-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UfluACauG+jrSneVkvIApyzv6jYpgwxISd8ZHUcGPXjdWUGa1ouQakMDsCZYzKh+ i838sLnI/CrvDSnQ3sLFkw== 0000008598-98-000005.txt : 19980417 0000008598-98-000005.hdr.sgml : 19980417 ACCESSION NUMBER: 0000008598-98-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980416 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AUTO GRAPHICS INC CENTRAL INDEX KEY: 0000008598 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 952105641 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-04431 FILM NUMBER: 98595285 BUSINESS ADDRESS: STREET 1: 3201 TEMPLE AVE CITY: POMONA STATE: CA ZIP: 91768 BUSINESS PHONE: 9095957204 MAIL ADDRESS: STREET 1: 3201 TEMPLE AVENUE CITY: POMONA STATE: CA ZIP: 91768 10-K 1 Securities and Exchange Commission Washington, D.C. 20549 FORM 10-K [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period from to For the Fiscal Year ended Commission File Number December 31, 1997 0-4431 AUTO-GRAPHICS, INC. (Exact name of registrant as specified in its charter) California 95-2105641 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification number) 3201 Temple Avenue Pomona, California 91768 (Address of principal (Zip Code) executive offices) Registrant's telephone number: (909) 595-7204 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock ($.10 par value) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No The aggregate market value of voting stock held by nonaffiliates of the registrant was $679,000 as of December 31, 1997. The number of shares of the registrant's Common Stock outstanding was 1,090,478 as of December 31, 1997. DOCUMENTS INCORPORATED BY REFERENCE The definitive Proxy Statement to be filed pursuant to Regulation 14A for the fiscal year ended December 31, 1997 is incorporated herein by reference in Part III, Items 11-13 of Form 10-K. The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the close of the registrant's most recent calendar year. PART I ITEM 1. BUSINESS Auto-Graphics, Inc. (the "Company") provides software products and processing services to information and database publishers. These products and services are used to create, maintain and distribute information databases through printed and/or electronic reference products. Electronic products include compact disc (CD-ROM) and client/server software systems (Internet/Web). The Company provides state and local government customers with products, services and outsourced facilities to maintain, publish and distribute bibliographic databases of library holdings and to manage interlibrary loan systems. Traditional commercial and corporate publishers use the Company's services to produce and distribute print and electronic products such as dictionaries, encyclopedias, Bibles, price catalogs and other reference works. In recent years, the Company has made a substantial investment in the development of online client/server software products and client-shared Internet/Web services. In 1993, the Company launched the development of a new product family called Impact/ONLINE(tm) for Internet information distribution services. This capability has been successfully utilized to a range of applications including the outsourcing by several statewide library consortia to the Company of complete system design, development, management, maintenance and operation of a web server for each customer. The Company currently has a number of statewide and regional Impact/ONLINE(tm) systems operational serving over 4,500 libraries. The Company's Impact/ONLINE(tm) products include: Impact/ONLINE WebPAC(tm) enables patrons, directly from home, school and office to search a database over the Internet using any web browser such as Netscape Navigator(tm) or Microsoft Explorer(tm). Impact/ONLINE ILL(tm) provides the means to automate the initiation, tracking and management of interlibrary borrowing and lending. Impact/ONLINE CAT(tm) is a powerful online cataloging utility for copying, creation and maintenance of a bibliographic database. Impact/MARCit(tm) is a cataloging support system providing access to the A-G Databases(tm) containing over 50 million bibliographic and authority records via the Web. Impact/TRACEit(tm) provides a one-stop source for satisfying quick reference queries and for locating potential interlibrary loan (ILL) sources. AVISO(tm) is an ISO standards compliant PC-based software system designed to manage all aspects of the interlibrary loan process. Impact/ACCESS(tm) provides for patron access to licensed commercial third- party databases. Impact/SLims(tm) is a small library information management system, which operates on a personal computer and integrates patron access catalog, circulation control and inventory management. In July 1997, the Company acquired the assets of the Library Information Systems ("LIS") division of ISM Information Systems Management Manitoba Corporation ("ISM"), a subsidiary of IBM Canada, Ltd. The LIS business includes bibliographic cataloging and interlibrary loan resource sharing software and related services. The assets acquired include a bibliographic database containing over 50 million records together with the holdings of most Canadian public and university libraries, five million authority records, software, computer equipment, furniture, leasehold improvements and contracts to provide services to approximately 500 Canadian libraries. The Company also employed the former staff of the LIS division each having an average of 17 years of experience in the library services business. The acquisition achieved the strategic objective of expanding the Company's customer base internationally, improving access to the academic library market and obtaining one of the largest bibliographic union databases in North America. The Company has delivered its first new software products for the Canadian market (and later the U.S. market) called Impact/MARCit(tm) and Impact/TRACEit(tm) within six months of concluding the acquisition. The Company has formed a new wholly-owned Canadian subsidiary, A-G Canada Ltd. located in Etobicoke, Ontario (a suburb of Toronto), to operate the business. The Company's software products and processing services continue to leverage technology and experience gained over more than 45 years of service to publishers. The Company provides standard and customized products and services used for database management, electronic composition and CD-ROM search and retrieval. These software products include: SGML Smart Editor System(SES) provides publishers with full editorial capabilities to create and maintain databases in Standard Generalized Markup Language ("SGML") format. Impact(tm)/CD-ROM products provide comprehensive searching, indexing, and cross-referencing features along with search and retrieval capabilities for CD-ROM's and are available in Windows and MAC versions. In addition to providing database creation, conversion and maintenance services to a wide variety of commercial customers, the Company provides a specialized database service for the wholesale heating, ventilation, air conditioning and refrigeration (HVACR) industry. This proprietary publishing business is operated by Datacat, Inc., which became a wholly- owned subsidiary of the Company effective October 2, 1998. The Company supplies software, database and composition services for printed, CD-ROM and Web-based HVACR parts catalogs. (See Note 1 of "Notes to Consolidated Financial Statements"). Company Background The Company was formed in 1950 and incorporated in 1960 in the state of California. No single customer represents more than 10% of net sales. Management believes that the loss of any single customer or vendor would not have a material adverse effect on the business of the Company. Backlog cannot be stated in a useful manner, as contracts are normally expressed as statements of specifications and unit prices rather than total sales volume in dollars. The software and computerized database processing services business is highly competitive. There are no definitive market share statistics available. The Company first introduced computerized database services in 1964, and believes that it has been offering such services longer than any of its existing competitors. Many competitors are smaller and local in character, but some are larger and national with greater financial resources than the Company. Contracts for computerized database publishing services and the purchase/lease of equipment are awarded according to the results of market pricing, competitive bidding, technical capability, customer relationship and/or past performance. Marketing Offices/Employees The Company has marketing representatives and service centers located in California, Connecticut, Illinois, Massachusetts, Washington, Texas and in Ontario, Canada. The Company and its subsidiaries currently employ approximately 110 persons. ITEM 2. PROPERTIES The Company leases its corporate office and production facilities constituting approximately 29,000 square feet located at 3201 Temple Avenue, Pomona, California 91768. The facility has been custom designed for the Company's purposes, is fully occupied and should be adequate for the Company's anticipated growth for the foreseeable future. The facility is currently leased to the Company through June 2001 under the second of two five-year renewal options. (See Note 6 of "Notes to Consolidated Financial Statements" and Item 13. "Certain Relationships and Related Transactions"). ITEM 3. LEGAL PROCEEDINGS In June 1990, the Company and Gannam/Kubat Publishing ("G/K") formed a 50/50 joint venture company called Datacat, Inc. Datacat was formed to produce printed illustrated parts catalogs for the wholesale heating, ventilation, air conditioning, and refrigeration (HVACR) industry. In 1996, G/K filed suit against Datacat and the Company for non-payment of their accounts receivable and allegedly unauthorized and excessive payments by Datacat to the Company for database development costs incurred prior to 1994 provided by the Company. On October 2, 1997, the Company concluded a settlement agreement with its partner in Datacat, which dismissed the lawsuit and all outstanding claims against Datacat and the Company. In the settlement, Datacat paid G/K $200,000 against G/K's accounts receivable from Datacat of $351,000 and G/K forgave the balance of the accounts receivable ($151,000) and agreed to not compete with Datacat for a period of five years. Concurrently, G/K also surrendered their stock ownership in Datacat. The Company now owns 100% of Datacat, Inc. as of October 2, 1997. The Settlement Agreement and Mutual Release dated September 30, 1997 has been included as an exhibit to this Report. See Index to Exhibits, Item No. 10.24. (See Note 1 of "Notes to Consolidated Financial Statements" under "Other Assets - investment in Datacat, Inc."). ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Stock quotations. 1997 1996 Bid Asked Bid Asked Price Range High Low High Low High Low High Low 1st Quarter 2.250 2.000 3.250 2.375 1.875 1.375 2.375 1.875 2nd Quarter 2.000 1.625 2.750 2.000 2.250 1.750 2.750 2.250 3rd Quarter 2.125 1.750 4.500 3.500 2.313 1.875 3.375 2.313 4th Quarter 2.625 2.500 4.250 2.625 2.750 2.125 3.500 2.750 The Company's Common Stock ($.10 par value) is traded in the over-the- counter market under the symbol "AUGR" (Cusip Number 05272510). The stock quotations set forth above, as published by the National Quotation Bureau, Inc., represent the highest and lowest bid and asked prices quoted by broker/dealers making a market in the Company's Common Stock. Prices quoted do not include retail markup, markdown or commissions and may not reflect actual transactions in shares of the Company's stock. Quotations for the Company's stock are also reported on the OTC Bulletin Board. As of December 31, 1997 the number of holders of record of the Company's Common Stock was 236. The Company has never paid a cash dividend and there are no plans to do so in the near future. (See Note 3 of "Notes to Consolidated Financial Statements" for information as to the loan restriction on the payment of cash dividends). ITEM 6. SELECTED FINANCIAL DATA Dollar amounts in thousands except per share data. (See Note 1 of "Notes to Consolidated Financial Statements" under "Other Assets") Years Ended December 31 1997 1996 1995 1994 1993 Operating results: Net sales $10,036 $ 9,218 $ 9,559 $ 9,165 $ 9,678 Net income 212 236 194 158 132 Earnings per share .19 .21 .16 .12 .10 At year-end: Total assets 8,852 7,132 6,688 6,106 5,841 Long-term debt 2,911 2,101 1,906 1,696 1,592 No cash dividends have been declared. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General and Future Business Trends Liquidity and Capital Resources The Company has a revolving credit facility with maximum availability of $1,250,000(fully available at December 31, 1997), secured by accounts receivable and renewed bi-annually in June. Management believes that the current line of credit will again be renewed in June 1999 and is sufficient to handle the Company's cyclical working capital needs. (See Note 2 of "Notes to Consolidated Financial Statements"). The Company also maintains a capital line of credit facility (maximum availability $3,000,000) secured by substantially all of the Company's capital assets which also renews bi-annually in June and management believes that this credit facility will again be renewed in June 1999. Management does not currently believe that increased credit availability will be required to finance planned capital expenditures in 1998, which are estimated at $1,000,000, to be used to upgrade computers, production equipment and for software development. The Company obtained a new term credit facility of $750,000 to fund the 1997 acquisition of the assets of the Library Information Systems division of ISM Information Systems Management Manitoba Corporation. The term note is a three year note with interest only for 12 months followed by a 24 month amortization schedule at bank prime rate. Subsequent to December 31, 1997, the Company retired $375,000 of the balance outstanding in term borrowings. (See Note 3 of "Notes to Consolidated Financial Statements"). Cash, in 1997, was provided from operating activities and long-term financing. Cash flow from operations (net income and depreciation) in 1997 increased $61,000 to $1,346,000 ($1,285,000 in 1996 and $1,196,000 in 1995). The increase in accounts receivable from 1996 to 1997 is due to the effect of the acquisitions. The average collection days for accounts receivable improved in 1997 to 66 days from 67 days in 1996 and 70 days in 1995. As of December 31, 1997 the Company's principal commitments consisted primarily of leases on facilities. There were also commitments of approximately $100,000 in capital expenditures at December 31, 1997. The Company's principal uses of cash for investing activities in 1997 were for the continuing development of the Company's Impact(tm) software product line, for upgrades to the Company's primary computer equipment to enhance its online service to its customers and acquisition of the assets of the LIS division of ISM and the remaining 50% share of Datacat, Inc. The Company's capital resources may be used to support working capital requirements, capital investment and possible acquisitions of businesses, products or technologies complementary to the Company's current business. The Company believes that current cash reserves and cash flow from operations are sufficient to fund its operations in 1998. However, during this period or thereafter, the Company may require additional financing. There can be no assurance that such additional financing will be available on terms favorable to the Company, or at all. Results of Operations Net Sales in 1997 increased $818,000 to $10,036,000 due primarily to additional revenues from the acquisitions of A-G Canada, Ltd. and Datacat, Inc. and additional sales of the Company's Impact/ONLINE(tm) product line. The decline in net sales from the Company's traditional business lines were more than offset by revenues contributed by the acquisitions. Sales prices remained generally constant in 1997 and in certain cases declined due to competitive pressures in some markets. The Company's gross margins declined in 1997 to 38% from 40% in 1996 (38% in 1995). Selling, general and administrative expenses for 1997 declined to 31% of sales in 1997 from 33% of sales in 1996 and in 1995. The Company's spending on sales and marketing of its new products with additional personnel and new product promotions have been the primary factor in this elevated expense level. Net interest expense in 1997 was $290,000 up from $253,000 in 1996 due to additional borrowings associated with acquisitions offset by lower interest rates from the new credit facility. Earnings per share declined in 1997 to $0.19 compared to $0.21 in 1996 ($0.16 in 1995). The decline in earnings was due to expenses associated with the acquisitions and duplicative and higher computer and telecommunication costs of old technology incurred while the Canadian business was being transitioned to the Company's Internet based client/server technology. Management believes that favorable product mix and productivity improvements should result in higher earnings and improved cash flow from operations. The Company intends to consider other acquisition opportunities which may become available in 1998. Information Relating To Forward-Looking Statements This Report includes forward-looking statements which reflect the Company's current views with respect to future events and financial performance. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Impact of Inflation Historical dollar accounting does not reflect changing costs of operations, the future cost of expansion and the changing purchasing power of the dollar. Inflation generally impacts the Company in a negative manner, as prices cannot be adjusted quickly due to the contract nature of the business, while costs of personnel, materials and other purchases tend to escalate more rapidly. However, inflation is not anticipated to have a material effect on the Company's business in the near future. Foreign Exchange The functional and reporting currency of the Company is the U.S. dollar, while the functional and reporting currency for A-G Canada Ltd., the Company's wholly-owned Canadian subsidiary, is the Canadian dollar. The Company will now be exposed to foreign currency transaction gains or losses as the relationship between the Canadian dollar and U.S. dollar fluctuates. Since the date of acquisition, the Canadian dollar has lost approximately 3.6% of its value against the U.S. dollar although it has stabilized recently at approximately US$1.00=Cdn$1.43. Cash foreign currency losses in 1997 totaled approximately $15,000. All other transactions outside of A-G Canada Ltd. are denominated in U.S. dollars. (See Note 1 of "Notes to Consolidated Financial Statements"). Year 2000 The Company has developed a plan to modify its information technology to be ready for the Year 2000 and has begun converting critical data processing systems. The Company currently expects the project to be substantially complete by June 30, 1999 and to cost between $50,000 and $100,000. This estimate includes internal costs, but excludes the costs to upgrade and replace computer systems in the normal course of business. The Company does not expect this project to have a significant effect on operations. The Company will continue to implement key systems though some projects may be delayed due to resource constraints. ITEM 8. FINANCIAL STATEMENTS REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Auto-Graphics, Inc. We have audited the accompanying consolidated balance sheets of Auto- Graphics, Inc. as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Auto-Graphics, Inc. at December 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Riverside, California April 8, 1998 AUTO-GRAPHICS, INC. CONSOLIDATED BALANCE SHEETS December 31, 1997 and 1996 ASSETS 1997 1996 Current assets: Cash $ 244,620 $ 364,094 Accounts receivable, less allowance for doubtful accounts ($38,000 in 1997 and 1996) 2,365,837 1,882,305 Unbilled production costs 65,375 94,143 Finished goods inventory 18,049 28,939 Other current assets 122,416 188,440 Total current assets 2,816,297 2,557,921 Software, equipment and leasehold improvements, net (See Note 1) 5,576,409 4,425,522 Other assets 459,241 148,507 $ 8,851,947 $ 7,131,950 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 669,237 $ 330,056 Deferred income 536,225 444,388 Accrued payroll and related liabilities 272,485 191,290 Other accrued liabilities 155,383 127,037 Current portion of long-term debt 843,000 655,000 Total current liabilities 2,476,330 1,747,771 Long-term debt, less current portion 2,911,073 2,100,881 Deferred taxes based on income 695,000 664,939 Total liabilities 6,082,403 4,513,591 Commitments and contingencies (see Note 5) Stockholders' equity: Common stock, $.10 par value, 4,000,000 shares authorized, 1,090,478 shares issued and outstanding in 1997 and 1,109,278 shares issued and outstanding in 1996 109,048 110,928 Capital in excess of par value 1,128,319 1,138,651 Retained earnings 1,534,741 1,368,780 Foreign currency translation adjustments ( 2,564) - Total stockholders' equity 2,769,544 2,618,359 $ 8,851,947 $ 7,131,950 See notes to consolidated financial statements. AUTO-GRAPHICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 31, 1997, 1996, 1995 1997 1996 1995 Net sales $10,035,824 $ 9,217,937 $ 9,559,107 Costs and expenses Cost of sales 6,264,141 5,500,527 5,908,075 Selling, general and administrative 3,076,078 3,071,226 3,124,978 Interest, net 290,855 253,258 221,703 9,631,074 8,825,011 9,254,756 Income from operations 404,750 392,926 304,351 Other income - 33,980 53,819 Income before taxes based on income 404,750 426,906 358,170 Provision for taxes based on income 193,000 190,000 164,000 Net income $ 211,750 $ 236,906 $ 194,170 Basic and diluted earnings per share $ .19 $ .21 $ .16 Weighted average shares outstanding 1,090,611 1,109,345 1,208,645 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years ended December 31, 1997, 1996, 1995 Common Common Capital in Foreign Stock Stock Excess of Currency Retained Shares Amount Par Value Translation Earnings Balances at Jan. 1,1995 1,280,078 $ 128,008 $1,197,717 -- $1,225,001 Net income -- -- -- -- 194,170 Common stock retired (149,600) (14,960) (46,625) -- (241,509) Balances at Dec. 31,1995 1,130,478 113,048 1,151,092 -- 1,177,662 Net income -- -- -- -- 236,906 Common stock retired (21,200) (2,120) (12,441) -- (45,788) Balances at Dec. 31,1996 1,109,278 110,928 1,138,651 -- 1,368,780 Net income -- -- -- -- 211,750 Common stock retired (18,800) (1,880) (10,332) -- (45,789) Foreign Currency Translation Adjustments -- -- -- $( 2,564) -- Balances at Dec. 31,1997 1,090,478 $ 109,048 $1,128,319 $( 2,564) $1,534,741
