<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from to
For the Fiscal Year ended Commission File Number
December 31, 1997 0-4431
AUTO-GRAPHICS, INC.
(Exact name of registrant as specified in its charter)
California 95-2105641
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
3201 Temple Avenue
Pomona, California 91768
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number: (909) 595-7204
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($.10 par value)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
The aggregate market value of voting stock held by nonaffiliates of the
registrant was $679,000 as of December 31, 1997.
The number of shares of the registrant's Common Stock outstanding was
1,090,478 as of December 31, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive Proxy Statement to be filed pursuant to Regulation 14A for
the fiscal year ended December 31, 1997 is incorporated herein by
reference in Part III, Items 11-13 of Form 10-K. The Proxy Statement will
be filed with the Securities and Exchange Commission within 120 days after
the close of the registrant's most recent calendar year.
</PAGE>
<PAGE>
PART I
ITEM 1. BUSINESS
Auto-Graphics, Inc. (the "Company") provides software products and
processing services to information and database publishers. These products
and services are used to create, maintain and distribute information databases
through printed and/or electronic reference products. Electronic products
include compact disc (CD-ROM) and client/server software systems
(Internet/Web).
The Company provides state and local government customers with products,
services and outsourced facilities to maintain, publish and distribute
bibliographic databases of library holdings and to manage interlibrary
loan systems. Traditional commercial and corporate publishers use the
Company's services to produce and distribute print and electronic products
such as dictionaries, encyclopedias, Bibles, price catalogs and other
reference works.
In recent years, the Company has made a substantial investment in the
development of online client/server software products and client-shared
Internet/Web services. In 1993, the Company launched the development of a
new product family called Impact/ONLINE(tm) for Internet information
distribution services. This capability has been successfully utilized to
a range of applications including the outsourcing by several statewide
library consortia to the Company of complete system design, development,
management, maintenance and operation of a web server for each customer.
The Company currently has a number of statewide and regional
Impact/ONLINE(tm) systems operational serving over 4,500 libraries.
The Company's Impact/ONLINE(tm) products include:
Impact/ONLINE WebPAC(tm) enables patrons, directly from home, school and
office to search a database over the Internet using any web browser such
as Netscape Navigator(tm) or Microsoft Explorer(tm).
Impact/ONLINE ILL(tm) provides the means to automate the initiation,
tracking and management of interlibrary borrowing and lending.
Impact/ONLINE CAT(tm) is a powerful online cataloging utility for copying,
creation and maintenance of a bibliographic database.
Impact/MARCit(tm) is a cataloging support system providing access to the A-G
Databases(tm) containing over 50 million bibliographic and authority records
via the Web.
Impact/TRACEit(tm) provides a one-stop source for satisfying quick reference
queries and for locating potential interlibrary loan (ILL) sources.
AVISO(tm) is an ISO standards compliant PC-based software system designed to
manage all aspects of the interlibrary loan process.
Impact/ACCESS(tm) provides for patron access to licensed commercial third-
party databases.
Impact/SLims(tm) is a small library information management system, which
operates on a personal computer and integrates patron access catalog,
circulation control and inventory management.
In July 1997, the Company acquired the assets of the Library Information
Systems ("LIS") division of ISM Information Systems Management Manitoba
Corporation ("ISM"), a subsidiary of IBM Canada, Ltd. The LIS business
includes bibliographic cataloging and interlibrary loan resource sharing
software and related services. The assets acquired include a
bibliographic database containing over 50 million records together with
the holdings of most Canadian public and university libraries, five
million authority records, software, computer equipment, furniture,
leasehold improvements and contracts to provide services to approximately
500 Canadian libraries. The Company also employed the former staff of the
LIS division each having an average of 17 years of experience in the
library services business. The acquisition achieved the strategic
objective of expanding the Company's customer base internationally,
improving access to the academic library market and obtaining one of the
largest bibliographic union databases in North America. The Company has
delivered its first new software products for the Canadian market (and
later the U.S. market) called Impact/MARCit(tm) and Impact/TRACEit(tm) within
six months of concluding the acquisition. The Company has formed a new
wholly-owned Canadian subsidiary, A-G Canada Ltd. located in Etobicoke,
Ontario (a suburb of Toronto), to operate the business.
The Company's software products and processing services continue to
leverage technology and experience gained over more than 45 years of
service to publishers. The Company provides standard and customized
products and services used for database management, electronic composition
and CD-ROM search and retrieval. These software products include:
SGML Smart Editor System(SES) provides publishers with full editorial
capabilities to create and maintain databases in Standard Generalized
Markup Language ("SGML") format.
Impact(tm)/CD-ROM products provide comprehensive searching, indexing, and
cross-referencing features along with search and retrieval capabilities
for CD-ROM's and are available in Windows and MAC versions.
In addition to providing database creation, conversion and maintenance
services to a wide variety of commercial customers, the Company provides a
specialized database service for the wholesale heating, ventilation, air
conditioning and refrigeration (HVACR) industry. This proprietary
publishing business is operated by Datacat, Inc., which became a wholly-
owned subsidiary of the Company effective October 2, 1998. The Company
supplies software, database and composition services for printed, CD-ROM
and Web-based HVACR parts catalogs. (See Note 1 of "Notes to Consolidated
Financial Statements").
Company Background
The Company was formed in 1950 and incorporated in 1960 in the state of
California. No single customer represents more than 10% of net sales.
Management believes that the loss of any single customer or vendor would
not have a material adverse effect on the business of the Company.
Backlog cannot be stated in a useful manner, as contracts are normally
expressed as statements of specifications and unit prices rather than
total sales volume in dollars.
The software and computerized database processing services business is
highly competitive. There are no definitive market share statistics
available. The Company first introduced computerized database services in
1964, and believes that it has been offering such services longer than any
of its existing competitors. Many competitors are smaller and local in
character, but some are larger and national with greater financial
resources than the Company. Contracts for computerized database
publishing services and the purchase/lease of equipment are awarded
according to the results of market pricing, competitive bidding, technical
capability, customer relationship and/or past performance.
Marketing Offices/Employees
The Company has marketing representatives and service centers located in
California, Connecticut, Illinois, Massachusetts, Washington, Texas and in
Ontario, Canada. The Company and its subsidiaries currently employ
approximately 110 persons.
ITEM 2. PROPERTIES
The Company leases its corporate office and production facilities
constituting approximately 29,000 square feet located at 3201 Temple
Avenue, Pomona, California 91768. The facility has been custom designed
for the Company's purposes, is fully occupied and should be adequate for
the Company's anticipated growth for the foreseeable future. The facility
is currently leased to the Company through June 2001 under the second of
two five-year renewal options. (See Note 6 of "Notes to Consolidated
Financial Statements" and Item 13. "Certain Relationships and Related
Transactions").
ITEM 3. LEGAL PROCEEDINGS
In June 1990, the Company and Gannam/Kubat Publishing ("G/K") formed a
50/50 joint venture company called Datacat, Inc. Datacat was formed to
produce printed illustrated parts catalogs for the wholesale heating,
ventilation, air conditioning, and refrigeration (HVACR) industry. In
1996, G/K filed suit against Datacat and the Company for non-payment of
their accounts receivable and allegedly unauthorized and excessive
payments by Datacat to the Company for database development costs incurred
prior to 1994 provided by the Company. On October 2, 1997, the Company
concluded a settlement agreement with its partner in Datacat, which
dismissed the lawsuit and all outstanding claims against Datacat and the
Company. In the settlement, Datacat paid G/K $200,000 against G/K's
accounts receivable from Datacat of $351,000 and G/K forgave the balance
of the accounts receivable ($151,000) and agreed to not compete with
Datacat for a period of five years. Concurrently, G/K also surrendered
their stock ownership in Datacat. The Company now owns 100% of Datacat,
Inc. as of October 2, 1997. The Settlement Agreement and Mutual Release
dated September 30, 1997 has been included as an exhibit to this Report.
See Index to Exhibits, Item No. 10.24. (See Note 1 of "Notes to
Consolidated Financial Statements" under "Other Assets - investment in
Datacat, Inc.").
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
</PAGE>
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Stock quotations.
1997 1996
Bid Asked Bid Asked
Price Range High Low High Low High Low High Low
1st Quarter 2.250 2.000 3.250 2.375 1.875 1.375 2.375 1.875
2nd Quarter 2.000 1.625 2.750 2.000 2.250 1.750 2.750 2.250
3rd Quarter 2.125 1.750 4.500 3.500 2.313 1.875 3.375 2.313
4th Quarter 2.625 2.500 4.250 2.625 2.750 2.125 3.500 2.750
The Company's Common Stock ($.10 par value) is traded in the over-the-
counter market under the symbol "AUGR" (Cusip Number 05272510). The stock
quotations set forth above, as published by the National Quotation Bureau,
Inc., represent the highest and lowest bid and asked prices quoted by
broker/dealers making a market in the Company's Common Stock. Prices
quoted do not include retail markup, markdown or commissions and may not
reflect actual transactions in shares of the Company's stock. Quotations
for the Company's stock are also reported on the OTC Bulletin Board.
As of December 31, 1997 the number of holders of record of the Company's
Common Stock was 236. The Company has never paid a cash dividend and
there are no plans to do so in the near future. (See Note 3 of "Notes to
Consolidated Financial Statements" for information as to the loan
restriction on the payment of cash dividends).
ITEM 6. SELECTED FINANCIAL DATA
Dollar amounts in thousands except per share data.
(See Note 1 of "Notes to Consolidated Financial
Statements" under "Other Assets")
Years Ended December 31
1997 1996 1995 1994 1993
Operating results:
Net sales $10,036 $ 9,218 $ 9,559 $ 9,165 $ 9,678
Net income 212 236 194 158 132
Earnings per share .19 .21 .16 .12 .10
At year-end:
Total assets 8,852 7,132 6,688 6,106 5,841
Long-term debt 2,911 2,101 1,906 1,696 1,592
No cash dividends have been declared.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General and Future Business Trends
Liquidity and Capital Resources
The Company has a revolving credit facility with maximum availability of
$1,250,000(fully available at December 31, 1997), secured by accounts
receivable and renewed bi-annually in June. Management believes that the
current line of credit will again be renewed in June 1999 and is
sufficient to handle the Company's cyclical working capital needs. (See
Note 2 of "Notes to Consolidated Financial Statements"). The Company also
maintains a capital line of credit facility (maximum availability
$3,000,000) secured by substantially all of the Company's capital assets
which also renews bi-annually in June and management believes that this
credit facility will again be renewed in June 1999. Management does not
currently believe that increased credit availability will be required to
finance planned capital expenditures in 1998, which are estimated at
$1,000,000, to be used to upgrade computers, production equipment and for
software development. The Company obtained a new term credit facility of
$750,000 to fund the 1997 acquisition of the assets of the Library
Information Systems division of ISM Information Systems Management
Manitoba Corporation. The term note is a three year note with interest
only for 12 months followed by a 24 month amortization schedule at bank
prime rate. Subsequent to December 31, 1997, the Company retired $375,000
of the balance outstanding in term borrowings. (See Note 3 of "Notes to
Consolidated Financial Statements").
Cash, in 1997, was provided from operating activities and long-term
financing. Cash flow from operations (net income and depreciation) in
1997 increased $61,000 to $1,346,000 ($1,285,000 in 1996 and $1,196,000 in
1995). The increase in accounts receivable from 1996 to 1997 is due to the
effect of the acquisitions. The average collection days for accounts
receivable improved in 1997 to 66 days from 67 days in 1996 and 70 days in
1995. As of December 31, 1997 the Company's principal commitments consisted
primarily of leases on facilities. There were also commitments of
approximately $100,000 in capital expenditures at December 31, 1997.
The Company's principal uses of cash for investing activities in 1997 were
for the continuing development of the Company's Impact(tm) software product
line, for upgrades to the Company's primary computer equipment to enhance its
online service to its customers and acquisition of the assets of the LIS
division of ISM and the remaining 50% share of Datacat, Inc.
The Company's capital resources may be used to support working capital
requirements, capital investment and possible acquisitions of businesses,
products or technologies complementary to the Company's current business.
The Company believes that current cash reserves and cash flow from
operations are sufficient to fund its operations in 1998. However, during
this period or thereafter, the Company may require additional financing.
There can be no assurance that such additional financing will be available
on terms favorable to the Company, or at all.
Results of Operations
Net Sales in 1997 increased $818,000 to $10,036,000 due primarily to
additional revenues from the acquisitions of A-G Canada, Ltd. and Datacat, Inc.
and additional sales of the Company's Impact/ONLINE(tm) product line. The
decline in net sales from the Company's traditional business lines were more
than offset by revenues contributed by the acquisitions. Sales prices
remained generally constant in 1997 and in certain cases declined due to
competitive pressures in some markets. The Company's gross margins declined
in 1997 to 38% from 40% in 1996 (38% in 1995). Selling, general and
administrative expenses for 1997 declined to 31% of sales in 1997 from 33% of
sales in 1996 and in 1995. The Company's spending on sales and marketing of
its new products with additional personnel and new product promotions have
been the primary factor in this elevated expense level. Net interest expense
in 1997 was $290,000 up from $253,000 in 1996 due to additional borrowings
associated with acquisitions offset by lower interest rates from the new
credit facility.
Earnings per share declined in 1997 to $0.19 compared to $0.21 in 1996
($0.16 in 1995). The decline in earnings was due to expenses associated
with the acquisitions and duplicative and higher computer and
telecommunication costs of old technology incurred while the Canadian
business was being transitioned to the Company's Internet based
client/server technology. Management believes that favorable product mix
and productivity improvements should result in higher earnings and
improved cash flow from operations. The Company intends to consider other
acquisition opportunities which may become available in 1998.
Information Relating To Forward-Looking Statements
This Report includes forward-looking statements which reflect the Company's
current views with respect to future events and financial performance. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Impact of Inflation
Historical dollar accounting does not reflect changing costs of
operations, the future cost of expansion and the changing purchasing power
of the dollar. Inflation generally impacts the Company in a negative
manner, as prices cannot be adjusted quickly due to the contract nature of
the business, while costs of personnel, materials and other purchases tend
to escalate more rapidly. However, inflation is not anticipated to have a
material effect on the Company's business in the near future.
Foreign Exchange
The functional and reporting currency of the Company is the U.S. dollar,
while the functional and reporting currency for A-G Canada Ltd., the
Company's wholly-owned Canadian subsidiary, is the Canadian dollar. The
Company will now be exposed to foreign currency transaction gains or
losses as the relationship between the Canadian dollar and U.S. dollar
fluctuates. Since the date of acquisition, the Canadian dollar has lost
approximately 3.6% of its value against the U.S. dollar although it has
stabilized recently at approximately US$1.00=Cdn$1.43. Cash foreign
currency losses in 1997 totaled approximately $15,000. All other
transactions outside of A-G Canada Ltd. are denominated in U.S. dollars.
(See Note 1 of "Notes to Consolidated Financial Statements").
Year 2000
The Company has developed a plan to modify its information technology to
be ready for the Year 2000 and has begun converting critical data
processing systems. The Company currently expects the project to be
substantially complete by June 30, 1999 and to cost between $50,000 and
$100,000. This estimate includes internal costs, but excludes the costs
to upgrade and replace computer systems in the normal course of business.
The Company does not expect this project to have a significant effect on
operations. The Company will continue to implement key systems though
some projects may be delayed due to resource constraints.
ITEM 8. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Auto-Graphics, Inc.
We have audited the accompanying consolidated balance sheets of Auto-
Graphics, Inc. as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Auto-Graphics, Inc. at
December 31, 1997 and 1996, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Riverside, California
April 8, 1998
</PAGE>
<PAGE>
AUTO-GRAPHICS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
ASSETS 1997 1996
Current assets:
Cash $ 244,620 $ 364,094
Accounts receivable, less
allowance for doubtful accounts
($38,000 in 1997 and 1996) 2,365,837 1,882,305
Unbilled production costs 65,375 94,143
Finished goods inventory 18,049 28,939
Other current assets 122,416 188,440
Total current assets 2,816,297 2,557,921
Software, equipment and leasehold
improvements, net (See Note 1) 5,576,409 4,425,522
Other assets 459,241 148,507
$ 8,851,947 $ 7,131,950
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 669,237 $ 330,056
Deferred income 536,225 444,388
Accrued payroll and related
liabilities 272,485 191,290
Other accrued liabilities 155,383 127,037
Current portion of long-term debt 843,000 655,000
Total current liabilities 2,476,330 1,747,771
Long-term debt, less current portion 2,911,073 2,100,881
Deferred taxes based on income 695,000 664,939
Total liabilities 6,082,403 4,513,591
Commitments and contingencies (see Note 5)
Stockholders' equity:
Common stock, $.10 par value,
4,000,000 shares authorized,
1,090,478 shares issued and
outstanding in 1997 and
1,109,278 shares issued and
outstanding in 1996 109,048 110,928
Capital in excess of par value 1,128,319 1,138,651
Retained earnings 1,534,741 1,368,780
Foreign currency translation adjustments ( 2,564) -
Total stockholders' equity 2,769,544 2,618,359
$ 8,851,947 $ 7,131,950
See notes to consolidated financial statements.
</PAGE>
<PAGE>
AUTO-GRAPHICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1997, 1996, 1995
1997 1996 1995
Net sales $10,035,824 $ 9,217,937 $ 9,559,107
Costs and expenses
Cost of sales 6,264,141 5,500,527 5,908,075
Selling, general and
administrative 3,076,078 3,071,226 3,124,978
Interest, net 290,855 253,258 221,703
9,631,074 8,825,011 9,254,756
Income from operations 404,750 392,926 304,351
Other income - 33,980 53,819
Income before taxes based on income 404,750 426,906 358,170
Provision for taxes based on income 193,000 190,000 164,000
Net income $ 211,750 $ 236,906 $ 194,170
Basic and diluted earnings
per share $ .19 $ .21 $ .16
Weighted average shares
outstanding 1,090,611 1,109,345 1,208,645
</PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1997, 1996, 1995
<TABLE>
<S> <C> <C> <C> <C> <C>
Common Common Capital in Foreign
Stock Stock Excess of Currency Retained
Shares Amount Par Value Translation Earnings
Balances at
Jan. 1,1995 1,280,078 $ 128,008 $1,197,717 -- $1,225,001
Net income -- -- -- -- 194,170
Common stock
retired (149,600) (14,960) (46,625) -- (241,509)
Balances at
Dec. 31,1995 1,130,478 113,048 1,151,092 -- 1,177,662
Net income -- -- -- -- 236,906
Common stock
retired (21,200) (2,120) (12,441) -- (45,788)
Balances at
Dec. 31,1996 1,109,278 110,928 1,138,651 -- 1,368,780
Net income -- -- -- -- 211,750
Common stock
retired (18,800) (1,880) (10,332) -- (45,789)
Foreign Currency
Translation
Adjustments -- -- -- $( 2,564) --
Balances at
Dec. 31,1997 1,090,478 $ 109,048 $1,128,319 $( 2,564) $1,534,741
</TABLE>
See notes to consolidated financial statements.
</PAGE>
<PAGE>
AUTO-GRAPHICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1997, 1996, 1995
1997 1996 1995
Cash flows from operating activities:
Net income $ 211,750 $ 236,906 $ 194,170
adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 1,134,348 1,048,639 1,001,821
Deferred taxes 30,061 71,000 106,507
Changes in operating assets and liabilities,
net of the effect of acquisitions
Accounts receivable (405,058) 96,940 72,519
Unbilled production costs 28,768 69,374 (15,406)
Finished goods inventory 137,612 32,007 (5,757)
Other current assets (39,908) (19,824) 29,424
Other assets (284,166) (26,964) (29,355)
Accounts payable 338,977 (194,375) 233,265
Deferred income (99,306) (45,779) 161,754
Accrued payroll and
related liabilities 2,275 3,389 52,226
Other accrued liabilities 28,343 88,454
(128,238)
Net cash provided by
operating activities 1,083,696 1,359,767 1,672,930
Cash flows from investing activities:
Capital expenditures (420,676) (611,840) (769,170)
Capitalized software development (750,676) (775,000) (840,000)
investment in Datacat, Inc.,
net of cash acquired (182,175) -- --
investment in A-G Canada, Ltd. (787,095) -- --
Net cash used in investing (2,140,622) ( 1,386,840) (1,609,170)
Cash flows from financing activities:
Borrowings under long-term debt 1,603,016 900,000 715,000
Principal payments under debt
agreements (605,000) (555,000) (450,000)
Repurchase of capital stock (58,000) (60,351) (303,094)
Net cash provided by (used in)
financing activities 940,016 284,649 (38,094)
Net increase(decrease) in cash (116,910) 257,576 25,666
Foreign currency effect on cash (2,564) -- --
Cash at beginning of year 364,094 106,518 80,852
Cash at end of year $ 244,620 $ 364,094 $ 106,518
See notes to consolidated financial statements.
</PAGE>
<PAGE>
AUTO-GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
1. Summary of significant accounting policies.
Description of Business
Auto-Graphics, Inc. provides software products and processing services to
information and database publishers. These products and services are used
to create, maintain and distribute information databases through printed
and/or electronic reference products. Electronic products include compact
disc (CD-ROM) and client/server software systems(Internet/Web).
Basis of Presentation
The consolidated financial statements include the accounts of Auto-Graphics,
Inc. and its wholly-owned subsidiaries. All material intercompany accounts
and transactions have been eliminated.
Revenue Recognition
Revenues are recognized as services are rendered or when finished goods are
shipped to customers. Certain future software support costs are accrued in
accordance with AICPA Statement of Position (SOP) 97-2.
Use of Estimates
The preparation of the financial statements of the Company in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of assets and
liabilities and revenues and expenses during the reporting period. These
estimates are based on information available as of the date of the
financial statements. Actual results may differ from those estimated.
Foreign Currency Translation
The functional and reporting currency for operations located in Canada is
the Canadian dollar. Consequently, assets and liabilities must be
translated into U.S. dollars using current exchange rates and the effects
of the foreign currency translation adjustments are accumulated and
included as a component of stockholders' equity. As of December 31, 1997,
the accumulated foreign currency translation adjustments were not material
and the net foreign exchange transaction losses for 1997 were $12,222.
All other Company transactions are currently denominated in U.S. dollars.
Concentration of Credit Risk
The Company is potentially subject to a concentration of credit risk for
trade receivables. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. The Company
maintains reserves for potential losses for uncollectible accounts and
such losses have been within management's expectations.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practical to
estimate that value:
Cash and Receivables. The carrying amount approximates fair
value because of the short-term maturity of these instruments.
Long-Term Debt. The carrying amount approximates fair value,
since the interest rate on the debt is at the bank's prime rate.
Income Taxes
Deferred tax assets and liabilities are recognized for the expected future
tax consequences of events that have been recognized in the Company's
financial statements or tax returns.
Unbilled Production Costs
Costs associated with work in process inventory including labor,
materials, supplies, and overhead (excluding selling, general and
administrative expenses) are stated at the lower of cost or net realizable
value and are removed from inventory on an average unit cost basis.
Finished Goods
Finished goods inventory consists primarily of computer and CD-ROM
equipment held for sale and related spare parts and is stated at the lower
of average cost or market.
Software, Equipment and Leasehold Improvements
Software, equipment and leasehold improvements are recorded at historical
cost. Software, equipment and leasehold improvements at December 31, 1997
and 1996 consist of the following:
1997 1996
Computer software and database $7,391,351 $5,258,209
Equipment 3,568,573 3,588,048
Furniture and fixtures 535,706 497,101
Leasehold improvements 276,100 246,341
11,771,730 9,589,699
Less accumulated depreciation
and amortization 6,195,321 5,164,177
$5,576,409 $4,425,522
Depreciation and Amortization
Depreciation: Depreciation is based on the straight-line method over the
estimated useful life of the asset and commences in the year the asset is
placed in and/or is available for service or sale based on the half-year
convention method.
Amortization: Certain costs incurred related to the development and purchase
of computer software are capitalized and amortized in accordance with
Statement of Financial Accounting Standards No. 86. Amortization is based on
a ratio of current and future revenues (the ratio method) or, at a minimum,
the straight-line method, based on the full year convention in the first year
of product availability. Unamortized computer software was approximately
$3,734,000 in 1997, $2,502,000 in 1996, and $2,125,000 in 1995. Amortization
of computer software was approximately $579,000 in 1997, $501,000 in 1996,
and $452,000 in 1995.
The following estimated useful lives are generally observed for the
respective asset categories:
Equipment - 5 to 15 years
Computer software
and databases - 7 years
Furniture and fixtures - 5 to 10 years
Leasehold improvements - the lesser of 5 to 15 years
or the lease term
Depreciation and amortization was $1,134,000 in 1997, $1,049,000 in 1996,
and $1,002,000 in 1995.
Other Assets
Capitalized Acquisition Costs
Certain legal and accounting costs totaling approximately $230,000 in 1997
associated with the following acquisitions have been capitalized as asset
acquisition costs and will be amortized over a five year period.
