SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended:
September 30, 2000 Commission File Number 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 executive offices) (zip code)
Registrant's telephone number, including area code: (909) 595-7204
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Total Shares Outstanding:
Common Stock: 4,757,234
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AUTO-GRAPHICS, INC.
Form 10-Q
September 30, 2000
TABLE OF CONTENTS
Part I - Financial Information 3
Unaudited Condensed Consolidated Statements of
Operations and Comprehensive Income
For Nine Months Ended September 30, 2000 and 1999 3
Unaudited Condensed Consolidated Statements of
Operations and Comprehensive Income
For Three Months Ended September 30, 2000 and 1999 4
Unaudited Condensed Consolidated Balance Sheets
September 30, 2000 and December 31, 1999 5
Unaudited Condensed Consolidated Statements of
Cash Flows For Nine Months Ended
September 30, 2000 and 1999 6
Notes to the Unaudited Condensed
Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
Part II - Other Information 16
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AUTO-GRAPHICS, INC.
Form 10-Q
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
Unaudited Condensed Consolidated
Statements of Operations and Comprehensive Income
For the Nine Months Ended September 30, 2000 and 1999
2000 1999
Net sales (See Note 4) $6,238,124 $5,928,238
Costs and expenses:
Cost of sales 3,671,675 3,417,328
Selling, general & administrative 3,292,803 2,242,885
Total costs and expenses 6,964,478 5,660,213
Income/(loss) from operations (726,354) 268,025
Interest/other 142,626 211,467
Income/(loss) before taxes (868,980) 56,558
Provision for taxes
based on income (See Note 5) 5,651 --
Minority Interest (See Note 2) (332,208) --
Net income/(loss) and
Comprehensive income/(loss) (See Note 3) $ (542,423) $ 56,558
Basic earnings/(loss) per share $ (0.11) $ 0.02
Weighted average shares outstanding 4,794,782 3,431,433
Diluted earnings/(loss) per share $ (0.11) $ 0.02
Weighted average shares outstanding 4,794,782 3,487,758
See Notes to Unaudited Condensed Consolidated Financial Statements
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AUTO-GRAPHICS, INC.
Form 10-Q
Unaudited Condensed Consolidated
Statements of Operations and Comprehensive Income
For Three Months Ended September 30, 2000 and 1999
2000 1999
Net sales (See Note 4) $1,858,787 $1,904,796
Costs and expenses:
Cost of sales 1,138,343 1,084,667
Selling, general & administrative 1,204,044 710,701
Total costs and expenses 2,342,387 1,795,368
Income/(loss) from operations (483,600) 109,428
Interest/other 35,053 84,494
Income/loss) before taxes (518,653) 24,934
Provision for taxes
based on income (See Note 5) 1,283 --
Minority Interest (See Note 2) (207,028) --
Net income/comprehensive
income/(loss) (See Note 3) $ (312,908) $ 24,934
Basic earnings/(loss) per share $ (0.07) $ 0.01
Weighted average shares outstanding 4,765,678 4,032,234
Diluted earnings/(loss) per share $ (0.07) $ 0.01
Weighted average shares outstanding 4,765,678 4,201,209
See Notes to Unaudited Condensed Consolidated Financial Statements
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AUTO-GRAPHICS, INC.
Form 10-Q
Unaudited Condensed Consolidated Balance Sheets
September 30, 2000 and December 31, 1999
ASSETS 2000 1999
Current Assets: (Audited)
Cash $ 1,987,532 $ 3,816,286
Accounts receivable, less allowance
for doubtful accounts ($38,000 in
2000 and 1999) 1,081,963 1,401,325
Unbilled production costs 269,552 27,891
Other current assets 261,923 109,987
Total current assets 3,600,970 5,355,489
Software, equipment and leasehold
improvements, net 5,420,781 5,110,231
Other assets 93,273 181,595
$ 9,115,024 $10,647,315
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 459,403 $ 293,798
Deferred income 898,449 1,273,873
Accrued payroll and related
liabilities 400,392 497,076
Other accrued liabilities 120,114 124,601
Current portion of long-term debt 186,667 70,000
Total current liabilities 2,065,025 2,259,348
Long-term debt, less current portion 2,393,378 3,153,249
Deferred taxes based on income 475,236 475,236
Total liabilities 4,933,639 5,887,833
Minority Interests 449,412 676,850
Stockholders' equity:
Notes Receivable - Stock (See Note 2) (77,500) (127,500)
Common stock, 12,000,000
shares authorized, 4,757,234
shares issued and outstanding
in 2000, and 3,431,433 shares
issued and outstanding in 1999
(See Note 2) 4,193,754 3,793,332
Retained earnings (Accumulated Deficit) (362,104) 438,977
Accumulated Other Comprehensive Income (22,177) (22,177)
Total stockholders' equity 3,731,973 4,082,632
$ 9,115,024 $10,647,315
See Notes to Unaudited Condensed Consolidated Financial Statements
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AUTO-GRAPHICS, INC.
Form 10-Q
Unaudited Statements of
Cash Flows
For the Nine Months Ended September 30, 2000 and 1999
2000 1999
Cash flows from operating activities:
Increase (Decrease) in Cash
Net income/(loss) $ (542,423) $ 56,558
Adjustments to reconcile net
income/(loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 977,769 915,225
Minority Interest (332,208) --
Changes in operating assets
and liabilities:
Accounts receivable 356,863 605,403
Unbilled production costs (241,661) (33,019)
Other current assets (151,937) 208,969
Other assets 48,246 --
Accounts payable 165,605 (504,336)
Deferred income (375,424) 140,112
Other accrued liabilities (4,488) 24,124
Accrued payroll and
related liabilities (96,685) (6,586)
Net cash provided by (used in)
operating activities (196,343) 1,406,450
Cash flows from investing activities:
Capital expenditures (1,285,738) (937,013)
Cash flows from financing activities:
Net principal payments under debt
agreements (643,206) (48,000)
Sale of capital
stock/warrants, net (See Note 2) 677,041 593,783
Repurchase of stock, net (See Note 2) (380,508) --
Net cash provided by (used in)
financing activities (346,673) 545,783
Net increase (decrease) in cash (1,828,754) 1,015,220
Cash at beginning of year 3,816,286 292,744
Cash at end of period $1,987,532 $1,307,964
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 222,778 $ 238,605
Income taxes 15,251 14,512
See Notes to Unaudited Condensed Consolidated Financial Statements
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AUTO-GRAPHICS, INC.
Form 10-Q
Notes to Unaudited Condensed
Consolidated Financial Statements
September 30, 2000
NOTE 1. The unaudited condensed consolidated financial statements
included herein have been prepared by the Registrant and include all
normal and recurring adjustments which are, in the opinion of Management,
necessary for a fair presentation of the financial position at September 30,
2000, the results of operations and the statements of cash flows for the
three and nine months ended September 30, 2000 and 1999 pursuant to the rules
and regulations of the Securities and Exchange Commission("SEC"). 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.
The results of operations for the subject periods are not necessarily
indicative of the results for the entire year.
This Quarterly Report on Form 10-Q is qualified in its entirety by the
information included in the Company's Annual Report to the SEC on Form 10-K,
for the period ended December 31, 1999 including, without limitation, the
financial statements and notes included therein.
NOTE 2. In May 1999, the Company entered into a selling agreement with
an associate pertaining to the Company's 1999 private placement offering,
which raised $1,251,000 in equity investment and resulted in the sale/
issuance of an additional 1,501,200 shares of the Company's (restricted)
Common Stock. Pursuant to the selling 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 remained issued and outstanding but
unexercised at September 30, 2000 (the warrants were recently sold by the
associate and exercised by the buyer subsequent to September 30, 2000). The
warrants were anti-dilutive for the nine months ended September 30, 2000. The
240,000 shares of Common Stock issuable through the exercise of these warrants
reflect the Company's only potentially dilutive securities currently
outstanding.
In May 1999, the Company's principal director/shareholder granted an 18 month
option to the same associate to purchase 1,125,000 shares of the Company's
(restricted) Common Stock owned by such individual (and his Family Trust)
through November 15, 2000, subject to a one year renewal provision in favor
of the recipient, for $1.67 per share. (See Exhibit 10.30 "Option Agreement"
to Form 10-Q for the period ended June 30, 1999). Likewise, the principal
director/shareholder has an option under the same agreement to sell an
additional 445,173 shares to the associate for $1.58 per share. The total
shares (1,570,173) which are the subject of this option represent
approximately 33% of the Company's issued and outstanding Common Stock at
September 30, 2000. On November 14, 2000, the associate notified the Company
and its principal director/shareholder that the associate is exercising his
option to purchase the 1,125,000 shares of restricted Common Stock under the
Option Agreement. Purchase of shares under the option, which represent
an actual or potential change in control of the Company, is subject to
completion of "due diligence" and payment for shares purchased by the buyer
within 45 days.
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AUTO-GRAPHICS, INC.