See notes to consolidated financial statements. AUTO-GRAPHICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1997, 1996, 1995 1997 1996 1995 Cash flows from operating activities: Net income $ 211,750 $ 236,906 $ 194,170 adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,134,348 1,048,639 1,001,821 Deferred taxes 30,061 71,000 106,507 Changes in operating assets and liabilities, net of the effect of acquisitions Accounts receivable (405,058) 96,940 72,519 Unbilled production costs 28,768 69,374 (15,406) Finished goods inventory 137,612 32,007 (5,757) Other current assets (39,908) (19,824) 29,424 Other assets (284,166) (26,964) (29,355) Accounts payable 338,977 (194,375) 233,265 Deferred income (99,306) (45,779) 161,754 Accrued payroll and related liabilities 2,275 3,389 52,226 Other accrued liabilities 28,343 88,454 (128,238) Net cash provided by operating activities 1,083,696 1,359,767 1,672,930 Cash flows from investing activities: Capital expenditures (420,676) (611,840) (769,170) Capitalized software development (750,676) (775,000) (840,000) investment in Datacat, Inc., net of cash acquired (182,175) -- -- investment in A-G Canada, Ltd. (787,095) -- -- Net cash used in investing (2,140,622) ( 1,386,840) (1,609,170) Cash flows from financing activities: Borrowings under long-term debt 1,603,016 900,000 715,000 Principal payments under debt agreements (605,000) (555,000) (450,000) Repurchase of capital stock (58,000) (60,351) (303,094) Net cash provided by (used in) financing activities 940,016 284,649 (38,094) Net increase(decrease) in cash (116,910) 257,576 25,666 Foreign currency effect on cash (2,564) -- -- Cash at beginning of year 364,094 106,518 80,852 Cash at end of year $ 244,620 $ 364,094 $ 106,518 See notes to consolidated financial statements. AUTO-GRAPHICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 1. Summary of significant accounting policies. Description of Business Auto-Graphics, Inc. provides software products and processing services to information and database publishers. These products and services are used to create, maintain and distribute information databases through printed and/or electronic reference products. Electronic products include compact disc (CD-ROM) and client/server software systems(Internet/Web). Basis of Presentation The consolidated financial statements include the accounts of Auto-Graphics, Inc. and its wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated. Revenue Recognition Revenues are recognized as services are rendered or when finished goods are shipped to customers. Certain future software support costs are accrued in accordance with AICPA Statement of Position (SOP) 97-2. Use of Estimates The preparation of the financial statements of the Company in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and revenues and expenses during the reporting period. These estimates are based on information available as of the date of the financial statements. Actual results may differ from those estimated. Foreign Currency Translation The functional and reporting currency for operations located in Canada is the Canadian dollar. Consequently, assets and liabilities must be translated into U.S. dollars using current exchange rates and the effects of the foreign currency translation adjustments are accumulated and included as a component of stockholders' equity. As of December 31, 1997, the accumulated foreign currency translation adjustments were not material and the net foreign exchange transaction losses for 1997 were $12,222. All other Company transactions are currently denominated in U.S. dollars. Concentration of Credit Risk The Company is potentially subject to a concentration of credit risk for trade receivables. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains reserves for potential losses for uncollectible accounts and such losses have been within management's expectations. Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practical to estimate that value: Cash and Receivables. The carrying amount approximates fair value because of the short-term maturity of these instruments. Long-Term Debt. The carrying amount approximates fair value, since the interest rate on the debt is at the bank's prime rate. Income Taxes Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Unbilled Production Costs Costs associated with work in process inventory including labor, materials, supplies, and overhead (excluding selling, general and administrative expenses) are stated at the lower of cost or net realizable value and are removed from inventory on an average unit cost basis. Finished Goods Finished goods inventory consists primarily of computer and CD-ROM equipment held for sale and related spare parts and is stated at the lower of average cost or market. Software, Equipment and Leasehold Improvements Software, equipment and leasehold improvements are recorded at historical cost. Software, equipment and leasehold improvements at December 31, 1997 and 1996 consist of the following: 1997 1996 Computer software and database $7,391,351 $5,258,209 Equipment 3,568,573 3,588,048 Furniture and fixtures 535,706 497,101 Leasehold improvements 276,100 246,341 11,771,730 9,589,699 Less accumulated depreciation and amortization 6,195,321 5,164,177 $5,576,409 $4,425,522 Depreciation and Amortization Depreciation: Depreciation is based on the straight-line method over the estimated useful life of the asset and commences in the year the asset is placed in and/or is available for service or sale based on the half-year convention method. Amortization: Certain costs incurred related to the development and purchase of computer software are capitalized and amortized in accordance with Statement of Financial Accounting Standards No. 86. Amortization is based on a ratio of current and future revenues (the ratio method) or, at a minimum, the straight-line method, based on the full year convention in the first year of product availability. Unamortized computer software was approximately $3,734,000 in 1997, $2,502,000 in 1996, and $2,125,000 in 1995. Amortization of computer software was approximately $579,000 in 1997, $501,000 in 1996, and $452,000 in 1995. The following estimated useful lives are generally observed for the respective asset categories: Equipment - 5 to 15 years Computer software and databases - 7 years Furniture and fixtures - 5 to 10 years Leasehold improvements - the lesser of 5 to 15 years or the lease term Depreciation and amortization was $1,134,000 in 1997, $1,049,000 in 1996, and $1,002,000 in 1995. Other Assets Capitalized Acquisition Costs Certain legal and accounting costs totaling approximately $230,000 in 1997 associated with the following acquisitions have been capitalized as asset acquisition costs and will be amortized over a five year period. Investment in A-G Canada, Ltd. As of July 1, 1997, the Company acquired the assets of the Library Information Systems ("LIS") division of ISM Information Systems Management Manitoba Corporation ("ISM"), a subsidiary of IBM Canada, Ltd. The LIS business includes bibliographic cataloging and interlibrary loan resource sharing software and related services. The assets acquired include a bibliographic database containing over 50 million records together with the holdings of most Canadian public and university libraries, five million authority records, software, computer equipment, furniture, leasehold improvements and contracts to provide services to approximately 500 Canadian libraries. The Company purchased the LIS assets and business for US$879,000 (Cdn$1,211,000) of which US$763,000 was paid in cash plus the assumption of approximately US$116,000 in liabilities. The transaction was treated as a purchase with the purchase price fully allocated to the fair value of the assets acquired and no goodwill or other intangibles were recognized. Financing for the purchase was provided in the form of a new credit facility through Wells Fargo Bank via a combination of an additional US$750,000 in bank term debt and an additional US$250,000 in revolving working capital financing. The Company formed a wholly-owned Canadian subsidiary, A-G Canada Ltd., for purposes of acquiring and operating the LIS business located in Etobicoke, Ontario near Toronto. Financial information for A-G Canada Ltd. for the six months ending December 31, 1997 has been included in the accompanying consolidated financial statements. Investment in Datacat, Inc. In 1990, the Company acquired a 50% interest in Datacat, Inc. Datacat was formed to market a new technology developed by the Company for the production of parts catalogs for the wholesale heating, ventilation, air conditioning, and refrigeration (HVACR) industry. The investment has been accounted for using the equity method. As of October 2, 1997, the Company acquired the remaining 50% interest in Datacat, which it did not already own. The Company invested $182,000 in Datacat. The accompanying consolidated financial statements include financial information for Datacat for the three month period ending December 31, 1997. Pro Forma Information - Unaudited The following table reflects unaudited pro forma combined results of operations of the Company, A-G Canada Ltd. and Datacat, Inc. on the basis that the acquisitions of A-G Canada, Ltd. and Datacat, Inc. had taken place at the beginning of the fiscal year 1996 and 1997. The information for A-G Canada, Ltd. was provided by the seller, ISM. The information provided is unaudited and is not covered by the independent auditor's report. Year Ended December 31, 1997 1996 (unaudited) (unaudited) Net sales $12,550,000 $14,080,000 Net income (loss) $ 546,670 $ (201,317) Earnings per share $ 0.53 $ (0.18) Shares outstanding 1,090,611 1,109,345 It is management's opinion, that the pro forma combined results of operations are not indicative of the actual results that would have occurred had the acquisitions been consummated at the beginning of the fiscal year 1996 or of future operations of the combined companies under the ownership and management of the Company. Earnings Per Share In February 1997, the Financial Accounting Standards Board issued "Statement of Financial Accounting Standards No. 128, Earnings per Share", which is effective for interim and annual periods ending after December 15, 1997. The Company adopted the standard as of December 31, 1997. The standard requires the Company to present basic earnings per share and diluted earnings per share if applicable, using a revised methodology and requires restatement of prior earnings per share data presented. Basic earnings per share computations presented by the Company conform to the standard and are based on the weighted average number of shares of common stock outstanding during the year. Contingently issuable shares granted under the Company's 1997 Non-Qualified Stock Option Plan have been excluded from per share calculations because all necessary conditions for exercise of said options have not been satisfied as of December 31, 1997. (See Note 7 of "Notes to Consolidated Financial Statements") Supplemental Disclosure of Cash Flow Information The Company paid interest in the amount of $290,937 in 1997, $253,258 in 1996 and $221,703 in 1995. The Company paid income taxes in the amount of $182,682 in 1997, $21,691 in 1996 and $100,883 in 1995. Stock Based Compensation In October 1995, the Financial Accounting Standards Board issued "Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation". As permitted by this statement, the Company has continued to account for employee stock options under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, no compensation expense has been recognized for the employee stock option plan. See Note 7 of Notes to the Consolidated Financial Statements. Pending Pronouncements In February 1997, the Financial Accounting Standards Board issued "Statement of Financial Accounting Standards No. 129, Disclosure of Information about Capital Structure", which is effective for interim and annual periods ending after December 15, 1997. The Company adopted the statement as of December 31, 1997. The statement requires the Company to disclose certain pertinent rights and privileges of the Company's equity securities and therefore will have no material effect on the Company's financial position or results of operations. In June 1997, the Financial Accounting Standards Board issued "Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income", which is effective for interim and annual periods beginning after December 15, 1997. The Company will adopt the standard in fiscal year 1998. The statement requires the Company to report comprehensive income and its components in a set of general purpose financial statements and therefore will have no material effect on the Company's financial position or results of operations. In June 1997, the Financial Accounting Standards Board issued "Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information", which is effective for interim and annual periods beginning after December 15, 1997. The Company will adopt the statement in fiscal year 1998. The statement establishes standards for reporting of information about operating segments in interim and annual financial statements and therefore will have no material effect on the Company's financial position or results of operations. Reclassification Certain amounts reported in 1996 and 1995 have been reclassified to conform to the 1997 consolidated financial statement presentation. 2. Note Payable to Bank. The Company has a revolving credit agreement under which borrowings are secured by accounts receivable and inventory whereby the Company may borrow against its eligible accounts receivable up to a maximum of $1,250,000 ($1,250,000 available at December 31, 1997) with interest at the bank prime rate (8.50% at December 31, 1997). The credit facility is renewable bi-annually with the next renewal in June 1999. There was no outstanding loan balance at December 31, 1997 or December 31, 1996. There are no compensating balance requirements, material commitment fees or note guarantors. This agreement contains the same loan covenants as the capital line of credit. At December 31, 1997, the Company was in compliance with its loan covenants. 3. Long-term Debt. Long-term debt at December 31, 1997 and 1996 consists of the following: 1997 1996 Capital line of credit due in monthly installments of $50,000 plus interest at the bank prime rate (8.5% at December 31, 1997) through 2002; secured by software, equipment, and leasehold improvements with a net book value of approximately $5,576,000 at December 31, 1997. $2,949,073 $2,645,881 Term note with interest only at bank prime through June 30, 1998, and 24 monthly installments of $31,250 plus interest at bank prime rate through June 30, 2000. 750,000 -- Note payable to stockholder due in annual installments of $55,000 plus interest at 5.5% per annum. 55,000 110,000 Total long-term debt 3,754,073 2,755,881 Less current portion 843,000 655,000 Long-term portion $2,911,073 $2,100,881 Maturities of Long-Term Debt due after one year are: 1998-- $843,000; 1999-$975,000; 2000--$787,000; 2001--$600,000 and 2002--$549,000. The capital line of credit at December 31, 1997 provides for maximum borrowings of $3,000,000 for the purchase of equipment and software, and financing of up to $1,000,000 in internal software development costs. The capital line of credit is subject to renewal bi-annually with the next renewal in June 1999. Among other requirements, the capital line of credit requires the Company to maintain minimum financial covenant ratios, and prohibits the payment of cash dividends. There are no commitment fees, compensating balance requirements or note guarantors. At December 31, 1997, the Company was in compliance with its loan covenants. The term note provides financing of $750,000 at December 31, 1997 for the acquisition of the LIS division of ISM Information Systems Management Manitoba Corporation. Terms of the note include interest at bank prime rate with interest only for 12 months followed by a 24 month amortization of the balance. The note carries an uncompensated guarantee by an officer/stockholder of the Company. Subsequent to December 31, 1997, the Company repaid $375,000 of the term debt financing. In June 1995, the Company entered into a stock repurchase agreement with a former director of the Company, whereby the Company agreed to purchase and retire, in 1995, 115,000 of 141,000 shares of Company stock owned by the stockholder. The total transaction cost of $230,000 is being paid in four annual installments beginning in 1995 plus interest of 5.5% per annum ($65,000 paid in June 1995, and $55,000 paid in June 1996, 1997 and 1998). 4. Taxes Based on Income. The provision for taxes based on income is composed of the following for the years ended December 31: 1997 1996 1995 Current taxes based on income Federal $ 63,000 $ 69,000 $ 32,000 State 47,000 43,000 38,000 Foreign 42,000 -- -- _______ _______ _______ 152,000 112,000 70,000 Deferred taxes based on income Federal 55,000 78,000 94,000 State ( 14,000) -- -- Foreign - -- -- _______ _______ _______ 41,000 78,000 94,000 ________ ________ ________ $193,000 $190,000 $164,000 A reconciliation of the provision for taxes based on income follows for the years ended December 31: 1997 1996 1995 Statutory U.S. federal income tax $137,600 $145,200 $122,000 Excess foreign tax rates 11,800 -- -- State tax, net of federal benefit/other 21,800 28,500 24,400 Other 21,800 16,300 17,600 $193,000 $190,000 $164,000 The statutory U.S. federal income tax rate was 34% in 1997, 1996 and 1995. The deferred tax assets and liabilities are composed of the following at December 31: 1997 1996 1995 Deferred tax liabilities: Tax over book amortization and depreciation $695,000 $665,000 $594,000 Deferred tax assets: Bad debts/accrued vacation/other 57,000 54,000 66,000 State taxes 11,000 15,000 10,000 ________ ________ ________ Total deferred tax assets 68,000 69,000 76,000 ________ ________ ________ Net deferred tax liability $627,000 $596,000 $518,000 5. Commitments and Contingencies. The Company incurred total facilities and equipment lease and rental expense of approximately $509,000 in 1997, $474,000 in 1996 and $486,000 in 1995. The Company is obligated under certain noncancellable operating leases for office facilities and equipment. There were also non- cancelable purchase commitments of approximately $100,000 for capital expenditures outstanding at December 31, 1997. Approximate minimum lease commitments are as follows: Years ended Operating December 31, Leases 1998 $ 555,000 1999 538,000 2000 538,000 2001 224,000 Total minimum lease payments $ 1,855,000 6. Related Party Transactions. The Company leases its corporate office and production facility from a limited partnership owned by two principal directors/stockholders of the Company payable at $37,345 per month (plus expenses and applicable increases based on the consumer price index) through June 2001 under the second of two five-year renewal options. The five-year lease with options, which was entered into in June 1986, was approved and authorized by the independent members of the Company's Board of Directors. The Company entered into a stock repurchase agreement in February 1995, with a former employee/officer and current director of the Company, whereby the Company agreed to purchase and retire, over a seven year period, 156,000 of 171,000 shares of Company stock owned by the individual. The total transaction cost of $825,000 includes stock, non- competition and consulting fees. In each of January 1997 and 1996, the Company purchased and retired a block of 15,600 shares, in accordance with the above referenced agreement. 7. Stockholders' Equity. 1997 Non-Qualified Stock Option Plan The Company adopted and implemented a 1997 Non-Qualified Stock Option Plan effective December 31, 1997. The plan is a non-qualified plan covering only senior executives and related persons. The plan consists of 100,000 shares of the Company's authorized but unissued common stock. At the inception of the plan, the Company granted options to four persons under the plan whereby they may purchase up to a total of 47,500 shares over the next five years at a price per share of $1.65. The recipient's right to exercise such options and acquire the stock is conditioned upon further employment with the Company and on the market trading price of the Company's stock rising to a minimum of $6.50 per share. Shares actually sold and issued pursuant to the plan will be restricted stock requiring that such stock be held by the recipients for a minimum period of one year following purchase before they are eligible to sell such stock in the public market. Following such initial option grant, 52,500 shares remain eligible for future grants under the plan. The Company also anticipates submitting a proposed qualified stock option plan covering an additional 100,000 shares available for grant to all levels of employees of the Company at the fair market value of shares of the Company's stock at the date of grant. 8. Defined Benefit Plan The Company sponsors a defined contribution plan qualified under Section 401(k) of the Internal Revenue Code for the benefit of its U.S. based employees. All full time employees are eligible to participate beginning in January or June of each year following a 90 day waiting period. The Company pays the administrative expenses of the plan. Annually, the Company may, at their sole discretion, award an amount out of the profits of the Company as a match against employee contributions to the 401(k) plan. The Company contribution was approximately $24,000 in 1997, $19,000 in 1996 and $16,000 in 1995. 9. Year 2000 - Unaudited The Company has developed a plan to modify its information technology to be ready for the Year 2000 and has begun converting critical data processing systems. The Company currently expects the project to be substantially complete by June 30, 1999 and to cost between $50,000 and $100,000. This estimate includes internal costs, but excludes the costs to upgrade and replace computer systems in the normal course of business. The Company does not expect this project to have a significant effect on operations. The Company will continue to implement key systems though some projects may be delayed due to resource constraints. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the names and ages of, and the positions and offices within the Company presently held by, all directors and officers of the Company: Name Age Position Douglas K. Bisch 76 Director. Has served in this capacity for more than ten years. Robert H. Bretz 54 Director and Assistant Secretary. Attorney who has acted as the Company's outside general legal counsel for more than ten years. Robert S. Cope 62 Director, President and Treasurer. Has served in these capacities for more than ten years. William J. Kliss 50 Chief Operating Officer. Has served the Company in this capacity for two years. Prior to this position, Mr. Kliss served as the Company's Vice President and General Manager of Library Services for two years. Mr. Kliss formerly served as Vice President of Operations at Scan-Optics, Inc. for fifteen years prior to his employment with the Company. Daniel E. Luebben 49 Chief Financial Officer and Secretary. Has served in these capacities for two years. Prior to these positions, Mr. Luebben served as the Company's Vice President, Operations and Controller for the past six years. Mr. Luebben formerly served as Controller of Ultrasystems Defense, Inc. for two years prior to his employment with the Company. Directors serve until their successors are elected and qualified at the annual meeting of stockholders. All executive officers serve at the discretion of the Company's Board of Directors. ITEM 11. EXECUTIVE COMPENSATION A definitive Proxy Statement will be filed with the Securities and Exchange Commission ("the Commission") pursuant to Regulation 14A within 120 days after the close of the Company's most recent calendar year and, accordingly, Item 11 is incorporated by reference to said definitive Proxy Statement. The Proxy Statement includes information covering this item under the caption "Compensation of Executive Officers". ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT A definitive Proxy Statement will be filed with the Commission pursuant to Regulation 14A within 120 days after the close of the Company's most recent calendar year and, accordingly, Item 12 is incorporated by reference to said definitive Proxy Statement. The Proxy Statement includes information covering this item under the caption "Security Ownership of Certain Beneficial Owners and Management" and "Nominees for Election as Directors". ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS A definitive Proxy Statement will be filed with the Commission pursuant to Regulation 14A within 120 days after the close of the Company's most recent calendar year and, accordingly, Item 13 is incorporated by reference to said definitive Proxy Statement. The Proxy Statement includes information covering this item under the caption "Certain Relationships and Related Transactions". PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial statements and financial statement schedules and exhibits: (1) Financial Statements: See Item 8. "Financial Statements." (2) All schedules are omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements, including the notes thereto. (3) Exhibits: 3.1 Articles of Incorporation of Auto-Graphics, Inc., as amended (incorporated by reference as filed with the SEC as Exhibit 3.1 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1989). 3.2 Bylaws, as amended (incorporated by reference as filed with the SEC as Exhibit 3.2 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1989). 10.8 Lease Agreement between 664 Company and Auto-Graphics, Inc. dated May 27, 1986 (incorporated by reference as filed with the SEC as Exhibit 10.7 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990). 10.9 Agreement by, between and among Auto-Graphics, Inc. and Douglas K. and Ruth T. Bisch executed February 15, 1995 (incorporated by reference as filed with the SEC as Exhibit 10.9 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.10 Asset Purchase Agreement between A-G Canada, Ltd., a wholly owned subsidiary of Auto-Graphics, Inc. and ISM Information Systems Management Manitoba Corporation, a subsidiary of IBM Canada, Ltd. dated June 30, 1997 incorporated by reference as filed with the SEC in the registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1997). 10.13 Stock Purchase Agreement by, between and among Auto-Graphics, Inc. and Cary A. and Geri W. Marshall executed June 13, 1995 (incorporated by reference as filed with the SEC as Exhibit 10.13 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.15 Credit Agreement between Wells Fargo Bank and Auto-Graphics, Inc. dated May 12, 1997. 10.16 First Amendment to Credit Agreement between Wells Fargo Bank and Auto-Graphics, Inc. dated June 23, 1997. 10.17 Second Amendment to Credit Agreement between Wells Fargo Bank and Auto-Graphics, Inc. dated October 31, 1997. 10.18 Revolving Line of Credit Note (Working Capital) between Wells Fargo Bank and Auto-Graphics, Inc. dated May 12, 1997. 