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Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
(Mark One)
[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, 1999 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
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 non-affiliates of the
registrant at March 31, 2000 was $35,173,000.
The number of shares of the registrant's Common Stock outstanding at March
31, 2000 was 4,822,734 following a 3-for-1 stock split on February 28, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive Proxy Statement to be filed pursuant to Regulation 14A for
the fiscal year ended December 31, 1999 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.
PART I
ITEM 1. BUSINESS
Auto-Graphics, Inc., including Datacat, Inc. and A-G Canada, Ltd., its
wholly-owned subsidiaries and Dataquad, Inc. and The LibraryCard, Inc., its
majority owned subsidiaries (the "Company"), provides software products and
services used to create, convert, organize, manage and deliver database
information via the Internet/Web, CD-ROM and/or print media. LibraryCard(
is an Internet/Web "portal" site (www.LibraryCard.com) offering a virtual
library on the Web with access to bibliographic and related information and
services for the consumer.
Revenue is generated from direct sales, licensing and support of these
software products and services including outsourcing contracts to provide
hardware, software and other facilities to manage customer Web sites
(outsourced Web "hosting"), and by using this technology to distribute
"content" via the Company's own web sites.
The Company's products and services are presently sold into the following
general customer categories:
1) Libraries, especially library consortia requiring systems to
create, convert, organize, manage, publish and access large bibliographic
and holdings databases of multiple institutions used to implement resource
sharing initiatives and services.
2) Consumers who want Internet/Web access to bibliographic and
related information/services from such virtual library site and/or from
their local library through such library information "portal" site (and
sponsors, commercial vendors and advertisers who want to utilize such
consumer site for delivery of communications and products to users of the
site).
3) Business and government customers who want an XML/SGML based
editorial software system and related services enabling such enterprises to
create, convert, organize, manage, deliver and access databases and other
information dynamically within and outside the enterprise including over
the Internet/Web with e-commerce capability.
4) Corporate publishers, primarily manufacturers and distributors,
who publish catalogs and promotional content used in their sales and
marketing programs. The Company's capability, and customer's needs, now
extends into e-commerce applications as a result of the Company's
Internet/Web and database information expertise; and
5) Traditional database publishers (encyclopedias, dictionaries
and bibles) who use the Company's typesetting products and services to
manage the editorial process and to create and publish valuable content.
Products/Services
The products/services offered by the Company include the following:
Impact/Online(tm) is the Internet/Web based online bibliographic database
locator and interlibrary loan products/services system is marketed by the
Library Services division.
Dataquad(tm) Impact/CMS(tm) (Content Management System) is a modular and
expandable editorial software system that allows users to create, convert,
organize and manage information for multi-purpose publishing. HTML display
is created "on the fly" allowing basic data structures to stay intact and
providing greater page design flexibility. Customizing modules include
e-commerce features providing ordering, credit card purchasing, multi-tier
pricing and content scoping controls. These features provide users with
capabilities to customize Web sites to individual requirements. Data
structures are SGML/XML and are particularly suited to database
applications. The system can be configured from a single user to
enterprise systems. Editorial control, iteration management and SGML/XML
DTD validation are important features of the Company's Dataquad product
line. Impact/CMS/Frame(tm) incorporates a module including Adobe's
Frame+SGML(tm) software to provide WYSIWYG graphics and interactive
database composition. Dataquad(tm) owns and markets the software system to
end users and Datacat uses the software to provide services to its
customers.
Impact/Web(tm) (search and retrieval software) provides custom indexing and
retrieval of web content in business to business applications.
Dataquad(tm) sells the software system to end users and Datacat uses the
software to provide services to its customers.
Applications
The Company provides outsourcing including Web "hosting" services to
various types of customers. The Company has a contract with the State of
Texas (Texas Educational Agency or TEA) to develop and operate, on an
outsourced "hosting" basis, an Internet/Web based online bibliographic
database locator system and interlibrary loan system linking approximately
7,500 kindergarden through grade 12 public school libraries (when the
system is fully developed and implemented). Approximately 4,100 school
libraries are currently included in this Texas state-wide system.
The Company has similar contracts with the States of Connecticut, Kansas,
Oklahoma, Tennessee and the Canadian Provinces of British Columbia and
Ontario. Customers also include regional library organizations in the
States of Illinois, New Jersey, Michigan, Ohio, and New Hampshire.
Outsourced Internet/Web database management services presently support
approximately 8,000 distinct library sites, enabling library users to
access these library services via the Internet/Web from their offices and
homes as well as from within the library. This large number of
customer/users demonstrates the Company's ability to handle large capacity
Internet/Web communications assignments.
The Company has developed a bibliographic database containing over 45
million unique records, together with the holdings of many U.S. and
Canadian public and university libraries. Through the Company's
Internet/Web software, the Company provides online bibliographic records
for use by its U.S. and Canadian library customers.
The Impact/CMS software system is owned and marketed by Dataquad, Inc.
primarily to business customers. Boeing uses the CMS product for the
development and maintenance of the database containing all maintenance and
support documentation for the C-17 Air Transport project for the Air Force.
Houghton-Mifflin uses the CMS product to develop and maintain their English
language database for publication of the American Heritage Dictionary and
its several spin-off dictionaries (College, High School, Paperback, etc.).
Trailer Life uses CMS to develop and maintain its database of North
American campgrounds and amenities published annually in the "Trailer Life
Campground" directory.
In support of a customer's migration to an XML/SGML tagged database, the
Company provides conversion services. Services may include consulting on
the design and development of the document type definition(DTD), which
defines the tagging and structure of the proposed database. The customer
provides manuscripts from which to key and/or legacy data in its native
format, and Company staff use specialized software and utilities to re-tag
the database with the new tags in accordance with the DTD. In 1999, the
Company was awarded a major contract by Northrup-Grumman to convert
thousands of pages to SGML format during 2000.
LibraryCard(tm) is an effort by the Company to combine its extensive
bibliographic database, Internet/Web and e-commerce capabilities into a
public "portal" site offering a wide range of library and related services
and products to consumers, library patrons and librarians, supported by
sponsorships and commercial vendors and advertisers. The Company's plan is
to develop a site that offers high quality information and research
capabilities that will be attractive to consumers. The Company hopes to be
able to obtain a "head start" in this particular Internet/Web "space" as a
result of its relationship with the over 8,000 library customer sites which
already offer library patrons the Company's Impact/Online(tm) library
services on a daily basis.
In the case of the Company's manufacturing and distribution catalog
products, the Company provides services and Internet/Web software to
create, maintain and provide access to product databases for these
customers. One example is an HVACR-specific product database (heating,
ventilation, air conditioning and refrigeration) which is available on an
annual site license basis to wholesalers in the HVACR industry. This HVACR
database, combined with the Company's Internet/Web software, provides HVACR
wholesalers an ability to quickly and easily put their custom catalog on
the Internet. The Company's software flexibility provides customers with
the capability of individualizing their Internet catalogs to include
features such as custom indexing, multi-tier pricing, customer specific
pricing and order entry (e-commerce). From the database which is published
on the Internet/Web, the Company's customer also has the ability to publish
CD-ROM and print catalogs.
The Company provides typesetting services to major publishers such as
Houghton-Mifflin Co., The American Society of Hospital Pharmacists,
Zondervan, TL Enterprises, Columbia University Press and Oxford University
Press. Pages may be produced to the customer's specification for use by
the customer's printer and output as film, camera ready copy or as
postscript datafiles. The Company typeset the previous edition of the
"American Heritage Dictionary", as well as the college, high school, and
paperback editions of the book. The Company has typeset a number of annual
editions of the "Columbia Book of Poetry" for Columbia University Press.
The Company has typeset the 20 volume set of the "American National
Biography" for Oxford University Press. The Company regularly typesets the
annual "Trailer Life Campground" directory for TL Enterprises and the
annual "Drug Information Formulary (DI) Book" for The American Society of
Hospital Pharmacists.
In addition to the Company's Internet/Web database information and
knowledge management products and services, the Company will continue to
provide ancillary services required by the customers/markets it currently
serves. These ancillary services include database entry and database
"clean-up", conversion and database loading services. These services
enable customers to quickly and easily create an electronic database of
information which may then be managed by the customer using the Company's
suite of software and services.
Product Development
Core software embraces industry standard data structures, such as XML,
SGML, and standards specific to the markets served, such as MARC and Z39.50
in the library industry. These standards afford customers the ability to
create, convert, organize, manage and deliver (output)
information/knowledge databases for the benefit of the enterprise and its
customers, suppliers and other category of users independent of the media
used to publish this data.
Flexibility in the ability to distribute and use information/knowledge by
an enterprise is increasingly a primary goal and provides the underlying
premise of the Company's Internet/Web products and services. All new
product development is being written in C++ and runs on Microsoft NT/Intel
platforms. The Company is using N-tiered architecture to allow for
customer implementation flexibility. Microsoft SQL server provides the
database engine for the second generation of the Company's flagship
Impact/Online(tm) library software product family. Development is based on
an architecture that will work on multiple computers affording the system
the ability to grow as the Company's needs increase.
Marketing
Products are distributed to specific markets discretely branded even though
the technology may be similarly applied across all markets served. In
addition to corporate marketing staff, the Company utilizes a small direct
sales force for each of the individual markets: library, publishing,
Datacat(tm) Internet solutions, Dataquad(tm) Impact/CMS(tm) and
LibraryCard(tm) portal site. Marketing activities include public
relations, advertising, attendance at industry trade shows, and targeted
mailings, telemarketing and e-messaging campaigns. LibraryCard is a new
service/product category for the Company, which is not yet fully
developed/implemented; and marketing activities for LibraryCard, directed
at the consumer market, are still under consideration.
Products sold to the library market are generally sold by response to RFP's
(requests for proposals) and, more frequently than not, competitive bidding
managed by governmental purchasing departments. The Company maintains a
proposal writing department. Price points for the Company's various
products/services are instrumental in determining the type of sales effort
deployed by the Company, except that Internet advertising is used in all
markets for the Company's products regardless of the price point of the
various products/services.
With the introduction by the Company of its Internet-centric line of
products, branded advertising is undergoing a transition process. As
indicated above, these Internet/Web products are now branded for a specific
market. However, as to the library market the Company continues to market
its products and services under the Company name (not by the name of the
specific suite of software products and services used by these library
customers).
The Company's strategy for its Internet-centric products and services
includes the continued introduction of new products/services to the
customers and markets the Company currently serves, and to further expand,
develop and refine these products for introduction and marketing to
customers and markets not currently served by the Company. The Company's
strategy for entering new markets in the future will include efforts to
utilize strategic relationships with other companies who are already
present or are otherwise knowledgeable about these prospective
customers/markets.
To be successful in these new products/services, customers and markets, the
Company will need to be able to create, finance, develop and implement new
marketing initiatives and capabilities designed to introduce and market its
Internet/Web line of products and services to prospective users who are not
already familiar with the Company, its products/services and/or their
capabilities. The Company must compete successfully with other companies,
many of whom will be larger, more established, better financed, more
recognized and more experienced in the development, introduction,
marketing, sales and service of the same or similar products and services
to these targeted new customers/markets in a rapidly changing technological
and distribution environment. Moreover, in respect of the Company's new
LibraryCard(tm) public portal site, the Company has no prior experience in
such market "space".
Accordingly, there can be no assurances that the Company will be able to
launch, sustain and profit in the near or long term from these new products
/services, customers and markets initiatives. Likewise, no assurances can
be given that the Company will be successful in efforts to develop and
utilize a strategic alliances strategy to assist in efforts to introduce
and market its Internet/Web products and services to a broader range of
customers/markets. However, as the market for managing and distributing
information and knowledge continues to change, the Company intends, as it
has in the past, to be responsive to the changing needs and requirements of
customers by offering new products and services representing advances in
the information/knowledge.
Competition
The Company was an early entrant into the computerized database composition
business and industry, and believes it may have been offering these
products and services longer than any of the other companies in competition
with the Company today in respect of these products/services to the library
and publishing markets. In the library market, the Company competes with
numerous companies, such as OCLC Online Computer Library Center, Inc.,
which are larger with substantially greater resources than are available to
the Company and offer a wider variety of products and services for the
library industry. Although the Company has been successful to date in
securing many of the awarded contracts involving the development and
implementation of Internet/Web based "online" bibliographic catalog and
interlibrary loan services systems for state-wide, regional or other
consortia of libraries, the Company has not been selected in competitive
bidding for all of such contracts including several recent contracts
which it was hoping to be awarded and, if this category of library
products/services business continues to grow as the Company believes to be
the case, increased emphasis on this products/services niche of the library
market can be expected to generate increased attention, capability and
effort by one or more of the Company's competitors in this now relatively
small niche of the library market.
The software and computerized database processing services business for
corporate and traditional publishing is highly competitive. There are no
definitive market share statistics available. 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 are awarded according to the results of market pricing,
competitive bidding, technical capability, and customer relationship and/or
past performance.
In seeking to expand its customers/markets in the Internet/Web publishing
market, the Company can be expected to face intense competition from
existing and future competitors with substantially greater financial,
technical, marketing, distribution and other resources than the Company
and, therefore, may be able to respond more quickly than the Company can to
new challenging opportunities, technologies, standards or customer
requirements. The Company will compete with other large, well-known
software development and Internet/Web database platform companies that
offer a variety of software products. In addition to competitors already
present in the market, recently several additional large, well-known
computer hardware manufactures have announced plans to enter the
Internet/Web solutions and outsourced "hosting" business. The Company will
also compete with a number of medium-sized, small and start-up companies
that have introduced or are developing Internet/Web development,
management, publishing and e-commerce products. Increasing competition
could result in pricing pressures negatively impacting margins available to
companies competing in this market and could make it difficult or even
impossible for the Company to gain recognition and acceptance of its
particular line of these products and services. Of course, it is also
possible that companies that are now or in the future may be competing in
the broader market where the Company is seeking to compete may determine to
enter the Company's traditional markets with adverse impact on the Company
as a result of this new competition.
In the case of the Company's LibraryCard(tm) "portal" business, the Company
faces substantial, and possibly even insurmountable, obstacles in
establishing such site's ability to attract and retain sufficient use to
qualify such site as a viable alternative for commercial vendors and
advertisers who have the opportunity to do business with established, well-
known and proven "portal" sites such as Yahoo, AOL and others.
Company Background
The Company was founded in 1950 and incorporated in 1960 in the State of
California. Beginning in 1964, the Company was one of the pioneers in
computerized typesetting and database composition services for the library
and publishing industries. Over the years, the Company has migrated its
products and services to the most current technology required to address
changing customer needs and requirements. The Company started in print,
moved to microfilm/fiche and then to CD-ROM as the media of choice for its
products/services, and is now completing the process of adapting its
products and services to the prevailing Internet/Web environment.
Offices/Employees
The Company's main office is in Pomona, California, in the greater Los
Angeles area. The Company's wholly-owned Canadian subsidiary, A-G Canada,
Ltd., is located in Toronto, Canada. Marketing representatives are located
in California, Missouri, New York, Washington, and Toronto, Canada. The
Company including its subsidiaries employs approximately 90 persons in all
locations.
Financial Information About Geographic Areas
See Note 1, "Segment Reporting" of Notes to the Consolidated Financial
Statements.
ITEM 2. PROPERTIES
The Company leases its corporate office and production facility in Pomona,
California from a limited partnership owned by a current and former
director/stockholder of the Company. The Company has an option to purchase
a one-third interest in the partnership from the former director/stockholder
for an amount not to exceed $150,000. During 1999, the Company leased
29,260 square feet having an annual base rent of $351,000 (plus expenses).
The lease term expires in June 2001. In April 2000, the Company will
complete a planned consolidation, which reduced the square footage occupied
by the Company from 29,260 to 19,460 for a reduction in the Company's
annualized rent expense of $118,000 (plus expenses). (See Note 6 of Notes
to Consolidated Financial Statements, and Item 13. "Certain Relationships
and Related Transactions"). Management believes that the reconfigured
space will be sufficient for the Company's needs for the foreseeable
future, however, should the Company experience substantial growth
necessitating increases in staffing, the Company may require additional
space. The Company leases a small sales and support office for A-G Canada,
Ltd. in Etobicoke, near Toronto, Ontario, Canada. The Company also plans
to reduce the space occupied in this facility from 3700 to1750 square feet
consistent with its expected future needs.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Stock quotations.
1999
Bid Ask
Price Range High Low High Low
First Quarter $ 1.042 $ .792 $ 1.417 $ 1.000
Second Quarter 2.083 .792 2.250 1.333
Third Quarter 2.250 1.792 2.375 2.000
Fourth Quarter 5.333 2.125 5.667 2.333
1998
Bid Ask
High Low High Low
First Quarter $ .875 $ .875 $ 1.333 $ 1.167
Second Quarter 1.167 .875 1.875 1.167
Third Quarter 1.833 1.208 2.500 1.333
Fourth Quarter .917 .833 1.333 1.000
Share prices above have been retroactively adjusted to reflect a 3-for-1
stock split which occurred on February 28, 2000. Trading in the Company's
Common Stock is reported on the electronic OTC Bulletin Board under the
symbol "AUGR" (Cusip Number 052725 10 8). The stock quotations set forth
above have been provided by the National Quotation Bureau, Inc., and
represent the highest and lowest closing bid and asked prices quoted by
broker/dealers making a market in the Company's Common Stock in the OTC
market for the periods presented. Prices quoted do not include retail
markup, markdown or commissions and may not reflect actual transactions in
shares of the Company's stock. The Company plans to apply for listing of its
Common Stock on the National Association of Securities Dealers Automated
Quotation (NASDAQ) system for "Small Cap" stocks. The Company believes that
it meets or will then meet all of the NASDAQ Small Cap listing requirements
(or that the application will be approved conditionally upon the Company
satisfying all applicable requirements).
As of March 31, 2000, the number of holder accounts of record (including
depository and nominee or "street name") of the Company's Common Stock was
approximately 230. The Company believes that the number of record and
beneficial owners of the Company's Common Stock is in excess of 500
stockholders. 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 bank loan restriction on the
payment of 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,
1999 1998 1997 1996 1995
Operating results:
Net sales $ 8,391 $ 9,099 $ 10,036 $ 9,218 $ 9,559
Net income/(loss) 105 ( 1,065) 212 236 194
Basic Earnings/
(loss)per share .03 ( .33) .06 .07 .05
Diluted Earnings/
(loss)per share .03 ( .33) .06 .07 .05
At year-end:
Total assets 10,647 7,573 8,852 7,132 6,688
Long-term debt 3,153 2,588 2,911 2,101 1,906
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
Management believes that liquidity and capital resources will be adequate to
fund operations including development of the business of the Company's two
new majority owned subsidiaries, Dataquad(tm) and LibraryCard(tm), during
2000 and into 2001.
In order to accelerate development and expand the scope of the Company's
Internet/Web initiatives and business, the Company will continue to explore
opportunities to raise additional equity. In 1999, the Company raised
approximately $3.1 million through the sale of stock in the Company and in
the Dataquad(tm) and LibraryCard(tm) subsidiaries. At December 31, 1999, the
Company's cash position was approximately $3.8 million; and the balance in
the Company's revolving working capital line of credit was zero. In December
of 1999, the Company accelerated the retirement and paid off the $295,000
balance of the $750,000 term credit facility, which the Company used to
partially fund the 1997 acquisition of the Company's Canadian subsidiary. In
February 2000, the Company raised an additional $930,000 in equity through
the sale of stock, and used $600,000 of such proceeds to pay down the
Company's $3.0 million capital line of credit to $2.4 million. The average
price per share of the 1,726,200 shares of stock (post 3-for-1 stock split)
sold by the Company in 1999 and in February 2000 was $1.26 for total gross
and net proceeds from the sale of such stock, respectively, of $2,181,000 and
$1,936,000.
Cash flow from operations increased by $740,000, from $1,310,000 in 1998 to
$2,050,000 in 1999, primarily as a result of a return to profitability in
1999. Cash flow attributable to (non-cash) depreciation and amortization was
$1,381,000, net collection of accounts receivable was $276,000 and additional
customer advances (deferred income) was $452,000 in 1999. Accounts
receivable collection improved in 1999 from the prior year due in part to
lower sales and improved cash collections. The average collection days for
accounts receivable declined from 66 days in 1998 to 55 days in 1999.
Liquidity has improved significantly primarily as a result of the cash raised
through the sale of stock as indicated above. Cash at December 31, 1999 was
$3.8 million up $3.5 million over the end of the year in 1998. Working
capital at December 31, 1999 was $3.1 million (compared to a negative
$459,000 at the end of 1998).
At December 31, 1999, the Company's principal financial commitments involved
the lease of computer equipment and the lease of corporate facilities in
Pomona, California and in Toronto, Canada. (See Note 5 of Notes to
Consolidated Financial Statements). As a result of a program to consolidate
the Company's office and production leased space in 2000, the Company reduced
the space leased at its Pomona facility by approximately 36% with a
corresponding reduction in rent and expenses. A 53% reduction in leased
space is also planned in Toronto in June 2000. See Item 2. "Properties"
herein.
The Company's principal use of cash for investing activities, $1,417,000 in
1999, $968,000 in 1998 and $2,141,000 in 1997, were for the continuing system
development of the Company's Impact/ONLINE(tm) software (bibliographic
finding and interlibrary loan service using the Internet), Impact/Web(tm)
search and retrieval engine and Dataquad(tm) Impact/CMS(tm) (Content
Management System) for the management and maintenance of XML/SGML databases,
for the 1997 purchase of a Canadian bibliographic database containing the
holdings of most public and university libraries in Canada and for upgrades
to the Company's computer (Internet servers) equipment used to expand and
enhance online services to the Company's current (and prospective)
Internet/Web customers. The Company's capital resources are available for
use as working capital, for capital investments, and possible future
acquisitions of businesses, products and/or technologies complementary to the
Company's existing and anticipated future information technology business.
Management believes that it is imperative for the Company to continue to
invest in Internet/Web capability for the foreseeable future. Accordingly,
it is likely that the Company will need to raise additional capital in the
future to continue to develop and refine its Internet/Web line of products
and services and to seek to expand the market for such products/services. In
2000, the Company will look for attractive opportunities to raise additional
equity and debt financing - - although there can be no assurances that any
such additional financing will be available on terms and conditions favorable
to the Company or at all.
In 1999, the Company renewed its commercial bank lines of credit through May
2000. (See Notes 2 and 3 of Notes to the Consolidated Financial Statements).
The Company has reached an agreement in principle with its bank (Wells Fargo
Bank, N.A.) to restructure and extend the term of its bank loan through May
2002. The plan is to consolidate the Company's two existing lines of credit
into a single revolving line of credit. In light of the Company's present
and anticipated cash resources, and resulting need for bank credit, the newly
implemented line of credit will start at $3.0 million and decrease over the
term of the loan to $2.0 million, with a somewhat lower rate of interest than
presently applies. The proposed new loan covenants will provide the Company
with greater flexibility to commit its cash resources to new initiatives
consistent with such revised financial ratio covenants; and the Company will
agree to maintain conservative liquidity ratios which are designed to
encourage the Company to finance future growth with investment (as opposed to
bank) capital. (In this regard, the bank has indicated an interest in
assisting the Company to raise additional equity to be used to finance future
growth plans). Such new bank loan should be finalized in the next 45 days.
Results of Operations
Overall, 1999 consolidated sales were down approximately $708,000 or 8% from
1998 ($9.10 million in 1998 versus $8.39 million in 1999). Revenues from
Internet/Web products and services, however, were up 37% in 1999, and now
account for over 58% of the Company's total sales. The transition from the
Company's CD-ROM products and services to Internet/Web continued in 1999, and
is now largely complete. The Company also completed its plan to discontinue
offering and supporting PC computer sales and service to its library
customers (who now buy such computers/services directly from the
manufacturers or other sources) for use with the Company's software, online
products and services. The decline in 1999 sales was almost entirely
attributable to the Company's traditional publishing business which has been
declining for several years (and is expected to decline further in 2000).
Sales from such traditional publishing business (sophisticated typesetting
services for catalogs, Bibles and reference works) declined over 50% in 1999
(from $2.1 million in 1998 to $1.0 million in 1999).
As desktop publishing software capabilities have improved, and computer
hardware has become more powerful and less expensive, the market for such
"outside" typesetting services has become increasingly competitive especially
as it impacts the Company's relatively "high end" segment of such typesetting
services market. Due to the highly skilled and labor intensive nature of the
typesetting business, profit margins on such business are relatively low.
