UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

 

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (date of earliest event reported): February 21, 2013

 

Rimage Corporation

(Exact name of Registrant as Specified in its Charter)

 

Minnesota

(State Or Other Jurisdiction Of Incorporation)

 

000-00619 41-1577970
(Commission File Number) (I.R.S. Employer Identification No.)
   

7725 Washington Avenue South

Minneapolis, MN

55439
(Address Of Principal Executive Offices) (Zip Code)

 

(952) 944-8144

Registrant’s Telephone Number, Including Area Code

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):

 

☐ Written communications pursuant to Rule 425 under the Securities Act

 

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act

 

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act

 

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act

 

 

 

 
 

Items under Sections 1, 3, 4 and 6 through 8 are not applicable and therefore omitted.

 

ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION .

 

Rimage Corporation (the “Company”) hereby furnishes as Exhibit 99.1 a press release issued on February 26, 2013 disclosing material non-public information regarding its results of operations for the fiscal year and fourth quarter ended December 31, 2012 and hereby furnishes as Exhibit 99.2 statements of Sherman L. Black, its President and Chief Executive Officer, and James R. Stewart, its Chief Financial Officer, made on February 26, 2013 at a telephone conference relating to the fiscal year and fourth quarter ended December 31, 2012 results.

 

As stated in the February 26, 2013 press release, there were 8,653,932 shares of the Company’s common stock outstanding as of December 31, 2012.

 

ITEM 5.02 DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN OFFICERS .

 

2013 Base Salaries for Executive Officers

 

On February 20, 2013, the Compensation Committee of the Company recommended, and on February 21, 2013, the Board of Directors of the Company approved, an increase in the annual base salary of James R. Stewart, the Company’s Chief Financial Officer to $295,000, with the increase effective January 1, 2013. The base salary of Sherman L. Black, the Company’s President and Chief Executive Officer, was not changed. The Board of Directors also determined that, because of changes in responsiblity, Samir Mittal, the Company’s Senior Vice President and Chief Technology Officer, is not an executive officer under Rule 3b-7 of the Securities Exchange Act of 1934, as amended, as of December 31, 2012.

 

2012 Incentive Plan Payouts

 

On February 20, 2013, the Compensation Committee recommended, and on February 21, 2013, the Board of Directors approved, cash incentive payments under the Company’s 2012 cash incentive compensation plan (the “2012 Incentive Plan”) to Sherman L. Black, President and Chief Executive Officer; James R. Stewart, Chief Financial Officer; and Samir Mittal, Senior Vice President and Chief Technology Officer.

 

Under the 2012 Incentive Plan, the Compensation Committee determined minimum, target and maximum performance goals applicable to the Company’s executive officers for 2012 under three matrices: one relating to the Company’s disc publishing business, one relating to the Company’s Qumu business and one relating to the Company’s online publishing product. With respect to the disc publishing matrix, the Compensation Committee set 2012 quarterly and annual performance goals at the minimum, target and maximum level related to sales and operating income as a percentage of sales. With respect to the Qumu business, the Compensation Committee set 2012 annual performance goals at the minimum, target and maximum level for contracted commitments ( t he dollar value of signed customer purchase commitments) from all software sales and operating expense (excluding the amortization of Qumu intangibles, but including an allocated portion of general and administrative expense). With respect to the online publishing product, the Compensation Committee set 2012 annual performance goals at the minimum, target and maximum level for revenue and contracted commitments ( t he dollar value of signed customer purchase commitments) from sales of the online publishing product. In each of the three matrices, a performance factor was determined by referencing incrementally increasing amounts of each of the two performance goals that form the matrix.

 

 
 

For Messrs. Black and Stewart, the three matrices were weighted 50% to the disc publishing matrix, 35% to the Qumu matrix and 15% to the online publishing matrix. Based upon the performance under the three matrices at the 50%-35%-15% weighting, the “company average” bonus opportunity was determined. For Mr. Mittal, the bonus opportunity was weighted 60% to the online publishing matrix and 40% to the company average. The matrix performance factors, weighted as described above, were multiplied by the executive officer’s target bonus percentage as previously approved by the Compensation Committee and 2012 base salary to determine the cash incentive payout.

 

The following table summarizes the estimated incentive payouts under the 2012 Incentive Plan:

 

Name and Title 2012 Incentive Plan
Estimated Incentive Pay Amount

Sherman L. Black

President and Chief Executive Officer

 

$140,063

James R. Stewart

Chief Financial Officer

 

$  62,325

Samir Mittal

Senior Vice President and Chief Technology Officer

 

$  23,406

 

These payouts reflect achievement of the performance goals for the disc publishing business at less than target, for the Qumu business at more than the maximum and for the online publishing product at less than the minimum. After applying the weighting specified by the 2012 Incentive Plan, Messrs. Black and Stewart’s payout is 49.8% of their respective target bonus percentages and Mr. Mittal payout is 19.9% of his target bonus percentage.

 

The estimated cash incentive payouts will be finalized upon completion of the audit of the Company’s financial statements for the year ended December 31, 2012, but the final amounts are not expected to change materially from the estimated amounts stated above. These cash incentive payments will be paid following substantial completion of the audit, which is expected to be on or about February 28, 2013.

 

 

 
 

Establishment of 2013 Short-Term Incentive Plan

 

On February 20, 2013, the Compensation Committee of the Company approved, and on February 21, 2013 the Board of Directors of the Company ratified, the establishment of the Company’s short-term incentive program for 2013 (the “2013 Incentive Plan”) and set the cash incentive pay opportunities under the 2013 Incentive Plan for the Company’s current executive officers: Sherman L. Black, President and Chief Executive Officer, and James R. Stewart, Chief Financial Officer.

 

Under the 2013 Incentive Plan, the Compensation Committee determined minimum, target and maximum performance goals applicable to the Company’s current executive officers under two matrices: one relating to the Company’s disc publishing business and one relating to the Company’s software business. For Messrs. Black and Stewart, the two matrices are weighted 25% to the disc publishing matrix and 75% to the software matrix. With respect to the disc publishing matrix, the Compensation Committee set 2013 quarterly and annual performance goals at the minimum, target and maximum level related to sales and operating income as a percentage of sales (excluding the impact of allocating general and administrative expense to the software business). With respect to the software business, the Compensation Committee set 2013 annual performance goals at the minimum, target and maximum level for contracted commitments ( t he dollar value of signed customer purchase commitments) from all software sales and operating expense (excluding the impact of amortization of Qumu intangibles and the general and administrative expense allocated to the software business). In each of the two matrices, a performance factor is determined by referencing incrementally increasing amounts of each of the two performance goals that form the matrix. The performance factor, weighted as described below, is multiplied by the executive officer’s target bonus percentage and base salary to determine the cash incentive amount. If achievement as to any particular performance goal is between two defined amounts in the matrix, the performance factor will be interpolated. Further, no incentive amount will be earned by any participant for the measurement period if the minimum performance goals for that period as set by the matrix are not achieved. Achievement of the performance goals at less than target level will result in decreasing incentive amounts under each matrix until the achievement fails to meet the minimum performance goals under the matrix, at which point the performance factor is zero and participant is entitled to no incentive payment with respect to that matrix.

 

The Compensation Committee also approved the cash incentive amounts that the current executive officers may earn under the 2013 Incentive Plan based upon percentages of their respective salaries. Under the 2013 Incentive Plan, the maximum incentive amount that may be achieved for any period will not exceed two times his incentive amount at the target level, even if actual performance exceeds the maximum for the performance goals.

 

All incentive amounts earned in 2013 will be paid in the first quarter of 2014 and an executive officer must be employed by the Company as of December 31, 2013 and as of the payment date in order to receive payout of any incentive amounts earned during the year unless termination of employment is due to death, disability or follows a change in control. Additionally, all incentive payments are subject to “clawback” to the extent required by federal law.

 

 
 

The following table shows the incentive amounts as a percentage of salary that will be earned by Mr. Black and Mr. Stewart under the 2013 Incentive Plan upon the Company’s achievement of the target and maximum goals under the 2013 Incentive Plan, assuming achievement at the target or maximum level, respectively, for each period under each matrix.