10.19 Revolving Line of Credit Note (Capital Equipment) between Wells Fargo Bank and Auto-Graphics, Inc. dated May 12, 1997. 10.20 Term Note between Wells Fargo Bank and Auto-Graphics, Inc. dated May 12, 1997. 10.21 Continuing Security Agreement Rights to Payment and Inventory between Wells Fargo Bank and Auto-Graphics, Inc. dated May 12, 1997. 10.22 Security Agreement Equipment between Wells Fargo Bank and Auto-Graphics, Inc. dated May 12, 1997. 10.23 Guaranty between Wells Fargo Bank and Robert S. Cope dated May 12, 1997. 10.24 Settlement Agreement and Mutual Release between Diversified Printing & Publishing Services, Inc., Gannam/Kubat Publishing, Inc. Nasib Gannam, and T. Ron Kahraman, and Datacat, Inc., Auto-Graphics, Inc. and Robert S. Cope dated September 30, 1997. 10.25 1997 Non-Qualified Stock Option Plan dated December 31, 1997. (b) The Company has not filed any reports on Form 8-K during the last quarter of the period covered by this Report. (c) The following document is filed herewith for information purposes, but is not part of this Annual Report, except as otherwise indicated: None. (d) None. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AUTO-GRAPHICS, INC. (Registrant) Date: 4/15/98 By Ss/ Robert S. Cope Robert S. Cope, President, Treasurer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacity and on the dates indicated. Date: 4/15/98 By Ss/ Robert S. Cope Robert S. Cope, President, Treasurer and Director Date: 4/15/98 By Ss/ Daniel E. Luebben Daniel E. Luebben, Secretary and Chief Financial Officer Date: 4/15/98 By Ss/ Robert H. Bretz Robert H. Bretz, Director EX-10.15 2 DESCRIPTION - Credit Agreement between Wells Fargo Bank and Auto-Graphics, Inc. dated May 12, 1997. CREDIT AGREEMENT THIS AGREEMENT is entered into as of May 12, 1997, by and between AUTO- GRAPHICS, INC., a California corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"). RECITAL Borrower has requested from Bank the credit accommodations described below (each, a "Credit" and collectively, the "Credits"), and Bank has agreed to provide the Credits to Borrower on the terms and conditions contained herein. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Bank and Borrower hereby agree as follows: ARTICLE I THE CREDITS SECTION 1.1. LINE OF CREDIT. (a) Line of Credit. Subject to the terms and conditions of this Agreement, Bank hereby agrees to make advances to Borrower from time to time up to and including June 1, 1.999, not to exceed at any time the aggregate principal amount of One Million Two Hundred Fifty Thousand Dollars ($1,250,000.00) ("Line of Credit"), the proceeds of which shall be used for working capital. Borrower's obligation to repay advances under the Line of Credit shall he evidenced by a promissory note substantially in the form of Exhibit A attached hereto ("Line of Credit Note"), all terms of which are incorporated herein by this reference. (b) Limitation on Borrowings. Outstanding borrowings under the Line of Credit, to a maximum of the principal amount set forth above, shall not at any time exceed an aggregate of the sum of eighty percent (80%) of the eligible accounts receivable of Borrower "Borrower's Borrowing Base") plus eighty percent (80%) of the eligible accounts receivable of A-G Canada Ltd., a Canadian corporation ("A-G Canada") which is a wholly-owned subsidiary of Borrower ("A-G Canada's Borrowing Base"). All of the foregoing shall be determined by Bank upon receipt and review of all collateral reports required hereunder and such other documents and collateral information as Bank may from time to time require. (i) Borrower's Borrowing Base. Borrower acknowledges that Borrower's Borrowing Base was established by Bank with the understanding that among other items, the aggregate of all returns, rebates, discounts, credits and allowances for the immediately preceding three (3) months at all times shall be less than five percent (5%) of Borrower's, gross sales for said period. If such dilution of Borrower's accounts for the immediately preceding three (3) months at any time exceeds five percent (5%) of Borrower's a gross sales for said period, or if there at any time exists any other matters, events, conditions or contingencies which Bank reasonably believes may affect payment of any portion of Borrower's accounts Bank, in its sole discretion, may reduce the foregoing advance rate against eligible accounts receivable to a percentage appropriate to reflect such dilution and/or establish additional reserves against Borrower's eligible accounts receivable. As used herein with respect to Borrower's Borrowing Base "eligible accounts receivable" shall consist solely of trade accounts created in the ordinary course of Borrower's business, upon which Borrower's right to receive payment is absolute and not contingent upon the fulfillment or any condition whatsoever, and in which Bank has a perfected security interest of first priority, and shall not include: (A) any account which is past due more than twice Borrower's, standard selling terms; (B) that portion of any account for which there exists any right of setoff, defense or discount (except regular discounts allowed in the ordinary course of business to promote prompt payment) or for which any defense or counterclaim has been asserted; (C) any account which represents an obligation of the United States government or any political subdivision thereof (except accounts which represent obligations of the United States government and for which Bank's forms N-138 and N-139 been duly executed and acknowledged); (D) any account which represents an obligation of an account debtor located in a foreign country other than an account debtor located in the Canadian provinces of Alberta, British Columbia, Manitoba, Ontario, Saskatchewan or the Yukon Territory so long as, in Bank's determination, such Canadian jurisdictions recognize Bank's first priority security interest in and right to collect such account as a consequence of any security agreements and UCC filings in favor of Bank, and other than an account debtor located in any other Canadian province where Bank has obtained a perfected security interest of first priority pursuant to the applicable laws of such province; (E) any account which arises from the sale or lease to or performance of services for, or represents an obligation of, an employee, affiliate, partner, member, parent or subsidiary of Borrower; (F) any account which represents an obligation of any account debtor when twenty-five percent (25%) or more of Borrower's accounts from such account debtor are not eligible pursuant to (A) above; (G) that portion of any account from an account debtor which represents the amount by which Borrower's total accounts from said account debtor exceeds twenty-five (25%) of Borrower's total accounts; (H) any account deemed ineligible by Bank when Bank, in its sole discretion, deems the creditworthiness or financial condition of the account debtor, or the industry in which the account debtor is engaged, to be unsatisfactory. (ii) A-G Canada's Borrowing Base. Borrower acknowledges that A-G Canada's Borrowing Base was established by Bank with the understanding that, among other items, the aggregate of all returns, rebates, discounts, credits and allowances for the immediately preceding three (3) months at all times shall be less than five percent (5%) of A-G Canada's gross sales for said period. If such dilution of A-G Canada's accounts for the immediately preceding three (3) months at any time exceeds five percent (5%) of A-G Canada's gross sales for said period, or if there at any time exists any other matters, events, conditions, or contingencies which Bank reasonably believes may affect payment of any portion of A-G Canada's accounts, Bank, in its sole discretion, may reduce the foregoing advance rate against eligible accounts receivable to a percentage appropriate to reflect such additional dilution and/or establish additional reserves against A-G Canada's eligible accounts receivable. As used herein with respect to A-G Canada's Borrowing Base, "eligible accounts receivable" shall consist solely of trade accounts created in the ordinary course of A-G Canada's business, upon which A-G Canada's right to receive payment is absolute and not contingent upon the fulfillment of any condition whatsoever, and in which Bank has a perfected security interest of first priority, and shall not include: (A) any account which is past due more than twice A-G Canada's standard selling terms; (B) that portion of any account for which there exists any right of setoff, defense or discount (except regular discounts allowed in the ordinary course of business to promote prompt payment) or for which any defense or counterclaim has been asserted; (C) any account which represents an obligation of an account debtor located in a country other than Canada; (D) any account which arises from the sale or lease to or performance of services for, or represents an obligation of, an employee, affiliate, partner, member, parent or subsidiary of A-G Canada; (E) any account which represents an obligation of any account debtor when twenty-five percent (25%) or more of A-G Canada's accounts from such account debtor are not eligible pursuant to (A) above; (F) that portion of any account from an account debtor which represents the amount by which A-G Canada's total accounts from said account debtor exceeds twenty-five percent (25%) of A-G Canada's total accounts; (G) any account deemed ineligible by Bank when Bank, in its sole discretion, deems the creditworthiness or financial condition of the account debtor, or the industry in which the account debtor is engaged, to be unsatisfactory. (c) Borrowing and Repayment. Borrower may from time to time during the term of the Line of Credit borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions contained herein or in the Line of Credit Note; provided however, that the total outstanding borrowings under the Line of Credit shall not at any time exceed the maximum principal amount available thereunder, as set forth above. SECTION 1.2. EQUIPMENT LINE OF CREDIT. (a) Equipment Line of Credit. Subject to the terms and conditions of this Agreement, Bank hereby agrees to make advances to Borrower from time to time up to and including June 1, 1999, not to exceed at any time the aggregate principal amount of Three Million Dollars ($3,000,000.00) ("Equipment Line of Credit"), the proceeds of which shall be used to finance the purchase and/or development of equipment and software. Borrower's obligation to repay advances under the Equipment Line of Credit shall be evidenced by a promissory note substantially in the form of Exhibit B attached hereto ("Equipment Line of Credit Note"), all terms of which are incorporated herein by this reference. (b) Limitation on Borrowings. Each request for an advance under the Equipment Line of Credit shall be accompanied by Borrower's written statement as to the use of the proceeds of such advance. Advances under the Equipment Line of Credit shall not exceed eighty percent (80-%) of the purchase price of equipment and software developed by a person or entity other than Borrower, and shall not exceed eighty percent (80%) of the development cost of equipment and software developed by Borrower, in each case as evidenced by the invoices and/or expense reports therefor. Moreover, the aggregate amount of all advances under the Equipment Line of Credit which are to be used to finance the development cost of equipment and software developed by Borrower shall not exceed One Million Dollars ($1,000,000.00) during any given fiscal year. (c) Borrowing and Repayment. Borrower may from time to time during the term of the Equipment Line of Credit borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions contained herein or in the Equipment Line of Credit Note; provided, however, that the total outstanding borrowings under the Equipment Line of Credit shall not at any time exceed the maximum principal amount available thereunder, as set forth above. (d) Option to Cancel and Amortize. Borrower shall have a one-time option during the term of the Equipment Line of Credit to cancel the Equipment Line of Credit and to amortize the principal balance then outstanding over a period of five (5) years, to be repaid in sixty (60) equal monthly installments, as set forth in the promissory note to be executed by Borrower upon the exercise of the option. Borrower may exercise this option at anytime during the term of the Equipment Line of Credit upon sending written notice thereof to Bank; provided, however, Borrower may not exercise this option if an Event of Default, or an event or act which with the giving of notice or the passage or time or both would constitute an Event of Default, has occurred and is continuing. SECTION 1.3. TERM LOAN. (a) Term Loan. Subject to the terms and conditions of this Agreement, Bank hereby agrees to make a loan to Borrower in the principal amount of Seven Hundred Fifty Thousand Dollars ($750,0OO.00) ("Term Loan"), the proceeds of which shall be used by Borrower and/or contributed by Borrower to A-G Canada to finance the acquisition (the "ISM Acquisition") by Borrower and/or by A-G Canada of the assets of ISM Information Systems Management Manitoba Corporation pursuant to the terms of that certain Asset Purchase Agreement between A-G Canada and ISM Information Systems Management Manitoba Corporation to be dated as of June 1 1997 (the "Purchase Agreement"). Borrower's obligation to repay the Term Loan shall be evidenced by a promissory note substantially in the form of Exhibit C attached hereto ("Term Note"), all terms of which are incorporated herein by this reference. Bank's commitment to grant the Term Loan shall terminate on June 30, 1997. (c) Repayment. The principal amount of the Term Loan shall be repaid in accordance with the provisions of the Term Note. (d) Prepayment. Borrower may prepay principal on the Term Loan at any time, in any amount and without penalty. SECTION 1.4 INTEREST/FEES. (a) Interest. The outstanding principal balances of the Line of Credit, Equipment Line of Credit and the Term Loan shall bear interest at the rates of interest set forth in the Line of Credit Note, Equipment Line of Credit Note, and the Term Note (collectively, the "Notes"). (b) Computation and Payment. Interest shall be computed on the basis of a 360-day year, actual days elapsed. Interest shall be payable at the times and place set forth in the Notes. (c) Unused Commitment Fee. Borrower shall pay to Bank a fee equal to one- eighth percent (1/8%) per annum (computed on the basis of a 360 day year, actual days elapsed) on the average daily unused amount of the Line of Credit, which fee shall be calculated on a quarterly basis by Bank and shall be due and payable by Borrower in arrears within ten (10) days after each billing is sent by Bank. SECTION 1.5 COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect all principal, interest and fees due under each Credit by charging Borrower's demand deposit account with Bank, or any other demand deposit account maintained by Borrower with Bank, for the full amount thereof. Should there be insufficient funds in any such demand deposit account to pay all such sums when due, the full amount of such deficiency shall be immediately due and payable by Borrower. SECTION 1.6. COLLATERATAL. As security for all indebtedness of Borrower to Bank subject hereto, Borrower hereby grants to Bank security interests of first priority in all Borrower's accounts receivable and other rights to payment, general intangibles, inventory, equipment and all proceeds of the foregoing. As security for all indebtedness of Borrower to Bank subject hereto, on or before June 30, 1997, Borrower shall cause A-G Canada to grant to Bank security interests of first priority in all of A-G Canada's accounts receivable and other rights to payment, general intangibles, inventory, equipment and all proceeds of the foregoing. All of the foregoing shall be evidenced by and subject to the terms of such security agreements, financing statements and other documents as Bank shall reasonably require, all in form and substance satisfactory to Bank. Borrower shall reimburse Bank immediately upon demand for all costs and expenses incurred by Bank in connection with any of the foregoing security, including without limitation, filing and recording fees and costs of appraisals and audits. SECTION l.7. GUARRANTIES. All indebtedness of Borrower to Bank under the Term Loan shall be guaranteed by Robert S. Cope in the principal amount of Seven Hundred Fifty Thousand Dollars ($750,000.00), as evidenced by and subject to the terms of a guaranty in form and substance satisfactory to Bank. ARTICLE II REPRESENTATIONS AND WARRANTIES Borrower makes the following representations and warranties to Bank, which representations and warranties shall survive the execution of this Agreement and shall continue in full force and effect until the full and final payment, and satisfaction and discharge, of all obligations of Borrower to Bank subject to this Agreement. SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized and existing and in good standing under the laws of the state of California, and is qualified or licensed to do business (and is in good standing as a foreign corporation, if applicable) in jurisdictions in which such Qualification or licensing is required or in which the failure to so qualify or to be so licensed could have a material adverse effect on Borrower. SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Notes, and each other document, contract and instrument required hereby or at any time hereafter delivered to Bank in connection herewith (collectively, the "Loan Documents") have been duly authorized, and upon their execution and delivery in accordance with the provisions hereof will constitute legal, valid and binding agreements and obligations of Borrower or the party which executes the same, enforceable in accordance with their respective terms. SECTION 2.3. NO VIOLATION. The execution, delivery and performance by Borrower of each of the Loan Documents do not violate any provision of any law or regulation, or contravene any provision of the Articles of Incorporation or By-Laws of Borrower, or result in any breach of or default under any contract, obligation, indenture or other instrument to which Borrower is a party or by which Borrower may be bound. SECTION 2.4. LITIGATION. There are no pending, or to the best of Borrower's knowledge threatened, actions, claims, investigations, suits or proceedings by or before any governmental authority, arbitrator, court or administrative agency which could have a material, adverse effect on the financial condition or operation of Borrower other than those disclosed by Borrower to Bank in writing prior to the date hereof. SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement of Borrower dated March 31, 1997, a true copy of which has beer, delivered by Borrower to Bank prior to the date hereof, (a) is complete and correct and presents fairly the financial condition of Borrower, (b) discloses all liabilities of Borrower that are required to be reflected or reserved against under generally accepted accounting principles, whether liquidated or unliquidated, fixed or contingent, and (c) has been prepared in accordance with generally accepted accounting principles consistently applied. Since the date of such financial statement -there has been no material adverse change in the financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a security interest in or otherwise encumbered any of its assets or properties except in favor of Bank or as otherwise permitted by Bank in writing. SECTION 2.6. INCOME TAX.RETURNS. Borrower has no knowledge of any pending assessments or adjustments of its income tax payable with respect to any year. SECTION 2.7. NO SUBORDINATION. There is no agreement indenture, contract or instrument to which Borrower is a party or by which Borrower is a party or by which Borrower may be bound that requires the subordination in right of payment of any of Borrower's obligations subject to this Agreement to any obligation of Borrower. SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter possess, all permits, consents, approvals, franchises and licenses required and rights to all trademarks, trade names, patents, and fictitious names, if any, necessary to enable it to conduct the business in which it is now engaged in compliance with applicable law. SECTION 2.9. ERISA. Borrower is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended or remodified from time to time ("ERISA"); Borrower has not violated any provision of any defined employee pension benefit plan (as defined in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no Reportable Event as defined in ERISA has occurred and is continuing with respect to any Plan initiated by Borrower; Borrower has met its minimum funding requirements under ERISA with respect to each Plan; and each Plan will be able to fulfill its benefit obligations as they come due in accordance with the Plan documents and under generally accepted accounting principles. SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation. SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to Bank in writing prior to the date hereof, Borrower is in compliance in all material respects with all applicable federal or state environmental, hazardous waste, health-and safety statutes, and; any rules or regulations adopted pursuant thereto, which govern or affect any of Borrower's operations and/or properties, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, and the Federal Toxic Substances Control Act, as any of the same may be amended, modified or supplemented from time to time. None of the operations of Borrower is the subject of any federal or state investigation evaluating whether any remedial action involving a material expenditure is needed to respond to a release of any toxic or hazardous waste or substance into the environment. Borrower has no material contingent liability in connection with any release of any toxic or hazardous waste or substance into the environment. ARTICLE III CONDITIONS SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of Bank to grant any of the Credits is subject to the fulfillment to Bank's satisfaction of all of the following conditions: (a) Approval of Bank Counsel. All legal matters incidental to the granting of each of the Credits shall be satisfactory to Bank's counsel. (b) Documentation. Bank shall have received, in form and substance satisfactory to Bank, each of the following, duly executed: (i) This Agreement and the Notes. (ii) Articles of Incorporation. (iii) Corporate Borrowing Resolution. (iv) Incumbency Certificate. (v) Security Agreement covering Equipment. (vi) Security Agreement covering Account Receivable and Inventory. (vii) UCC Financing Statement. (viii) Guaranty (ix) Such other documents as Bank may require under any other Section of this Agreement. And by June 30, 1977, Bank shall have received, in form and substance satisfactory to Bank, each of the following, duly executed: (x) Third Party Security Agreement: All Accounts, Inventory, Equipment and Fixtures. (xi) Financing Statement or such other filings as may be required under Canadian law. (xii) Corporate Resolution authorizing endorsement and hypothecation of property. (xiii) Incumbency Certificate. (xiv) Such other documents as Bank may require under any other Section of this Agreement. (c) Financial Condition. There shall have been no material adverse change, as determined by Bank, in the financial condition or business of Borrower or any guarantor hereunder, nor any material decline, as determined by Bank, in the market value of any collateral required hereunder or a substantial or material portion of the assets of Borrower or any such guarantor. (d) Insurance. Borrower shall have delivered to Bank evidence of insurance coverage on all Borrower's property, in form, substance, amounts, covering risks and issued by companies satisfactory to Bank, and where required by Bank, with loss payable endorsement in favor of Bank, including without limitation, policies of fire and extended coverage insurance covering all real property collateral required hereby, with replacement cost and mortgagee loss payable endorsements, and such policies of insurance against specific hazards affecting any such real property as may be required by governmental regulation or Bank. SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of Bank to make each extension of credit requested by Borrower hereunder shall be subject to the fulfillment to Bank's satisfaction of each of the following conditions: (a) Compliance. The representations and warranties contained herein and in each of the other Loan Documents shall be true on and as of the date of the signing of this Agreement and on the date of each extension of credit by Bank pursuant hereto, with the same as though such representations and warranties had been made on and as of each such date, and on each such date, no