Consequently, the Company has focused on developing and marketing of its
electronic publishing software and services and e-commerce business via the
Internet/Web and the Company's XML and SGML expertise. Sales attributable to
the Company's electronic publishing business were up 43% in 1999 over 1998.
Overall, sales in Canada were down 15% in 1999 (from $2.0 million in 1998 to
$1.7 million in 1999), primarily as a result of several large information
processing contracts which were completed in 1998. The Company's
bibliographic cataloging business continued to decline in 1999 and was down
11% from 1998 levels. Libraries in both the United States and Canada appear
to be seeking reduced costs (or free) sources for such cataloging services;
and appear to be willing to accept lesser quality records than the Company
offers and such libraries historically preferred, in order to achieve such
cost reduction objective. In response to this trend, the Company has
implemented a revised selling model shifting from a fee per record based
service to a subscription based service offering library customers quality
bibliographic cataloging record information for a flat fee per year.
Overall gross margins increased significantly in 1999 to 41% of sales up from
31% in 1998 (however 1998 results included additional depreciation and
amortization expense of $383,000 associated with adjustments in the useful
life of certain computer hardware and software assets). The Company is
continuing to emphasize its Internet/Web hosting library services, which are
less labor intensive and, therefore, generally have higher profit margins.
As the mix of products and services offered by the Company continues to move
toward such higher margin business, gross margins should continue to improve
in the near future.
As a result of the substantial loss suffered by the Company in 1998, and the
decline in sales in recent years, the Company is implementing a cost
reduction program. Staff levels, particularly in the Company's traditional
typesetting business, have been reduced by 50% as a result of the lower
volume of such work. Likewise, selling, general and administrative expenses
in 1999 declined $793,000 in 1999 from 1998 as staffing was reduced and other
related expenses were curtailed. SG&A expense in 1998 was abnormally high as
a result of certain non-recurring payroll and severance expense and accruals
associated with a reduction in staff, primarily in the Company's Canadian
operation. Further expense reductions in variable product costs, and related
fixed costs, will become increasingly difficult to achieve given the
Company's current largely fixed cost structure. Notwithstanding lower than
average borrowings, interest expense was up $29,000 in 1999 over 1998 as a
result of higher interest rate charges (up 100 basis points) and loan fees
paid in 1999 attributable to renewal of the Company's bank loan in such year
(following the substantial loss incurred by the Company in 1998).
As a result of the pre-tax loss in 1998 in the amount of $1,462,000, the
Company filed amended tax returns for prior years where applicable, and
obtained refunds of income taxes (primarily Federal and California)
previously paid. At December 31, 1999, the Company had available Federal,
state and Canadian net operating loss carryforwards of approximately
$385,000, $498,000 and $337,000, respectively (expiring in 2018 for Federal
taxes and in 2005 for state and Canadian taxes). A valuation allowance in
the amount of $231,000 for unrecognized U.S. and foreign tax loss
carryforwards.
Results of Operations in 2000
Management believes that sales will rebound in 2000. The additional equity
raised by the Company in 1999 and in 2000 will be used to fund the Company's
Internet/Web initiatives in 2000 (and 2001). Under AICPA Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities", all costs
incurred by the Company of a "start-up" nature will necessarily need to be
expensed as incurred. Such "start-up" expenses, and other non-capitalized
costs/expenses associated with the Company's new Internet/Web initiatives,
primarily in the Company's Dataquad(tm) and LibraryCard(tm) subsidiaries, are
anticipated to result in the Company reporting a consolidated loss for the
year ended December 31, 2000 in the $750,000-$1 million range (although the
Company's on-going business is expected to be profitable again in 2000).
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
General price inflation is not anticipated to have a material effect on the
Company's business in the near future. Historical dollar accounting does not
reflect changing costs of operations, the future cost of expansion and the
changing purchasing power of the dollar. Should more than moderate inflation
occur in the future, it can be expected to impact the Company in an adverse
manner, as prices cannot be adjusted quickly due to the contract nature of a
substantial amount of the Company's business, while costs of personnel,
materials and other purchases tend to escalate more rapidly.
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.
Accordingly, the Company is exposed to foreign currency translation gains or
losses as the relationship between the Canadian dollar and U.S. dollar
fluctuates. Foreign currency gains, expressed in terms of U.S. dollars, were
approximately $53,000 in 1999 as compared to losses of $47,000 in 1998.
Further increases in the value of the Canadian dollar will result in
additional foreign currency translation gains, and declines in the value of
the Canadian dollar against the U.S. dollar will result in additional foreign
exchange losses. Other than for sales by A-G Canada in Canada, all other
transactions involving the Company are denominated in U.S. dollars. (See
Note 1 of Notes to Consolidated Financial Statements).
Pending Pronouncements
See "Pending Pronouncements" in Note 1 of Notes to Consolidated Financial
Statements.
Year 2000
The Company is continuing to monitor its mission critical systems for
potential Year 2000 related software problems, and has experienced only
minor, readily correctable problems. Should the Company experience an
unforeseen Year 2000 problem with its products/services, it is believed that
the Company has sufficient technical personnel and resources to address and
resolve any such problems.
ITEM 7a. MARKET RISK
See Note 1 "Foreign Currency Translation," "Credit Risk," and "Fair Value of
Financial Instruments" of Notes to the Consolidated Financial Statements.
ITEM 8. FINANCIAL STATEMENTS
Index to Financial Statements covered by Reports of Independent
Certified Public Accountants.
Page
Reference
Report of Independent Certified Public Accountants 15
Report of Independent Auditors 16
Consolidated Balance Sheets at December 31, 1999 and 1998 17
Consolidated Statements of Operations for the years ended 18
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years 19
ended December 31, 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity for the 20
years ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements 21
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Auto-Graphics, Inc.
Pomona, California
We have audited the accompanying consolidated balance sheet of Auto-Graphics,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows
for the years then ended. 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 audit.
We conducted our audit 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
presentation of the financial statements. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Auto-
Graphics, Inc. and its subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Los Angeles, California
February 29, 2000
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Auto-Graphics, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Auto-Graphics, Inc. for the year
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 audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements of Auto-Graphics, Inc. referred to
above present fairly, in all material respects, the consolidated results of
its operations and its cash flows for the year ended December 31, 1997, in
conformity with accounting principles generally accepted in the United
States.
ERNST & YOUNG LLP
Riverside, California
April 8, 1998
AUTO-GRAPHICS, INC.
____________
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
ASSETS 1999 1998
Current assets:
Cash $ 3,816,286 $ 292,744
Accounts receivable, less
allowance for doubtful accounts
($38,000 in 1999 and 1998) 1,401,325 1,697,826
Unbilled production costs 27,891 86,573
Other current assets 109,987 360,170
Total current assets 5,355,489 2,437,313
Software, equipment and leasehold
improvements, net (See Note 1) 5,110,231 5,016,627
Other assets 181,595 119,162
$ 10,647,315 $ 7,573,102
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 293,798 $ 632,809
Deferred income 1,273,873 813,113
Accrued payroll and related
liabilities 497,076 578,569
Other accrued liabilities 124,601 84,282
Current portion of long-term debt 70,000 787,500
Total current liabilities 2,259,348 2,896,273
Long-term debt, less current portion
(See Note 3) 3,153,249 2,587,500
Deferred taxes based on income (See Note 4) 475,236 486,000
Total liabilities 5,887,833 5,969,773
Commitments and contingencies (see Note 5)
Minority Interests 676,850 -
Stockholders' equity:
Notes Receivable - Stock (Note 7) (127,500) -
Common Stock, 12,000,000
shares authorized, 4,784,934
shares issued and outstanding
in 1999 and 3,193,434 shares
issued and outstanding in 1998
(See Note 7) 3,793,332 1,230,347
Retained earnings 438,977 375,389
Accumulated other comprehensive income ( 22,177) (2,407)
Total stockholders' equity 4,082,632 1,603,329
$ 10,647,315 $ 7,573,102
See Notes to Consolidated Financial Statements.
AUTO-GRAPHICS, INC.
____________
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1999, 1998, 1997
1999 1998 1997
Net sales $ 8,391,323 $ 9,099,198 $ 10,035,824
Costs and expenses
Cost of sales 4,872,445 6,258,523 6,264,141
Selling, general
and administrative 3,149,754 3,943,143 3,076,078
8,022,199 10,201,666 9,340,219
Income/(loss) from operations 369,124 ( 1,102,468) 695,605
Interest expense, net ( 347,957) ( 311,797) ( 278,591)
Other income/(expense) 52,591 ( 47,357) ( 12,264)
Income/(loss) before taxes 73,758 ( 1,461,622) 404,750
Provision/(benefit) for taxes ( 46,630) ( 397,000) 193,000
Minority Interests 15,200 - -
Net income/(loss) 105,188 ( 1,064,622) 211,750
Foreign currency
translation adjustments ( 19,770) 157 (2,564)
Total comprehensive income/(loss) $ 85,418 $( 1,064,465) $ 209,186
Basic earnings per share $ .03 $ ( .33) $ .06
Weighted average
shares outstanding (See Note 7) 3,684,009 3,199,935 3,271,833
Diluted earnings per share $ .03 $ ( .33) $ .06
Weighted average
shares outstanding (See Note 7) 3,776,004 3,199,935 3,271,833
Note: Shares outstanding have been retroactively adjusted to reflect a 3-for-
1 stock split which occurred on February 28, 2000. (See Notes 1 "Earnings
per Share" and 7 "2000 Stock Split" in Notes to the Consolidated Financial
Statements).
See Notes to Consolidated Financial Statements.
AUTO-GRAPHICS, INC.
____________
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999, 1998, 1997
1999 1998 1997
Cash flows from operating activities:
Net income/(loss) $ 105,188 ($ 1,064,622) $ 211,750
Adjustments to reconcile net
Income/(loss) to net cash
provided by operating activities:
Depreciation and amortization 1,381,053 1,676,056 1,134,348
Deferred taxes ( 10,764) ( 209,000) 30,061
Minority Interest 15,200 - -
Changes in operating assets
and liabilities, net of the
effect of acquisitions
Accounts receivable 276,121 637,971 ( 405,058)
Unbilled production costs 58,682 ( 3,149) 166,380
Other current assets 204,933 ( 241,303) ( 39,908)
Other assets ( 35,362) 22,245 ( 284,166)
Accounts payable ( 341,215) ( 32,062) 338,977
Deferred income 452,067 277,642 ( 99,306)
Accrued payroll and
related liabilities ( 93,925) 313,030 2,275
Other accrued liabilities 37,876 ( 66,698) 28,343
Net cash provided by
operating activities 2,049,854 1,310,110 1,083,696
Cash flows from investing activities:
Capital expenditures ( 664,335) ( 173,233) ( 420,676)
Capitalized software development ( 750,000) ( 795,000) ( 750,676)
Investment in Dataquad, Inc. ( 1,500) - -
Investment in The LibraryCard, Inc.( 1,500) - -
Investment in Datacat, Inc.,
net of cash acquired - - ( 182,175)
Investment in A-G Canada, Ltd. - - ( 787,095)
Net cash used in investing ( 1,417,335) ( 968,233) (2,140,622)
Cash flows from financing activities:
Borrowings under long-term debt - 650,927 1,603,016
Payments under long-term debt ( 375,000) ( 1,030,000) ( 605,000)
Borrowings under life insurance 7,064 150,278 -
Borrowings under capital lease, net 223,250 - -
Proceeds from stock sales 3,106,000 - -
Repurchase of capital stock ( 47,466) ( 101,750) ( 58,000)
Net cash provided by (used in)
financing activities 2,913,848 ( 330,545) 940,016
Net increase(decrease)in cash 3,546,367 11,332 ( 116,910)
Foreign currency effect on cash (22,825) 36,792 ( 2,564)
Cash at beginning of year 292,744 244,620 364,094
Cash at end of year $ 3,816,286 $ 292,744 $ 244,620
See Notes to Consolidated Financial Statements.
AUTO-GRAPHICS, INC.
____________
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1999, 1998, 1997
Other
Compre- Total
Common Stock Retained hensive Stockholders'
Shares Amount Earnings Income Equity
Balances at
January
1, 1996 3,327,834 $1,249,579 $ 1,368,780 $ - $ 2,618,359
Net income - - 211,750 - 211,750
Common Stock
Retired ( 56,400) ( 12,212) ( 45,789) - ( 58,001)
Foreign
Currency
Translation
Adjustments - - - ( 2,564) ( 2,564)
Balances at
December
31, 1997 3,271,434 $1,237,367 $ 1,534,741 ($ 2,564) $ 2,769,544
Net loss - - ( 1,064,622) - ( 1,064,622)
Common Stock
Retired ( 78,000) ( 7,020) ( 94,730) - ( 101,750)
Foreign
Currency
Translation
Adjustments - - - 157 157
Balances at
December
31, 1998 3,193,434 1,230,347 375,389 ( 2,407) 1,603,329
Net income - - 105,188 - 105,188
Notes
Receivable - ( 127,500) - - ( 127,500)
Common Stock
Issued in:
Parent 1,654,200 1,225,501 - - 1,225,501
Subsidiaries
Net of Minority
Interests 1,343,350 1,343,350
Common Stock
Retired ( 62,700)( 5,866) ( 41,600) - ( 47,466)
Foreign
Currency
Translation
Adjustments - - - ( 19,770) ( 19,770)
Balances at
December
31, 1999 4,784,934 $3,665,832 $ 438,977 $( 22,177) $ 4,082,632
Note: Shares outstanding have been retroactively adjusted to reflect a 3-for-
1 stock split which occurred on February 28, 2000. (See Notes 1 "Earnings
per Share" and 7 "2000 Stock Split" in Notes to the Consolidated Financial
Statements).
See Notes to Consolidated Financial Statements.
AUTO-GRAPHICS, INC.
____________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
1. Summary of significant accounting policies.
Description of Business
Auto-Graphics, Inc., including Datacat, Inc. and A-G Canada, Ltd., its
wholly-owned subsidiaries and Dataquad, Inc. and The LibraryCard, Inc., its
majority owned subsidiaries (the "Company"), provides software products and
services used to create, convert, organize, manage and deliver database
information via the Internet/Web, CD-ROM and/or print media. LibraryCard( is
an Internet/Web "portal" site (www.LibraryCard.com) offering a virtual
library on the Web with access to bibliographic and related information and
services for the consumer.
Basis of Presentation
The consolidated financial statements include the accounts of Auto-
Graphics, Inc. and its wholly and majority-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated.
Revenue Recognition
Sales are recognized as services are rendered monthly or when
finished goods are shipped to customers. Certain future software support
costs are accrued in accordance with American Institute of Certified Public
Accountant's Statement of Position ("SOP") 97-2, "Software Revenue
Recognition", as amended by SOP 98-4 and SOP 98-9.
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 sales 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 as other
comprehensive income and included as a component of stockholders' equity.
The net foreign exchange transaction gains for 1999 were $52,591 compared to
transaction losses of $47,357 in 1998. All other Company transactions are
currently denominated in U.S. dollars.
Credit Risk
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company maintains reserves for
potential losses from uncollectible accounts, and actual losses have been
within management's expectations. Nevertheless, the Company may be exposed
to credit risk for trade receivables beyond the reserves established by the
Company for such purposes.
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 amounts approximates fair value
because of the short-term maturity of these instruments.
Long-term Debt. The carrying amounts approximates fair value, since
the interest rate on the debt is at least equal to the bank's prime
rate.
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.
Software, Equipment and Leasehold Improvements
Software, equipment and leasehold improvements are recorded at
historical cost. Software, equipment, furniture, fixtures and leasehold
improvements at December 31, 1999 and 1998, consist of the following:
1999 1998
Computer software and database $8,317,115 $7,575,129
Equipment 2,925,612 3,015,946
Furniture and fixtures 563,361 534,134
Leasehold improvements 275,675 273,973
12,081,763 11,399,182
Less accumulated depreciation
and amortization 6,971,532 6,382,555
$5,110,231 $5,016,627
Capitalized Acquisition Costs
Certain legal and accounting costs associated with several asset
acquisitions in 1997 have been capitalized as asset acquisition costs and
are being amortized over a five-year period.
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 using 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, "Accounting for the
Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed".
Amortization is based on the straight-line method and commences in the first
year of product availability. Unamortized computer software was
approximately $3,909,000 in 1999, $3,695,000 in 1998, and $3,734,000 in 1997.
Amortization of computer software was approximately $838,000 in 1999,
$798,000 in 1998, and $579,000 in 1997.
The following estimated useful lives are generally observed for the
respective asset categories:
Equipment - 5 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 $1,381,000 in 1999, $1,676,000 in
1998 and $1,134,000 in 1997.
Other Assets
Investment in Dataquad, Inc.
In December 1999, the Company and an associate formed a new
subsidiary called Dataquad, Inc. with nominal cash investments, and the
Company contributed certain software having a net book value of approximately
$800,000 and a backlog of contracts totaling approximately $900,000 to the
new subsidiary. A third party investor (who also invested in the Company's
1999 private placement offering) invested an additional $1.0 million in cash
in return for a 27% interest in Dataquad(tm), and the Company and the
associate hold a 67% and 6% interest, respectively. Dataquad is completing
development and is beginning to market XML/SGML based editorial software
products and services, which enable enterprises to create, convert, organize,
manage and deliver database and other information dynamically within and
outside the enterprise including over the Internet/Web. The financial
statements of Dataquad have been consolidated with the Company's financial
statements for the year ended December 31, 1999.
Investment in The LibraryCard, Inc.
In December 1999, the Company and an associate formed a new
subsidiary called The LibraryCard, Inc. for the purpose of developing and
marketing a new Internet/Web "portal" site ("www.LibraryCard.com") which
offers a virtual library on the Web with access to bibliographic and related
information/services for the consumer. The Company and the associate made
nominal cash investments, and a third party investor (who also invested in
the Company's 1999 private placement offering) invested an additional $1.0
million in cash in return for a 27% interest in LibraryCard(tm), and the
Company and the associate hold a 67% and 6% interest, respectively. The
Company retained the exclusive right to market products and services to the
library market (as opposed to the consumer market). The financial statements
of The LibraryCard have been consolidated with the Company's financial
statements for the year ended December 31, 1999.
Investment in A-G Canada, Ltd.
In July 1997, the Company acquired the assets of the Library
Information Systems ("LIS") division of ISM Information Systems Management
Manitoba Corporation, a subsidiary of IBM Canada, Ltd. The LIS business
includes bibliographic cataloging and interlibrary loan resource sharing
software and related services. 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. The financial
statements of A-G Canada have been consolidated with the Company's financial
statements for the six-month period ended December 31, 1997, and the years
ended December 31, 1998 and 1999.
Investment in Datacat, Inc.
Datacat(tm) owns a proprietary database of heating, ventilation, air
conditioning and refrigeration (HVACR) parts, and provides publishing and
related services to the wholesale HVACR industry including Internet/Web
products and services, CD-ROM and printed parts catalogs. Datacat also
provides Internet/Web solutions including outsourced "hosting" services to
the Company's non-library customers. The investment was previously accounted
for using the equity method, prior to the October 2, 1997 purchase by the
Company of the remaining 50% interest in Datacat that it did not already own.
The financial statements of Datacat have been consolidated with the Company's
financial statements for the three-month period ended December 31, 1997, and
the years ended December 31, 1998 and 1999.
Earnings Per Share
Shares outstanding have been retroactively adjusted to reflect a 3-
for-1 stock split, which occurred on February 28, 2000. As of December 31,
1997, the Company adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share". The Statement 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 and diluted 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. (See Note 7
"Warrants" and "2000 Stock Split" of Notes to Consolidated Financial
Statements).
Comprehensive Income
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income". The
Statement establishes standards for reporting and display of comprehensive
income and its components in interim and annual financial statements.
Comprehensive income is defined as the change in the equity (net assets) of
an entity during a period from transactions, events and circumstances
excluding all transactions involving investments by or distributions to the
owners.
Supplemental Disclosure of Cash Flow Information
The Company paid net interest in the amount of $342,815 in 1999,
$326,294 in 1998, and $290,937 in 1997. The Company paid income taxes in the
amount of $19,295 in 1999, $59,609 in 1998 and $182,682 in 1997.
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. There are presently no outstanding grants under the
Company's 1997 Non-Qualified Stock Option Plan, and, therefore, no
compensation expense has been recognized. (See Note 7 "1997 Non-Qualified
Stock Option Plan" of Notes to the Consolidated Financial Statements).
Segment Reporting
As of the year ended December 31, 1998, the Company adopted Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information". The Statement establishes standards for
reporting information about operating segments in interim and annual
financial statements.
The following table summarizes sales based on the location of the
customers and assets based on the location of the asset presented on the
basis of generally accepted accounting principles for the years ended
December 31, 1999, 1998 and 1997:
1999 1998 1997
Geographic areas
Net sales
United States $ 6,648,752 $ 6,967,453 $ 7,856,245
Foreign - Canada 1,693,966 1,924,660 1,648,535
Foreign - Japan/Other 48,605 207,085 531,044
Long-lived assets, net
United States 4,916,734 4,796,917 5,468,218
Foreign - Canada 193,497 219,710 319,083
The Company has one customer, the Texas Education Agency (TEA), which
represents approximately 10% of the Company's 1999 sales. The Company has a
contract with TEA to develop and operate, on an outsourced "hosting" basis,
an Internet/Web based online bibliographic database locator and interlibrary
loan system linking approximately 7,500 kindergarden through grade 12 public
school libraries when the system is fully developed and implemented.
Management believes that the loss of a single large customer, such as the
TEA, would have a material adverse effect on the Company.
Pending Pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which was amended by
Statement of Financial Accounting Standards No. 137, effective for fiscal
quarters of all fiscal years beginning after June 15, 1999. The Company
plans to adopt the Statement in the fiscal year ending December 31, 2000. The
Statement establishes standards for accounting for derivatives and hedging
instruments (of which the Company currently has none) and, therefore, the
Company does not expect this Statement will have a material effect on the
Company's financial position or results of operations.
In February 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 135, "Rescission of FASB
Statement No. 75 and Technical Corrections", which is effective for financial
statements issued for fiscal years ending after February 15, 1999. The
Company does not expect this Statement will have a material effect on the
Company's financial position or results of operations.
Reclassification
Certain amounts reported in 1998 and 1997 have been reclassified to
conform to the 1999 consolidated financial statement presentation.
2. Note Payable to Bank.
The Company has a revolving credit agreement under which borrowings are
secured by accounts receivable whereby the Company may borrow against its
eligible accounts receivable up to a maximum of $1,000,000 ($1,000,000
available at December 31, 1999) with interest at the bank prime rate plus 1%
(9.75% at December 31, 1999). The credit facility is renewable annually with
the next renewal in June 2000. Among other requirements, the revolving line
of credit requires the Company to maintain minimum financial covenant ratios,
and restricts the payment of cash dividends. There are no compensating
balance requirements and there are currently no guarantor requirements. The
credit facility includes a commitment fee of $44,000 covering both the
working capital line of credit and capital line of credit facilities. For
the year ended December 31, 1999, the Company was not in compliance with
several minor loan covenants, however, the bank has waived its default rights
involving these covenant violations under the Company's bank loan agreements.
(See Note 3 of Notes to the Consolidated Financial Statements).
3. Long-term Debt.
Long-term debt at December 31, 1999 and 1998 consists of the following:
1999 1998
Capital line of credit with interest
at the bank prime rate plus 1% (9.75%
at December 31, 1999) with no principal
payments, maturing in June, 2000 and
secured by software, equipment and
leasehold improvements with a net book
value of approximately $5,122,000 at
December 31, 1999. $3,000,000 $3,000,000
Term note with interest at bank prime
plus 1% (9.75% at December 31, 1999)
and 11 monthly installments of
$16,000 through June 1, 2000.
Fully repaid and retired as of
December 31, 1999 - 375,000
Capital lease of computer equipment
with monthly payments of $7,371 223,249 -
Total long-term debt 3,223,249 3,375,000
Less current portion 70,000 787,500
Long-term portion $ 3,153,249 $ 2,587,500
Maturities of long-term debt due after one year are not material.
The capital line of credit provides for maximum borrowings of $3,000,000
for the purchase of equipment and software, and financing of up to $1,000,000
annually in internal software development costs. The capital line of credit
is renewable annually with the next renewal in June 2000. The loan agreement
contains a one-time option whereby the Company may cancel the capital line of
credit and amortize the outstanding principal balance over a five year term
provided there exists no event of default as defined in the loan agreement.
This agreement contains the same loan covenants as the revolving line of
credit. (See Note 2 of Notes to the Consolidated Financial Statements). The
term note provided financing of $750,000 for the acquisition of the LIS
division of ISM Information Systems Management Manitoba Corporation in July
1997. In December 1999, the Company repaid and retired the remaining
principal balance of the term debt financing.