Investment in A-G Canada, Ltd.
As of July 1, 1997, the Company acquired the assets of the Library
Information Systems ("LIS") division of ISM Information Systems Management
Manitoba Corporation ("ISM"), a subsidiary of IBM Canada, Ltd. The LIS
business includes bibliographic cataloging and interlibrary loan resource
sharing software and related services. The assets acquired include a
bibliographic database containing over 50 million records together with
the holdings of most Canadian public and university libraries, five
million authority records, software, computer equipment, furniture,
leasehold improvements and contracts to provide services to approximately
500 Canadian libraries.
The Company purchased the LIS assets and business for US$879,000
(Cdn$1,211,000) of which US$763,000 was paid in cash plus the assumption
of approximately US$116,000 in liabilities. The transaction was treated
as a purchase with the purchase price fully allocated to the fair value of
the assets acquired and no goodwill or other intangibles were recognized.
Financing for the purchase was provided in the form of a new credit
facility through Wells Fargo Bank via a combination of an additional
US$750,000 in bank term debt and an additional US$250,000 in revolving
working capital financing.
The Company formed a wholly-owned Canadian subsidiary, A-G Canada Ltd.,
for purposes of acquiring and operating the LIS business located in
Etobicoke, Ontario near Toronto. Financial information for A-G Canada
Ltd. for the six months ending December 31, 1997 has been included in the
accompanying consolidated financial statements.
Investment in Datacat, Inc.
In 1990, the Company acquired a 50% interest in Datacat, Inc. Datacat was
formed to market a new technology developed by the Company for the
production of parts catalogs for the wholesale heating, ventilation, air
conditioning, and refrigeration (HVACR) industry. The investment has been
accounted for using the equity method. As of October 2, 1997, the Company
acquired the remaining 50% interest in Datacat, which it did not already
own. The Company invested $182,000 in Datacat. The accompanying consolidated
financial statements include financial information for Datacat for the
three month period ending December 31, 1997.
Pro Forma Information - Unaudited
The following table reflects unaudited pro forma combined results of
operations of the Company, A-G Canada Ltd. and Datacat, Inc. on the basis
that the acquisitions of A-G Canada, Ltd. and Datacat, Inc. had taken place
at the beginning of the fiscal year 1996 and 1997. The information for A-G
Canada, Ltd. was provided by the seller, ISM. The information provided is
unaudited and is not covered by the independent auditor's report.
Year Ended December 31,
1997 1996
(unaudited) (unaudited)
Net sales $12,550,000 $14,080,000
Net income (loss) $ 546,670 $ (201,317)
Earnings per share $ 0.53 $ (0.18)
Shares outstanding 1,090,611 1,109,345
It is management's opinion, that the pro forma combined results of
operations are not indicative of the actual results that would have
occurred had the acquisitions been consummated at the beginning of the
fiscal year 1996 or of future operations of the combined companies under
the ownership and management of the Company.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued
"Statement of Financial Accounting Standards No. 128, Earnings per Share",
which is effective for interim and annual periods ending after December
15, 1997. The Company adopted the standard as of December 31, 1997. The
standard requires the Company to present basic earnings per share and
diluted earnings per share if applicable, using a revised methodology and
requires restatement of prior earnings per share data presented. Basic
earnings per share computations presented by the Company conform to the
standard and are based on the weighted average number of shares of common
stock outstanding during the year. Contingently issuable shares granted
under the Company's 1997 Non-Qualified Stock Option Plan have been excluded
from per share calculations because all necessary conditions for exercise of
said options have not been satisfied as of December 31, 1997. (See Note 7
of "Notes to Consolidated Financial Statements")
Supplemental Disclosure of Cash Flow Information
The Company paid interest in the amount of $290,937 in 1997, $253,258 in
1996 and $221,703 in 1995. The Company paid income taxes in the amount of
$182,682 in 1997, $21,691 in 1996 and $100,883 in 1995.
Stock Based Compensation
In October 1995, the Financial Accounting Standards Board issued
"Statement of Financial Accounting Standards No. 123, Accounting for Stock
Based Compensation". As permitted by this statement, the Company has
continued to account for employee stock options under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, no compensation
expense has been recognized for the employee stock option plan. See Note
7 of Notes to the Consolidated Financial Statements.
Pending Pronouncements
In February 1997, the Financial Accounting Standards Board issued
"Statement of Financial Accounting Standards No. 129, Disclosure of
Information about Capital Structure", which is effective for interim and
annual periods ending after December 15, 1997. The Company adopted the
statement as of December 31, 1997. The statement requires the Company to
disclose certain pertinent rights and privileges of the Company's equity
securities and therefore will have no material effect on the Company's
financial position or results of operations.
In June 1997, the Financial Accounting Standards Board issued "Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive
Income", which is effective for interim and annual periods beginning after
December 15, 1997. The Company will adopt the standard in fiscal year
1998. The statement requires the Company to report comprehensive income
and its components in a set of general purpose financial statements and
therefore will have no material effect on the Company's financial
position or results of operations.
In June 1997, the Financial Accounting Standards Board issued "Statement
of Financial Accounting Standards No. 131, Disclosures about Segments of
an Enterprise and Related Information", which is effective for interim and
annual periods beginning after December 15, 1997. The Company will adopt
the statement in fiscal year 1998. The statement establishes standards
for reporting of information about operating segments in interim and
annual financial statements and therefore will have no material effect on
the Company's financial position or results of operations.
Reclassification
Certain amounts reported in 1996 and 1995 have been reclassified to
conform to the 1997 consolidated financial statement presentation.
2. Note Payable to Bank.
The Company has a revolving credit agreement under which borrowings are
secured by accounts receivable and inventory whereby the Company may
borrow against its eligible accounts receivable up to a maximum of
$1,250,000 ($1,250,000 available at December 31, 1997) with interest at
the bank prime rate (8.50% at December 31, 1997). The credit facility is
renewable bi-annually with the next renewal in June 1999. There was no
outstanding loan balance at December 31, 1997 or December 31, 1996. There
are no compensating balance requirements, material commitment fees or note
guarantors. This agreement contains the same loan covenants as the
capital line of credit. At December 31, 1997, the Company was in
compliance with its loan covenants.
3. Long-term Debt.
Long-term debt at December 31, 1997 and 1996 consists of the following:
1997 1996
Capital line of credit due in monthly
installments of $50,000 plus interest
at the bank prime rate (8.5% at
December 31, 1997) through 2002;
secured by software, equipment, and
leasehold improvements with a net
book value of approximately $5,576,000
at December 31, 1997. $2,949,073 $2,645,881
Term note with interest only at bank prime
through June 30, 1998, and 24 monthly
installments of $31,250 plus interest
at bank prime rate through June 30, 2000. 750,000 --
Note payable to stockholder due in annual
installments of $55,000 plus interest at
5.5% per annum. 55,000 110,000
Total long-term debt 3,754,073 2,755,881
Less current portion 843,000 655,000
Long-term portion $2,911,073 $2,100,881
Maturities of Long-Term Debt due after one year are: 1998--
$843,000; 1999-$975,000; 2000--$787,000; 2001--$600,000 and 2002--$549,000.
The capital line of credit at December 31, 1997 provides for maximum
borrowings of $3,000,000 for the purchase of equipment and software, and
financing of up to $1,000,000 in internal software development costs. The
capital line of credit is subject to renewal bi-annually with the next
renewal in June 1999. Among other requirements, the capital line of
credit requires the Company to maintain minimum financial covenant ratios,
and prohibits the payment of cash dividends. There are no commitment fees,
compensating balance requirements or note guarantors. At December 31,
1997, the Company was in compliance with its loan covenants.
The term note provides financing of $750,000 at December 31, 1997 for the
acquisition of the LIS division of ISM Information Systems Management
Manitoba Corporation. Terms of the note include interest at bank prime
rate with interest only for 12 months followed by a 24 month amortization
of the balance. The note carries an uncompensated guarantee by an
officer/stockholder of the Company. Subsequent to December 31, 1997, the
Company repaid $375,000 of the term debt financing.
In June 1995, the Company entered into a stock repurchase agreement with a
former director of the Company, whereby the Company agreed to purchase and
retire, in 1995, 115,000 of 141,000 shares of Company stock owned by the
stockholder. The total transaction cost of $230,000 is being paid in four
annual installments beginning in 1995 plus interest of 5.5% per annum
($65,000 paid in June 1995, and $55,000 paid in June 1996, 1997 and 1998).
4. Taxes Based on Income.
The provision for taxes based on income is composed of the following for
the years ended December 31:
1997 1996 1995
Current taxes based on income
Federal $ 63,000 $ 69,000 $ 32,000
State 47,000 43,000 38,000
Foreign 42,000 -- --
_______ _______ _______
152,000 112,000 70,000
Deferred taxes based on income
Federal 55,000 78,000 94,000
State ( 14,000) -- --
Foreign - -- --
_______ _______ _______
41,000 78,000 94,000
________ ________ ________
$193,000 $190,000 $164,000
A reconciliation of the provision for taxes based on income follows
for the years ended December 31:
1997 1996 1995
Statutory U.S. federal income tax $137,600 $145,200 $122,000
Excess foreign tax rates 11,800 -- --
State tax, net of federal benefit/other 21,800 28,500 24,400
Other 21,800 16,300 17,600
$193,000 $190,000 $164,000
The statutory U.S. federal income tax rate was 34% in 1997, 1996 and 1995.
The deferred tax assets and liabilities are composed of the following
at December 31:
1997 1996 1995
Deferred tax liabilities:
Tax over book amortization and
depreciation $695,000 $665,000 $594,000
Deferred tax assets:
Bad debts/accrued vacation/other 57,000 54,000 66,000
State taxes 11,000 15,000 10,000
________ ________ ________
Total deferred tax assets 68,000 69,000 76,000
________ ________ ________
Net deferred tax liability $627,000 $596,000 $518,000
5. Commitments and Contingencies.
The Company incurred total facilities and equipment lease and rental
expense of approximately $509,000 in 1997, $474,000 in 1996 and $486,000
in 1995. The Company is obligated under certain noncancellable operating
leases for office facilities and equipment. There were also non-
cancelable purchase commitments of approximately $100,000 for capital
expenditures outstanding at December 31, 1997.
Approximate minimum lease commitments are as follows:
Years ended Operating
December 31, Leases
1998 $ 555,000
1999 538,000
2000 538,000
2001 224,000
Total minimum lease payments $ 1,855,000
6. Related Party Transactions.
The Company leases its corporate office and production facility from a
limited partnership owned by two principal directors/stockholders of the
Company payable at $37,345 per month (plus expenses and applicable
increases based on the consumer price index) through June 2001 under the
second of two five-year renewal options. The five-year lease with
options, which was entered into in June 1986, was approved and authorized
by the independent members of the Company's Board of Directors.
The Company entered into a stock repurchase agreement in February 1995,
with a former employee/officer and current director of the Company,
whereby the Company agreed to purchase and retire, over a seven year
period, 156,000 of 171,000 shares of Company stock owned by the
individual. The total transaction cost of $825,000 includes stock, non-
competition and consulting fees. In each of January 1997 and 1996, the
Company purchased and retired a block of 15,600 shares, in accordance with
the above referenced agreement.
7. Stockholders' Equity.
1997 Non-Qualified Stock Option Plan
The Company adopted and implemented a 1997 Non-Qualified Stock Option Plan
effective December 31, 1997. The plan is a non-qualified plan covering
only senior executives and related persons. The plan consists of 100,000
shares of the Company's authorized but unissued common stock. At the
inception of the plan, the Company granted options to four persons under
the plan whereby they may purchase up to a total of 47,500 shares over the
next five years at a price per share of $1.65. The recipient's right to
exercise such options and acquire the stock is conditioned upon further
employment with the Company and on the market trading price of the
Company's stock rising to a minimum of $6.50 per share. Shares actually
sold and issued pursuant to the plan will be restricted stock requiring
that such stock be held by the recipients for a minimum period of one year
following purchase before they are eligible to sell such stock in the
public market. Following such initial option grant, 52,500 shares remain
eligible for future grants under the plan. The Company also anticipates
submitting a proposed qualified stock option plan covering an additional
100,000 shares available for grant to all levels of employees of the
Company at the fair market value of shares of the Company's stock at the
date of grant.
8. Defined Benefit Plan
The Company sponsors a defined contribution plan qualified under Section
401(k) of the Internal Revenue Code for the benefit of its U.S. based
employees. All full time employees are eligible to participate beginning
in January or June of each year following a 90 day waiting period. The
Company pays the administrative expenses of the plan. Annually, the
Company may, at their sole discretion, award an amount out of the profits
of the Company as a match against employee contributions to the 401(k) plan.
The Company contribution was approximately $24,000 in 1997, $19,000 in 1996
and $16,000 in 1995.
9. Year 2000 - Unaudited
The Company has developed a plan to modify its information technology to
be ready for the Year 2000 and has begun converting critical data
processing systems. The Company currently expects the project to be
substantially complete by June 30, 1999 and to cost between $50,000 and
$100,000. This estimate includes internal costs, but excludes the costs
to upgrade and replace computer systems in the normal course of business.
The Company does not expect this project to have a significant effect on
operations. The Company will continue to implement key systems though
some projects may be delayed due to resource constraints.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names and ages of, and the positions
and offices within the Company presently held by, all directors and
officers of the Company:
Name Age Position
Douglas K. Bisch 76 Director. Has served in this capacity for
more than ten years.
Robert H. Bretz 54 Director and Assistant Secretary. Attorney
who has acted as the Company's outside general
legal counsel for more than ten years.
Robert S. Cope 62 Director, President and Treasurer. Has served
in these capacities for more than ten years.
William J. Kliss 50 Chief Operating Officer. Has served the Company
in this capacity for two years. Prior to this
position, Mr. Kliss served as the Company's
Vice President and General Manager of Library
Services for two years. Mr. Kliss formerly
served as Vice President of Operations at
Scan-Optics, Inc. for fifteen years prior to
his employment with the Company.
Daniel E. Luebben 49 Chief Financial Officer and Secretary. Has
served in these capacities for two years.
Prior to these positions, Mr. Luebben served
as the Company's Vice President, Operations
and Controller for the past six years. Mr.
Luebben formerly served as Controller of
Ultrasystems Defense, Inc. for two years prior
to his employment with the Company.
Directors serve until their successors are elected and qualified at the
annual meeting of stockholders. All executive officers serve at the
discretion of the Company's Board of Directors.
ITEM 11. EXECUTIVE COMPENSATION
A definitive Proxy Statement will be filed with the Securities and
Exchange Commission ("the Commission") pursuant to Regulation 14A within
120 days after the close of the Company's most recent calendar year and,
accordingly, Item 11 is incorporated by reference to said definitive Proxy
Statement. The Proxy Statement includes information covering this item
under the caption "Compensation of Executive Officers".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A definitive Proxy Statement will be filed with the Commission pursuant to
Regulation 14A within 120 days after the close of the Company's most recent
calendar year and, accordingly, Item 12 is incorporated by reference to said
definitive Proxy Statement. The Proxy Statement includes information covering
this item under the caption "Security Ownership of Certain Beneficial Owners
and Management" and "Nominees for Election as Directors".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A definitive Proxy Statement will be filed with the Commission pursuant to
Regulation 14A within 120 days after the close of the Company's most recent
calendar year and, accordingly, Item 13 is incorporated by reference to said
definitive Proxy Statement. The Proxy Statement includes information covering
this item under the caption "Certain Relationships and Related Transactions".
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial statements and financial statement schedules and exhibits:
(1) Financial Statements: See Item 8. "Financial Statements."
(2) All schedules are omitted since the required information is not
present or not present in amounts sufficient to require
submission of the schedule, or because the information required
is included in the financial statements, including the notes
thereto.
(3) Exhibits:
3.1 Articles of Incorporation of Auto-Graphics, Inc., as amended
(incorporated by reference as filed with the SEC as Exhibit 3.1
to Item 14(a) in the registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989).
3.2 Bylaws, as amended (incorporated by reference as filed with
the SEC as Exhibit 3.2 to Item 14(a) in the registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1989).
10.8 Lease Agreement between 664 Company and Auto-Graphics, Inc.
dated May 27, 1986 (incorporated by reference as filed with
the SEC as Exhibit 10.7 to Item 14(a) in the registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990).
10.9 Agreement by, between and among Auto-Graphics, Inc. and
Douglas K. and Ruth T. Bisch executed February 15, 1995
(incorporated by reference as filed with the SEC as Exhibit
10.9 to Item 14(a) in the registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1994).
10.10 Asset Purchase Agreement between A-G Canada, Ltd., a wholly
owned subsidiary of Auto-Graphics, Inc. and ISM Information
Systems Management Manitoba Corporation, a subsidiary of IBM
Canada, Ltd. dated June 30, 1997 incorporated by reference as
filed with the SEC in the registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 1997).
10.13 Stock Purchase Agreement by, between and among Auto-Graphics,
Inc. and Cary A. and Geri W. Marshall executed June 13, 1995
(incorporated by reference as filed with the SEC as Exhibit
10.13 to Item 14(a) in the registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1995).
10.15 Credit Agreement between Wells Fargo Bank and Auto-Graphics,
Inc. dated May 12, 1997.
10.16 First Amendment to Credit Agreement between Wells Fargo Bank
and Auto-Graphics, Inc. dated June 23, 1997.
10.17 Second Amendment to Credit Agreement between Wells Fargo Bank
and Auto-Graphics, Inc. dated October 31, 1997.
10.18 Revolving Line of Credit Note (Working Capital) between Wells
Fargo Bank and Auto-Graphics, Inc. dated May 12, 1997.
10.19 Revolving Line of Credit Note (Capital Equipment) between
Wells Fargo Bank and Auto-Graphics, Inc. dated May 12, 1997.
10.20 Term Note between Wells Fargo Bank and Auto-Graphics, Inc.
dated May 12, 1997.
10.21 Continuing Security Agreement Rights to Payment and Inventory
between Wells Fargo Bank and Auto-Graphics, Inc. dated
May 12, 1997.
10.22 Security Agreement Equipment between Wells Fargo Bank and
Auto-Graphics, Inc. dated May 12, 1997.
10.23 Guaranty between Wells Fargo Bank and Robert S. Cope dated
May 12, 1997.
10.24 Settlement Agreement and Mutual Release between Diversified
Printing & Publishing Services, Inc., Gannam/Kubat Publishing,
Inc. Nasib Gannam, and T. Ron Kahraman, and Datacat, Inc.,
Auto-Graphics, Inc. and Robert S. Cope dated September 30, 1997.
10.25 1997 Non-Qualified Stock Option Plan dated December 31, 1997.
(b) The Company has not filed any reports on Form 8-K during the
last quarter of the period covered by this Report.
(c) The following document is filed herewith for information purposes,
but is not part of this Annual Report, except as otherwise indicated:
None.
(d) None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
AUTO-GRAPHICS, INC.
(Registrant)
Date: 4/15/98 By Ss/ Robert S. Cope
Robert S. Cope, President, Treasurer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacity and on the dates indicated.
Date: 4/15/98 By Ss/ Robert S. Cope
Robert S. Cope, President, Treasurer
and Director
Date: 4/15/98 By Ss/ Daniel E. Luebben
Daniel E. Luebben, Secretary and
Chief Financial Officer
Date: 4/15/98 By Ss/ Robert H. Bretz
Robert H. Bretz, Director
</PAGE>
DESCRIPTION - Credit Agreement between Wells Fargo Bank and Auto-Graphics,
Inc. dated May 12, 1997.
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of May 12, 1997, by and between AUTO-
GRAPHICS, INC., a California corporation ("Borrower"), and WELLS FARGO
BANK, NATIONAL ASSOCIATION ("Bank").
RECITAL
Borrower has requested from Bank the credit accommodations described below
(each, a "Credit" and collectively, the "Credits"), and Bank has agreed
to provide the Credits to Borrower on the terms and conditions contained
herein. NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Bank and Borrower hereby
agree as follows:
ARTICLE I
THE CREDITS
SECTION 1.1. LINE OF CREDIT.
(a) Line of Credit. Subject to the terms and conditions of this Agreement,
Bank hereby agrees to make advances to Borrower from time to time up to
and including June 1, 1.999, not to exceed at any time the aggregate
principal amount of One Million Two Hundred Fifty Thousand Dollars
($1,250,000.00) ("Line of Credit"), the proceeds of which shall be used
for working capital. Borrower's obligation to repay advances under the
Line of Credit shall he evidenced by a promissory note substantially in
the form of Exhibit A attached hereto ("Line of Credit Note"), all terms
of which are incorporated herein by this reference.
(b) Limitation on Borrowings. Outstanding borrowings under the Line of
Credit, to a maximum of the principal amount set forth above, shall not at
any time exceed an aggregate of the sum of eighty percent (80%) of the
eligible accounts receivable of Borrower "Borrower's Borrowing Base") plus
eighty percent (80%) of the eligible accounts receivable of A-G Canada
Ltd., a Canadian corporation ("A-G Canada") which is a wholly-owned
subsidiary of Borrower ("A-G Canada's Borrowing Base"). All of the
foregoing shall be determined by Bank upon receipt and review of all
collateral reports required hereunder and such other documents and
collateral information as Bank may from time to time require.
(i) Borrower's Borrowing Base. Borrower acknowledges that Borrower's
Borrowing Base was established by Bank with the understanding that among
other items, the aggregate of all returns, rebates, discounts, credits and
allowances for the immediately preceding three (3) months at all times
shall be less than five percent (5%) of Borrower's, gross sales for said
period. If such dilution of Borrower's accounts for the immediately
preceding three (3) months at any time exceeds five percent (5%) of
Borrower's a gross sales for said period, or if there at any time exists
any other matters, events, conditions or contingencies which Bank
reasonably believes may affect payment of any portion of Borrower's
accounts Bank, in its sole discretion, may reduce the foregoing advance
rate against eligible accounts receivable to a percentage appropriate to
reflect such dilution and/or establish additional reserves against
Borrower's eligible accounts receivable. As used herein with respect to
Borrower's Borrowing Base "eligible accounts receivable" shall consist
solely of trade accounts created in the ordinary course of Borrower's
business, upon which Borrower's right to receive payment is absolute and
not contingent upon the fulfillment or any condition whatsoever, and in
which Bank has a perfected security interest of first priority, and shall
not include:
(A) any account which is past due more than twice Borrower's, standard
selling terms;
(B) that portion of any account for which there exists any right of
setoff, defense or discount (except regular discounts allowed in the
ordinary course of business to promote prompt payment) or for which any
defense or counterclaim has been asserted;
(C) any account which represents an obligation of the United States
government or any political subdivision thereof (except accounts which
represent obligations of the United States government and for which Bank's
forms N-138 and N-139 been duly executed and acknowledged);
(D) any account which represents an obligation of an account debtor
located in a foreign country other than an account debtor located in the
Canadian provinces of Alberta, British Columbia, Manitoba, Ontario,
Saskatchewan or the Yukon Territory so long as, in Bank's determination,
such Canadian jurisdictions recognize Bank's first priority security
interest in and right to collect such account as a consequence of any
security agreements and UCC filings in favor of Bank, and other than an
account debtor located in any other Canadian province where Bank has
obtained a perfected security interest of first priority pursuant to the
applicable laws of such province;
(E) any account which arises from the sale or lease to or performance of
services for, or represents an obligation of, an employee, affiliate,
partner, member, parent or subsidiary of Borrower;
(F) any account which represents an obligation of any account debtor when
twenty-five percent (25%) or more of Borrower's accounts from such account
debtor are not eligible pursuant to (A) above;
(G) that portion of any account from an account debtor which represents
the amount by which Borrower's total accounts from said account debtor
exceeds twenty-five (25%) of Borrower's total accounts;
(H) any account deemed ineligible by Bank when Bank, in its sole
discretion, deems the creditworthiness or financial condition of the
account debtor, or the industry in which the account debtor is engaged, to
be unsatisfactory.