Event of Default as defined herein, and no condition, event or act which with the giving of notice or the passage of time or both would constitute such an Event of Default, shall have occurred and be continuing or shall exist. (b) Documentation. Bank shall have received all additional documents which may be required in connection with such extension of credit. SECTION 3.3. SPECIAL CONDITION TO TERM LOAN. The obligation of Bank to make the Term Loan shall be subject to receipt by Bank of such assurances and/or evidence as Bank may require that concurrently with or prior to the funding of the Term Loan, the ISM Acquisition shall be or shall have been completed in compliance with all applicable laws, and that Borrower and/or A-G Canada shall acquire or shall have acquired the assets described in the Purchase Agreement free from any liens or claims of any person or entity except for "Permitted Encumbrances" as defined in the Purchase Agreement. ARTICLE IV AFFIRMATIVE COVENANTS Borrower covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and payment in full of all obligations of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in writing: SECTION 4.1. PUNCTUAL PAYMENTS Punctually pay all principal, interest, fees or other liability ties due under any of the Loan Documents at the times and place and in the manner specified therein, and immediately upon demand by Bank, the amount by which the outstanding principal balance of any of the Credits at any time exceeds any limitation on borrowings applicable thereto. SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in accordance with generally accepted accounting principles consistently applied, and permit any representative of Bank, at any reasonable time, to inspect, audit and examine such books and records, to make copies of the same, and to inspect the properties of Borrower. SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the following, in form and detail satisfactory to Bank: (a) not later than 120 days after and as of the end of each fiscal year, a audited consolidated financial statement of Borrower, prepared by an certified public accountant acceptable to Bank, to include a balance sheet, income statement and statement of cash flow and all footnotes; (b) not later than 45 days after and as of the end of each fiscal quarter, a consolidated financial statement of Borrower, prepared by Borrower, to include a balance sheet and income statement; (c) not later than 20 days after and as of the end of each month, a borrowing base certificate of Borrower and A-G Canada, an aged listing of accounts receivable and accounts payable of Borrower and of A-G Canada, a reconciliation of accounts of Borrower and A-G Canada, and by March 31 of each year, a list of the names and addresses of Borrower's and A-G Canada's account debtors; (d) not later than 90 days after the end of each calendar year, a financial statement of each guarantor hereunder, prepared by such guarantor, to include all assets and liabilities, and within 15 days filing, but in no event later than each April 30th, copies of guarantor's filed federal income tax returns for such year; (e) from time to time such other information as Bank may reasonably request. SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits, governmental approvals, rights, privileges and franchises necessary for the conduct of its business; and comply with the provisions all documents pursuant to which Borrower is organized and/or which govern Borrower's continued existence and with the requirements of all laws, rules, regulations and orders of any governmental authority applicable to Borrower and/or its business. SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the types and in amounts customarily carried in lines of business similar to that of Borrower, including but not limited to fire, extended coverage, public liability, flood, property damage and workers' compensation, with all such insurance carried with companies and in amounts satisfactory to Bank, and deliver to Bank from time to time at Bank's request schedules setting forth all insurance then in effect. SECTION 4.6. FACILITIES. Keep all properties useful or necessary to Borrower's business in good repair and condition, and from time to time make necessary repairs, renewals and replacements thereto so that such properties shall be fully and efficiently preserved and maintained. SECTION 4.7. LITIGATION. Promptly give notice in writing to Bank of any litigation pending or threatened against Borrower with a claim in excess of $100,000.00. SECTION 4.8. FINANCIAL CONDITION. Maintain Borrower's consolidated financial condition as follows using generally accepted accounting principles consistently applied and used consistently with prior practices (except to the extent modified by the definitions herein), with compliance determined commencing with Borrower's financial statements for the period ending June 30, 1997: (a) Current Ratio not at any time less than 1.10 to 1.0, with "Current Ratio" defined as total current assets divided by total current liabilities. (b) Tangible Net Worth not at any time less than $2,500,000.00, with "Tangible Net Worth" defined as the aggregate of total stockholders' equity plus subordinated debt less any intangible assets. (c) Total Liabilities divided by Tangible Net Worth not at any time greater than 2.25 to 1.0, with "Total Liabilities" defined as the aggregate of current liabilities and non-current liabilities less subordinated debt, and with "Tangible Net Worth" defined as the aggregate of total stockholders' equity plus subordinated debt less any intangible assets. (d) EBITDA Coverage Ratio not less than 2. 0 to 1. 0 as of each fiscal year end and as of the end of each fiscal quarter, on a rolling four-quarter basis, with "EBITDA" defined as net profit before tax plus interest expenses (net of capitalized interest expense), depreciation expense and amortization expense, and with "EBITDA Coverage Ratio"' defined as EBITDA divided by the aggregate of total interest expense plus the prior period current maturity of long-term debt and the prior period current maturity of subordinated debt. (e) Net income after taxes not less than $1.00 on an annual basis, determined as of each fiscal year end, and pre-tax profit not less than $1.00 on a quarterly basis, determined as of each fiscal quarter end. SECTION 4.9. NOTICE TO BANK. Promptly (but in no event more than five (5) days after the occurrence of each such event or matter) give written notice to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or any condition, event or act which with the giving of notice or the passage of time or both would constitute an Event of Default; (b) any change in the name or organizational structure of Borrower; (c) the occurrence and nature of any Reportable Event or Prohibited Transaction, each as defined in ERISA, or any funding deficiency with respect to any, Plan; or (d) any termination or cancellation of any insurance policy which Borrower is required to maintain, or any uninsured or partially uninsured loss through liability or property damage, or through fire, theft or any other cause affecting Borrower's property in excess of an aggregate of $100,000.00. ARTICLE V NEGATIVE COVENANTS Borrower covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower will not without Bank's , prior or written consent: SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any of the Credits except for the purposes stated in Article I hereof. SECTION 5.2. CAPITAL EXPENDITURES. Make any additional investment in fixed assets in any fiscal year in excess of an aggregate of $2,000,000.00 (excluding U.S.$1,000,000.00 of the purchase price of the ISM Acquisition). SECTION 5.3. OTHER INDEBTEDNESS. Create, incur, assume or permit to exist any indebtedness or liabilities resulting from borrowings, loans or advances, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several, except (a) the liabilities of Borrower to Bank, and (b) any other liabilities of Borrower existing as of, and disclosed to Bank prior to, the date hereof. SECTION 5.4. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or consolidate with any other entity; make any substantial change in the nature of Borrower's business as conducted as of the date hereof; acquire all or substantially all of the assets of any other entity; nor sell, lease, transfer or otherwise dispose of all or a substantial or material portion of Borrower's assets except in the ordinary course of its business. SECTION 5.5. GUARANTIES. Guarantee or become liable in any way as surety, endorser (other than as endorser or negotiable instruments for deposit or collection in the ordinary course of business), accommodation endorser or otherwise for, nor pledge or hypothecate any assets of Borrower as security for, any liabilities or obligations or any other person or entity, except any of the foregoing in favor of Bank. SECTION 5.6. LOANS, ADVANCES, investmentS. Make any loans or advances to or investments in any person or entity, except any of the foregoing existing as of, and disclosed to Bank prior to, the date hereof. SECTION 5.7. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or distribution either in cash, stock or any other property on Borrower's stock now or hereafter outstanding, nor redeem, retire, repurchase or otherwise acquire any shares of any class of Borrower's stock now or hereafter outstanding; provided, however, Borrower may repurchase its common stock for a purchase price not to exceed $100,000.00 in the aggregate during any given year, so long as no other term or provision of this Agreement would be violated after giving effect to any such repurchase. SECTION 5.8. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist a security interest in, or lien upon, all or any portion of Borrower's assets now owned or hereafter acquired, except any of foregoing in favor of Bank or which is existing as of, and disclosed to Bank in writing prior to, the date hereof. ARTICLE VI EVENTS OF DEFAULT SECTION 6.1. The occurrence of any of the following shall constitute an "Event of Default" under this Agreement: (a) Borrower shall fail to pay when due any principal, interest, fees or other amounts payable under any or the Loan Documents. (b) Any financial statement or certificate furnished to Bank in connection with, or any representation or warranty made by Borrower or any other party under this Agreement or any other Loan Document shall prove to be incorrect, false or misleading in any material respect when furnished or made. (c) Any default in the performance of or compliance with any obligation, agreement or other provision contained herein or in any other Loan Document (other than those referred to in subsections (a) and (b) above), and with respect to any such default which by its nature can be cured, such default shall continue for a period of twenty (20) days from its occurrence. (d) Any default in the payment or performance of any obligation, or any defined event of default, under the terms of any contract or instrument (other than any of the Loan Documents) pursuant to which Borrower or any guarantor hereunder has incurred any debt or other liability to any person or entity, including Bank. (e) The filing of a notice of judgment lien against Borrower or any guarantor hereunder; or the recording or any abstract of judgment against Borrower or any guarantor hereunder in any county in which Borrower or such guarantor has an interest in real property; or the service of a notice of levy and/or of a writ of attachment or execution, or other like process, against the assets of Borrower or any guarantor hereunder; or the entry of a judgment against Borrower or any guarantor hereunder. (f) Borrower or any guarantor hereunder shall become insolvent, or shall suffer or consent to or apply for the appointment of a receiver, trustee, custodian or liquidator of itself or any of its property, or shall generally fail to pay its debts as they become due, or shall make a general assignment for the benefit of creditors; Borrower or any guarantor hereunder shall file a voluntary petition in bankruptcy, or seeking reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time ("Bankruptcy Code"), or under state or federal law granting relief to debtors, whether now or hereafter in effect; or any involuntary petition or proceeding pursuant to the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors is filed or commenced against Borrower or any guarantor hereunder, or Borrower or any such guarantor shall file an answer admitting the jurisdiction of the court and the material allegations of any involuntary petition; or Borrower or any such guarantor shall be adjudicated a bankrupt, or an order for relief shall be entered against Borrower or any such guarantor by any court of competent jurisdiction under the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors. (g) There shall exist or occur any event or condition which Bank in good faith believes impairs, or is substantially likely to impair, the prospect of payment or performance by Borrower of its obligations under any of the Loan Documents. (h) The death or incapacity of any guarantor hereunder. The dissolution or liquidation or Borrower; or Borrower or any of its directors, stockholders or members shall take action seeking to effect the dissolution or liquidation of Borrower. (i) Any change in ownership during the term of this Agreement of an aggregate of twenty-five percent (25%) or more of the common stock of Borrower. SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a) all indebtedness of Borrower under each of the Loan Documents, any term thereof to the contrary notwithstanding, shall at Bank's option and without notice become immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are hereby expressly waived by each Borrower; (b) the obligation, if any, of Bank to extend any further credit under any of the Loan Documents shall immediately cease and terminate; and (c) Bank shall have all rights, powers and remedies available under each of the Loan Documents, or accorded by law, including without limitation the right to resort to any or all security for any of the Credits and to exercise any or all of the rights of a beneficiary or secured party pursuant to applicable law. All rights, powers and remedies of Bank may be exercised at any time by Bank and from time to time after the occurrence of an Event of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law or equity. ARTICLE VII MISCELLANEOUS SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in exercising any right, power or remedy under any of the Loan Documents shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or other wise affect any other or further exercise thereof or exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by Bank of any breach of or default under of the Loan Documents must be in writing and shall be effective only to the extent set forth in such writing. SECTION 7.2. NOTICES. All notices, requests and demands which any party is required or may desire to give to any other party under any Provision of this Agreement must be in writing delivered to each party at the following address: BORROWER: AUTO-GRAPHICS, INC. 3201 Temple Avenue Pomona, California 91768 BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION Regional Commercial Banking Office 9000 Flair Drive, Suite 100 El Monte, CA 91731 or to such other address as any party may designate by written notice to all other parties. Each such notice, request and demand shall be deemed given or made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt. SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank immediately upon demand the full amount of all- advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank's in house counsel), expended or incurred by Bank in connection with (a) the negotiation and preparation of this Agreement and the other Loan Documents, Bank's continued administration hereof and thereof, and the preparation of any amendments and waivers hereto and thereto, (b) the enforcement of Bank's rights and/or the collection of any amounts which become due to Bank under any of the Loan Documents, and (c) the prosecution or defense of any action in any way related to any of the Loan Documents, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity. SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties; provided however, that Borrower may not assign or transfer its interest hereunder without Bank's prior written consent. Bank reserves the right to sell, assign, transfer, negotiate or grant participation's in all or any part of, or any interest in, Bank's rights and benefits under each of the Loan Documents. In connection therewith, Bank may disclose all documents and information which Bank now has or may hereafter acquire relating to any of the Credits, Borrower or its business, any guarantor hereunder or the business of such guarantor, or any collateral required hereunder. SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other Loan Documents constitute the entire agreement between Borrower and Bank with respect to the Credits and supersede all prior negotiations, communications, discussions and correspondence concerning the subject matter hereof. This Agreement may be amended or modified only in writing signed by each party hereto. SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any other of the Loan Documents to which it is not a party. SECTION 7.7. TIME. Time is of the essence of each and every provision of this Agreement and each other of the Loan Documents. SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such Prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions of this Agreement. SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original, and all of which when taken together shall constitute one and the same Agreement. SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California. SECTION 7.11. ARBITRATION. (a) Arbitration. Upon the demand of any party, any Dispute shall be resolved by binding arbitration (except as set forth in (e) below) in accordance with the terms of this Agreement. A "Dispute" shall mean any action, dispute, claim or controversy of any kind, whether in contract or tort, statutory or common law, legal or equitable, now existing or hereafter arising under or in connection with, or in any way pertaining to, any of the Loan Documents, or any past, present or future extensions of credit and other activities, transactions or obligations of any kind related directly or indirectly to any of the Loan Documents, including without limitation , any of the foregoing arising in connection with the exercise of any self-help, ancillary or other remedies pursuant to any of the Loan Documents. Any party may by summary proceedings bring an action in court to compel arbitration of a Dispute. Any party who fails or refuses to submit to arbitration following a lawful demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any Dispute. (b) Governing Rules. Arbitration proceedings shall be administered by the American Arbitration Association ("AAA") or such other administrator as the parties shall mutually agree upon in accordance with AAA the Commercial Arbitration Rules. All Disputes submitted to arbitration shall be resolved in accordance with the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the Loan Documents. The arbitration shall be conducted at a location in California selected by the AAA or other administrator. If there is any inconsistency between the terms hereof and any such rules, the terms and procedures set forth herein shall control. All statutes of limitation applicable to any Dispute shall apply to any arbitration proceeding. All discovery activities shall be expressly limited to matters directly relevant to the Dispute being arbitrated. Judgment upon any award rendered in an arbitration may me entered in any court having jurisdiction; provided however, that nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. 91 or any similar applicable state law. (c) No Waiver; Provisional Remedies, Provisional Remedies, Self-Help and Foreclosure. No provision hereof shall limit the right of any party to exercise self-help remedies such as setoff, foreclosure against or sale of any real or personal property collateral or security, or to obtain provisional or ancillary remedies, including without limitation injunctive relief, sequestration, attachment, garnishment or the appointment of a receiver, from a court of competent it jurisdiction before, after or during the pendency or any arbitration or other proceeding. The exercise of any such remedy shall not waive the right of any party to compel arbitration or reference hereunder. (d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be active members of the California State Bar or retired judges of the state or federal judiciary of California, with expertise in the substantive laws applicable to the subject matter of the Dispute. Arbitrators are empowered to resolve Disputes by summary rulings in response to motions filed prior to the final arbitration hearing. Arbitrators (i) shall resolve all Disputes in accordance with the substantive law of the state of California, (ii) may grant any remedy or relief that a court of the state of California could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award, and (iii) shall have the power to award recovery of all costs and fees, to impose sanctions and to take such other actions as they deem necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil Procedure or other applicable law. Any Dispute in which the amount in controversy is $5,000,000 or less shall be decided by a single arbitrator who shall not render an award of greater than $5,000,000 (including damages, costs, fees and expenses) . By submission to a single arbitrator, each party expressly waives any right or claim to recover more than $5,000,000. Any Dispute in which the amount in controversy exceeds $5, 000, COO shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. (e) Judicial Review. Notwithstanding anything herein to the contrary, in any arbitration in which the amount in controversy exceeds $25,000,000, the arbitrators shall be required to make specific, written findings of fact and conclusions of law. In such arbitration's (i) the arbitrators shall not have power to make any award which is not supported by substantial evidence or which is based on legal error, (ii) an award shall not be binding upon the parties unless the findings of fact are supported by substantial evidence and the conclusions of law are not erroneous under the substantive law of the state of California, and (iii) the parties shall have in addition to the grounds referred to in the Federal Arbitration Act for vacating, modifying or correcting an award the right to judicial review of (A) whether the findings of fact rendered by the arbitrators are supported by substantial evidence, and (B) whether the conclusions of law are erroneous under the substantive law of the state of California. Judgment confirming an award in such a proceeding may be entered only if a court determines the award is supported by substantial evidence and not based on legal error under the substantive law of the state of California. (f ) Real Property Collateral; Judicial Reference. Notwithstanding anything herein to the contrary, no Dispute shall be submitted to arbitration if the Dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any real property unless (i) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single action rule statute of California, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, liens and security interests securing such indebtedness and obligations, shall remain fully valid and enforceable. If any such Dispute is not submitted to arbitration, the Dispute shall be referred to a referee in accordance with California Code of Civil Procedure Section 638 et seq., and this general reference agreement is intended to be specifically enforceable in accordance with said Section 638. A referee with the qualifications required herein for arbitrators shall be selected pursuant to the AAA's selection procedures. Judgment upon the decision rendered by a referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645. (g) Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the Dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business, by applicable law or regulation, or to the extent necessary to exercise any judicial review rights set forth herein. If more than one agreement for arbitration by or between the parties potentially applies to a Dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of the Dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first written above. WELLS FARGO BANK, AUTO-GRAPHICS, INC. NATIONAL ASSOCIATION By: Ss/Robert S. Cope By Ss/Kirk C. Smith By: Robert S. Cope By: Kirk C. Smith Title: President Title: Vice President EX-10.16 3 DESCRIPTION - First Amendment to Credit Agreement between Wells Fargo Bank and Auto-Graphics, Inc. dated May 12, 1997. FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered into as of June 23, 1997, by and between AUTOGRAPHICS, INC., a California corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") RECITALS WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of May 12, 1997, as amended from time to time ("Credit Agreement"). WHEREAS, Bank and Borrower have agreed to certain changes in the terms and conditions set forth in the Credit Agreement and have agreed to amend the Credit Agreement to reflect said changes. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Credit Agreement shall be amended as follows: 1. Section 4. 8 (d) is hereby deleted in its entirety, and the following substituted therefor: "(d) EBITDA Coverage Ratio not less than 2.00 to 1.00 as of each fiscal year end and not less than 1.75 to 1.00 as of the end of each fiscal quarter excluding quarter ending 12/31, on a rolling four-quarter basis, with "EBITDA" defined as net profit before tax plus interest expenses (net of capitalized interest expense), depreciation expense and amortization expense, and with "EBITDA Coverage Ratio" defined as EBITDA divided by the aggregate of total interest expense plus the prior period current maturity of long-term debt and the prior period current maturity of subordinated debt." 2. Except as specifically provided herein, all terms and conditions of the Credit Agreement remain in full force and effect, without waiver or modification. All terms defined in the Credit Agreement shall have the same meaning when used in this Amendment. This Amendment and the Credit Agreement shall be read together, as one document. 3. Borrower hereby remakes all representations and warranties contained in the Credit Agreement and reaffirms all covenants set forth therein. Borrower further certifies that as of the date of this Amendment there exists no Event of Default as defined in the Credit Agreement, nor any condition, act or event which with the giving of notice or the passage of time or both would constitute any such Event of Default. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first written above. AUTO-GRAPHICS, INC. WELLS FARGO BANK, NATIONAL ASSOCIATION By: Ss/Robert S. Cope By: Ss/Kirk C. Smith Robert S. Cope Kirk C. Smith President Vice President EX-10.17 4 DESCRIPTION - Second Amendment to Credit Agreement between Wells Fargo Bank and Auto-Graphics, Inc. dated October 31, 1997. SECOND AMENDMENT TO CREDIT AGREEMENT THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered into as of October 3l, 1997 by and between AUTOGRAPHICS, INC., a California corporation ("Borrower") and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"). RECITALS WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of May 12, 1997, as amended from time to time ("Credit Agreement"); WHEREAS, Bank and Borrower, have agreed to certain changes in the terms and conditions set forth in the Credit Agreement and have agreed to amend the Credit Agreement to reflect said changes; NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of are hereby acknowledged, the parties hereto agree that the Credit Agreement shall be amended as follows: 1. The second Paragraph of Section 1.6 is hereby amended and restated in its entirety to read as follows: As security for all indebtedness of A-G Canada to Bank under the guaranty of A-G Canada referred to in Section 1.7 below, Borrower shall cause A-G Canada, on or before October 31, 1997, to grant to Bank security interests of first priority in all of A-G Canada's accounts receivable and other rights to payment, general intangibles, inventory, equipment and all proceeds of the foregoing. 2. Section 1.7 is hereby amended by adding at the end thereof the following sentence: On or before October 31, 1997, all indebtedness of Borrower to Bank shall be guaranteed by A-G Canada as evidenced by and subject to the terms of a guaranty in form and substance satisfactory to Bank. 3. The second paragraph of Section 3.1(b) is hereby amended and restated in its entirety to read as follows: By October 31, 1997, Bank shall have received, in form and substance satisfactory to Bank, each of the following, duly executed: (x) Guarantee. (xi) General Security Agreement. (xii) Financing Statements. (xiii) Opinion of Counsel. (xiv) Corporate Resolution. (xv) Such other documents as Bank may require under any other Section of this Agreement. 4. Section 4.3 (d) is hereby amended and restated in its entirety to read as follows: (d) not later than 90 days after the end of each calendar year, a financial statement of each guarantor hereunder who is a natural person, prepared by such guarantor, to include all assets and liabilities, and within 15 days after filing, but in no event later than each April 30th, copies of each such guarantor's filed federal income tax returns for such year; 5. Section 6.1(h) is hereby amended and restated in its entirety to read as follows: (h) The death or incapacity of any guarantor hereunder who is a natural person. The dissolution or liquidation of Borrower or of any guarantor hereunder which is not a natural person (except, with respect to A-G Canada, as permitted under the guarantee executed by it pursuant to Section 1.7 above); or Borrower or any such guarantor, or any of its directors, stockholders or members, shall take action seeking to effect the dissolution or liquidation of Borrower or such guarantor (except, with respect to A-G Canada, as permitted under the guarantee executed by it pursuant to Section 1.7 above). 6. Bank and Borrower acknowledge and agree that in calculating the Borrowing Base of A-G Canada as set forth in Section 1.1 (b) (ii), the Canadian dollar values of A-G Canada's eligible accounts receivable shall be converted to U.S. dollar equivalents. 7. Except as specifically provided herein, all terms and conditions of the Credit Agreement remain in full force and effect, without waiver or modification. All terms defined in the Credit Agreement shall have the same meaning when used in this Amendment. This Amendment and the Credit Agreement shall be read together, as one document. 8. Borrower hereby remakes all representations and warranties contained in the Credit Agreement and reaffirms all covenants set forth therein. Borrower further certifies that as of the date of this Amendment there exists no Event of Default as defined in the Credit Agreement, nor any condition, act or event which with the giving of notice or the passage of time or both would constitute any such Event of Default. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first written above. AUTO-GRAPHICS, INC. WELLS FARGO BANK, NATIONAL ASSOCIATION By: Ss/Robert S. Cope By: Ss/Kirk C. Smith Robert S. Cope Kirk C. Smith President Vice President EX-10.18 5 DESCRIPTION - Revolving Line of Credit Note (Working Capital) between Wells Fargo Bank and Auto-Graphics, Inc. dated May 12, 1997. WELLS FARGO BANK REVOLVING LINE OF CREDIT NOTE $1,250,000.00 El Monte, California May 12,1997 FOR VALUE RECEIVED. The undersigned AUTO-GRAPHICS, INC. ("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its office at Flair Industrial Park RCBO, 9000 Flair Drive Suite 100, El Monte, CA 91731, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds. The principal sum of $3,000,000.00, or so much thereof as may be advanced and be outstanding, with interest thereon, to be computed on each advance from the date of its disbursement as set forth herein. INTEREST: (a) Interest. The outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed) at a rate per annum equal to the Prime Rate in effect from time to time. The "Prime Rate" is a base rate that Bank from time to time establishes and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. Each change in the rate of interest hereunder shall become effective on the date each Prime Rate change is announced within Bank. (b) Payment of Interest. Interest accrued on this Note shall be payable on the last day of each month, commencing June 30, 1997. (c) Default Interest. From and after the maturity date of this Note, or such earlier date as all principal owing, hereunder becomes due and payable by acceleration or otherwise. The outstanding principal balance of this Note shall bear interest until paid in full at an increased rate per annum (computed on the basis of a 360-day year. actual days elapsed) equal to 4% above the rate of interest from time to time applicable to this Note. BORROWING AND REPAYMENT: (a) Borrowing and Repayment. Borrower may from time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and re-borrow, subject to all of the limitations, terms and conditions of this Note and of the Credit Agreement between Borrower and Bank defined below; provided however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of principal payments made hereon by or for any Borrower, which balance may be endorsed hereon from time to time by the holder. The Outstanding principal balance of this Note shall be due and payable in full on June 1, 1999. (b) Advances. Advances hereunder, to the total amount of the principal sum available hereunder, may be made by the holder at the oral or written request of (i) ROBERT S. COPE or DANIEL E. LUEBBEN or MICHELE A. CLARK, any one acting alone, who are authorized to request advances and direct the disposition of any advances until written notice of the revocation of such authority is received by the holder at the office designated above, or (ii) any person, with respect to advances deposited to the credit of any account of any Borrower with the holder, which advances, when so deposited, shall be conclusively presumed to have been made to or for the benefit of each Borrower regardless of the fact that persons other than those authorized to request advances may have authority to draw against such account. The holder shall have no obligation to determine whether any person requesting an advance is or has been authorized by any Borrower. (c) Application of Payments. Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof. EVENTS OF DEFAULT: This Note is made pursuant to and is subject to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of May 12, 1997, as amended from time to time (the "Credit Agreement"). Any default in the payment or performance of any obligation under this Note, or any defined event of default under the Credit Agreement, shall constitute an "Event of Default" under this Note. MISCELLANEOUS: (a) Remedies. Upon the occurrence of any Event of Default as defined in the Credit Agreement. The holder of this Note, at the holder's option, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment. Demand, notice of nonperformance, notice of protest, protest or notice of dishonor, all of which are expressly waived by each Borrower, and the obligation, it any, of the holder to extend any further credit hereunder shall immediately cease and terminate. Each Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of the holder's in-house counsel), expended or incurred by the holder in connection with the enforcement of the holder's rights and/or the collection of any amounts which become due to the holder under this Note, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity. (b) Obligations Joint and Several. Should more than one person or entity sign this Note as a Borrower, the obligations of each such Borrower shall be joint and several. (c) Governing Law. This Note shall be governed by and constructed in accordance with the laws of the state of California. IN WITNESS WHEREOF. The undersigned has executed this Note as of the date first written above. AUTO-GRAPHICS, INC. By: Ss/Robert S. Cope Title: President EX-10.19 6 DESCRIPTION - Revolving Line of Credit Note (Capital Equipment) between Wells Fargo Bank and Auto-Graphics, Inc. dated May 12, 1997. WELLS FARGO BANK REVOLVING LINE OF CREDIT NOTE $3,000,000.00 El Monte, California May 12,1997 FOR VALUE RECEIVED. the undersigned AUTO-GRAPHICS, INC. ("Borrower") promises to pay to the order of WELLS FARGO BANK. NATIONAL ASSOCIATION ("Bank") at its office at Flair Industrial Park RCBO, 9000 Flair Drive Suite 100, El Monte, CA 91731, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds. the principal sum of $3,000,000.00, or so much thereof as may be advanced and be outstanding. with interest thereon. to be computed on each advance from the date of its disbursement as set forth herein. INTEREST: (a) Interest. The outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed) at a rate per annum equal to the Prime Rate in effect from time to time. The "Prime Rate" is a base rate that Bank from time to time establishes and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. Each change in the rate of interest hereunder shall become effective on the date each Prime Rate change is announced within Bank. (b) Payment of Interest. Interest accrued on this Note shall be payable on the last day of each month, commencing June 30, 1997. (c) Default Interest. From and after the maturity date of this Note. or such earlier date as all principal owing, hereunder becomes due and payable by acceleration or otherwise, the outstanding principal balance of this Note shall bear interest until paid in full at an increased rate per annum (computed on the basis of a 360-day year. actual days elapsed) equal to 4% above the rate of interest from time to time applicable to this Note. BORROWING AND REPAYMENT: (a) Borrowing and Repayment. Borrower may from time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of this Note and of the Credit Agreement between Borrower and Bank defined below; provided however that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above; and provided further, that Borrower shall make principal reductions on this Note at the times and in the amounts set forth below. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of principal payments made hereon by or for any Borrower, which balance may be endorsed hereon from time to time by the holder. The Outstanding principal balance of this Note shall be due and payable in full on June 1, 1999. (b) Repayment. Principal shall be payable on the lst day of each month in installments of $50,000.00 each, commencing July 1, 1997, and continuing up to and including May 1, 1999 with a final installment consisting of all remaining unpaid principal due and payable In full on the maturity date set forth above. (c) Advances. Advances hereunder. to the total amount of the principal sum available hereunder. may be made by the holder at the oral or written request of (i) ROBERT S. COPE or DANIEL E. LUEBBEN or MICHELE A. CLARK any one acting alone, who are authorized to request advances and direct the disposition of any advances until written notice of the revocation of such authority is received by the holder at the office designated above, or (ii) any person, with respect to advances deposited to the credit of any account of any Borrower with the holder, which advances, when so deposited, shall be conclusively presumed to have been made to or for the benefit of each Borrower regardless of the fact that persons other than those authorized to request advances may have authority to draw against such account. The holder shall have no obligation to determine whether any person requesting an advance is or has been authorized by any Borrower. (d) Application of Payments. Each payment made on this Note shall be credited first, to any Interest then due and second. to the outstanding principal balance hereof. EVENTS OF DEFAULT: This Note is made pursuant to and Is subject to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of May 12, 1997. as amended from time to time (the "Credit Agreement"). Any default in the payment or performance of any obligation under this Note, or any defined event of default under the Credit Agreement shall constitute an "Event of Default" under this Note. MISCELLANEOUS: (a) Remedies. Upon the occurrence of any Event of Default as defined in the Credit Agreement, the holder of this Note at the holder's option, may declare all sums of principal and Interest outstanding hereunder to be immediately due and payable without presentment. demand, notice of nonperformance, notice of protest, protest or notice of dishonor, all of which are expressly waived by each Borrower, and the obligation, if any, of the holder to way related to this Note, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity. (b) Obligations Joint and Several. Should more than one person or entity sign this Note as a Borrower, the obligations of each such Borrower shall be joint and several. (c) Governing Law. This Note shall be governed by and constructed in accordance with the laws of the state of California. IN WITNESS WHEREOF. the undersigned has executed this Note as of the date first written above. AUTO-GRAPHICS INC. By: Ss/Robert S. Cope Title: President EX-10.20 7 DESCRIPTION - Term Note between Wells Fargo Bank and Auto-Graphics, Inc. dated May 12, 1997. WELLS FARGO BANK TERM NOTE El Monte, California $750,000.00 May 12, 1997 FOR VALUE RECEIVED, the undersigned AUTO-GRAPHICS, INC. ("Borrower") promises to pay to the order WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its office at Flair Industrial Park RCBO, 9000 Flair Drive Suite 100, El Monte. CA 91731. or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of $750,000.00. with interest thereon as set forth herein. INTEREST: (a) Interest. The outstanding principal balance of this Note shall bear interest (computed on the basis of 360-day year. actual, days elapsed) at a rate per annum equal to the Prime Rate in effect from time to time. The "Prime Rate" is a base rate that Bank from time to time establishes and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. Each change in the rate interest hereunder shall become effective on the date each Prime Rate change is announced within Bank. (b) Payment of Interest. Interest accrued an this Note shall be payable on the last day of each month, commencing June 30, 1997. (c) Default Interest. From and after the maturity date of this Note, or such earlier date as all principal owing hereunder becomes due and payable by acceleration or otherwise, the outstanding principal balance of this Note shall bear interest until paid in full at an increased rate per annum (computed on the basis of a 360-day year. actual days elapsed) equal to 4% above the rate of interest from time to time applicable to this Note. REPAYMENT AND PREPAYMENT: (a) Repayment. Principal shall be payable on the 1st day of each month in installments of $31,250.00 each, commencing July 1, 1998, and continuing up to and including May 1, 2000, with a final installment consisting of a remaining unpaid principal due and payable in full on June 1, 2000. (b) Application of Payments. Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof. (c) Prepayment. Borrower may prepay principal on this Note at any time, in any amount and without penalty. All prepayments of principal shall be applied on the most remote principal installment or installments then unpaid. EVENTS OF DEFAULT: This Note is made pursuant to and is subject to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of May 12, 1997, as amended from time to time (the "Credit Agreement") Any default in the payment or performance of any obligation under this Note, or any defined event of default under the Credit Agreement, shall constitute an 'Event of Default' under this Note. MISCELLANEOUS: (a) Remedies. Upon the occurrence of any Event of Default as defined in the Credit Agreement, the holder a this Note, at the holder's option, may declare all sums of principal and interest outstanding hereunder to immediately due and payable without presentment, demand, notice of nonperformance notice of protest, protest or notice of dishonor, all of which are expressly waived by each Borrower, and the obligation, if any, of the holder to extend any further credit hereunder shall immediately cease and terminate. Each Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances. charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of the holder's in- house counsel) expended or incurred by the holder in connection with the enforcement of the holder's rights and/or the collection of any amounts which become due to the holder under this Note, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity. (b) Obligations Joint and Several. Should more than one person or entity sign this Note as a Borrower, the obligations of each such Borrower shall be joint and several. (c) Governing Law. This Note shall be governed by and construed in accordance with the laws of the state of California. IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above. AUTO-GRAPHICS, INC. By: Ss/Robert S. Cope Title: President EX-10.21 8 DESCRIPTION - Continuing Security Agreement Rights to Payment and Inventory between Wells Fargo Bank and Auto-Graphics, Inc. dated May 12, 1997. CONTINUING SECURITY AGREEMENT WELLS FARGO BANK RIGHTS TO PAYMENT AND INVENTORY 1. GRANT OF SECURITY INTEREST. For valuable consideration, the undersigned AUTO-GRAPHMS, INC., or any of them ("Debtor"), hereby grants and transfers to WELLS FARGO BANK, NATIONAL ASSOCIATION("Bank")a security interest in all accounts, deposit accounts, chattel paper, instruments, documents and general intangibles (collectively called "Rights to Payment") ' now existing or at any time hereafter, and prior to the termination hereof, arising (whether they arise from the sale, lease or other disposition of inventory or from performance of contracts for service, manufacture. construction, repair or otherwise or from any other source whatsoever), including all securities, guaranties, warranties, indemnity agreements, insurance policies and other agreements pertaining to the same or the property described therein, and in all goods returned by or repossessed from Debtor's customers, together with a security interest in all inventory, goods held for sale or lease or to be furnished under contracts for service, goods so leased or furnished, raw materials, component parts, work in process or materials used or consumed in Debtor's business and all warehouse receipts, bills of lading and other documents evidencing goods owned or acquired by Debtor, and all goods covered thereby, now or at any time thereafter, and prior to the termination hereof, owned or acquired by Debtor, wherever located, and all products thereof (Collectively called "Inventory"), whether in the possession of Debtor, warehousemen, bailees or any other person, or in process of delivery and whether located at Debtor's places of business or elsewhere (with all Rights to Payment and Inventory referred to herein collectively as the 'Collateral"), together with whatever is receivable or received when any of the Collateral or proceeds thereof are sold, leased, collected, exchanged or otherwise disposed of, whether such disposition is voluntary or involuntary, including without limitation, all Rights to Payment, including returned premiums, with respect to any insurance relating to any of the foregoing, and all Rights to Payment with respect to any cause of action affecting or relating to any of the foregoing (hereinafter called "Proceeds"). 2. OBLIGATIONS SECURED. The obligations secured hereby are the payment and performance of: (a) all present and future indebtedness of Debtor to Bank; (b) all obligations of Debtor and rights of Bank under this Agreement; and (c) all present and future obligations of Debtor to Bank of other kinds. The word "Indebtedness" is used herein in its most comprehensive sense and includes any and all advances, debts, obligations and liabilities of Debtor, or any of them, heretofore, now or hereafter made, incurred or created, whether voluntary or involuntary and however arising, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether Debtor may be liable individually or jointly, or whether recovery upon such indebtedness may be or hereafter becomes unenforceable. 3. TERMINATION. This Agreement will terminate upon the performance of all obligations of Debtor to Bank, including without limitation, the payment of all indebtedness of Debtor to Bank, and the termination of all commitments of Bank to extend credit to Debtor, existing at the time Bank receives written notice from Debtor of the termination of this Agreement. 4. OBLIGATIONS OF BANK. Bank has no obligation to make any loans hereunder. Any money received by Bank in respect of the Collateral may be deposited, at Bank's option, into a non-interest bearing account over which Debtor shall have no control, and the same shall, for all purposes, be deemed Collateral hereunder. 5. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to Bank that: (a) Debtor is the owner and has possession or control of the Collateral and Proceeds; (b) Debtor has the right to grant a security interest in the Collateral and Proceeds; (c) all Collateral and Proceeds are genuine, free from liens. adverse claims, setoffs, default, prepayment, defenses and conditions precedent of any kind or character, except the lien created hereby or as otherwise agreed to by Bank, or heretofore disclosed by Debtor to Bank, in writing; (d) all statements contained herein and, where applicable, in the Collateral are true and complete in all material respects; (a) no financing statement covering any of the Collateral or Proceeds, and naming any secured party other than Bank, is on file in any public office; (f) all persons appearing to be obligated on Rights to Payment and Proceeds have authority and capacity to contract and are bound as they appear to be; (g) all property subject to chattel paper has been properly registered and filed in compliance with law and to perfect the interest of Debtor in such property; and (h) all Rights to Payment and Proceeds comply with all applicable laws concerning form, content and manner of preparation and execution, including where applicable Federal Reserve Regulation Z and any State consumer credit laws. 6. COVENANTS OF DEBTOR. (a) Debtor Agrees In general: (1) to pay indebtedness secured hereby when due; (ii) to indemnify Bank against all losses, claims, demands, liabilities and expenses of every kind caused by property subject hereto; (iii) to pay all costs and expenses, including reasonable attorneys' fees, incurred by Bank in the perfection and preservation of the Collateral or Bank's interest therein and/or the realization, enforcement and exercise of Bank's, rights, powers and remedies hereunder, (iv) to permit Bank to exercise Its powers; (v) to execute and deliver such documents as Bank deems necessary to create, perfect and continue the security interests contemplated hereby; and (vi) not to change its chief place of business or the places where Debtor keeps any of the Collateral or Debtor's records concerning the Collateral and Proceeds without first giving Bank written notice of the address to which Debtor is moving same. (b) Debtor agrees with regard to the Collateral and Proceeds, unless Bank agrees otherwise in writing: (i) to insure inventory and, where applicable, Rights to Payment with Bank as loss payee, in form substance and amounts, under agreements. against risks and liabilities, and with insurance companies satisfactory to Bank; (ii) not to use any inventory for any unlawful purpose or in any. way that would void any insurance required to be carried in connection therewith; (iii) in not to remove inventory from Debtor's premises, except for deliveries to buyers in the ordinary course of Debtors business and except inventory which consists of mobile goods as defined in the California Uniform Commercial Code, in which case Debtor agrees not to remove or permit the removal of the inventory from its state of domicile for a period in excess, of 30 calendar days; (iv) not to permit any lien on the Collateral or Proceeds, including without limitation, liens arising from the storage of inventory. except in favor of Bank; (v) not to sell. hypothecate or otherwise dispose of, nor permit the transfer by operation of law of, any of the Collateral or Proceeds or any interest therein, except sales of inventory to buyers in the ordinary course of Debtors business; (vi) to furnish reports to Bank of all acquisitions, returns. sales and other dispositions of the inventory in such form and detail and at such times as Bank may require; (vii) to permit Bank to inspect the Collateral at any time; (viii) to keep, in accordance with generally accepted accounting principles, complete and accurate records regarding all Collateral and Proceeds, and to permit Bank to inspect the same and make copies thereof at any reasonable time; (ix) if requested by Bank to receive and use reasonable diligence to collect Rights to Payment and Proceeds, in trust and as the property of Bank, and to immediately endorse as appropriate and deliver such Rights to Payment and Proceeds to Bank daily in the exact form in which they are received together with a collection report in form satisfactory to Bank; (x) not to commingle Rights to Payment, Proceeds or collections thereunder with other property; (xi) to give only normal allowances and credits, and to advise, Bank thereof immediately in writing if they affect any Rights to Payment or Proceeds in any material respect: (xii) on demand, to deliver to Bank returned property resulting from, or payment equal to. such allowances or credits on any Rights to Payment or Proceeds or to execute such documents and do such other things as Bank may reasonably request for the purpose of perfecting, preserving and enforcing its security interest in such returned property; (xiii) from time to time, when requested by Bank, to prepare and deliver a schedule of all Collateral and Proceeds subject to this Agreement and to assign in writing and deliver to Bank all accounts, contracts, leases and other chattel paper, instruments, documents and other evidences thereof; (xiv) in the event Bank elects to receive payments of Rights to Payment or Proceeds hereunder, to pay all expenses incurred by Bank in connection therewith, including expenses of accounting, correspondence. collection efforts, reporting to account or contract debtors, filing, recording, record keeping and expenses incidental thereto; and (xv) to provide any service and do any other acts which may be necessary to maintain, preserve and protect all Collateral and, as appropriate and applicable, to keep all Collateral in good and saleable condition in accordance with the standards and practices adhered to generally by users and manufacturers of like property, and to keep all Collateral and Proceeds free and clear of all defenses. rights of offset and counterclaims. 7. POWERS OF BANK. Debtor appoints Bank its true attorney in fact to perform any of the following powers, which are coupled with an interest, are irrevocable until termination of this Agreement and may be exercised from time to time by Bank's officers and employees, or any of them, whether or not Debtor is in default: (a) to perform any obligation of Debtor hereunder in Debtor's name or otherwise; (b) to give notice to account debtors or others of Bank's rights in the Collateral and Proceeds. to enforce the same and make extension agreements with respect thereto; (c) to release persons liable on Proceeds and to give receipts and acceptances and compromise disputes in connection therewith; (d) to release security; (a) to resort to security in any order, (f) to prepare, execute, file, record or deliver notes, assignments, schedules, designation statements, financing statements, continuation statements, termination statements, statements of assignment, applications for registration or like papers to perfect, preserve or release Bank's interest in the Collateral and Proceeds; (g) to receive, open and read mail addressed to Debtor, (h) to take cash, instruments for the payment of money and other property to which Bank is entitled; (i) to verify facts concerning the Collateral and Proceeds by inquiry of obligors thereon, or otherwise, in its own name or a fictitious name; (j) to endorse, collect, deliver and receive payment under instruments for the payment of money constituting or relating to Proceeds; (k) to prepare, adjust, execute, deliver and receive payment under insurance claims, and to collect and receive payment of and endorse any instrument in payment of loss or returned premiums or any other insurance refund or return, and to apply such amounts received by Bank, at Bank's sole option, toward repayment of the indebtedness or replacement of the Collateral; (l) to exercise all rights, powers and remedies which Debtor would have, but for this Agreement, with respect to all Collateral and Proceeds subject hereto; (m) to enter onto Debtor's premises in inspecting the Collateral; (n) to make withdrawals from and to close deposit accounts or other accounts with any financial institution, wherever located, into which Proceeds may have been deposited, and to apply funds so withdrawn to payment of the indebtedness; (o) to preserve or release the interest evidenced by chattel paper to which Bank is entitled hereunder and to endorse and deliver evidences of title incidental thereto; and (p) to do all acts and things and execute all documents in the name of Debtor or otherwise, deemed by Bank as necessary, proper and convenient in connection with the preservation, perfection or enforcement of its rights hereunder. 8. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS. Debtor agrees to pay. prior to delinquency, all insurance premiums, taxes, charges, liens and assessments against the Collateral and Proceeds, and upon the failure of Debtor to do so. Bank at its option may pay any of them and shall be the sole judge of the legality or validity thereof and the amount necessary to discharge the same. Any such payments made by Bank shall be obligations of Debtor to Bank, due and payable immediately upon demand, together with interest at a rate determined in accordance with the provisions of Section 15 herein, and shall be secured by the Collateral and Proceeds, subject to all terms and conditions of this Agreement. 9. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an "Event of Default" under this Agreement: (a) any default in the payment or performance of any obligation, or any defined event of default, under (i) any contract or instrument evidencing any indebtedness, or (ii) any other agreement between any Debtor and Bank, including without limitation any loan agreement, relating to or executed in connection with any indebtedness; (b) any representation or warranty made by any Debtor herein shall prove to be incorrect in any material respect when made; (c) any Debtor shall fall to observe or perform any obligation or agreement contained herein; (d) any attachment or like levy on any property of any Debtor, and (e) Bank, in good faith, believes any or all of the Collateral and/or Proceeds to be in danger of misuse. dissipation, commingling, loss, theft, damage or destruction, or otherwise in jeopardy or unsatisfactory in character or value. 10. REMEDIES. Upon the occurrence of any Event of Default, Bank shall have the right to declare immediately due and payable all or any indebtedness secured hereby and to terminate any commitments to make loans or otherwise extend credit to Debtor. Bank shall have all other rights, powers, privileges and remedies granted to a secured party upon default under the California Uniform Commercial Code or otherwise provided by law, including without limitation, the right to contact all persons obligated to Debtor an any Collateral or Proceeds and to instruct such persons to deliver all Collateral and/or Proceeds directly to Bank. All rights, powers, privileges and remedies of Bank shall be cumulative. No delay. failure or discontinuance of Bank in exercising any right, power, privilege or remedy hereunder shall affect or operate as a waiver of such right, power, privilege or remedy: nor shall any single or partial exercise of any such right, power, privilege or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power, privilege or remedy. Any waiver, permit. consent or approval of any kind by Bank of any default hereunder, or any such waiver of any provisions or conditions hereof, must be in writing and shall be effective only to the extent set forth in writing. It is agreed that public or private sales, for cash or on credit, to a wholesaler or retailer or investor, or user of property of the types subject to this Agreement. or public auction, are all commercially reasonable since differences in the sales prices generally realized in the different kinds of sales are ordinarily offset by the differences in the costs and credit risks of such sales. While an Event of Default exists: (a) Debtor will deliver to Bank from time to time, as requested by Bank, current lists of all Collateral and Proceeds, (b) Debtor will not dispose of any of the Collateral or Proceeds except on terms approved by Bank; (c) at Bank's request, Debtor will assemble and deliver all Collateral and Proceeds. and books and records pertaining thereto, to Bank at a reasonably convenient place designated by Bank; and (d) Bank may, without notice to Debtor, enter onto Debtor's premises and take possession of the Collateral. With respect to any sale by Bank of any Collateral subject to this Agreement, Debtor hereby expressly grants to Bank the right to sell such Collateral using any or all of Debtor's trademarks. trade names, trade name rights and/or proprietary labels or marks. 11. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the transfer of all or any part of the indebtedness, Bank may transfer all or any part of the Collateral or Proceeds and shall be fully discharged thereafter from all liability and responsibility with respect to any of the foregoing so transferred, and the transferee shall be vested with all rights and powers of Bank hereunder with respect to any of the foregoing so transferred; but with respect to any Collateral or Proceeds not so transferred Bank shall retain all rights, powers, privileges and remedies herein given. Any proceeds of any disposition of any of the Collateral or Proceeds, or any part thereof, may be applied by Bank to the payment of expenses incurred by Bank in connection with the foregoing, including reasonable attorneys' fees, and the balance of such proceeds may be applied by Bank toward the payment of the indebtedness in such order of application as Bank may from time to time elect. 12. STATUTE OF LIMITATIONS. Until all indebtedness shall have been paid in full and all commitments by Bank to extend credit to Debtor have been terminated, the power of sale and all other rights. powers, privileges and remedies granted to Bank hereunder shall continue to exist and may be exercised by Bank at any time and from time to time irrespective of the fact that the indebtedness or any part thereof may have become barred by any statute of limitations, or that the personal liability of Debtor may have ceased, unless such liability shall have ceased due to the payment in full of all indebtedness secured hereunder. 13. MISCELLANEOUS. (a) The obligations of Debtor are joint and several: (b) Debtor hereby waives any right (i) to require Bank to make any presentment or demand, or give any notice of nonpayment or nonperformance, protest, notice of protest or notice of dishonor hereunder, (ii) to direct the application of payments or security for indebtedness of Debtor or indebtedness of customers of Debtor, or (iii) to require proceedings against others or to require exhaustion of security, and (c) Debtor hereby consents to extensions, forbearance's or alterations of the terms of indebtedness, the release or substitution of security, and the release of any guarantors; provided however, that in each instance, Bank believes in good faith that the action in question is commercially reasonable in that it does not unreasonably increase the risk of nonpayment of the indebtedness to which the action applies. Until all indebtedness shall have been paid in full, no Debtor shall have any right of subrogation or contribution, and each Debtor hereby waives any benefit of or right to participate in any of the Collateral or Proceeds or any other security now or hereafter held by Bank. 14. NOTICES. All notices, requests and demands required under this Agreement must be in writing, addressed to Bank at the address specified in any other loan documents entered into between Debtor and Bank and to Debtor at the address of its chief executive office (or personal residence, if applicable) specified below or to such other address as any party may designate by written notice to each other party, and shall be deemed to have been given or made as follows: (a) if personally delivered, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or 3 days after deposit in the U. S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt. 15. COSTS, EXPENSES AND ATTORNEYS' FEES Debtor shall pay to Bank immediately upon demand the full amount of all payments. advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank's in-house counsel), expanded or incurred by Bank in exercising any right, power, privilege or remedy conferred by this Agreement or in the enforcement thereof, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to Debtor or in any way affecting any of the Collateral or Bank's ability to exercise any of its rights or remedies with respect thereto. All of the foregoing shall be paid by Debtor with interest from the date of demand until paid in full at a rate per annum equal to the greater of ten percent (10%) or the Prime Rate in effect from time to time. The "Prime Rate' is a base rate that Bank from time to time establishes and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. 16. SUCCESSORS; ASSIGNS; AMENDMENT. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties, and may be amended or modified only in writing signed by Bank and Debtor. 17. OBLIGATIONS OF MARRIED PERSONS. Any married person who signs this Agreement as Debtor hereby expressly agrees that recourse may be had against his or her separate property for all his or her indebtedness to Bank secured by the Collateral and Proceeds under this Agreement. 18. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or any remaining provisions of this Agreement. 19. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the state of California. Debtor warrants that its chief executive office (or personal residence, if applicable) is located at the following address: 3201 TEMPLE AVENUE, POMONA, CA 91768 Debtor warrants that the Collateral (except goods in transit) is located or domiciled at the following additional addresses: NONE IN WITNESS WHEREOF, this Agreement has been duly executed as of May 12,1997. AUTO-GRAPHICS, INC By: Ss/Robert S. Cope Title: President EX-10.22 9 DESCRIPTION - Security Agreement Equipment between Wells Fargo Bank and Auto-Graphics, Inc. dated May 12, 1997. SECURITY AGREEMENT WELLS FARGO BANK EQUIPMENT 1. GRANT OF SECURITY INTEREST. For valuable consideration, the undersigned AUTO-GRAPHICS, INC., or any of them ("Debtor"), hereby grants and transfers to WELLS FARGO BANK. NATIONAL ASSOCIATION("Bank") a security interest in all goods, tools, machinery, furnishings, furniture and other equipment, now or at any time hereafter, and prior to the termination hereof, owned or acquired by Debtor , wherever located whether in the possession of Debtor or any other person and whether located on Debtor's property or elsewhere, and all improvements, replacements, accessions and additions thereto (collectively called "Collateral"), together with whatever is receivable or received when any of the Collateral or proceeds thereof are sold, leased, collected, exchanged or otherwise disposed of, whether such disposition is voluntary or involuntary, including without limitation. (a) all accounts, contract rights, chattel paper, instruments, documents, general intangibles and rights to payment of every kind now or at any time hereafter arising from any such sale, lease, collection, exchange or other disposition of any of the foregoing, (b) all rights to payment, including returned premiums, with respect to any insurance relating to any of the foregoing, and (c) all rights to payment with respect to any cause of action affecting or relating to any of the foregoing (hereinafter called "Proceeds"). 2. OBLIGATIONS SECURED. The obligations secured hereby are the payment and performance of. (a) all present and future indebtedness of Debtor to Bank; (b) all obligations of Debtor and rights of Bank under this Agreement; and (c) all present and future obligations of Debtor to Bank of other kinds. The word "Indebtedness" is used herein in its most comprehensive sense and includes any and all advances, debts, obligations and liabilities of Debtor. or any of them, heretofore, now or hereafter made, incurred or created, whether voluntary or involuntary and however arising, whether due or not due. absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether Debtor may be liable individually or jointly, or whether recovery upon such indebtedness may be or hereafter becomes unenforceable. 3. TERMINATION. This Agreement will terminate upon the performance of all obligations of Debtor to Bank, including without limitation, the payment of all indebtedness of Debtor to Bank, and the termination commitments of Bank to extend credit to Debtor, existing at the time Bank receives written notice from Debtor of the termination of this Agreement. 4. OBLIGATIONS OF BANK. Bank has no obligation to make any loans hereunder. Any money received by Bank in respect of the Collateral may be deposited, at Bank's option, into a non-interest bearing account over which Debtor shall have no control, and the same shall, for all purposes, be deemed Collateral hereunder. 5. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to Bank that: (a) Debtor is the owner and has possession or control of the Collateral and Proceeds; (b) Debtor has the right to grant a security interest in the Collateral and Proceeds; (c) all Collateral and Proceeds are genuine, free from liens, adverse claims, setoffs, default, prepayment. defenses and conditions precedent of any kind or character, except the lien created hereby or as otherwise agreed to by Bank, or heretofore by Debtor to Bank, in writing; (d) all statements contained herein are true and complete in all material respects; (e) no financing statement covering any of the Collateral or Proceeds, and naming any secured party other than Bank, is on file In any public office; and (f) Debtor is not in the business of selling goods of the kind Included within the Collateral subject to this Agreement, and Debtor acknowledges that no sale of any Collateral, including without limitation, any Collateral which Debtor may deem to be surplus, has been or shall be consented to or acquiesced in by Bank, except as specifically set forth in writing by Bank. 6. COVENANTS OF DEBTOR. (a) Debtor Agrees in general: (i) to pay indebtedness secured hereby when due; (ii) to indemnify Bank against all losses, claims, demands, liabilities and expenses of every kind caused by property subject hereto; (iii) to pay all costs and expenses, including reasonable attorneys' fees, incurred by Bank in the perfection and preservation of the Collateral or Bank's interest therein and/or the realization, enforcement and exercise of Banks rights, powers and remedies hereunder. (iv) to permit Bank to exercise Its powers; (v) to execute and deliver such documents as Bank deems necessary to create, perfect and continue the security interest contemplated hereby; and (vi) not to change its chief place of business or the places where Debtor keeps any of the Collateral or Debtors records concerning the Collateral and Proceeds without first giving Bank written notice of the address to which Debtor is moving same. (b) Debtor agrees with regard to the Collateral and Proceeds, unless Bank agrees otherwise in writing: (i) to insure the Collateral with Bank as loss payee, in form, substance and amounts, under agreements, against risks and liabilities, and with insurance companies satisfactory to Bank: (ii) to operate the Collateral in accordance with all applicable statutes, rules and regulations relating to the use and control thereof, and not to use the Collateral for any unlawful purpose or in any way that would void any insurance required to be carried in connection therewith; (iii) not to permit any lien of the Collateral or Proceeds, including without limitation, liens arising from repairs to or storage of the Collateral. except in favor of Bank; (iv) to pay when due all license fees, registration fees and other charges in connection- with-any Collateral; (v) not to remove the Collateral from Debtor's premises unless the Collateral consists of mobile goods as defined in the California Uniform Commercial Code, in which case Debtor agrees not to remove or permit the removal of the Collateral from its state of domicile for a period in excess of 30 calendar days; (vi) not to sell, hypothecate or otherwise dispose of, nor permit the transfer by operation of law of, any of the Collateral or Proceeds or any interest therein; (vii) not to rent, lease or charter the Collateral; (viii) to permit Bank to Inspect the Collateral at any time; (ix) to keep, in accordance with generally accepted accounting principles, complete and accurate records regarding all Collateral and Proceeds, and to permit Bank to Inspect the same and make copies thereof at any reasonable time; (x) If requested by Bank, to receive and use reasonable diligence to collect Proceeds, in trust and as the property of Bank, and to immediately endorse as appropriate and deliver such Proceeds to Bank daily in the exact form in which they are received together with a collection report in form satisfactory to Bank. (xi) not to commingle Proceeds or collections thereunder with other property; (xii) to give only normal allowances and credits and to advise Bank thereof immediately in writing if they affect any Collateral or Proceeds in any material respect: (xiii) in the event Bank elects to receive payments of Proceeds hereunder. to pay all expenses incurred by Bank in connection therewith, including expenses of accounting, correspondence, collection efforts, reporting to account or contract debtors. filing, recording. record keeping and expenses incidental thereto; and (xiv) to provide any service and do any other acts which may be necessary to maintain. preserve and protect all Collateral and, as appropriate and applicable, to keep the Collateral in good and saleable condition and repair. to deal with the Collateral in accordance with the standards and practices adhered to generally by owners of like property, and to keep all Collateral and Proceeds free and clear of all defenses, rights of offset and counterclaims. 