Form 10-Q
Notes to Unaudited Condensed
Consolidated Financial Statements
September 30, 2000
NOTE 2. Continued
As part of the Company's above referenced private placement offering, the
Company sold an additional 93,000 shares of its (restricted) Common Stock on
4-year full recourse interest bearing notes totaling $77,500 to certain
senior management of the Company.
In December 1999, the Company and the 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. A third party investor (who also
invested in the Company's 1999 private placement offering) invested $1.0
million in cash in each of the subsidiaries in return for a 24.5% ownership
interest. The Company retained 61% and the associate retained a 5.5% interest
personally and a 9% interest as trustee, after the issuance of 700,000 shares
of Common Stock of each subsidiary to the associate as trustee for their stock
option/purchase plans on 30 month full recourse notes totaling $280,500. In
October 2000, the investor reported to the Company that he did not believe that
the Company had fully performed all of its obligations in respect of such
subsidiaries' securities sale and purchase transactions; and that, because the
Company had not satisfied the investor's expectations regarding the Dataquad
transaction, the investor maintained that his investment in LibraryCard was
also put into issue. The investor indicated that he has no facts upon which to
base any belief that the LibraryCard stock purchase transaction was not in
accordance with the party's agreement. At this point in time, it is unclear
whether or not the investor will actually assert any claims, in litigation or
otherwise, that he is entitled to rescission and/or damages in respect of his
investments in Dataquad, LibraryCard and/or the Company. The Company believes
that, with the recent significant decline in the market valuations for
technology including Internet stocks and the near term prospects for same, the
investor may be experiencing "buyer's remorse". The Company is not aware of
any factual basis for the investor asserting any misrepresentation, securities
laws or similar claims against the Company, and/or LibraryCard in connection
with the investor's purchase of shares of LibraryCard (or the Company). The
Company is not aware of any facts upon which the investor could be expected to
prevail in any action asserting similar claims against the Company, and/or
Dataquad in connection with the investor's purchase of shares of Dataquad.
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 stock
split 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 private placement and
share repurchase referenced below. Share amounts in the Statement of
Operations including basic and diluted earnings per share, and the
Consolidated Balance Sheets and notes thereto have been adjusted retroactively
to reflect the stock split for the periods presented.
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AUTO-GRAPHICS, INC.
Form 10-Q
Notes to Unaudited Condensed
Consolidated Financial Statements
September 30, 2000
NOTE 2. Continued
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.
In February 2000, the Company accelerated the purchase and retired the
remaining 187,200 shares outstanding (after giving effect to the 3-for-1
stock split) under a stock repurchase agreement with a former director and
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.
The Company incurred direct and incremental expenses in connection with the
1999 $1,251,000 private placement offering, the sale of the $2.0 million in
shares of the Company's Dataquad, Inc. and The LibraryCard,Inc. subsidiaries,
and the above referenced 2000 private placement offering of $930,000
resulting in gross proceeds from the sale of all such securities of
$4,181,000. Equity funding costs and expenses in 2000, including legal,
and selling expenses totaling $254,000, have been offset against the
total equity raised.
In July 2000, the Company settled a lawsuit with a former officer (See Part
II, Item 1. "Legal Proceedings") for total consideration of $225,000 including
the repurchase of 65,500 shares of the Company's Common Stock for $105,000.
NOTE 3. 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.
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AUTO-GRAPHICS, INC.
Form 10-Q
Notes to Unaudited Condensed
Consolidated Financial Statements
September 30, 2000
Note 4. 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 for the nine months ending September 30, 2000 and 1999:
2000 1999
----------- -----------
Geographic areas
Net sales
United States $ 4,914,002 $ 4,603,785
Foreign - Canada/Other 1,324,122 1,324,453
Long-lived assets, net
United States 5,268,341 4,874,642
Foreign - Canada 152,440 170,347
Note 5. Deferred tax assets and liabilities are recognized for the
expected future tax consequences of events that have been recognized in
the Company's financial statements or tax returns. At December 31, 1999, the
Company has available federal, state and Canadian net operating loss carry-
forwards of approximately $385,000, $498,000 and $337,000, respectively, for
income tax purposes. Federal net operating loss carry-forwards expire in
2018, and state and foreign taxes in 2005.
Note 6. As of fiscal year-end December 31, 1997, the Company adopted
Statement of Financial Accounting Standards ("FAS") No. 128, "Earnings Per
Share". The standard requires the Company to present basic earnings per
share and diluted earnings per share, using the treasury method and requires
restatement of prior earnings per share data presented. Basic earnings per
share computations are based on the weighted average number of shares of
Common Stock outstanding during the year. Diluted earnings per share
computations are based on the weighted average number of shares of Common
Stock outstanding during the year plus the dilutive effect of warrants. For
the nine and three months ended September 30, 2000, 240,000 of warrants were
outstanding but were not included in the computation of loss per share because
the effect of exercise would have had an anti-dilutive effect on loss per
share.
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AUTO-GRAPHICS, INC.
Form 10-Q
Note 6. Continued
The following table reconciles the numerator and denominator of the basic and
diluted earnings per share computations shown on the Consolidated Statements
of Operations and Comprehensive Income for the nine months ended
September 30, 2000 and 1999:
2000 1999
----------- -----------
Net Income/(loss) $ (542,423) $ 56,558
Weighted average shares
outstanding - Basic 4,794,782 3,431,433
Dilutive effect of warrants -- 56,325
----------- -----------
Weighted average shares
outstanding - Diluted 4,794,782 3,487,758
Net income/(loss) per share - Basic ($0.11) $0.02
Net income/(loss) per share - Diluted ($0.11) $0.02
The following table reconciles the numerator and denominator
of the basic and diluted earnings per share computations shown on the
Consolidated Statement of Operations and Comprehensive Income for the
three months ended September 30, 2000 and 1999:
2000 1999
----------- -----------
Net Income/(loss) $ (312,908) $ 24,934
Weighted average
shares outstanding - Basic 4,765,678 4,032,234
Dilutive effect of warrants -- 168,975
----------- -----------
Weighted average shares
outstanding - Diluted 4,765,678 4,201,209
Net income/(loss) per share - Basic ($0.07) $0.01
Net income/(loss) per share - Diluted ($0.07) $0.01
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AUTO-GRAPHICS, INC.
Form 10-Q
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FINANCIAL CONDITION
December 31, 1999 to September 30, 2000
Liquidity and capital resources. Working capital decreased
$1,560,000 primarily as a result of capital expenditures of $1,286,000 and
principal payments on long-term debt of $643,000. Accounts receivable also
declined by $357,000 despite an increase in net sales as a growing proportion
of the Company's net sales and accounts receivable are being paid in advance
via customer deposits (deferred income), which also declined by $375,000.
The average collection period for accounts receivable was unchanged at 55 days
at December 31, 1999 and September 30, 2000. Net cash used in operations was
$196,000 in the first nine months of 2000 down from $1,406,000 provided by
operations in the first nine months of 1999 due primarily to net losses
(offset by minority interests) from additional staff and expenses related to
the start-up of two new subsidiaries, Dataquad and LibraryCard and an increase
in legal expenses. Capital expenditures year-to-date increased to $1,286,000
through the third quarter of 2000 up from $937,000 through the third quarter
of 1999 due to software development expenditures for the next generation
Impact/Online and Impact/CMS editor systems and the procurement of computer
equipment, office equipment and furniture associated with the consolidation of
office space at the Company's Pomona headquarters. Unbilled production costs
increased $242,000 due to an increase in Datacat catalog projects. Other
current assets increased $152,000 due to miscellaneous increases in prepaid
expenses through the first nine months of 2000.
Management believes that liquidity and capital resources will
be adequate to fund operations including development of the business of
the Company's new majority-owned subsidiary Dataquad(tm) into 2001.
However, LibraryCard's current independent financial resources are sufficient
to sustain the subsidiary only through the balance of 2000. The Company
recently committed to provide additional funding in an amount of up to
$250,000 which should sustain the present operation through February 2001.
The Company is initiating a private placement offering to raise gross proceeds
of $750,000 through the sale of 750,000 shares of LibraryCard Common Stock at
$1.00 per share. The subject LibraryCard shares are convertible into one
share of the Company's (restricted) Common stock for three shares of
LibraryCard (restricted) Common Stock during the ensuing 2-year period. No
assurances can be given that the LibraryCard offering will be successful or
that such subsidiary will be able to obtain adequate financing to continue the
development, operation and, ultimately, promotion of the site (and business)
without ongoing financial assistance from the Company and/or that the Company
will determine to provide such assistance, and what amounts over what period
of time, beyond the $250,000 referenced above as having been committed to
date.
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 including the above
referenced private placement offering (although there can be no assurances
that such equity financing will be available on terms and conditions
acceptable to the Company or at all). In 1999, the Company raised
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AUTO-GRAPHICS, INC.
Form 10-Q
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Continued.
approximately $3.0 million through the sale of stock in the Company and in
the Dataquad(tm) and LibraryCard(tm) subsidiaries. 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. At September 30, 2000, the Company's
cash position was approximately $2.0 million.