(ii) A-G Canada's Borrowing Base. Borrower acknowledges that A-G Canada's
Borrowing Base was established by Bank with the understanding that, among
other items, the aggregate of all returns, rebates, discounts, credits and
allowances for the immediately preceding three (3) months at all times
shall be less than five percent (5%) of A-G Canada's gross sales for said
period. If such dilution of A-G Canada's accounts for the immediately
preceding three (3) months at any time exceeds five percent (5%) of A-G
Canada's gross sales for said period, or if there at any time exists any
other matters, events, conditions, or contingencies which Bank reasonably
believes may affect payment of any portion of A-G Canada's accounts, Bank,
in its sole discretion, may reduce the foregoing advance rate against
eligible accounts receivable to a percentage appropriate to
reflect such additional dilution and/or establish additional reserves
against A-G Canada's eligible accounts receivable. As used herein with
respect to A-G Canada's Borrowing Base, "eligible accounts receivable"
shall consist solely of trade accounts created in the ordinary course of
A-G Canada's business, upon which A-G Canada's right to receive payment is
absolute and not contingent upon the fulfillment of any condition
whatsoever, and in which Bank has a perfected security interest of first
priority, and shall not include:
(A) any account which is past due more than twice A-G Canada's standard
selling terms;
(B) that portion of any account for which there exists any right of
setoff, defense or discount (except regular discounts allowed in the
ordinary course of business to promote prompt payment) or for which any
defense or counterclaim has been asserted;
(C) any account which represents an obligation of an account debtor
located in a country other than Canada;
(D) any account which arises from the sale or lease to or performance of
services for, or represents an obligation of, an employee, affiliate,
partner, member, parent or subsidiary of A-G Canada;
(E) any account which represents an obligation of any account debtor when
twenty-five percent (25%) or more of A-G Canada's accounts from such
account debtor are not eligible pursuant to (A) above;
(F) that portion of any account from an account debtor which represents
the amount by which A-G Canada's total accounts from said account debtor
exceeds twenty-five percent (25%) of A-G Canada's total accounts;
(G) any account deemed ineligible by Bank when Bank, in its sole
discretion, deems the creditworthiness or financial condition of the
account debtor, or the industry in which the account debtor is engaged, to
be unsatisfactory. (c) Borrowing and Repayment. Borrower may from time to
time during the term of the Line of Credit borrow, partially or wholly
repay its outstanding borrowings, and reborrow, subject to all of the
limitations, terms and conditions contained herein or in the Line of
Credit Note; provided however, that the total outstanding borrowings under
the Line of Credit shall not at any time exceed the maximum principal
amount available thereunder, as set forth above.
SECTION 1.2. EQUIPMENT LINE OF CREDIT.
(a) Equipment Line of Credit. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower from time to
time up to and including June 1, 1999, not to exceed at any time the
aggregate principal amount of Three Million Dollars ($3,000,000.00)
("Equipment Line of Credit"), the proceeds of which shall be used to
finance the purchase and/or development of equipment and software.
Borrower's obligation to repay advances under the Equipment Line of Credit
shall be evidenced by a promissory note substantially in the form of
Exhibit B attached hereto ("Equipment Line of Credit Note"), all terms of
which are incorporated herein by this reference.
(b) Limitation on Borrowings. Each request for an advance under the
Equipment Line of Credit shall be accompanied by Borrower's written
statement as to the use of the proceeds of such advance. Advances under
the Equipment Line of Credit shall not exceed eighty percent (80-%) of the
purchase price of equipment and software developed by a person or entity
other than Borrower, and shall not exceed eighty percent (80%) of the
development cost of equipment and software developed by Borrower, in each
case as evidenced by the invoices and/or expense reports therefor.
Moreover, the aggregate amount of all advances under the Equipment Line of
Credit which are to be used to finance the development cost of equipment
and software developed by Borrower shall not exceed One Million Dollars
($1,000,000.00) during any given fiscal year.
(c) Borrowing and Repayment. Borrower may from time to time during the
term of the Equipment Line of Credit borrow, partially or wholly repay its
outstanding borrowings, and reborrow, subject to all of the limitations,
terms and conditions contained herein or in the Equipment Line of Credit
Note; provided, however, that the total outstanding borrowings under the
Equipment Line of Credit shall not at any time exceed the maximum
principal amount available thereunder, as set forth above.
(d) Option to Cancel and Amortize. Borrower shall have a one-time option
during the term of the Equipment Line of Credit to cancel the Equipment
Line of Credit and to amortize the principal balance then outstanding over
a period of five (5) years, to be repaid in sixty (60) equal monthly
installments, as set forth in the promissory note to be executed by
Borrower upon the exercise of the option. Borrower may exercise this
option at anytime during the term of the Equipment Line of Credit upon
sending written notice thereof to Bank; provided, however, Borrower may
not exercise this option if an Event of Default, or an event or
act which with the giving of notice or the passage or time or both would
constitute an Event of Default, has occurred and is continuing.
SECTION 1.3. TERM LOAN.
(a) Term Loan. Subject to the terms and conditions of this Agreement, Bank
hereby agrees to make a loan to Borrower in the principal amount of Seven
Hundred Fifty Thousand Dollars ($750,0OO.00) ("Term Loan"), the proceeds
of which shall be used by Borrower and/or contributed by Borrower to A-G
Canada to finance the acquisition (the "ISM Acquisition") by Borrower
and/or by A-G Canada of the assets of ISM Information Systems Management
Manitoba Corporation pursuant to the terms of that certain Asset Purchase
Agreement between A-G Canada and ISM Information Systems Management
Manitoba Corporation to be dated as of June 1 1997 (the "Purchase
Agreement"). Borrower's obligation to repay the Term Loan shall be
evidenced by a promissory note substantially in the form of Exhibit C
attached hereto ("Term Note"), all terms of which are incorporated herein
by this reference. Bank's commitment to grant the Term Loan shall
terminate on June 30, 1997.
(c) Repayment. The principal amount of the Term Loan shall be repaid in
accordance with the provisions of the Term Note.
(d) Prepayment. Borrower may prepay principal on the Term Loan at any
time, in any amount and without penalty.
SECTION 1.4 INTEREST/FEES.
(a) Interest. The outstanding principal balances of the Line of Credit,
Equipment Line of Credit and the Term Loan shall bear interest at the
rates of interest set forth in the Line of Credit Note, Equipment Line of
Credit Note, and the Term Note (collectively, the "Notes").
(b) Computation and Payment. Interest shall be computed on the basis of a
360-day year, actual days elapsed. Interest shall be payable at the times
and place set forth in the Notes.
(c) Unused Commitment Fee. Borrower shall pay to Bank a fee equal to one-
eighth percent (1/8%) per annum (computed on the basis of a 360 day year,
actual days elapsed) on the average daily unused amount of the Line of
Credit, which fee shall be calculated on a quarterly basis by Bank and
shall be due and payable by Borrower in arrears within ten (10) days after
each billing is sent by Bank.
SECTION 1.5 COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect
all principal, interest and fees due under each Credit by charging
Borrower's demand deposit account with Bank, or any other demand deposit
account maintained by Borrower with Bank, for the full amount thereof.
Should there be insufficient funds in any such demand deposit account to
pay all such sums when due, the full amount of such deficiency shall be
immediately due and payable by Borrower.
SECTION 1.6. COLLATERATAL. As security for all indebtedness of Borrower to
Bank subject hereto, Borrower hereby grants to Bank security interests of
first priority in all Borrower's accounts receivable and other rights to
payment, general intangibles, inventory, equipment and all proceeds of the
foregoing. As security for all indebtedness of Borrower to Bank subject
hereto, on or before June 30, 1997, Borrower shall cause A-G Canada to
grant to Bank security interests of first priority in all of A-G Canada's
accounts receivable and other rights to payment, general intangibles,
inventory, equipment and all proceeds of the foregoing. All of the
foregoing shall be evidenced by and subject to the terms of such security
agreements, financing statements and other documents as Bank shall
reasonably require, all in form and substance satisfactory to Bank.
Borrower shall reimburse Bank immediately upon demand for all costs and
expenses incurred by Bank in connection with any of the foregoing
security, including without limitation, filing and recording fees and
costs of appraisals and audits.
SECTION l.7. GUARRANTIES. All indebtedness of Borrower to Bank under the
Term Loan shall be guaranteed by Robert S. Cope in the principal amount of
Seven Hundred Fifty Thousand Dollars ($750,000.00), as evidenced by and
subject to the terms of a guaranty in form and substance satisfactory to
Bank.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this
Agreement and shall continue in full force and effect until the full and
final payment, and satisfaction and discharge, of all obligations of
Borrower to Bank subject to this Agreement.
SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized and
existing and in good standing under the laws of the state of California,
and is qualified or licensed to do business (and is in good standing as a
foreign corporation, if applicable) in jurisdictions in which such
Qualification or licensing is required or in which the failure to so
qualify or to be so licensed could have a material adverse effect on
Borrower.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Notes, and
each other document, contract and instrument required hereby or at any
time hereafter delivered to Bank in connection herewith (collectively,
the "Loan Documents") have been duly authorized, and upon their execution
and delivery in accordance with the provisions hereof will constitute
legal, valid and binding agreements and obligations of Borrower or the
party which executes the same, enforceable in accordance with their
respective terms.
SECTION 2.3. NO VIOLATION. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of any
law or regulation, or contravene any provision of the Articles of
Incorporation or By-Laws of Borrower, or result in any breach of or
default under any contract, obligation, indenture or other instrument to
which Borrower is a party or by which Borrower may be bound.
SECTION 2.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material, adverse effect on the
financial condition or operation of Borrower other than those disclosed by
Borrower to Bank in writing prior to the date hereof.
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement
of Borrower dated March 31, 1997, a true copy of which has beer,
delivered by Borrower to Bank prior to the date hereof, (a) is complete
and correct and presents fairly the financial condition of Borrower, (b)
discloses all liabilities of Borrower that are required to be reflected or
reserved against under generally accepted accounting principles, whether
liquidated or unliquidated, fixed or contingent, and (c) has been prepared
in accordance with generally accepted accounting principles consistently
applied. Since the date of such financial statement -there has been no
material adverse change in the financial condition of Borrower, nor has
Borrower mortgaged, pledged, granted a security interest in or otherwise
encumbered any of its assets or properties except in favor of Bank or as
otherwise permitted by Bank in writing.
SECTION 2.6. INCOME TAX.RETURNS. Borrower has no knowledge of any pending
assessments or adjustments of its income tax payable with respect to any
year.
SECTION 2.7. NO SUBORDINATION. There is no agreement indenture, contract
or instrument to which Borrower is a party or by which Borrower is a party
or by which Borrower may be bound that requires the subordination in right
of payment of any of Borrower's obligations subject to this Agreement to
any obligation of Borrower.
SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter
possess, all permits, consents, approvals, franchises and licenses
required and rights to all trademarks, trade names, patents, and
fictitious names, if any, necessary to enable it to conduct the business
in which it is now engaged in compliance with applicable law.
SECTION 2.9. ERISA. Borrower is in compliance in all material respects
with all applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended or remodified from time to time ("ERISA");
Borrower has not violated any provision of any defined employee pension
benefit plan (as defined in ERISA) maintained or contributed to by
Borrower (each, a "Plan"); no Reportable Event as defined in ERISA has
occurred and is continuing with respect to any Plan initiated by Borrower;
Borrower has met its minimum funding requirements under ERISA with respect
to each Plan; and each Plan will be able to fulfill its benefit
obligations as they come due in accordance with the Plan documents and
under generally accepted accounting principles.
SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, Borrower is in compliance in all
material respects with all applicable federal or state environmental,
hazardous waste, health-and safety statutes, and; any rules or regulations
adopted pursuant thereto, which govern or affect any of Borrower's
operations and/or properties, including without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Superfund Amendments and Reauthorization Act of 1986, the
Federal Resource Conservation and Recovery Act of 1976, and the Federal
Toxic Substances Control Act, as any of the same may be amended, modified
or supplemented from time to time. None of the operations of Borrower is
the subject of any federal or state investigation evaluating whether any
remedial action involving a material expenditure is needed to respond to a
release of any toxic or hazardous waste or substance into the environment.
Borrower has no material contingent liability in connection with any
release of any toxic or hazardous waste or substance into the environment.
ARTICLE III
CONDITIONS
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of
Bank to grant any of the Credits is subject to the fulfillment to Bank's
satisfaction of all of the following conditions: (a) Approval of Bank
Counsel. All legal matters incidental to the granting of each of the
Credits shall be satisfactory to Bank's counsel. (b) Documentation. Bank
shall have received, in form and substance satisfactory to Bank, each of
the following, duly executed: (i) This Agreement and the Notes. (ii)
Articles of Incorporation. (iii) Corporate Borrowing Resolution. (iv)
Incumbency Certificate. (v) Security Agreement covering Equipment. (vi)
Security Agreement covering Account Receivable and Inventory. (vii) UCC
Financing Statement. (viii) Guaranty (ix) Such other documents as Bank may
require under any other Section of this Agreement. And by June 30, 1977,
Bank shall have received, in form and substance satisfactory to Bank, each
of the following, duly executed: (x) Third Party Security Agreement: All
Accounts, Inventory, Equipment and Fixtures. (xi) Financing Statement or
such other filings as may be required under Canadian law. (xii) Corporate
Resolution authorizing endorsement and hypothecation of property. (xiii)
Incumbency Certificate. (xiv) Such other documents as Bank may require
under any other Section of this Agreement. (c) Financial Condition. There
shall have been no material adverse change, as determined by Bank, in the
financial condition or business of Borrower or any guarantor hereunder,
nor any material decline, as determined by Bank, in the market value of
any collateral required hereunder or a substantial or material portion of
the assets of Borrower or any such guarantor. (d) Insurance. Borrower
shall have delivered to Bank evidence of insurance coverage on all
Borrower's property, in form, substance, amounts, covering risks and
issued by companies satisfactory to Bank, and where required by Bank, with
loss payable endorsement in favor of Bank, including without limitation,
policies of fire and extended coverage insurance covering all real
property collateral required hereby, with replacement cost and mortgagee
loss payable endorsements, and such policies of insurance against specific
hazards affecting any such real property as may be required by
governmental regulation or Bank.
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of
Bank to make each extension of credit requested by Borrower hereunder
shall be subject to the fulfillment to Bank's satisfaction of each of the
following conditions: (a) Compliance. The representations and warranties
contained herein and in each of the other Loan Documents shall be true on
and as of the date of the signing of this Agreement and on the date of
each extension of credit by Bank pursuant hereto, with the same as though
such representations and warranties had been made on and as of each such
date, and on each such date, no Event of Default as defined herein, and no
condition, event or act which with the giving of notice or the passage of
time or both would constitute such an Event of Default, shall have
occurred and be continuing or shall exist. (b) Documentation. Bank shall
have received all additional documents which may be required in connection
with such extension of credit.
SECTION 3.3. SPECIAL CONDITION TO TERM LOAN. The obligation of Bank to
make the Term Loan shall be subject to receipt by Bank of such assurances
and/or evidence as Bank may require that concurrently with or prior to the
funding of the Term Loan, the ISM Acquisition shall be or shall have been
completed in compliance with all applicable laws, and that Borrower and/or
A-G Canada shall acquire or shall have acquired the assets described in
the Purchase Agreement free from any liens or claims of any person or
entity except for "Permitted Encumbrances" as defined in the Purchase
Agreement.
ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains committed to extend credit
to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of
the Loan Documents remain outstanding, and payment in full of all
obligations of Borrower subject hereto, Borrower shall, unless Bank
otherwise consents in writing:
SECTION 4.1. PUNCTUAL PAYMENTS Punctually pay all principal, interest,
fees or other liability ties due under any of the Loan Documents at the
times and place and in the manner specified therein, and immediately upon
demand by Bank, the amount by which the outstanding principal balance of
any of the Credits at any time
exceeds any limitation on borrowings applicable thereto.
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently
applied, and permit any representative of Bank, at any reasonable time, to
inspect, audit and examine such books and records, to make copies of the
same, and to inspect the properties of Borrower.
SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the following,
in form and detail satisfactory to Bank: (a) not later than 120 days after
and as of the end of each fiscal year, a audited consolidated financial
statement of Borrower, prepared by an certified public accountant
acceptable to Bank, to include a balance sheet, income statement and
statement of cash flow and all footnotes; (b) not later than 45 days after
and as of the end of each fiscal quarter, a consolidated financial
statement of Borrower, prepared by Borrower, to include a balance sheet
and income statement; (c) not later than 20 days after and as of the end
of each month, a borrowing base certificate of Borrower and A-G
Canada, an aged listing of accounts receivable and accounts payable of
Borrower and of A-G Canada, a reconciliation of accounts of Borrower and
A-G Canada, and by March 31 of each year, a list of the names and
addresses of Borrower's and A-G Canada's account debtors; (d) not later
than 90 days after the end of each calendar year, a financial statement of
each guarantor hereunder, prepared by such guarantor, to include all
assets and liabilities, and within 15 days filing, but in no event later
than each April 30th, copies of guarantor's filed federal income tax
returns for such year; (e) from time to time such other
information as Bank may reasonably request.
SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for
the conduct of its business; and comply with the provisions all documents
pursuant to which Borrower is organized and/or which govern Borrower's
continued existence and with the requirements of all laws, rules,
regulations and orders of any governmental authority applicable to
Borrower and/or its business.
SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the types
and in amounts customarily carried in lines of business similar to that of
Borrower, including but not limited to fire, extended coverage, public
liability, flood, property damage and workers' compensation, with all such
insurance carried with companies and in amounts satisfactory to Bank, and
deliver to Bank from time to time at Bank's request schedules setting
forth all insurance then in effect.
SECTION 4.6. FACILITIES. Keep all properties useful or necessary to
Borrower's business in good repair and condition, and from time to time
make necessary repairs, renewals and replacements thereto so that such
properties shall be fully and efficiently preserved and maintained.
SECTION 4.7. LITIGATION. Promptly give notice in writing to Bank of any
litigation pending or threatened against Borrower with a claim in excess
of $100,000.00. SECTION 4.8. FINANCIAL CONDITION. Maintain Borrower's
consolidated financial condition as follows using generally accepted
accounting principles consistently applied and used consistently with
prior practices (except to the extent modified by the definitions herein),
with compliance determined commencing with Borrower's financial statements
for the period ending June 30, 1997: (a) Current Ratio not at any time
less than 1.10 to 1.0, with "Current Ratio" defined as total current
assets divided by total current liabilities. (b) Tangible Net Worth not at
any time less than $2,500,000.00, with "Tangible Net Worth" defined as the
aggregate of total stockholders' equity plus subordinated debt less any
intangible assets. (c) Total Liabilities divided by Tangible Net Worth not
at any time greater than 2.25 to 1.0, with "Total Liabilities" defined as
the aggregate of current liabilities and non-current liabilities less
subordinated debt, and with "Tangible Net Worth" defined as the aggregate
of total stockholders' equity plus subordinated debt less any intangible
assets. (d) EBITDA Coverage Ratio not less than 2. 0 to 1. 0 as of each
fiscal year end and as of the end of each fiscal quarter, on a rolling
four-quarter basis, with "EBITDA" defined as net profit before tax plus
interest expenses (net of capitalized interest expense), depreciation
expense and amortization expense, and with "EBITDA Coverage Ratio"'
defined as EBITDA divided by the aggregate of total interest expense plus
the prior period current maturity of long-term debt and the prior period
current maturity of subordinated debt. (e) Net income after taxes not less
than $1.00 on an annual basis, determined as of each fiscal year end, and
pre-tax profit not less than $1.00 on a quarterly basis, determined as of
each fiscal quarter end.
SECTION 4.9. NOTICE TO BANK. Promptly (but in no event more than five (5)
days after the occurrence of each such event or matter) give written
notice to Bank in reasonable detail of: (a) the occurrence of any Event of
Default, or any condition, event or act which with the giving of notice or
the passage of time or both would constitute an Event of Default; (b) any
change in the name or organizational structure of Borrower; (c) the
occurrence and nature of any Reportable Event or Prohibited Transaction,
each as defined in ERISA, or any funding deficiency with respect to any,
Plan; or (d) any termination or cancellation of any insurance policy which
Borrower is required to maintain, or any uninsured or partially uninsured
loss through liability or property damage, or through fire, theft or any
other cause affecting Borrower's property in excess of an aggregate of
$100,000.00.
ARTICLE V
NEGATIVE COVENANTS
Borrower covenants that so long as Bank remains committed to extend credit
to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of
the Loan Documents remain outstanding, and until payment in full of all
obligations of Borrower subject hereto, Borrower will not without Bank's ,
prior or written consent:
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any of the Credits
except for the purposes stated in Article I hereof.
SECTION 5.2. CAPITAL EXPENDITURES. Make any additional investment in fixed
assets in any fiscal year in excess of an aggregate of $2,000,000.00
(excluding U.S.$1,000,000.00 of the purchase price of the ISM
Acquisition).
SECTION 5.3. OTHER INDEBTEDNESS. Create, incur, assume or permit to exist
any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated
or unliquidated, joint or several, except (a) the liabilities of Borrower
to Bank, and (b) any other liabilities of Borrower existing as of, and
disclosed to Bank prior to, the date hereof.
SECTION 5.4. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity; make any substantial change in the
nature of Borrower's business as conducted as of the date hereof; acquire
all or substantially all of the assets of any other entity; nor sell,
lease, transfer or otherwise dispose of all or a substantial or material
portion of Borrower's assets except in the ordinary course of its
business.
SECTION 5.5. GUARANTIES. Guarantee or become liable in any way as surety,
endorser (other than as endorser or negotiable instruments for deposit or
collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower as
security for, any liabilities or obligations or any other person or
entity, except any of the foregoing in favor of Bank.
SECTION 5.6. LOANS, ADVANCES, investmentS. Make any loans or advances to
or investments in any person or entity, except any of the foregoing
existing as of, and disclosed to Bank prior to, the date hereof.
SECTION 5.7. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or
distribution either in cash, stock or any other property on Borrower's
stock now or hereafter outstanding, nor redeem, retire, repurchase or
otherwise acquire any shares of any class of Borrower's stock now or
hereafter outstanding; provided, however, Borrower may repurchase its
common stock for a purchase price not to exceed $100,000.00 in the
aggregate during any given year, so long as no other term or provision of
this Agreement would be violated after giving effect to any such
repurchase.
SECTION 5.8. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist
a security interest in, or lien upon, all or any portion of Borrower's
assets now owned or hereafter acquired, except any of foregoing in favor
of Bank or which is existing as of, and disclosed to Bank in writing prior
to, the date hereof.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement: (a) Borrower shall fail to pay
when due any principal, interest, fees or other amounts payable under any
or the Loan Documents. (b) Any financial statement or certificate
furnished to Bank in connection with, or any representation or warranty
made by Borrower or any other party under this Agreement or any other Loan
Document shall prove to be incorrect, false or misleading in any material
respect when furnished or made. (c) Any default in the performance of or
compliance with any obligation, agreement or other provision contained
herein or in any other Loan Document (other than those referred to in
subsections (a) and (b) above), and with respect to any such default which
by its nature can be cured, such default shall continue for a period of
twenty (20) days from its occurrence. (d) Any default in the payment or
performance of any obligation, or any defined event of default, under the
terms of any contract or instrument (other than any of the Loan Documents)
pursuant to which Borrower or any guarantor hereunder has incurred any
debt or other liability to any person or entity, including Bank. (e) The
filing of a notice of judgment lien against Borrower or any guarantor
hereunder; or the recording or any abstract of judgment against Borrower
or any guarantor hereunder in any county in which Borrower or such
guarantor has an interest in real property; or the service of a notice of
levy and/or of a writ of attachment or execution, or other like process,
against the assets of Borrower or any guarantor hereunder; or the entry of
a judgment against Borrower or any guarantor hereunder. (f) Borrower or
any guarantor hereunder shall become insolvent, or shall suffer or consent
to or apply for the appointment of a receiver, trustee, custodian or
liquidator of itself or any of its property, or shall generally fail to
pay its debts as they become due, or shall make a general assignment for
the benefit of creditors; Borrower or any guarantor hereunder shall file a
voluntary petition in bankruptcy, or seeking reorganization, in order to
effect a plan or other arrangement with creditors or any other relief
under the Bankruptcy Reform Act, Title 11 of the United States Code, as
amended or recodified from time to time ("Bankruptcy Code"), or under
state or federal law granting relief to debtors, whether now or hereafter
in effect; or any involuntary petition or proceeding pursuant to the
Bankruptcy Code or any other applicable state or federal law relating to
bankruptcy, reorganization or other relief for debtors is filed or
commenced against Borrower or any guarantor hereunder, or Borrower or any
such guarantor shall file an answer admitting the jurisdiction of the
court and the material allegations of any involuntary petition; or
Borrower or any such guarantor shall be adjudicated a bankrupt, or an
order for relief shall be entered against Borrower or any such guarantor
by any court of competent jurisdiction under the Bankruptcy Code or any
other applicable state or federal law relating to bankruptcy,
reorganization or other relief for debtors. (g) There shall exist or occur
any event or condition which Bank in good faith believes impairs, or is
substantially likely to impair, the prospect of payment or performance by
Borrower of its obligations under any of the Loan Documents. (h) The death
or incapacity of any guarantor hereunder. The dissolution or liquidation
or Borrower; or Borrower or any of its directors, stockholders or members
shall take action seeking to effect the dissolution or liquidation of
Borrower. (i) Any change in ownership during the term of this Agreement of
an aggregate of twenty-five percent (25%) or more of the common stock of
Borrower.