7. POWERS OF BANK. Debtor appoints Bank its true attorney-in- fact to perform any of the following powers. which are coupled with an interest, are irrevocable until termination of this Agreement and may be exercised from time to time by Bank's officers and employees, or any of them, whether or not Debtor is in default: (a) to perform any obligation of Debtor hereunder in Debtor's name or otherwise; (b) to give notice to account debtors or others of Bank's rights In the Collateral and Proceeds. to enforce the same and make extension agreements with respect thereto; (c) to release persons liable on Proceeds and to give receipts and acceptances and compromise disputes in connection therewith; (d) to release security; (e) to resort to security in any order, (f) to prepare, execute, file, record or deliver notes, assignments. schedules, designation statements, financing statements. continuation statements, termination statements, statements of assignment, applications for registration or like papers to perfect, preserve or release Bank's interest in the Collateral and Proceeds; (g) to receive, open and read mail addressed to Debtor ; (h) to take cash, instruments for the payment of money and other property to which Bank is entitled (i) to verify facts concerning the Collateral and Proceeds by inquiry of obligors thereon, or otherwise, in its own name or a fictitious name; (j) to endorse, collect. deliver and receive payment under instruments for the payment of money constituting or relating to proceeds;(k) to prepare adjust, execute, deliver and receive payment under insurance claims, and to collect and receive payments of and endorse any instrument in payment of loss or returned premiums or any other insurance refund or return, and to apply such amounts received by Bank, at Bank's sole option, toward repayment of the indebtedness or replacement of the Collateral: (l) to exercise all rights, powers and remedies which Debtor would have, but for this Agreement, with respect to all Collateral and Proceeds subject hereto; (m) to enter onto Debtor's premises in inspecting the Collateral; and (n) to do all acts and things and execute all documents in the name of Debtor or otherwise, deemed by Bank as necessary, proper and convenient in with the preservation, perfection or enforcement of its rights hereunder. 8. PAYMENT OF PREMIUMS,TAXES, CHARGES, LIENS AND ASSESSMENTS. Debtor agrees to pay prior to delinquency. all Insurance premiums, taxes, charges. liens and assessments against the Collateral and Proceeds, and upon the failure of Debtor to do so, Bank at its option may pay any of them and shall be the sole judge of the legality or validity thereof and the amount necessary to discharge the same. Any such payments made by Bank shall be obligations of Debtor to Bank, due and payable immediately upon demand, together with interest at a rate determined in accordance with the provisions of Section 15 herein, and shall be secured by the Collateral and Proceeds, subject to all terms and conditions of this Agreement. 9. EVIENTS OF DEFAULT. The occurrence of any of the following shall an "Event of Default" under this Agreement: (a) any default in the payment or performance of any obligation, or any defined event of default. under (i) any contract or instrument evidencing any indebtedness. or (ii) any other agreement between any Debtor and Bank. including without limitation any loan agreement, relating to or executed in connection with any indebtedness; (b) any representation or warranty made by any Debtor herein shall prove to be incorrect in any material respect when made; (c) any Debtor shall fail to observe or perform any obligation or agreement contained herein: (d) any attachment or like levy on any property of any Debtor; and (e) Bank, in good faith, believes any or all of the Collateral and/or Proceeds to be in danger of misuse, dissipation, commingling, loss. theft, damage or destruction, or otherwise in jeopardy or unsatisfactory In character or value. 10. REMEDIES. Upon the occurrence of any Event of Default, Bank shall have the right to declare immediately due and payable all or any indebtedness secured hereby and to terminate any commitments to make loans or otherwise extend credit to Debtor. Bank shall have all other rights, powers, privileges and remedies granted to a secured party upon default under the California Uniform Commercial Code or otherwise provided by law, including without limitation, the right to contact all persons obligated to Debtor on any Collateral or Proceeds and to instruct such person to deliver all Collateral and/or Proceeds directly to Bank. All rights, powers, privileges and remedies of Bank shall be cumulative. No delay, failure or discontinuance of Bank in exercising any right, power, privilege or remedy hereunder shall affect or operate as a waiver of such right. power. privilege or remedy; nor shall any single or partial exercise of any such right, power, privilege or remedy preclude. waive or otherwise affect any other or further exercise thereof or the exercise of any other right. power. privilege or remedy. Any. waiver, permit, consent or approval of any kind by Bank of any default hereunder, or any such waiver of any provisions or conditions hereof, must be in writing and shall be effective only to the extent set forth in writing. It is agreed that public or private sales. for cash or on credit, to a wholesaler or retailer or investor, or user of property of the types subject to this Agreement, or public auction. are all commercially reasonable since differences in the sales prices generally realized in the different kinds of sales are ordinarily offset by the differences In the costs and credit risks of such sales. While an Event of Default exists: (a) Debtor will deliver to Bank from time to time. as requested by Bank, current lists of all Collateral and Proceeds; (b) Debtor will not dispose of any of the Collateral or Proceeds on terms approved by Bank; (c) at Banks request Debtor will assemble and deliver all Collateral and Proceeds, and books and records pertaining thereto, to Bank at a reasonably convenient place designated by Bank: and (d) Bank may, without notice to Debtor, enter onto Debtor's premises and take possession of the Collateral. 11. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the transfer of all or any part of the indebtedness. Bank may transfer all or any part of the Collateral or Proceeds and shall be fully discharged thereafter from all liability and responsibility with respect to any of the foregoing so transferred and the transferee shall be vested with all rights and powers of Bank hereunder with respect to any of the foregoing so transferred; but with respect to any Collateral or Proceeds not so transferred Bank shall retain all rights, powers, privileges and remedies herein given. Any proceeds of any disposition of any of the Collateral or Proceeds, or any part thereof. may be applied by Bank to the payment of expenses incurred by Bank in connection with the foregoing, including reasonable attorneys' fees, and the balance of such proceeds may be applied by Bank toward the payment of the indebtedness in such order of application as Bank may from time to-time elect. 12. STATUTE OF LIMITATIONS. Until all indebtedness shall have been paid in full and all commitments by Bank to extend credit to Debtor have been terminated, the power of sale and all other rights, powers. privileges and remedies granted to Bank hereunder shall continue to exist and may be exercised by Bank at any time and from time to time irrespective of the fact that the indebtedness or any part thereof may have become barred by any statute of limitations, or that the personal liability of Debtor may have ceased, unless such liability shall have Ceased due to the payment in full of all indebtedness secured hereunder. 13. MISCELLANEOUS. (a) The obligations of Debtor are joint and several; (b) Debtor hereby waives any right (i) to require Bank to make any presentment or demand or give any notice of nonpayment or nonperformance, protest, or notice of dishonor hereunder, (ii) to direct the application of payments or security for indebtedness of Debtor or indebtedness of customers of Debtor, or (iii) to require proceedings against others or to require exhaustion of security and (c) Debtor hereby consents to extensions forbearance's or alterations of the terms of indebtedness, the release or substitution of security, and the release of any guarantors; provided however. that in each instance, Bank believes in good faith that the action in question is commercially reasonable in that it does not unreasonably increase the risk of nonpayment of the indebtedness to which the action applies. Until all indebtedness shall have been paid in full no Debtor shall have any right of subrogation or contribution, and each Debtor hereby waives any benefit of or right to participate in any of the Collateral or Proceeds or any other security now or hereafter held by Bank. 14. NOTICES. All notice, requests and demands required under this Agreement must be in writing, addressed to Bank at the address specified in any other loan documents entered Into between Debtor and Bank and to Debtor at the address of its chief executive office (or personal residence, if applicable) specified below or to such other address as any party may designate by written notice to each other party and shall be deemed to have been given or made as follows: (a) if personally delivered, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or 3 days after deposit in the U. S. mail, first class and postage prepaid; and (c) if sent by telecopy. upon receipt. 15. COSTS, EXPENSES AND ATTORENYS' FEES. Debtor shall pay to Bank Immediately upon demand the full amount of all payment, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank in-house counsel), expended or incurred by Bank in exercising any right, power, privilege or remedy conferred by this Agreement or in the enforcement thereof, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of -the foregoing incurred in connection with any bankruptcy proceeding (including without limitation. any adversary proceeding. contested matter or motion brought by Bank or any other person) relating to Debtor or in any way affecting any of the Collateral or Bank's ability to exercise any of its rights or remedies with respect thereto. All of the foregoing shall be paid by Debtor with interest from the date of demand until paid in full at a rate per annum equal to the greater of ten percent (10%) or the Prime Rate in effect from time to time. The "Prime Rate" is a base rate that Bank from time to time establishes and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. 16. SUCCESSORS; ASSIGNS; AMENDMENT. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators. legal representatives. successors and assigns of the parties, and may be amended or modified only in writing signed by Bank and Debtor. 17. OBLIGATIONS OF MARRIED PERSONS. Any married person who signs this Agreement as Debtor hereby expressly agrees that recourse may be had against his or her separate property for all his or her indebtedness to Bank secured by the Collateral and Proceeds under this Agreement. 18 SEVERABILFTY OF PROVISIONS. If any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or any remaining provisions of this Agreement. 19. GOVERNING LAW. This Agreement shall be governed by and construed In accordance with the laws of the state of California. Debtor warrants that its chief executive office (or personal residence, if applicable) is located at the following address: 3201 TEMPLE AVENUE, POMONA, CA 91768 Debtor warrants that the Collateral (except goods in transit) is located or domiciled at the following additional addresses: NONE IN WITNESS WHEREOF, this Agreement been duly executed as of May 12, 1997 AUTO GRAPHICS, INC. By: Ss/Robert S. Cope Title: President EX-10.23 10 DESCRIPTION - Guaranty between Wells Fargo Bank and Robert S. Cope dated May 12, 1997. WELLS FARGO BANK GUARANTY TO: WELLS FARGO BANK. NATIONAL ASSOCIATION 1. GUARANTY; DEFINITIONS. In consideration of the credit or other financial accommodation described herein and extended or made to AUTO-GRAPHICS, INC. ("Borrowers"), or any of them, by WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"), and for other valuable consideration, the undersigned ROBERT S. COPE ("Guarantor"), jointly and severally unconditionally guarantees and promises to pay to Bank or order, on demand in lawful money of the United States of America and in immediately available funds, any and all Indebtedness of any of the Borrowers to Bank in connection with that certain promissory note dated as of May 12, 1997. executed by Borrowers and payable to the order of Bank in the principal sum of $750,000.00, together with all extensions, renewals and/or modifications thereof (which Indebtedness in connection with said promissory note and all such extensions, renewals and/or modifications shall be referred to herein as the "Note Indebtedness"). The term "Indebtedness" is used herein in its most comprehensive sense and includes any and all advances, debts, obligations and liabilities of Borrowers, or any of them, heretofore. now or hereafter made, incurred or created. whether voluntary or involuntary and however arising, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether Borrowers may be liable individually or jointly with others, or whether recovery upon such Indebtedness may be or hereafter becomes unenforceable. 2. LIABILITY; OBLIGATION UNDER OTHER GUARANTIES. Any obligations incurred or to be incurred by any of the Borrowers in addition to the Note Indebtedness shall not modify or otherwise affect the obligations or liability of Guarantor hereunder. The obligations of Guarantor hereunder shall be in addition to any obligations of Guarantor under any other guaranties of any liabilities or obligations of any of the Borrowers or any other persons heretofore or hereafter given to Bank unless said other guaranties are expressly modified or revoked in writing; and this Guaranty shall not, unless expressly herein provided, affect or invalidate any such other guaranties. 3. OBLIGATIONS JOINT AND SEVERAL; SEPARATE ACTIONS; WAIVER OF STATUTE OF LIMITATIONS; REINSTATEMENT OF LIABILITY. The obligations hereunder are joint and several and independent of the obligations of Borrowers, and a separate action or actions may be brought and prosecuted against Guarantor whether action is brought against any of the Borrowers or any other person, or whether any of the Borrowers or any other person is joined in any such action or actions. Guarantor acknowledges that this Guaranty is absolute and unconditional, there are no conditions precedent to the effectiveness of this Guaranty, and this Guaranty is in full force and effect and is binding on Guarantor as of the date written below, regardless of whether Bank obtains collateral or any guaranties from others or takes any other action contemplated by Guarantor. Guarantor waives the benefit of any statute of limitations affecting Guarantor's liability hereunder or the enforcement thereof, and Guarantor agrees that any payment of any Note Indebtedness or other act which shall toll any statute of limitations applicable thereto shall similarly operate to toll such statute of limitations applicable to Guarantor's liability hereunder. The liability of Guarantor hereunder shall be reinstated and revived and the rights of Bank shall continue if and to the extent that for any reason any amount at any time paid on account of any Note Indebtedness guaranteed hereby is rescinded or must otherwise be restored by Bank, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, all as though such amount had not been paid. The determination as to whether any amount so paid must be rescinded or restored shall be made by Bank in its sole discretion; provided however, that if Bank chooses to contest any such matter at the request of Guarantor, Guarantor agrees to indemnify and hold Bank harmless from and against all costs and expenses, including reasonable attorneys' fees, expended or incurred by Bank in connection therewith, including without limitation, in any litigation with respect thereto. 4. AUTHORIZATIONS TO BANK. Guarantor authorizes Bank, without notice to or demand an Guarantor. and without affecting Guarantor's liability hereunder, from time to time to: (a) alter, compromise, renew, extend, accelerate or otherwise change the time for payment of, or otherwise change the terms of, the Note Indebtedness or any portion thereof, including increase or decrease of the rate of interest thereon; (b) take and hold security for the payment of this Guaranty or the Note Indebtedness or any portion thereof, and exchange, enforce, waive, subordinate or release any such security; (c) apply such security and direct the order or manner of sale thereof, including without limitation, a non-judicial sale permitted by the terms of the controlling security agreement or deed of trust, as Bank in its discretion may determine; (d) release or substitute any one or more of the endorsers or any other guarantors of the Note Indebtedness, or any portion thereof, or any other party thereto; and (e) apply payments received by Bank from any of the Borrowers to any Indebtedness of any of the Borrowers to Bank, in such order as Bank shall determine in its sole discretion, whether or not such Indebtedness is covered by this Guaranty, and Guarantor hereby waives any provision of law regarding application of payments which specifies otherwise Bank may without notice as-sign this Guaranty in whole or in part. Upon Bank's request, Guarantor agrees to provide-to Bank copies of Guarantor's financial statements. 5. REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to Bank that: (a) this Guaranty is executed at Borrowers' request; (b) Guarantor shall not, without Bank's prior written consent, sell, lease assign, encumber, hypothecate, transfer or otherwise dispose of all or a substantial or material part of Guarantors assets other than in the ordinary course of Guarantor's business; (c) Bank has made no representation to Guarantor as to the creditworthiness of any of the Borrowers; and (d) Guarantor has established adequate means of obtaining from each of the Borrowers on a continuing basis financial and other information pertaining to Borrowers' financial condition. Guarantor agrees to keep adequately informed from such means of any facts, events or circumstances which might in any way affect Guarantor's risks hereunder, and Guarantor further agrees that Bank shall have no obligation to disclose to Guarantor any information or material about any of the Borrowers which is acquired by Bank in any manner. 6. GUARANTOR'S WAIVERS. (a) Guarantor waives any right to require Bank to: (i) proceed against any of the Borrowers or any other person; (ii) marshal assets or proceed against or exhaust any security held from any of the Borrowers or any other person; (iii) give notice of the terms, time and place of any public or private sale of personal property security held from any of the Borrowers or any other person, or otherwise comply with the provisions of Section 9504 of the California Uniform Commercial Code; (iv) take any action or pursue any other remedy in Bank's power, or (v) make any presentment or demand for performance, or give any notice of nonperformance, protest, notice of protest or notice of dishonor hereunder or in connection with any obligations or evidences of indebtedness held by Bank as security for or which constitute in whole or in part the Note Indebtedness guaranteed hereunder, or in connection with the creation of new or additional Indebtedness. (b) Guarantor waives any defense to its obligations hereunder based upon or arising by reason of: (i) any disability or other defense of any of the Borrowers or any other person; (ii) the cessation or limitation from any cause whatsoever, other than payment in full, of the Note Indebtedness; (iii) any lack of authority of any officer, director, partner, agent or other person acting or purporting to act on behalf of any of the Borrowers which is a corporation, partnership or other type of entity. or any defect in the formation of any such Borrower, (iv) the application by any of the Borrowers of the proceeds of the Note Indebtedness for purposes other than the purposes represented by Borrowers to, or intended or understood by, Bank or Guarantor, (v) any act or omission by Bank which directly or indirectly results in or aids the discharge of any of the Borrowers or any portion of the Note Indebtedness by operation of law or otherwise, or which in any way impairs or suspends any rights or remedies of Bank against any of the Borrowers; (vi) any impairment of the value of any interest in any security for the Note Indebtedness or any portion thereof, including without limitation, the failure to obtain or maintain perfection or recordation of any interest in any such security, the release of any such security without substitution, and/or the failure to preserve the value of, or to comply with applicable law in disposing of, any such security; or (vii) any modification of the Note Indebtedness, in any form whatsoever, including without limitation the renewal. extension, acceleration or other change in time for payment of, or other change in the terms of, the Note Indebtedness or any portion thereof, including increase or decrease of the rate of interest thereon. Until all Note Indebtedness shall have been paid in full, Guarantor shall have no right of subrogation, and Guarantor waives any right to enforce any remedy which Bank now has or may hereafter have against any of the Borrowers or any other person, and waives any benefit of, or any right to participate in, any security now or hereafter held by Bank. Guarantor further waives all rights and defenses Guarantor may have arising out of (A) any election of remedies by Bank, even though that election of remedies. such as a non- judicial foreclosure with respect to any security for any portion of the Note Indebtedness, destroys Guarantor's rights of subrogation or Guarantor's rights to proceed against any of the Borrowers for reimbursement, or (B) any loss of rights Guarantor may suffer by reason of any rights, powers or remedies of any of the Borrowers in connection with any anti-deficiency laws or any other laws limiting, qualifying or discharging Borrowers' Indebtedness, whether by operation of Sections 726, 580a or 580d of the Code of Civil Procedure as from time to time amended, or otherwise, including any rights Guarantor may have to a Section 580a fair market value hearing to determine the size of a deficiency following any trustee's foreclosure sale or other disposition of any real property security for any portion of the Indebtedness. 7. BANK'S RIGHTS WITH RESPECT TO GUARANTOR'S PROPERTY IN BANK'S POSSESSION. In addition to all liens upon and rights of setoff against the monies, securities or other property of Guarantor given to Bank by law, Bank shall have 2 lien upon and a right of setoff against all monies, securities and other property of Guarantor now or hereafter in the possession of or on deposit with Bank, whether held in a general or special account or deposit or for safekeeping or otherwise, and every such lien and right of setoff may be exercised without demand upon or notice to Guarantor. No lien or right of setoff shall be deemed to have been waived by any act or conduct on the part of Bank, or by any neglect to exercise such right of setoff or to enforce such lien, or by any delay in so doing, and every right of setoff and lien shall continue in full force and effect until such right of setoff or lien is specifically waived or released by Bank in writing. 8. SUBORDINATION. Any Indebtedness of any of the Borrowers now or hereafter held by Guarantor is hereby subordinated to the obligations of Borrowers to Bank under the Note Indebtedness. Such Indebtedness of Borrowers to Guarantor is assigned to Bank as security for this Guaranty and the Note Indebtedness and, if Bank requests, shall be collected and received by Guarantor as trustee for Bank and paid over to Bank on account of the Note Indebtedness but without reducing or affecting in any manner the liability of Guarantor under the other provisions of this Guaranty. Any notes or other instruments now or hereafter evidencing such Indebtedness of any of the Borrowers to Guarantor shall be marked with a legend that the same are subject to this Guaranty and, if Bank so requests, shall be delivered to Bank. Guarantor will, and Bank is hereby authorized in the name of Guarantor from time to time to, execute and file financing statements and continuation statements and execute such other documents and take such other action as Bank deems necessary or appropriate to perfect preserve and enforce its rights hereunder. 