The Company is negotiating and believes it has an agreement in
principle with the Bank to renew and replace the above line of credit
facilities with a single multi-purpose $3.0 million line of credit
facility for a two year term commencing June 1, 2000. The total credit
commitment will decrease in increments of $250,000 over the two year
period to a maximum of $2.0 million in June 1, 2002. This proposed new
credit facility is intended to reflect the Company's current and
anticipated bank credit requirements over the two year period. The new
facility eliminates commitment fees and will carry a reduced interest
rate. The new facility will contain financial ratio and other
covenants, which should provide the Company with greater flexibility to
invest in new technology and new product ideas, which are expected to
generate consolidated net losses over the next two years.
As of December 31, 1999, the Company had $230,000 in computer equipment
under capital leases. Accumulated amortization on these assets was $23,000
at December 31 1999. The following is a schedule of future minimum lease
payments required under the capital leases together with their estimated
present values:
Year Ending December 31,
2000 $ 88,452
2001 88,452
2002 81,081
Total Minimum Lease Payments 257,985
Interest 34,736
Present Value of
Minimum Lease Payments 223,249
Current Portion ( 70,000)
Long-term Portion $ 153,249
4. Taxes Based on Income.
The provision/(benefit) for taxes based on income is composed of the
following for the years ended December 31, 1999, 1998 and 1997:
1999 1998 1997
Current taxes based on income
Federal $ 22,000 $(188,000) $ 63,000
State 5,000 ( 35,000) 47,000
Foreign - - 42,000
27,000 223,000) 152,000
Deferred taxes based on income
Federal ( 68,000) ( 147,000) 55,000
State 28,000 ( 27,000) ( 14,000)
Foreign ( 34,000) - -
( 74,000) ( 174,000) 41,000
$( 47,000) $(397,000) $ 193,000
A reconciliation of the provision for taxes based on income follows
for the years ended December 31, 1999, 1998 and 1997:
1999 1998 1997
Statutory U.S. Federal income tax $ 25,000 ($497,000) $ 137,600
Adjustments for foreign tax rates 9,000 ( 55,000) 11,800
Valuation allowance ( 23,000) 254,000 -
State tax, net of Federal benefit 4,000 ( 77,000) 21,800
Prior year NOL for which no benefit
was previously recognized ( 98,000) - -
Other 36,000 ( 22,000) 21,800
$( 47,000) $(397,000) $ 193,000
The statutory U.S. Federal income tax rate was 34% in 1999, 1998 and
1997. The deferred tax assets and liabilities are composed of the following
at December 31, 1999, 1998 and 1997:
1999 1998 1997
Deferred tax liabilities:
Tax over book amortization and
depreciation $ 595,000 $ 729,000 $ 695,000
State taxes - 28,000 -
Total deferred tax liabilities 595,000 757,000 695,000
Deferred tax assets:
Net operating loss 311,000 462,000 -
Bad debts/accrued vacation/other 103,000 63,000 57,000
State taxes - - 11,000
Total deferred tax assets 414,000 525,000 68,000
Valuation allowance ( 231,000) (254,000) -
Net deferred tax assets 183,000 271,000 68,000
Net deferred tax liability $ 412,000 $ 486,000 $ 627,000
Deferred tax assets and liabilities are recognized for the expected
future tax consequences of events that have been reported in the Company's
financial statements or tax returns. The valuation allowance at December 31,
1998 and 1999 reflects an unrecognized U.S. and foreign tax loss carry-
forward. At December 31, 1999, the Company has available federal, state and
Canadian net operating loss carryforwards of approximately $385,000, $498,000
and $337,000, respectively, for income tax purposes. These net operating
loss carryforwards expire in 2018 for federal taxes, 2005 for state and
foreign taxes.
5. Commitments and Contingencies.
The Company incurred total facilities and equipment lease and rental
expense of approximately $374,000 in 1999, $415,000 in 1998 and $509,000 in
1997. The Company is obligated under certain non-cancelable operating leases
for office facilities and equipment. Approximate minimum lease commitments
as of December 31, 1999 are as follows:
Years ended Operating
December 31, Leases
2000 393,000
2001 235,000
2002 81,000
Total minimum lease payments $ 709,000
From time to time, the Company is involved in legal proceedings
incidental to its normal business activities. Management does not believe
that the outcome of these proceedings will have a material adverse effect on
the Company's consolidated financial position, results of operations or cash
flows.
6. Related Party Transactions.
The Company leases its corporate office and production facility from a
limited partnership owned by a current and former director/stockholder of the
Company. The Company has an option to purchase a one-third interest in the
partnership from the former director/stockholder for an amount not to exceed
$150,000. During 1999, the Company leased 29,260 square feet having an
annual base rent of $351,000 (plus expenses). The lease term expires in June
2001. In April 2000, the Company completed a planned consolidation, which
reduced the square footage occupied by the Company from 29,260 to 19,460 for
a reduction in the Company's annualized rent expense of $118,000 (plus
expenses).
In February 2000, the Company accelerated the purchase and retired the
remaining 62,400 shares outstanding under a stock repurchase agreement with a
former director/stockholder of the Company for $203,000 in cash
consideration. The Company also transferred an insurance policy to the
seller having a cash surrender value of approximately $75,000.
7. Stockholders' Equity.
1999 Private Placement Offering
In May of 1999, the Company initiated a private placement offering of its
Common Stock at $0.83 per share. Shares offered and sold in the offering
were classified as "restricted" stock, meaning that these shares can not be
sold in the public trading market for the Company's stock for a minimum
period of one year. The offering was concluded in October 1999 with a total
of 1,654,200 shares sold, increasing total shares outstanding to 4,784,934,
and
raising gross proceeds of $1,378,500. The Company sold 1,501,200 shares at
$0.83 per share raising a total of $1,251,000 in cash. An additional 153,000
shares at $0.83 per share (for total investment of $127,500) were sold to
certain senior management of the Company on four year interest bearing full
recourse notes. These notes are presented as "Notes Receivable - Stock" on
the Company's Consolidated Balance Sheet.
Warrants
In May 1999, the Company entered into a selling agreement with an
associate pertaining to the Company's private placement offering. Pursuant
to the agreement, the Company sold and issued 240,000 3-year warrants for
$800 entitling the associate to purchase one share of the Company's
(restricted) Common Stock for each warrant for $.03 per share, which warrants
remain issued and outstanding but unexercised at December 31, 1999. Fully
diluted earnings per share computations include the shares of stock
represented by the warrants. Assuming that the warrants and underlying
shares are subjected to a 50% discount due to the restricted nature of such
securities, a 6.25% risk free rate and a 25% volatility factor, under the
Black-Scholes option pricing model, the warrants would carry a value of
$92,705. The Company's principal director/shareholder granted an option to
the associate to purchase 1,125,000 shares of the Company's (restricted)
Common Stock owned by such individual (and his Family Trust) through November
2000, subject to a one year renewal provision in favor of the recipient, for
$1.67 per share. The shares which are the subject of this option represent
approximately 23% of the Company's issued and outstanding Common Stock at
December 31, 1999.
Dataquad, Inc. and The LibraryCard, Inc.
In December 1999, the Company and an associate formed two new
subsidiaries, Dataquad, Inc. and The LibraryCard, Inc., and contributed
nominal cash consideration to such subsidiaries, and the Company contributed
certain software and other assets to Dataquad(tm). A third party investor
(who also invested in the Company's 1999 private placement offering)
contributed $1.0 million in cash to each of the subsidiaries in return for a
27% ownership interest, and the Company and the associate hold 67% and 6%
interests, respectively. (See Note 1 of Notes to the Consolidated Financial
Statements). Utilizing the simplified method under Statement of Financial
Accounting Standards No. 123, "Stock Based Compensation", the Company has
ascribed a fair market value of $60,150 for the shares purchased by the
associate for a total valuation for the stock of both subsidiaries of
$120,300.
2000 Stock Split
On January 31, 2000, the Company announced a 3-for-1 stock split of its
Common Stock to shareholders of record on February 12, 2000, which occurred
on February 28, 2000. Two additional shares were issued for each share held
on the record date. Following the stock split, shares authorized increased
from 4,000,000 to 12,000,000 and shares issued and outstanding from 1,607,578
to 4,822,734 following the above referenced share repurchase (See Note 1
"Earnings Per Share", Note 6 of Notes to Consolidated Financial Statements
and the "2000 Private Placement" below). Share amounts in the Statement of
Operations including basic and diluted earnings per share, the Consolidated
Balance Sheet, and Consolidated Statements Of Stockholders' Equity have been
adjusted retroactively to reflect the stock split for the periods presented.
Equity Funding Costs and Expenses
The Company incurred direct and incremental expenses in connection with
the above referenced 1999 $1,251,000 private placement offering, and the sale
of the $2.0 million in shares of the Company's Dataquad, Inc. and The
LibraryCard,Inc. subsidiaries, resulting in gross proceeds from the sale of
such Securities of $3,251,000. Equity funding costs and expenses, including
legal, accounting, and selling expenses totaled $145,000, which have been
offset against the total equity raised for net proceeds of $3,106,000 as
reflected in the Company's Consolidated Statements of Cash Flows herein.
1997 Non-Qualified Stock Option Plan
The Company adopted a 1997 Non-Qualified Stock Option Plan effective
December 31, 1997. The Plan consists of 300,000 shares of the Company's
authorized but unissued Common Stock which shares have been reserved for
possible future issuance under the Plan. The plan is a non-qualified plan
covering only senior executives and related persons. At the inception of the
plan, the Company granted options to four persons whereby they were entitled to
purchase up to a total of 142,500 shares over the next five years at a price of
$0.55 per share. In 1999, all options granted were relinquished by the
participants and as of December 31, 1999, there were no outstanding grants of
options under the Plan. The Company's management intends to propose for
approval by the Company's stockholders at the Company's 2000 Annual Meeting of
Stockholders a qualified (incentive stock option) plan consisting of
approximately 10% (currently 482,000 shares) of the Company's then issued and
outstanding shares of Common Stock to be reserved for future issuance to
employees of the Company.
2000 Private Placement
In February 2000, the Company consummated a private placement of 225,000
shares (after giving effect to the 3-for-1 stock split) of its (restricted)
Common Stock with an offshore investment company for $4.125 per share for
gross proceeds of $930,000. The Company used a portion of the net proceeds
from the sale of such stock to reduce its capital line of credit with the
bank by $600,000.
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. The Company
pays the administrative expenses of the plan, which are immaterial. Annually,
the Company may, at its 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 $23,000 in 1999, $25,000 in 1998,
and $24,000 in 1997.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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 held by, all directors and executive officers of
the Company at December 31, 1999:
Name Age Position
Robert S. Cope 64 Director, President and Treasurer. Has served
in these capacities for more than ten years.
Robert H. Bretz 56 Director and Assistant Secretary. Attorney who
has acted as the Company's outside general legal counsel for more than ten
years.
William J. Kliss 52 Chief Operating Officer. Has served the Company
in this capacity for four 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 51 Chief Financial Officer and Secretary. Has
served in these capacities for four 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 at the annual meeting of
stockholders. All executive officers serve at the discretion of the
Company's Board of Directors.
Future Management Decisions
As part of the Company's focus on efforts to increase sales in 2000 and
beyond, the Board of Directors has decided that it will be in the Company's
best interests to seek a successor for Mr. Kliss. In this regard, the Company
will attempt to negotiate an amicable severance arrangement with Mr. Kliss.
However, Mr. Kliss has indicated his expectations regarding such severance
arrangement, and they are substantially in excess of what the Company believes
would be reasonable. Therefore, it is possible that the issue of Mr. Kliss'
separation from the Company will be the subject of legal proceedings while the
parties engage in efforts to negotiate a mutually acceptable severance
arrangement. Although the Company has no current plans regarding a change in
Daniel Luebben's employment status, a similar situation may apply to him.
Recently, both Messrs. Kliss and Luebben asserted positions adverse to the
Company regarding aspects of their employment relationships with the Company
pertaining to their status as "at will" employees under California law, salary
protection in the event that there is a change of control of the Company at
any time in the future and the effect of the outcome of such issues on such
persons' purchase of shares of the Company's (restricted) Common Stock in
the 1999 private placement and the prior relinquishment of options previously
granted to such individuals in consideration of the acquisition of shares in
the private placement offering and the contemplated opportunity for such
persons to receive grants under the Company's proposed new qualified stock
option plan. In any event, the Company believes that such employee related
matters can be successfully resolved consistent with reserves covering employee
severance matters.
New Subsidiaries
In March 2000, the Company's Dataquad(tm) subsidiary appointed William B.
Ting as President of such newly organized majority owned subsidiary.
Dataquad is in the process of finalizing the development and formalization of
a marketing and promotional program for its content management system
software product. This product provides users with a single software system
allowing users to convert, create, edit and manage data on a dynamic basis
using XML and SGML as its technology backbone. The user can then distribute
and publish such enterprise-wide information in simultaneous multi-media
formats including print, CD-ROM and over the Internet/Web including in an e-
commerce environment using the user's own computer system or on an outsourced
"host" basis. (See Item. 1. "Business"). Mr. Ting, age 51, holds a Ph.D. in
Quantitative Methodology and International Political Economics, and he has
extensive background and experience in the areas of business management,
planning, marketing and finance, including in the software and information
systems areas. Mr. Ting has previously served on the faculty of the
University of Michigan, and he also has experience in international trade.
The Company's LibraryCard(tm) majority owned subsidiary is presently seeking
to hire an individual to act as the president of such newly organized
company. Currently, the Executive Vice President - Business Development of
LibraryCard, Leland R. Ireland, is serving as the principal executive officer
of such subsidiary. Mr. Ireland, age 51, holds a MA in Library Sciences and
an MBA in Marketing degrees, and he has been employed by several library
automation companies in sales/marketing capacities. Prior to joining
LibraryCard in January 2000, Mr. Ireland served as the Company's Vice
President - Marketing for approximately one and a half years. LibraryCard is
an Internet/Web "portal" which, when fully developed, will make bibliographic
and other reference type information and services available to consumers.
LibraryCard offers information-related products and services to assist the
general public in taking advantage of the book lending and related
information/services available from their local libraries. Introduction of
the LibraryCard site through the Company's existing customer base, consisting
of approximately 8,000 libraries and schools (which already allows patrons to
access such bibliographic services from their home/office) should provide
LibraryCard with a "first mover" advantage in this particular segment of the
information technology market. (See Item. 1. "Business").
ITEM 11. EXECUTIVE COMPENSATION
A definitive Proxy Statement will be filed with the Securities and Exchange
Commission ("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), as amended by within additional Exhibit 3.1 filing of the
amendment to the Articles covering 3-for-1 stock split effectuated February
28, 2000.
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).
10.15 Credit Agreement between Wells Fargo Bank and Auto-Graphics, Inc. dated
May 12, 1997 (incorporated by reference as filed with the SEC as Exhibit
10.15 to Item 14(a) in the registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998).
10.16 First Amendment to Credit Agreement between Wells Fargo Bank and Auto-
Graphics, Inc. dated June 23, 1997 (incorporated by reference as filed with
the SEC as Exhibit 10.16 to Item 14(a) in the registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998).
10.17 Second Amendment to Credit Agreement between Wells Fargo and Auto-
Graphics, Inc. dated October 31, 1997 (incorporated by reference as filed
with the SEC as Exhibit 10.17 to Item 14(a) in the registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998).
10.18 Revolving Line of Credit Note (Working Capital) between Wells Fargo
Bank and Auto-Graphics, Inc. dated May 12, 1997 (incorporated by reference as
filed with the SEC as Exhibit 10.18 to Item 14(a) in the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998).
10.19 Revolving Line of Credit Note (Capital Equipment) between Wells Fargo
Bank and Auto-Graphics, Inc. dated May 12, 1997 (incorporated by reference as
filed with the SEC as Exhibit 10.19 to Item 14(a) in the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998).
10.20 Term Note between Wells Fargo Bank and Auto-Graphics, Inc. dated May
12, 1997 (incorporated by reference as filed with the SEC as Exhibit 10.20 to
Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998).
10.21 Continuing Security Agreement Rights to Payment and Inventory between
Wells Fargo Bank and Auto-Graphics, Inc. dated May 12, 1997 (incorporated by
reference as filed with the SEC as Exhibit 10.21 to Item 14(a) in the
registrant's Annual Report on Form 10-K for the fiscal year ended December
31, 1998).
10.22 Security Agreement Equipment between Wells Fargo Bank and Auto-
Graphics, Inc. dated May 12, 1997 (incorporated by reference as filed with
the SEC as Exhibit 10.22 to Item 14(a) in the registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998).
10.23 Guaranty between Wells Fargo Bank and Robert S. Cope dated May 12, 1997
(incorporated by reference as filed with the SEC as Exhibit 10.23 to Item
14(a) in the registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998).
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 (incorporated by reference as filed with the SEC as
Exhibit 10.24 to Item 14(a) in the registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998).
10.25 1997 Non-Qualified Stock Option Plan dated December 31, 1997
(incorporated by reference as filed with the SEC as Exhibit 10.25 to Item
14(a) in the registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998).
10.26 Third Amendment to Credit Agreement between Wells Fargo Bank and Auto-
Graphics, Inc. dated June 1, 1998 (incorporated by reference as filed with
the SEC as Exhibit 10.26 to Item 14(a) in the registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998).
10.27 Term Note between Wells Fargo Bank and Auto-Graphics, Inc. dated June
1, 1998 (incorporated by reference as filed with the SEC as Exhibit 10.27 to
Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998).
10.28 Fourth Amendment to Credit Agreement between Wells Fargo Bank and Auto-
Graphics, Inc. dated September 15, 1998 (incorporated by reference as filed
with the SEC as Exhibit 10.28 to Item 14(a) in the registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998).
10.29 Fifth Amendment to Credit Agreement between Wells Fargo Bank and Auto-
Graphics, Inc. dated December 24, 1998 (incorporated by reference as filed
with the SEC as Exhibit 10.29 to Item 14(a) in the registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998).
10.30 Option Agreement dated May 15, 1999 between Robert S. Cope and
Elizabeth Cope and the Cope Family Trust and Corey M. Patick.
10.31 Selling Agreement (formerly Employment Agreement) dated May 15, 1999
between Auto-Graphics, Inc. and Corey M. Patick (as amended).
10.32 Sixth Amendment to Credit Agreement between Auto-
Graphics, Inc. and Wells Fargo Bank dated June 30, 1999.
10.33 Continuing Guaranty between Auto-Graphics, Inc. and Wells Fargo Bank
dated June 30, 1999.
10.34 Amendment to Continuing Guaranty between Auto-
Graphics, Inc. and Wells Fargo Bank dated June 30, 1999.
10.35 Revolving Line of Credit Note (working capital)
$1,000,000 between Auto-Graphics, Inc. and Wells Fargo
Bank dated June 30, 1999.
10.36 Revolving Line of Credit Note (capital) $3,000,000
between Auto-Graphics, Inc. and Wells Fargo Bank dated
dated June 30, 1999.
10.37 Term Note $750,000 between Auto-Graphics, Inc. and Wells Fargo Bank
dated June 30, 1999.
10.38 Stock Purchase Agreement between Auto-Graphics, Inc. and Gibralter
Permanente Assurance dated February 14, 2000.
10.39 Letter of Intent between Auto-Graphics, Inc. and Steve White dated
December 29, 1999.
(b) The Company has filed a Report on Form 8-K dated April 6, 1999
reporting a net loss for the year ended December 31, 1998.
(c) The Company has filed a Report on Form 8-K dated August 9, 1999
reporting a potential for a change in control of the Company.
(d) 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: 4/20/00 By ss/ Robert S. Cope
Robert S. Cope, Director, President,
and Treasurer
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: 4/20/00 By ss/ Robert S. Cope
Robert S. Cope, Director, President,
and Treasurer
Date: 4/20/00 By ss/ Daniel E. Luebben
Daniel E. Luebben,
Chief Financial Officer and Secretary
Date: 4/20/00 By ss/ Robert H. Bretz
Robert H. Bretz, Director
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT OF THE ARTICLES OF INCORPORATION OF
AUTO-GRAPHICS, INC.
The undersigned President and Secretary of Auto-Graphics, Inc.
(the "Company") hereby certify the following:
1. Article Fifth of the Company's Articles of Incorporation shall be
stricken in its entirety and shall be and is hereby amended to read
as follows (the "Amendment"):
"FIFTH: The total number of shares which the corporation is authorized
to issue is Twelve Million (12,000,000) shares of Common Stock. No
distinction shall exist between the shares of the corporation or the
holders thereof. Upon the filing of the Amendment, the holders of
outstanding shares shall be entitled to receive from the corporation
two (2) additional shares of Common Stock for each share held by record
by such holders."
2. The Amendment has been approved by the Company's Board of Directors.
3. Pursuant to Section 902(c) of the California Corporations Code, the
4. Amendment may be approved by the Board alone without the need for
approval of the outstanding shares.
In Witness Whereof, the undersigned being the president and secretary of
Auto-Graphics, Inc. have executed this Certificate of Amendment of the
Articles of Incorporation in such capacities in Pomona, California, The
undersigned projects declare, under penalty of perjury under California
law, that the matters set forth in this Certificate are true and correct
of their own knowledge.
Date: April 10, 2000
ss/Robert S. Cope
- --------------------------------
Robert S. Cope, President
ss/Daniel E. Luebben
- --------------------------------
Daniel E. Luebben, Secretary
Exhibit 10.30
OPTION AGREEMENT
OPTION AGREEMENT
This OPTION AGREEMENT dated May 15, 1999 (the "Agreement") is
made by and between Robert S. Cope and Elizabeth Cope, husband and wife,
and the Cope Family Trust dated September 12, 1972 (the "Trust") and
Robert S. Cope in his capacity as Trustee of the Trust (herein
individually and collectively "Cope"), on the one hand and Corey M.
Patick, an individual, and/or his designee or assignee (herein
collectively "Patick"), on the other hand.
R E C I T A L S
WHEREAS, Cope is the owner of 523,391 shares of the issued and
outstanding Common Stock of Auto-Graphics, Inc., a California corporation
(the "Company") registered in the name of and owned by the Trust (the
"Stock");
WHEREAS, Cope desires to sell the Stock, and in furtherance
thereof desires to sell and grant Patick the irrevocable right and option
(the "Option") to purchase Three Hundred and Seventy-Five Thousand
(375,000) shares of such Stock (the "Option Stock") for a price of $5 per
share totaling One Million Eight Hundred Seventy-Five Thousand Dollars
($1,875,000) (the "Purchase Price");
WHEREAS, Patick desires to explore the Purchase of the Stock
and, therefore, desires to purchase and acquire from Cope the Option;
WHEREAS, the Company has entered into an Employment Agreement
with Patick of even date herewith whereby Patick has agreed to assist the
Company to offer and sell a minimum of 200,000 shares of the Company's
authorized and unissued Common Stock at a price per share of $2.50 for
aggregate proceeds to the Company of $500,000 to be completed by no later
than September 14, 1999 (herein the "Successful Offering").
WHEREAS, the parties have memorialized their understandings
and agreements regarding the Option and the Stock in this Agreement;
A G R E E M E N T
NOW, THEREFORE, the undersigned parties intending to be
legally bound and obligated thereby, in consideration of the premises and
the covenants contained herein, subject to the conditions set forth
herein, do hereby agree as follows:
1. Recitals. The Recitals set forth above, including the
definitions set forth therein, are hereby incorporated in their entirety
into and made a part of this Agreement.
2. Option. Cope hereby sells, transfers and conveys to
Patick, and Patick hereby purchases and acquires the Option from Cope, for
the purchase price of One Thousand Dollars ($1,000) receipt of which is
hereby acknowledged by Cope.
3. Term of the Option. Subject to the provisions of
paragraph 4 hereof, the Term of the Option, unless extended as provided
for herein, shall be for a period of eighteen (18) months commencing on
the date first above written and ending on November 14, 2001 (the "Initial
Option Term"). If not previously terminated by Cope in accordance with
paragraph 4, the Initial Option Term can and shall be extended, at the
sole discretion and election of Patick, for a period of one (1) year upon
payment to Cope of One Hundred and Twenty-Five Thousand Dollars ($125,000)
for such purpose prior to the expiration of the Initial Option Term (the
"Extended Option Term"). Unless exercised in accordance with the
provisions of paragraph 5 hereof, the Option shall automatically terminate
and expire at the end of the Initial Option Term or, if applicable, the
Extended Option Term (the Initial Option Term and the Extended Option Term
are, together, hereinafter referred to as the "Option Term").