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a)
all indebtedness of Borrower under each of the Loan Documents, any term
thereof to the contrary notwithstanding, shall at Bank's option and
without notice become immediately due and payable without presentment,
demand, protest or notice of dishonor, all of which are hereby expressly
waived by each Borrower; (b) the obligation, if any, of Bank to extend any
further credit under any of the Loan Documents shall immediately cease and
terminate; and (c) Bank shall have all rights, powers and remedies
available under each of the Loan Documents, or accorded by law, including
without limitation the right to resort to any or all security for any of
the Credits and to exercise any or all of the rights of a beneficiary or
secured party pursuant to applicable law. All rights, powers and remedies
of Bank may be exercised at any time by Bank and from time to time after
the occurrence of an Event of Default, are cumulative and not exclusive,
and shall be in addition to any other rights, powers or remedies provided
by law or equity.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents
shall affect or operate as a waiver of such right, power or remedy; nor
shall any single or partial exercise of any such right, power or remedy
preclude, waive or other wise affect any other or further exercise thereof
or exercise of any other right, power or remedy. Any waiver, permit,
consent or approval of any kind by Bank of any breach of or default under
of the Loan Documents must be in writing and shall be effective only to
the extent set forth in such writing.
SECTION 7.2. NOTICES. All notices, requests and demands which any party is
required or may desire to give to any other party under any Provision of
this Agreement must be in writing delivered to each party at the following
address: BORROWER: AUTO-GRAPHICS, INC. 3201 Temple Avenue Pomona,
California 91768 BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION Regional
Commercial Banking Office 9000 Flair Drive, Suite 100 El Monte, CA 91731
or to such other address as any party may designate by written notice to
all other parties. Each such notice, request and demand shall be deemed
given or made as follows: (a) if sent by hand delivery, upon delivery; (b)
if sent by mail, upon the earlier of the date of receipt or three (3) days
after deposit in the U.S. mail, first class and postage prepaid; and (c)
if sent by telecopy, upon receipt.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank immediately upon demand the full amount of all- advances, charges,
costs and expenses, including reasonable attorneys' fees (to include
outside counsel fees and all allocated costs of Bank's in house counsel),
expended or incurred by Bank in connection with (a) the negotiation and
preparation of this Agreement and the other Loan Documents, Bank's
continued administration hereof and thereof, and the preparation of any
amendments and waivers hereto and thereto, (b) the enforcement of Bank's
rights and/or the collection of any amounts which become due to Bank under
any of the Loan Documents, and (c) the prosecution or defense of any
action in any way related to any of the Loan Documents, including without
limitation, any action for declaratory relief, whether incurred at the
trial or appellate level, in an arbitration proceeding or otherwise, and
including any of the foregoing incurred in connection with any bankruptcy
proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating
to any Borrower or any other person or entity.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however,
that Borrower may not assign or transfer its interest hereunder without
Bank's prior written consent. Bank reserves the right to sell, assign,
transfer, negotiate or grant participation's in all or any part of, or any
interest in, Bank's rights and benefits under each of the Loan Documents.
In connection therewith, Bank may disclose all documents and information
which Bank now has or may hereafter acquire relating to any of the
Credits, Borrower or its business, any guarantor hereunder or the business
of such guarantor, or any collateral required hereunder.
SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
Loan Documents constitute the entire agreement between Borrower and Bank
with respect to the Credits and supersede all prior negotiations,
communications, discussions and correspondence concerning the subject
matter hereof. This Agreement may be amended or modified only in writing
signed by each party hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and
their respective permitted successors and assigns, and no other person or
entity shall be a third party beneficiary of, or have any direct or
indirect cause of action or claim in connection with, this Agreement or
any other of the Loan Documents to which it is not a party.
SECTION 7.7. TIME. Time is of the essence of each and every provision of
this Agreement and each other of the Loan Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such Prohibition or
invalidity without invalidating the remainder of such provision or any
remaining provisions of this Agreement.
SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when executed and delivered shall be deemed to
be an original, and all of which when taken together shall constitute one
and the same Agreement.
SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
SECTION 7.11. ARBITRATION.
(a) Arbitration. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in
accordance with the terms of this Agreement. A "Dispute" shall mean any
action, dispute, claim or controversy of any kind, whether in contract or
tort, statutory or common law, legal or equitable, now existing or
hereafter arising under or in connection with, or in any way pertaining
to, any of the Loan Documents, or any past, present or future extensions
of credit and other activities, transactions or obligations of any kind
related directly or indirectly to any of the Loan Documents, including
without limitation , any of the foregoing arising in connection with the
exercise of any self-help, ancillary or other remedies pursuant to any of
the Loan Documents. Any party may by summary proceedings bring an action
in court to compel arbitration of a Dispute. Any party who fails or
refuses to submit to arbitration following a lawful demand by any other
party shall bear all costs and expenses incurred by such other party in
compelling arbitration of any Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered by the
American Arbitration Association ("AAA") or such other administrator as
the parties shall mutually agree upon in accordance with AAA the
Commercial Arbitration Rules. All Disputes submitted to arbitration shall
be resolved in accordance with the Federal Arbitration Act (Title 9 of the
United States Code), notwithstanding any conflicting choice of law
provision in any of the Loan Documents. The arbitration shall be conducted
at a location in California selected by the AAA or other administrator. If
there is any inconsistency between the terms hereof and any such rules,
the terms and procedures set forth herein shall control. All statutes of
limitation applicable to any Dispute shall apply to any arbitration
proceeding. All discovery activities shall be expressly limited to matters
directly relevant to the Dispute being arbitrated. Judgment upon any award
rendered in an arbitration may me entered in any court having
jurisdiction; provided however, that nothing contained herein shall be
deemed to be a waiver by any party that is a bank of the protections
afforded to it under 12 U.S.C. 91 or any similar applicable state law.
(c) No Waiver; Provisional Remedies, Provisional Remedies, Self-Help and
Foreclosure. No provision hereof shall limit the right of any party to
exercise self-help remedies such as setoff, foreclosure against or sale of
any real or personal property collateral or security, or to obtain
provisional or ancillary remedies, including without limitation injunctive
relief, sequestration, attachment, garnishment or the appointment of a
receiver, from a court of competent it jurisdiction before, after or
during the pendency or any arbitration or other proceeding. The exercise
of any such remedy shall not waive the right of any party to compel
arbitration or reference hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
active members of the California State Bar or retired judges of the state
or federal judiciary of California, with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered
to resolve Disputes by summary rulings in response to motions filed prior
to the final arbitration hearing. Arbitrators (i) shall resolve all
Disputes in accordance with the substantive law of the state of
California, (ii) may grant any remedy or relief that a court of the state
of California could order or grant within the scope hereof and such
ancillary relief as is necessary to make effective any
award, and (iii) shall have the power to award recovery of all costs and
fees, to impose sanctions and to take such other actions as they deem
necessary to the same extent a judge could pursuant to the Federal Rules
of Civil Procedure, the California Rules of Civil Procedure or other
applicable law. Any Dispute in which the amount in controversy is
$5,000,000 or less shall be decided by a single arbitrator who shall not
render an award of greater than $5,000,000 (including damages, costs, fees
and expenses) . By submission to a single arbitrator, each party expressly
waives any right or claim to recover more than $5,000,000. Any Dispute in
which the amount in controversy exceeds $5, 000, COO shall be decided by
majority vote of a panel of three arbitrators; provided however, that all
three arbitrators must actively participate in all hearings and
deliberations.
(e) Judicial Review. Notwithstanding anything herein to the contrary, in
any arbitration in which the amount in controversy exceeds $25,000,000,
the arbitrators shall be required to make specific, written findings of
fact and conclusions of law. In such arbitration's (i) the arbitrators
shall not have power to make any award which is not supported by
substantial evidence or which is based on legal error, (ii) an award shall
not be binding upon the parties unless the findings of fact are supported
by substantial evidence and the conclusions of law are not erroneous under
the substantive law of the state of California, and (iii) the parties
shall have in addition to the grounds referred to in the Federal
Arbitration Act for vacating, modifying or correcting an award the right
to judicial review of (A) whether the findings of fact rendered by the
arbitrators are supported by substantial evidence, and (B) whether the
conclusions of law are erroneous under the substantive law of the state of
California. Judgment confirming an award in such a proceeding may be
entered only if a court determines the award is supported by substantial
evidence and not based on legal error under the substantive law of the
state of California.
(f ) Real Property Collateral; Judicial Reference. Notwithstanding
anything herein to the contrary, no Dispute shall be submitted to
arbitration if the Dispute concerns indebtedness secured directly or
indirectly, in whole or in part, by any real property unless (i) the
holder of the mortgage, lien or security interest specifically elects in
writing to proceed with the arbitration, or (ii) all parties to the
arbitration waive any rights or benefits that might accrue to them by
virtue of the single action rule statute of California, thereby agreeing
that all indebtedness and obligations of the parties, and all mortgages,
liens and security interests securing such indebtedness and obligations,
shall remain fully valid and enforceable. If any such Dispute is not
submitted to arbitration, the Dispute shall be referred to a referee in
accordance with California Code of Civil Procedure Section 638 et seq.,
and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant
to the AAA's selection procedures. Judgment upon the decision rendered by
a referee shall be entered in the court in which such proceeding was
commenced in accordance with California Code of Civil Procedure Sections
644 and 645.
(g) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with
the AAA. No arbitrator or other party to an arbitration proceeding may
disclose the existence, content or results thereof, except for disclosures
of information by a party required in the ordinary course of its business,
by applicable law or regulation, or to the extent necessary to exercise
any judicial review rights set forth herein. If more than one agreement
for arbitration by or between the parties potentially applies to a
Dispute, the arbitration provision most directly related to the Loan
Documents or the subject matter of the Dispute shall control. This
arbitration provision shall survive termination, amendment or expiration
of any of the Loan Documents or any relationship between the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
WELLS FARGO BANK,
AUTO-GRAPHICS, INC. NATIONAL ASSOCIATION
By: Ss/Robert S. Cope By Ss/Kirk C. Smith
By: Robert S. Cope By: Kirk C. Smith
Title: President Title: Vice President
DESCRIPTION - First Amendment to Credit Agreement between Wells Fargo Bank
and Auto-Graphics, Inc. dated May 12, 1997.
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered
into as of June 23, 1997, by and between AUTOGRAPHICS, INC., a California
corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION
("Bank")
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and
conditions of that certain Credit Agreement between Borrower and Bank
dated as of May 12, 1997, as amended from time to time ("Credit
Agreement").
WHEREAS, Bank and Borrower have agreed to certain changes in the terms and
conditions set forth in the Credit Agreement and have agreed to amend the
Credit Agreement to reflect said changes.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree that the Credit
Agreement shall be amended as follows:
1. Section 4. 8 (d) is hereby deleted in its entirety, and the following
substituted therefor:
"(d) EBITDA Coverage Ratio not less than 2.00 to 1.00 as of each
fiscal year end and not less than 1.75 to 1.00 as of the end of each
fiscal quarter excluding quarter ending 12/31, on a rolling four-quarter
basis, with "EBITDA" defined as net profit before tax plus interest
expenses (net of capitalized interest expense), depreciation expense and
amortization expense, and with "EBITDA Coverage Ratio" defined as EBITDA
divided by the aggregate of total interest expense plus the prior period
current maturity of long-term debt and the prior period current maturity
of subordinated debt."
2. Except as specifically provided herein, all terms and conditions of
the Credit Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Credit Agreement shall have the
same meaning when used in this Amendment. This Amendment and the Credit
Agreement shall be read together, as one document.
3. Borrower hereby remakes all representations and warranties contained
in the Credit Agreement and reaffirms all covenants set forth therein.
Borrower further certifies that as of the date of this Amendment there
exists no Event of Default as defined in the Credit Agreement, nor any
condition, act or event which with the giving of notice or the passage of
time or both would constitute any such Event of Default.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
AUTO-GRAPHICS, INC. WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: Ss/Robert S. Cope By: Ss/Kirk C. Smith
Robert S. Cope Kirk C. Smith
President Vice President
DESCRIPTION - Second Amendment to Credit Agreement between Wells Fargo
Bank and Auto-Graphics, Inc. dated October 31, 1997.
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered
into as of October 3l, 1997 by and between AUTOGRAPHICS, INC., a
California corporation ("Borrower") and WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Bank").
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and
conditions of that certain Credit Agreement between Borrower and Bank
dated as of May 12, 1997, as amended from time to time ("Credit
Agreement");
WHEREAS, Bank and Borrower, have agreed to certain changes in the terms
and conditions set forth in the Credit Agreement and have agreed to amend
the Credit Agreement to reflect said changes;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
are hereby acknowledged, the parties hereto agree that the Credit
Agreement shall be amended as follows:
1. The second Paragraph of Section 1.6 is hereby amended and restated in
its entirety to read as follows:
As security for all indebtedness of A-G Canada to Bank under the guaranty
of A-G Canada referred to in Section 1.7 below, Borrower shall cause A-G
Canada, on or before October 31, 1997, to grant to Bank security interests
of first priority in all of A-G Canada's accounts receivable and other
rights to payment, general intangibles, inventory, equipment and all
proceeds of the foregoing.
2. Section 1.7 is hereby amended by adding at the end thereof the
following sentence:
On or before October 31, 1997, all indebtedness of Borrower to Bank shall
be guaranteed by A-G Canada as evidenced by and subject to the terms of a
guaranty in form and substance satisfactory to Bank.
3. The second paragraph of Section 3.1(b) is hereby amended and restated
in its entirety to read as follows:
By October 31, 1997, Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed:
(x) Guarantee.
(xi) General Security Agreement.
(xii) Financing Statements.
(xiii) Opinion of Counsel.
(xiv) Corporate Resolution.
(xv) Such other documents as Bank may require under any other Section of
this Agreement.
4. Section 4.3 (d) is hereby amended and restated in its entirety to read
as follows:
(d) not later than 90 days after the end of each calendar year, a
financial statement of each guarantor hereunder who is a natural person,
prepared by such guarantor, to include all assets and liabilities, and
within 15 days after filing, but in no event later than each April 30th,
copies of each such guarantor's filed federal income tax returns for such
year;
5. Section 6.1(h) is hereby amended and restated in its entirety to read
as follows:
(h) The death or incapacity of any guarantor hereunder who is a natural
person. The dissolution or liquidation of Borrower or of any guarantor
hereunder which is not a natural person (except, with respect to A-G
Canada, as permitted under the guarantee executed by it pursuant to
Section 1.7 above); or Borrower or any such guarantor, or any of its
directors, stockholders or members, shall take action seeking to effect
the dissolution or liquidation of Borrower or such guarantor (except, with
respect to A-G Canada, as permitted under the guarantee executed by it
pursuant to Section 1.7 above).
6. Bank and Borrower acknowledge and agree that in calculating the
Borrowing Base of A-G Canada as set forth in Section 1.1 (b) (ii), the
Canadian dollar values of A-G Canada's eligible accounts receivable shall
be converted to U.S. dollar equivalents.
7. Except as specifically provided herein, all terms and conditions of
the Credit Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Credit Agreement shall have the
same meaning when used in this Amendment. This Amendment and the Credit
Agreement shall be read together, as one document.
8. Borrower hereby remakes all representations and warranties contained
in the Credit Agreement and reaffirms all covenants set forth therein.
Borrower further certifies that as of the date of this Amendment there
exists no Event of Default as defined in the Credit Agreement, nor any
condition, act or event which with the giving of notice or the passage of
time or both would constitute any such Event of Default.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
AUTO-GRAPHICS, INC. WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: Ss/Robert S. Cope By: Ss/Kirk C. Smith
Robert S. Cope Kirk C. Smith
President Vice President
DESCRIPTION - Revolving Line of Credit Note (Working Capital) between
Wells Fargo Bank and Auto-Graphics, Inc. dated May 12, 1997.
WELLS FARGO BANK
REVOLVING LINE OF CREDIT NOTE
$1,250,000.00
El Monte, California
May 12,1997
FOR VALUE RECEIVED. The undersigned AUTO-GRAPHICS, INC.
("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Bank") at its office at Flair Industrial Park RCBO, 9000
Flair Drive Suite 100, El Monte, CA 91731, or at such other place as the
holder hereof may designate, in lawful money of the United States of
America and in immediately available funds. The principal sum of
$3,000,000.00, or so much thereof as may be advanced and be outstanding,
with interest thereon, to be computed on each advance from the date of its
disbursement as set forth herein.
INTEREST:
(a) Interest. The outstanding principal balance of this Note shall bear
interest (computed on the basis of a 360-day year, actual days elapsed) at
a rate per annum equal to the Prime Rate in effect from time to time. The
"Prime Rate" is a base rate that Bank from time to time establishes and
which serves as the basis upon which effective rates of interest are
calculated for those loans making reference thereto. Each change in the
rate of interest hereunder shall become effective on the date each Prime
Rate change is announced within Bank.
(b) Payment of Interest. Interest accrued on this Note shall be payable
on the last day of each month, commencing June 30, 1997.
(c) Default Interest. From and after the maturity date of this Note, or
such earlier date as all principal owing, hereunder becomes due and
payable by acceleration or otherwise. The outstanding principal balance of
this Note shall bear interest until paid in full at an increased rate per
annum (computed on the basis of a 360-day year. actual days elapsed) equal
to 4% above the rate of interest from time to time applicable to this
Note.
BORROWING AND REPAYMENT:
(a) Borrowing and Repayment. Borrower may from time to time during the
term of this Note borrow, partially or wholly repay its outstanding
borrowings, and re-borrow, subject to all of the limitations, terms and
conditions of this Note and of the Credit Agreement between Borrower and
Bank defined below; provided however, that the total outstanding
borrowings under this Note shall not at any time exceed the principal
amount stated above. The unpaid principal balance of this obligation at
any time shall be the total amounts advanced hereunder by the holder
hereof less the amount of principal payments made hereon by or for any
Borrower, which balance may be endorsed hereon from time to time by the
holder. The Outstanding principal balance of this Note shall be due and
payable in full on June 1, 1999.
(b) Advances. Advances hereunder, to the total amount of the principal
sum available hereunder, may be made by the holder at the oral or written
request of (i) ROBERT S. COPE or DANIEL E. LUEBBEN or MICHELE A. CLARK,
any one acting alone, who are authorized to request advances and direct
the disposition of any advances until written notice of the revocation of
such authority is received by the holder at the office designated above,
or (ii) any person, with respect to advances deposited to the credit of
any account of any Borrower with the holder, which advances, when so
deposited, shall be conclusively presumed to have been made to or for the
benefit of each Borrower regardless of the fact that persons other than
those authorized to request advances may have authority to draw against
such account. The holder shall have no obligation to determine whether
any person requesting an advance is or has been authorized by any
Borrower.
(c) Application of Payments. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof.
EVENTS OF DEFAULT:
This Note is made pursuant to and is subject to the terms and conditions
of that certain Credit Agreement between Borrower and Bank dated as of May
12, 1997, as amended from time to time (the "Credit Agreement"). Any
default in the payment or performance of any obligation under this Note,
or any defined event of default under the Credit Agreement, shall
constitute an "Event of
Default" under this Note.
MISCELLANEOUS:
(a) Remedies. Upon the occurrence of any Event of Default as defined in
the Credit Agreement. The holder of this Note, at the holder's option,
may declare all sums of principal and interest outstanding hereunder to be
immediately due and payable without presentment. Demand, notice of
nonperformance, notice of protest, protest or notice of dishonor, all of
which are expressly waived by each Borrower, and the obligation, it any,
of the holder to extend any further credit hereunder shall immediately
cease and terminate. Each Borrower shall pay to the holder immediately
upon demand the full amount of all payments, advances, charges, costs and
expenses, including reasonable attorneys' fees (to include outside counsel
fees and all allocated costs of the holder's in-house counsel), expended
or incurred by the holder in connection with the enforcement of the
holder's rights and/or the collection of any amounts which become due to
the holder under this Note, and the prosecution or defense of any action
in any way related to this Note, including without limitation, any action
for declaratory relief, whether incurred at the trial or appellate level,
in an arbitration proceeding or otherwise, and including any of the
foregoing incurred in connection with any bankruptcy proceeding (including
without limitation, any adversary proceeding, contested matter or motion
brought by Bank or any other person) relating to any Borrower or any other
person or entity.
(b) Obligations Joint and Several. Should more than one person or entity
sign this Note as a Borrower, the obligations of each such Borrower shall
be joint and several.
(c) Governing Law. This Note shall be governed by and constructed in
accordance with the laws of the state of California.
IN WITNESS WHEREOF. The undersigned has executed this Note as of the date
first written above.
AUTO-GRAPHICS, INC.
By: Ss/Robert S. Cope
Title: President
DESCRIPTION - Revolving Line of Credit Note (Capital Equipment) between
Wells Fargo Bank and Auto-Graphics, Inc. dated May 12, 1997.
WELLS FARGO BANK
REVOLVING LINE OF CREDIT NOTE
$3,000,000.00
El Monte, California
May 12,1997
FOR VALUE RECEIVED. the undersigned AUTO-GRAPHICS, INC. ("Borrower")
promises to pay to the order of WELLS FARGO BANK. NATIONAL ASSOCIATION
("Bank") at its office at Flair Industrial Park RCBO, 9000 Flair Drive
Suite 100, El Monte, CA 91731, or at such other place as the holder
hereof may designate, in lawful money of the United States of America and
in immediately available funds. the principal sum of $3,000,000.00, or so
much thereof as may be advanced and be outstanding. with interest thereon.
to be computed on each advance from the date of its disbursement as set
forth herein.
INTEREST:
(a) Interest. The outstanding principal balance of this Note shall bear
interest (computed on the basis of a 360-day year, actual days elapsed) at
a rate per annum equal to the Prime Rate in effect from time to time. The
"Prime Rate" is a base rate that Bank from time to time establishes and
which serves as the basis upon which effective rates of interest are
calculated for those loans making reference thereto. Each change in the
rate of interest hereunder shall become effective on the date each Prime
Rate change is announced within Bank.
(b) Payment of Interest. Interest accrued on this Note shall be payable
on the last day of each month, commencing June 30, 1997.
(c) Default Interest. From and after the maturity date of this Note. or
such earlier date as all principal owing, hereunder becomes due and
payable by acceleration or otherwise, the outstanding principal balance of
this Note shall bear interest until paid in full at an increased rate per
annum (computed on the basis of a 360-day year. actual days elapsed) equal
to 4% above the rate of interest from time to time applicable to this
Note.
BORROWING AND REPAYMENT:
(a) Borrowing and Repayment. Borrower may from time to time during the
term of this Note borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions of this Note and of the Credit Agreement between Borrower and
Bank defined below; provided however that the total outstanding borrowings
under this Note shall not at any time exceed the principal amount stated
above; and provided further, that Borrower shall make principal reductions
on this Note at the times and in the amounts set forth below. The unpaid
principal balance of this obligation at any time shall be the total
amounts advanced hereunder by the holder hereof less the amount of
principal payments made hereon by or for any Borrower, which balance may
be endorsed hereon from time to time by the holder. The Outstanding
principal balance of this Note shall be due and payable in full on June 1,
1999.
(b) Repayment. Principal shall be payable on the lst day of each month
in installments of $50,000.00 each, commencing July 1, 1997, and
continuing up to and including May 1, 1999 with a final installment
consisting of all remaining unpaid principal due and payable In full on
the maturity date set forth above.
(c) Advances. Advances hereunder. to the total amount of the principal
sum available hereunder. may be made by the holder at the oral or written
request of (i) ROBERT S. COPE or DANIEL E. LUEBBEN or MICHELE A. CLARK any
one acting alone, who are authorized to request advances and direct the
disposition of any advances until written notice of the revocation of such
authority is received by the holder at the office designated above, or
(ii) any person, with respect to advances deposited to the credit of any
account of any Borrower with the holder, which advances, when so
deposited, shall be conclusively presumed to have been made to or for the
benefit of each Borrower regardless of the fact that persons other than
those authorized to request advances may have authority to draw against
such account. The holder shall have no obligation to determine whether
any person requesting an advance is or has been authorized by any
Borrower.
(d) Application of Payments. Each payment made on this Note shall be
credited first, to any Interest then due and second. to the outstanding
principal balance hereof.
EVENTS OF DEFAULT:
This Note is made pursuant to and Is subject to the terms and conditions
of that certain Credit Agreement between Borrower and Bank dated as of May
12, 1997. as amended from time to time (the "Credit Agreement"). Any
default in the payment or performance of any obligation under this Note,
or any defined event of default under the Credit Agreement shall
constitute an "Event of Default" under this Note.
MISCELLANEOUS:
(a) Remedies. Upon the occurrence of any Event of Default as defined in
the Credit Agreement, the holder of this Note at the holder's option, may
declare all sums of principal and Interest outstanding hereunder to be
immediately due and payable without presentment. demand, notice of
nonperformance, notice of protest, protest or notice of dishonor, all of
which are expressly waived by each Borrower, and the obligation, if any,
of the holder to way related to this Note, including without limitation,
any action for declaratory relief, whether incurred at the trial or
appellate level, in an arbitration proceeding or otherwise, and including
any of the foregoing incurred in connection with any bankruptcy proceeding
(including without limitation, any adversary proceeding, contested matter
or motion brought by Bank or any other person) relating to any Borrower or
any other person or entity.