 

Executive Officer and Title Incentive Opportunity Under 2013 Incentive Plan
As a Percentage of Base Salary
  Target Goals Achieved Maximum Goals Achieved

Sherman L. Black

  President and Chief Executive Officer

 

90% 180%

James R. Stewart

  Chief Financial Officer

 

55% 110%

 

Establishment of Long-Term Incentive Program

 

On February 20, 2013, the Compensation Committee of the Company approved, and on February 21, 2013 the Board of Directors of the Company ratified, the establishment of a long-term incentive program for executive officers (the “LTI Program”). The LTI Program was adopted under the Company’s Second Amended and Restated 2007 Stock Incentive Plan (the “2007 Plan”) and accordingly, awards under the LTI Program are subject to the clawback and other features of the 2007 Plan. The LTI Program is a performance-based program that incorporates stock price as a performance measure and that is also designed to operate as a retention tool. The LTI Program was recommended by the Compensation Committee after taking into consideration the advisory vote on the compensation of the Company’s named executive officers as described in the Company’s proxy statement for its 2012 Annual Meeting of Shareholders and information gleaned from the Company’s shareholder engagement and outreach efforts during 2012, as well as information provided by an independent compensation consultant engaged by the Compensation Committee in early Fall 2012 to provide it with assistance in developing a long-term performance and retention program for both executive officers and key employees.  The long-term performance and retention program for key employees was implemented in December 2012.

 

In connection with the LTI Program, the Compensation Committee recommended and Board of Directors approved a long-term incentive bonus agreement between the Company and Sherman L. Black, attached hereto as Exhibit 10.1. The Compensation Committee also recommended and Board of Directors also approved a long-term incentive bonus agreement between the Company and James R. Stewart, attached hereto as Exhibit 10.2. Collectively, the long-term incentive bonus agreements are referred to as the “LTI Agreements.”

 

Under the LTI Agreements, Mr. Black and Mr. Stewart are eligible for an LTI bonus in the amount of $1,500,000 and $590,000, respectively, at the target level. For Mr. Black, the actual amount of the LTI bonus will be based all upon performance. For Mr. Stewart, 50% of the LTI bonus is based upon time and 50% is based upon performance. In each case, performance is based upon performance measures approved by the Compensation Committee for the two twelve month periods ending December 31, 2013 and 2014. As described below, the Compensation Committee approved performance measures for the year ended December 31, 2013 through the adoption of two matrices. The Compensation Committee expects to approve performance measures relating to the year ended December 31, 2014 in early 2014.

 

 
 

In connection with the adoption of the LTI Program and the LTI Agreements, the Compensation Committee recommended and the Board of Directors approved performance measures for the twelve month performance period ending December 31, 2013 consisting of two performance matrices, one relating to the disc publishing business and one relating to the software business. With respect to the disc publishing business, the Compensation Committee set 2013 annual performance goals at the minimum, target and maximum level for operating income (which may be adjusted for extraordinary costs as determined by the Compensation Committee) and stock price. With respect to the software business, the Compensation Committee set 2013 annual performance goals at the minimum, target and maximum level for contracted commitments ( t he dollar value of signed customer purchase commitments) from all software sales and stock price. In each of the two matrices, a performance factor is determined by referencing incrementally increasing amounts of each of the two performance goals that form the matrix. If achievement as to any particular performance goal is between two defined amounts in the matrix, the performance factor will be interpolated. Further, the performance factor will be zero if the minimum performance goals for that particular matrix are not achieved. Achievement of the performance goals at less than target level will result in a decreasing performance factor under each matrix until the achievement fails to meet the minimum performance goals under the matrix, at which point the performance factor will be zero and the executives will be entitled to no LTI bonus payment with respect to that matrix. For each of Messrs. Black and Stewart, the performance factor will be weighted 25% to the disc publishing matrix and 75% to the software matrix.

 

As to Mr. Black’s LTI bonus and the performance based portion of Mr. Stewart’s LTI bonus, 25% of such amount multiplied by the 2013 matrix performance factor will be paid on March 1, 2014, 25% of such amount multiplied by the 2014 matrix performance factor will be paid on March 1, 2015, and 50% of such amount multiplied by the weighted average of 2013 and 2014 matrix performance factors will be paid on July 1, 2015. As to the time based portion of Mr. Stewart’s LTI bonus, 25% of the such amount will be paid on March 1, 2014 and March 1, 2015 and 50% of such amount will be paid on July 1, 2015. An executive must be employed by the Company on the payment date to receive the LTI bonus payment, except that if the executive’s employment is terminated by the Company without cause or if a change in control occurs, the Company will pay the executives the LTI bonus amounts as described in and at the times stated in the LTI Agreements.

 

The foregoing summaries of the LTI Agreements do not purport to be complete and are qualified in their entirety by reference to Exhibits 10.1 and 10.2 to this Current Report on Form 8-K, which are incorporated in this Item 5.02 by reference.

 

 

 

 
 

Amendments to Letter Agreements

 

On February 21, 2013, the Company entered into amended and restated letter agreements with Sherman L. Black, its Chief Executive Officer and James R. Stewart, its Chief Financial Officer relating to severance and change of control benefits (the “Amended Letter Agreement”). The Amended Letter Agreement, attached hereto as Exhibit 10.3, was approved by the Company’s Compensation Committee on February 20, 2013 and Board of Directors on February 21, 2013. The Amended Letter Agreement includes changes (i) removing the provisions that terminate payment of severance amounts at such time as the executive has secured other employment, (ii) to the excise tax provisions such that the executive officer will receive either the full amount of the payments or value of benefits under the Amended Letter Agreement or such lesser amount as determined by the Company that would result in no portion of the payment being subject to excise tax, whichever results in the receipt by the executive officer of the greatest amount on an after-tax basis, (iii) providing that a material reduction in short-term bonus opportunity constitutes “good reason”, and (iv) relating to Section 409A of the Internal Revenue Code of 1986, the Patient Protection and Affordable Care Act, and other updating and clarifying changes.

 

The foregoing summary of the Amended Letter Agreement does not purport to be complete and is qualified in its entirety by reference to Exhibit 10.3 to this Current Report on Form 8-K, which is incorporated in this Item 5.02 by reference.

 

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.

 

Exhibit No.   Description
99.1  

Press Release issued on February 26, 2013.

 

99.2  

Statements of Sherman L. Black, President and Chief Executive Officer, and James R. Stewart, Chief Financial Officer at a telephone conference held on February 26, 2013.

 

10.1  

Long-Term Incentive Bonus Agreement dated February 21, 2013 with Sherman L. Black.

 

10.2  

Long-Term Incentive Bonus Agreement dated February 21, 2013 with James R. Stewart.

 

10.3  

Form of Amended and Restated Severance/Change in Control Letter Agreement dated February 21, 2013 by and between Rimage Corporation and its Executive Officers.

 

 

 

 
 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  RIMAGE CORPORATION  
       
  By:  /s/ James R. Stewart  
      James R. Stewart  
      Chief Financial Officer  

 

Date: February 27, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

EXHIBIT 10.1

 

LONG TERM INCENTIVE BONUS AGREEMENT

 

THIS LONG TERM INCENTIVE AGREEMENT (“Agreement”) is made by and between Sherman Black, a Minnesota resident (“Employee”) and Rimage Corporation, a Minnesota corporation (the “Company”), and is dated as of February 21, 2013.

 

WHEREAS, the Company has recognized Employee as a key contributor to the success of the Company and the Company wishes to provide Employee with an incentive to continue employment with the Company through July 1, 2015, as it continues to work through a transformation that will lead the Company towards further success; and

 

WHEREAS, the Company agrees to provide Employee a cash bonus (“LTI Bonus”) according to the terms and conditions hereinafter set forth in return for Employee’s continued employment;

 

NOW, THEREFORE, in consideration of the premises and the mutual promises hereinafter contained, the parties hereto agree as follows:

 

1.              LTI Bonus

 

1.1         Plan Controls . This Agreement sets forth the terms and conditions of an award of a Stock Incentive consisting of cash to Employee under the Section 14 of the Rimage Corporation Second Amended and Restated 2007 Stock Incentive Plan (the “Plan”) that is intended to qualify for the Performance-Based Exception. Capitalized terms used herein and not defined shall have the meaning given such terms in the Plan; provided that the term “Cause” shall have the meaning given in that certain Amended and Restated Letter Agreement dated February 21, 2013 between the Company and Employee as may be further amended or amended and restated (the “Letter Agreement”).

 

1.2         LTI Bonus Period . The Employee will be eligible for an LTI Bonus in the amount of $1,500,000 (“LTI Bonus Amount”) at the target level, with the actual amount of the LTI Bonus determined by the Committee based upon performance measures approved by the Committee for the two twelve month periods ending December 31, 2013 and 2014 (the “Performance Periods”).

