ACCOMPANYING THE
FORM 10-K UPON THE ADVANCE PAYMENT OF REASONABLE FEES. REQUESTS FOR A COPY OF
THE FORM 10-K 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 11, 1999,
YOU WERE A BENEFICIAL OWNER OF SHARES ENTITLED TO VOTE AT THE 1999 ANNUAL
MEETING OF SHAREHOLDERS.
BY ORDER OF THE BOARD OF DIRECTORS
James T. Anderson, President
Dated: April __, 1999
<PAGE>
ZOMAX OPTICAL MEDIA, INC.
------------------
PROXY
for Annual Meeting to be held May 3, 1999
------------------
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 1999 Annual Meeting
of Shareholders of the Company to be held at the Lutheran Brotherhood Building,
located at 625 Fourth Avenue S., Minneapolis Minnesota at 3:30 p.m., on Monday,
May 3, 1999, and at any adjournment thereof. The undersigned hereby revokes all
proxies previously granted with respect to such Annual Meeting.
The Board of Directors recommends that you vote "FOR" each proposal.
1. Set the number of directors at five (5).
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Elect Directors. Nominees: Phillip T. Levin, James T. Anderson,
Janice Ozzello Wilcox, Robert Ezrilov,
Howard P. Liszt
[ ] FOR all nominees listed above [ ] WITHHOLD AUTHORITY to
(except those whose names have vote for all nominees
been written on the line below) listed above
------------------------------------------------------------------
3. Approve an amendment to the Company's Articles of Incorporation to
change the corporate name from Zomax Optical Media, Inc. to Zomax
Incorporated.
4. Ratify the appointment of Arthur Andersen LLP as the Company's
independent auditors for the year ending December 31, 1999.
[ ] 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:_____________________________, 1999
_________________________________________
_________________________________________
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.