In August 2000, the Company restructured and extended the term of
its credit facilities with its bank (Wells Fargo Bank, N.A.) through June 3,
2002. The new facility is now comprised of a single revolving line of credit.
In light of the Company's present cash resources, and anticipated reduced
need for bank credit, the newly implemented line of credit starts at a $3.0
million commitment and decrease over the 2-year term to a $2.0 million
commitment and carry a lower rate of interest and reduced loan fees. The
loan covenants provide the Company with greater flexibility to incur
consolidated net losses (see Net Loss in 2000 below) and commit its cash
resources to new initiatives consistent with less restrictive financial ratio
covenants; and the Company has agreed to maintain conservative liquidity
ratios which are designed to encourage the Company to finance future growth
with investment capital (as opposed to bank debt).
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AUTO-GRAPHICS, INC.
Form 10-Q
RESULTS OF OPERATIONS
First Nine Months 2000 as Compared to First Nine Months 1999
Net sales increased $310,000 or 5% to $6,238,000 in 2000 up from
$5,928,000 in 1999. The net sales increase is due primarily to two large
non-recurring library processing and conversion projects representing net
sales of $715,000.
Cost of sales increased $254,000 or 7% corresponding to the
increase in net sales.
Selling, general and administrative expenses increased $1,050,000
or 47% in 2000 over 1999 due to additional staff and other recurring and
non-recurring expenses related to the start-up of the new Dataquad(tm) and
LibraryCard(tm) subsidiaries and an increase in legal expenses from $190,000
in 1999 to $371,000 in 2000. The Company expects these elevated expense
levels to continue through 2000 and into 2001.
Income from operations declined from $268,000 in 1999 to a loss of
$726,000 in 2000 for the same reasons indicated above.
Interest expense/other decreased $69,000 or 33% due to additional
interest income earned on excess cash balances and lower average borrowings.
Provision for taxes based on income reflects minimum state income
taxes payable. (See Note 5 of Notes to Unaudited Condensed Consolidated
Financial Statements).
Minority Interests reflects the non-Company owners' share of the
losses realized by the two new subsidiaries referenced above.
Net losses were $542,000 in 2000 down from net income of $57,000
in 1999 for the same reasons indicated above.
Basic earnings per share and diluted earnings per share decreased
from $0.02 in 1999 to a loss of $0.11 per share in 2000 for the same reasons
disclosed above. Shares outstanding have been retroactively restated for a
3-for-1 stock split in February 2000. (See Note 2 and Note 6 of Notes to
Unaudited Condensed Consolidated Financial Statements).
-15-
AUTO-GRAPHICS, INC.
Form 10-Q
Third Quarter 2000 as Compared to Third Quarter 1999
Net sales decreased $46,000 or 2% to $1,859,000.
Cost of sales decreased $54,000 or 5% corresponding to the
decrease in net sales.
Selling, general and administrative expenses increased
$493,000 or 69% due to additional staff and other recurring and non-
recurring expenses related to the start-up of the two new Dataquad(tm)
and LibraryCard(tm) subsidiaries and an increase in legal expenses from
$58,000 in 1999 to $131,000 in 2000.
Income from operations declined from $109,000 to a loss of
$484,000 in 2000 for the same reasons indicated above.
Interest expense/other was $35,000 in 2000 down from $84,000
in 1999 due to additional interest income earned on excess cash balances
and lower average borrowings.
Provision for taxes based on income reflects minimum state income
taxes payable. (See Note 5 of Notes to Unaudited Condensed Consolidated
Financial Statements).
Minority Interests reflects the non-Company owners' share of the
losses realized by the two new subsidiaries referenced above.
Net losses were $313,000 in 2000, down from net income of $25,000
in 1999 for the same reasons indicated above.
Basic earnings per share decreased from $0.01 per share in 1999 to a
loss of $0.07 per share in 2000 and diluted earnings per share from $0.01 to
a loss of $0.06 per share for the same reasons indicated above. Shares
outstanding have been retroactively restated for a 3-for-1 stock split in
February 2000. (See Note 2 and Note 6 of Notes to Unaudited Condensed
Consolidated Financial Statements).
Net Loss in 2000
Management expects that 2000 net sales will increase slightly over
1999 net sales of $8.39 million. The additional equity raised by the Company
in 1999 and in 2000 will be used to fund the Company's Internet/Web and
software development initiatives in 2000 (and 2001). Under AICPA Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities", certain costs
incurred by the Company of a "start-up" nature must be expensed as incurred.
Such "start-up" expenses, and other non-capitalized costs/expenses associated
with the Company's new software and Internet/Web initiatives, primarily in the
Company's Dataquad(tm) and LibraryCard(tm) subsidiaries, are anticipated to
result in the Company reporting a consolidated net loss in the $750,000-$1.0
million range for the year ending December 31, 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.
-16-
AUTO-GRAPHICS, INC.
Form 10-Q
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
At the time of the departure of the Company's former Chief
Operating Officer, William J. Kliss, in April of 2000, Mr. Kliss
filed suit against the Company in Orange County California Superior
Court, Case No. 000004363 captioned William Kliss v. Auto-Graphics,
Inc., et al., alleging that he was entitled to receive a grant of
stock options under the Company's nonqualified stock option plan
attributable to his past employment with the Company (the "Action").
At the time of the Action, Mr. Kliss owned approximately 65,500
shares of the Company's issued and outstanding Common Stock 60,000
(post 3-for-1 split) shares of which had been purchased by Mr. Kliss
in the Company's 1999 private placement offering for a promissory
note payable to the Company from Mr. Kliss in the amount of $50,000
secured by such shares of restricted stock (the "Note"). In July
2000, the Company and Mr. Kliss agreed to settle the Action (the
"Settlement"). Pursuant to the Settlement, the Company will
purchase or arrange for the purchase by third parties of all of the
65,500 shares of the Company's Common Stock owned by Mr. Kliss (the
"Stock"), and Mr. Kliss will receive total consideration for the
Settlement including as payment for the Stock in the amount of
$225,000 payable over a period of fifteen (15) months, plus interest
at the rate of 5%, commencing in September 2000; and the original
promissory note will be forgiven. The Settlement with Mr. Kliss
will not require the Company to take any additional charge over and
above the Company's existing reserve in respect of employee
termination matters.
Item 2. Changes in Securities. None
Item 3. Defaults upon Senior Securities. None
Item 4. Submission of Matters to a Vote of Security Holders. None
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
10.41 First Amended and Restated Credit Agreement between Wells
Fargo and Auto-Graphics, Inc. dated August 1, 2000.
10.42 Revolving Reducing Note date August 1, 2000.
10.43 LibraryCard Revolving Line of Credit Agreement and Note
dated November 1, 2000.
-17-
AUTO-GRAPHICS, INC.
Form 10-Q
PART II - OTHER INFORMATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
AUTO-GRAPHICS, INC.
Date: 11/14/00 ss/ Michael K. Skiles
------------------------ ---------------------------------
Michael K. Skiles, President
Date: 11/14/00 ss/ Daniel E. Luebben
------------------------ ----------------------------------
Daniel E. Luebben, Chief Financial
Officer and Secretary
EXHIBIT 10.41
AMENDED AND RESTATED
CREDIT AGREEMENT
This AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement") is entered into
as of August 1, 2000, 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 under the terms and conditions of
that certain Credit Agreement by and between Bank and Borrower dated as of
May 12, 1997, as amended (the "Prior Agreement").
B. Pursuant to the Prior Agreement, Borrower remains indebted to Bank under
(i) an equipment line of credit in the maximum principal amount of Three
Million Dollar ($3,000,000.00) (the "Prior Equipment Line of Credit") which
is evidenced by that certain promissory note executed by Borrower in favor of
Bank in the amount of the Prior Equipment Line of Credit and dated May 12,
1997 (the "Prior Equipment Line of Credit Note"), and (ii) a revolving line
of credit in the maximum principal amount of One Million Dollars
($1,000,000.00) (the "Prior Revolving Line of Credit" and, together with the
Prior Equipment Line of Credit, the "Prior Lines of Credit") which is
evidenced by that certain promissory note executed by Borrower in favor of
Bank in the amount of the Prior Revolving Line of Credit and dated June 30,
1999 (the "Prior Revolving Note" and together with the Prior Equipment Line
of Credit Note, the "Prior Notes"). As of the date of this Agreement, the
outstanding principal balance under the Prior Lines of Credit is
$2,400,000.00, plus accrued but unpaid interest.
C. Borrower has requested and Bank has agreed to amend and restate the Prior
Agreement to modify, among other things, the financial requirements of the
Prior Agreement, subject to the terms and conditions set forth herein.
NOW THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree that all of the terms
and conditions of the Prior Agreement shall be and hereby are amended and
restated by the terms and conditions of this Agreement, and Bank and Borrower
further agree as follows:
ARTICLE I
THE CREDIT
LINE OF CREDIT.