 

1.3         Payment of Performance Portion . The Committee shall determine the achievement of the performance measures for each Performance Period and the corresponding portion of the LTI Bonus, if any, earned by Employee with respect to such Performance Period. The LTI Bonus will be paid in lump sum installments in accordance with the following schedule, no later than the first regular payroll date following the installment date, but only if Employee is employed by the Company on the installment date set forth below and has been continuously so employed through such date:

 

 

1
 

 

Installment Date Percentage payable before taxes/other withholdings
March 1, 2014 25% of the LTI Bonus Amount multiplied by the 2013 matrix performance factor
March 1, 2015 25% of the LTI Bonus Amount multiplied by the 2014 matrix performance factor
July 1, 2015 50% of the LTI Bonus Amount multiplied by the weighted average of 2013 and 2014 matrix performance factors

 

1.4         Upon Termination without Cause.

 

(a)        Notwithstanding anything in Section 1.3 to the contrary, if Employee’s employment is terminated by the Company without Cause, subject to the execution and delivery to the Company of a general release and continued compliance with the Nondisclosure and Noncompetition Agreement with the Company as described in Section 1(c) of the Letter Agreement, the Company will pay Employee an amount equal to the LTI Bonus based upon the achievement of performance measures, as determined by the Committee, for each year of the Performance Periods completed prior to the termination or if any year of the Performance Periods is not completed, assuming the matrix performance factors were 1.0 for that year.

 

(b)        The amounts payable under Section 1.4(a) shall be paid in a lump sum no later than the first regular payroll date following the date of termination, subject to applicable tax withholding.

 

(c)        For purposes of this Agreement, “termination of employment” shall be interpreted consistent with the term “separation from service” within the meaning of Treas. Reg. §1.409A-1(h).

 

(d)        If Employee’s employment is terminated by the Company without Cause on the date of a Change in Control, Employee shall be entitled to the amounts under Section 1.5 in lieu of this Section 1.4. Upon payment to Employee of amounts under either Section 1.4 or Section 1.5, Employee shall have no further rights to the payment of the LTI Bonus and in no case shall Employee be entitled to amounts under both Section 1.4 and Section 1.5.

 

1.5         Upon Change In Control.

 

(a)        Notwithstanding anything in Section 1.3 to the contrary, if a Change in Control shall occur while Employee is employed by the Company, the Company shall pay Employee an amount equal to the LTI Bonus based upon the achievement of performance measures for the Performance Periods, whether or not completed, as determined by the Committee.

 

(b)        The amounts payable under Section 1.5(a) shall be paid in a lump sum no later than the first regular payroll date following the date of the Change in Control, subject to applicable tax withholding.

 

2
 

 

(c)        The payments received by Employee or to be received by Employee under Section 1.5(a) of this Agreement shall be subject to Section 2(e) of the Letter Agreement to the extent constituting a “parachute payment” under Section 280G of the Code.

 

2.              Closed Window . Employee agrees that at any time during the Performance Periods during which achievement of a stock price performance measure is being determined, Employee shall be prohibited from trading in securities of the Company under the Company’s Policy Regarding Buying and Selling Securities and such period of time shall be a closed window period as to Employee.

 

3.              Miscellaneous .

 

3.1         Letter Agreement Provisions . This Agreement shall be subject to the provisions of the Letter Agreement relating to arbitration (Section 3), successors (Section 5), and delay for specific employees (Section 7), each of which are incorporated into this Agreement.

 

3.2         Section 409A . Notwithstanding the foregoing, it is the intention of the parties that this Agreement be exempt from Code §409A to the greatest extent possible. Accordingly, all provisions herein shall be construed and interpreted consistent with that intent, but that, to the extent any payment constitutes nonqualified deferred compensation, the Company shall amend any such provision pertaining to such payment to comply with Code §409A and the regulations thereunder, in the least restrictive manner necessary without any diminution in the value of the payments to Employee.

 

3.3         Governing Law . This Agreement shall be construed and enforced in accordance with the internal laws of the State of Minnesota, without regard to conflicts of law provisions.

 

3.4         Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and enforceable against the parties actually executing such counterpart, and all of which, when taken together, shall constitute one instrument.

 

IN WITNESS WHEREOF , the parties have duly executed this Agreement as of the date and year first above written.

 

COMPANY: RIMAGE CORPORATION  
       
       
  By:  /s/  James R. Stewart  
  Its:  Chief Financial Officer  
       
       
EMPLOYEE: /s/  Sherman L. Black  
  Sherman L. Black  

 

 

3

 

EXHIBIT 10.2

 

LONG TERM INCENTIVE BONUS AGREEMENT

 

THIS LONG TERM INCENTIVE AGREEMENT (“Agreement”) is made by and between James R. Stewart, a Minnesota resident (“Employee”) and Rimage Corporation, a Minnesota corporation (the “Company”), and is dated as of February 21, 2013.

 

WHEREAS, the Company has recognized Employee as a key contributor to the success of the Company and the Company wishes to provide Employee with an incentive to continue employment with the Company through July 1, 2015, as it continues to work through a transformation that will lead the Company towards further success; and

 

WHEREAS, the Company agrees to provide Employee a cash bonus (“LTI Bonus”) according to the terms and conditions hereinafter set forth in return for Employee’s continued employment;

 

NOW, THEREFORE, in consideration of the premises and the mutual promises hereinafter contained, the parties hereto agree as follows:

 

1.              LTI Bonus

 

1.1         Plan Controls . This Agreement sets forth the terms and conditions of an award of a Stock Incentive consisting of cash to Employee under the Section 14 of the Rimage Corporation Second Amended and Restated 2007 Stock Incentive Plan (the “Plan”) that is intended to qualify for the Performance-Based Exception. Capitalized terms used herein and not defined shall have the meaning given such terms in the Plan; provided that the term “Cause” shall have the meaning given in that certain Amended and Restated Letter Agreement dated February 21, 2013 between the Company and Employee as may be further amended or amended and restated (the “Letter Agreement”).

 

1.2         LTI Bonus Period . The Employee will be eligible for an LTI Bonus in the amount of $590,000 at the target level, of which 50% is based on time (the “Time Portion”) and of which 50% is based on performance (“Performance Portion”) as provided in this Agreement with the actual amount of the Performance Portion determined by the Committee based upon performance measures approved by the Committee for the two twelve month periods ending December 31, 2013 and 2014 (the “Performance Periods”).

 

1.3         Payment of Time Portion . The Time Portion will be paid in lump sum installments in accordance with the following schedule, no later than the first regular payroll date after the installment date, but only if Employee is employed by the Company on the installment date set forth below and has been continuously so employed through such date:

 

Installment Date Percentage payable before taxes and other withholdings
March 1, 2014 25% of Time Portion
March 1, 2015 25% of Time Portion
July 1, 2015 50% of Time Portion

 

 

1
 

1.4         Payment of Performance Portion . The Committee shall determine the achievement of the performance measures for each Performance Period and the corresponding Performance Portion, if any, earned by Employee with respect to such Performance Period. The Performance Portion will be paid in lump sum installments in accordance with the following schedule, no later than the first regular payroll date following the installment date, but only if Employee is employed by the Company on the installment date set forth below and has been continuously so employed through such date:

 

Installment Date Percentage payable before taxes/other withholdings
March 1, 2014 25% of Performance Portion multiplied by the 2013 matrix performance factor
March 1, 2015 25% of Performance Portion multiplied by the 2014 matrix performance factor
July 1, 2015 50% of Performance Portion multiplied by the weighted average of 2013 and 2014 matrix performance factors

 

1.5         Upon Termination without Cause.

 

(a)        Notwithstanding anything in Sections 1.3 and 1.4 to the contrary, if Employee’s employment is terminated by the Company without Cause, subject to the execution and delivery to the Company of a general release and continued compliance with the Nondisclosure and Noncompetition Agreement with the Company as described in Section 1(c) of the Letter Agreement, the Company will pay Employee an amount equal to:

 

(i)        the full amount of the Time Portion; and

 

(ii)        the Performance Portion based upon the achievement of performance measures, as determined by the Committee, for each year of the Performance Periods completed prior to the termination or if any year of the Performance Periods is not completed, assuming the matrix performance factors were 1.0 for that year.

 

(b)        The amounts payable under Section 1.5(a) shall be paid in a lump sum no later than the first regular payroll date following the date of termination, subject to applicable tax withholding.

 

(c)        For purposes of this Agreement, “termination of employment” shall be interpreted consistent with the term “separation from service” within the meaning of Treas. Reg. §1.409A-1(h).

 

(d)        If Employee’s employment is terminated by the Company without Cause on the date of a Change in Control, Employee shall be entitled to the amounts under Section 1.6 in lieu of this Section 1.5. Upon payment to Employee of amounts under either Section 1.5 or Section 1.6, Employee shall have no further rights to the payment of the LTI Bonus and in no case shall Employee be entitled to amounts under both Section 1.5 and Section 1.6.