4. Termination of the Option. Notwithstanding anything
herein to the contrary, in the event that the Successful Offering has
not occurred, then Cope shall be entitled in his sole and absolute
discretion and election, but shall not be obligated, to terminate the
Option without further obligation under this Agreement in respect of such
Option ("Cope Right of Termination"). Unless Cope provides Patick with
written notice within ten (10) days following the deadline (September 14,
1999) for the Successful Offering that he is waiving his rights under the
Cope Right of Termination, then the Option shall automatically terminate
and be of no further force or effect ("Option Continuation Notice"). If
Cope provides Patick with the Option Continuation Notice, then the Option
shall continue in full force and effect in accordance with the provisions
of this Agreement notwithstanding the Company's inability to achieve the
Successful Offering.
5. Exercise of the Option. Unless terminated in accordance
with the Cope Right of Termination as provided for in paragraph 4, Patick
may exercise the Option at any time before the expiration of the Option
Term (including the Extended Option Term if applicable) as provided for
herein, by written notice in accordance with paragraph 23 hereof (the
"Option Exercise Notice"), stating that the Option to purchase the Stock
is exercised and indicating the registered purchaser(s) thereof and
stating a date and time for the closing ("Option Closing") of the
transaction whereby Patick will pay for, purchase and acquire, and
physically receive certificates representing, the Stock registered in the
name of the purchaser(s) as indicated in the notice or endorsed for
transfer into the name of the purchaser(s), such Option Closing to take
place any time within forty-five (45) days from the date of the Option
Exercise Notice. Subject to timely exercise of the Option in accordance
with the provisions of this Agreement, and payment therefor, Cope agrees
and promises to sell, transfer and deliver to Patick the shares of Option
Stock which are the subject of the Option at the Option Closing. The
Option Closing shall take place at the corporate offices of the Company in
Pomona, California or at such other place as the parties may mutually
agree upon in writing. At the Option Closing, Patick shall pay for the
Option Stock being purchased in cash or by cashier's or certified check in
the full amount of the Purchase Price for the Option Stock ($1,875,000)
payable to the Trust or its designee ("Option Stock Purchase Price").
6. Cope Put. Within ten (10) days from the date of the
Option Exercise Notice, Cope shall have the irrevocable right, in his sole
and absolute discretion and election (the "Cope Stock Put"), to require
including as a condition to the Option Closing and Patick's right to
purchase the Option Stock at such Closing that Patick purchase and acquire
from Cope at the Option Closing the balance of the Stock owned by Cope
being 148,391 shares of the Company's Common Stock or 25,000 share
increments thereof (the "Put Stock"). Cope shall provide Patick with
written notice in accordance with paragraph 23 hereof that Cope is
exercising the Cope Stock Put, and the number of shares of the Put Stock
to be sold, within ten (10) days following the date of the Option Exercise
Notice by Patick (the "Put Notice"). If Cope does not, for any reason,
timely provide Patick with the Put Notice in accordance with the
provisions of paragraph 23, then the Cope Stock Put shall automatically
terminate and expire and be of no further force and effect including,
notwithstanding any other provision in this Agreement to the contrary, as
a condition to the Option Closing and the purchase of the Option Stock by
Patick. The purchase price for the Put Stock shall be Four Dollars and
Seventy-Five Cents ($4.75) per share for a total of up to Seven Hundred
and Four Thousand Eight Hundred and Fifty-Seven Dollars and Twenty-Five
Cents ($704,857.25) if all of such Put Stock is sold (the exact amount,
being $4.75 times the actual number of shares of the Put Stock which is
the subject of the Put Notice, is referred to herein as the "Put Stock
Purchase Price"), and such Put Stock Purchase Price shall be paid at the
Option Closing one-half (50%) down in cash or cashier's check or certified
check payable to the Trust and the balance in the form of the purchaser's
promissory note payable to the Trust in equal quarterly installments,
together with interest on the unpaid balance at the rate of six percent
(6%) per annum, over a period of three (3) years from the date of the
Option Closing. Upon receipt of the Put Notice, Patick will provide Cope
with the name of the purchaser(s) including herein his designee and/or
assignees who will purchase the Put Stock from Cope at the Option Closing.
At the Option Closing, Cope shall sell, deliver and transfer, and the
purchaser will purchase, acquire and take delivery of, the Put Stock,
including certificates representing such Put Stock registered in the name
of the purchaser or stock powers covering the Put Stock properly endorsed
for transfer to the purchaser, free and clear of all liens, claims and
encumbrances whatsoever, except only for a customary securities legend and
stop transfer instruction indicating that such stock is deemed to be
restricted stock under applicable securities laws, rules and regulations
(the "Purchased Put Stock"). Following the Option Closing, Cope shall
retain no right, title or interest in the Purchased Put Stock. In the
event that payment for the Purchased Put Stock includes the purchaser(s)
promissory note as provide for above, then one half (50%) of the Purchased
Put Stock shall be pledged to Cope to secure payment of such promissory
note (the "Pledged Stock"); however, notwithstanding such pledge, the
purchaser(s) shall retain all incidents of ownership of the Pledged Stock
including without limitation voting rights to such Pledged Stock.
Following installment payments of the promissory note, a portion of the
Pledged Stock shall be released from the pledge in an amount equal to the
amount of the note which has been paid at the time of each of such
installment payments.
7. Escrow/Voting Rights. Within forty-five (45) days
following the date of this Agreement, Cope and Patick will mutually
arrange for an escrow or other similar arrangement ("Escrow") acceptable
to them whereby an escrow holder or other similar party will hold the
Option Stock (together with stock powers separate from certificate
properly endorsed in blank for transfer) pursuant to and in accordance
with the parties' respective rights and obligations under this Agreement
(the "Escrow Holder"). The parties shall share equally (50/50) the cost
of the Escrow. The Escrow Holder shall agree in writing to abide by the
terms and conditions set forth in this Agreement and to hold safe the
Option Stock (and stock powers) and impartially administer, implement and
effectuate the parties' agreement in respect of the subject matter of the
Escrow and the Agreement. The parties hereby agree to enter into an
agreement with the Escrow Holder as may reasonably be required by the
Escrow Holder in respect of the Escrow. Upon the termination or
expiration of the Option Term as provided for and in accordance with the
provisions of this Agreement, the Escrow Holder shall return to Cope the
Option Stock (and stock powers) and the Escrow shall thereby expire and be
of no further force or effect. Notwithstanding the existence of this
Agreement, and the deposit of the Option Stock into the Escrow, pending
the actual purchase of the Option Stock at the Options Closing as herein
provided for, and subject to Patick's right to purchase the Option Stock,
Cope shall retain, and be entitled to exercise in his sole and absolute
discretion and election, full voting and other rights of ownership in and
to the Option Stock. Likewise, pending the actual purchase of the Option
Stock at the Option Closing, Cope shall be entitled to receive and own,
subject to Patick's rights under this Agreement to the Option Stock and
attendaments thereto, any cash or stock dividend or other rights, title or
interest, attributable to or distributed in respect of the Option Stock
(collectively the "Attendaments") which Attendaments shall forthwith be
transferred and deposited by Cope, or delivered directly by the Company,
into the Escrow and all of such Attendaments shall be deemed and treated
for all purposes as part of the Option Stock to be sold by Cope and
purchased by Patick for the Option Stock Purchase Price. (Although not
required to be held in Escrow, the Put Stock will be held by Cope subject
to the provisions of this Agreement and shall be understood to include all
Attendaments as part of the Put Stock Purchase Price and that, pending any
sale of the Put Stock to Patick, Cope retains all voting and other
incidents of ownership of such Put Stock).
8. Cooperation by Cope. During the Option Term, Cope agrees and
promises not to take, cause to be taken or, where within his control,
permit any action to be taken including by the Company intended, or which
would reasonably be understood, to prejudice Patick's rights and
entitlements under the Option and/or in respect of the Option Stock.
9. Future Lease Obligation. Pending termination of the
Option as provided for in paragraph 4 hereof, or the subsequent expiration
of the Option Term, Cope will not cause the Company to enter into a new
lease or other arrangement whereby the Company is obligated to lease or
otherwise occupy the real property and improvements located at and
generally described as 3201 Temple Avenue, Pomona, California 91768 (the
"Real Property") which Real Property is presently leased and occupied by
the Company as its corporate offices facility pursuant to a lease with
that certain Partnership in respect of which Cope is a two-thirds owner
through June 30, 2001 (the "Lease"), beyond the expiration of the current
Lease term plus twelve (12) months (through June 30, 2002) at a rate not
to exceed the Lease rate in effect at the end of the current Lease term.
10. Certain Representations, Covenants and Warranties by
Cope. For purposes of this Agreement, and the transactions contemplated
by and provided for herein, Cope represents, covenants and warrants to
Patick, as follows: (A) the Stock is owned exclusively by the Trust, and
is free and clear of all liens, claims and encumbrances of whatsoever
nature or kind and will remain so during the Term of the Option; (B) the
Company's 1998 year-end audited financial statements are accurate and
complete in all material respects and fairly present the results of
operations, financial condition and changes of cash flows and equity as
presented therein in accordance with generally accepted accounting
principles consistently applied, and the Company's 1999 year-end financial
statements, when and if provided to Patick pursuant to the provisions of
this Agreement will be accurate and complete in all material respects and
fairly present the results of operations, financial condition and changes
of cash flows and equity as presented therein in accordance with generally
accepted accounting principles consistently applied; and (C) Cope has not
received any claim or threat of a claim, or notice of any action or
proceeding in respect of the Company which are not reflected on the
Company's financial statements referenced herein or otherwise identified
and described on a schedule provided to Patick for such purposes by Cope
or the Company.
11. Certain Other Covenants by Cope. Pending termination of
the Option as provided for in paragraph 4 hereof, or the subsequent
expiration of the Option Term, Cope agrees and promises at his sole cost
and expense where applicable (A) to retain ownership of the Option Stock;
(B) not to enter into any agreement or other arrangement regarding the
sale, fractionalization, hypothecation, pledge, assignment, granting of a
voting proxy for, transfer and/or other disposition or possible future
disposition of the Option Stock or any interest therein; (C) to keep the
Option Stock free and clear of any and all liens, claims and encumbrances
of whatsoever nature; (D) not to permit any lien, claim or encumbrance to
be placed or otherwise exit in, on or otherwise in respect of the Option
Stock and to promptly seek to cause to be removed any such lien, claim or
encumbrance that should come into existence following the date of this
Agreement; (E) to promptly notify Patick in the event and when Cope first
becomes aware of any actual or threatened claim, lien or encumbrance in,
on or otherwise affecting the Option Stock; (F) to cause the Company to
prepare and to promptly provide to Patick quarterly and annual
consolidated financial statements for the Company accurately and
completely presenting the results of operations, financial condition and
changes in cash flows and equity and, if Patick timely exercises the
Option to obtain and deliver to Patick prior to the Option Closing written
authorization from the Company's independent certified public accountants,
whose report covers the Company's most recently completed annual audited
consolidated financial statements, written authorization by such
accountants for Patick to rely upon such accountant's audit report thereon
for purposes of purchasing the Option Stock; and (G) Cope will not cause
the Company to increase his salary or other form of compensation and/or
the lease payments the Company pays for the Real Property without the
prior written consent of Patick, or to cause the Company to repurchase any
of the Stock or to otherwise make any distribution to Cope in respect of
such Stock or to repurchase or make any distribution in respect of any
other shares of the Company's Common Stock or to offer, sell or issue, or
commit to offer, sell and/or issue any shares of the Company's Common
Stock or other securities (other than the proposed Public Offering as
contemplated by and described in that certain Employment Agreement
referenced elsewhere herein) without the prior written consent of Patick.
12. Conditions To The Parties' Obligations To Closing.
Notwithstanding anything herein to the contrary, the parties' respective
obligations to close and otherwise consummate the transactions
contemplated and provided for in this Agreement, and each of them, at the
Option Closing, or as otherwise provided for herein, are subject to and
are expressly conditioned upon the following events, occurrences and other
matters:
A. To Cope's Obligations:
(1) the timely and full performance by Patick of his
agreements and promises (covenants) as set forth in this Agreement
including, if applicable, in respect of the Cope Put Option and the Put
Stock; and
(2) compliance with all applicable securities laws,
rules and regulations.
B. To Patick's Obligations:
(1) the truth and accuracy of Cope's representations
and warranties at the date of this Agreement and as at the time of the
Option's Closing;
(2) the timely and full performance by Cope of his
agreements and promises (covenants) as set forth in this Agreement;
(3) the timely and full performance by the Company of
any of its undertakings, agreements and/or promises (covenants) as set
forth in the Agreement;
(4) the timely and full performance of the Company's
obligations to Patick under that certain Employment Agreement between the
Company and Patick of even date herewith;
(5) compliance with all applicable securities laws,
rules and regulations;
(6) confirmation by Patick in his sole and absolute
discretion and election that there has been no adverse change in the
Company, its business, results of operations, financial condition,
prospects and matters pertaining to the Option Stock (including the Put
Stock if applicable) since the date of the last year-end financial
statements of the Company provided to Patick prior to the Option Closing
including pursuant to and in accordance with Patick's right to conduct
"due diligence" as provided for in paragraph 28 and further referenced in
paragraph 29 of this Agreement; and
(7) the obtaining by Patick of such assurances as he
shall determine in his sole and absolute discretion and election to be
satisfactory that the then current officers and directors will continue
to serve in such capacities for a reasonable period of time following the
Options Closing.
Prior to or at the Option Closing, the respective parties are entitled
(but are not required) to waive the occurrence of any one or more of the
conditions to such party's obligations under this Agreement. The waiver
of one or more of such conditions by any party shall not act to constitute
a waiver of any other condition(s). Likewise, the failure of any party to
timely enforce any right, benefit or entitlement in favor of such party as
provided for in this Agreement or otherwise shall not be deemed and shall
not act as a waiver or relinquishment of any such right, benefit or
entitlement or any other right, benefit or entitlement under this
Agreement.
13. Free Assignability. Nothing herein contained is intended
or shall be interpreted to preclude or limit Patick's right, ability and
entitlement to sell, assign or transfer this Agreement in whole or in
part, and Patick's rights and obligations, including without limitation in
respect of and to the Option and the right to purchase the Option Stock
for the Purchase Price, as provided for herein.
14. ESOT/ESOP. In the event that Patick assigns and
transfers, in whole or in part, the Option including Patick's rights,
responsibilities and obligations hereunder including in respect of the
Cope Put, then the purchase price to be paid to and received by Cope for
the Option Stock (and/or the Put Stock if applicable) at the Option
Closing shall be reduced by an amount equal to the capital gains tax
(presently 18%) otherwise applicable and payable by Cope in respect of the
sale of such Stock, provided that Cope shall be entitled to defer payment
of such taxes pursuant to and in accordance with applicable Internal
Revenue Service Code S1042 as confirmed by an interpretative letter from
the IRS and/or a legal opinion from a reputable income tax accountant or
attorney reasonably acceptable to Cope.
15. Cope Consulting Agreement and Covenant Not To Compete. In
the event that Patick exercises the Option and purchases the Option
Stock, at the sole discretion and election of Patick, Cope hereby agrees
and promises (A) to provide part-time (up to 25 hours per week, 40 weeks
per year) consulting services to the Company and, further, (B) agrees and
promises not to compete against the Company, directly or indirectly, or to
assist in any manner any one else to compete against the Company and,
further, (C) to continue serving on the Company's Board of Directors
(absent the occurrence of any actual conflict of interest between the
Company and Cope that should arise following the Option Closing Date), all
[(A) through (C)] for a period of forty-two (42) months following the
Option Closing Date for total aggregate compensation at the rate of Fifty
Thousand Dollars ($50,000) per year, to be allocated by the Company in its
sole discretion and election, and paid by the Company to Cope on a semi-
monthly basis in accordance with the Company's then current payroll
policies and procedures for outside consultants.
16. Indemnity By The Parties. Patick and Cope each agree
and promise to indemnify and hold harmless the other against any claims,
debts, obligations, costs, expenses (including reasonable attorney's and
professional's fees) and/or liabilities of whatsoever kind or nature
which arise or otherwise result from the refusal and/or failure of the
indemnifying party to timely and fully perform such party's agreements and
promises (covenants) as set forth herein and/or as a result of the
inaccuracy of any representation or warranty made herein by the party
against which such indemnification is sought.
17. Deductible Amount. Notwithstanding any provision of this
Agreement to the contrary, none of the parties to this Agreement shall be
required to make any indemnification or related payment under this
Agreement or otherwise with respect to a claim asserted following the
Option Closing alleging any breach of any of such party's representations,
agreements, promises (covenants) and/or warranties under this Agreement,
except to the extent that the cumulative amount of the damages actually
incurred by the party seeking any such indemnification as a direct result
of all such breaches of such representations, agreements, promises
(covenants) and/or warranties actually exceeds, in the aggregate, the
Deductible Amount (as define herein). The "Deductible Amount" shall be
One Hundred Thousand Dollars ($100,000).
18. Knowledge of Breach. Unless specifically provided in
writing at the time of Closing for purposes of this paragraph, none of the
parties to this Agreement shall be deemed to have breached any
representation, agreement, promise (covenant) and/or warranty if the party
seeking indemnification under the Agreement obtained (by means of a
diligent investigation or otherwise), on or prior to the Option Closing
date, any actual and independently demonstrable knowledge of the breach of
such representation, agreement, promise (covenant) and/or warranty by the
party against which any claim of indemnification is being sought.
19. Survival of Representations and Warranties. All of the
parties' representations and/or warranties as set forth in this Agreement
shall survive the Option Closing; however, the rights, claims, benefits
and entitlements of the parties following the Closing attributable to such
representations and warranties shall, notwithstanding any contrary
provision in this Agreement, automatically terminate and expire, and shall
cease to be of any force or effect, and all liability of Cope and Patick
with respect to such representations and/or warranties shall be
extinguished and be of no further legal force or effect, on the first
anniversary date of the Option Closing; provided, however, that if, on or
prior to such first anniversary date, either of the parties shall have
duly delivered a written claim notice to the other party, then the
specific indemnification claim set forth in such claim notice shall
survive such first anniversary (and shall not be extinguished as otherwise
provided for by this provision).
20. Compliance With Securities Laws. The offer, sale and
issuance of the Option and the Stock as provided for herein shall be in
compliance with all applicable securities laws, rules and regulations.
The parties each agree and promise to cooperate and assist in efforts to
satisfy all requirements applicable to the transactions contemplated and
as provided for in this Agreement under Federal and state securities laws,
rules or regulations.
21. Complete Agreement. This Agreement contains all of the
parties' statements, representations, understandings, agreements,
promises, covenants, assurances, warranties, guarantees and other matters
regarding the subject matter of the Agreement. This Agreement may only be
supplemented, modified, amended or otherwise changed by a further writing,
referencing this paragraph, and signed by the party sought to be bound by
any such supplement, modification, amendment. This Agreement has and
shall be deemed for all purposes to have been drafted and otherwise
prepared by both of the parties and, should any ambiguity subsequently be
determined to exist in or in respect of this Agreement including the
language used herein, then neither party shall suffer and prejudice or
disability as a result of any such ambiguity. Each of the parties
acknowledges to the other that they have had the opportunity to have this
Agreement and matters relating thereto reviewed by their own respective
individual
professional advisors including attorneys.
22. Choice Of Law. This Agreement is made and shall be
governed and interpreted for all purposes under the laws of the State of
California (without regard to its conflict of law provisions).
23. Notices. Notices to be given under or in respect of this
Agreement shall be provided in writing and shall be deemed effective upon
receipt if personally delivered or on the third day following mailing in
United States Mail, certified mail - return receipt requested, addressed
as follows:
If To "Cope"
Robert S. Cope
547 Rancho Del Monico
Covina, CA 91724
With a copy to -
Daniel H. Luciano, Esq.
242A West Valley Brook Road
Califon, New Jersey 07830
If To "Patick"
Corey M. Patick
2806 Sheridan Way
Stockton, CA 95207
With a copy to -
Bill D. Ringer, Esq.
1401 N. Hunter Street
San Joaquin, CA 95202
If To The "Company"
Auto-Graphics, Inc.
3201 Temple Avenue
Pomona, CA 91768-3200
With a copy to -
Robert H. Bretz, Esq.
520 Washington Blvd, PMB #428
Marina del Rey, CA 90292
Any party may, from time to time, update or otherwise change its address
for purposes of notice under this Agreement by providing such notice in
accordance with the provisions of this Agreement.
24. Time Is Of The Essence. For purpose of this Agreement,
and the performance of the parties responsibilities and obligations
hereunder and/or the satisfaction of conditions as provided for herein,
time shall be deemed to be of the essence.
25. Severability. If any provision of this Agreement is
hereafter finally determined to be unenforceable for any reason, then such
provision shall be deemed and treated for all purposes as severed from
this Agreement; and the balance of this Agreement shall remain in full
force and effect as between the parties notwithstanding any such
unenforceable and severed provision.
26. Attorney's Fees/Costs. Accept as specifically provided
for in paragraph 7 of this Agreement, the parties to this Agreement shall
each bear their own legal fees and other costs and expenses associated
with the negotiation and preparation of this Agreement and matters
relating thereto and attributable to the Option Closing and the sale,
purchase, transfer and issuance of the Option Stock (and the Put Stock if
applicable). If any party initiates any legal action or proceeding
seeking to enforce such party's rights or otherwise under or in respect of
this Agreement then, in additional to whatever other relief such party may
be entitled to receive as a result of such action/proceeding, such party
(or the other party if determined to be the prevailing party in any such
legal action or proceeding) shall be entitled to recover its reasonable
attorney's and other professional's fees and costs paid or incurred by
such party in connection with such legal action/proceeding including in
respect of an appeal in such action/proceeding.
27. Headings. The headings of the paragraphs (and any
subparagraphs) of this Agreement are included for the convenience of
reference only and are not intended to affect the meaning or
interpretation of this Agreement.
28. Third Party Beneficiaries. The parties do not, by this
Agreement or otherwise, intend to benefit any specific third person or
entity; and no person or entity, who is not a signatory party to this
Agreement, shall have or assert any right under or otherwise in respect of
this Agreement. The Company is not intended and shall not be deemed for
any reason to be a signatory party to this Agreement; and, the Company's
"Acknowledged/Agreed" signature below is intended solely to indicate that
the Company agrees and promises not to act in a manner that is
inconsistent with the parties' agreements and promises (covenants), as
they relate to the Company, where such agreements and promises (covenants)
are not inconsistent with the Company's Articles of Incorporation, By-Laws
or under the laws of the State (California) wherein the Company is
incorporated, and that the Company does hereby agree and promise to allow
Patick, if and when Patick actually exercises the Option to purchase the
Option Stock and prior to the Option Closing, and his representatives to
conduct such "due diligence" as is customary in the case of similar stock
purchase transactions - - and for no other purpose.
29. Documents To Be Delivered By Patick At the Closing. If
the Option is exercised, then Patick is entitled to conduct "due
diligence" as provided for in the foregoing paragraph; and, at the Option
Closing and as a condition thereto, Patick shall provide Cope and the
Company with the following representations, warranties and other
assurances:
A. Patick is acquiring the Option Stock (and the Put Stock if
applicable) for investment purposes and not with a view to resell or
otherwise transfer such Stock;
B. Patick has carefully reviewed the financial condition of
the Company as presented in the latest annual and quarterly financial
statements which were provided to Patick by Cope (or the Company) as
provided for in paragraph 11(F) hereof;
C. Patick has carefully reviewed the Company's periodic
reports filed with the SEC (10-K, 10-Q and 8-K Reports) with the United
States Securities and Exchange Commission (the "SEC") which were provided
to Patick by Cope (or the Company) as provided for in paragraph 11(F)
hereof;
D. Patick has been provided the opportunity to obtain any
other information regarding the Company, its business, results of
operations, financial condition, prospects and/or the Company's Common
Stock;
E. Patick acknowledges his understanding that the offer and
sale by Cope of the Option Stock (and the Put Stock if applicable) has not
been registered and/or qualified under any state or Federal securities
laws, rules and regulations and is, therefore, deemed to be "restricted
securities" under the Securities Exchange Act of 1934, as amended, and
that the certificates representing such Stock when issued to Patick will
be subject to "stop transfer" instructions given to the Company's stock
transfer agent and such certificates will contain the following or a
substantially similar legend to be approved by the Company's legal
counsel:
"The securities represented by this certificate
have not been registered under the United States
Securities Act of 1933, as amended (the "Act") or
any state securities law. These shares have been
acquired for investment and may not be offered for
sale, hypothecated, sold or transferred, nor will
any assignee or transferee thereof be recognized
by the Company as having any interest in such shares,
in the absence of (i) an effective registration
statement with respect to the shares under the Act,
and any other applicable state law, or (ii) an opinion
of counsel satisfactory to the Company that such
shares will be offered for sale, hypothecated, sold or
transferred only in a transaction which is exempt
under or is otherwise in compliance with the
applicable securities laws."