(a) Line of Credit. Subject to the terms and conditions of this Agreement,
Bank hereby agrees to make advances to Borrower from time to time up to and
including June 3, 2002, not to exceed at any time the aggregate principal
amount of Three Million Dollars ($3,000,000.00) (the "Line of Credit"), the
proceeds of which shall be used to repay the Prior Equipment Line of Credit
and the Prior Revolving Line of Credit in full, and 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 ("Note"), all terms of which are incorporated herein by this
reference.
(b) Borrowing and Re-payment. Borrower may from time to time during the term
of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Note; provided, however, that the total
outstanding borrowings under the Line of Credit shall not exceed the maximum
principal amount available thereunder.
(c) Mandatory Prepayment. Borrower shall prepay the Line of Credit in an
amount equal to ten percent (10%) of Excess Equity Proceeds not more than two
(2) business days after any Excess Equity Proceeds are received, and the Line
of Credit shall be permanently reduced on such date by the amount of
prepayment required by this sentence. "Equity Proceeds" shall mean the gross
amount of new equity received by the Borrower and its Subsidiaries from and
after April 1, 2000. "Excess Equity Proceeds" shall mean Equity Proceeds in
excess of $5,000,000.00.
(d) Reductions to Line of Credit. The Line of Credit shall be reduced
automatically and without further notice on each October 1 and each April 1,
commencing October 1, 2000, by the amount of Two Hundred Fifty Thousand
Dollars ($250,000.00), resulting in maximum principal availability of
$2,750,000 on October 1, 2000; $2,500,000 on April 1, 2001; $2,250,000 on
October 1, 2001; and $2,000,000 on April 1, 2002, minus in each case the
aggregate amount of reductions to the Line of Credit pursuant to Section
1.1(c) above.
Section 1.2 INTERES/FEES
(e) Interest. The outstanding principal balance of the Line of Credit shall
bear interest at the rate of interest set forth in the Note.
(f) Computation and Payment. Interest shall be computed on the basis of a
360-day year, actual days elapsed. Interest shall be payable at the times
and place set forth in the Note.
SECTION 1.3 COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect all
principal, interest and fees due under the Line of Credit by charging
Borrower's demand deposit account number 4644631202 with Bank, or any other
demand deposit account maintained by Borrower with Bank, for the full amount
thereof. Should there be insufficient funds in any such demand deposit
account to pay all such sums when due, the full amount of such deficiency
shall be immediately due and payable by Borrower.
SECTION 1.4 COLLATERAL. Borrower hereby reaffirms the security interests
granted to Bank pursuant to (a) that certain Continuing Security Agreement-
Rights to Payment and Inventory dated as of May 12, 1997, and (b) that
certain Security Agreement-Equipment dated as of May 12, 1997.
As security for all indebtedness of A-G Canada to Bank under the guaranty of
A-G Canada referred to in Section 1.5 below, A-G Canada has granted to Bank
security interests of first priority in all of A-G Canada's accounts
receivable and other rights to payment, general intangibles, inventory,
equipment and all proceeds of the foregoing pursuant to that certain General
Security Agreement dated as of October 31, 1997.
Borrower shall reimburse Bank immediately upon demand for all costs and
expenses incurred by Bank in connection with any of the foregoing security,
including without limitation, filing and recording fees and costs of
appraisals and audits.
SECTION 1.5 GUARANTIES. All indebtedness of Borrower to Bank shall continue
to be guaranteed by A-G Canada, Ltd., a Canadian corporation ("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. All indebtedness of Borrower to
Bank shall be guaranteed by each "Subsidiary" of Borrower pursuant to the
terms of a guaranty in form and substance acceptable to Bank. "Subsidiary"
means any corporation, partnership, limited liability company, trust or other
organization that is directly or indirectly controlled by Borrower. A person
shall be deemed to be controlled by Borrower if Borrower, directly or
indirectly, has the power (a) to vote 50% or more of the outstanding capital
stock or other ownership interests having ordinary voting power to elect a
majority of the board of directors of such corporation or other managing
person(s), or (b) to direct or cause the direction of the management and
policies of such person by contract or otherwise.
SECTION 1.6 CERTAIN LOAN DOCUMENTS RESTATED. As of the date of this
Agreement, the Prior Agreement shall be deemed to have been amended and
restated in its entirety by this Agreement, the Prior Notes shall be amended
and restated in their entirety by the Note, and the indebtedness previously
evidenced by the Prior Notes shall be evidenced by the Note. To the extent
that the Prior Agreement and/or the Prior Notes provide for costs, expenses,
fees and indemnities in favor of Bank, Borrower promises to pay all such
costs, expenses and fees accrued prior to the effective date of this
Agreement and to pay all indemnities (which indemnities survive the
termination of the Prior Agreement and the Prior Notes).
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this Agreement
and shall continue in full force and effect until the full and final payment,
and satisfaction and discharge, of all obligations of Borrower to Bank
subject to this Agreement.
SECTION 2.1 LEGAL STATUS. Borrower is a corporation, duly organized and
existing and in good standing under the laws of the State of California, and
is qualified or licensed to do business (and is in good standing as a foreign
corporation, if applicable) in all jurisdictions in which such qualification
or licensing is required or in which the failure to so qualify or to be so
licensed could have a material adverse effect on Borrower.
SECTION 2.2 AUTHORIZATION AND VALIDITY. This Agreement, the Note, and each
other document, contract and instrument required hereby or at any time
hereafter delivered to Bank in connection herewith (collectively, the "Loan
Documents") have been duly authorized, and upon their execution and delivery
in accordance with the provisions hereof will constitute legal, valid and
binding agreements and obligations of Borrower or the party which executes
the same, enforceable in accordance with their respective terms.
SECTION 2.3 NO VIOLATION. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of any
law or regulation, or contravene any provision of the Articles of
Incorporation or By-laws of Borrower, or result in any breach of or default
under any contract, obligation, indenture or other instrument to which
Borrower is a party or by which Borrower may be bound.
SECTION 2.4 LITIGATION. There are no pending, or to the best of Borrower's
knowledge threatened, actions, claims, investigations, suits or proceedings
by or before any governmental authority, arbitrator, court or administrative
agency which could have a material adverse effect on the financial condition
or operation of Borrower or its Subsidiaries other than those disclosed by
Borrower to Bank in writing prior to the date hereof.
SECTION 2.5 CORRECTNESS OF FINANCIAL STATEMENT. The financial statement of
Borrower dated December 31, 1999, a true copy of which has been delivered by
Borrower to Bank prior to the date hereof, (a) is complete and correct and
presents fairly the financial condition of Borrower, (b) discloses all
liabilities of Borrower and its Subsidiaries that are required to be
reflected or reserved against under generally accepted accounting principles,
whether liquidated or unliquidated, fixed or contingent, and (c) has been
prepared in accordance with generally accepted accounting principles
consistently applied. Since the date of such financial statement there has
been no material adverse change in the financial condition of Borrower or any
of its Subsidiaries; provided, however, that The LibraryCard, Inc. has
expended a substantial portion of its working capital to develop a website
and Dataquad, Inc. has expended a substantial portion of its working capital
to develop content management software; provided, further, however, that true
copies of the June 30, 2000 financial statements for each of The LibraryCard,
Inc. and Dataquad, Inc. have been delivered to Bank and since June 30, 2000
there has been no material adverse change in the financial condition of The
LibraryCard, Inc. or Dataquad, Inc. Since December 31, 1999, neither
Borrower nor any of its Subsidiaries has mortgaged, pledged, granted a
security interest in or otherwise encumbered any of its assets or properties
except in favor of Bank or as otherwise permitted by Bank in writing.
SECTION 2.6 INCOME TAX RETURNS. Borrower has no knowledge of any pending
assessments or adjustments of the income tax payable by Borrower or any of
its Subsidiaries with respect to any year.
SECTION 2.7 NO SUBORDINATION. There is no agreement, indenture, contract or
instrument to which Borrower is a party or by which Borrower may be bound
that requires the subordination in right of payment of any of Borrower's
obligations subject to this Agreement to any other obligation of Borrower.
SECTION 2.8 PERMITS, FRANCHISES. Borrower and each of its Subsidiaries
possesses, and will hereafter possess, all permits, consents, approvals,
franchises and licenses required and rights to all trademarks, trade names,
patents, and fictitious names, if any, necessary to enable it to conduct the
business in which it is now engaged in compliance with applicable law.
SECTION 2.9 ERISA. Borrower and each of its Subsidiaries is in compliance
in all material respects with all applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended or recodified from time to
time ("ERISA"); neither Borrower nor any of its Subsidiaries has violated any
provision of any defined employee pension benefit plan (as defined in ERISA)
maintained or contributed to by Borrower or any of its Subsidiaries (each, a
"Plan"); no Reportable Event as defined in ERISA has occurred and is
continuing with respect to any Plan initiated by Borrower; Borrower and each
of its Subsidiaries has met its minimum funding requirements under ERISA with
respect to each Plan; and each Plan will be able to fulfill its benefit
obligations as they come due in accordance with the Plan documents and under
generally accepted accounting principles.