 

2
 

1.6         Upon Change In Control.

 

(a)        Notwithstanding anything in Sections 1.3 and 1.4 to the contrary, if a Change in Control shall occur while Employee is employed by the Company, the Company shall pay Employee an amount equal to:

 

(i)        the full amount of the Time Portion; and

 

(ii)        the Performance Portion based upon the achievement of performance measures during the Performance Periods, whether or not completed, as determined by the Committee.

 

(b)        The amounts payable under Section 1.6(a) shall be paid in a lump sum no later than the first regular payroll date following the date of the Change in Control, subject to applicable tax withholding.

 

(c)        The payments received by Employee or to be received by Employee under Section 1.6(a) of this Agreement shall be subject to Section 2(e) of the Letter Agreement to the extent constituting a “parachute payment” under Section 280G of the Code.

 

2.              Closed Window . Employee agrees that at any time during the Performance Periods during which achievement of a stock price performance measure is being determined, Employee shall be prohibited from trading in securities of the Company under the Company’s Policy Regarding Buying and Selling Securities and such period of time shall be a closed window period as to Employee.

 

3.              Miscellaneous .

 

3.1         Letter Agreement Provisions . This Agreement shall be subject to the provisions of the Letter Agreement relating to arbitration (Section 3), successors (Section 5), and delay for specific employees (Section 7), each of which are incorporated into this Agreement.

 

3.2         Section 409A . Notwithstanding the foregoing, it is the intention of the parties that this Agreement be exempt from Code §409A to the greatest extent possible. Accordingly, all provisions herein shall be construed and interpreted consistent with that intent, but that, to the extent any payment constitutes nonqualified deferred compensation, the Company shall amend any such provision pertaining to such payment to comply with Code §409A and the regulations thereunder, in the least restrictive manner necessary without any diminution in the value of the payments to Employee.

 

3.3         Governing Law . This Agreement shall be construed and enforced in accordance with the internal laws of the State of Minnesota, without regard to conflicts of law provisions.

 

3
 

3.4         Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and enforceable against the parties actually executing such counterpart, and all of which, when taken together, shall constitute one instrument.

 

IN WITNESS WHEREOF , the parties have duly executed this Agreement as of the date and year first above written.

 

 

COMPANY: RIMAGE CORPORATION  
       
       
  By:  /s/  Sherman L. Black  
  Its:  Chief Executive Officer  
       
       
EMPLOYEE: /s/  James R. Stewart  
  James R. Stewart  

 

 

 

 

 

 

 

4

 

EXHIBIT 10.3

 

[Form of Amended and Restated Severance/Change in Control
Letter Agreement between the Company and its executive officers]

 

February 21, 2013

 

[Name of Executive Officer]

[Address of Executive Officer]

[Address of Executive Officer]

 

Dear [Name of Executive Officer]:

 

The purpose of this Letter Agreement is to set forth our agreement in regard to your severance arrangement. Although your employment is “at will” and may be terminated by you or Rimage Corporation (“Rimage”) at any time for any reason, Rimage has agreed to provide you with a particular severance pay benefit in the event Rimage terminates your employment without Cause (as defined below) or, for the specified periods identified below following the date of this Letter Agreement or following a Change in Control (as defined below), you terminate your employment for Good Reason (as defined below). Terms not otherwise defined in this letter (the “Letter Agreement”) shall have the meaning given such terms on Schedule 1, which is incorporated herein by reference. Rimage’s obligation to you under this Letter Agreement is, among the other requirements set forth below, subject to the condition that you execute a Nondisclosure and Noncompetition Agreement in the form attached as Exhibit A, which is incorporated herein by reference.

 

Specifically, we have agreed as follows:

 

1. Severance .

 

(a) If your employment is terminated by Rimage without Cause (other than during the twelve (12) month period following a Change in Control, including the date of the Change in Control), subject to the condition stated in Section 1(c), Rimage will:
(i) continue to pay your base salary in accordance with Rimage’s regular payroll practices for a period of twelve (12) months thereafter subject to applicable tax withholding;
(ii) pay you an amount equal to the average of the annual short-term incentive bonus amounts you received with respect to the three complete calendar years prior to the date of your termination, such bonus payment, subject to applicable tax withholding, to be made in equal installments consistent with Rimage’s regular payroll practices over a period of twelve (12) months from the date of your termination; and

 

 
 
(iii) if you are eligible for and elect COBRA or state continuation of the Rimage health, dental and group life insurance benefits, Rimage shall pay the portion of such COBRA premium that it pays for active employees until the earlier of: (A) twelve (12) months from the date COBRA coverage begins; or (B) the date COBRA coverage otherwise terminates. You shall pay the remaining portion of the premiums for such benefits during such period and, if applicable, the full premium thereafter. Payment of the COBRA premium shall be made contemporaneous with the date the premiums are incurred and may not be exchanged for any other benefit or cash payment. Payment of premiums in one year will not affect the payment of premiums in any other year. In the event the payment of premiums under this paragraph would result in a discriminatory benefit under the Patient Protection and Affordable Care Act (the “Act”), the amount of the payment shall be treated as taxable income to you, or otherwise revised to comply with the Act, preserving, to the greatest extent possible, the economic benefit provided by such premium payment.
(b) If you resign (other than for Good Reason during the twelve (12) month period following a Change in Control, including the date of the Change in Control), if Rimage terminates your employment for Cause or if your employment terminates as a result of your death or disability, you shall be entitled to receive your base salary accrued but unpaid as of the date of termination, but shall not be entitled to receive any salary continuation benefit thereafter.
(c) In case of termination without Cause, you shall be entitled to receive the amounts due you under Section 1(a) only upon your execution and delivery to Rimage of a general release with respect to any and all claims against Rimage and its officers, directors, employees, agents and shareholders, acceptable in form and substance to Rimage in all respects, and provided you continue to comply with the terms of the Nondisclosure and Noncompetition Agreement with Rimage. Rimage will deliver the release to you no later than 5 business days following your termination of employment. If you do not execute the release within the time period set forth in the release, you will be deemed to have waived any right to payment under this Section 1. Each installment shall be considered a separate payment for purposes of Code §409A. Any installment otherwise due prior to the execution of the release and expiration of the right to rescind will be paid to you as part of the first payment, which will occur 60 days after your termination of employment if the above conditions are satisfied.
(d) For purposes of this Agreement, “termination of employment” shall be interpreted consistent with the term “separation from service” within the meaning of Treas. Reg. §1.409A-1(h), and for purposes of Code §409A, each payment shall be considered a separate payment.

 

2
 
2. Change in Control .

 

(a) If a Change in Control shall occur and if on the date of a Change in Control or within twelve (12) months following a Change in Control, your employment is terminated by Rimage without Cause or by you for Good Reason, Rimage shall pay you a severance payment in cash in a single sum sixty (60) days of the date of termination equal to 100% of the sum of (i) your annual base salary, and (ii) your Target Bonus in effect on such date (without giving effect to any reduction that results in your termination for Good Reason). For purposes of this Letter Agreement, “Target Bonus” shall mean the amount payable in cash under all short-term annual incentive compensation plans of Rimage in which you participate, waiving any condition precedent to the payment to you and assuming that the performance goals for the period were achieved at the 100% level. Payment shall be made sixty (60) days from the date of termination provided that the release required under Section 2(f) has become effective during such sixty (60)-day period following any applicable revocation period.

 

(b) If you are eligible for and elect COBRA or state continuation of the Rimage health, dental and group life insurance benefits, Rimage shall pay the portion of such COBRA premium that it pays for active employees until the earlier of: (A) twelve (12) months from the date COBRA coverage begins; or (B) the date COBRA coverage otherwise terminates. You shall pay the remaining portion of the premiums for such benefits during such period. Payment of the COBRA premium shall be made contemporaneous with the date the premiums are incurred and may not be exchanged for any other benefit or cash payment. Payment of premiums in one year will not affect the payment of premiums in any other year. In the event the payment of premiums under this paragraph would result in a discriminatory benefit under the Act, the amount of the payment shall be treated as taxable income to you, or otherwise revised to comply with the Act, preserving, to the greatest extent possible, the economic benefit provided by such premium payment.

 

(c) Immediately prior to a Change in Control, you shall vest in all stock options that have been granted to you, subject to the provisions in Rimage’s Stock Option Plan. Approval of this Agreement by the Compensation Committee shall be deemed approval of the vesting of options as provided in the immediately preceding sentence for all purposes under Rimage’s Stock Option Plan.

 

(d) The payments under this paragraph shall be in lieu of and offset the amount of any severance to which you are entitled under paragraph 1(a) above. Amounts paid under this paragraph 2 shall be subject to applicable tax withholding.