F. Patick has evaluated the risks associated with the
acquisition of the Option Stock (and the Put Stock if applicable) and has
determined that the acquisition of such Stock is a suitable investment and
that Patick can bear the entire risk of loss associated with the purchase
of such Stock; and
G. Patick understands and acknowledges that neither Cope
(including the Trust) nor any of his agents, if any, have made any
representations to Patick regarding the Company, its business future or
business prospects or the future price of the Common Stock of the Company,
except as otherwise provided for in this Agreement and as indicated on any
schedule that Patick shall provide to Cope (and the Company) confirming
any additional representations which have been provided to Patick which,
when approved by Cope (and/or the Company where appropriate), Patick shall
be entitled to rely upon in determining to purchase the Option Stock (and
the Put Stock if applicable) under this Agreement.
30. Successors In Interest. This Agreement, including all
rights and obligations provided for herein, is binding upon the parties
including their heirs, executors, administrators, trustees and successor
trustees, designees, assigns, and other successors in interest.
IN WITNESS WHEREOF, the parties thereunto duly authorized have
executed this Agreement in Pomona, California effective as of the date
first set forth above.
("Cope")
ss/ Robert S. Cope
Robert S. Cope
ss/ Elizabeth Cope
Elizabeth Cope
THE COPE FAMILY TRUST
By ss/ Robert S. Cope
Robert S. Cope, Trustee
("Patick")
ss/ Corey M. Patick
Corey M. Patick
Acknowledged and Agreed
AUTO-GRAPHICS, INC.
(the "Company")
By ss/Robert S. Cope
Robert S, Cope, President
By ss/Daniel E. Luebben
Daniel L. Luebben, Secretary
EXHIBIT 10.31
SELLING AGREEMENT
This SELLING AGREEMENT dated May 15, 1999 (the "Agreement") is made and
entered into by and between Auto-Graphics, Inc., a California corporation
(the "Company") on the one hand and Corey M. Patick, an individual
("Patick") on the other hand.
RECITALS
WHEREAS, the Company would like to obtain additional equity capital
through the offer and sale of shares of its authorized but unissued
Common Stock in a private and/or public offering of such stock
(collectively the "Securities Offerings");
WHEREAS, the Company would like to offer and sell between 200,000 and
450,000 shares of its authorized but unissued Common Stock in a private
offering (restricted stock) for a price per share of $2.50 (the "Private
Offering");
WHEREAS, if the Private Offering is successful (the Company raises at
least $500,000 in such Offering as more fully defined herein), then the
Company would like to proceed to offer and sell up to an additional
1,000,000 shares of its authorized and unissued shares of Common Stock
at a minimum price of $5 per share in an SEC registered offering (the
"Public Offering");
WHEREAS, Patick has a background and experience in the finance and
securities areas and desires to assist the Company with the above
referenced Securities Offerings and the Company desires to secure such
services;
WHEREAS, the Company and Patick desire to memorialize in this Agreement
their understandings and agreements regarding assistance by Patick in
respect of such Securities Offerings;
AGREEMENT
NOW, THEREFORE, the undersigned parties intending to be legally bound
and obligated thereby, in consideration of the premises and the
covenants contained in this Agreement, and subject to the conditions
set forth herein, do hereby agree as follow:
1. Selling Assistance. During the Term of this Agreement, and subject
to paragraph 7 hereof, Patick agrees to assist and the Company hereby
engages Patick to assist the Company in respect of the Securities
Offerings (the "Services"). Such Services shall be on a substantially
full-time basis (no less than an average of 35 hours per week). For
purposes of rendering the Services, Patick's activities shall be
generally described as "Vice-President - Special Projects" or such other
position or name as the Company and Patick shall subsequently determine
to be appropriate for purposes of the Services to be rendered and
rendered by Patick in connection with the Securities Offerings.
2. Limitations On Services. Due to the special, limited nature of the
Services to be rendered by Patick as provided for under this Agreement,
Patick agrees and promises not to attempt to and/or actually bind and/or
obligate the Company in respect of any matters or things other than the
subject matter of the Securities Offering as specifically reviewed and
approved by the Company's Board of Directors and set forth in the
securities disclosure document(s) submitted to and approved by the Board
or as otherwise authorized by the Company's Board of Directors in writing.
3. Term. The Term of this Agreement shall commence on May 15, 1999 and
continue on a continuous basis, unless earlier terminated pursuant to
paragraph 7 hereof, for a period of nine (9) months ending February 14,2000
(herein the "Term").
4. Compensation. During the Term of the Agreement, in consideration for
the Services, the Company shall pay Patick and Patick will receive from
the Company the following compensation and other opportunities:
A. Payments. In consideration for the Services, the Company will pay
Patick a monthly payment of $15,000; and
B. Performance Opportunity/Private Offering. If the Private Offering
is in fact successful, defined as no less than $500,000 actually raised
and received by the Company in a Private Offering, complying in all
respects with applicable securities laws, rules and regulations,
within one hundred and twenty (120) days of the date of this Agreement
("Successful Offering"), then Patick shall have the right ("Performance
Opportunity") to purchase from the Company warrants at a price of $.01
per warrant entitling Patick, for a period of three (3)years from the
date of issuance, to purchase shares of the Company's authorized and
unissued Common Stock at a price equal to the par value ($.10) of such
stock in a private offering (restricted stock including a legend
restricting transfer with an appropriate stop transfer instruction on
file with the Company's stock transfer agent). Subject to the above
requirement for a Successful Offering, for each share sold in the
Private Offering Patick shall be entitled to .1875 warrants (each whole
warrant representing the right to purchase one share of stock) rounded to
the nearest whole number of warrants up to a maximum of 80,000 warrants
and underlying shares of the Company's restricted Common Stock (the
"Warrants"). The Warrants shall not be assignable or transferable by
Patick absent the approval of the Company which will not be unreasonably
withheld. Such Performance Opportunity shall not be deemed or treated as
compensation to Patick but rather an investment opportunity to Patick
conditioned upon the success of the Private Offering as provided for
herein. If the Company is not able to conduct and complete a Successful
Offering, then the Company shall have the right to terminate this
Agreement as provided for in paragraph 7 hereof.
C. Possible Further Performance Bonus/Public Offering. The parties
agree that they will defer discussion and agreement as to what, if any,
possible further performance bonus opportunity the Company might make
available to and Patick might receive in respect of the proposed Public
Offering and the success of Patick's efforts to assist the Company to
arrange and the Company's actual ability to conduct and successfully
complete such possible offering during the Term of this Agreement. The
parties acknowledge that they may not ultimately reach a mutually
acceptable agreement in respect of this particular further performance
opportunity matter and that, if they do not reach any such mutual
agreement at any time in the future, no rights, benefits, entitlements,
duties, responsibilities, obligations and/or liabilities shall attach
thereto or result therefrom on the part of either party relating to such
performance bonus opportunity as referenced herein. Patick further
acknowledges that the Company's ability to proceed with and conduct
any such Public Offering, or any alternative public offering, is subject
to numerous uncertainties many of which are beyond the Company's control
such as the Company's ability to obtain "effectiveness" of the
registration statement covering such offering with the U.S. Securities
and Exchange Commission and the registration and/or qualification of such
Offering with the various state regulatory agencies who would have
jurisdiction over any such Offering. Accordingly, Patick agrees and
promises not to provide any prospective investor or other person with any
assurances that any such Public Offering or any securities offering by
the Company will be actually undertaken or, if undertaken, will be
successfully completed or otherwise represent any benefit to the Company
and/or investors in the Private Offering.
D. Expenses. Patick will be responsible for his own travel and related
expenses paid or incurred by Patick in performing the Services, and the
Company shall have no obligation to Patick in respect of any such costs
or expenses (and Patick will not obligate the Company in respect of any
such costs/expenses).
5. Certain Covenants By The Company And Patick Re Private Offering. The
Company with the assistance of its outside legal counsel and independent
certified public accountants will cause to be prepared the Private
Offering memorandum, including any necessary or advisable investor
subscription and related documentation, to be used for and in conducting
the Private Offering (collectively the "Offering Materials"); and Patick
agrees and promises to use, exclusively, such Offering Materials to
conduct the Private Offering and, further Patick agrees and promises not
to provide any prospective or actual investor in the Private Offering with
any information, statements, materials, and/or assurances which have not
previously been reviewed and approved in writing by the Company for such
purpose. The Company further agrees and covenants to use its best efforts
to ensure that all of the Offering Materials are accurate and complete in
all material respects and do not contain any false or misleading
statements or omit to make any statements which, based on the statements
that are contained in such Offering Materials, render such statements
false or misleading in any material respect. Except for the use of the
Offering Materials by Patick as provided for herein intended to facilitate
compliance with applicable securities laws pertaining to the Private
Offering, the Company will not seek to or have the right to direct or
control, and will not interfere with, Patick's activities to locate
prospective investors and to cause such prospective investors to subscribe
to the Private Offering; provided that all of Patick's activities,
including the methods and means of conducting the subject Private
Offering, are lawful which Patick represents and warrants will be the
case.
6. Indemnity By The Parties. The parties hereby each agree and promise
to indemnify and hold harmless the other against any claims, debts,
judgments, obligations, costs, expenses (including reasonable attorney's
and professional's fees) and/or liabilities of whatsoever kind or nature
which arise or otherwise result from the refusal and/or failure of the
indemnifying party to timely and fully perform such party's agreements
and promises as set forth herein.
7. Termination By The Company. In the event that the Company is not able
for any reason to timely conclude a Successful Offering (as defined herein
in paragraph 4.B.), then either the Company or Patick shall have the
absolute right, in either of such party's sole and absolute discretion and
election to terminate this Agreement and all of such parties'
responsibilities and obligations (including without limitation the
Company's obligation to pay Patick any further compensation and to sell
and issue Patick any Warrants or underlying shares of stock) under this
Agreement, except only that the parties' respective rights and obligations
under paragraphs 10 and 11 hereof shall survive any such termination.
8. Subsequent Services. At the end of the Term of this Agreement, Patick
and the Company will negotiate the terms and conditions of the continuation
of Services and/or alternative services by Patick to the Company for a
minimum period of one year.
9. Compliance With Securities Laws. The offer, sale and issuance of the
Securities, including the shares of stock in the Private Offering and the
Warrants and underlying shares of stock, shall be in compliance with all
applicable securities laws, rules and regulations.
10. Confidential Information/Covenant Not To Compete. In the event this
Agreement is earlier terminated or expires in accordance with its terms
(including the Term as defined herein), or when the period of Services by
Patick otherwise ends, Patick hereby agrees and promises that (A) he will
not directly or indirectly take, avail himself of, use or otherwise seek
to take advantage of any confidential, trade secret or other proprietary
materials and/or information of the Company ("Confidential Information");
(B) Patick will use his best efforts to treat, preserve and protect all
Confidential Information provided to or obtained by him during the period
of his Services to the Company and thereafter; (C) at the time when Patick
is no longer rendering Services to the Company, he will return and/or
deliver to the Company all written documents, writings and things including
information provided to him by the Company or otherwise obtained by him
from any source in connection with his rendering Services to the Company
or otherwise, without retaining any copies or other duplicates including
excerpts thereof, and that he will provide the Company with a certificate
under penalty of perjury under California law confirming his compliance
with this subparagraph (C); (D) Patick will not while he is rendering
Services to the Company or for a period of one (1) year after the period
of his Services to the Company ends, solicit, induce or attempt to induce
any employee and/or other representative of the Company to terminate
his/her employment with and/or other services to the Company; and that
(E) Patick will not while he is rendering Services to the Company or for
a period of one (1) year after the termination or cessation of such
Services, solicit, induce or attempt to induce any person or entity having
a business relationship with the Company formed prior to or during the
period of time when Patick was rendering Services to the Company to
terminate such business relationship with the Company or to do any thing,
directly or indirectly, to interfere in a materially adverse manner with
any such relationship between the Company and any such person or entity.
Further, Patick agrees and promises that, at the time that he is no longer
rendering Services to the Company, he will not, directly or indirectly,
including through employment, consulting or other relationship and/or
ownership interest in any company or business venture, compete with the
Company in respect of its business as now or then engaged in by the Company
for a period of one (1) year from the last date of his rendering Services
to the Company under this Agreement.
11. Inventions/Copyright/Patent And Other Rights To The Company. Any and
all inventions, improvements, discoveries, processes, copyrights, patents
and all other creative efforts of Patick conceived, discovered, undertaken,
written, made, developed or otherwise coming into existence during the
period of time that Patick is rendering Services to the Company shall be
owned, without the payment by the Company of any additional compensation to
Patick, entirely by the Company; and Patick agrees and promises to make
immediate and full disclosure to the Company of any and all such
inventions, improvements, discoveries, processes, copyrights, patents and
other creative efforts and to cooperate and assist the Company in all ways
and manner to perfect and protect its right, title and interest in and to
such intellectual property.
12. Complete Agreement. This Agreement contains all of the parties'
statements, representations, understandings, agreements, promises,
covenants, assurances, warranties, guarantees and other matters regarding
the subject matter of the Agreement. The Recitals which appear at the
outset of this Agreement are incorporated and made a part of this Agreement.
This Agreement supersedes and corrects that certain prior agreement dated
as of this same date pertaining to the services by Patick to the Company
in respect of the Securities Offerings by the Company. This Agreement may
only be supplemented, modified, amended or otherwise changed by a further
writing, referencing this paragraph, and signed by the party sought to be
bound by any such supplement, modification, amendment. This Agreement has
and shall be deemed for all purposes to have been drafted and otherwise
prepared by both of the parties and, should any ambiguity subsequently be
determined to exist in or in respect of this Agreement including the
language used herein or otherwise, then neither party shall suffer any
prejudice or disability as a result of any such ambiguity. Each of the
parties acknowledges to the other that they have had the opportunity to
have this Agreement and matters relating thereto reviewed by their own
respective individual attorney and/or other professional advisor.
13. Choice Of Law. This Agreement is made and shall be governed and
interpreted for all purposes under the laws of the State of California
without regard to its conflict of law provisions.
14. Notices. Notices to be given under or in respect of this Agreement
shall be provided in writing and shall be deemed effective upon receipt
if personally delivered or on the third (3rd) day following mailing in the
United States Mail by certified mail - return receipt requested, addressed
as follows:
If To The Company
Auto-Graphics, Inc.
3201 Temple Avenue
Pomona, CA 91768-3200
With a copy to -
Robert H. Bretz, Esq.
520 Washington Blvd, PMB #428
Marina del Rey, CA 90292
If To Patick
Corey M. Patick
21626 Acanthus Circle
Walnut, California 91789
With a copy to -
Bill D. Ringer, Esq.
1401 N. Hunter Street
San Joaquin, CA 95202
Any party may, from time to time, update or otherwise change its address
for purposes of notice under this Agreement by providing such notice in
accordance with the provisions of this paragraph.
15. Time Is Of The Essence. For purpose of this Agreement, including the
performance of the parties' responsibilities, duties and obligations
hereunder, time shall be deemed to be of the essence.
16. Assignment and Other Matters. The parties to this Agreement shall
not have the right, absent the other party's prior written approval and
consent which will not be unreasonably withheld, to assign or otherwise
transfer this Agreement including any of their rights, duties,
responsibilities and/or obligations hereunder to any person or entity.
Patick acknowledges that the Company regards the Services to be rendered
hereunder by him as personal and unique to Patick and that the Company
would not elect to enter into this Agreement with any one but Patick.
17. Severability. If any provision of this Agreement is hereafter finally
determined to be unenforceable for any reason, then such provision shall
be deemed and treated for all purposes as severed from this Agreement; and
the balance of this Agreement shall remain in full force and effect as
between the parties notwithstanding any such unenforceable and severed
provision.
18. Attorney's Fees. If either party initiates any legal action or
proceeding seeking to enforce such party's rights or otherwise under or
in respect of this Agreement then, in additional to whatever other relief
such party may be entitled to receive as a result of such action/proceeding,
such party (or the other party if determined to be the prevailing party in
any such legal action or proceeding) shall be entitled to recover its
reasonable attorney's and other professional's fees and costs paid or
incurred by such party in connection with such legal action/proceeding
including in respect of an appeal in such action/proceeding.
19. Headings. The headings of the paragraphs (and any subparagraphs) of
this Agreement are included for the convenience of reference only and are
not intended to affect the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties thereunto duly authorized have executed
this Agreement in Pomona, California effective as of the date first set
forth above.
AUTO-GRAPHICS, INC.
(the "Company")
By ss/Robert S. Cope
Robert S. Cope, President
By ss/Daniel E. Luebben
Daniel E . Luebben, Secretary
("Patick")
ss/Corey M. Patick
Corey M. Patick
EXHIBIT 10.32
SIXTH AMENDMENT TO CREDIT AGREEMENT
THIS SIXTH AMENDMENT TO CREDIT AGREEMENT (this
Amendment) is entered into as of June 30, 1999 by and
between AUTO-GRAPHICS, INC., a California corporation
(Borrower), and WELLS FARGO BANK, NATIONAL ASSOCIATION
(Bank).
RECITALS
A. 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).
B. Pursuant to the Credit Agreement, Borrower remains
indebted to Bank under a Line of Credit in the maximum
principal amount of One Million Two-Hundred Fifty Thousand
Dollars ($1,250,000.00) (Line of Credit) which is
evidenced by that certain promissory note executed by
Borrower in favor of Bank in the amount of the Line of
Credit and dated as of May 12, 1997 (Prior Line of Credit
Note). The Line of Credit matured and became due and
payable in full on June 1, 1999 and as of the date hereof,
the outstanding principal balance under the Line of Credit
is $191,807.04, plus accrued but unpaid interest.
C. Pursuant to the Credit Agreement, Borrower remains
indebted to Bank under a term loan in the maximum principal
amount of Three Million Dollars ($3,000,000.00) (Equipment
Line of Credit) which is evidenced by that certain
promissory note executed by Borrower in favor of Bank in the
amount of the Equipment Line of Credit and dated as of May
12, 1997 (Prior Equipment Line of Credit Note). The
Equipment Line of Credit matured and become due and payable
in full on June 1, 1999 and as of the date hereof, the
outstanding principal balance under Equipment Line of Credit
is $3,000,000.00, plus accrued but unpaid interest.
D. Pursuant to the Credit Agreement, Borrower remains
indebted to Bank under a term loan in the original principal
amount of Three Hundred Seventy-five Thousand Dollars
($375,000.00) (Term Loan) which is evidenced by that
certain promissory note executed by Borrower in favor of
Bank in the amount of the Term Loan and dated as of June 1,
1998 (Prior Term Note). As of the date hereof, the
outstanding principal balance under the Term Note is
$374,999.99, plus accrued but unpaid interest.
E. Borrower has requested that Bank extend the
maturity dates of the Line of Credit and the Equipment Line
of Credit and replace the Prior Term Note, and Bank has
agreed to the foregoing subject to the terms and conditions
set forth herein.
NOW THEREFORE, for valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Bank and
Borrower hereby agree that the Credit Agreement shall be
amended as follows to reflect said changes; provided,
however, that nothing shall terminate any security interest
or guaranties in favor of Bank and all such security
interests and guaranties shall continue in full force and
effect.
1. Section 1.1 (a) of the Credit Agreement is hereby
deleted in its entirety and the following substituted
therefor:
(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, 2000, not to
exceed at any time the aggregate
principal amount of One Million Dollars
($1,000,000.00), the proceeds of which
shall be used for working capital.
Borrower's obligation to repay advances
under the Line of Credit shall be
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.
The foregoing change shall become effective upon the
execution and delivery to Bank of a promissory note
substantially in the form of Exhibit A attached hereto
(which promissory note shall replace and be deemed the Line
of Credit Note defined in and made pursuant to the Credit
Agreement) and all other contracts, instruments and
documents required by Bank to evidence such change;
provided, however, that outstanding advances under the Line
of Credit heretofore provided Borrower by Bank in connection
with the Prior Line of Credit Note shall be deemed
outstanding advances under the Line of Credit Note in effect
hereby.
2. Section 1.2 (a) of the Credit Agreement is hereby
amended by deleting June 1, 1999 as the last day on which
Bank will make advances under the Equipment Line of Credit,
and by substituting for said date June 1, 2000, with such
change to be effective upon the execution and delivery to
Bank of a promissory note substantially in the form of
Exhibit B attached hereto (which promissory note shall
replace and be deemed the Equipment Line of Credit Note
defined in and made pursuant to the Credit Agreement) and
all other contracts, instruments and documents required by
Bank to evidence such change; provided, however, that all
outstanding advances under the Equipment Line of Credit
heretofore provided Borrower by Bank in connection with the
Prior Equipment Line of Credit Note shall be deemed
outstanding advances under the Equipment Line of Credit Note
in effect hereby.
3. Borrower's obligation to repay the outstanding
principal balance under Term Loan shall be evidenced by a
new promissory note substantially in the form of Exhibit C
attached hereto (which promissory note shall replace the
Prior Term Note and be deemed the Term Note defined in and
made pursuant to Section 1.3 of the Credit Agreement) with
such change to be effective upon Borrower's execution and
delivery of the new promissory note and all other contracts,
instruments and documents and documents required by Bank to
evidence such change.
4. Section 1.7 of the Credit Agreement is hereby
deleted in its entirety, and the following substituted
therefor:
1.7. GUARANTEES. All indebtedness
of Borrower to Bank shall be guaranteed
by Robert S. Cope in the principal
amount of up to $4,375,000.00, as
evidenced by and subject to the terms of
a guaranty in form and substance
satisfactory to Bank.
All indebtedness of Borrower to
Bank shall continue to be guaranteed by
A-G Canada pursuant to the terms of that
certain Guaranty in favor of Bank
executed by A-G Canada and dated as of
October 31, 1997.
5. Section 4.8 (a) of the Credit Agreement is hereby
deleted in its entirety, and the following substituted
therefor:
(a) EBITDA not less than
$270,000.00 per fiscal quarter, measured
each fiscal quarter end and fiscal year
end, on a cumulative basis, with
EBITDA defined as net profit before
tax plus interest expense (net of
capitalized interest expense),
depreciation expense and amortization
expense.
6. Section 4.8 (b) of the Credit Agreement is hereby
deleted in its entirety, and the following substituted
therefor:
(b) Operating Income not less than $1.00
per fiscal quarter, measured each fiscal quarter
end and fiscal year end, on a cumulative basis,
with Operating Income defined as net sales, less
cost of sales, sales and administrative expenses
and excluding expenses paid or incurred in
connection with raising New Capital. As used
herein, New Capital shall mean cash and cash
equivalents received and deposited by Borrower on
or after June 30, 1999 in the form of a capital
contribution in immediately available funds (prior
to the deduction of any and all selling
commissions and other costs and expenses,
including legal fees attributable to the
offering).
7. A new Section 4.8 (c) is hereby added to the Credit
Agreement, as follows:
(c) Tangible Net Worth shall not be less
than $1,573,000.00 as of each fiscal quarter end
and as of fiscal year end, with Tangible Net
Worth defined as the aggregate of total
stockholders' equity plus subordinated debt less
any intangible assets. For purposes of this
Agreement, capitalized software development and
acquisition cost is considered a tangible asset.
8. Sections 4.8 (d) and 4.8(e) of the Credit Agreement
are hereby deleted in their entirety.
9. The following is hereby added to the Credit Agreement
as Section 4.11:
SECTION 4.11. WAIVER. Borrower hereby
waives all of its rights under California Civil
Code Section 2822, which provides as follows:
(a) The acceptance, by a creditor, of
anything in partial satisfaction of an
obligation, reduces the obligation of a
surety thereof, in the same measure as
that of the principal, but does not
otherwise affect it. However, if the
surety is liable upon only a portion of
an obligation and the principal provides
partial satisfaction of the obligation,
the principal may designate the portion
of the obligation that is to be
satisfied.
(b) For purposes of this section and Section
2819, an agreement by a creditor to accept from
the principal debtor a sum less than the balance
owed on the original obligation, without the prior
consent of the surety and without any other change
to the underlying agreement between the creditor
and principal debtor, shall not exonerate the
surety for the lesser sum agreed upon by the
creditor and principal debtor.