(b) Obligations Joint and Several. Should more than one person or entity
sign this Note as a Borrower, the obligations of each such Borrower shall
be joint and several.
(c) Governing Law. This Note shall be governed by and constructed in
accordance with the laws of the state of California.
IN WITNESS WHEREOF. the undersigned has executed this Note as of the date
first written above.
AUTO-GRAPHICS INC.
By: Ss/Robert S. Cope
Title: President
DESCRIPTION - Term Note between Wells Fargo Bank and Auto-Graphics, Inc.
dated May 12, 1997.
WELLS FARGO BANK
TERM NOTE
El Monte, California
$750,000.00
May 12, 1997
FOR VALUE RECEIVED, the undersigned AUTO-GRAPHICS, INC.
("Borrower") promises to pay to the order WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Bank") at its office at Flair Industrial Park RCBO, 9000
Flair Drive Suite 100, El Monte. CA 91731. or at such other place as the
holder hereof may designate, in lawful money of the United States of
America and in immediately available funds, the principal sum of
$750,000.00. with interest thereon as set forth herein.
INTEREST:
(a) Interest. The outstanding principal balance of this Note shall
bear interest (computed on the basis of 360-day year. actual, days
elapsed) at a rate per annum equal to the Prime Rate in effect from time
to time. The "Prime Rate" is a base rate that Bank from time to time
establishes and which serves as the basis upon which effective rates of
interest are calculated for those loans making reference thereto. Each
change in the rate interest hereunder shall become effective on the date
each Prime Rate change is announced within Bank.
(b) Payment of Interest. Interest accrued an this Note shall be
payable on the last day of each month, commencing June 30, 1997.
(c) Default Interest. From and after the maturity date of this
Note, or such earlier date as all principal owing hereunder becomes due
and payable by acceleration or otherwise, the outstanding principal
balance of this Note shall bear interest until paid in full at an
increased rate per annum (computed on the basis of a 360-day year. actual
days elapsed) equal to 4% above the rate of interest from time to time
applicable to this Note.
REPAYMENT AND PREPAYMENT:
(a) Repayment. Principal shall be payable on the 1st day of each
month in installments of $31,250.00 each, commencing July 1, 1998, and
continuing up to and including May 1, 2000, with a final installment
consisting of a remaining unpaid principal due and payable in full on June
1, 2000.
(b) Application of Payments. Each payment made on this Note shall
be credited first, to any interest then due and second, to the
outstanding principal balance hereof.
(c) Prepayment. Borrower may prepay principal on this Note at any
time, in any amount and without penalty. All prepayments of principal
shall be applied on the most remote principal installment or installments
then unpaid.
EVENTS OF DEFAULT:
This Note is made pursuant to and is subject to the terms and
conditions of that certain Credit Agreement between Borrower and Bank
dated as of May 12, 1997, as amended from time to time (the "Credit
Agreement") Any default in the payment or performance of any obligation
under this Note, or any defined event of default under the Credit
Agreement, shall constitute an 'Event of Default' under this Note.
MISCELLANEOUS:
(a) Remedies. Upon the occurrence of any Event of Default as
defined in the Credit Agreement, the holder a this Note, at the holder's
option, may declare all sums of principal and interest outstanding
hereunder to immediately due and payable without presentment, demand,
notice of nonperformance notice of protest, protest or notice of dishonor,
all of which are expressly waived by each Borrower, and the obligation, if
any, of the holder to extend any further credit hereunder shall
immediately cease and terminate. Each Borrower shall pay to the holder
immediately upon demand the full amount of all payments, advances.
charges, costs and expenses, including reasonable attorneys' fees (to
include outside counsel fees and all allocated costs of the holder's in-
house counsel) expended or incurred by the holder in connection with the
enforcement of the holder's rights and/or the collection of any amounts
which become due to the holder under this Note, and the prosecution or
defense of any action in any way related to this Note, including without
limitation, any action for declaratory relief, whether incurred at the
trial or appellate level, in an arbitration proceeding or otherwise, and
including any of the foregoing incurred in connection with any bankruptcy
proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person)
relating to any Borrower or any other person or entity.
(b) Obligations Joint and Several. Should more than one person or entity
sign this Note as a Borrower, the obligations of each such Borrower shall
be joint and several.
(c) Governing Law. This Note shall be governed by and construed in
accordance with the laws of the state of California.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first written above.
AUTO-GRAPHICS, INC.
By: Ss/Robert S. Cope
Title: President
DESCRIPTION - Continuing Security Agreement Rights to Payment and
Inventory between Wells Fargo Bank and Auto-Graphics, Inc. dated May 12,
1997.
CONTINUING SECURITY AGREEMENT
WELLS FARGO BANK
RIGHTS TO PAYMENT AND INVENTORY
1. GRANT OF SECURITY INTEREST. For valuable consideration, the
undersigned AUTO-GRAPHMS, INC., or any of them ("Debtor"), hereby
grants and transfers to WELLS FARGO BANK, NATIONAL ASSOCIATION("Bank")a
security interest in all accounts, deposit accounts, chattel paper,
instruments, documents and general intangibles (collectively called
"Rights to Payment") ' now existing or at any time hereafter, and prior to
the termination hereof, arising (whether they arise from the sale, lease
or other disposition of inventory or from performance of contracts for
service, manufacture. construction, repair or otherwise or from any other
source whatsoever), including all securities, guaranties, warranties,
indemnity agreements, insurance policies and other agreements pertaining
to the same or the property described therein, and in all goods returned
by or repossessed from Debtor's customers, together with a security
interest in all inventory, goods held for sale or lease or to be furnished
under contracts for service, goods so leased or furnished, raw materials,
component parts, work in process or materials used or consumed in Debtor's
business and all warehouse receipts, bills of lading and other documents
evidencing goods owned or acquired by Debtor, and all goods covered
thereby, now or at any time thereafter, and prior to the termination
hereof, owned or acquired by Debtor, wherever located, and all products
thereof (Collectively called "Inventory"), whether in the possession of
Debtor, warehousemen, bailees or any other person, or in process of
delivery and whether located at Debtor's places of business or elsewhere
(with all Rights to Payment and Inventory referred to herein collectively
as the 'Collateral"), together with whatever is receivable or received
when any of the Collateral or proceeds thereof are sold, leased,
collected, exchanged or otherwise disposed of, whether such disposition is
voluntary or involuntary, including without limitation, all Rights to
Payment, including returned premiums, with respect to any insurance
relating to any of the foregoing, and all Rights to Payment with respect
to any cause of action affecting or relating to any of the foregoing
(hereinafter called "Proceeds").
2. OBLIGATIONS SECURED. The obligations secured hereby are the payment
and performance of: (a) all present and future indebtedness of Debtor to
Bank; (b) all obligations of Debtor and rights of Bank under this
Agreement; and (c) all present and future obligations of Debtor to Bank of
other kinds. The word "Indebtedness" is used herein in its most
comprehensive sense and includes any and all advances, debts, obligations
and liabilities of Debtor, or any of them, heretofore, now or hereafter
made, incurred or created, whether voluntary or involuntary and however
arising, whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, and whether Debtor may be liable
individually or jointly, or whether recovery upon such indebtedness may be
or hereafter becomes unenforceable.
3. TERMINATION. This Agreement will terminate upon the performance of
all obligations of Debtor to Bank, including without limitation, the
payment of all indebtedness of Debtor to Bank, and the termination of all
commitments of Bank to extend credit to Debtor, existing at the time Bank
receives written notice from Debtor of the termination of this Agreement.
4. OBLIGATIONS OF BANK. Bank has no obligation to make any loans
hereunder. Any money received by Bank in respect of the Collateral may be
deposited, at Bank's option, into a non-interest bearing account over
which Debtor shall have no control, and the same shall, for all purposes,
be deemed Collateral hereunder.
5. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to
Bank that: (a) Debtor is the owner and has possession or control of the
Collateral and Proceeds; (b) Debtor has the right to grant a security
interest in the Collateral and Proceeds; (c) all Collateral and Proceeds
are genuine, free from liens. adverse claims, setoffs, default,
prepayment, defenses and conditions precedent of any kind or character,
except the lien created hereby or as otherwise agreed to by Bank, or
heretofore disclosed by Debtor to Bank, in writing; (d) all statements
contained herein and, where applicable, in the Collateral are true and
complete in all material respects; (a) no financing statement covering any
of the Collateral or Proceeds, and naming any secured party other than
Bank, is on file in any public office; (f) all persons appearing to be
obligated on Rights to Payment and Proceeds have authority and capacity to
contract and are bound as they appear to be; (g) all property subject to
chattel paper has been properly registered and filed in compliance with
law and to perfect the interest of Debtor in such property; and (h) all
Rights to Payment and Proceeds comply with all applicable laws concerning
form, content and manner of preparation and execution, including where
applicable Federal Reserve Regulation Z and any State consumer credit
laws.
6. COVENANTS OF DEBTOR.
(a) Debtor Agrees In general: (1) to pay indebtedness secured hereby
when due; (ii) to indemnify Bank against all losses, claims, demands,
liabilities and expenses of every kind caused by property subject hereto;
(iii) to pay all costs and expenses, including reasonable attorneys' fees,
incurred by Bank in the perfection and preservation of the Collateral or
Bank's interest therein and/or the realization, enforcement and exercise
of Bank's, rights, powers and remedies hereunder, (iv) to permit Bank to
exercise Its powers; (v) to execute and deliver such documents as Bank
deems necessary to create, perfect and continue the security interests
contemplated hereby; and (vi) not to change its chief place of business or
the places where Debtor keeps any of the Collateral or Debtor's records
concerning the Collateral and Proceeds without first giving Bank written
notice of the address to which Debtor is moving same.
(b) Debtor agrees with regard to the Collateral and Proceeds, unless
Bank agrees otherwise in writing: (i) to insure inventory and, where
applicable, Rights to Payment with Bank as loss payee, in form substance
and amounts, under agreements. against risks and liabilities, and with
insurance companies satisfactory to Bank; (ii) not to use any inventory
for any unlawful purpose or in any. way that would void any insurance
required to be carried in connection therewith; (iii) in not to remove
inventory from Debtor's premises, except for deliveries to buyers in the
ordinary course of Debtors business and except inventory which consists of
mobile goods as defined in the California Uniform Commercial Code, in
which case Debtor agrees not to remove or permit the removal of the
inventory from its state of domicile for a period in excess, of 30
calendar days; (iv) not to permit any lien on the Collateral or Proceeds,
including without limitation, liens arising from the storage of
inventory. except in favor of Bank; (v) not to sell. hypothecate or
otherwise dispose of, nor permit the transfer by operation of law of, any
of the Collateral or Proceeds or any interest therein, except sales of
inventory to buyers in the ordinary course of Debtors business; (vi) to
furnish reports to Bank of all acquisitions, returns. sales and other
dispositions of the inventory in such form and detail and at such times as
Bank may require; (vii) to permit Bank to inspect the Collateral at any
time; (viii) to keep, in accordance with generally accepted accounting
principles, complete and accurate records regarding all Collateral and
Proceeds, and to permit Bank to inspect the same and make copies thereof
at any reasonable time; (ix) if requested by Bank to receive and use
reasonable diligence to collect Rights to Payment and Proceeds, in trust
and as the property of Bank, and to immediately endorse as appropriate and
deliver such Rights to Payment and Proceeds to Bank daily in the exact
form in which they are received together with a collection report in form
satisfactory to Bank; (x) not to commingle Rights to Payment, Proceeds or
collections thereunder with other property; (xi) to give only normal
allowances and credits, and to advise, Bank thereof immediately in writing
if they affect any Rights to Payment or Proceeds in any material respect:
(xii) on demand, to deliver to Bank returned property resulting from, or
payment equal to. such allowances or credits on any Rights to Payment or
Proceeds or to execute such documents and do such other things as Bank may
reasonably request for the purpose of perfecting, preserving and enforcing
its security interest in such returned property; (xiii) from time to time,
when requested by Bank, to prepare and deliver a schedule of all
Collateral and Proceeds subject to this Agreement and to assign in writing
and deliver to Bank all accounts, contracts, leases and other chattel
paper, instruments, documents and other evidences thereof; (xiv) in the
event Bank elects to receive payments of Rights to Payment or Proceeds
hereunder, to pay all expenses incurred by Bank in connection therewith,
including expenses of accounting, correspondence. collection efforts,
reporting to account or contract debtors, filing, recording, record
keeping and expenses incidental thereto; and (xv) to provide any service
and do any other acts which may be necessary to maintain, preserve and
protect all Collateral and, as appropriate and applicable, to keep all
Collateral in good and saleable condition in accordance with the standards
and practices adhered to generally by users and manufacturers of like
property, and to keep all Collateral and Proceeds free and clear of all
defenses. rights of offset and counterclaims.
7. POWERS OF BANK. Debtor appoints Bank its true attorney in fact to
perform any of the following powers, which are coupled with an interest,
are irrevocable until termination of this Agreement and may be exercised
from time to time by Bank's officers and employees, or any of them,
whether or not Debtor is in default: (a) to perform any obligation of
Debtor hereunder in Debtor's name or otherwise; (b) to give notice to
account debtors or others of Bank's rights in the Collateral and Proceeds.
to enforce the same and make extension agreements with respect thereto;
(c) to release persons liable on Proceeds and to give receipts and
acceptances and compromise disputes in connection therewith; (d) to
release security; (a) to resort to security in any order, (f) to prepare,
execute, file, record or deliver notes, assignments, schedules,
designation statements, financing statements, continuation statements,
termination statements, statements of assignment, applications for
registration or like papers to perfect, preserve or release Bank's
interest in the Collateral and Proceeds; (g) to receive, open and read
mail addressed to Debtor, (h) to take cash, instruments for the payment of
money and other property to which Bank is entitled; (i) to verify facts
concerning the Collateral and Proceeds by inquiry of obligors thereon, or
otherwise, in its own name or a fictitious name; (j) to endorse, collect,
deliver and receive payment under instruments for the payment of money
constituting or relating to Proceeds; (k) to prepare, adjust, execute,
deliver and receive payment under insurance claims, and to collect and
receive payment of and endorse any instrument in payment of loss or
returned premiums or any other insurance refund or return, and to apply
such amounts received by Bank, at Bank's sole option, toward repayment of
the indebtedness or replacement of the Collateral; (l) to exercise all
rights, powers and remedies which Debtor would have, but for this
Agreement, with respect to all Collateral and Proceeds subject hereto; (m)
to enter onto Debtor's premises in inspecting the Collateral; (n) to make
withdrawals from and to close deposit accounts or other accounts with any
financial institution, wherever located, into which Proceeds may have been
deposited, and to apply funds so withdrawn to payment of the indebtedness;
(o) to preserve or release the interest evidenced by chattel paper to
which Bank is entitled hereunder and to endorse and deliver evidences of
title incidental thereto; and (p) to do all acts and things and execute
all documents in the name of Debtor or otherwise, deemed by Bank as
necessary, proper and convenient in connection with the preservation,
perfection or enforcement of its rights hereunder.
8. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS.
Debtor agrees to pay. prior to delinquency, all insurance premiums, taxes,
charges, liens and assessments against the Collateral and Proceeds, and
upon the failure of Debtor to do so. Bank at its option may pay any of
them and shall be the sole judge of the legality or validity thereof and
the amount necessary to discharge the same. Any such payments made by
Bank shall be obligations of Debtor to Bank, due and payable immediately
upon demand, together with interest at a rate determined in accordance
with the provisions of Section 15 herein, and shall be secured by the
Collateral and Proceeds, subject to all terms and conditions of this
Agreement.
9. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement: (a) any default in
the payment or performance of any obligation, or any defined event of
default, under (i) any contract or instrument evidencing any indebtedness,
or (ii) any other agreement between any Debtor and Bank, including without
limitation any loan agreement, relating to or executed in connection with
any indebtedness; (b) any representation or warranty made by any Debtor
herein shall prove to be incorrect in any material respect when made; (c)
any Debtor shall fall to observe or perform any obligation or agreement
contained herein; (d) any attachment or like levy on any property of any
Debtor, and (e) Bank, in good faith, believes any or all of the Collateral
and/or Proceeds to be in danger of misuse. dissipation, commingling, loss,
theft, damage or destruction, or otherwise in jeopardy or unsatisfactory
in character or value.
10. REMEDIES. Upon the occurrence of any Event of Default, Bank shall
have the right to declare immediately due and payable all or any
indebtedness secured hereby and to terminate any commitments to make loans
or otherwise extend credit to Debtor. Bank shall have all other rights,
powers, privileges and remedies granted to a secured party upon default
under the California Uniform Commercial Code or otherwise provided by law,
including without limitation, the right to contact all persons obligated
to Debtor an any Collateral or Proceeds and to instruct such persons to
deliver all Collateral and/or Proceeds directly to Bank. All rights,
powers, privileges and remedies of Bank shall be cumulative. No delay.
failure or discontinuance of Bank in exercising any right, power,
privilege or remedy hereunder shall affect or operate as a waiver of such
right, power, privilege or remedy: nor shall any single or partial
exercise of any such right, power, privilege or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of
any other right, power, privilege or remedy. Any waiver, permit. consent
or approval of any kind by Bank of any default hereunder, or any such
waiver of any provisions or conditions hereof, must be in writing and
shall be effective only to the extent set forth in writing. It is agreed
that public or private sales, for cash or on credit, to a wholesaler or
retailer or investor, or user of property of the types subject to this
Agreement. or public auction, are all commercially reasonable since
differences in the sales prices generally realized in the different kinds
of sales are ordinarily offset by the differences in the costs and credit
risks of such sales.
While an Event of Default exists: (a) Debtor will deliver to Bank from
time to time, as requested by Bank, current lists of all Collateral and
Proceeds, (b) Debtor will not dispose of any of the Collateral or Proceeds
except on terms approved by Bank; (c) at Bank's request, Debtor will
assemble and deliver all Collateral and Proceeds. and books and records
pertaining thereto, to Bank at a reasonably convenient place designated by
Bank; and (d) Bank may, without notice to Debtor, enter onto Debtor's
premises and take possession of the Collateral. With respect to any sale
by Bank of any Collateral subject to this Agreement, Debtor hereby
expressly grants to Bank the right to sell such Collateral using any or
all of Debtor's trademarks. trade names, trade name rights and/or
proprietary labels or marks.
11. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the transfer of all or
any part of the indebtedness, Bank may transfer all or any part of the
Collateral or Proceeds and shall be fully discharged thereafter from all
liability and responsibility with respect to any of the foregoing so
transferred, and the transferee shall be vested with all rights and powers
of Bank hereunder with respect to any of the foregoing so transferred; but
with respect to any Collateral or Proceeds not so transferred Bank shall
retain all rights, powers, privileges and remedies herein given. Any
proceeds of any disposition of any of the Collateral or Proceeds, or any
part thereof, may be applied by Bank to the payment of expenses incurred
by Bank in connection with the foregoing, including reasonable attorneys'
fees, and the balance of such proceeds may be applied by Bank toward the
payment of the indebtedness in such order of application as Bank may from
time to time elect.
12. STATUTE OF LIMITATIONS. Until all indebtedness shall have been
paid in full and all commitments by Bank to extend credit to Debtor have
been terminated, the power of sale and all other rights. powers,
privileges and remedies granted to Bank hereunder shall continue to exist
and may be exercised by Bank at any time and from time to time
irrespective of the fact that the indebtedness or any part thereof may
have become barred by any statute of limitations, or that the personal
liability of Debtor may have ceased, unless such liability shall have
ceased due to the payment in full of all indebtedness secured hereunder.
13. MISCELLANEOUS. (a) The obligations of Debtor are joint and
several: (b) Debtor hereby waives any right (i) to require Bank to make
any presentment or demand, or give any notice of nonpayment or
nonperformance, protest, notice of protest or notice of dishonor
hereunder, (ii) to direct the application of payments or security for
indebtedness of Debtor or indebtedness of customers of Debtor, or (iii) to
require proceedings against others or to require exhaustion of security,
and (c) Debtor hereby consents to extensions, forbearance's or alterations
of the terms of indebtedness, the release or substitution of security, and
the release of any guarantors; provided however, that in each instance,
Bank believes in good faith that the action in question is commercially
reasonable in that it does not unreasonably increase the risk of
nonpayment of the indebtedness to which the action applies. Until all
indebtedness shall have been paid in full, no Debtor shall have any right
of subrogation or contribution, and each Debtor hereby waives any benefit
of or right to participate in any of the Collateral or Proceeds or any
other security now or hereafter held by Bank.
14. NOTICES. All notices, requests and demands required under this
Agreement must be in writing, addressed to Bank at the address specified
in any other loan documents entered into between Debtor and Bank and to
Debtor at the address of its chief executive office (or personal
residence, if applicable) specified below or to such other address as any
party may designate by written notice to each other party, and shall be
deemed to have been given or made as follows: (a) if personally delivered,
upon delivery; (b) if sent by mail, upon the earlier of the date of
receipt or 3 days after deposit in the U. S. mail, first class and postage
prepaid; and (c) if sent by telecopy, upon receipt.
15. COSTS, EXPENSES AND ATTORNEYS' FEES Debtor shall pay to Bank
immediately upon demand the full amount of all payments. advances,
charges, costs and expenses, including reasonable attorneys' fees (to
include outside counsel fees and all allocated costs of Bank's in-house
counsel), expanded or incurred by Bank in exercising any right, power,
privilege or remedy conferred by this Agreement or in the enforcement
thereof, whether incurred at the trial or appellate level, in an
arbitration proceeding or otherwise, and including any of the foregoing
incurred in connection with any bankruptcy proceeding (including without
limitation, any adversary proceeding, contested matter or motion brought
by Bank or any other person) relating to Debtor or in any way affecting
any of the Collateral or Bank's ability to exercise any of its rights or
remedies with respect thereto. All of the foregoing shall be paid by
Debtor with interest from the date of demand until paid in full at a rate
per annum equal to the greater of ten percent (10%) or the Prime Rate
in effect from time to time. The "Prime Rate' is a base rate that Bank
from time to time establishes and which serves as the basis upon which
effective rates of interest are calculated for those loans making
reference thereto.
16. SUCCESSORS; ASSIGNS; AMENDMENT. This Agreement shall be binding upon
and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties, and may be amended
or modified only in writing signed by Bank and Debtor.
17. OBLIGATIONS OF MARRIED PERSONS. Any married person who signs this
Agreement as Debtor hereby expressly agrees that recourse may be had
against his or her separate property for all his or her indebtedness to
Bank secured by the Collateral and Proceeds under this Agreement.
18. SEVERABILITY OF PROVISIONS. If any provision of this Agreement
shall be held to be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or any
remaining provisions of this Agreement.
19. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of California.
Debtor warrants that its chief executive office (or personal residence, if
applicable) is located at the following address: 3201 TEMPLE AVENUE,
POMONA, CA 91768
Debtor warrants that the Collateral (except goods in transit) is located
or domiciled at the following additional addresses: NONE
IN WITNESS WHEREOF, this Agreement has been duly executed as of May
12,1997.
AUTO-GRAPHICS, INC
By: Ss/Robert S. Cope
Title: President
DESCRIPTION - Security Agreement Equipment between Wells Fargo Bank and
Auto-Graphics, Inc. dated May 12, 1997.
SECURITY AGREEMENT
WELLS FARGO BANK
EQUIPMENT
1. GRANT OF SECURITY INTEREST. For valuable consideration, the
undersigned AUTO-GRAPHICS, INC., or any of them ("Debtor"), hereby
grants and transfers to WELLS FARGO BANK. NATIONAL ASSOCIATION("Bank") a
security interest in all goods, tools, machinery, furnishings, furniture
and other equipment, now or at any time hereafter, and prior to the
termination hereof, owned or acquired by Debtor , wherever located whether
in the possession of Debtor or any other person and whether located on
Debtor's property or elsewhere, and all improvements, replacements,
accessions and additions thereto (collectively called "Collateral"),
together with whatever is receivable or received when any of the
Collateral or proceeds thereof are sold, leased, collected, exchanged or
otherwise disposed of, whether such disposition is voluntary or
involuntary, including without limitation. (a) all accounts, contract
rights, chattel paper, instruments, documents, general intangibles and
rights to payment of every kind now or at any time hereafter arising from
any such sale, lease, collection, exchange or other disposition of any of
the foregoing, (b) all rights to payment, including returned premiums,
with respect to any insurance relating to any of the foregoing, and (c)
all rights to payment with respect to any cause of action affecting or
relating to any of the foregoing (hereinafter called "Proceeds").