 

 

3
 

 

(e) In the event the vesting of options, together with all other payments and the value of any benefit received or to be received by you would result in all or a portion of such amount being subject to excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended, (the “Code”) then the amount Rimage shall pay you shall be either (A) the full amount of such payments and the value of benefits received or to be received by you notwithstanding the provisions of this Section 2(e) (the “Full Payment”) or (B) such lesser amount as determined by Rimage in accordance with this Section 2(e) that would result in no portion of the payment being subject to excise tax under Section 4999 of the Code (the “Excise Tax”), whichever of the foregoing amounts, taking into account the applicable Federal, state, and local employment taxes, income taxes, and the Excise Tax, results in the receipt by you, on an after-tax basis, of the greatest amount of the payment notwithstanding that all or some portion of the payment may be subject to the Excise Tax. Rimage shall determine the order and amounts by which Full Payment is reduced. All determinations required to be made under this Section 2(e) shall be made by a nationally recognized accounting firm that is Rimage’s outside auditor immediately prior to the event triggering the payments that are subject to the Excise Tax (the “Accounting Firm”). Rimage shall cause the Accounting Firm to provide detailed supporting calculations of its determinations to Rimage and you. Notice must be given to the Accounting Firm within fifteen (15) business days after an event entitling you to any portion of the Full Payment and the Accounting Firm’s determination must be made within thirty (30) days of such notice. All fees and expenses of the Accounting Firm shall be borne solely by Rimage. The Accounting Firm’s determinations must be made with substantial authority (within the meaning of Section 6662 of the Code). The determination by the Accounting Firm shall be final and binding on you and Rimage.

 

(f) Notwithstanding anything herein to the contrary, you shall be entitled to receive the amounts due you under this Section 2 only upon your execution and delivery to Rimage of a general release with respect to any and all claims against Rimage and its officers, directors, employees, agents and shareholders, acceptable in form and substance to Rimage in all respects, and provided you continue to comply with the terms of the Nondisclosure and Noncompetition Agreement with Rimage. Rimage will deliver the release to you no later than 5 business days following your termination of employment. If you do not execute the release within the time period set forth in the release, you will be deemed to have waived any right to payment under this Section 2. Each installment shall be considered a separate payment for purposes of Code §409A.

 

3. Arbitration . All disputes or claims arising out of or in any way related to this Letter Agreement, including the making of this Letter Agreement, shall be submitted to and determined by final and binding arbitration under the American Arbitration Association Rules for Resolution of Employment Disputes. Arbitration proceedings may be initiated by either of us upon notice to the other and to the American Arbitration Association, and shall be conducted by one arbitrator in Minneapolis, Minnesota who has experience in employment matters. Unless we agree to have the person to serve as arbitrator within thirty (30) days of delivery of the list of proposed arbitrators by the American Arbitration Association, then, at the request of either of us, the single arbitrator shall be selected at the discretion of the American Arbitration Association. The arbitrator shall provide a reasoned decision and may award any remedy available at law or equity, including reasonable attorneys’ fees to the prevailing party. Rimage shall pay the costs of the arbitrator. The decision of the arbitrator shall be enforceable in any court of competent jurisdiction.

 

 

4
 

 

4. Entire Agreement . This Letter Agreement constitutes our entire agreement and supersedes all prior discussions, understandings and agreements with respect to the severance benefits which Rimage has agreed to provide to you, including the Amended and Restated Letter Agreement dated December 28, 2012. This Letter Agreement shall be governed and construed by the laws of the State of Minnesota and may be amended only in writing signed by both of us.

 

5. Successors . This Letter Agreement shall not be assignable, in whole or in part, by you. This Letter Agreement shall be binding upon and inure to the benefit of Rimage and its successors and assigns and upon any person acquiring, by merger, consolidation, purchase of assets or otherwise, all or substantially all of the assets and business of Rimage, and the successor shall be substituted for Rimage under this Letter Agreement.

 

6. Amendment and Termination . Rimage reserves the authority, without your consent, to terminate or amend this Letter Agreement at any time upon at least twelve months’ written notice specifying the date of termination or amendment; provided, however, that if a Change in Control occurs during the term of this Letter Agreement, no termination or amendment shall be effective earlier than the second anniversary of that Change in Control. Notwithstanding the foregoing, it is the intention of the parties that this Agreement be exempt from Code §409A as separation pay to the greatest extent possible. Accordingly, all provisions herein shall be construed and interpreted consistent with that intent, but that, to the extent any payment constitutes nonqualified deferred compensation, Rimage shall amend any such provision pertaining to such payment to comply with Code §409A and the regulations thereunder, in the least restrictive manner necessary without any diminution in the value of the payments to you.

 

7. Delay for Specified Employees . Notwithstanding the foregoing, if on the date of your “separation from service” (within the meaning of Treas. Reg. §1.409A-1(h)), you are a “specified employee” within the meaning of Treas. Reg. §1.409-1(i), then payment of any amount under this Agreement that constitutes nonqualified deferred compensation shall be delayed until the earlier of (i) the first day of the seventh month following your separation from service or the first date on which such payment would not be non-deductible as a result of Section 162(m) of the Code, whichever is later; or (ii) your death and in the event any such payment is so delayed, the amount of the first payment shall be increased for interest earned on the delayed payment based upon interest for the period of delay, compounded annually, equal to the prime rate (as published in the Wall Street Journal) in effect as of the date the payment should otherwise have been provided.

 

 

5
 

If this Letter Agreement accurately sets forth our agreement and understanding in regard to these matters, will you please sign this Letter Agreement where indicated below and return the executed letter to me for our files. A separate copy is enclosed for your records.

 

RIMAGE CORPORATION

 

 

By:     
Its:    

 

 

READ AND AGREED:

 

   

[Name of Executive Officer]

 

Dated as of February 21, 2013

 

 

 

 

 

 

 

 

 

6
 

SCHEDULE 1

 

 

Definition of “Cause”:

 

1. The failure by you to use your best efforts to perform the material duties and responsibilities of your position or to comply with any material policy or directive Rimage has in effect from time to time, provided you shall have received notice of such failure and have failed to cure the same within thirty days of such notice.
2. Any act on your part which is harmful to the reputation, financial condition, business or business relationships of Rimage, including, but not limited to, conduct which is inconsistent with federal or state law respecting harassment of, or discrimination against, any Rimage employee or harmful to your reputation or business relationships.
3. A material breach of your fiduciary responsibilities to Rimage, such as embezzlement or misappropriation of Rimage funds, business opportunities or properties, or to any customer, vendor, agent or employee of Rimage.
4. Your conviction of, or guilty plea or nolo contendere plea to a felony or any crime involving moral turpitude, fraud or misrepresentation.
5. A material breach of your Nondisclosure and Noncompetition Agreement with Rimage.

Definition of “Change in Control”:

 

Change in Control of Rimage shall mean a change in control which would be required to be reported in response to Item 5.01 of Form 8-K promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), whether or not Rimage is then subject to such reporting requirement, including without limitation, if:

 

(i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly of securities of Rimage representing 20% or more of the combined voting power of Rimage’s then outstanding securities (other than an entity owned 50% or greater by Rimage or an employee pension plan for the benefit of the employees of Rimage);

 

(ii) there ceases to be a majority of the Board of Directors comprised of (A) individuals who, on the date of this Letter Agreement, constituted the Board of Directors of Rimage; and (B) any new director who subsequently was elected or nominated for election by a majority of the directors who held such office prior to a Change in Control; or

 

(iii) Rimage disposes of at least 75% of its assets, other than (X) to an entity owned 50% or greater by Rimage or any of its subsidiaries, or to an entity in which at least 50% of the voting equity securities are owned by the shareholders of Rimage immediately prior to the disposition in substantially the same percentage or (Y) as a result of a bankruptcy proceeding, dissolution or liquidation of Rimage.

 

 

7
 

Definition of “Good Reason”:

 

Good Reason for the twelve month period following a Change in Control shall mean, without your express written consent, any of the following:

 

(i) a material diminution of your authority, duties or responsibilities with respect to your position immediately prior to the Change in Control, or

 

(ii) a material reduction in your base compensation as in effect immediately prior to the Change in Control;

 

(iii) a material reduction in your opportunity to earn a cash bonus under the annual short-term incentive compensation plan of Rimage in which you participate as in effect immediately prior to the Change in Control (for the avoidance of doubt, specifically excluding any reduction in your opportunity to earn a cash bonus under any long-term incentive compensation plan of Rimage in which you participate);

 

(iv) a material reduction in the authority of the person to whom you report (or a change in your reporting directly to the Board of Directors, if applicable);

 

(v) a material change in the geographic location at which you must perform services for Rimage; and

 

(vi) any other action or inaction that constitutes a material violation of this Agreement by Rimage;

 

provided that no such termination for Good Reason shall be effective unless: (A) you provide written notice to the Chair of the Board of Directors of the existence of a condition specified in paragraphs (i) through (vi) above within 90 days of the initial existence of the condition; (B) Rimage does not remedy such condition within 30 days of the date of such notice; and (C) you terminate your employment within 90 days following the last day of the remedial period described above.