10. Section 6.1(i) of the Credit Agreement is hereby deleted
in its entirety.
11. Borrower shall pay to Bank, in immediately available funds,
a non-refundable commitment fee in an amount equal to Forty Three-
Thousand Seven-Hundred Fifty Dollars ($43,750.00) which fee shall
be due in three installments as follows: (a) Fifteen Thousand
Dollars ($15,000.00) shall be due and payable upon Borrower's
execution and delivery to Bank of this Amendment; (b) Fifteen
Thousand Dollars ($15,000.00) shall be due and payable thirty (30)
days after Borrower's execution and delivery to Bank of this
Amendment; and (c) Thirteen Thousand Seven Hundred Fifty Dollars
($13,750.00) shall be due and payable sixty (60) days after
Borrower's execution and delivery to Bank of this Amendment.
Borrower further acknowledges and agrees that the commitment
fee shall be fully earned by Bank upon Borrower's execution and
delivery to Bank of this Amendment.
12. The obligation of Bank to amend the terms and conditions
of the Credit Agreement as set forth herein is subject to the
fulfillment to Bank's satisfaction of all of the following
conditions:
(a) Bank shall have received, in form and substance
satisfactory to Bank, each of the following:
(i) This Amendment, the Line of Credit Note,
Equipment Line of Credit and Term Note.
(ii) Certificate of Incumbency.
(iii) Corporate Resolution: Borrowing.
(iv) Continuing Guaranty from Robert S. Cope.
(v) Guarantors Consent, Reaffirmation and
General Release attached hereto (A-G Canada).
(vi) Guarantor's Consent and General Release
attached hereto (Robert S. Cope).
(vii) Such other documents as Bank may require
under any other section of this Amendment.
(b) Borrower shall have delivered to Bank all amounts due
under Paragraph 11 (a) above.
13. General Release. In consideration of the benefits
provided to Borrower under the terms and provisions hereof,
Borrower and each guarantor hereunder hereby agree as follows
(General Release):
(a) Borrower and each guarantor hereunder, for itself
and on behalf of its respective successors and assigns, do
hereby release, acquit and forever discharge Bank, all of
Bank's predecessors in interest, and all of Bank's past and
present officers, directors, attorneys, affiliates,
employees and agents, of and from any and all claims,
demands, obligations, liabilities, indebtedness, breaches of
contract, breaches of duty or of any relationship, acts,
omissions, misfeasance, malfeasance, causes of action,
defenses, offsets, debts, sums of money, accounts,
compensation, contracts, controversies, promises, damages,
costs, losses and expenses, of every type, kind, nature,
description or character, whether known or unknown,
suspected or unsuspected, liquidated or unliquidated, each
as though fully set forth herein at length (each, a
Released Claim and collectively, the Released Claims),
that Borrower or any guarantor hereunder now has or may
acquire as of the later of: (i) the date this Amendment
becomes effective through the satisfaction (or waiver by
Bank) of all conditions hereto; or (ii) the date that
Borrower and each guarantor hereunder have executed and
delivered this Amendment to Bank (hereafter, the Release
Date), including without limitation, those Released Claims
in any way arising out of, connected with or related to any
and all prior credit accommodations, if any, provided by
Bank, or any of Bank's predecessors in interest, to Borrower
or any guarantor hereunder, and any agreements, notes or
documents of any kind related thereto or the transactions
contemplated thereby or hereby, or any other agreement or
document referred to herein or therein.
(b) Borrower and each guarantor hereunder hereby
acknowledge, represent and warrant to Bank as follows:
(i) Borrower and such guarantor understand the
meaning and effect of Section 1542 of the California Civil
Code which provides:
Section 1542. GENERAL RELEASE; EXTENT. 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.
(ii) With regard to Section 1542 of the California
Civil Code, Borrower and each such guarantor agree to assume
the risk of any and all unknown, unanticipated or
misunderstood defenses and Released Claims which are
released by the provisions of this General Release in favor
of Bank, and Borrower and each such guarantor hereby waive
and release all rights and benefits which they might
otherwise have under Section 1542 of the California Civil
Code with regard to the release of such unknown,
unanticipated or misunderstood defenses and Released Claims.
(c) Each person signing below on behalf of Borrower or
any guarantor hereunder acknowledges that he or she has read
each of the provisions of this General Release. Each such
person fully understands that this General Release has
important legal consequences, and each such person realizes
that they are releasing any and all Released Claims that
Borrower or any such guarantor may have as of the Release
Date. Borrower and each guarantor hereunder hereby
acknowledge that each of them has had an opportunity to
obtain a lawyer's advice concerning the legal consequences
of each of the provisions of this General Release.
(d) Borrower and each guarantor hereunder hereby
specifically acknowledge and agree that: (i) none of the
provisions of this General Release shall be construed as or
constitute an admission of any liability on the part of
Bank; (ii) the provisions of this General Release shall
constitute an absolute bar to any Released Claim of any
kind, whether any such Released Claim is based on contract,
tort, warranty, mistake or any other theory, whether legal,
statutory or equitable; and (iii) any attempt to assert a
Released Claim barred by the provisions of this General
Release shall subject Borrower and each guarantor hereunder
to the provisions of applicable law setting forth the
remedies for the bringing of groundless, frivolous or
baseless claims or causes of action.
14. 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.
15. 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/Darryl S. Hallie
Robert S. Cope Darryl S. Hallie
Title:_President/CEO Vice President
</PAGE>
<PAGE>
GUARANTOR'S CONSENT, REAFFIRMATION AND GENERAL RELEASE
The undersigned guarantor of all indebtedness of Auto-
Graphics, Inc. to Wells Fargo Bank, National Association
hereby: (i) consents to the foregoing Amendment; (ii)
reaffirms its obligations under its Guaranty dated as of
October 31, 1997; (iii) reaffirms its waivers of each and
every one of the defenses to such obligations as set forth
in its Guaranty; (iv) reaffirms that its obligations under
its Guaranty are separate and distinct from the obligations
of any other party under said Amendment and the other Loan
Documents described therein; and (v) agrees to join in and
be bound by all of the terms and provisions of the General
Release contained in Paragraph 13 thereof.
GUARANTOR:
A-G CANADA LTD.
By: ss/Robert S. Cope
Robert S. Cope
Title: Director
<PAGE>
GUARANTOR'S CONSENT AND GENERAL RELEASE
The undersigned guarantor of all indebtedness of Auto-
Graphics, Inc. to Wells Fargo Bank, National Association
hereby, subject to the terms and conditions of the
Continuing Guaranty, including the Addendum thereto,
executed concurrently herewith: (i) consents to the
foregoing Amendment; and (ii) agrees to join in and be bound
by all of the terms and provisions of the General Release
contained in Paragraph 13 thereof.
GUARANTOR:
Robert S. Cope
EXHIBIT 10.33
CONTINUING 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. 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. MAXIMUM LIABILITY; SUCCESSIVE TRANSACTIONS; REVOCATION;
OBLIGATION UNDER OTHER GUARANTIES. The liability of Guarantor
shall not exceed at any one time the sum of $4,375,000.00 for
principal, plus all interest thereon and costs and expenses
pertaining to the enforcement of this Guaranty and/or the
collection of the indebtedness of any of the Borrowers to Bank.
Notwithstanding the foregoing, Bank may permit the Indebtedness
of Borrowers to exceed Guarantor's liability. This is a
continuing guaranty and all rights, powers and remedies hereunder
shall apply to all past, present and future Indebtedness of each
of the Borrowers to Bank, including that arising under successive
transactions which shall either continue the Indebtedness,
increase or decrease it, or from time to time create new
indebtedness after all or any prior Indebtedness has been
satisfied and notwithstanding the death, incapacity, dissolution,
liquidation or bankruptcy of any Borrowers or Guarantor or any
other event or proceeding affecting any of the Borrowers or
Guarantor. This Guaranty shall not apply to any new Indebtedness
created after actual receipt by Bank of written notice of its
revocation as to such new Indebtedness; provided however, that
loans or advances made by the Bank to any of the Borrowers after
revocation under the commitments existing prior to receipt by
Bank of such revocation, and extensions, renewals or
modifications, of any kind, of indebtedness incurred by any of
the Borrowers or committed by Bank prior to receipt by Bank of
such revocation, shall not be considered new Indebtedness. Any
such notice must be sent to Bank by registered US mail, postage
prepaid, addressed to its office at 333 South Grand Ave. 9th
Floor, Los Angeles, CA 90071, or at such other address as Bank
shall from time to time designate. Any payment by Guarantor with
respect to the Indebtedness shall not reduce Guarantor's maximum
obligation hereunder unless written notice to that effect is
actually received by the Bank at or prior to the time of such
payment. 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 assign 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 a 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 (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 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 June 30, 1999.
By: ss/ Robert S. Cope
ROBERT S. COPE
EXHIBIT 10.34
ADDENDUM TO CONTINUING GUARANTY
THIS ADDENDUM is attached to and made a part of that certain
Continuing Guaranty executed by Robert S. Cope (Guarantor) in
favor of WELLS FARGO BANK, NATIONAL ASSOCIATION (Bank) for all
indebtedness of Auto-Graphics, Inc. (Borrower) to Bank and
dated as of June 30, 1999 (the Guaranty).
The following provisions are hereby incorporated into the
Guaranty as if fully set forth therein:
18. REDUCTION OF LIABILITY. Notwithstanding anything in
the Guaranty or the Credit Agreement to the contrary, the
maximum liability of the Guarantor set forth in the first
sentence of Paragraph 2 of the Guaranty shall not exceed at any
one time the sum of $2,187,500.00 for principal, plus interest
thereon and costs and expenses pertaining to the enforcement of
the Guaranty and/or the collection of the Indebtedness of any of
the Borrowers to Bank if the following conditions are met on or
before September 30, 1999: (a) Borrower delivers evidence
satisfactory to Bank in its sole discretion that Borrower has
received New Capital (defined below) in the aggregate amount of
$750,000.00; and (b) at the time of that all evidence necessary
to the satisfaction of subparagraph (a) above has been delivered
to Bank, no default or Event of Default shall have occurred under
any of the documents or instruments evidencing or relating to the
Indebtedness of Borrower to Bank. As used herein, New Capital
shall mean cash and cash equivalents received and deposited by
Borrower on or after June 30, 1999 in the form of a capital
contribution in immediately available funds (prior to the
deduction of any and all selling commissions and other costs and
expenses, including legal fees attributable to the offering).
19. RELEASE FROM LIABILITY. Notwithstanding anything in
the Guaranty or the Credit Agreement to the contrary, Guarantor
shall be fully, finally and forever released from all liability
to Bank under the Guaranty or otherwise, if the following
conditions are met on or before the date that all Indebtedness of
Borrower to Bank has been paid in full: (a) Borrower delivers
evidence satisfactory to Bank in its sole discretion that
Borrower has received New Capital in the aggregate amount of
$1,250,000.00 (inclusive of the $750,000.00 referenced in
Paragraph 18 above); and (b) at the time of that all evidence
necessary to the satisfaction of subparagraph (a) above has been
delivered to Bank, no default or Event of Default shall have
occurred under any of the documents or instruments evidencing or
relating to the Indebtedness of Borrower to Bank.
This Guaranty supercedes and replaces in its entirety that
certain Guaranty executed by Robert S. Cope in favor of the Bank
as of May 12, 1997, which is hereby terminated, cancelled and is
of no further force or effect as of the date hereof.
IN WITNESS WHEREOF, this Addendum has been executed as of
the same date as the Guaranty.
WELLS FARGO BANK, GUARANTOR
NATIONAL ASSOCIATION
By:_ ss/Darryl Hallie ss/Robert S. Cope_
Darryl Hallie Robert S. Cope
Vice President
EXHIBIT 10.35
REVOLVING LINE OF CREDIT NOTE
$1,000,000.00 Angeles, California
June 30, 1999
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 333 South Grand
Avenue, 9th Floor, Los Angeles, CA 90071, 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 One Million Dollars ($1,000,000.00), 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) for the designated periods at a rate
per annum equal to the corresponding percentages above the Prime
Rate in effect from time to time, as follows:
Period % Above Prime Rate
- ------------------------------- ----------------------
June 30, 1999 to and including
September 29, 1999 One Percent (1.00%)
September 30, 1999 to and One and One-Quarter Percent
including December 30, 1999 (1.25%)
December 31, 1999 to and One and One-Half Percent
including March 30, 2000 (1.50%)
On and after March 31, 2000 One and Three-Quarters
Percent (1.75%)
Notwithstanding the foregoing, should Borrower deliver evidence
satisfactory to Bank in its sole discretion that Borrower has
received New Capital (defined below) at the times and in the
cumulative amounts shown below, the outstanding principal balance
of this Note shall bear interest (computed on the basis of a
360-day year, actual days elapsed) for the designated periods at
a rate per annum equal to the corresponding percentages above the
Prime Rate in effect from time to time, as follows:
Deadline for Cumulative Period % Above Prime
Receipt of New Amount of New Rate
Capital Capital
- -------------- ------------- ------------- --------------
September 30, $250,000.00 September 30, One Percent
1999 (the First 1999 to and (1%)
Milestone) including
December 30,
1999
December 31, $350,000.00 December 31, One Percent
1999 (the Second 1999 to and (1%) if
Milestone) including Borrower met
March 30, 2000 the First
Milestone
One and One-
Quarter
Percent
(1.25%)if
Borrower did
not meet the
First
Milestone
March 31, 2000 $1,000,000.00 On and after One Percent
March 31, 2000 (1%) if
Borrower met
both
the First
Milestone and
the Second
Milestone
One and One-
Quarter
Percent
(1.25%)if
Borrower met
either the
First
Milestone or
the Second
Milestone, but
not both
One and One-
Half Percent
(1.50%) if
Borrower
received
neither the
First
Milestone nor
the Second
Milestone
As used herein, New Capital shall mean cash and cash
equivalents received and deposited by Borrower on or after June
30, 1999 in the form of a capital contribution in immediately
available funds (prior to the deduction of any and all selling
commissions and other costs and expenses, including legal fees
attributable to the offering). 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 July
31, 1999.
(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 four
percent (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 any
document executed in connection with or governing this Note;
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, 2000.
(b) Advances. Advances hereunder, to the total amount of
the principal sum stated above, may be made by the holder at the
oral or written request of (i) DANIEL E. LUEBBEN or ROBERT S.
COPE, 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,
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 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.
This Note replaces and supersedes in its entirety that
certain promissory note executed by Borrower in favor of Bank in
the original principal amount of $1,250,000.00 and dated as of
May 12, 1997, which is hereby cancelled.
IN WITNESS WHEREOF, the undersigned has executed this Note
as of the date first written above.
AUTO-GRAPHICS, INC.
By: ss/Robert S. Cope
Robert S. Cope
Title: President/CEO
EXHIBIT 10.36
REVOLVING LINE OF CREDIT NOTE
$3,000,000.00 Los Angeles, California
June 30, 1999
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 333 South Grand
Avenue, 9th Floor, Los Angeles, CA 90071, 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 Three Million Dollars ($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) for the designated periods at a rate
per annum equal to the corresponding percentages above the Prime
Rate in effect from time to time, as follows:
Period % Above Prime Rate
- ------------------------------- --------------------------
June 30, 1999 to and including
September 29, 1999 One Percent (1.00%)
September 30, 1999 to and One and One-Quarter Percent
including December 30, 1999 (1.25%)
December 31, 1999 to and One and One-Half Percent
including March 30, 2000 (1.50%)
On and after March 31, 2000 One and Three-Quarters
Percent (1.75%)
Notwithstanding the foregoing, should Borrower deliver evidence
satisfactory to Bank in its sole discretion that Borrower has
received New Capital (defined below) at the times and in the
cumulative amounts shown below, the outstanding principal balance
of this Note shall bear interest (computed on the basis of a
360-day year, actual days elapsed) for the designated periods at
a rate per annum equal to the corresponding percentages above the
Prime Rate in effect from time to time, as follows:
Deadline for Cumulative Period % Above Prime
Receipt of New Amount of New Rate
Capital Capital
- -------------- ------------- ------------- --------------
September 30, $250,000.00 September 30, One Percent
1999 (the First 1999 to and (1%)
Milestone) including
December 30,
1999
December 31, $350,000.00 December 31, One Percent
1999 (the Second 1999 to and (1%) if
Milestone) including Borrower met
March 30, 2000 the First
Milestone
One and One-
Quarter
Percent
(1.25%)if
Borrower did
not meet the
First
Milestone
March 31, 2000 $1,000,000.00 On and after One Percent
March 31, 2000 (1%) if
Borrower met
both
the First
Milestone and
the Second
Milestone
One and One-
Quarter
Percent
(1.25%)if
Borrower met
either the
First
Milestone or
the Second
Milestone, but
not both
One and One-
Half Percent
(1.50%) if
Borrower
received
neither the
First
Milestone nor
the Second
Milestone
As used herein, New Capital shall mean cash and cash
equivalents received and deposited by Borrower on or after June
30, 1999 in the form of a capital contribution in immediately
available funds (prior to the deduction of any and all selling
commissions and other costs and expenses, including legal fees
attributable to the offering). 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 July
31, 1999.
(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 four
percent (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 any
document executed in connection with or governing this Note;
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, 2000.
(b) Advances. Advances hereunder, to the total amount of
the principal sum stated above, may be made by the holder at the
oral or written request of (i) DANIEL E. LUEBBEN or ROBERT S.
COPE, 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,
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 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.
This Note replaces and supersedes in its entirety that
certain promissory note executed by Borrower in favor of Bank in
the original principal amount of $3,000,000.00 and dated as of
May 12, 1997, which is hereby cancelled.
IN WITNESS WHEREOF, the undersigned has executed this Note
as of the date first written above.
AUTO-GRAPHICS, INC.
By: ss/Robert S. Cope
Robert S. Cope
Title: President/CEO
EXHIBIT 10.37
TERM NOTE
$374,999.99 Los Angeles, California
June 30, 1999
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 333 South Grand
Avenue, 9th Floor, Los Angeles, CA 90071, 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 Three Hundred Seventy-Four Thousand Nine Hundred
Ninety Nine and 99/100 Dollars ($374,999.99), 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 a 360-day
year, actual days elapsed) for the designated periods at a rate
per annum equal to the corresponding percentages above the Prime
Rate in effect from time to time, as follows:
Period % Above Prime Rate
- ------------------------------- --------------------------
June 30, 1999 to and including
September 29, 1999 One Percent (1.00%)
September 30, 1999 to and One and One-Quarter Percent
including December 30, 1999 (1.25%)
December 31, 1999 to and One and One-Half Percent
including March 30, 2000 (1.50%)
On and after March 31, 2000 One and Three-Quarters
Percent (1.75%)
Notwithstanding the foregoing, should Borrower deliver evidence
satisfactory to Bank in its sole discretion that Borrower has
received New Capital (defined below) at the times and in the
cumulative amounts shown below, the outstanding principal balance
of this Note shall bear interest (computed on the basis of a
360-day year, actual days elapsed) for the designated periods at
a rate per annum equal to the corresponding percentages above the
Prime Rate in effect from time to time, as follows:
Deadline for Cumulative Period % Above Prime
Receipt of New Amount of New Rate
Capital Capital
- -------------- ------------- ------------- --------------
September 30, $250,000.00 September 30, One Percent
1999 (the First 1999 to and (1%)
Milestone) including
December 30,
1999
December 31, $350,000.00 December 31, One Percent
1999 (the Second 1999 to and (1%) if
Milestone) including Borrower met
March 30, 2000 the First
Milestone
One and One-
Quarter
Percent
(1.25%)if
Borrower did
not meet the
First
Milestone
March 31, 2000 $1,000,000.00 On and after One Percent
March 31, 2000 (1%) if
Borrower met
both
the First
Milestone and
the Second
Milestone
One and One-
Quarter
Percent
(1.25%)if
Borrower met
either the
First
Milestone or
the Second
Milestone, but
not both
One and One-
Half Percent
(1.50%) if
Borrower
received
neither the
First
Milestone nor
the Second
Milestone
As used herein, New Capital shall mean cash and cash
equivalents received and deposited by Borrower on or after June
30, 1999 in the form of a capital contribution in immediately
available funds (prior to the deduction of any and all selling
commissions and other costs and expenses, including legal fees
attributable to the offering). 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 July
31, 1999.
(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 four
percent (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 last day
of each month in installments of Sixteen Thousand Dollars
($16,000.00) each, commencing July 31, 1999, and continuing up to
and including May 31, 2000, with a final installment consisting
of all 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,
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.
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.
This Note replaces and supersedes in its entirety that
certain promissory note executed by Borrower in favor of Bank in
the original principal amount of $375,000.00 and dated as of June
1, 1998, which is hereby cancelled.
IN WITNESS WHEREOF, the undersigned has executed this Note
as of the date first written above.
AUTO-GRAPHICS, INC.
By: ss/Robert S. Cope
Robert S. Cope
Title: President/CEO
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made and
entered
into as of February 14, 2000 by and between Auto-Graphics, Inc., a California
corporation (the "Company"), and Gibralter Permanente Assurance, Ltd.,
incorporated under the laws of the Republic of Dominica (the "Buyer").
R E C I T A L S
WHEREAS, the Company and the Buyer have discussed the possible
purchase by the Buyer of shares of the Company authorized but previously
unissued Common Stock in a private placement transaction which is exempt from
registration and/or qualification under applicable securities laws and would,
therefore, require the shares sold and issued by the Company to the Buyer in
such stock purchase transaction to be deemed to be "restricted securities" as
that term is defined under such securities laws and requiring that the
certificate representing such securities carry a legend indicating that such
shares of stock are restricted securities;
WHEREAS, the parties desire to memorialize their understandings
and agreements in respect of such stock purchase transaction in this
Agreement;
A G R E E M E N T
NOW, THEREFORE, in consideration of the within premises and the
promises set forth in this Agreement, and subject to the terms and conditions
as provided for in this Agreement, the parties intending to be legally bound
and obligated thereby do hereby agree, as follows:
1. Sale/Purchase of Stock. The Company will sell, issue and
deliver to the Buyer, and the Buyer will purchase, pay for and acquire from
the Company at the Closing, as hereinafter defined, Seventy-Five Thousand
(75,000) shares of the Company's restricted Common Stock (the "Stock") for a
total purchase price ("Purchase Price") of Nine Hundred Thirty Thousand
Dollars ($930,000) or $12.40 per share. The Purchase Price shall be paid by
the Buyer to the Company at the Closing in cash. The Stock will represent
slightly less than 5% of the Company's total issued and outstanding shares of
Common Stock immediately following the Closing.
2. Closing. The Closing, where the Company will sell, issue and
deliver the Stock to and the Buyer will purchase, pay for and acquire the
Stock, including the share certificate representing such Stock, shall be on
or before February 18, 2000, or such sooner time as the Buyer notifies the
Company in writing that it is ready to consummate the subject transaction
(the "Closing Date"). The Closing shall take place at 2:30 P.M. on the
Closing Date at such time and place as the Company and the Buyer mutually
agree in writing prior to the Closing is convenient (and, if no such mutually
convenient place is so designated, then the Closing shall take place at the
Company's corporate offices in Pomona, California). If requested by the
Buyer, the Closing shall be conducted telephonically.
3. Restricted Stock/Legend. The offer, sale, issuance and
delivery of the Stock including the share certificate therefor (herein
collectively the "Stock") will not be registered and/or qualified under
applicable Federal or any state's securities laws and will be pursuant to and
in accordance with one or more exemptions from such
registration/qualification. Accordingly, the Stock will be deemed for all
purposes to be "restricted stock" as that term is defined
under applicable securities laws (including herein statutes, rules and
regulations) and, as such, may not be offered, sold, distributed or
hypothecated by the Buyer except in accordance with applicable securities
laws. In accordance with applicable securities laws, the Stock when issued
will carry a legend restricting offer, sale, distribution and/or
hypothecation by the Buyer except in accordance with applicable securities
laws; and the Company will issue appropriate "stop transfer" instructions to
its independent stock transfer agent in respect of such Stock and the
restricted nature thereof. A copy of the legend to be affixed to the Stock
by the Company's stock transfer agent appears on Exhibit A to this Agreement.
4. Exemption From Registration/Qualification. The Stock is and
will be offered, sold, issued and delivered by the Company to the Buyer based
upon the Buyer's representation, warranty and agreement to and with the
Company in connection with such stock purchase transaction that the Buyer is
not acquiring the Stock with a view to resale or other distribution of the
Stock and is acquiring and will hold the Stock for investment purposes.
