**Exhibit 99.1**

 
| **M E M O  R A N D U M** |
|--------------------------|
|                     |   |   |
| **TO:**                  |   | The Zomax Incorporated  Board of Directors |
|                     |   |   |
| **FROM:**                |   | Governance/Nominating  Committee of Board of Directors of Zomax Incorporated |
|                     |   |   |
| **DATE:**                |   | March 25, 2005 |
|                     |   |   |
| **RE:**                  |   | Report on Disclosure  and Trading Policies and Procedures |

 

 

In response to thepreviously-reported allegations of securities law violations by ZomaxIncorporated regarding false and misleading forward-looking statements made tothe public and in a quarterly report in the year 2000, the Governance/NominatingCommittee, at the request of the Board of Directors, conducted a review of thedisclosure and trading policies and procedures of Zomax Incorporated.  As requested, we make the following report tothe Board of Directors.

 

*DisclosureProcedures.*  TheCommittee has performed a review of the disclosure practices and procedures andhas found the following items of significance. Management of each site is required to produce a monthly financialforecast that is reviewed with executive management.  Executive management reviews the forecastsand proposes adjustments to the forecasts based upon its best judgment andknowledge of the consolidated operations, the industry and customers as well asother information that it believes may impact the forecast.  In making its review and adjustments,executive management also takes into account the site representation lettersand utilizes the internal Disclosure Committee, which is discussed in moredetail below.  The Committee noted thatthe nature of the business is such that there is typically little lead time andno backlog on customer orders, thus making forecasts difficult.  As part of the review, we also noted thatcertain modifications in the forecasting process have been made to make theAudit Committee aware of the adjustments that management made to the siteforecasts and the rationale for such adjustments.

 

**Prior to quarterly earnings conference calls with analystsand investors or the public disclosure of financial results and expectations,executive management reviews the relevant supporting information with the AuditCommittee, which information includes, among other things, the actual financialresults, management and analyst forecasts, product demand, and significantcustomer relationships.  If variancesbetween the actual results and prior projections and/or analysts projectionsare identified, these variances are discussed in detail. An Audit Committeedesignee also reviews the press releases regarding the quarterly earnings priorto issuance.  In addition, we noted thatas part of the modifications to the disclosure process that have been made, theAudit Committee also reviews the material points of the script of the quarterlyconference call and one or more members of the Audit Committee listens to theconference call, live or recorded, to ensure the accuracy of therepresentations made by management. Any discrepancies or potentially misleadinginformation are then timely discussed and reviewed by the Audit Committee andcounsel, as necessary, for potential further disclosure or clarification.**

** **

Executive management hasestablished an internal Disclosure Committee comprised solely of managementemployees.  The Disclosure Committee’smembers are leaders of the various operating segments.  The Disclosure Committee meets at leastquarterly and prior to the quarterly results. Management of each site submits a site representation letter to theDisclosure Committee on a quarterly basis. The site representation letter identifies any potential issues relatedto material customers, vendors, the industry, operations or theorganization.  The Disclosure Committeereviews the site representation letters and members discuss other issues ofwhich they may be aware that may materially affect operations or financial condition.  In addition, the Disclosure Committee reviewsdraft public disclosures to assure that the representations made in thedisclosures are accurately stated and that material issues are not omitted.

 

Management hasimplemented new disclosure policies and procedures as discussed above andcontinues to monitor the effectiveness of and compliance with the disclosurepolicies.  Further, the Committee willperiodically review the disclosure policies with management and will report tothe Board of Directors regarding this review.

 

*TradingPolicy.*  The Committeehas performed a review of the securities trading practices and procedures andhas found the following items of significance. Every new employee must acknowledge his or her compliance with theSecurities Trading Policy in connection with orientation. Periodically,management provides a review of the securities policy and other companypolicies, with the employees. Executive officers, directors and designated keyemployees must also acknowledge his or her compliance with the Policy Statementon Confidential Information and Securities Trading By Zomax IncorporatedOfficers, Directors and Certain Other Key Employees (“Executive SecuritiesTrading Policy”).  The Human Resourcesdepartment is responsible for managing these processes.

 

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In addition to thegeneral limitation regarding trading while in possession of material non-publicinformation, the Executive Securities Trading Policy specifies additionallimitations to which these persons are subject, including formal “tradingwindows”.  As part of this review, a newprocedure has been adopted to remind persons subject to the formal tradingwindows of the pre-established closure of these windows under the Policy.  Further, each new executive officer anddirector is provided with information regarding the duties and responsibilitiesof being an executive officer and director of a public company. According tothe policies in effect during the past three years, all transactions by personssubject to the Executive Securities Trading Policy in Zomax stock, includingany purchases, dispositions or transfers, must be pre-cleared.  As part of this review, minor modificationsto the language in the Executive Securities Trading Policy were prepared,including a revision to the pre-trade notification procedure.  Persons covered by the Executive SecuritiesTrading Policy must provide advanced written notice of a securities transactionto a designated compliance officer who would then identify whether or not atrading window was open and return a copy of the form to the person.  The compliance officer is provided withcopies of all SEC filings made by the executive officers and directors.

 

In connection with thestock transactions by the officers, key employees and directors during the pastthree years, we have reviewed the schedule of option exercises and ESPPactivity, and other related available information.  With respect to the stock transactions by theexecutive officers and directors, we also reviewed the SEC filings made bythese individuals and the annual stock ownership questionnaires provided bysuch individuals.  The information wascross-checked to note any discrepancies and to verify compliance with the theneffective Executive Securities Trading Policy. With respect to other employees, the Committee reviewed the new employeeorientation process and other procedures to remind employees of theirobligations under the applicable policies.

 

During our review ofstock transactions by the officers, key employees and directors during the pastthree years, we noted the sale out of a margin account by a director in May2004 during a time in which the trading window was likely not open.  At the time management and the Board becameaware of the policy violation, the director was informed of the violation andactions were taken to correct the situation. Subsequently, the director resigned from the Board.  We also noted four instances in which itappears that transactions by key employees were made in a manner contrary tothe applicable policies.  However, wewere unable to verify any violation in the absence of documented pre-clearancecommunications regarding these transactions. Further, it appears that there was a lack of effective communication ofthe policies to the appropriate persons and the absence of indications that thepre-clearance procedures were being followed. Management has implemented new trading policies and procedures, asdiscussed above, that should address the concerns raised by these instances.

 

Management monitors theeffectiveness of and compliance with the trading policies and reviews suchpolicies with the Committee periodically. The Committee will report to the Board of Directors regarding thisreview.

 

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