2. OBLIGATIONS SECURED. The obligations secured hereby are the
payment and performance of. (a) all present and future indebtedness of
Debtor to Bank; (b) all obligations of Debtor and rights of Bank under
this Agreement; and (c) all present and future obligations of Debtor to
Bank of other kinds. The word "Indebtedness" is used herein in its
most comprehensive sense and includes any and all advances, debts,
obligations and liabilities of Debtor. or any of them, heretofore, now
or hereafter made, incurred or created, whether voluntary or involuntary
and however arising, whether due or not due. absolute or contingent,
liquidated or unliquidated, determined or undetermined, and whether
Debtor may be liable individually or jointly, or whether recovery upon
such indebtedness may be or hereafter becomes unenforceable.
3. TERMINATION. This Agreement will terminate upon the
performance of all obligations of Debtor to Bank, including without
limitation, the payment of all indebtedness of Debtor to Bank, and the
termination commitments of Bank to extend credit to Debtor, existing at
the time Bank receives written notice from Debtor of the termination of
this Agreement.
4. OBLIGATIONS OF BANK. Bank has no obligation to make any
loans hereunder. Any money received by Bank in respect of the
Collateral may be deposited, at Bank's option, into a non-interest
bearing account over which Debtor shall have no control, and the same
shall, for all purposes, be deemed Collateral hereunder.
5. REPRESENTATIONS AND WARRANTIES. Debtor represents and
warrants to Bank that: (a) Debtor is the owner and has possession or
control of the Collateral and Proceeds; (b) Debtor has the right to
grant a security interest in the Collateral and Proceeds; (c) all
Collateral and Proceeds are genuine, free from liens, adverse claims,
setoffs, default, prepayment. defenses and conditions precedent of any
kind or character, except the lien created hereby or as otherwise agreed
to by Bank, or heretofore by Debtor to Bank, in writing; (d) all
statements contained herein are true and complete in all material
respects; (e) no financing statement covering any of the Collateral or
Proceeds, and naming any secured party other than Bank, is on file In
any public office; and (f) Debtor is not in the business of selling
goods of the kind Included within the Collateral subject to this
Agreement, and Debtor acknowledges that no sale of any Collateral,
including without limitation, any Collateral which Debtor may deem to be
surplus, has been or shall be consented to or acquiesced in by Bank,
except as specifically set forth in writing by Bank.
6. COVENANTS OF DEBTOR.
(a) Debtor Agrees in general: (i) to pay indebtedness secured
hereby when due; (ii) to indemnify Bank against all losses, claims,
demands, liabilities and expenses of every kind caused by property
subject hereto; (iii) to pay all costs and expenses, including
reasonable attorneys' fees, incurred by Bank in the perfection and
preservation of the Collateral or Bank's interest therein and/or the
realization, enforcement and exercise of Banks rights, powers and
remedies hereunder. (iv) to permit Bank to exercise Its powers; (v) to
execute and deliver such documents as Bank deems necessary to create,
perfect and continue the security interest contemplated hereby; and (vi)
not to change its chief place of business or the places where Debtor
keeps any of the Collateral or Debtors records concerning the Collateral
and Proceeds without first giving Bank written notice of the address to
which Debtor is moving same.
(b) Debtor agrees with regard to the Collateral and Proceeds,
unless Bank agrees otherwise in writing: (i) to insure the Collateral
with Bank as loss payee, in form, substance and amounts, under
agreements, against risks and liabilities, and with insurance companies
satisfactory to Bank: (ii) to operate the Collateral in accordance with
all applicable statutes, rules and regulations relating to the use and
control thereof, and not to use the Collateral for any unlawful purpose
or in any way that would void any insurance required to be carried in
connection therewith; (iii) not to permit any lien of the Collateral or
Proceeds, including without limitation, liens arising from repairs to or
storage of the Collateral. except in favor of Bank; (iv) to pay when due
all license fees, registration fees and other charges in connection-
with-any Collateral; (v) not to remove the Collateral from Debtor's
premises unless the Collateral consists of mobile goods as defined in
the California Uniform Commercial Code, in which case Debtor agrees not
to remove or permit the removal of the Collateral from its state of
domicile for a period in excess of 30 calendar days; (vi) not to sell,
hypothecate or otherwise dispose of, nor permit the transfer by
operation of law of, any of the Collateral or Proceeds or any interest
therein; (vii) not to rent, lease or charter the Collateral; (viii) to
permit Bank to Inspect the Collateral at any time; (ix) to keep, in
accordance with generally accepted accounting principles, complete and
accurate records regarding all Collateral and Proceeds, and to permit
Bank to Inspect the same and make copies thereof at any reasonable time;
(x) If requested by Bank, to receive and use reasonable diligence to
collect Proceeds, in trust and as the property of Bank, and to
immediately endorse as appropriate and deliver such Proceeds to Bank
daily in the exact form in which they are received together with a
collection report in form satisfactory to Bank. (xi) not to commingle
Proceeds or collections thereunder with other property; (xii) to give
only normal allowances and credits and to advise Bank thereof
immediately in writing if they affect any Collateral or Proceeds in any
material respect: (xiii) in the event Bank elects to receive payments of
Proceeds hereunder. to pay all expenses incurred by Bank in connection
therewith, including expenses of accounting, correspondence, collection
efforts, reporting to account or contract debtors. filing, recording.
record keeping and expenses incidental thereto; and (xiv) to provide any
service and do any other acts which may be necessary to maintain.
preserve and protect all Collateral and, as appropriate and applicable,
to keep the Collateral in good and saleable condition and repair. to
deal with the Collateral in accordance with the standards and practices
adhered to generally by owners of like property, and to keep all
Collateral and Proceeds free and clear of all defenses, rights of offset
and counterclaims.
7. POWERS OF BANK. Debtor appoints Bank its true attorney-in-
fact to perform any of the following powers. which are coupled with an
interest, are irrevocable until termination of this Agreement and may be
exercised from time to time by Bank's officers and employees, or any of
them, whether or not Debtor is in default: (a) to perform any obligation
of Debtor hereunder in Debtor's name or otherwise; (b) to give notice to
account debtors or others of Bank's rights In the Collateral and
Proceeds. to enforce the same and make extension agreements with respect
thereto; (c) to release persons liable on Proceeds and to give receipts
and acceptances and compromise disputes in connection therewith; (d) to
release security; (e) to resort to security in any order, (f) to
prepare, execute, file, record or deliver notes, assignments. schedules,
designation statements, financing statements. continuation statements,
termination statements, statements of assignment, applications for
registration or like papers to perfect, preserve or release Bank's
interest in the Collateral and Proceeds; (g) to receive, open and read
mail addressed to Debtor ; (h) to take cash, instruments for the payment
of money and other property to which Bank is entitled (i) to verify facts
concerning the Collateral and Proceeds by inquiry of obligors thereon, or
otherwise, in its own name or a fictitious name; (j) to endorse, collect.
deliver and receive payment under instruments for the payment of money
constituting or relating to proceeds;(k) to prepare adjust, execute,
deliver and receive payment under insurance claims, and to collect and
receive payments of and endorse any instrument in payment of loss or
returned premiums or any other insurance refund or return, and to apply
such amounts received by Bank, at Bank's sole option, toward repayment of
the indebtedness or replacement of the Collateral: (l) to exercise all
rights, powers and remedies which Debtor would have, but for this
Agreement, with respect to all Collateral and Proceeds subject hereto; (m)
to enter onto Debtor's premises in inspecting the Collateral; and (n) to
do all acts and things and execute all documents in the name of Debtor or
otherwise, deemed by Bank as necessary, proper and convenient in with the
preservation, perfection or enforcement of its rights hereunder.
8. PAYMENT OF PREMIUMS,TAXES, CHARGES, LIENS AND ASSESSMENTS.
Debtor agrees to pay prior to delinquency. all Insurance premiums,
taxes, charges. liens and assessments against the Collateral and
Proceeds, and upon the failure of Debtor to do so, Bank at its option
may pay any of them and shall be the sole judge of the legality or
validity thereof and the amount necessary to discharge the same. Any
such payments made by Bank shall be obligations of Debtor to Bank, due
and payable immediately upon demand, together with interest at a rate
determined in accordance with the provisions of Section 15 herein, and
shall be secured by the Collateral and Proceeds, subject to all terms
and conditions of this Agreement.
9. EVIENTS OF DEFAULT. The occurrence of any of the following
shall an "Event of Default" under this Agreement: (a) any default in
the payment or performance of any obligation, or any defined event of
default. under (i) any contract or instrument evidencing any
indebtedness. or (ii) any other agreement between any Debtor and Bank.
including without limitation any loan agreement, relating to or executed
in connection with any indebtedness; (b) any representation or warranty
made by any Debtor herein shall prove to be incorrect in any material
respect when made; (c) any Debtor shall fail to observe or perform any
obligation or agreement contained herein: (d) any attachment or like
levy on any property of any Debtor; and (e) Bank, in good faith,
believes any or all of the Collateral and/or Proceeds to be in danger of
misuse, dissipation, commingling, loss. theft, damage or destruction, or
otherwise in jeopardy or unsatisfactory In character or value.
10. REMEDIES. Upon the occurrence of any Event of Default, Bank
shall have the right to declare immediately due and payable all or any
indebtedness secured hereby and to terminate any commitments to make
loans or otherwise extend credit to Debtor. Bank shall have all other
rights, powers, privileges and remedies granted to a secured party upon
default under the California Uniform Commercial Code or otherwise
provided by law, including without limitation, the right to contact all
persons obligated to Debtor on any Collateral or Proceeds and to
instruct such person to deliver all Collateral and/or Proceeds directly
to Bank. All rights, powers, privileges and remedies of Bank shall be
cumulative. No delay, failure or discontinuance of Bank in exercising
any right, power, privilege or remedy hereunder shall affect or operate
as a waiver of such right. power. privilege or remedy; nor shall any
single or partial exercise of any such right, power, privilege or remedy
preclude. waive or otherwise affect any other or further exercise
thereof or the exercise of any other right. power. privilege or remedy.
Any. waiver, permit, consent or approval of any kind by Bank of any
default hereunder, or any such waiver of any provisions or conditions
hereof, must be in writing and shall be effective only to the extent set
forth in writing. It is agreed that public or private sales. for cash
or on credit, to a wholesaler or retailer or investor, or user of
property of the types subject to this Agreement, or public auction. are
all commercially reasonable since differences in the sales prices
generally realized in the different kinds of sales are ordinarily offset
by the differences In the costs and credit risks of such sales.
While an Event of Default exists: (a) Debtor will deliver to Bank from
time to time. as requested by Bank, current lists of all Collateral and
Proceeds; (b) Debtor will not dispose of any of the Collateral or
Proceeds on terms approved by Bank; (c) at Banks request Debtor will
assemble and deliver all Collateral and Proceeds, and books and records
pertaining thereto, to Bank at a reasonably convenient place designated
by Bank: and (d) Bank may, without notice to Debtor, enter onto Debtor's
premises and take possession of the Collateral.
11. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the transfer
of all or any part of the indebtedness. Bank may transfer all or any
part of the Collateral or Proceeds and shall be fully discharged
thereafter from all liability and responsibility with respect to any of
the foregoing so transferred and the transferee shall be vested with all
rights and powers of Bank hereunder with respect to any of the foregoing
so transferred; but with respect to any Collateral or Proceeds not so
transferred Bank shall retain all rights, powers, privileges and
remedies herein given. Any proceeds of any disposition of any of the
Collateral or Proceeds, or any part thereof. may be applied by Bank to
the payment of expenses incurred by Bank in connection with the
foregoing, including reasonable attorneys' fees, and the balance of such
proceeds may be applied by Bank toward the payment of the indebtedness
in such order of application as Bank may from time to-time elect.
12. STATUTE OF LIMITATIONS. Until all indebtedness shall have
been paid in full and all commitments by Bank to extend credit to Debtor
have been terminated, the power of sale and all other rights, powers.
privileges and remedies granted to Bank hereunder shall continue to
exist and may be exercised by Bank at any time and from time to time
irrespective of the fact that the indebtedness or any part thereof may
have become barred by any statute of limitations, or that the personal
liability of Debtor may have ceased, unless such liability shall have
Ceased due to the payment in full of all indebtedness secured hereunder.
13. MISCELLANEOUS. (a) The obligations of Debtor are joint and
several; (b) Debtor hereby waives any right (i) to require Bank to make
any presentment or demand or give any notice of nonpayment or
nonperformance, protest, or notice of dishonor hereunder, (ii) to direct
the application of payments or security for indebtedness of Debtor or
indebtedness of customers of Debtor, or (iii) to require proceedings
against others or to require exhaustion of security and (c) Debtor hereby
consents to extensions forbearance's or alterations of the terms of
indebtedness, the release or substitution of security, and the release
of any guarantors; provided however. that in each instance, Bank
believes in good faith that the action in question is commercially
reasonable in that it does not unreasonably increase the risk of
nonpayment of the indebtedness to which the action applies. Until all
indebtedness shall have been paid in full no Debtor shall have any
right of subrogation or contribution, and each Debtor hereby waives any
benefit of or right to participate in any of the Collateral or Proceeds
or any other security now or hereafter held by Bank.
14. NOTICES. All notice, requests and demands required under
this Agreement must be in writing, addressed to Bank at the address
specified in any other loan documents entered Into between Debtor and
Bank and to Debtor at the address of its chief executive office (or
personal residence, if applicable) specified below or to such other
address as any party may designate by written notice to each other party
and shall be deemed to have been given or made as follows: (a) if
personally delivered, upon delivery; (b) if sent by mail, upon the
earlier of the date of receipt or 3 days after deposit in the U. S.
mail, first class and postage prepaid; and (c) if sent by telecopy. upon
receipt.
15. COSTS, EXPENSES AND ATTORENYS' FEES. Debtor shall pay to
Bank Immediately upon demand the full amount of all payment, advances,
charges, costs and expenses, including reasonable attorneys' fees (to
include outside counsel fees and all allocated costs of Bank in-house
counsel), expended or incurred by Bank in exercising any right, power,
privilege or remedy conferred by this Agreement or in the enforcement
thereof, whether incurred at the trial or appellate level, in an
arbitration proceeding or otherwise, and including any of -the foregoing
incurred in connection with any bankruptcy proceeding (including without
limitation. any adversary proceeding. contested matter or motion brought
by Bank or any other person) relating to Debtor or in any way affecting
any of the Collateral or Bank's ability to exercise any of its rights or
remedies with respect thereto. All of the foregoing shall be paid by
Debtor with interest from the date of demand until paid in full at a
rate per annum equal to the greater of ten percent (10%) or the Prime
Rate in effect from time to time. The "Prime Rate" is a base rate that
Bank from time to time establishes and which serves as the basis upon
which effective rates of interest are calculated for those loans making
reference thereto.
16. SUCCESSORS; ASSIGNS; AMENDMENT. This Agreement shall be
binding upon and inure to the benefit of the heirs, executors,
administrators. legal representatives. successors and assigns of the
parties, and may be amended or modified only in writing signed by Bank
and Debtor.
17. OBLIGATIONS OF MARRIED PERSONS. Any married person who
signs this Agreement as Debtor hereby expressly agrees that recourse may
be had against his or her separate property for all his or her
indebtedness to Bank secured by the Collateral and Proceeds under this
Agreement.
18 SEVERABILFTY OF PROVISIONS. If any provision of this
Agreement shall be held to be prohibited by or invalid under applicable
law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such
provision or any remaining provisions of this Agreement.
19. GOVERNING LAW. This Agreement shall be governed by and
construed In accordance with the laws of the state of California.
Debtor warrants that its chief executive office (or personal
residence, if applicable) is located at the following address: 3201
TEMPLE AVENUE, POMONA, CA 91768
Debtor warrants that the Collateral (except goods in transit) is
located or domiciled at the following additional addresses: NONE
IN WITNESS WHEREOF, this Agreement been duly executed as of May
12, 1997
AUTO GRAPHICS, INC.
By: Ss/Robert S. Cope
Title: President
DESCRIPTION - Guaranty between Wells Fargo Bank and Robert S. Cope dated
May 12, 1997.
WELLS FARGO BANK
GUARANTY
TO: WELLS FARGO BANK. NATIONAL ASSOCIATION
1. GUARANTY; DEFINITIONS. In consideration of the credit or
other financial accommodation described herein and extended or made to
AUTO-GRAPHICS, INC. ("Borrowers"), or any of them, by WELLS FARGO BANK,
NATIONAL ASSOCIATION ("Bank"), and for other valuable consideration, the
undersigned ROBERT S. COPE ("Guarantor"), jointly and severally
unconditionally guarantees and promises to pay to Bank or order, on demand
in lawful money of the United States of America and in immediately
available funds, any and all Indebtedness of any of the Borrowers to Bank
in connection with that certain promissory note dated as of May 12, 1997.
executed by Borrowers and payable to the order of Bank in the principal
sum of $750,000.00, together with all extensions, renewals and/or
modifications thereof (which Indebtedness in connection with said
promissory note and all such extensions, renewals and/or modifications
shall be referred to herein as the "Note Indebtedness"). The term
"Indebtedness" is used herein in its most comprehensive sense and includes
any and all advances, debts, obligations and liabilities of Borrowers, or
any of them, heretofore. now or hereafter made, incurred or created.
whether voluntary or involuntary and however arising, whether due or not
due, absolute or contingent, liquidated or unliquidated, determined or
undetermined, and whether Borrowers may be liable individually or jointly
with others, or whether recovery upon such Indebtedness may be or
hereafter becomes unenforceable.
2. LIABILITY; OBLIGATION UNDER OTHER GUARANTIES. Any obligations
incurred or to be incurred by any of the Borrowers in addition to the Note
Indebtedness shall not modify or otherwise affect the obligations or
liability of Guarantor hereunder. The obligations of Guarantor hereunder
shall be in addition to any obligations of Guarantor under any other
guaranties of any liabilities or obligations of any of the Borrowers or
any other persons heretofore or hereafter given to Bank unless said other
guaranties are expressly modified or revoked in writing; and this Guaranty
shall not, unless expressly herein provided, affect or invalidate any such
other guaranties.
3. OBLIGATIONS JOINT AND SEVERAL; SEPARATE ACTIONS; WAIVER OF STATUTE
OF LIMITATIONS; REINSTATEMENT OF LIABILITY. The obligations hereunder are
joint and several and independent of the obligations of Borrowers, and a
separate action or actions may be brought and prosecuted against Guarantor
whether action is brought against any of the Borrowers or any other
person, or whether any of the Borrowers or any other person is joined in
any such action or actions. Guarantor acknowledges that this Guaranty is
absolute and unconditional, there are no conditions precedent to the
effectiveness of this Guaranty, and this Guaranty is in full force and
effect and is binding on Guarantor as of the date written below,
regardless of whether Bank obtains collateral or any guaranties from
others or takes any other action contemplated by Guarantor. Guarantor
waives the benefit of any statute of limitations affecting Guarantor's
liability hereunder or the enforcement thereof, and Guarantor agrees that
any payment of any Note Indebtedness or other act which shall toll any
statute of limitations applicable thereto shall similarly operate to toll
such statute of limitations applicable to Guarantor's liability hereunder.
The liability of Guarantor hereunder shall be reinstated and revived and
the rights of Bank shall continue if and to the extent that for any reason
any amount at any time paid on account of any Note Indebtedness guaranteed
hereby is rescinded or must otherwise be restored by Bank, whether as a
result of any proceedings in bankruptcy or reorganization or otherwise,
all as though such amount had not been paid. The determination as to
whether any amount so paid must be rescinded or restored shall be made
by Bank in its sole discretion; provided however, that if Bank chooses to
contest any such matter at the request of Guarantor, Guarantor agrees to
indemnify and hold Bank harmless from and against all costs and expenses,
including reasonable attorneys' fees, expended or incurred by Bank in
connection therewith, including without limitation, in any litigation with
respect thereto.
4. AUTHORIZATIONS TO BANK. Guarantor authorizes Bank, without notice
to or demand an Guarantor. and without affecting Guarantor's liability
hereunder, from time to time to: (a) alter, compromise, renew, extend,
accelerate or otherwise change the time for payment of, or otherwise
change the terms of, the Note Indebtedness or any portion thereof,
including increase or decrease of the rate of interest thereon; (b) take
and hold security for the payment of this Guaranty or the Note
Indebtedness or any portion thereof, and exchange, enforce, waive,
subordinate or release any such security; (c) apply such security and
direct the order or manner of sale thereof, including without limitation,
a non-judicial sale permitted by the terms of the controlling security
agreement or deed of trust, as Bank in its discretion may determine;
(d) release or substitute any one or more of the endorsers or any other
guarantors of the Note Indebtedness, or any portion thereof, or any other
party thereto; and (e) apply payments received by Bank from any of the
Borrowers to any Indebtedness of any of the Borrowers to Bank, in such
order as Bank shall determine in its sole discretion, whether or not such
Indebtedness is covered by this Guaranty, and Guarantor hereby waives any
provision of law regarding application of payments which specifies
otherwise Bank may without notice as-sign this Guaranty in whole or in
part. Upon Bank's request, Guarantor agrees to provide-to Bank copies of
Guarantor's financial statements.
5. REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants
to Bank that: (a) this Guaranty is executed at Borrowers' request; (b)
Guarantor shall not, without Bank's prior written consent, sell, lease
assign, encumber, hypothecate, transfer or otherwise dispose of all or a
substantial or material part of Guarantors assets other than in the
ordinary course of Guarantor's business; (c) Bank has made no
representation to Guarantor as to the creditworthiness of any of the
Borrowers; and (d) Guarantor has established adequate means of obtaining
from each of the Borrowers on a continuing basis financial and other
information pertaining to Borrowers' financial condition. Guarantor agrees
to keep adequately informed from such means of any facts, events or
circumstances which might in any way affect Guarantor's risks hereunder,
and Guarantor further agrees that Bank shall have no obligation to
disclose to Guarantor any information or material about any of the
Borrowers which is acquired by Bank in any manner.
6. GUARANTOR'S WAIVERS.
(a) Guarantor waives any right to require Bank to: (i) proceed against
any of the Borrowers or any other person; (ii) marshal assets or proceed
against or exhaust any security held from any of the Borrowers or any
other person; (iii) give notice of the terms, time and place of any public
or private sale of personal property security held from any of the
Borrowers or any other person, or otherwise comply with the provisions of
Section 9504 of the California Uniform Commercial Code; (iv) take any
action or pursue any other remedy in Bank's power, or (v) make any
presentment or demand for performance, or give any notice of
nonperformance, protest, notice of protest or notice of dishonor hereunder
or in connection with any obligations or evidences of indebtedness held by
Bank as security for or which constitute in whole or in part the Note
Indebtedness guaranteed hereunder, or in connection with the creation of
new or additional Indebtedness.
(b) Guarantor waives any defense to its obligations hereunder based upon
or arising by reason of: (i) any disability or other defense of any of the
Borrowers or any other person; (ii) the cessation or limitation from any
cause whatsoever, other than payment in full, of the Note Indebtedness;
(iii) any lack of authority of any officer, director, partner, agent or
other person acting or purporting to act on behalf of any of the Borrowers
which is a corporation, partnership or other type of entity. or any defect
in the formation of any such Borrower, (iv) the application by any of the
Borrowers of the proceeds of the Note Indebtedness for purposes other than
the purposes represented by Borrowers to, or intended or understood by,
Bank or Guarantor, (v) any act or omission by Bank which directly or
indirectly results in or aids the discharge of any of the Borrowers or any
portion of the Note Indebtedness by operation of law or otherwise, or
which in any way impairs or suspends any rights or remedies of Bank
against any of the Borrowers; (vi) any impairment of the value of any
interest in any security for the Note Indebtedness or any portion thereof,
including without limitation, the failure to obtain or maintain perfection
or recordation of any interest in any such security, the release of any
such security without substitution, and/or the failure to preserve the
value of, or to comply with applicable law in disposing of, any such
security; or (vii) any modification of the Note Indebtedness, in any form
whatsoever, including without limitation the renewal. extension,
acceleration or other change in time for payment of, or other change in
the terms of, the Note Indebtedness or any portion thereof, including
increase or decrease of the rate of interest thereon. Until all Note
Indebtedness shall have been paid in full, Guarantor shall have no right
of subrogation, and Guarantor waives any right to enforce any remedy which
Bank now has or may hereafter have against any of the Borrowers or any
other person, and waives any benefit of, or any right to participate in,
any security now or hereafter held by Bank. Guarantor further waives all
rights and defenses Guarantor may have arising out of (A) any election of
remedies by Bank, even though that election of remedies. such as a non-
judicial foreclosure with respect to any security for any portion of the
Note Indebtedness, destroys Guarantor's rights of subrogation or
Guarantor's rights to proceed against any of the Borrowers for
reimbursement, or (B) any loss of rights Guarantor may suffer by reason of
any rights, powers or remedies of any of the Borrowers in connection with
any anti-deficiency laws or any other laws limiting, qualifying or
discharging Borrowers' Indebtedness, whether by operation of Sections 726,
580a or 580d of the Code of Civil Procedure as from time to time amended,
or otherwise, including any rights Guarantor may have to a Section 580a
fair market value hearing to determine the size of a deficiency following
any trustee's foreclosure sale or other disposition of any real property
security for any portion of the Indebtedness.