Under applicable securities laws, this means that the Buyer must hold the
Stock including all interests therein for a minimum period of one year before
the Stock is eligible for sale by the Buyer in the public trading market for
such Stock and/or in any other "public" distribution of the Stock as that
term is broadly defined under applicable securities laws. The Buyer will
also be required and hereby agrees to provide the Company with a written
questionnaire and subscription agreement covering the Stock and the subject
stock purchase transaction, and the Buyer's qualifications to purchase and
acquire the Stock in a private placement or "exempt" transaction, as may
reasonably be required by the Company to support the "exempt from
registration/qualification" nature of the transaction which is
a condition to the Company's obligation to consummate the transaction at the
Closing under this Agreement. In this regard, the Buyer hereby represents
and warrants to the Company that the Buyer is a licensed insurance company in
its jurisdiction of incorporation with substantial assets and is, for all
purposes, an "accredited investor" as that phrase is defined under applicable
securities laws.
5. Buyer's Due Diligence. For purposes of assisting the Buyer
to conduct an appropriate inquiry into the investment merits of the Stock
("due diligence"), the Company will provide the Buyer with certain financial
and other information about the Company, its securities, the market in which
the Company's securities trade, the Company's products/services, prospects,
management, results of operations, financial condition and otherwise in
respect of the "risks" attending the purchase of the Stock by the Buyer as
provided for and contemplated by this Agreement as described on the schedule
attached hereto and incorporated herein as Exhibit B ("Due Diligence
Materials"). After the Buyer has had the opportunity to review such Due
Diligence Materials, the Buyer will be provided the opportunity to conduct
such other and further due diligence as the Buyer (and, possibly or at the
Buyer's election, his offeree representative) shall deem appropriate under
the circumstances for purposes of the Buyer's consummation of the subject
stock purchase transaction at the Closing, including without limitation the
submission by the Buyer of written questions to the Company, interviews with
the Company's management, a tour of the Company's corporate offices and
production facility in Pomona, California, demonstration of the Company's
products/services, communication with the Company's commercial bank, outside
professionals and vendors/suppliers/customers. When and if the Buyer has
performed such due diligence to its sole and exclusive satisfaction,
then the Buyer may proceed to consummate the subject purchase transaction at
the Closing. Completion of the Buyer's due diligence to the Buyer's
(including, possibly or at the election of the Buyer, the Buyer's offeree
representative) sole satisfaction and election shall be a condition to the
Buyer's obligation to consummate the stock purchase transaction and the
Closing under this Agreement (and, in the event that the Buyer has not
previously notified the Company in writing as to the satisfactory completion
of such due diligence, the consummation of the stock purchase transaction at
the Closing by the Buyer shall constitute final and conclusive confirmation
by the Buyer to the Company and otherwise that such due diligence has in fact
been finally and fully so completed). Costs/expenses associated with the due
diligence conducted by the Buyer shall be the responsibility of and be paid
by the Buyer. The Buyer hereby acknowledges to the Company its awareness
that the purchase of and an investment in the securities of the Company,
including the Stock which is the subject of this Agreement, is subject to
substantial risk.
6. Written Confirmation That The Buyer Is Not Acting In Concert
With Any Other Shareholders Of The Company. Prior to the Closing, the Buyer
will confirm to the Company in writing, and hereby represents, warrants and
agrees to and with the Company for purposes of this Agreement, that in
negotiating to purchase and in actually purchasing the Stock and in
maintaining such investment, the Buyer is not acting in concert with any
other shareholder (person or entity) of the Company; and that the Buyer is
acting for his own investment account independent of and separate from any
other shareholder of the Company. The Buyer also agrees to confirm to the
Company in writing prior to the Closing, and hereby represents, warrants and
agrees to and with the Company, that the subject stock purchase transaction
is not part of the Company's prior private offering of securities conducted
from approximately May 15, 1999 through October 31, 1999, and that the Buyer
did not previously discuss with the Company the purchase of any securities of
the Company in such prior and completed securities offering.
7. Conditions To The Parties' Obligation To Close. The parties'
obligation to consummate and otherwise close the subject stock purchase
transaction at the Closing is expressly conditioned upon the following:
(A). The Buyer -
(i). Completion of the Buyer's due diligence as
provided for herein under paragraph 5 of this Agreement.
(B). The Company -
(i) Review and approval of the Buyer's questionnaire
and subscription agreement as provided for in paragraph 4 of this Agreement;
(ii) Determination by the Company including its legal
counsel to its (their) sole and exclusive satisfaction that the proposed
stock purchase transaction, including the offer, sale, issuance and delivery
of the Stock, is in fact exempt from registration and/or qualification under
applicable securities laws as provided for in paragraph 4 of this Agreement;
(iii) Timely and full performance and completion to
the Company's satisfaction of all of the Buyer's undertakings and covenants
as provided for in this Agreement including without limitation in paragraphs
4 (questionnaire/subscription agreement) and 10 (cooperation); and
(iv). The accuracy and completeness of the Buyer's
representations and warranties to the Company as provided for in paragraphs
4, 6, 8, 9 and 10 of this Agreement at the time of the Closing.
Either party is free, but not obligated to, waive any of the foregoing
conditions in whose favor such conditions are indicated to apply prior to or
at the Closing.
If the Buyer has not notified the Company in writing prior to the
Closing that its "due diligence" as provided for in paragraphs 7.(A).(i) and
5 above has NOT been completed to its satisfaction, then the completion of
the Buyer's "due diligence" to its satisfaction under this Agreement shall be
deemed for all purposes to have been completed to its satisfaction.
8. Finder's Fee. Buyer hereby acknowledges that, subject to the
consummation of the subject stock purchase transaction at the Closing, the
Company has agreed to pay Gordon Brown or his designee (the "Finder") a
"finder's fee" for introducing the Buyer to the Company in the amount of
$60,500. The Buyer hereby acknowledges and represents and warrants to the
Company that, in entering into this Agreement and in consummating the subject
stock purchase transaction at the Closing, the Buyer is not relying on any
statement, representation, warranty, understanding, agreement, commitment,
assurance and/or guaranty made by the Finder for, on behalf of and/or in the
name of the Company; and that the Buyer does not deem or otherwise consider
the Finder to be the authorized or implied agent or other representative of
the Company for purposes of this Agreement, the subject stock purchase
transaction or otherwise. The Company understands and hereby reports to the
Buyer its understanding that the Finder is a registered and/or beneficial
shareholder of the Company; however, the Finder is not authorized by the
Company to make any representations to or provide the Buyer with any
assurances concerning which are not part of the Company's published
securities disclosure information. Buyer acknowledges that it is not relying
on the Finder as an offeree representative, as that term is defined under
applicable securities laws or otherwise, for purposes of the subject stock
purchase transaction. Except as indicated herein regarding the Finder, the
parties represent, warrant and agree to and with each other that they have
not obligated the Company to any person or entity for any finder's fee,
commission or other form of compensation or remuneration in respect of the
matters which are the subject of this Agreement.
9. Beneficial Ownership. The Buyer hereby discloses to the
Company that the owners, partners, members or other beneficial owners of the
Buyer are as set forth on the schedule attached hereto and incorporated
herein as Exhibit C; and the Buyer represents, warrants and agrees with the
Company that there are no other beneficial owners of the Buyer, actual or
planned, at the date of this Agreement and at the time of the Closing other
than as identified on Exhibit C.
10. Cooperation By Buyer. In addition to its agreements and
covenants as set forth in this Agreement, the Buyer further agrees and
covenants to cooperate and assist the Company in the preparation, execution
and delivery of such further documentation, instruments and other matters as
may reasonably be requested by the Company of the Buyer in order to
facilitate and expedite the consummation of the stock purchase agreement at
the Closing in accordance with the provisions of and as otherwise
contemplated by this Agreement.
11. Miscellaneous. This Agreement fully and completely
memorializes the parties' understandings, representations, warranties,
agreements, covenants, promises, commitments and guaranties in respect of the
subject matter of this Agreement. This Agreement may only be subsequently
modified, amended or otherwise changed by a further writing so stating signed
by the party against which any such modification, amendment and/or change is
sought to be enforced. In entering into and performing this Agreement, the
parties are not relying for any purpose (contract, tort or otherwise) on any
statement, understanding, representation, warranty, agreement, covenant,
promise, commitment, guaranty or other matter which is not expressly provided
for in this Agreement. For purposes of this Agreement, time shall be deemed
to be of the essence. This Agreement shall be deemed for all purposes to
have been jointly drafted and otherwise prepared by the undersigned parties,
and no one party shall be prejudiced as a result of any subsequent judicial
determination that any of the language used in this Agreement is unclear or
otherwise ambiguous. Attorneys and other professional fees paid or incurred
by the respective parties in respect of this Agreement and the subject stock
purchase transaction will be borne solely and exclusively by such parties.
Buyer acknowledges having had the opportunity to consult with legal counsel
and/or other professionals of its choice in respect of this Agreement and the
matters set forth herein. By signing this Agreement, the undersigned parties
thereby represent, warrant and agree that they are authorized and empowered
to do so.
IN WITNESS WHEREOF, the undersigned parties have executed this
Agreement as of the date first above stated.
AUTO-GRAPHICS, INC.
By ss/ Robert S. Cope
Robert S. Cope, President
GIBRALTER PERMANENTE ASSURANCE, LTD.
By ss/Michael Licopantis
Michael Licopantis,President
LETTER OF INTENT
This letter of intent dated December 29, 1999 ("Letter") is made by and
between Steve White, including his approved assignee ("White"), Auto-
Graphics, Inc., a California corporation ("A-G"), LibraryCard.com, Inc., a
Nevada corporation ("LibraryCard.com") and A-G Sub, Inc., a Nevada
corporation ("A-G Sub"). White, A-G, LibraryCard.com and A-G Sub are
sometimes collectively referred to herein as the "parties". LibraryCard.com
and A-G Sub may hereinafter collectively be referred to as the "Companies".
RECITALS
WHEREAS, White and A-G have been discussing an arrangement whereby White
would make an investment in the Companies organized by A-G to own, carry-on
and conduct the business(es) such parties refer to as (1) "LibraryCard.com"
and (2) "CMS" or "A-G Sub". A more detailed description of such proposed
businesses is set forth on Exhibit A hereto; and
WHEREAS, the parties desire to memorialize their discussions and
agreements in this Letter which, when signed by the parties, will constitute
and be the parties' legally binding and enforceable agreement, subject to the
within terms and conditions, in respect of the matters set forth herein;
AGREEMENT
NOW, THEREFORE, the parties do hereby agree, subject to the within terms
and conditions, as follows:
1. Organize Companies. The Company has organized the Companies to
own, carry-out and conduct, respectively, the LibraryCard.com and CMS (A-G
Sub) businesses. The businesses of the respective Companies shall be as set
forth in Exhibit A, which is incorporated herein, and as further described
and mutually agreed upon in writing by the parties ("Exhibit A "). White
will be provided with the opportunity to review and approve the articles of
incorporation and bylaws of the Companies which approval by White will not be
unreasonably withheld. The articles will not provide for preemptive rights
or any similar provision.
2. Stock Purchase/Other Matters. At the closing, as provided for
in paragraph 9 hereof (the "Closing"), the parties will purchase, pay for and
acquire capital stock of the respective Companies, as follows:
A. White. White will purchase, pay for, acquire and own that
number of shares in the Companies constituting twenty-seven percent (27%) of
the respective Companies issued and outstanding shares of capital stock
immediately after the Closing for cash consideration in the amount of Two
Million Dollars ($2,000,000) being $1 million for each of the Companies; and
B. A-G. A-G and Corey M. Patick ("Patick") have or will
purchase, pay for, acquire and own that number of shares in the respective
Companies constituting the balance of such shares being seventy-three percent
(73%) of the Companies issued and outstanding capital stock immediately after
the Closing for consideration in the form of, in Patick's case, cash in the
maximum amount of Two Thousand Dollars ($2,000) being up to $1,000 for each
of the respective Companies and, in A-G's case, assets of A-G and agreements
by and between A-G and the Companies ("Non-Cash Contribution") and such cash
consideration as A-G may determine in its sole discretion and election to pay
for such stock in the maximum amount of Three Thousand Dollars ($3,000) being
up to $1,500 for each of the respective Companies;
C. Non-Cash Contribution. The Non-Cash Contribution by A-G
to the Companies shall be pursuant to and in accordance with Exhibit A, and
as otherwise mutually agreed to in writing by the parties, and shall be
contributed and transferred by A-G to the Companies and valued by the
Companies for accounting purposes at an amount equal to the book g and
comprising the Non-Cash Contribution by A-G as set forth on A-G's accounting
books and records at the time of the Closing. The Non-Cash Contribution by A-
G to the Companies shall be, unless otherwise previously agreed to in writing
by the parties, free and clear of any and all liens, claims and/or
encumbrances; and A-G represents and warrants to White that it has the
authority and power to make such Non-Cash Contribution and that the Companies
will obtain, as a result of such transfer by A-G, valid title to the assets
and other property which is the subject of such Non-Cash Contribution.
D. Private Offer/Sale and Restricted Stock. The stock which
has been or will be purchased and acquired by the parties and Patick, and
offered, sold and issued by the Companies to the respective parties and to
Patick, pursuant to and in accordance with this Letter has been or will be in
a private offering and sale/purchase transaction which is exempt from
registration and/or qualification under applicable federal and state
securities laws, rules and regulations; and, as such, the stock is and will
be deemed to be and treated as "restricted stock" under applicable securities
laws which means that such stock will be subject to restrictions on future
offer, sale and/or other transfer of the stock in whole or in part by the
holders thereof. The certificates for the stock will carry restrictive
legends and will be subject to "stop transfer" instructions as customarily
attend the offer, sale, and/or issuance of such restricted securities. The
parties and Patick have and/or will cooperate with the Companies, and will
deliver such further undertakings, acknowledgments and agreements as the
Companies and their counsel shall reasonably request in respect of such
private offer and sale transaction and the issuance of certificates
representing the parties' ownership of such shares of stock in the Companies
E. Stock Lock-Up For Possible IPO. In the event that the
Companies determine to conduct an initial public offering ("IPO") of the
securities of such Companies, whether on a "firmly underwritten", "best
efforts" or other basis, White and A-G agree and promise, including for the
benefit of the Companies as express third party beneficiaries, to enter into
a stock "lock-up" agreement whereby White and A-G agree not to offer and/or
sell any shares of the Companies securities in a public offering (as defined
under federal and state securities laws) for a minimum period of six (6)
months following the conclusion of any such IPO.
F. A-G Right Of First Refusal. White grants to A-G an
unconditional, irrevocable right of first refusal to purchase, on the same
terms and conditions contained in any third party offer, shares of the
Companies stock which he owns prior to the time he obligates himself to
and/or does sell or transfer any or all of the shares of the Companies
capital stock owned by him from time to time to any third person or entity
("A-G Right Of First Refusal"). White acknowledges and agrees that the
certificates representing shares of the Companies capital stock will carry a
legend restricting the sale and transfer of such shares of stock except in
accordance with such A-G Right Of First Refusal. White agrees and promises
to enter into a further agreement memorializing such Right Of First Refusal
and providing further normal and customary details in respect of the
description and implementation of such Right Of First Refusal in favor of A-G
(the "Additional RFR Agreement"). White will have the right to review and
approve such Additional RFR Agreement which approval shall not be
unreasonably delayed or withheld. Prior to the time the parties do, in fact,
make and enter into such Additional RFR Agreement, this Letter shall
constitute the parties A-G Right Of First Refusal agreement.
G. Initial Shareholders. Immediately following the Closing,
White will be a shareholder of the Companies and be the owner of record of
shares of the respective Companies I capital stock in the form of Common
Stock equal to twenty-seven percent (27%) of the Companies' issued and
outstanding (restricted) capital stock immediately following the issuance of
stock to White. Immediately following the Closing, A-G and Patick will be
shareholders of the Companies and be the owner of record of shares of the
respective Companies' Common Stock equal to seventy-three percent (73%) of
the Companies' issued and outstanding (restricted) capital stock. Following
the Closing, the Companies will adopt a qualified stock option plan for
employees covering shares equal to ten percent (10%) of the Companies' issued
and outstanding shares of Common Stock including as referenced herein in
paragraph 6 (representing dilution to all shareholders including White, A-G
and Patick).
H. Right of First Refusal In Favor Of White. If at any time
during the eighteen (18) month period following the Closing, the Companies
(or either of them) determines to offer, sell and issue shares of its Common
Stock or other shares of capital stock to buyers in an offering which is not
deemed to be a public offering as that phrase is defined under federal and/or
state securities law in effect at such time {a "private offering"), then in
addition to whatever other rights White may have under this Letter, White
shall be entitled to a right of first refusal to purchase and acquire in such
private offering, and thereby be obligated to pay for, that number of shares
of Common Stock or other capital stock which shall be required to maintain
White's pro rata ownership, if any, in the Companies issued and outstanding
shares of capital stock owned by White immediately prior to the offer, sale
and; issuance of any such shares of capital stock by the Companies in such
private offering for the purchase price or other consideration to be paid to
the Companies by the buyers for such shares of capital stock in any such
private offering as proposed by the Companies ("White's RFR"). For purposes
of this paragraph, it is understood and agreed that White's RFR shall not
apply to any of the shares of the Companies' Common Stock including options
in respect thereof which are the subject of the Companies' qualified stock
option plans and/or sold, issued and/or transferred thereunder. In the event
that the Companies actually determine to offer, sell and issue any shares of
capital stock or to obligate itself/themselves to do so during the first
eighteen (18) months following the Closing, then the Companies determining to
engage in any such private offering shall thereafter, and prior to offering,
selling and/or issuing any such shares of capital stock to any buyer or
prospective buyer shall first provide White with written notice of any such
decision to offer, sell and issue such shares of capital stock including the
terms and conditions of any such proposed capital stock transaction (the II
White RFR Notice II ), and White shall have ten (10) business days following
receipt of such White RFR Notice to provide the Companies whose capital stock
are the subject of such White RFR Notice with his written agreement (the
"White Subscription") to purchase that number of shares of capital stock
which will allow White to maintain his pro rata ownership of such shares of
capital stock immediately following the completion of any such proposed
offer, sale and issuance of such capital stock (the "White RFR Stock"); and
White shall tender to the Companies the consideration to be paid by White in
consideration of and for such White RFR Stock purchase transaction pursuant
to the White Subscription within five (5) business days following the
delivery of any such White Subscription to the Companies. If White does not
for any reason timely provide the Companies with the White Subscription, then
the Companies are free, without further obligation and or liability of any
kind to White in respect of such shares of capital stock transaction and/ or
otherwise under this paragraph of the Letter, to proceed with, consummate and
close the offer, sale and issuance of its/their shares of capital stock as
described in the White RFR Notice. If, for any reason, the Companies propose
to deviate in any manner from the terms and conditions of the offer, sale and
issuance of the capital stock which were the subject of any White RFR Notice,
then the Companies shall prior to proceeding with any such offer, sale and/or
issuance of any such capital stock issue a revised White RFR Notice covering
any such revised offer, sale and/or offering of any such capital stock (the
"Revised White RFR Notice"); and the parties shall repeat and follow the
procedures set forth herein in respect of any such Revised White RFR Notice
and in any such proposed private offering. In the event that White
provides the Companies with the required White Subscription, within five (5)
business days following the delivery of any such White Subscription to the
Companies, White shall fully and finally purchase and pay for the shares of
capital stock which are the subject of the Subscription. If White fails for
any reason to so perform his purchase and payment obligation under the White
Subscription or otherwise under this paragraph then, in addition to whatever
other rights the Companies may have against White pursuant to the White
Subscription and his failure to consummate the subject Subscription
transaction or otherwise under this Letter, the Companies obligation(s)
under this paragraph to White" shall automatically and forever terminate,
cease to exist and be of no further force and effect.
3. Operating Agreements. Prior to the Closing, the Companies will
negotiate with A-G for operating agreements ("Operating Agreements") setting
forth the support that A-G will render to the Companies in the development
and operation of their Businesses on an on-going basis, and the cost that A-G
will charge the Companies for such on-going support services and related
matters (rent, utilities, accounting services, etc.). Such Operating
Agreements will be submitted for review and written approval by White before
they are entered into by A-G and the Companies. White will not unreasonably
delay or withhold approval of the proposed Operating Agreements. For a period
of three (3) years, A-G will provide the Companies with services required or
otherwise needed by the Companies and available from A-G at actual cost plus
ten percent.
4. Business Plan. Prior to the Closing, the Companies will
prepare or cause to be prepared for the respective Companies preliminary
business plans for review by White. Thereafter, if the Companies propose to
make any substantial expenditures (such as, for either of the Companies, in
excess of $100, 000 for any particular item and/ or expenditures as to
particular items which exceed in the aggregate $500,000 over the first two
(2) years of operations) which are not already expressly provided for or
contemplated by the respective Companies I preliminary business plans (or any
subsequent business plan approved in writing by White) or which are not
otherwise in the ordinary course of the Companies' business as described by
such business plans, then the Companies will submit any such newly proposed
substantial expenditure(s) for the prior review and written approval of White
which approval will not be unreasonably delayed or withheld by White.
5. Board Representation. White will be entitled to serve, or
designate a person to serve as his representative, on the respective
Companies' Boards of Directors for a period of three (3) years from the date
of the Closing; and A-G agrees and promises to vote shares of the Companies'
capital stock registered in the name of A-G to cause White (or his substitute
designee) to be elected to the Companies' respective Boards of Directors for
such period of time. During the time that White, or his designee, is serving
on the Companies Boards of Directors as provided for herein, the Companies
will not enlarge the size of their Boards of Directors to more than five (5)
persons without the prior written consent of White, or his designee.
Following the Closing, the Companies will use their best efforts to purchase
and at their expense obtain officer/director liability insurance from a
Standard and Poors A+ or better rated company authorized to do business in
California.
6. Further Dilution. The parties acknowledge and agree that the
Companies will immediately seek to obtain additional financing, in the form
of debt and equity and/or any combination thereof, to be used to implement
their respective business plans. Such financing efforts could possibly take
on the form or otherwise include a "private placement" and/or an initial
public offering of the respective Companies' securities the result of any
such securities offerings would and/or could be dilutive of the existing
shareholders' ownership of the Companies including voting and other rights
and benefits attending ownership of the Companies' capital stock. Any such
securities offering(s), none of which can be predicted, contemplated and/or
assured at this point in time, will be approved and authorized by the boards
of directors and/or shareholders of the respective Companies in accordance
with applicable corporate law as being in the best interests of such
Companies as they may exist from time to time. Notwithstanding the foregoing
acknowledgment and agreement, the parties for themselves and for and on
behalf of the Companies, hereby agree that the Companies will not, and they
will not take any action to cause the Companies, to undertake any such
securities offering(s), without the prior review and written approval of said
parties if the dilution resulting therefrom will, in respect of any such
securities offering and/or in the aggregate of all such securities offerings
undertaken by the Companies during the succeeding three (3) year period
following the Closing, exceed fifty percent (50%) of such parties' ownership
and other rights in the respective Companies. (For example, such securities
offerings will not result in White's percentage ownership in the respective
Companies during such period of time falling below thirteen and one-half
percent (13.5%) on a fully diluted basis). The parties agree, however, that
for purposes of such dilution calculation, shares of capital stock issued or
issuable to employees of the Companies under qualified stock option plans
(limited to a maximum of ten percent (10%) of the Companies' issued and
outstanding shares of capital stock at any point in time) shall not be taken
into account or otherwise computed.
7. Representations/Warranties. White acknowledges and agrees that
A-G is not the proposed seller and issuer of the stock which White agrees to
purchase from the Companies pursuant to and in accordance with this Letter;
and that the respective Companies will be the issuer(s) of such securities.