 

 

 

8

 

EXHIBIT 99.1

(RIMAGE LOGO)

Rimage Reports 56% Sequential Increase in Qumu Fourth Quarter 2012
Revenues

Qumu Contracted Commitment Backlog Increases 50% from Third Quarter to $12.7 Million Overall Fourth Quarter 2012 Revenues of $20.7 Million Exceed Guidance

Minneapolis, MN – February 26, 2013 – Rimage Corporation (NASDAQ: RIMG) today reported its financial results for the fourth quarter and full year ended December 31, 2012.

 

 

Qumu Fourth Quarter Financial Highlights

•

Qumu revenues totaled $4.3 million in the fourth quarter of 2012, 56% above the $2.8 million in the third quarter 2012 and more than double its $1.8 million in revenues in the fourth quarter of 2011.

•

Qumu contracted commitments totaled $8.7 million in the 2012 fourth quarter, the best quarterly performance in its history. This compares with $4.5 million in contracted commitments in the recent third quarter. Qumu’s backlog of contracted revenue grew to $12.7 million at December 31, 2012 compared with $8.4 million at September 30, 2012.

Sherman L. Black, president and CEO, said, “The fourth quarter demonstrated the potential of our Qumu secure enterprise video solutions. Qumu’s momentum continued to build during the quarter with strong sequential growth in revenues, contracted commitments and backlog. Six new enterprise customers committed to Qumu’s enterprise video software and services, representing a broad spectrum of industries including food, pharma, high tech, financial services and transportation.”

“Enterprise customers are beginning to see video content used more and more as a means to increase employee engagement and team collaboration. Existing network infrastructure and collaboration tools are not equipped to enable the creation, management and delivery of video,” continued Mr. Black.

“Qumu allows organizations to capture, organize and distribute content across their extended enterprise to a wide variety of endpoints, including mobile devices. Qumu software offers information technology administrators and corporate communication leaders a way to securely address the challenges of video and rich content distribution overwhelming their data networks, while utilizing existing IT infrastructure.”

 

 

Disc Publishing Fourth Quarter Financial Highlights

•

Disc publishing revenues in the recent fourth quarter totaled $16.4 million, a decrease of 17% from revenues in the fourth quarter of 2011. The decrease continued to reflect softness in demand in Europe and continued funding challenges with the government business in the U.S.


“As expected, our disc publishing business remained challenging during the quarter, reflecting continued softness in the economies throughout Europe and budget issues faced by our government customers. We anticipate continued declines in disc publishing revenues. However, there are use cases like medical imaging and published financial information where there are high switching costs or the other technology alternatives are less viable. As a result, we believe the demand for disc publishing will continue into the future. We took actions in 2012 to reduce expenses in this business and continue to properly size our operating expense base to ensure this business remains a significant cash generator,” Mr. Black continued.

 

 

Fourth Quarter 2012 Financial Highlights

•

Total revenues for the fourth quarter 2012 were $20.7 million, above the high end of guidance of $18 to $20 million. Compared with revenues in the 2011 fourth quarter of $21.7 million, recent fourth quarter revenues represented a 4% decline, reflecting a decrease in revenues from disc publishing, offset by higher revenues from Qumu, acquired October 10, 2011.

•

Gross margin for the fourth quarter of 2012 was 51%, approximately the same as the gross margin in the fourth quarter of 2011 but improved from 48% in the third quarter of 2012. The improvement from the 2012 third quarter reflected a higher mix of revenue from Qumu software.

•

Operating expenses in the quarter were $12.0 million, down from $12.8 million in the fourth quarter of 2011. Included in the recent fourth quarter results was approximately $0.5 million of one-time severance costs.

•

The net loss for the fourth quarter was $1.1 million, or $(0.12) per share, significantly better than the fourth quarter guidance of a loss between $(0.20) and $(0.33) per share. This compares with a net loss of $1.4 million in the fourth quarter of 2011, or $(0.13) per share.

•

Cash and marketable securities totaled $50.1 million at December 31, 2012. During the quarter, the Company repurchased 1.4 million shares of Rimage common stock for a total of $8.4 million. Fourth quarter cash used in operations totaled $0.2 million.

 

 

Full Year 2012 Highlights

•

Full year 2012 revenues were $79.4 million, compared with $83.6 million in 2011, driven by a decline in revenues from the disc publishing operation partially offset by an increase in revenue from Qumu software and services.

•

The Company reported a net loss of $48.3 million, or $(4.85) per share, for 2012. Included in the loss were three non-cash charges totaling $40.7 million taken in the third quarter of 2012. These non-cash charges included a $22.2 million goodwill impairment charge that eliminated all the goodwill on the balance sheet, a $7.3 million impairment charge for the reduction in the fair market value of amortizing intangible assets and an $11.2 million charge to establish a valuation allowance against the Company’s deferred tax assets.

•

Excluding these non-cash charges and the amortization of Qumu intangibles, the non-GAAP net loss was $5.7 million, or $(0.57) per share in 2012. This compares with net income of $2.8 million, or $0.29 per diluted share, in 2011.

“As we look ahead, we are optimistic about our outlook. Qumu is our growth engine and our success in driving traction in this business in the second half of 2012 confirms our belief that we have strong differentiated solutions in the large and rapidly growing market for enterprise video communications. Our priorities during 2013 are to continue to drive significant revenue growth from Qumu, to maximize the cash generation from disc publishing, to maintain a healthy cash position and to drive toward improved profitability,” concluded Mr. Black.



Stock Repurchase Program
During the quarter, the Company repurchased approximately 1.4 million shares of Rimage common stock for a total cost of $8.4 million. There are approximately 778,000 shares remaining for repurchase under the authorization. As of December 31, 2012, there were 8,653,932 shares outstanding.

Financial Guidance
For the first quarter 2013, the Company expects revenues of between $19 and $21 million and the net loss per share is expected to be between $(0.18) and $(0.30). Excluding amortization of Qumu intangibles, non-GAAP net loss per share is expected to be between $(0.16) and $(0.28). These loss projections reflect no tax benefit due to the establishment of the tax valuation allowance for book purposes.

For total year 2013, the Company expects consolidated revenues to grow compared to 2012. Qumu revenues are expected to grow greater than 50% in 2013 compared to 2012. The Company expects this Qumu growth to be partially offset by a decline in disc publishing revenues. Consolidated cash from operations is expected at approximately break even levels for the year. The Company has approximately 778,000 shares remaining on its repurchase authorization and may repurchase shares from time to time during the year depending on market conditions.

 

 

 

 

Earnings per Share and Financial Guidance Reconciliation

 

 

 

 

Fourth Quarter 2012

 

Full Year 2012

 

 

 

 

GAAP earnings (loss) per share

$(0.12

)

$(4.85

)

 

 

 

 

Impact of amortization of intangibles

$0.03

 

$0.12

 

 

 

 

Impact of non cash charges for goodwill impairment, intangible asset impairment and deferred tax valuation allowance

$0.00

 

$4.16

 

 

 

 

 

Non-GAAP earnings (loss) per share

$(0.09

)

$(0.57

)

 

 

 

 

 

First Quarter 2013

 

 

 

 

 

 

 

Estimated GAAP earnings (loss) per share

$(0.18) - $(0.30

)

 

 

 

 

 

Estimated impact of amortization of intangibles

$0.02

 

 

 

 

 

 

 

Estimated Non-GAAP earnings (loss) per share

$(0.16) - $(0.28

)

 


Note to reconcile non-GAAP financial measures to GAAP
Management believes non-GAAP financial information provides meaningful supplemental information regarding the Company’s financial performance by excluding the amortization of Qumu acquisition intangibles that may not be indicative of the core business operating results and by excluding non-cash charges relating to the impairment of goodwill, a reduction of the value of amortizing intangible assets and the establishment of a valuation allowance against its deferred tax assets that are not related to the operation of the Company’s business and such charges are non-recurring, infrequent or unusual. Rimage believes that this additional financial information is useful to management and investors in assessing the Company’s historical and future performance.


Conference Call
The Company has scheduled a conference call and webcast to review its fourth quarter results and recent corporate developments today, February 26, 2013 at 4:30 p.m. Eastern Time. The dial-in number for the conference call is 877-941-0844 for domestic participants and 480-629-9835 for international participants. Investors can also access a webcast of the live conference call by linking through the investor relations section of the Rimage website, www.rimage.com. Webcasts will be archived on Rimage’s website.