7. BANK'S RIGHTS WITH RESPECT TO GUARANTOR'S PROPERTY IN BANK'S
POSSESSION. In addition to all liens upon and rights of setoff against
the monies, securities or other property of Guarantor given to Bank by
law, Bank shall have 2 lien upon and a right of setoff against all monies,
securities and other property of Guarantor now or hereafter in the
possession of or on deposit with Bank, whether held in a general or
special account or deposit or for safekeeping or otherwise, and every such
lien and right of setoff may be exercised without demand upon or notice to
Guarantor. No lien or right of setoff shall be deemed to have been waived
by any act or conduct on the part of Bank, or by any neglect to exercise
such right of setoff or to enforce such lien, or by any delay in so doing,
and every right of setoff and lien shall continue in full force and effect
until such right of setoff or lien is specifically waived or released by
Bank in writing.
8. SUBORDINATION. Any Indebtedness of any of the Borrowers now or
hereafter held by Guarantor is hereby subordinated to the obligations of
Borrowers to Bank under the Note Indebtedness. Such Indebtedness of
Borrowers to Guarantor is assigned to Bank as security for this Guaranty
and the Note Indebtedness and, if Bank requests, shall be collected and
received by Guarantor as trustee for Bank and paid over to Bank on account
of the Note Indebtedness but without reducing or affecting in any manner
the liability of Guarantor under the other provisions of this Guaranty.
Any notes or other instruments now or hereafter evidencing such
Indebtedness of any of the Borrowers to Guarantor shall be marked with a
legend that the same are subject to this Guaranty and, if Bank so
requests, shall be delivered to Bank. Guarantor will, and Bank is hereby
authorized in the name of Guarantor from time to time to, execute and file
financing statements and continuation statements and execute such other
documents and take such other action as Bank deems necessary or
appropriate to perfect preserve and enforce its rights hereunder.
9. REMEDIES; NO WAIVER All rights, powers and remedies of Bank
hereunder are cumulative. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy hereunder shall affect or operate as
a waiver of such right, power or remedy; nor shall any single or partial
exercise of any such right, power or remedy preclude, waive or otherwise
affect any other or further exercise thereof or the exercise of any other
right, power or remedy. Any waiver, permit, consent or approval of any
kind by bank of any breach of this Guaranty. or any such waiver of any
provisions or conditions hereof, must be in writing and shall be effective
only to the extent set forth in writing.
10. COSTS, EXPENSES AND ATTORNEYS' FEES. Guarantor shall pay to Bank
immediately upon demand the full amount of all payments, advances,
charges, costs and expenses, including reasonable attorneys' fees (to
include outside counsel fees and all allocated costs of Bank's in-house
counsel ), expended or incurred by Bank in connection with the enforcement
of any of Bank's rights, powers or remedies and/or the collection of any
amounts which become due to Bank under this Guaranty, and the prosecution
or defense of any action in any way related to this Guaranty, whether
incurred at the trial or appellate level, in an arbitration proceeding or
otherwise, and including any of the foregoing incurred in connection with
any bankruptcy proceeding (including without limitation, any adversary
proceeding, contested matter or motion brought by Bank or any other
person) relating to Guarantor or any other person or entity. All of the
foregoing shall be paid by Guarantor with interest from the date of
demand until paid in full at a rate per annum equal to the greater of ten
percent (10%) or Bank's Prime Rate in effect from time to time. The
"Prime Rate" is a base rate that Bank from time to time establishes and
which serves as the basis upon which effective rates of interest are
calculated for those loans making reference thereto.
11. SUCCESSORS; ASSIGNMENT. This Guaranty shall be binding upon and
inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties, provided however,
that Guarantor may not assign or transfer any of its interests or rights
hereunder without Bank's prior written consent Guarantor acknowledges that
Bank has the right to sell, assign, transfer, negotiate or grant
participation in all or any part of, or any interest in, the Note
Indebtedness and any obligations with respect thereto, including this
Guaranty. In connection therewith. Bank may disclose all documents and
information which Bank now has or hereafter acquires relating to Guarantor
and/or this Guaranty, whether furnished by Borrowers, Guarantor or
otherwise. Guarantor further agrees that Bank may disclose such documents
and information to Borrowers.
12. AMENDMENT. This Guaranty may be amended or modified only in
writing signed by Bank Guarantor.
13. OBLIGATIONS OF MARRIED PERSONS. Any married person who signs this
Guaranty as a Guaranty hereby expressly agrees that recourse may be had
against his or her separate property for all his or her obligate under
this Guaranty.
14. APPLICATION OF SINGULAR AND PLURAL. In all cases where there is
but a single Borrower, then all words used herein in the plural shall be
deemed to have been used in the singular where the context and
construction so require; and when there is more than one Borrower named
herein, or when this Guaranty is executed by more than one Guarantor, the
word "Borrowers" and the word "Guarantor" respectively shall mean all or
any one more of them as the context requires.
15. UNDERSTANDING WITH RESPECT TO, WAIVERS; SEVERABILITY OF
PROVISIONS.
Guarantor warrants and agrees that each of the waivers set forth herein is
made with Guarantor's full knowledge of significance and consequences, and
that under the circumstances, the waivers are reasonable and not contrary
public policy or law. If any waiver or other provision of this Agreement
shall be held to be prohibited by or invalid under applicable public
policy or law, such waiver or other provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of such waiver or other provision or any remaining provisions of
this Agreement.
16. GOVERNING LAW. This Guaranty shall be governed by and construed in
accordance with the laws of the state of California.
17. ARBITRATION.
(a) Arbitration. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in
accordance with the terms of this Guaranty. A "Dispute" shall mean any
action, dispute claim or controversy of any kind, whether in contract or
tort, statutory or common law, legal or equitable, now existing or
hereafter arising under or in connection with, or in any way pertaining
to, this Guaranty and each other, document, contract and instrument
required hereby or now or hereafter delivered to Bank in connection
herewith (collectively, the "Documents"), or any past present or future
extensions of credit and other activities, transactions or obligations of
any kind related directly or indirectly to any of the Documents, including
without limitation, any of the foregoing arising in connection with the
exercise of any self-help, ancillary or other remedies pursuant to any of
the Documents. Any party may by summary proceedings bring an action in
court to compel arbitration of a dispute. Any party who fails or refuses
to submit to arbitration following a lawful demand by any other party
shall bear all costs and expenses incurred by such other party in
compelling arbitration of any Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered by
the American Arbitration Association ("AAA") or such other administrator
as the parties shall mutually agree upon in accordance with the AAA
Commercial Arbitration Rules. All Disputes submitted to arbitration shall
be resolved in accordance with the Federal Arbitration Act (Title 9 of the
United States Code) notwithstanding any conflicting choice of law
provision in any of the Documents. The arbitration shall be conducted at
a location in California selected by the AAA or other administrator. If
there is any inconsistency between the terms hereof and any such rules,
the terms and procedures set forth herein shall control. All statutes of
limitation applicable to any Dispute shall apply to any arbitration
proceeding. All discovery activities shall be expressly limited to
matters directly relevant to the Dispute being arbitrated. Judgment upon
any award rendered in an arbitration may be entered in any court having
jurisdiction provided however, that nothing contained herein shall be
deemed to be a waiver by any party that is a bank of the protections
afforded to it under 12 U.S.C. 91 or any similar applicable state law.
(c) No Waiver Provisional Remedies, Self-Help and Foreclosure. No
provision hereof shall limit the right any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or
personal property collateral or security, or to obtain provisional or
ancillary remedies, including without limitation injunctive relief.
sequestration, attachment, garnishment or the appointment of a receiver,
from a court of competent jurisdiction before, after or during the
pendency of any arbitration or other proceeding. The exercise of any such
remedy shall not waive the right of any party to compel arbitration or
reference hereunder.
(d) Arbitrator Qualifications and Powers: Awards. Arbitrators must be
active members of the California State Bar or retired judges of the state
or federal judiciary of California, with expertise in the substantive law
applicable to the subject matter of the Dispute. Arbitrators are
empowered to resolve Disputes by summary rulings in response to motions
filed prior to the final arbitration hearing. Arbitrators (i) shall
resolve all Disputes in accordance with the substantive law of the state
of California, (ii) may grant any remedy or relief that a court of the
state of California could order or grant within the scope hereof and such
ancillary relief as is necessary to make effective any award, and (iii)
shall have the power to award recovery of all costs and fees, to impose
sanctions and to take such other actions as they deem necessary to the
same extent a judge could pursuant to the Federal Rules of Civil
Procedure, the California Rules of Civil Procedure or other applicable
law. Any Dispute in which the amount in controversy is $5,000,000 or less
shall be decided by a single arbitrator who shall not render an award of
greater than $5,000,000 (including damages, costs, fees and expenses). By
submission to a single arbitrator, each party expressly waives any right
or claim to recover more than $5,000,000. Any Dispute in which the amount
in controversy exceeds $5,000,000 shall be decided by majority vote of a
panel of three arbitrators provided however, that all three arbitrators
must actively participate in all hearings and deliberations.
(e) Judicial Review. Notwithstanding anything herein to the contrary,
in any arbitration in which the amount in controversy exceeds $25,000,000,
the arbitrators shall be required to make specific, written findings of
fact and conclusions of law. In such arbitration's (i) the arbitrators
shall not have the power to make any award which is not supported by
substantial evidence or which is based on legal error, (ii) an award shall
not be binding upon the parties unless the findings of fact are supported
by substantial evidence and the conclusions of law are not erroneous under
the substantive law of the state of California, and (iii) the parties
shall have in addition to the grounds referred to- in the Federal
Arbitration Act for vacating, modifying or correcting an award the right
to judicial review of (A) whether the findings of fact rendered by the
arbitrators are supported by substantial evidence, and (B) whether the
conclusions of law are erroneous under the substantive law of the state of
California. Judgment confirming an award in such a proceeding may be
entered only if a court determines the award is supported by substantial
evidence and not based on legal error under the substantive law of the
state of California.
(f) Real Property Collateral: Judicial Reference. Notwithstanding
anything herein to the contrary, no Dispute shall be submitted to
arbitration if the Dispute concerns indebtedness secured directly or
indirectly, in whole or in part, by any real property unless (t) the
holder of the mortgage, lien or security interest specifically elects in
writing to proceed with the arbitration, or (ii) all parties to the
arbitration waive any rights or benefits that might accrue to them by
virtue of the single action rule statute of California, thereby agreeing
that all indebtedness and obligations of the parties, and all mortgages,
liens and security interests securing such indebtedness and obligations,
shall remain fully valid and enforceable. If any such Dispute is not
submitted to arbitration, the Dispute shall be referred to a referee in
accordance with California Code of Civil Procedure Section 638 et seq..
and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with
the qualifications required herein for arbitrators shall be selected
pursuant to the AAA's selection procedures. Judgment upon the decision
rendered by a referee shall be entered in the court in which such
proceeding was commenced in accordance with California Code of Civil
Procedure Sections 644 and 645.
(g) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with
the AAA. No arbitrator or other party to an arbitration proceeding may
disclose the existence, content or results thereof, except for disclosures
of information by a party required in the ordinary course of its business,
by applicable law or regulation, or to the extent necessary to exercise
any judicial review rights set forth herein if more than one agreement for
arbitration by or between the parties potentially applies to a Dispute,
the arbitration provision most directly related to the Documents or the
subject matter of the Dispute shall control. This arbitration provision
shall survive termination, amendment or expiration of any of the Documents
or any relationship between the parties.
IN WITNESS WHEREOF, the undersigned Guarantor has executed this Guaranty
as of May 12,1997.
Ss/ Robert S. Cope
ROBERT S. COPE
DESCRIPTION - Settlement Agreement and Mutual Release between Diversified
Printing & Publishing Services, Inc., Nasib Gannam, and T. Ron Kahraman,
and Datacat, Inc., Auto-Graphics, Inc. and Robert S. Cope dated September
30, 1997.
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
This Settlement Agreement and Mutual Release (the "Agreement) dated
effective September 30, 1997 is entered into by and between (1)
Diversified Printing & Publishing Services, Inc. ("Diversified"),
Gannam/Kubat Publishing, Inc. ("GK"), Nasib Gannam ("Gannam") and T. Ron
Kahraman ("Kahraman"), on the one hand (individually and collectively the
"Gannam Parties"), and (2) Datacat, Inc. ("Datacat"), Auto-Graphics, Inc.
("AG"), and Robert Cope ("Cope"), on the other (individually and
collectively the "Datacat Parties").
RECITALS
This Agreement is entered into with reference to the following facts:
1. Diversified, GK, Gannam, Datacat, AG and Cope are parties to a civil
action (collectively the "Parties"), entitled Diversified Printing &
Publishing Services, Inc. v. Datacat, Inc., Case No. 766695, pending in
the Orange County Superior Court, and involving a complaint and two cross-
complaints (the "Action");
2. Each of the Parties wishes to resolve the Action without further
litigation and deem it to be in their best interests and to their mutual
advantage to forever settle and compromise all claims, controversies,
demands or causes of action between them;
3. This Settlement Agreement and Mutual Release is not intended to and
shall not be deemed to benefit or cover Vince Casale and/or Catalog
Services Company (collectively herein "Casale/CSC"), or in any way affect
any claims Datacat may or may not have against Casale/CSC pertaining to or
otherwise in respect of Casale's prior resignation from Datacat,
competition with Datacat in the HVACR catalog business (the "Casale/CSC
Business") and/or the alleged use of all or any portion of Datacat's HVACR
database, systems, procedures, customer lists, pricing information or
otherwise to conduct such Casale/CSC Business following his departure from
Datacat including as against Datacat (referred to herein collectively as
the "Casale Matter").
4. Gannam and Kahraman are currently serving as Directors of Datacat
and hereby agree to and shall resign those positions simultaneously with
and upon execution of this Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the premises and the mutual promises
and covenants contained herein, the sufficiency of which is hereby
expressly acknowledged by each of the undersigned parties including the
Parties, such parties have, intending to legally bound and obligated
thereby, entered into this Agreement.
ACCORDINGLY, THE PARTIES AGREE AS FOLLOWS:
I. PAYMENT.
A. On or before September 30, 1997, a certified or bank cashier's check
in the amount of Two Hundred Thousand Dollars ($200,000) shall be
delivered to counsel for Diversified payable to "Diversified Printing &
Publishing, Inc. and Graham & James LLP Trust Account" (the "Settlement
Payment").
II. DISMISSAL OF THE ACTIONS/TENDER OF SHARES.
A. Concurrently with the delivery of the Settlement Payment (1) the
Parties shall exchange pre-executed Requests for Dismissal with prejudice
of each of their respective complaints and cross-complaints in the Action,
and (2) GK shall surrender to DATACAT its original share certificate for
all of its stock in Datacat properly endorsed in blank for transfer (the
"GK Datacat Stock"), together with a certified copy of GK's corporate
resolution(s) approving and authorizing this Agreement including the
surrender, transfer and/or other conveyance of the GK Datacat Stock as
provided for herein. Counsel for the respective Parties shall hold such
Requests For Dismissal forms pending the actual payment of the Datacat
check referenced above as the Settlement Payment, after which such counsel
are hereby authorized to file such Requests For Dismissals as provided or
otherwise contemplated hereinabove.
B. GK and Gannam hereby each represents, warrants and covenant to and
for the benefit of AG and Datacat that GK is the sole and exclusive owner
of the GK Datacat Stock (as defined in paragraph II.A. above), that such
Stock is free and clear of any and all liens or encumbrances, and that GK
is authorized and empowered to surrender and otherwise transfer, deliver
and otherwise convey the GK Datacat Stock as provided for in this
Agreement; and, further, GK, Gannam and Diversified and each of them
hereby agree and promise to indemnify and hold harmless Datacat and A-G
from any and all claims, cause of action, expenses including reasonable
attorneys' fees and expenses, debts, obligations and liabilities arising
as a result of or in connection with the assertion by any person or entity
against Datacat and/or A-G of any claim of ownership, right, title and/or
interest in and to such GK Datacat Stock or any part thereof.
III. MUTUAL GENERAL RELEASE.
A. Diversified, GK, Gannam and Ron Kahraman, on the one hand, and
Datacat, AG, and Cope, on the other, release and forever discharge each
other of and from any and all claims, potential claims, complaints,
demands, damages, debts, liabilities, accounts, costs, attorneys' fees,
expenses, liens, actions, causes of action, suits, and losses of every
kind and nature whatsoever, whether now known or unknown, suspected or
unsuspected, which they now have, own or hold, or at any time before ever
had, owned or held, against each other (the "Released Matters").
B. The Released Matters, however, shall not extend to, impair, or
include any rights, obligations, or remedies which the undersigned parties
may have under this Agreement.
C. The Released Matters are not intended by the undersigned parties to
extend to or otherwise affect any rights which Datacat and/or AG may or
may not have against Casale/CSC in any respect.
D. It is the intention of the undersigned parties that this Agreement
shall be effective as a full and final accord and satisfaction, and
release of each and every one of the Released Matters. In furtherance of
this intention, each of the undersigned acknowledges that they are
familiar with Section 1542 of the California Civil Code ("Section 1542")
which provides as follows:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
Each of the undersigned parties hereby waives and relinquishes every right
or benefit which they have or may have under Section 1542 to the full
extent that they may lawfully waive such right or benefit with regard to
the Released Matters.
E. In connection with such waiver and relinquishment, each of the
undersigned parties acknowledges that they are aware that they may later
discover facts in addition to or different from those which they now know
or believe to be true with respect to the subject matter of this
Agreement, but that it is their intention to fully, finally and forever,
settle and release all Released Matters, known or unknown, suspected or
unsuspected, which now exist, may exist or previously existed between
them.
F. The releases in this Agreement shall, subject to the limitations
expressly set forth herein, extend and inure to the benefit of each
released party and each of their past and present officers, employees,
directors, agents, representatives, attorneys, alter egos, spouses,
shareholders, partners, joint ventures, heirs, executors, administrators,
affiliates, subsidiaries, divisions, legal predecessors, successors,
assigns, licensees, and their respective insurers, sureties, and
underwriters.
IV. MUTUAL REPRESENTATIONS AND WARRANTIES.
A. Each of the undersigned parties warrants and represents that they
have not previously assigned or transferred, or purported to assign or
transfer, to any third party any of the Released Matters.
B. Each of the undersigned parties to this Agreement represents and
warrants that they have been represented and advised fully by independent
counsel of their own choice through all negotiations which preceded the
execution of this Agreement; and that each such party has read or had read
to them all of this Agreement and had it explained to them by his attorney
and fully understands all the terms used and their significance, including
the legal effect and consequences of waiving the protections of Civil Code
1542.
V. FURTHER SPECIAL REPRESENTATIONS, WARRANTIES,
AGREEMENTS AND COVENANTS BY GANNAM.
A. Gannam, including without limitation for purposes of this paragraph
GK, Diversified and any and all other corporations, partnerships, limited
liability companies, associations, joint ventures and/or other forms of
business enterprise in which Gannam now owns or is otherwise entitled in
the future to own, receive or benefit from directly or indirectly any
share, partnership, joint venture or other interest therein including
without limitation Sterling Litho, Fairway Binding and Gapco (collectively
herein "Gannam Affiliate"), represents, warrants, covenants and otherwise
agrees that neither he nor any Gannam Affiliate and/or Kahraman
collectively herein also the "Gannam Parties") now owns and/or is entitled
to own or otherwise receive or benefit from the Casale/CSC Business
collectively "Casale/CSC Ownership Interest"); and, further that the
Gannam Parties will not hereafter obtain or receive any such
Casale/CSC Ownership Interest which, to the extent it ever has or in the
future does exist, such Ownership Interest is hereby sold, transferred and
conveyed to Datacat or its designee as part of the consideration for this
Agreement. It is expressly understood, however, that any and all
commercial printing services heretofore provided by Diversified to
Casale/CSC, whether for cash, credit or some combination thereof, shall
not be deemed to constitute an ownership interest by the Gannam Parties in
the Casale/CSC Business; and, provided further, that the foregoing
representations and warranties only as set forth in this sub-paragraph
shall not, in any event or under any circumstances, be a basis for the
initiation of any claim or action by the Datacat Parties against the
Gannam Parties in respect of the subject matter or such
representations/warranties including without limitation any allegation
that the subject representations/ warranties or any of them was not
accurate or was in any way false or misleading and such representations
and warranties (herein the "Special Rep/Warranty") shall under no
circumstances be the basis for the assertion that the Datacat Parties were
induced to enter into and/or perform this Agreement which is hereby
acknowledged and agreed by the Datacat Parties not to be the case. If
any claim or cause of action is ever brought by the Datacat Parties or any
of them against the Gannam Parties or any of them based on or in respect
of the Special Rep/Warranty, the Datacat Parties shall indemnify and hold
harmless the Gannam Parties named as defendants in any such breach of
Special Rep/Warranty action from any and all claims, cause of action,
expenses including reasonable attorneys' fees and expenses, debts,
obligations and liabilities arising as a result of or in connection with
the assertion of any such claim and/or cause of action as specified
herein.
B. The Gannam Parties and each of them hereby agree and covenant,
subject only to the provisions of the following subparagraph, not to,
directly or indirectly, participate in and/or otherwise assist Casale/CSC
and/or the Casale/CSC Business to compete with Datacat's HVACR catalog
business for a period of five (5) years from the effective date of this
Agreement including without limitation by providing Casale/CSC with any
advice, goods, services and/or financial support of any kind whatsoever at
any time during such five year period of time pertaining or related to, or
otherwise in respect of, the Casale/CSC Business or matters related
thereto.
C. Notwithstanding the prohibitions set forth in the foregoing sub-
paragraph, Diversified may if it so chooses provide commercial printing
services, and only such printing and binding services (no composition
services) to the Casale/CSC Business upon terms no more favorable than
Diversified then regularly offers to its other customers, beginning but
not sooner than two (2) years from the effective date of this Agreement.
D. Gannam and Kahraman, and each of them, acknowledge and agree that
the full and complete releases in this agreement include, without
limitation, any and all claims that Gannam and Kahraman allegedly breached
their fiduciary duties or other duties to Datacat and that Datacat's
willingness to so release such claims is based, in part, upon the Gannam
Parties' covenants not to compete as set forth in paragraph V(A) hereof .
E. The Gannam Parties' will comply with all laws concerning any and all
discovery requests that may be propounded in any future civil action that
may or
may not be filed by Datacat against Casale/CSC.
F. Gannam and the Gannam Affiliate each hereby further agrees and
covenants to provide to Datacat, and Datacat shall receive from
Diversified, at the time that the parties exchange the Requests For
Dismissals and delivery of the Settlement Payment provided for in
paragraphs II.A and I.A., respectively, of this Agreement the following:
All film (of covers and/or pages), artwork, camera ready and/or electronic
copy provided to Diversified by Datacat including any of its customers to
Diversified, for the production of catalogs, brochures,
mailers, price lists and other printed matter, in the possession, custody
or control of Diversified.
VI. ATTORNEYS' FEES.
A. In the event of any action or proceeding to enforce or interpret
this Agreement, the prevailing party, in addition to all other legal or
equitable remedies possessed, shall be entitled to be reimbursed for all
costs and expenses, including reasonable attorneys' fees, paid or incurred
by reason of or otherwise in connection with such action or proceeding.
Except as provided in this paragraph, the undersigned parties are to bear
their own costs and expenses including attorneys' fees, in connection with
the Action and execution of this Agreement.
VII. ENTIRE AGREEMENT.
A. This Agreement constitutes the entire agreement and understanding
concerning the subject matter hereof between the undersigned parties, and
supersedes and replaces all prior negotiations, proposed agreements and
agreements, written or oral. This Agreement is intended to and shall be
deemed for all purposes to be for the benefit of, be binding upon and be
enforceable against the undersigned parties and their respective
successors, assigns, heirs, administrators and/or executors. Except as
may be expressly provided for herein, this Agreement is not intended and
shall not be deemed or otherwise interpreted to be for the benefit of any
person or entity which is not a party/signatory to this Agreement.
B. The undersigned parties acknowledge and agree for the benefit of
each other that they have not entered into and agreed to perform this
Agreement based upon or in consideration of any statement, representation,
warranty, understanding, agreement, covenant, promise, guaranty or any
other matter which is not expressly set forth or otherwise provided for in
this Agreement.
C. The undersigned parties' representations, warranties, agreements
and/or covenants as set forth in this Agreement are, where applicable,
intended to survive and remain fully operative and enforceable against the
party(s) providing such representations, warranties, agreements and/or
covenants following the actual settlement and dismissal of the instant
Action in accordance with the terms of any and all such representations,
warranties, agreements and/or covenants.