SECTION 2.10 OTHER OBLIGATIONS. Neither Borrower nor any of its
Subsidiaries is in default on any obligation for borrowed money, any purchase
money obligation or any other material lease, commitment, contract,
instrument or obligation.
SECTION 2.11 ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to Bank
in writing prior to the date hereof, Borrower and each of its Subsidiaries is
in compliance in all material respects with all applicable federal or state
environmental, hazardous waste, health and safety statutes, and any rules or
regulations adopted pursuant thereto, which govern or affect any of the
operations and/or properties of Borrower or any of its Subsidiaries,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource Conservation and Recovery
Act of 1976, and the Federal Toxic Substances Control Act, as any of the same
may be amended, modified or supplemented from time to time. None of the
operations of Borrower or any of its Subsidiaries is the subject of any
federal or state investigation evaluating whether any remedial action
involving a material expenditure is needed to respond to a release of any
toxic or hazardous waste or substance into the environment. Neither Borrower
nor any of its Subsidiaries has any material contingent liability in
connection with any release of any toxic or hazardous waste or substance into
the environment.
ARTICLE III
CONDITIONS
SECTION 3.1 CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of
Bank to grant the Line of Credit is subject to the fulfillment to Bank's
satisfaction of all of the following conditions:
(a) Approval of Bank Counsel. All legal matters incidental to the granting
of the Line of Credit shall be satisfactory to Bank's counsel.
(b) Documentation. Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed:
(i) This Agreement.
(ii) The Note.
(iii) Articles of Incorporation of Borrower and each of its Subsidiaries.
(iv) Corporate Borrowing Resolution.
(v) Incumbency Certificate for Borrower and each of its Subsidiaries.
(vi) A Reaffirmation of Guaranty by A-G Canada.
(vii) A Guaranty executed by Dataquad, Inc. (formerly A-G Sub), a Nevada
corporation.
(viii) A Guaranty executed by Datacat, Inc., a California corporation.
(ix) A Guaranty executed by The LibraryCard, Inc., a Nevada corporation.
(x) Resolutions from each Subsidiary executing a Guaranty and each Subsidiary
executing a Security Agreement -- Intellectual Property.
(xi) A list of all intellectual property owned by Borrower and/or any of its
Subsidiaries or licensed by Borrower and/or any of its Subsidiaries in the
capacity as the licensor, certified as true and correct by Borrower.
(xii) A Security Agreement -- Intellectual Property, together in each case
with a Patent Agreement, a Copyright Agreement and/or a Trademark Agreement,
as applicable, and an Irrevocable Power of Attorney, in each case executed by
Borrower and by each Subsidiary that owns intellectual property.
(xiii) A financing statement amendment executed by Borrower.
(xiv) A financing statement executed by each Subsidiary that executes a
Security Agreement -- Intellectual Property.
(xv) An opinion of counsel.
(xvi) Such other documents as Bank may require under any other Section of
this Agreement.
(b) Financial Condition. There shall have been no material adverse change,
as determined by Bank, in the financial condition or business of Borrower or
any guarantor hereunder, nor any material decline, as determined by Bank, in
the market value of any collateral required hereunder or a substantial or
material portion of the assets of Borrower or any such guarantor.
(c) Insurance. Borrower shall have delivered to Bank evidence of insurance
coverage on all property of Borrower and its Subsidiaries, in form,
substance, amounts, covering risks and issued by companies satisfactory to
Bank, and where required by Bank, with loss payable endorsements in favor of
Bank, including without limitation, policies of fire and extended coverage
insurance covering all real property collateral required hereby, with
replacement cost and mortgagee loss payable endorsements, and such policies
of insurance against specific hazards affecting any such real property as may
be required by governmental regulation or Bank.
(d) Payoff of Prior Equipment Line of Credit. Borrower hereby authorizes and
directs Bank to repay the Prior Equipment Line of Credit in full with
proceeds of the first advance made under the Line of Credit.
SECTION 3.2 CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of Bank
to make each extension of credit requested by Borrower hereunder shall be
subject to the fulfillment to Bank's satisfaction of each of the following
conditions:
(e) Compliance. The representations and warranties contained herein and in
each of the other Loan Documents shall be true on and as of the date of the
signing of this Agreement and on the date of each extension of credit by Bank
pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date,
no Event of Default as defined herein, and no condition, event or act which
with the giving of notice or the passage of time or both would constitute
such an Event of Default, shall have occurred and be continuing or shall
exist.
(f) Documentation. Bank shall have received all additional documents which
may be required in connection with such extension of credit.
ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains committed to extend credit to
Borrower pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of the Loan
Documents remain outstanding, and until payment in full of all obligations of
Borrower subject hereto, Borrower shall and shall cause each of its
Subsidiaries to, unless Bank otherwise consents in writing:
SECTION 4.1 PUNCTUAL PAYMENTS. Punctually pay all principal, interest, fees
or other liabilities due under any of the Loan Documents at the times and
place and in the manner specified therein, and immediately upon demand by
Bank, the amount by which the outstanding principal balance of the Line of
Credit at any time exceeds the Line of Credit, as reduced from time to time
pursuant to Section 1.1(c) or (d).
SECTION 4.2 ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently
applied, and permit any representative of Bank, at any reasonable time, to
inspect, audit and examine such books and records, to make copies of the
same, and to inspect the properties of Borrower and each of its Subsidiaries.
SECTION 4.3 FINANCIAL STATEMENTS. Provide to Bank all of the following, in
form and detail satisfactory to Bank:
(a) not later than 120 days after and as of the end of each calendar year, or
two (2) business days after such financial statements are required to be
filed (giving effect to any extensions of time to file) by the Borrower with
the Securities and Exchange Commission (the "SEC") if later, an audited
consolidated financial statement of Borrower, audited and reported on by a
certified public accountant acceptable to Bank, to include a balance sheet,
income statement and statement of cash flow and all footnotes, together with
an unaudited consolidating financial statement of Borrower, to include a
balance sheet, income statement and statement of cash flows;
(b) not later than 45 days after and as of the end of each calendar quarter,
or two (2) business days after such financial statements are required to be
filed (giving effect to any extensions of time to file) by the Borrower with
the SEC if later, a consolidated and consolidating financial statement of
Borrower, prepared by Borrower, to include a balance sheet, income statement
and statement of cash flows;
(c) not later than 20 days after and as of the end of each month, an aged
listing of accounts receivable and accounts payable of Borrower and each of
its Subsidiaries, and by March 31 of each year, a list of the names and
addresses of account debtors of Borrower and each of its Subsidiaries, in
each case in form and substance satisfactory to Bank;
(d) within 10 days after filing, but in no event later than each October 31,
a copy of Borrower's filed federal income tax return for such years and, to
the extent not included within such tax return, a copy of each Subsidiary's
filed federal income tax return for such year;
(e) contemporaneously with each annual and each quarterly financial statement
of Borrower required hereby, a certificate of the president or chief
financial officer of Borrower that said financial statements are accurate and
that there exists no Event of Default (as defined in Section 6.1) nor any
condition, act or event which with the giving of notice or the passage of
time or both would constitute an Event of Default (as defined in Section
6.1);
(f) not later than 10 days after filing, a copy of each filing made by
Borrower with the SEC, including Forms 10-Q, 10-K and 8-K; and
(g) from time to time such other information as Bank may reasonably request.
SECTION 4.4 COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which such person is organized and/or which govern its continued
existence and with the requirements of all laws, rules, regulations and
orders of any governmental authority applicable to such person and/or its
business.
SECTION 4.5 INSURANCE. Maintain and keep in force insurance of the types
and in amounts customarily carried in lines of business similar to that of
Borrower or a Subsidiary of Borrower, as the case may be, including but not
limited to fire, extended coverage, public liability, flood, property damage
and workers' compensation, with all such insurance carried with companies and
in amounts satisfactory to Bank, and deliver to Bank from time to time at
Bank's request schedules setting forth all insurance then in effect.
SECTION 4.6 FACILITIES. Keep all properties useful or necessary to its
business in good repair and condition, and from time to time make necessary
repairs, renewals and replacements thereto so that such properties shall be
fully and efficiently preserved and maintained.
SECTION 4.7 LITIGATION. Promptly give notice in writing to Bank of any
litigation pending or threatened against Borrower and/or any of its
Subsidiaries with a claim in excess of $100,000.00.
SECTION 4.8 FINANCIAL CONDITION. Maintain Borrower's consolidated financial
condition as follows using generally accepted accounting principles
consistently applied and used consistently with prior practices (except to
the extent modified by the definitions herein), with compliance determined
commencing with Borrower's financial statements for the period ending June
30, 2000:
(a) Coverage Ratio for the Measuring Period as of the last day of each
calendar quarter set forth below of not less than the ratio set forth
opposite such date:
Quarter Ending Coverage Ration
June 30, 2000 0.75 to 1
September 30, 2000 0.75 to 1
December 31, 2000 0.90 to 1
March 31, 2001 0.90 to 1
June 30, 2001 1.10 to 1
September 30, 2001 1.25 to 1
December 31, 2001 1.45 to 1
March 31, 2002 1.60 to 1
"Coverage Ratio" is defined as (i) net profit before taxes plus interest
expense, net of capitalized interest expense, depreciation expense and
amortization expense, divided by (ii) the aggregate of total interest expense
plus current maturities of long-term debt as of the first day of the
applicable Measuring Period (including any mandatory reductions in the Line
of Credit pursuant to Section 1.1(d)), plus the current maturities of
subordinated debt as of the first day of the applicable Measuring Period.