White further acknowledges and agrees that he will conduct such inquiry and
investigation, referred to in this Letter including the following paragraph
as "due diligence", as he and his advisors determine to be necessary and
appropriate in order for White to determine whether or not to proceed under
this Letter including the within agreements; and that White will rely
entirely on his own due diligence and judgment in respect thereof in
determining to continue to perform under this Letter in accordance with the
terms and conditions hereof including the purchase of stock in the Companies
as provided for herein. White acknowledges and agrees that, A-G (including
without limitation its officers, directors, employees, consultants,
designers, attorneys or other representatives) has not and is not making any
representations or warranties or providing any assurances of any kind in
respect of (1) the investment merits of the capital stock to be purchased by
White as provided for in this Letter, (2) the Companies or the investment
opportunity associated with the Companies organized or to be organized under
the terms of this Letter, (3) the businesses and or the prospects for the
businesses to be owned, further developed and operated by the Companies as
contemplated by this Letter, (4) the business plans for the Companies to be
reviewed by White in accordance with the terms of this Letter, (5) the
financial condition and/or the adequacy of the, funding to be provided to or
otherwise obtained by the Companies as provided for or contemplated by this
Letter or otherwise, and/or (6) the assets and properties to be contributed
by A-G to the Companies in accordance with the terms of this Letter. In
addition to any other provisions of this Letter, White agrees and promises
to indemnify and hold harmless A-G (including without limitation its
officers, directors, employees, consultants, designers, attorneys or other
representatives) from any and all claims, debts, causes of action, actions,
proceedings, obligations, liabilities, expenses and costs (including without
limitation attorneys' and other professionals' fees and costs paid or
incurred by A-G) in respect of, based upon, arising as a result of, or
otherwise under, or in respect of, the specific disclaimers set forth in
items (1) through (6) above. Nothing in this paragraph is intended or shall
be deemed for any purpose to limit and/or nullify the representations,
warranties and agreements of A-G in favor of White expressly set forth in
paragraph 2.C. of this Agreement.
8. Due Diligence.
A. White Due Diligence. White including his agents at his
direction and under his control has conducted and agrees to conduct, and A-G
has and agrees to cooperate in the conduct by White, such due diligence and
other inquiry and investigations (collectively herein "due diligence") as he
reasonably believes to be necessary, appropriate or otherwise advisable as a
basis for determining to enter into this Letter and to consummate the subject
stock purchase transaction pursuant to and in accordance with the provisions
of this Letter. Such due diligence has been and will continue to be at
White's sole cost and expense. Any and all due diligence at or similarly
involving A-G has been and shall be conducted by White including his agents
during normal business hours and, where deemed appropriate by A-G in its sole
discretion and election, has and shall be conducted pursuant to
confidentiality and non-disclosure agreements in form and content reviewed
and approved and to be reviewed and approved in writing by White which
approval has not and will not be unreasonably delayed or withheld by White.
The purpose of such due diligence is to allow White to obtain information
which will allow him to make an informed investment decision regarding the
entering into this Letter and the purchase of the stock of the Companies as
provided for and contemplated herein; and White has and agrees to rely
exclusively on such due diligence in making his decision as to whether or not
to enter into this Letter and to purchase such stock. The conduct of such
due diligence by White to his sole and exclusive satisfaction is a condition
to White's obligation to consummate the purchase of stock at the Closing, and
the Companies' obligation to sell and issue the stock to White, as provided
for herein.
B. A-G Due Diligence. White will provide A-G in writing with
the background and other information customarily required from
officers/directors of public reporting companies to appear in securities
offering, reporting and other disclosure documents under federal and state
securities laws so that A-G can conduct a reasonable background inquiry and
investigation confirming the accuracy and completeness of such information as
part of A-G's due diligence on White as the prospective purchaser and
substantial owner of stock in the Companies, A-G agrees to maintain the
confidentiality of all information provided by White which is not otherwise a
matter of public record. Completion of such A-G due diligence, to A-G's sole
and exclusive satisfaction and approval, is a condition to A-G's (and for and
on behalf of the Companies' as an express beneficiary of such provision)
duties and obligations under this Letter (including the sale of stock in the
Companies by the Companies to White at the Closing).
9. Closing. The Closing as referenced herein, whereby White will
purchase, pay for, acquire and receive the stock in the Companies as provided
for in paragraph 2, will take place on December 31, 1999 at 10:00 o'clock
A.M: at A-G's corporate offices in Pomona, California, or such other date,
time and place as the parties shall mutually agree to in writing (herein the
"Closing"). At the Closing White will purchase and pay for the stock in the
Companies by delivering to the Companies bank cashier's checks dated on or
prior to the Closing in the total amount of $2 million, as follows: (1) one
bank cashier's check for $1 million payable to "LibraryCard.com, Inc." and
(2) one bank cashier's check for $1 million payable to " A-G Sub, Inc."
(collectively the "Cashier's Checks"). At the Closing, in consideration of
the Cashier's Checks, the Companies shall deliver to White (and/or his
approved assignees) certificates for the shares of stock in the Companies
being purchased by White registered in the name(s) of White and/or such
assignees.
10. Conditions To The Closing. The parties' respective duties and
obligations under this Letter are conditioned upon the following:
A. White's obligations under this Letter, including the
purchase of stock in the Companies at the Closing, are conditioned upon the
following:
(1) Due Diligence. Completion of White's due diligence,
as provided for herein at paragraph 8.A. hereof, to his sole satisfaction and
approval on or before December 30, 1999. If White has not notified A -G in
writing that such due diligence has not been completed to White's
satisfaction by the close of business on such date, then White's approval
shall be deemed to have finally taken place for all purposes including the
satisfaction of this condition.
(2) Operating Agreement. Review and approval by White of
the proposed Operating Agreement, as provided for in paragraph 3 hereof, to
his satisfaction on or before December 30, 1999. If White has not notified A-
G in writing that such review and approval of the proposed Operating
Agreement has not been completed to White's satisfaction by the close of
business on such date, then White's approval shall be deemed to have finally
taken place for all purposes including the satisfaction of this condition.
(3) Business Plan. Review by White of the proposed
Business Plans of the Companies, as provided for in paragraph 4 hereof, on or
before December 30, 1999. If White has not notified A-G in writing that
such, review of the Business Plans of the Companies has not taken place by
the close of business on such date, then such review shall be deemed to have
taken place for all purposes including the satisfaction of this condition.
(4) Corporate Documents. Review and approval by White of
the Articles of Incorporation and Bylaws ("Corporate Documents ") of the
Companies, as provided for in paragraph 1 hereof, to his satisfaction on or
before December 30, 1999. If White has not notified A-G in writing that such
review and approval of the Corporate Documents have not been completed to
White's satisfaction by the close of business on such date, then White's
approval shall be deemed to have finally taken place for all purposes
including the satisfaction of this condition.
(5) Additional RFR Agreement. Review and approval by
White of the Additional RFR Agreement, as provided for in paragraph 2.F.
hereof, to his satisfaction on or before December 30, 1999. If White has not
notified A-G in writing that such review and approval of the Additional RFR
Agreement has either not taken place or has not been completed to White's
satisfaction by the close of business on such date, then White's approval of
such Additional RFR Agreement, or alternatively the A-G Right Of First
Refusal as set forth herein if no such Additional RFR Agreement has been
submitted to and approved by White and in lieu thereof, shall be deemed to
have finally occurred and taken place for all purposes including the
satisfaction of this condition.
If the foregoing conditions are satisfied as to one of the Companies, but not
the other, then White's obligations to and in respect of the Company in
respect of which any or all of the conditions shall not have been timely
satisfied shall be excused based on the non-satisfaction of the conditions
applicable to such Company (but White's obligations under this Letter as to
the other Company, in respect of which all of the conditions shall have been
satisfied, shall be and remain operable and enforceable as to such Company
and White's obligation to purchase stock in such Company pursuant to and in
accordance with this Letter).
B. A-G. A-G's (and the Companies' where and if applicable as
express beneficiaries under this Letter) duties and obligations under this
Letter (including the sale and issuance of stock in the Companies by the
Companies at the Closing), are conditioned upon the following:
(1) Due Diligence Re White. Satisfaction to its sole
election and judgment of A-G's due diligence as to White's suitability as an
investor in the Companies, as provided for in paragraph 8.B. hereof, on or
before December 30, 1999. If A-G has not notified White in writing that such
due diligence has not been completed to A-G's satisfaction by the close of
business on such date, then A-G's approval shall be deemed to have finally
taken place for all purposes including the satisfaction of this condition.
(2) Compliance With Securities Laws. Satisfaction by the
Companies (regardless of whether or not the Companies are deemed to be an
express beneficiary of this particular provision which is of important
interest to A-G) of any and all applicable securities laws, rules and
regulations pertaining to the offer, sale and/or issuance of the stock
including certificates of the Companies to be sold by the Companies to and
purchased by White as provided for herein.
(3) Accounting Clearance. Consultation with, to the
extent deemed necessary or advisable by A-G in its sole discretion and
election, A-G's and/or the Companies independent auditor(s) and accountant(s)
in respect of this Letter and the matters provided for herein from a
financial reporting perspective; and A-G's determination and confirmation, to
A-G's sole satisfaction and determination, of its understanding and agreement
in respect thereof as to such financial reporting matters (" Accounting
Clearance"). If A-G has not notified White in writing that such Accounting
Clearance has not been obtained to A-G's sole satisfaction and determination
prior to the Closing, then A -G ' s review and approval of such Accounting
Clearance matters shall be deemed to have finally taken place for all
purposes including the satisfaction of this condition.
(4) A-G Board Approval. Approval of this Letter and the
transactions and arrangements provided for herein by the Board of Directors
of A-G and the Companies (collectively the "Board Approval"). If A-G has not
notified White in writing that such Board Approval has not been obtained
prior to the Closing, then such Board Approval shall be deemed to have
finally taken place for all purposes including the satisfaction of this
condition.
If any of the conditions to White and/or A-G's duties and
obligations under this Agreement have not been timely satisfied, then the
party in whose favor such condition is applicable shall have the right but
not the obligation to waive in writing any such condition(s) prior to or at
the Closing
11. If White, on or before January 14, 2000, in his sole, absolute
and unreviewable discretion, determines that the Y2K problem (the Y2K or Year
2000 problem is understood to mean the inability of computer software
programs to recognize the arrival of the year 2000 because of a common
software design feature that describes the current year by only its last two
digits) will adversely affect his investment, the Companies or the United
States economy, White will have the right to rescind in writing to the
Companies and to A-G (the "Notice of Rescission") the prior purchase and
payment for such stock of the Companies at any time prior to January 14, 2000
without further obligation of any kind to the Companies and White shall be
entitled to the immediate return of the full purchase price of the stock
purchased by White from the Companies at the Closing plus interest at the
rate of ten percent (10%) per annum in return for the surrender by White and
cancellation of the stock of the Companies purchased and paid for by White at
the Closing (the "Optional Y2K Post Closing Condition"). If White has not
timely provided the Companies and A-G with such Notice of Rescission
including the tender of the stock previously purchased by White at the
Closing for cancellation by the Companies, then the sale and purchase by
White and payment by White for the stock in the Companies as provided for in
this Letter and consummated by White at the Closing shall not be, for any
reason, subject to any unsatisfied Post Closing Condition; such Closing shall
be reaffirmed to have taken place on and effective December 31, 1999 for all
purposes whatsoever.
12. Miscellaneous.
A. Authority. By signing and returning this Letter, the
parties thereby represent, agree and warrant to each other that they are duly
authorized and empowered to do so and to fully and timely perform their
respective duties and obligations under this Letter. Where the Companies are
referenced in this Letter, the parties acknowledge and agree that as of the
date of this Letter such Companies are in the process of being incorporated
and organized and are not yet actually incorporated and in existence.
B. Governing Law/Venue. This Letter shall be interpreted,
enforced and otherwise governed for all purposes (without regard to conflict
of law provisions) under and in accordance with the laws of the State of
California in which state the parties are located at the date of this Letter.
This Letter is made and entered into by the parties in Orange County,
California. Further, the parties acknowledge and agree with one another
(including for and on behalf of the Companies as express party beneficiaries)
that should any legal action or proceeding of any kind be initiated,
maintained and prosecuted under, arising out of or otherwise in reference to
this Letter, such action/proceeding shall be initiated, maintained and
prosecuted for all purposes in a court of competent jurisdiction located in
Orange County, California, which the parties hereby elect as the best venue
for any such action/proceeding .
C. Attorneys' Fees/Costs.
(1). Legal Action/Proceeding. In the event that any of
the parties initiates any legal action or proceeding against any other party
(and/or the Companies) seeking to enforce any of the provisions of or
otherwise under, arising out of or in reference to this Letter, then the
party (or parties) who is determined to have been the "prevailing party
(ies)" in any such legal action or proceeding shall be entitled to receive
and recover, in addition to whatever other relief and recovery such party
(ies) may be entitled to under this Letter or otherwise as a result of such
action/proceeding, such prevailing party's (ies') reasonable legal and other
professionals' fees and costs paid or incurred by such prevailing party (ies)
as a result of any such legal action or proceeding (including any appeal
thereto).
(2) Reimbursement Of White's Legal Fees. In the event
that White timely purchases and pays for in full stock in the Companies as
provided for in this Letter, then A-G shall reimburse White for legal fees
paid or incurred by White to his attorney in connection with such attorney's
representation of White in connection with this Letter and the stock purchase
transaction provided for herein up to a maximum aggregate amount by the
Companies of Twenty- Five Thousand Dollars ($25,000); and the parties to this
Letter shall take such steps as may be necessary or advisable to cause A-G to
make such reimbursement within thirty (30) days following the Closing. .
D. Approved Assignees(s). If either party desires to assign
or otherwise designate or transfer any or all of such party' rights,
benefits, duties and/or obligation under this Letter, then such party shall
first notify the other party in writing of such proposed assignment/transfer
and provide such other party with such facts and information about the
proposed assignee and/or designee which the other party may reasonably
request for purposes of making an informed decision about the suitability and
acceptability of such proposed assignee, designee or transferee and matters
relating thereto which other party agrees not to unreasonably withhold
approval of any such proposed assignee, designee or transferee (herein "
approved assignee").
E. No Waiver. Failure by any party to timely object to any
non-performance of or under this Letter shall not be deemed to constitute a
waiver of any similar non-performance of or under the Letter or of any other
provision (including any term or condition) of the Letter.
F. Separate Agreement. This Letter, and the agreements
contained and set forth herein, is (are) separate from any other
understandings, agreements or documents (including White's subscription to
purchase shares of A-G's capital stock in the private placement of such
securities pursuant to and in accordance with that certain Private Placement
Memorandum, and related Questionnaire and Subscription Agreement, dated May
15, 1999) by, between and among the parties hereto; and shall be so treated
for all purposes whatsoever. No party shall claim any right of set-off,
offset or other deduction under or otherwise applicable to this Letter in
respect of any other duties or obligation(s) owed to such party by any other
party or under any other understanding or agreement in respect of this
Letter.
G. Notices. Any notice required to be given, referenced or
which any of the parties desires to provide to the other shall be given and
shall be deemed to have been provided by the other party (1) on the third
(3rd) business day following the date of mailing of any such notice in the
United States Mail postage prepaid in a sealed envelope(s) addressed as set
forth below, (2) on the date that any such notice is hand delivered to the
other party, (3) on the second (2nd) business day following transmission via
facsimile if such notice is in writing and is addressed to the receiving
party and transmitted via facsimile, as follows:
(1) If to A-G:
Auto-Graphics, Inc.
3201 Temple Avenue
Pomona, CA 91768
Attention: Robert S. Cope
or via facsimile transmission to
Fax No. 909/595-3506 addressed as
indicated above
With a copy to:
Robert H. Bretz, Esq.
520 Washington Blvd.
Marina del Rey, CA 90292
(Fax No. 310/578-5443)
(2) If to White:
Mr. Steve White
c/o RESNICK & GRAY
4400 MacArthur Blvd., Suite 800
Newport Beach, CA 92658-7849
Attn: Barnet Resnick, Esq
(Fax No. 949/833-3445)
With a copy to:
Barnet Resnick, Esq
RESNICK & GRAY
4400 MacArthur Blvd., Suite 800
Newport Beach, CA 92658-7849
(Fax No. 949/833-3445)
H. Third Party Beneficiaries. Except as expressly provided
in this Letter, no person or entity is intended or shall be deemed or
determined to be a third party beneficiary under this Letter and/ or the
agreements set forth herein.
I. Heirs successors And Assigns. By signing this Letter, the
undersigned parties thereby confirm and re-confirm their intention to make
legal delivery of the Letter at such time; and that such action is intended
and shall be deemed and determined for all purposes to bind any of the
parties' respective heirs, successors and assigns for all purposes whatsoever
under and otherwise in respect of this Letter.
J. Counterpart Signatures. This Letter may be signed and
thereby delivered by the parties using counterpart signature pages; and, when
all such counterpart signature pages have been exchanged, this Letter
including such counterpart signature pages shall be deemed for all purposes
to be the original of this Letter.
K. Assistance Of Legal Counsel and Other Professionals. The
parties represent, agree and warrant to each other that such parties have had
and have actually used the opportunity to have this Letter and the form and
content hereof reviewed by legal counsel and/or other professionals of the
respective parties' own choosing; and that such parties will not claim or
otherwise assert that they signed and thereby delivered this Letter without
the benefit of the involvement of and advice from such parties' legal and/or
other professional advisor(s). Except as expressly provided for in this
Letter in paragraph 12.C.(2) in favor of White, the parties shall bear their
own legal and other professional fees and costs.
L. Brokers Or Other Finders. Each of the parties,
represents, agrees and warrants to the other that such party has not made any
agreement or otherwise taken any action to engage or otherwise obligate the
parties or either of them (or the Companies) to any broker, finder or other
person or entity who is thereby or otherwise entitled to be paid or receive a
broker's, finder's or other similar fee or other type of compensation for,
under, arising out of or otherwise in reference to or connection with this
Letter including the stock purchase transaction provided for herein.
M. Arm's Length Transaction. The parties acknowledge and
agree that they are making and entering into this Letter as a result of and
in an "arm's length" negotiation and transaction, and that the parties
(including any agent, attorney or other representative thereof) are not under
any duty (including any fiduciary or similar duty) or responsibility to the
other as it relates to this Letter or otherwise. White acknowledges and
agrees that A-G and the Companies including their officers, directors,
employees, consultants, designers, attorneys or other representatives) are
under no duty and/or responsibility to him in respect of this Letter and the
matters covered thereby as a result of his, and/or entities including limited
liability companies which he may now of hereafter be associated with,
subscription to purchase shares in A-G as referenced in paragraph 12(t)
hereof.
N. Time of the Essence. For all purposes of this Letter and
the matters provided for in or contemplated by this Letter, time shall be
deem to be of the essence.
13. Reserved
14. A-G Assurances Re Companies. Without limiting A-G's duties and
responsibilities as otherwise set forth in this Letter, A-G does hereby agree
and promise to take whatever steps it can reasonably and/or is legally
entitled to take from time to time to ensure that he covenants by the
Companies to White as expressly set forth in this Letter are timely performed
and otherwise fulfilled by the Companies; and A-G agrees and promises not to
take any steps or other action which would reasonably be understood to
interfere with the Companies' covenants o White, and the timely performance
thereof by the Companies, as expressly set forth in this Letter.
15. Complete Agreement/Amendment. This Letter sets forth all of
the parties' agreements in respect of the subject matter of this Letter. The
parties represent to and agree with each other that, in entering into and
performing this Letter, they have not received and are not otherwise relying
upon any statements, representations, understandings, agreements, covenants,
promises, guaranties, warranties, assurances and/or any other matters which
are not expressly set forth in this Letter; and that they will not at 'any
time assert otherwise (whether by way of any claims in contract, tort or
otherwise). If either of the undersigned parties subsequently attempts r
seeks to and/or actually does assert any claim(s) that such party received
and/or relied upon any statement, representation, understanding, agreement
covenant, promise, guaranty, warranty, assurance or any other matter which is
(or are) not expressly set forth in this Letter, other than the implied
covenant of good faith and fair dealing, then the party prevailing in respect
of any such claim including any action or other proceeding instituted in
respect thereof shall be entitled, in addition to whatever other relief such
prevailing party may otherwise be entitled to, to be indemnified and held
harmless by the other party for any and all costs and expenses (including
reasonable attorneys' and other professionals' fees/costs paid or incurred by
such prevailing arty), losses and damages paid or incurred by such prevailing
party as a result of any assertion the other party which was inconsistent
with the above referenced representation and agreement or purposes of such
indemnification and hold harmless provision and the underlying
representations and warranties, the Companies are deemed to be express third
party beneficiaries his Letter (including the within agreement(s) and Exhibit
A may only be amended, modified or hanged by a further writing so stating and
signed by the party against which any such , amendment, modification and/or
change is sought to be enforced. This Letter was and shall be deemed for all
purposes to have been drafted and prepared by all of the parties hereto. If
the language used and contained in this Letter is subsequently determined for
any reason to be unclear or ambiguous in any way, then no party shall suffer
any prejudice or detriment as a result of having participated in the drafting
or other preparation of this Letter.
IN WITNESS WHEREOF, the undersigned parties have executed this Letter in Los
Angeles, California effective as of the date first above stated.
AUTO-GRAPHICS, INC.
("A-G")
By ss/Robert S. Cope
- -------------------------
Robert S. Cope President
By ss/Daniel E. Luebben
- -------------------------
Daniel E. Luebben,
Chief Financial Officer
LibraryCard.com, Inc.
By ss/Corey Patick
- ------------------------
Corey Patick
CEO
By ss/Robert H. Bretz
- ------------------------
Robert H. Bretz
Secretary
A-G Sub, Inc.
By ss/Corey Patick
- -----------------------
Corey Patick
CEO
By ss/Robert H. Bretz
- -----------------------
Robert H. Bretz
Secretary
"White"
ss/Steve White
- -----------------------
Steve White
EXHIBIT A
Description Of Businesses
LibraryCard.com
A-G's bibliographic records and other library services and related
information directed at and offered to the consumer (as opposed to the in
library) market via the Internet or other similar electronic communication
system (LibraryCard.com Business). LibraryCard.com is envisioned to be a
Internet Web portal/destination site targeted at the consumer market (both
individual and business customers) which non-library customers are seeking to
purchase or otherwise acquire information in electronic format and other
reference materials through e-commerce. It is envisioned that revenue will
be generated through sponsorships, commercial advertising, licensing of
commercial databases and sale of information in electronic and print formats
including the sale books and related items.
A-G shall retain all rights of ownership of the information/content.
published via the LibraryCard.com Business which is authored, created,
compiled developed, obtained, maintained and offered by A-G including any of
its other subsidiaries prior to (or authored, created, compiled, developed,
obtained, maintained and offered by A-G separately from LibraryCard.com
Business after) the Closing. Notwithstanding such Companies' respective
ownership of such information, A-G and the .LibraryCard.com Business shall
provide each other with an irrevocable, on-going royalty free non-exclusive
license and right to publish, sell or use the bibliographic records and other
library services and related information authored, created, complied,
developed, obtained, maintained and offered from time to time by the other.
Nothing herein shall, however, give LibraryCard.com the right to re-sell
(versus use in the LibraryCard.com Business) any bibliographic records owned
by A-G to any library or other third party purchaser.
CMS (and A-G Sub)
A-G's content management services product and all, enhancements and
improvements thereto offered, sold and/or licensed to any consumer,
commercial or government user (the CMS or A-G Sub. Business). Such CMS
Business product/service shall include the following customer contracts for
all or various sub-components of the product/service (which will be sold,
assigned and transferred to the CMS Business):
1. Boeing 2. Northrop/Grumman
The CMS product/service is intended to be an "end-to-end" enterprise
content management software solution for document preparation, management and
delivery/publication in various formats. including Internet, Intranet, CD,
print and via e-commerce applications. This product/service seeks to address
the growing need for business and other customers to reuse and repurpose
content in generating customized online information products/services, in a
dynamic environment, that can be published using various media.
A-G including any of its other subsidiaries shall retain and obtain
from CMS an irrevocable, on-going royalty free license, and right to use the
CMS Business product/service including all enhancements and improvements
thereto by or for the CMS Business after the Closing for its own internal use
and in Connection with the products and services offered, sold or otherwise
made available to A-G's customers for purposes other than the intended
exploitation by the CMS Business.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the Balance Sheet and related Statement of Operations of
Auto-Graphics, Inc. as of December 31, 1999 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 3816286
<SECURITIES> 0
<RECEIVABLES> 1439325
<ALLOWANCES> 38000
<INVENTORY> 27891
<CURRENT-ASSETS> 5355489
<PP&E> 12081763
<DEPRECIATION> 6971532
<TOTAL-ASSETS> 10647315
<CURRENT-LIABILITIES> 2259348
<BONDS> 0
0
0
<COMMON> 159499
<OTHER-SE> 3923133
<TOTAL-LIABILITY-AND-EQUITY> 10647315
<SALES> 8391323
<TOTAL-REVENUES> 8391323
<CGS> 4872445
<TOTAL-COSTS> 3149754
<OTHER-EXPENSES> (52591)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 347957
<INCOME-PRETAX> 73758
<INCOME-TAX> (46630)
<INCOME-CONTINUING> 105188
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 105188
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