VIII. CHOICE OF LAWS.
A. This Agreement shall in all respects be interpreted, enforced and
governed by the laws of the State of California.
IX. NO ADMISSION OF LIABILITY.
A. It Is expressly understood and agreed by the undersigned parties
including the Parties that this Agreement is being made solely for the
purpose of avoiding the expense and inconvenience of further litigation
and that it is not an admission on the part of any party to this Agreement
of any unlawful or wrongful conduct or of any liability to any other Party
as alleged in the above referenced Action or otherwise, all of which is
expressly denied.
X. COUNTERPARTS.
A. This Agreement may be executed in several counterparts, each of
which shall be an original as against any party who signed it, and all of
which shall constitute one and the some document. Facsimile signatures
may be used as originals for the purposes of effectuating this Agreement.
XI. SEVERABILITY.
A. If any term or provision of this Agreement shall be finally
determined to be illegal or unenforceable for any reason, all other terms
and provisions in this Agreement shall nevertheless remain effective and
be enforced to the fullest extent permitted by law.
XII. JOINTLY DRAFTED.
A. The undersigned parties' legal counsel have jointly drafted the
provisions of this Agreement, and no inference or rule of construction
shall be made by reason of the party who has drafted any provisions
contained in this Agreement. For the purposes of interpretation, it shall
be assumed that all of the undersigned parties drafted each provision and
each party expressly waives the doctrine of contra proferentum as it might
otherwise apply to interpreting this Agreement.
IN WITNESS WHEREOF, the undersigned parties, thereunto duly authorized,
have executed and delivered this Agreement as of the date first set forth
above.
Nasib Gannam
Ss/ Nasib Gannam
T. Ron Kahraman
Ss/ T. Ron Kahraman
DIVERSIFIED PRINTING AND PUBLISHING SERVICES, INC.
By: Ss/Nasib Gannam
Title: President
GANNAM KUBAT PUBLISHING, INC.
By: Ss/Nasib Gannam
Title: President
Robert S. Cope
Ss/Robert S. Cope
AUTO-GRAPHICS, INC.
By: Ss/Robert S. Cope
Robert S. Cope, President
APPROVED AS TO FORM ONLY:
LAW OFFICES OF ROBERT H. BRETZ, P.C.
By: Ss/Robert H. Bretz
Robert H. Bretz,
Attorney for Auto-Graphics, Inc.
and Robert S. Cope
LAW OFFICES OF RANDY STILES
By: Ss/Randy Stiles
Randy Stiles,
Attorney for Datacat, Inc.
GRAHAM & JAMES LLP
By: Ss/Kenneth B. Julian
Kenneth B. Julian,
Attorneys for Diversified
Printing & Publishing Services,
Inc., Gannam/Kubat Publishing,
Inc., Nasib Gannam and T. Ron Kahraman
DESCRIPTION - 1997 Non-Qualified Stock Option Plan dated December 31,
1997.
1997 NON-QUALIFIED STOCK OPTION PLAN
The Company's 1997 Non-Qualified Stock Option Plan (the "Plan") shall
include the following terms and conditions:
1. Number of Shares. The number of shares of the Company's plan shall be
and include one hundred thousand shares (100,000) of the Company's Common
Stock which is approximately equal to ten percent (10%) of the Company's
currently issued and outstanding shares of such stock (collectively herein
the "Stock").
2. Units. Options to purchase shares of such Stock ("options") shall be
granted to employees and/or persons regularly retained by the Company
pursuant to and in accordance with the Plan in increments of one thousand
(1,000) shares (herein a "Unit") up to a maximum of 100 such Units.
3. Initial Grant. An initial grant of options to purchase shares of the
Stock under the Plan, expressed in Units, is hereby made subject to the
terms and conditions set forth herein, as follows (the "Initial Grant"):
Recipient No. Units
Robert Bretz 10.0
Eric Jung 7.5
William Kliss 20.0
Daniel Luebben 10.0
47.5
4. Remaining Shares. Following the Initial Grant, forty-seven thousand
five hundred (47,500) shares representing forty-seven and one-half (47.5)
Units, fifty-two thousand five hundred shares representing 52.5 Units
remain available for grant by the Company (the "Remaining Shares" as such
number of shares shall be adjusted from time to time). If any of the
Units (and underlying options/shares) terminate in accordance with the
terms of the Plan during the term thereof, then such Units (and underlying
options/shares) shall automatically be returned to the status of Remaining
Shares available for grant under and in accordance with the Plan.
5. Term of the Plan. The term of the Plan, during which time options to
purchase shares of the Stock covered by the Plan may be granted/issued,
shall be for the period ending and ended December 31, 2002 (the "Term").
Thereafter, no more options may be granted/issued under the Plan;
however, all options granted, issued and outstanding prior to or at the
end of the Term of the Plan shall remain issued and outstanding and
otherwise effective and exercisable in all respects pursuant to and in
accordance with the Plan.
6. Option Price. The cash price per share to be paid by the recipients
of the Initial Grant of Options shall be $1.65 (the "Exercise Price")
which is the approximate mean average of the published representative bid
and asked price of shares of the Company's stock in the public trading
market for such stock at the effective date of the Plan less a forty-five
percent (45%) discount reflecting the restricted nature of such shares of
Stock to be issued in one or more private transactions without
registration under applicable federal and state securities laws, requiring
the holder of the shares of Stock purchased pursuant to such options to
hold such shares of Stock for a minimum of one (1) year following the
actual purchase thereof before such Stock can be sold in the
public trading market for such Stock, and such other qualifications as to
the recipient's right to exercise the option and purchase such Stock as
provided for herein. Notwithstanding the foregoing, if the published
representative mean average of the bid and asked price for the Company's
stock in the public trading market for such stock should increase during
the thirty (30) day period following the effective date of the Plan
(December 31, 1997) by more than ten percent (10%), then the Exercise
Price of the shares of Stock constituting the Initial Grant shall be
automatically adjusted to reflect such increased representative public
trading market price of the Company's stock as adjusted by such 45%
discount attributable to the restricted nature of such Stock (the
"Adjusted Exercise Price"). Any such adjustment in the Exercise Price as
provided for herein shall be memorialized in a further resolution of this
Board of Directors filed in the Company's Minute Book within sixty (60)
days following the initial date of such grant/issuance of options. The
recipient of the option may, subject to the satisfaction of all
requirements in respect thereof as set forth in this Plan, but shall not
be obligated to exercise the option to purchase all or any portion
of the shares of Stock covered by such particular option. The recipients
of options granted under the Plan shall be responsible for and shall pay
any and all federal and/or state taxes attributable to or otherwise
resulting from the grant and/or receipt of the options, if any, and the
exercise, purchase and sale of the shares by such recipients of stock
covered by such option; however, the Company shall, as a part of the Plan,
be obligated to and shall reimburse each recipient for the amount of
federal and state taxes paid by the recipient in respect of the exercise
and/or sale of the shares of Stock received pursuant to the option in the
year or years in which the recipient pays any such taxes within sixty (60)
days of receipt by the Company from the recipient of appropriate written
confirmation establishing the actual payment and amount of such taxes.
Except as expressly provided for hereinabove, the Company shall have no
further responsibility, obligation or liability in respect of taxes due
and owing by, and or paid by, the recipient in respect of the grant and/or
exercise of the options, the receipt and/or sale of shares of the Stock
thereunder and/or the reimbursement by the Company of the taxes paid by
the recipient attributable to the exercise and sale of such Stock
(including in respect of the recognition, if any, of any further taxes
which may be due and owing by the recipient attributable to the payment of
taxes by the Company as provided for hereinabove which payment of any such
additional taxes is the sole responsibility, obligation and/or liability
of the recipient).
7. Future Grants/Exercise Price. Remaining Shares of the Stock which are
the subject of options to be granted under the Plan following the Initial
Grant shall have such exercise price as the Board shall set from time to
time as the Board acts to grant and issue such Options to purchase all or
any portion of the Remaining Shares in the Plan.
8. Conditions to Exercise. Subject to the provisions of paragraph 9 of
this Agreement, to be entitled to exercise options granted/issued under
the Plan, and to purchase and acquire shares of the Stock represented by
the options which are being exercised by the recipient thereof from time
to time, the recipient must be an employee of the Company or have been
regularly retained and have been providing services to the Company (i) at
the time of any such exercise and (ii) for the two (2) year period
immediately preceding any such exercise (the "Service Term"). If the
recipient of any options granted under the Plan (the "recipient" or
"option holder") ceases being an employee of, or no longer is regularly
providing services to, the Company at any time prior to the exercise of
options held by the recipient, whether such cessation of employment or
other services is voluntary or not, all options held by such recipient
shall automatically terminate and expire (and return to the status of
Remaining Shares), and be of no further force or effect (unless the Board
of Directors acting in its sole discretion and election adopts a further
written resolution providing to the contrary). All persons receiving
option grants under the Plan shall, prior to the actual issuance of any
such options, provide the Company with a written acknowledgement and
agreement to the within described Service Term condition to such option
grant, and the person's rights and entitlements thereunder, in
form/content satisfactory to the Company and its counsel. The exercise of
options by any recipient within five (5) business days following any
involuntary (at the Company's election and direction) termination of
employment or other services with or for the Company shall, assuming all
other conditions pertaining to such exercise as provided for herein are
satisfied (including without limitation the Market Price condition
provided for below), be deemed to satisfy the Services Term provided for
herein. If any option granted and issued under the Plan including without
limitation the Initial Grant has not previously been exercised in
accordance with the terms/conditions of the Plan, and is not exercised by
the recipient in accordance with the terms/conditions of the Plan
within the above referenced five business day period following termination
of employment or services of the recipient, then any and all options held
by any such terminating recipient shall thereafter be null and void and of
no further force or effect. If the Service Term has been satisfied, and
all other conditions shall also have been satisfied (including without
limitation the Market Price condition provided for below), then upon the
death or permanent disability of the recipient, the recipient in the case
of such disabled recipient, or the heirs or other beneficiaries in the
event of the death of the recipient, shall have ninety (90) days following
any such permanent disability or death to exercise any and all options
previously granted to but unexercised by any such recipient and held by
any such disabled or deceased recipient. If any such unexercised options
are not timely exercised by any such permanently disabled recipient or for
such deceased recipient in accordance with the terms and conditions
hereof, then any and all options held by any such disabled or deceased
recipient shall thereafter be null and void and of no further force or
effect. Further, to be eligible to exercise options granted/issued under
this Plan, the reported public trading market price of the Company's
Common Stock (low "Bid" or last/closing price) shall have reached $6.50
per share (for the majority of trading days in the thirty (30) day period
preceding the date of exercise) for purposes of the Initial Grant and such
other increased public trading market price for the Remaining Shares and
option grants in respect thereof as the Board shall determine to be
appropriate at the time of any such further grants by the Board (the
"Market Price" condition).
9. Change of Ownership or Control. If there is a change of ownership
or control of the Company at any time or from time to time during the Term
of the Plan, including any event or transaction whereby Robert S. Cope
(exclusive of other members of the Cope Family or in his capacity as
Trustee) no longer owns shares of the Company's Common Stock representing
at least 25% of the Company's issued and outstanding Common Stock, unless
the recipients of any unexercised options under the Plan shall have
entered into written employment agreements with the Company, or its
successor following any such purchase of assets change of ownership or
control transaction, within thirty (30) days of the effective date of any
such event or transaction at the election and sole satisfaction of each
such recipient of outstanding and unexercised options, then any and each
of such recipients who were employed by the Company or otherwise providing
services to the Company at the time of any such change of ownership or
control transaction shall have the absolute and unqualified right but
shall not be obligated to require that the Company and/or any such
successor in interest where applicable, and at the request of any
recipient the Company and/or any such successor shall be obligated to and
shall, purchase all or such part, as may be designated by the recipient,
of such recipient's options and interest therein and thereto for a cash
purchase price, payable within sixty (60) days of such change of ownership
or control transaction, equal to the maximum or highest price per share
which was paid for the shares of the Company's Common Stock including to
Robert S. Cope by the purchaser/successor in interest in or otherwise
related to any such change of ownership/control transaction but in no
event less than $6.50 per share of Stock covered by such options or, if
such change of ownership/control transaction did not involve the purchase
of any shares of the Company's Common Stock, the higher of $6.50 per share
(of the shares covered by any such unexercised option) or the amount of
net worth per share (assets minus liabilities), prior to the change of
ownership or control transaction and the exercise of any options then
outstanding under the Plan, as reflected on the Company's most recent
audited Balance Sheet (the "Recipient's Purchase Election"); provided,
however, that the Recipient's Purchase Election is not intended and shall
not otherwise be deemed to include or apply to any sale by Robert S. Cope
of shares of the Company's Common Stock to an employee stock ownership
trust and/or plan, generally described as a qualified stock bonus plan or
a combination stock bonus and money purchase pension plan that meets
certain requirements under the Employee Retirement Income Security Act of
1974 as amended and under the Internal Revenue Code of 1986 as amended
that allows the plan to borrow from or on the credit of the Company or its
shareholders for the purpose of investing in the Company's securities (the
"ESOP Exception"). For purposes of this paragraph of the Plan, unless
otherwise expressly provided for "change of ownership or control" shall
include any event or transaction covered by Section 181 of the California
General Corporation Laws. Notwithstanding anything to the contrary set
forth in this Plan, including in paragraph 6 wherein the Company agrees to
be responsible to reimburse recipients for taxes paid in respect of the
options and the exercise and/or sale of Stock thereunder, the Company
shall not be responsible, obligated and/or liable in any manner for
payment of taxes attributable to the repurchase of options from recipients
as provided for in this paragraph, which shall be solely the
responsibility, obligation and liability of the recipients.
10. Notice of Exercise and Payment For and Delivery of Stock Purchased
Pursuant to Options Granted Under the Plan. Recipients of options to
purchase shares of Stock under the Plan, who desire to and are entitled to
exercise such options during the Term of the Plan in accordance with the
terms and conditions of the Plan including the Service Term and Market
Price conditions to such exercisability, shall exercise such options by
written notice to the Company ("Notice of Exercise") signed by the
recipient and stating the number of shares of Stock covered by outstanding
options which the recipient intends to purchase pursuant to such Notice of
Exercise (the "Purchased Stock") and the total cash consideration to be
paid by the recipient for such shares of Purchased Stock (the "Purchase
Price") and confirming the recipient's belief that all of the conditions
to the recipient's right to exercise the option to purchase the Purchased
Stock have been satisfied at the date of the Notice of Exercise. Upon
receipt by the Company, the Board of Directors shall review the Notice of
Exercise and deliver to the recipient providing such Notice of Exercise a
return notice, within (30) days following receipt of such Notice of
Exercise, confirming the recipient's right to purchase the Purchased Stock
for the Purchase Price set forth in the Notice of Exercise and setting a
date for the consummation of such stock sale and purchase transaction,
including the payment by the recipient of the Purchase Price and the
delivery by the Company of the certificate representing the Purchased
Stock, or setting forth any deficiencies in the Notice of Exercise
effecting the recipient's right to exercise the option and/or the Purchase
Price to be paid for the Stock where the recipient is eligible to exercise
the option but has made an error in computing such Purchase Price (the
"Company's Notice"). The Company's Notice shall also reference the number
of option shares of stock remaining to be purchased by the recipient, and
the remaining time within which such shares must be purchased before the
option period expires if less than the total number of shares of stock
covered by options granted to the recipient are covered by the recipient's
Notice of Exercise. Recipients are not required to purchase all shares
covered by options granted to them at one time and may exercise their
option to purchase shares of Stock covered thereby from time to time
without limitation during the period such option remains outstanding and
exercisable by the recipient; provided, however, that all of the
conditions to the exercise of the option must be satisfied at the time of
the exercise of the option and each time such option is exercised if the
recipient elects to exercise the option to purchase less than the total
number of shares covered by the option on any particular occasion.
The length of the option, being the period of time within which the option
must be exercised to purchase all of the shares of stock covered by such
option before it automatically expires and is of no further force or
effect (the "Option Term") is five (5) years from the date of issuance for
the Initial Grant (all options described herein as being part of the
Initial Grant) and, for all other options granted in respect of the
Remaining Shares, the Option Term shall, unless otherwise expressly
provided by the Company's Board of Directors at the time of any such
grant, be three (3) years from the date of issuance of any such option in
respect of any of the Remaining Shares so that, in no event, will the
Option Term of any option granted and issued under the Plan extend beyond
December 31, 2005. Notwithstanding anything to the contrary contained
herein, unless any option granted under this Plan is exercised for all of
the shares of Stock covered thereby on or before the end of the Option
Term of any such option, the option and the right to purchase Shares of
the Company's Stock as provided or under the option and the Plan shall
automatically expire and terminate at the end of such Option Term and any
and all such expired options shall have no remaining right, entitlement
and/or benefit to the recipient thereof or to any other person or entity
and any and all expired options shall have no legal or other force or
effect. The options granted under the Plan, including the right to
exercise such options and purchase the Stock covered thereby, is personal
to the recipient thereof; and shall not be sold, transferred or assigned
by the recipient and is not otherwise transferable, assignable or
alienable by operation of law or otherwise, except in the case of the
death of the recipient as provided for in paragraph 8 of this Plan. Upon
grant and issuance by the Company pursuant to and in accordance with the
Plan, the option is personal property of the recipient; however, the right
to exercise the option and purchase the Stock covered thereby is subject
to and conditioned upon the requirements set forth in this Plan including
without limitation satisfaction of the Service Term and the Market Price
condition and, except as otherwise provided for under paragraph 9 (Change
of Ownership or Control), unless and until the Service Term and Market
Price conditions are satisfied (and are satisfied from time to time in the
case of an option which is exercised for less than all of the shares of
Stock covered thereby and then is the subject of a subsequent notice of
exercise) the options granted and issued by the Company under the Plan
have no economic value or benefit to the recipient in respect of the
recipient's right to exercise the option and purchase shares of Stock
thereunder. Subject to the satisfaction and completion of all
requirements therefor as set froth in the Plan, at the date specified in
the Company's Notice to the recipient the Company shall sell, issue and
deliver to the recipient the shares of stock including a certificate
registered in the name of the recipient covered by the option which are
being purchase by the recipient as set forth in the Notice of Exercise,
and the recipient shall purchase, acquire and accept delivery of such
shares of and certificates of Stock and make payment in full therefore at
the time of such sale/purchase transaction; and the recipient/purchaser
shall execute and deliver to the Company such documentation including
acknowledgements and agreements by the recipient/purchaser as the Company
and its legal counsel shall reasonably request and require including
without limitation in order to comply with all applicable securities laws
requirements attending or otherwise in respect of the subject sale of
Stock by the Company to the recipient in a private transaction without
registration under applicable federal or state securities laws.
11. Protection Against Dilution. In the event that the Company issues
any new shares of Common Stock in excess of ten percent (10%) of the total
number of such shares actually issued and outstanding at the effective
date of the plan (1,090,478 shares), or the Company issues any other class
of voting stock or other securities convertible into voting stock of the
Company in excess of 10% of the total number of such shares of voting
Common Stock actually issued and outstanding at the effective date of the
Plan, at any time during the Term of the Plan or thereafter when any
option(s) issued pursuant to the Plan remain outstanding and exercisable
by the recipient thereof), then, and all shares of the Company's Common
Stock covered by options previously granted and issued by the Company to
any recipient thereof, the total number of shares of the Company's Common
Stock constituting and comprising the Plan shall automatically increase to
that number of shares the Company's Common Stock which, following any such
increase shall maintain the parity between the number of shares covered
by the Plan, including the shares covered by options already granted and
issued, and the total number of shares issued and outstanding at the
effective date of the Plan or approximately ten percent (10%) so as to
protect against dilution of the shares of Stock covered by the Plan and
the shares of Stock covered by options already granted and issued by the
Plan as a result of the issuance of any additional shares of voting stock
by the Company during the Term of the Plan or otherwise while any options
issued thereunder remain issued, outstanding and exercisable. For
example, if the Company had one million shares of Common Stock issued and
outstanding at the effective date of the Plan, and thereafter issued an
aggregate of an additional 100,000 shares of its Common Stock during the
Term of the Plan, there would be no change (no increase) in the number of
shares of Stock covered by the Plan or in the number of shares underlying
options granted and issued thereunder. If, however, the Company issued an
aggregate of an additional 150,000 shares of its Common Stock during the
Term of the Plan (in excess of 10% of the original one million shares),
then the total number of shares of the Company's Common Stock covered by
the Plan would automatically increase from 100,000 shares to 115,000
shares and each Unit of Stock would automatically increase from 1,000
shares to 1,115 shares, and each outstanding option and the underlying
shares covered thereby would increase accordingly. Notwithstanding the
foregoing provision, if the Company acts to reduce the total number of its
shares issued and outstanding during the Term of the Plan or while any
option(s) granted and issued thereunder remain exercisable, there shall be
no reduction in the total number of shares of Stock covered by the Plan
including the options previously granted and issued thereunder which
remain outstanding and exercisable. Except as otherwise already expressly
provided for above, if the number of outstanding shares of Common Stock of
the Company are increased or decreased, or if such shares are exchanged
for a different number or kind of shares or securities of the Company
through reorganization, merger, reverse merger, recapitalization,
reclassification, stock dividend, stock split, reverse split, combination
of shares or other similar transaction, then the aggregate number of
shares of Common Stock subject to the Plan as provided for in Section 1
hereof and the shares of Common Stock subject to issued and outstanding
options under the Plan shall be appropriately and proportionately
adjusted by the Company. Any such adjustment in the outstanding options
shall be made without change in the aggregate purchase price applicable to
the unexercised portion of any such option but with an appropriate
adjustment in the price for each share or other unit of any security
covered by the option.
12. Compliance With Securities and Other Laws. The effectiveness of the
Plan, and the issuance of the options and shares of the Company's Stock
pursuant to the options covered by the Plan, is subject to compliance with
all applicable federal and state securities and other laws by the Company
governing the matters which are the subject of the Plan.
13. Miscellaneous.
(i). Complete Plan/Agreement/Amendment. The within Plan sets forth all
of the terms and conditions of the Plan, which constitutes and comprises
the agreements by, between and among the Company and the recipients of
options under the Plan in accordance herewith. The Plan, and the
agreements arising out of the grant of options under and in accordance
with the Plan, may not be amended without a further written resolution
adopted by the Company's Board of Directors; and, in any event, agreements
between the Company and the recipients arising out of the granting of
options under the Plan, may not be modified or otherwise amended without
the prior written agreement of such parties consistent with the terms and
conditions set forth under the Plan. If, for any reason, it is determined
that any ambiguity exits in the language of the Plan and/or the agreements
arising out of or resulting from the Plan, then such ambiguity shall be
resolved by the Board of Directors of the Company acting in its sole
discretion and judgment; and, in no event, shall the existence of any such
ambiguity be determined against the Company for the reason that the
Company and/or any representative thereof drafted or otherwise prepared
the within Plan and/or any acknowledgment or agreement between the Company
and any recipient(s) in respect of the Plan.
(ii). Governing Law. The Plan, and the rights, duties and obligations
represented thereby and thereunder, is intended to be made, governed and
interpreted under the laws of the State of California. Any dispute and
resulting claim arising out of or otherwise resulting from or under the
Plan, and agreements thereunder, shall be resolved in any court of
competent jurisdiction located in Los Angeles, California.
(iii). Retention In Minute Book. The original copy of the Plan as
amended from time to time, and a written record of all options granted
thereunder and shares of Stock exercised and purchased under and in
accordance with the Plan, is to be maintained in the Company's Minute
Book.
(iv). Separate Agreements Covering Grants Under The Plan. As indicated
elsewhere herein, all grants of options to individual recipients under the
Plan shall be memorialized in writing in an agreement by and between the
Company and the recipient which agreement(s) shall incorporate by
reference this Plan (as amended from time to time). The execution and
delivery of such agreement, in form and content satisfactory to the
Company and its counsel, shall be deemed to be a condition precedent to
the effectiveness of any such grant, and the inception of the recipient's
rights and benefits, under the Plan.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheet and related Statement of Income of Auto-Graphics, Inc. as of
December 31, 1997, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 244620
<SECURITIES> 0
<RECEIVABLES> 2403837
<ALLOWANCES> 38000
<INVENTORY> 83424
<CURRENT-ASSETS> 2816297
<PP&E> 11771730
<DEPRECIATION> 6195321
<TOTAL-ASSETS> 8851947
<CURRENT-LIABILITIES> 2476330
<BONDS> 0
0
0
<COMMON> 109048
<OTHER-SE> 2660496
<TOTAL-LIABILITY-AND-EQUITY> 8851947
<SALES> 10035824
<TOTAL-REVENUES> 10035824
<CGS> 6264141
<TOTAL-COSTS> 3076078
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 290855
<INCOME-PRETAX> 404750
<INCOME-TAX> 193000
<INCOME-CONTINUING> 211750
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<EPS-PRIMARY> .19
<EPS-DILUTED> .19