"Measuring Period" is defined as the four consecutive calendar quarter period
ending on the last day of such calendar quarter.
(b) Tangible Net Worth as of the end of each calendar quarter set forth below
of not less than the amount set forth opposite such date:
Quarter Ending Tangible Net Worth
June 30, 2000 $3,700,000
September 30, 2000 $3,600,000
December 31, 2000 $3,300,000
March 31, 2001 $3,100,000
June 30, 2001 $3,000,000
September 30, 2001 $3,000,000
"Tangible Net Worth" is 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.
(c) Total Liabilities divided by Tangible Net Worth not at any time greater
than 2.0 to 1.0 as of the last day of each calendar quarter, with "Total
Liabilities" defined as the aggregate of current liabilities and non-current
liabilities less subordinated debt.
(d) Quick Ratio not at any time less than 0.4 to 1.0, with "Quick Ratio"
defined as the aggregate of unrestricted cash, unrestricted marketable
securities and other unrestricted cash equivalents divided by the Line of
Credit (whether or not all or any portion of the Line of Credit is drawn).
Attached hereto as Schedule 4.8 is a letter from Daniel E. Luebben to Darryl
S. Hallie dated August 9, 2000 that Bank and Borrower agree accurately
describes the calculations to be made pursuant to this Section 4.8.
SECTION 4.9 NOTICE TO BANK. Promptly (but in no event more than five (5)
days after the occurrence of each such event or matter) give written notice
to Bank in reasonable detail of: (a) the occurrence of any Event of Default,
or any condition, event or act which with the giving of notice or the passage
of time or both would constitute an Event of Default; (b) any change in the
name or organizational structure of Borrower or any of its Subsidiaries; (c)
the occurrence and nature of any Reportable Event or Prohibited Transaction,
each as defined in ERISA, or any funding deficiency with respect to any Plan;
or (d) any termination or cancellation of any insurance policy which Borrower
or any of its Subsidiaries is required to maintain, or any uninsured or
partially uninsured loss through liability or property damage, or through
fire, theft or any other cause affecting Borrower's or any of its
Subsidiary's property in excess of an aggregate of $100,000.00.
SECTION 4.10 FUTURE SUBSIDIARIES. Cause each Subsidiary acquired or formed
by Borrower or any of its Subsidiaries after the date of this Agreement to
execute and deliver to Bank a guaranty of the indebtedness of Borrower to
Bank in form and substance acceptable to Bank, together with such other
documentation (including articles of incorporation, bylaws and corporate
resolutions authorizing the guaranty) as Bank may request in connection
therewith.
ARTICLE V
NEGATIVE COVENANTS
Borrower further covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all
obligations of Borrower subject hereto, Borrower will not, and will not
permit any of its Subsidiaries to, without Bank's prior written consent:
SECTION 5.1 USE OF FUNDS. Use any of the proceeds of the Line of Credit for
any purpose other than those stated in Article I hereof.
SECTION 5.2 CAPITAL EXPENDITURES. Make any additional investment in fixed
assets in any calendar year in excess of an aggregate of $2,000,000.00.
SECTION 5.3 OTHER INDEBTEDNESS. Create, incur, assume or permit to exist
any operating lease obligations, indebtedness or liabilities resulting from
borrowings, loans or advances, whether secured or unsecured, matured or
unmatured, liquidated or unliquidated, joint or several that in the aggregate
require payments in excess of $250,000.00 in principal amount in any calendar
year, excluding the liabilities of Borrower to Bank hereunder. For purposes
of this Section 5.3, indebtedness and liabilities shall not be deemed to
include trade payables that are paid promptly after the related goods or
services are provided.
SECTION 5.4 MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity, provided that any Subsidiary may merge
with and into any other Subsidiary or into Borrower; make any substantial
change in the nature of its business as conducted as of the date hereof;
except as permitted within the limitations on investments set forth in
Section 5.6 below, acquire all or substantially all of the assets of any
other entity; nor sell, lease, transfer or otherwise dispose of all or a
substantial or material portion of its assets except in the ordinary course
of its business.
SECTION 5.5 GUARANTIES. Guarantee or become liable in any way as surety,
endorser (other than as endorser of negotiable instruments for deposit or
collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any of its assets as security for,
any liabilities or obligations of any other person or entity, except any of
the foregoing (i) in favor of Bank, and (ii) guarantees given by Borrower of
monetary obligations of a Subsidiary (x) in an amount not in excess of
$50,000 in the aggregate, and (y) in an amount that, when added to all loans
to employees and affiliates made pursuant to Section 5.6(a), does not exceed
$350,000.00 at any time.
SECTION 5.6 LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to or
investments in any person or entity; provided, however, that Borrower and its
Subsidiaries shall be permitted to (a) make loans to employees and affiliates
(which shall include intercompany loans) in an amount that, when added to the
maximum potential obligation of Borrower with respect to guarantees of
obligations of Subsidiaries, does not exceed $350,000.00 at any time
outstanding, and (b) make investments in newly acquired Subsidiaries and/or
newly formed Subsidiaries, as long as the aggregate fair market value of
consideration given or paid by Borrower and its Subsidiaries during the term
of this Agreement does not exceed (i) $1,000,000 in aggregate fair market
value of capital stock issued by Borrower and its Subsidiaries; plus (ii)
$500,000 in aggregate fair market value of cash and other consideration paid
by Borrower and its Subsidiaries.
SECTION 5.7 DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or
distribution either in cash or any other property on stock now or hereafter
outstanding of Borrower or any subsidiary of Borrower that is not a wholly-
owned Subsidiary, nor redeem, retire, repurchase or otherwise acquire any
shares of any class of stock now or hereafter outstanding of Borrower or any
of its Subsidiaries; provided, however, Borrower may repurchase its common
stock for a purchase price not to exceed $200,000.00 in the aggregate during
any calendar year, so long as no other term or provision of this Agreement
would be violated after giving effect to any such repurchase.
SECTION 5.8 PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist a
security interest in, or lien upon (each, a "Lien"), all or any portion of
the assets now owned or hereafter acquired by Borrower and/or its
Subsidiaries, except any Lien in favor of Bank or which is existing as of,
and disclosed to Bank in writing prior to, the date hereof.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1 The occurrence of any of the following (including the passage of
any grace period provided in the applicable clause) shall constitute an
"Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal, interest, fees or
other amounts payable under any of the Loan Documents.
(b) Any financial statement or certificate furnished to Bank in connection
with, or any representation or warranty made by Borrower or any other party
under this Agreement or any other Loan Document shall prove to be incorrect,
false or misleading in any material respect when furnished or made.
(c) Any default in the performance of or compliance with any obligation,
agreement or other provision contained herein or in any other Loan Document
(other than those referred to in subsections (a) and (b) above), and with
respect to any such default which by its nature can be cured, such default
shall continue for a period of twenty (20) days from its occurrence.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under the terms of any contract or instrument
(other than any of the Loan Documents) pursuant to which Borrower or any
guarantor hereunder has incurred any debt or other liability in an amount of
$10,000 or more in the aggregate to all such persons or entities, including
Bank, after giving effect to any required notice or grace period provided in
such other contract or instrument.
(e) The filing of a notice of judgment lien against Borrower, any of its
Subsidiaries or any guarantor hereunder; or the recording of any abstract of
judgment against Borrower, any of its Subsidiaries or any guarantor hereunder
in any county in which Borrower, any of its Subsidiaries or such guarantor,
as the case may be, has an interest in real property; or the service of a
notice of levy and/or of a writ of attachment or execution, or other like
process, against the assets of Borrower, any of its Subsidiaries or any
guarantor hereunder; or the entry of a judgment against Borrower, any of its
Subsidiaries or any guarantor hereunder.
(f) Borrower or any guarantor hereunder shall become insolvent, or shall
suffer or consent to or apply for the appointment of a receiver, trustee,
custodian or liquidator of itself or any of its property, or shall generally
fail to pay its debts as they become due, or shall make a general assignment
for the benefit of creditors; Borrower or any guarantor hereunder shall file
a voluntary petition in bankruptcy, or seeking reorganization, in order to
effect a plan or other arrangement with creditors or any other relief under
the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or
recodified from time to time, or under the Bankruptcy and Insolvency Act
(Canada) or comparable legislation in Canada or any other jurisdiction
(collectively, the "Bankruptcy Code"), or under any state or federal law
granting relief to debtors, whether now or hereafter in effect; or any
involuntary petition or proceeding pursuant to the bankruptcy Code or any
other applicable state or federal law relating to bankruptcy, reorganization
or other relief for debtors is filed or commenced against Borrower or any
guarantor hereunder, and with respect to any such filing by or against any
guarantor hereunder, such petition is unopposed or has not been stayed by
such guarantor within 60 days of such filing, or Borrower or any such
guarantor shall file an answer admitting the jurisdiction of the court and
the material allegations of any involuntary petition; or Borrower or any such
guarantor shall be adjudicated a bankrupt, or an order for relief shall be
entered against Borrower or any such guarantor by any court of competent
jurisdiction under the bankruptcy Code or any other applicable state or
federal law relating to bankruptcy, reorganization or other relief for
debtors.