Forward-Looking Statements
This press release contains forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this press release that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” or “estimate” or comparable terminology are intended to identify forward-looking statements. Such forward-looking statements include, for example, statements about: the Company’s future revenue and operating performance, the demand for the Company’s products or software, the integration of the Qumu business, anticipated synergies between Rimage and Qumu businesses, the effect of changes in technology, the development and marketing of new products, or repurchases under the Company’s expanded stock repurchase program. The statements made by the Company are based upon management’s current expectations and are subject to certain risks and uncertainties that could cause the actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include the risk factors described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 and other factors set forth in the Company’s filings with the Securities and Exchange Commission.

About Rimage Corporation
Founded in 1978, Rimage Corporation (NASDAQ: RIMG) helps businesses deliver digital content directly and securely to their employees, customers, and partners. Rimage’s Qumu business is the global leader in the rapidly growing enterprise video communications market and an innovator in the secure mobile delivery of rich content. Rimage’s Disc Publishing business is the global leader in CD, DVD and Blu-ray-Disc™ archiving and distribution solutions. Rimage’s industry-leading solutions help thousands of organizations in North America, Europe and Asia use video and other rich content to increase engagement and collaboration without losing control. Additional information can be found at www.rimage.com.

Blu-ray Disc™ is a trademark of the Blu-ray Disc Association.

 

Investor Contacts:

James Stewart, CFO

Rimage Corporation

952/944-8144

Jenifer Kirtland

EVC Group

415/568-9349


RIMAGE CORPORATION
Selected Consolidated Financial Information
(In thousands except per share data)
(Unaudited)

Consolidated Statements of Operations Information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended
December 31,

 

Year ended
December 31,

 

 

 

2012

 

2011

 

2012

 

2011

 

Revenues

 

$

20,749

 

$

21,663

 

$

79,443

 

$

83,634

 

Cost of revenues

 

 

10,096

 

 

10,721

 

 

40,782

 

 

41,613

 

Gross profit

 

 

10,653

 

 

10,942

 

 

38,661

 

 

42,021

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

2,909

 

 

2,642

 

 

11,866

 

 

7,257

 

Selling, general and administrative

 

 

8,900

 

 

9,913

 

 

36,039

 

 

30,093

 

Goodwill and intangible asset impairment charge

 

 

—

 

 

—

 

 

29,548

 

 

—

 

Amortization of purchased intangibles

 

 

157

 

 

223

 

 

952

 

 

223

 

Total operating expenses

 

 

11,966

 

 

12,778

 

 

78,405

 

 

37,573

 

Operating income (loss)

 

 

(1,313

)

 

(1,836

)

 

(39,744

)

 

4,448

 

Other income (expense), net

 

 

(44

)

 

57

 

 

(44

)

 

221

 

Income (loss) before income taxes

 

 

(1,357

)

 

(1,779

)

 

(39,788

)

 

4,669

 

Income tax expense (benefit)

 

 

(199

)

 

(382

)

 

8,809

 

 

1,997

 

Net income (loss)

 

 

(1,158

)

 

(1,397

)

 

(48,597

)

 

2,672

 

Net loss attributable to noncontrolling interest

 

 

43

 

 

46

 

 

259

 

 

163

 

Net income (loss) attributable to Rimage

 

$

(1,115

)

$

(1,351

)

$

(48,338

)

$

2,835

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per basic share

 

$

(0.12

)

$

(0.13

)

$

(4.85

)

$

0.29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per diluted share

 

$

(0.12

)

$

(0.13

)

$

(4.85

)

$

0.29

 

Basic weighted average shares outstanding

 

 

9,320

 

 

10,207

 

 

9,971

 

 

9,674

 

Diluted weighted average shares outstanding

 

 

9,320

 

 

10,207

 

 

9,971

 

 

9,699

 

Consolidated Balance Sheet Information:

 

 

 

 

 

 

 

 

 

 

Balance as of

 

 

 

December 31,
2012

 

December 31,
2011

 

Cash and marketable securities

 

$

50,140

 

$

70,161

 

Receivables

 

 

13,055

 

 

15,496

 

Inventories

 

 

6,036

 

 

6,198

 

Total current assets

 

 

75,950

 

 

98,437

 

Property and equipment, net

 

 

5,966

 

 

6,177

 

Total assets

 

 

95,563

 

 

157,660

 

Current liabilities

 

 

19,807

 

 

20,156

 

Long-term liabilities

 

 

5,129

 

 

5,204

 

Noncontrolling interest

 

 

103

 

 

360

 

Rimage stockholders’ equity

 

 

70,524

 

 

131,940

 


EXHIBIT 99.2

 

Rimage Corporation

4 th Quarter and 2012 Fiscal Year Conference Call

February 26, 2013

 

 

Jenifer Kirtland

 

Thank you, Operator, and good afternoon everyone. Earlier this afternoon, Rimage issued a press release announcing its fourth quarter 2012 financial results. The release is available on the Company’s corporate website at rimagecorp.com.

 

Before we get started, during the course of this conference call, the company will make forward-looking statements about its future plans, objectives, beliefs, expectations and prospects. For this purpose, any statements made today that are not statements of historical fact may be deemed to be forward-looking statements. These forward-looking statements are not guarantees of future actions, outcomes, results or performance. By their nature, these forward-looking statements are subject to many risks and uncertainties that could cause actual results to differ materially from the results discussed in or implied by the forward-looking statement. A discussion of the risks and uncertainties that affect Rimage’s business is contained in the company’s SEC filings, particularly under the heading Risk Factors, and in the press release issued this afternoon. Copies of these documents are available online from the SEC or on the Rimage website. These forward-looking statements are made only as of the date this conference call was initially held and the Company assumes no obligation and does not intend to update these forward-looking statements after the date of this conference call , whether as a result of new information, future events, developments, changes in assumptions or otherwise .

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In addition, to supplement the GAAP numbers, we have provided non-GAAP information that excludes the amortization of Qumu acquisition intangibles, non cash third quarter 2012 charges related to the impairment of goodwill, a reduction of the value of amortizing intangible assets and the establishment of a valuation allowance against our deferred tax assets. We believe that these non-GAAP numbers provide meaningful supplemental information and are helpful in assessing our historical and future business performance. A table reconciling the GAAP loss per share information to the non-GAAP information is included in our financial release.

 

And now, I’d like to turn the call over to Sherman Black, President and CEO of Rimage.

 

Sherman Black

 

· Good afternoon and thank you for joining us on our fourth quarter 2012 conference call.
· With me today is Jim Stewart, our Chief Financial Officer.
· This afternoon we issued our fourth quarter press release. The results represented a solid finish to a transformational year for Rimage and demonstrated strong momentum for our Qumu secure enterprise video solutions.
· I will begin with a review of our performance in the fourth quarter, including the potential we see from Qumu and our views on the disc publishing market. Then, Jim will provide a more detailed look at the fourth quarter and 2012 financial results and our guidance for the first quarter of 2013.
· Following our remarks, we will be happy to take your questions.

 

· Fourth quarter revenues totaled $20.7 million, above the high end of our guidance of $18 to $20 million. This represented a decline from the fourth quarter of 2011, reflecting a decrease in disc publishing revenues partially offset by the contribution from Qumu, which we acquired in October of 2011.
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· We reported a net loss per share of 12 cents, much improved from our guidance of a net loss per share of 20 to 33 cents, and a penny better than the net loss posted in the fourth quarter last year.
· We ended the year with $50.1 million in cash and marketable securities.

 

· Our results in the quarter were driven by the building momentum of our Qumu products.
· Qumu revenues totaled $4.3 million in the fourth quarter, 56% above the $2.8 million generated in the third quarter and more than double its $1.8 million in revenues in the fourth quarter of 2011.
· Qumu contracted commitments were $8.7 million in the quarter, the best quarterly performance in its history. This compares with $4.5 million in the third quarter. Qumu’s backlog of contracted revenue increased to $12.7 million at the end of December compared with $8.4 million at September 30.
· The increase in contracted commitments represented six new enterprise customers from a spectrum of industries including food, pharma, high tech, financial services and transportation.
· Most of these new customers are large multi-national companies that are using video content more and more as a means to increase employee engagement and team collaboration. Their legacy network infrastructure and collaboration tools were designed for traditional data and are not sufficient to create, manage and distribute video content to the extent needed in today’s competitive environment.
· The beauty of our Qumu software is that it allows organizations to capture, organize and distribute content across their extended enterprise to a wide variety of end points including mobile devices. Corporate communications professionals and tech administrators are able to address the challenges of video and rich content distribution while utilizing existing I.T. infrastructures.
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· The pace of change inside enterprises, the need to quickly share best practices, and the ongoing effort to drive employee alignment and collaboration is creating a demand for our secure enterprise video solutions.
· These benefits are becoming more widely recognized as demonstrated by the success of our expanded sales in the U.S. and Europe.