(g) There shall exist or occur any event or condition which Bank in good
faith believes impairs, or is substantially likely to impair, the prospect of
payment or performance by Borrower of its obligations under any of the Loan
Documents.
(h) The dissolution or liquidation of Borrower or of any guarantor hereunder
which is not a natural person (except, with respect to A-G Canada, as
permitted under the guaranty executed by it pursuant to Section 1.5 above);
or Borrower or any such guarantor, or any of its directors, stockholders or
members, shall take action seeking to effect the dissolution or liquidation
of Borrower or such guarantor (except, with respect to A-G Canada, as
permitted under the guaranty executed by it pursuant to Section 1.5 above).
SECTION 6.2 REMEDIES. Upon the occurrence of any Event of Default: (a) all
indebtedness of Borrower under each of the Loan Documents, any term thereof
to the contrary notwithstanding, shall at Bank's option and without notice
become immediately due and payable without presentment, demand, protest or
notice of dishonor, all of which are hereby expressly waived by each
Borrower; (b) the obligation, if any, of Bank to extend any further credit
under any of the Loan Documents shall immediately cease and terminate; and
(c) Bank shall have all rights, powers and remedies available under each of
the Loan Documents, or accorded by law, including without limitation the
right to resort to any or all security for the Line of Credit and to exercise
any or all of the rights of a beneficiary or secured party pursuant to
applicable law. All rights, powers and remedies of Bank may be exercised at
any time by Bank and from time to time after the occurrence of an Event of
Default, are cumulative and not exclusive, and shall be in addition to any
other rights, powers or remedies provided by law or equity.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive
or 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 or default under any of the Loan Documents
must be in writing and shall be effective only to the extent set forth in
such writing.
SECTION 7.2 NOTICES. All notices, requests and demands which any party is
required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following
address:
BORROWER: AUTO-GRAPHICS, INC.
3201 Temple Avenue
Pomona, California 91768
with a copy to: Robert H. Bretz, Esq.
520 Washington Blvd., No. 428
Marina del Rey, CA 90292
BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
333 South Grand Avenue
Los Angeles, CA 90071
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit
in the U.S. mail, first class and postage prepaid; and (c) if sent by
telecopy, upon receipt.
SECTION 7.3 COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank
immediately upon demand the full amount of all 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 (a) the negotiation and preparation of
this Agreement and the other Loan Documents, Bank's continued administration
hereof and thereof, and the preparation of any amendments and waivers hereto
and thereto, (b) the enforcement of Bank's rights and/or the collection of
any amounts which become due to Bank under any of the Loan Documents, and (c)
the prosecution or defense of any action in any way related to any of the
Loan Documents, including without limitation, any action for declaratory
relief, whether incurred at the trial or appellate level, in an arbitration
proceeding or otherwise, and including any of the foregoing incurred in
connection with any bankruptcy proceeding (including without limitation, any
adversary proceeding, contested matter or motion brought by Bank or any other
person) relating to Borrower or any other person or entity.
SECTION 7.4 SUCCESSORS, ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided, however,
that Borrower may not assign or transfer its interest hereunder without
Bank's prior written consent. Bank reserves the right to sell, assign,
transfer, negotiate or grant participations in all or any part of, or any
interest in, Bank's rights and benefits under each of the Loan Documents. In
connection therewith, Bank may disclose all documents and information which
Bank now has or may hereafter acquire relating to the Line of Credit,
Borrower or its business, any guarantor hereunder or the business of such
guarantor, or any collateral required hereunder.
SECTION 7.5 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other Loan
Documents constitute the entire agreement between Borrower and Bank with
respect to the Line of Credit and supersede all prior negotiations,
communications, discussions and correspondence concerning the subject matter
hereof. This Agreement may be amended or modified only in writing signed by
each party hereto.
SECTION 7.6 NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and
their respective permitted successors and assigns, and no other person or
entity shall be a third party beneficiary of, or have any direct or indirect
cause of action or claim in connection with, this Agreement or any other of
the Loan Documents to which it is not a party.
SECTION 7.7 TIME. Time is of the essence of each and every provision of
this Agreement and each other of the Loan Documents.
SECTION 7.8 SEVERABILITY OF PROVISIONS. If any provision of this Agreement
shall be prohibited by or invalid under applicable law, such provision shall
be ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or any remaining provisions of
this Agreement.
SECTION 7.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when executed and delivered shall be deemed to be
an original, and all of which when taken together shall constitute one and
the same Agreement.
SECTION 7.10 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
SECTION 7.11 US DOLLARS. All payments required to be made by Borrower or
any of its Subsidiaries under any Loan Document shall be made in lawful money
of the United States of America and in immediately available funds. Any
references to "$" or "dollars" in any Loan Document shall be deemed to refer
to United States dollars.
SECTION 7.12 ARBITRATION.
(a) Arbitration. Upon the demand of any party, any Dispute shall be resolved
by binding arbitration (except as set forth in (e) below) in accordance with
the terms of this Agreement. A "Dispute" shall mean any action, dispute,
claim or controversy of any kind, whether in contract or tort, statutory or
common law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, any of the Loan Documents, or
any past, present or future extensions of credit and other activities,
transactions or obligations of any kind related directly or indirectly to any
of the Loan Documents, including without limitation, any of the foregoing
arising in connection with the exercise of any self-help, ancillary or other
remedies pursuant to any of the Loan Documents. Any party may by summary
proceedings bring an action in court to compel arbitration of a Dispute. Any
party who fails or refuses to submit to arbitration following a lawful demand
by any other party shall bear all costs and expenses incurred by such other
party in compelling arbitration of any Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered by the
American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with 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
Loan Documents. The arbitration shall be conducted at a location in
California selected by the AAA or other administrator. If there is any
inconsistency between the terms hereof and any such rules, the terms and
procedures set forth herein shall control. All statutes of limitation
applicable to any Dispute shall apply to any arbitration proceeding. All
discovery activities shall be expressly limited to matters directly relevant
to the Dispute being arbitrated. Judgment upon any award rendered in an
arbitration may 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 of any party to exercise self-help remedies such
as setoff, foreclosure against or sale of any real or personal property
collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
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 laws applicable to
the subject matter of the Dispute. Arbitrators are empowered to resolve
Disputes by summary rulings in response to motions filed prior to the final
arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the State of California, (ii) may
grant any remedy or relief that a court of the State of California could
order or grant within the scope hereof and such ancillary relief as is
necessary to make effective any award, and (iii) shall have the power to
award recovery of all costs and fees, to impose sanctions and to take such
other actions as they deem necessary to the same extent a judge could
pursuant to the Federal Rules of Civil Procedure, the California Rules of
Civil Procedure or other applicable law. Any Dispute in which the amount in
controversy is $5,000,000 or less shall be decided by a single arbitrator who
shall not render an award of greater than $5,000,000 (including damages,
costs, fees and expenses). By submission to a single arbitrator, each party
expressly waives any right or claim to recover more than $5,000,000. Any
Dispute in which the amount in controversy exceeds $5,000,000 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) 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.
(f) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose
the existence, content or results thereof, except for disclosures of
information by a party required in the ordinary course of its business, by
applicable law or regulation, or to the extent necessary to exercise any
judicial review rights set forth herein. If more than one agreement for
arbitration by or between the parties potentially applies to a Dispute, the
arbitration provision most directly related to the Loan Documents or the
subject matter of the Dispute shall control. This arbitration provision
shall survive termination, amendment or expiration of any of the Loan
Documents or any relationship between the parties.
SECTION 7.13 GENERAL RELEASE. In consideration of the benefits provided to
Borrower under the terms and provisions hereof, Borrower hereby agrees as
follows ("General Release"):
(a) Borrower, for itself and on behalf of its successors and assigns, does
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 now
has or may acquire as of the later of: (i) the date this Agreement becomes
effective through the satisfaction (or waiver by Bank) of all conditions
hereto; (ii) the date that Borrower has executed and delivered this Agreement
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, 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 hereby acknowledges, represents and warrants to Bank as follows:
(i) Borrower understands 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
agrees 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 hereby
waives and releases all rights and benefits which it 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 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 may have as of the Release Date. Borrower
hereby acknowledges that it 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 hereby specifically acknowledges and agrees 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 to the provisions of applicable law
setting forth the remedies for the bringing of groundless, frivolous or
baseless claims or causes of action.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
Auto-Graphics, Inc. Wells Fargo Bank
National Association
By ss/Michael K. Skiles By ss/Darryl Hallie Michael
K. Skiles, President Vice President/Principal
EXHIBIT 10.42
REVOLVING REDUCING NOTE.
$3,000,000.00
Los Angeles, California
August 1, 2000
FOR VALUE RECEIVED, the undersigned AUTO-GRAPHICS, INC., a California
corporation ("Borrower"), promises to pay to the order of WELLS FARGO BANK,
NATIONAL ASSOCIATION ("Bank") at its office at 333 South Grand Avenue, Los
Angeles, California, 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) at a
rate per annum one half of one percent (0.50%) above the Prime Rate in effect
from time to time. The "Prime Rate" is a base rate that Bank from time to
time establishes and which serves as the basis upon which effective rates of
interest are calculated for those loans making reference thereto. Each
change in the rate of interest hereunder shall become effective on the date
each Prime Rate change is announced within Bank.
(b) Payment of Interest. Interest accrued on this Note shall be payable on
the last day of each month, commencing August 31, 2000.
(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 set forth above or such
lesser amount as shall at any time be available hereunder. 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 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 3, 2002.
(b) Reductions in Availability. Notwithstanding the principal amount set
forth above, the maximum principal amount available under this Note shall be
reduced automatically and without further notice on each October 1 and each
April 1, commencing October 1, 2000, by the amount of Two Hundred Fifty
Thousand Dollars ($250,000.00), resulting in maximum principal availability
hereunder of $2,750,000 on October 1, 2000; $2,500,000 on April 1, 2001;
$2,250,000 on October 1, 2001; and $2,000,000 on April 1, 2002, minus in each
case the aggregate amount of reductions to the Line of Credit pursuant to
paragraph (c) below. If the outstanding principal balance of this Note on
any such date is greater than the new maximum principal amount then available
hereunder, Borrower shall make a principal reduction on this Note on such
date in an amount sufficient to reduce the then outstanding principal balance
hereof to an amount not greater than said new maximum principal amount. If
on any October 1 or April 1 the maximum principal amount then available
hereunder equals or exceeds the outstanding principal balance of this Note,
then Borrower shall not be required to repay principal outstanding under this
Note solely by reason of the reduction in availability that occurs on such
date.
(c) Equity Proceeds. Borrower shall prepay the Line of Credit in an amount
equal to ten percent (10%) of Excess Equity Proceeds not more than two (2)
business days after any Excess Equity Proceeds are received, and the Line of
Credit shall be permanently reduced on such date by the amount of prepayment
required by this sentence. "Equity Proceeds" shall mean the gross amount of
new equity received by the Borrower and its Subsidiaries from and after April
1, 2000. "Excess Equity Proceeds" shall mean Equity Proceeds in excess of
$5,000,000.00.
(d) 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)
Robert S. Cope or Daniel E. Luebben or Corey M. Patick or Michael K. Skiles
or Diep (Gina) Nguyen, 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 deposit account of Borrower, which advances, when so
deposited, shall be conclusively presumed to have been made to or for the
benefit of 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 Borrower.
(e) 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 Amended and Restated Credit Agreement between Borrower and Bank
dated as of August 1, 2000, 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 Borrower, and the
obligation, if any, of the holder to extend any further credit hereunder
shall immediately cease and terminate. 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 Borrower or any other person or entity.
Governing Law. This Note shall be governed by and construed in accordance
with the laws of the State of California.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first written above.
AUTO-GRAPHICS, INC., a California corporation
By: ss/Michael K. Skiles
Name: Michael K. Skiles
Title: President
EXHIBIT 10.43
REVOLVING LINE OF CREDIT AGREEMENT AND NOTE
$250,000.00
Pomona, California
November 1, 2000
This Revolving Line of Credit Agreement and Note ("Agreement") is dated as of
the date first written above by and between TheLibraryCard, Inc., a Nevada
Corporation ("LibraryCard" or "Borrower"), and Auto-Graphics, Inc., a
California corporation ("Auto-Graphics" or "Lender").
RECITALS
WHEREAS, LibraryCard is a development stage enterprise, which commenced
operations in January, 2000, and
WHEREAS, LibraryCard is developing a library web "portal" on the Internet and
may need additional cash financing for further development and promotion of
the website; and
WHEREAS, Auto-Graphics is the parent company of LibraryCard and currently
owns 60.9% of the issued and outstanding shares of stock of LibraryCard; and
WHEREAS, Auto-Graphics desires and hereby commits to provide LibraryCard, at
its sole election and discretion, at any time and from time to time during
the succeeding twelve (12) month period of time, with up to $250,000 in
additional cash financing as may be required and requested by LibraryCard on
an unsecured basis.
NOW THEREFORE, for value received, the undersigned LibraryCard promises to
pay to Auto-Graphics on October 31, 2001at its office at 3201 Temple Avenue,
Pomona, California, 91768-3200 in lawful money of the United States of
America and in immediately available funds, the principal sum of Two Hundred
Fifty Thousand Dollars ($250,000.00), or so much thereof as may be advanced
and be outstanding and unpaid under this Agreement, with interest thereon, to
be computed on each advance from the date of its disbursement as set forth
herein. Auto-Graphics, for value received, the legal adequacy and
sufficiency of which are hereby acknowledged and agreed, promises to advance
and otherwise loan to LibraryCard as requested by LibraryCard and as provided
for in this Agreement up to the maximum principal amount of $250,000.00.
INTEREST
(a) Interest. The outstanding principal balance of this Agreement shall
bear interest (computed on the basis of a 360-day year, actual days elapsed)
at a rate per annum of one percent (1.0 %) above the Prime Rate in effect
from time to time under the Company's Amended and Restated Credit Agreement
between the Company and Wells Fargo Bank dated August 1, 2000. Each change
in the rate of interest hereunder shall become effective on the date that
each Prime Rate change is reported by Wells Fargo Bank to the Lender.
(b) Payment of Interest. Interest accrued on this Agreement shall be
payable on the last day of each month, commencing November 30, 2000.
(c) Default Interest. From and after the maturity date of this Agreement,
or such earlier date as all principal owing hereunder becomes due and payable
by acceleration or otherwise, the outstanding principal balance of this
Agreement 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 percentage points (4%) above the rate of interest from time to time
applicable to this Agreement up to the maximum interest rate allowable by
law.
BORROWING AND REPAYMENT
(a) Borrowing and Repayment. Borrower may from time to time during the 12
month term of this Agreement borrow, partially or wholly repay its
outstanding borrowings, and reborrow, subject to all of the limitations,
terms and conditions of this Agreement; provided, however, that the total
outstanding borrowings under this Agreement shall not at any time exceed the
principal amount set forth above. The unpaid principal balance of this
obligation at any time shall be the total amounts advanced hereunder by the
Lender hereof less the amount of principal payments made hereon by or for
Borrower, which balance may be endorsed hereon from time to time by the
Lender. The outstanding principal balance of this Agreement shall be due and
payable in full on October 31, 2001.
(b) Advances. Advances hereunder, up to the total amount of the principal
sum stated above, may be made by the Lender at the written request of (i)
Corey M. Patick or Michael K. Skiles or any other person subsequently
designated by Borrower for such purpose, who are hereby authorized to request
advances from the Chief Financial Officer of Auto-Graphics and direct the
disposition of any advances until written notice of the revocation of such
authority by Borrower is received by the Lender at the office designated
above.
(e) Application of Payments. Each payment made on this Agreement shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof.
NON-TRANSFERABLE
This Agreement is not transferable to any third party without the
express written consent of the Lender.
SECURITY & SUBORDINATION
This Agreement is unsecured and subordinate to that certain Credit
Agreement between Auto-Graphics, Inc. and Wells Fargo Bank, NA dated August
1, 2000.
MISCELLANEOUS
(a) Remedies. Upon the occurrence of any default by the Borrower under
this Agreement, the Lender, at the Lender's sole discretion and election, 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 Borrower, and the obligation, if any, of the
Lender to extend any further credit hereunder shall immediately cease and
terminate. Borrower shall pay to the Lender immediately upon demand the full
amount of all payments, advances, charges, costs and expenses, including
reasonable attorneys' fees, expended or incurred by the Lender in connection
with the enforcement of the Lender's rights and/or the collection of any
amounts which become due to the Lender under this Agreement, and the
prosecution or defense of any action in any way related to this Agreement,
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 Lender or any other person)
relating to Borrower or any other person or entity.
(b) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
IN WITNESS WHEREOF, the undersigned parties intending to be legally obligated
thereby, and thereunto legally and duly authorized have executed and
delivered this Agreement as of the date first written above.
THELIBRARYCARD, INC., a Nevada corporation
By: ss/Robert S. Cope
Name: Robert S. Cope
Title: Director
By: ss/Corey M. Patick
Name: Corey M. Patick
Title: Director
AUTO-GRAPHICS, INC.,
a California corporation
By: ss/Michael K. Skiles
Name: Michael K. Skiles
Title: President