 

· Turning now to disc publishing…
· Revenues in the quarter declined as expected, down 17% from the fourth quarter of 2011.
· The decrease continued to reflect soft demand due to the economic slowdown in Europe, as well as funding challenges with our government business in the U.S.
· While we expect disc publishing to remain challenged, we do see strength in use cases like medical imaging, financial statements, and law enforcement applications. Those use cases have high switching costs or the technology alternatives are less attractive. As a result, we believe demand for disc publishing will continue for some time into the future.
· During 2012, we took actions to reduce our costs and maximize the cash contribution from this business overall. We reduced the management and sales footprint in North America and Europe. We also reduced G&A expenses in this part of our business.

 

· Looking ahead, Qumu is clearly the growth engine of our company.
· For the full year 2012, Qumu generated $9.8 million in revenues and $19.7 million in contracted commitments. The improving results over the last two quarters in 2012 are evidence of its potential.
· During 2013 we expect revenues to continue to show significant growth.
· The recent leadership transition with Vern Hanzlik as our Qumu general manager has gone smoothly and he is driving key initiatives around our sales capability and enhancements to our software products.
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· In the year ahead we will focus our business development energy on enterprise portal, collaboration and content management market leaders. This business development effort combined with a focus on repeatable sales processes are intended to improve the predictability of our financial results and increase our sales.
· In addition we believe our 2013 product roadmap will continue to extend our enterprise connectivity with the market leaders. We expect to deliver enhancements to enable offline viewing and digital rights management, resulting in an even richer and more secure mobile experience. Lastly, we expect to exit 2013 with an improved user experience and better analytics.
· Our goal is to position Qumu for sustained predictable growth and we believe we will make substantial progress towards that effort during 2013.

 

· Disc publishing is a mature market and our focus will remain on lead generation and sales execution in the stronger markets we serve. In addition, we are committed to strict cost management and maximizing the cash flow from this business.

 

· I am extremely optimistic about the positive outlook for our Company and our ability to achieve increased revenue and margin improvement in 2013.
· I’d like to thank our employees for their hard work and contributions towards the solid fourth quarter results.
· With that, I’d like to turn the call over to Jim for a review of our fourth quarter financial performance and our outlook for the first quarter. Jim.

 

Jim Stewart

· Thanks, Sherman.
· I’d like to begin with a more detailed discussion of our revenues.
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· Qumu fourth quarter revenues totaled $4.3 million, 56% above revenue of $2.8 million in the third quarter.
· Fourth quarter contracted commitments totaled $8.7 million – almost double third quarter levels and as Sherman noted the best in Qumu’s history.
· Qumu ended the year with a record contracted commitment backlog of $12.7 million compared with $8.4 million at the end of September. Qumu contracted commitment backlog increased by nearly $11 million during the year. As a reminder, contracted commitments are defined as the dollar value of signed customer purchase commitments.
· Disc publishing sales in the fourth quarter decreased 17% from the fourth quarter of 2011. Unfavorable foreign exchange contributed 1% of this revenue reduction.
· Disc publishing hardware sales fell 35% from last year’s fourth quarter, reflecting a decrease in sales to the government sector in North America due to ongoing budget issues faced by these customers and softness in our international business. Disc publishing equipment represented 24% of total sales in the fourth quarter, compared with 36% in the fourth quarter last year.
· Disc Publishing recurring revenues, including sales of printer ribbons and cartridges, parts, and optical media, as well as service contracts, declined 7% from last year. Recurring revenues represented 55% of total company revenues in the recent fourth quarter compared with 56% in the prior year fourth quarter.
· Fourth quarter sales of consumable supplies decreased 13% compared to last year’s fourth quarter while service revenues increased 14% from last year’s fourth quarter. Service revenues were higher mainly due to better maintenance attach rates and renewals compared to prior quarters.
· Evidence management solutions revenues decreased from the 2011 fourth quarter due to the decrease in government hardware sales that I mentioned earlier.
· International sales were down 18% from the fourth quarter of 2011. International sales in the quarter represented 35% of total sales, compared with 41% in the fourth quarter of 2011.
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· On a constant currency basis - including Qumu, sales in Europe were down 8%. Excluding Qumu, Europe sales fell 17%, largely due to soft demand from the economic slowdown there.
· Sales in Asia Pacific were down 7% compared with the prior year, reflecting weakness in China and Australia.

 

· Moving down the income statement, the gross margin was 51% in this year’s fourth quarter, the same as the margin in the fourth quarter last year, but improved from 48% in the third quarter. The higher sequential margin was the result of an increased mix of Qumu software sales.
· Operating expenses in the quarter totaled $12.0 million, a 6% decline from the same quarter a year ago.
· Fourth quarter 2011 expenses included a partial quarter of Qumu operating expenses as we acquired the business on October 10, 2011. Fourth quarter 2011 also included $1.1 million of non recurring Qumu acquisition costs.
· Fourth quarter 2012 expenses include higher Qumu operating expenses and approximately $500,000 in one-time severance costs.
· R&D expenses were $2.9 million in the quarter compared with $2.6 million last year – higher due to a full quarter of Qumu R&D in fourth quarter 2012.
· Fourth quarter 2012 SG&A expenses totaled $8.9 million versus $9.9 million a year ago – lower due to not having non recurring Qumu acquisition costs in 2012 partially offset by increased Qumu spending for international sales expansion and the severance costs.
· For the fourth quarter, we generated a net loss of $1.1 million, or 12 cents per share, compared with a net loss of $1.4 million, or 13 cents per share in fourth quarter of 2011.
· Excluding the amortization related to the Qumu intangibles our fourth quarter 2012 loss was $.09 per share.
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· Turning now to a brief recap of 2012 financial results…
· Revenues totaled $79.4 million, a decrease of 5% from 2011, driven by a decline in disc publishing revenues partially offset by the contribution from Qumu which we acquired in the fourth quarter last year.
· We reported a net loss of $48.3 million for 2012 on a GAAP basis, which included three non-cash charges totaling $40.7 million taken in the third quarter. These charges included impairment charges related to the Qumu acquisition and a charge to establish a valuation allowance against our deferred tax assets.
· Excluding these non-cash charges and the amortization of Qumu intangibles, the non-GAAP loss was $5.7 million, or $0.57 per share, in 2012. This compares with net income of $2.8 million, or $0.29 per diluted share, in 2011.

 

· Now turning to our cash balance and usage…
· Cash and marketable securities totaled $50.1 million at the end of December compared with $59.2 million at the end of September.
· During the quarter, we used $8.4 million to repurchase 1.4 million shares of Rimage common stock under our expanded stock repurchase program. We used $300,000 for capital expenditures and cash used in operations was $200,000.
· For total year 2012, our cash and marketable securities balance declined $20 million. This decline was driven by $9.8 million for share repurchases, $5.2 million for dividends, $2.5 million for capital expenditures, cash used in operations of $1.9 million and $500,000 additional investment in BriefCam.

 

· Turning now to our financial outlook for the first quarter of 2013…
· We expect revenues to be between $19 and $21 million.
· We expect a net loss of between $(0.18) and $(0.30) per share.
· Excluding the amortization related to Qumu intangibles, we expect the non-GAAP net loss to be between $(0.16) and $(0.28) per share.
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· These projections reflect no tax benefit on the losses projected due to the establishment of the deferred tax valuation allowance for tax purposes.
· For the year 2013, the Company expects consolidated revenues to grow compared to 2012.
· Qumu revenues are expected to grow greater than 50%. This Qumu growth will be partially offset by a decline in Disc Publishing revenues.
· Consolidated cash from operations is expected at approximately breakeven levels.
· The Company has approximately 778,000 shares remaining on its repurchase authorization and may repurchase shares from time to time during the year depending on market conditions.

 

· That concludes our formal remarks.
· Now Sherman and I would be happy to answer any questions. Operator, could you please open up the line for Q&A?

 

Question and Answer Portion

Q:      Specifically as it relates to the margins that Greg [McKinley of Dougherty & Company, LLC] was getting at. You -- in your public filings, in your Qs, you usually breakout what the Qumu margin or the online [publishing] gross margin was […]. Do you have that by chance for the fourth quarter?

 

A (James R. Stewart): Yes, the Qumu online publishing gross margin was right around 70% and disc publishing was in the high 40s.

 

 

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