9. REMEDIES; NO WAIVER All rights, powers and remedies of Bank hereunder are cumulative. No delay, failure or discontinuance of Bank in exercising any right, power or remedy hereunder shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by bank of any breach of this Guaranty. or any such waiver of any provisions or conditions hereof, must be in writing and shall be effective only to the extent set forth in writing. 10. COSTS, EXPENSES AND ATTORNEYS' FEES. Guarantor shall pay to Bank immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank's in-house counsel ), expended or incurred by Bank in connection with the enforcement of any of Bank's rights, powers or remedies and/or the collection of any amounts which become due to Bank under this Guaranty, and the prosecution or defense of any action in any way related to this Guaranty, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to Guarantor or any other person or entity. All of the foregoing shall be paid by Guarantor with interest from the date of demand until paid in full at a rate per annum equal to the greater of ten percent (10%) or Bank's Prime Rate in effect from time to time. The "Prime Rate" is a base rate that Bank from time to time establishes and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. 11. SUCCESSORS; ASSIGNMENT. This Guaranty shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties, provided however, that Guarantor may not assign or transfer any of its interests or rights hereunder without Bank's prior written consent Guarantor acknowledges that Bank has the right to sell, assign, transfer, negotiate or grant participation in all or any part of, or any interest in, the Note Indebtedness and any obligations with respect thereto, including this Guaranty. In connection therewith. Bank may disclose all documents and information which Bank now has or hereafter acquires relating to Guarantor and/or this Guaranty, whether furnished by Borrowers, Guarantor or otherwise. Guarantor further agrees that Bank may disclose such documents and information to Borrowers. 12. AMENDMENT. This Guaranty may be amended or modified only in writing signed by Bank Guarantor. 13. OBLIGATIONS OF MARRIED PERSONS. Any married person who signs this Guaranty as a Guaranty hereby expressly agrees that recourse may be had against his or her separate property for all his or her obligate under this Guaranty. 14. APPLICATION OF SINGULAR AND PLURAL. In all cases where there is but a single Borrower, then all words used herein in the plural shall be deemed to have been used in the singular where the context and construction so require; and when there is more than one Borrower named herein, or when this Guaranty is executed by more than one Guarantor, the word "Borrowers" and the word "Guarantor" respectively shall mean all or any one more of them as the context requires. 15. UNDERSTANDING WITH RESPECT TO, WAIVERS; SEVERABILITY OF PROVISIONS. Guarantor warrants and agrees that each of the waivers set forth herein is made with Guarantor's full knowledge of significance and consequences, and that under the circumstances, the waivers are reasonable and not contrary public policy or law. If any waiver or other provision of this Agreement shall be held to be prohibited by or invalid under applicable public policy or law, such waiver or other provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such waiver or other provision or any remaining provisions of this Agreement. 16. GOVERNING LAW. This Guaranty shall be governed by and construed in accordance with the laws of the state of California. 17. ARBITRATION. (a) Arbitration. Upon the demand of any party, any Dispute shall be resolved by binding arbitration (except as set forth in (e) below) in accordance with the terms of this Guaranty. A "Dispute" shall mean any action, dispute claim or controversy of any kind, whether in contract or tort, statutory or common law, legal or equitable, now existing or hereafter arising under or in connection with, or in any way pertaining to, this Guaranty and each other, document, contract and instrument required hereby or now or hereafter delivered to Bank in connection herewith (collectively, the "Documents"), or any past present or future extensions of credit and other activities, transactions or obligations of any kind related directly or indirectly to any of the Documents, including without limitation, any of the foregoing arising in connection with the exercise of any self-help, ancillary or other remedies pursuant to any of the Documents. Any party may by summary proceedings bring an action in court to compel arbitration of a dispute. Any party who fails or refuses to submit to arbitration following a lawful demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any Dispute. (b) Governing Rules. Arbitration proceedings shall be administered by the American Arbitration Association ("AAA") or such other administrator as the parties shall mutually agree upon in accordance with the AAA Commercial Arbitration Rules. All Disputes submitted to arbitration shall be resolved in accordance with the Federal Arbitration Act (Title 9 of the United States Code) notwithstanding any conflicting choice of law provision in any of the Documents. The arbitration shall be conducted at a location in California selected by the AAA or other administrator. If there is any inconsistency between the terms hereof and any such rules, the terms and procedures set forth herein shall control. All statutes of limitation applicable to any Dispute shall apply to any arbitration proceeding. All discovery activities shall be expressly limited to matters directly relevant to the Dispute being arbitrated. Judgment upon any award rendered in an arbitration may be entered in any court having jurisdiction provided however, that nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. 91 or any similar applicable state law. (c) No Waiver Provisional Remedies, Self-Help and Foreclosure. No provision hereof shall limit the right any party to exercise self-help remedies such as setoff, foreclosure against or sale of any real or personal property collateral or security, or to obtain provisional or ancillary remedies, including without limitation injunctive relief. sequestration, attachment, garnishment or the appointment of a receiver, from a court of competent jurisdiction before, after or during the pendency of any arbitration or other proceeding. The exercise of any such remedy shall not waive the right of any party to compel arbitration or reference hereunder. (d) Arbitrator Qualifications and Powers: Awards. Arbitrators must be active members of the California State Bar or retired judges of the state or federal judiciary of California, with expertise in the substantive law applicable to the subject matter of the Dispute. Arbitrators are empowered to resolve Disputes by summary rulings in response to motions filed prior to the final arbitration hearing. Arbitrators (i) shall resolve all Disputes in accordance with the substantive law of the state of California, (ii) may grant any remedy or relief that a court of the state of California could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award, and (iii) shall have the power to award recovery of all costs and fees, to impose sanctions and to take such other actions as they deem necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil Procedure or other applicable law. Any Dispute in which the amount in controversy is $5,000,000 or less shall be decided by a single arbitrator who shall not render an award of greater than $5,000,000 (including damages, costs, fees and expenses). By submission to a single arbitrator, each party expressly waives any right or claim to recover more than $5,000,000. Any Dispute in which the amount in controversy exceeds $5,000,000 shall be decided by majority vote of a panel of three arbitrators provided however, that all three arbitrators must actively participate in all hearings and deliberations. (e) Judicial Review. Notwithstanding anything herein to the contrary, in any arbitration in which the amount in controversy exceeds $25,000,000, the arbitrators shall be required to make specific, written findings of fact and conclusions of law. In such arbitration's (i) the arbitrators shall not have the power to make any award which is not supported by substantial evidence or which is based on legal error, (ii) an award shall not be binding upon the parties unless the findings of fact are supported by substantial evidence and the conclusions of law are not erroneous under the substantive law of the state of California, and (iii) the parties shall have in addition to the grounds referred to- in the Federal Arbitration Act for vacating, modifying or correcting an award the right to judicial review of (A) whether the findings of fact rendered by the arbitrators are supported by substantial evidence, and (B) whether the conclusions of law are erroneous under the substantive law of the state of California. Judgment confirming an award in such a proceeding may be entered only if a court determines the award is supported by substantial evidence and not based on legal error under the substantive law of the state of California. (f) Real Property Collateral: Judicial Reference. Notwithstanding anything herein to the contrary, no Dispute shall be submitted to arbitration if the Dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any real property unless (t) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single action rule statute of California, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, liens and security interests securing such indebtedness and obligations, shall remain fully valid and enforceable. If any such Dispute is not submitted to arbitration, the Dispute shall be referred to a referee in accordance with California Code of Civil Procedure Section 638 et seq.. and this general reference agreement is intended to be specifically enforceable in accordance with said Section 638. A referee with the qualifications required herein for arbitrators shall be selected pursuant to the AAA's selection procedures. Judgment upon the decision rendered by a referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645. (g) Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the Dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business, by applicable law or regulation, or to the extent necessary to exercise any judicial review rights set forth herein if more than one agreement for arbitration by or between the parties potentially applies to a Dispute, the arbitration provision most directly related to the Documents or the subject matter of the Dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Documents or any relationship between the parties. IN WITNESS WHEREOF, the undersigned Guarantor has executed this Guaranty as of May 12,1997. Ss/ Robert S. Cope ROBERT S. COPE EX-10.24 11 DESCRIPTION - Settlement Agreement and Mutual Release between Diversified Printing & Publishing Services, Inc., Nasib Gannam, and T. Ron Kahraman, and Datacat, Inc., Auto-Graphics, Inc. and Robert S. Cope dated September 30, 1997. SETTLEMENT AGREEMENT AND MUTUAL RELEASE This Settlement Agreement and Mutual Release (the "Agreement) dated effective September 30, 1997 is entered into by and between (1) Diversified Printing & Publishing Services, Inc. ("Diversified"), Gannam/Kubat Publishing, Inc. ("GK"), Nasib Gannam ("Gannam") and T. Ron Kahraman ("Kahraman"), on the one hand (individually and collectively the "Gannam Parties"), and (2) Datacat, Inc. ("Datacat"), Auto-Graphics, Inc. ("AG"), and Robert Cope ("Cope"), on the other (individually and collectively the "Datacat Parties"). RECITALS This Agreement is entered into with reference to the following facts: 1. Diversified, GK, Gannam, Datacat, AG and Cope are parties to a civil action (collectively the "Parties"), entitled Diversified Printing & Publishing Services, Inc. v. Datacat, Inc., Case No. 766695, pending in the Orange County Superior Court, and involving a complaint and two cross- complaints (the "Action"); 2. Each of the Parties wishes to resolve the Action without further litigation and deem it to be in their best interests and to their mutual advantage to forever settle and compromise all claims, controversies, demands or causes of action between them; 3. This Settlement Agreement and Mutual Release is not intended to and shall not be deemed to benefit or cover Vince Casale and/or Catalog Services Company (collectively herein "Casale/CSC"), or in any way affect any claims Datacat may or may not have against Casale/CSC pertaining to or otherwise in respect of Casale's prior resignation from Datacat, competition with Datacat in the HVACR catalog business (the "Casale/CSC Business") and/or the alleged use of all or any portion of Datacat's HVACR database, systems, procedures, customer lists, pricing information or otherwise to conduct such Casale/CSC Business following his departure from Datacat including as against Datacat (referred to herein collectively as the "Casale Matter"). 4. Gannam and Kahraman are currently serving as Directors of Datacat and hereby agree to and shall resign those positions simultaneously with and upon execution of this Agreement. AGREEMENT NOW THEREFORE, in consideration of the premises and the mutual promises and covenants contained herein, the sufficiency of which is hereby expressly acknowledged by each of the undersigned parties including the Parties, such parties have, intending to legally bound and obligated thereby, entered into this Agreement. ACCORDINGLY, THE PARTIES AGREE AS FOLLOWS: I. PAYMENT. A. On or before September 30, 1997, a certified or bank cashier's check in the amount of Two Hundred Thousand Dollars ($200,000) shall be delivered to counsel for Diversified payable to "Diversified Printing & Publishing, Inc. and Graham & James LLP Trust Account" (the "Settlement Payment"). II. DISMISSAL OF THE ACTIONS/TENDER OF SHARES. A. Concurrently with the delivery of the Settlement Payment (1) the Parties shall exchange pre-executed Requests for Dismissal with prejudice of each of their respective complaints and cross-complaints in the Action, and (2) GK shall surrender to DATACAT its original share certificate for all of its stock in Datacat properly endorsed in blank for transfer (the "GK Datacat Stock"), together with a certified copy of GK's corporate resolution(s) approving and authorizing this Agreement including the surrender, transfer and/or other conveyance of the GK Datacat Stock as provided for herein. Counsel for the respective Parties shall hold such Requests For Dismissal forms pending the actual payment of the Datacat check referenced above as the Settlement Payment, after which such counsel are hereby authorized to file such Requests For Dismissals as provided or otherwise contemplated hereinabove. B. GK and Gannam hereby each represents, warrants and covenant to and for the benefit of AG and Datacat that GK is the sole and exclusive owner of the GK Datacat Stock (as defined in paragraph II.A. above), that such Stock is free and clear of any and all liens or encumbrances, and that GK is authorized and empowered to surrender and otherwise transfer, deliver and otherwise convey the GK Datacat Stock as provided for in this Agreement; and, further, GK, Gannam and Diversified and each of them hereby agree and promise to indemnify and hold harmless Datacat and A-G from any and all claims, cause of action, expenses including reasonable attorneys' fees and expenses, debts, obligations and liabilities arising as a result of or in connection with the assertion by any person or entity against Datacat and/or A-G of any claim of ownership, right, title and/or interest in and to such GK Datacat Stock or any part thereof. III. MUTUAL GENERAL RELEASE. A. Diversified, GK, Gannam and Ron Kahraman, on the one hand, and Datacat, AG, and Cope, on the other, release and forever discharge each other of and from any and all claims, potential claims, complaints, demands, damages, debts, liabilities, accounts, costs, attorneys' fees, expenses, liens, actions, causes of action, suits, and losses of every kind and nature whatsoever, whether now known or unknown, suspected or unsuspected, which they now have, own or hold, or at any time before ever had, owned or held, against each other (the "Released Matters"). B. The Released Matters, however, shall not extend to, impair, or include any rights, obligations, or remedies which the undersigned parties may have under this Agreement. C. The Released Matters are not intended by the undersigned parties to extend to or otherwise affect any rights which Datacat and/or AG may or may not have against Casale/CSC in any respect. D. It is the intention of the undersigned parties that this Agreement shall be effective as a full and final accord and satisfaction, and release of each and every one of the Released Matters. In furtherance of this intention, each of the undersigned acknowledges that they are familiar with Section 1542 of the California Civil Code ("Section 1542") which provides as follows: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. Each of the undersigned parties hereby waives and relinquishes every right or benefit which they have or may have under Section 1542 to the full extent that they may lawfully waive such right or benefit with regard to the Released Matters. E. In connection with such waiver and relinquishment, each of the undersigned parties acknowledges that they are aware that they may later discover facts in addition to or different from those which they now know or believe to be true with respect to the subject matter of this Agreement, but that it is their intention to fully, finally and forever, settle and release all Released Matters, known or unknown, suspected or unsuspected, which now exist, may exist or previously existed between them. F. The releases in this Agreement shall, subject to the limitations expressly set forth herein, extend and inure to the benefit of each released party and each of their past and present officers, employees, directors, agents, representatives, attorneys, alter egos, spouses, shareholders, partners, joint ventures, heirs, executors, administrators, affiliates, subsidiaries, divisions, legal predecessors, successors, assigns, licensees, and their respective insurers, sureties, and underwriters. IV. MUTUAL REPRESENTATIONS AND WARRANTIES. A. Each of the undersigned parties warrants and represents that they have not previously assigned or transferred, or purported to assign or transfer, to any third party any of the Released Matters. B. Each of the undersigned parties to this Agreement represents and warrants that they have been represented and advised fully by independent counsel of their own choice through all negotiations which preceded the execution of this Agreement; and that each such party has read or had read to them all of this Agreement and had it explained to them by his attorney and fully understands all the terms used and their significance, including the legal effect and consequences of waiving the protections of Civil Code 1542. V. FURTHER SPECIAL REPRESENTATIONS, WARRANTIES, AGREEMENTS AND COVENANTS BY GANNAM. A. Gannam, including without limitation for purposes of this paragraph GK, Diversified and any and all other corporations, partnerships, limited liability companies, associations, joint ventures and/or other forms of business enterprise in which Gannam now owns or is otherwise entitled in the future to own, receive or benefit from directly or indirectly any share, partnership, joint venture or other interest therein including without limitation Sterling Litho, Fairway Binding and Gapco (collectively herein "Gannam Affiliate"), represents, warrants, covenants and otherwise agrees that neither he nor any Gannam Affiliate and/or Kahraman collectively herein also the "Gannam Parties") now owns and/or is entitled to own or otherwise receive or benefit from the Casale/CSC Business collectively "Casale/CSC Ownership Interest"); and, further that the Gannam Parties will not hereafter obtain or receive any such Casale/CSC Ownership Interest which, to the extent it ever has or in the future does exist, such Ownership Interest is hereby sold, transferred and conveyed to Datacat or its designee as part of the consideration for this Agreement. It is expressly understood, however, that any and all commercial printing services heretofore provided by Diversified to Casale/CSC, whether for cash, credit or some combination thereof, shall not be deemed to constitute an ownership interest by the Gannam Parties in the Casale/CSC Business; and, provided further, that the foregoing representations and warranties only as set forth in this sub-paragraph shall not, in any event or under any circumstances, be a basis for the initiation of any claim or action by the Datacat Parties against the Gannam Parties in respect of the subject matter or such representations/warranties including without limitation any allegation that the subject representations/ warranties or any of them was not accurate or was in any way false or misleading and such representations and warranties (herein the "Special Rep/Warranty") shall under no circumstances be the basis for the assertion that the Datacat Parties were induced to enter into and/or perform this Agreement which is hereby acknowledged and agreed by the Datacat Parties not to be the case. If any claim or cause of action is ever brought by the Datacat Parties or any of them against the Gannam Parties or any of them based on or in respect of the Special Rep/Warranty, the Datacat Parties shall indemnify and hold harmless the Gannam Parties named as defendants in any such breach of Special Rep/Warranty action from any and all claims, cause of action, expenses including reasonable attorneys' fees and expenses, debts, obligations and liabilities arising as a result of or in connection with the assertion of any such claim and/or cause of action as specified herein. B. The Gannam Parties and each of them hereby agree and covenant, subject only to the provisions of the following subparagraph, not to, directly or indirectly, participate in and/or otherwise assist Casale/CSC and/or the Casale/CSC Business to compete with Datacat's HVACR catalog business for a period of five (5) years from the effective date of this Agreement including without limitation by providing Casale/CSC with any advice, goods, services and/or financial support of any kind whatsoever at any time during such five year period of time pertaining or related to, or otherwise in respect of, the Casale/CSC Business or matters related thereto. C. Notwithstanding the prohibitions set forth in the foregoing sub- paragraph, Diversified may if it so chooses provide commercial printing services, and only such printing and binding services (no composition services) to the Casale/CSC Business upon terms no more favorable than Diversified then regularly offers to its other customers, beginning but not sooner than two (2) years from the effective date of this Agreement. D. Gannam and Kahraman, and each of them, acknowledge and agree that the full and complete releases in this agreement include, without limitation, any and all claims that Gannam and Kahraman allegedly breached their fiduciary duties or other duties to Datacat and that Datacat's willingness to so release such claims is based, in part, upon the Gannam Parties' covenants not to compete as set forth in paragraph V(A) hereof . E. The Gannam Parties' will comply with all laws concerning any and all discovery requests that may be propounded in any future civil action that may or may not be filed by Datacat against Casale/CSC. F. Gannam and the Gannam Affiliate each hereby further agrees and covenants to provide to Datacat, and Datacat shall receive from Diversified, at the time that the parties exchange the Requests For Dismissals and delivery of the Settlement Payment provided for in paragraphs II.A and I.A., respectively, of this Agreement the following: All film (of covers and/or pages), artwork, camera ready and/or electronic copy provided to Diversified by Datacat including any of its customers to Diversified, for the production of catalogs, brochures, mailers, price lists and other printed matter, in the possession, custody or control of Diversified. VI. ATTORNEYS' FEES. A. In the event of any action or proceeding to enforce or interpret this Agreement, the prevailing party, in addition to all other legal or equitable remedies possessed, shall be entitled to be reimbursed for all costs and expenses, including reasonable attorneys' fees, paid or incurred by reason of or otherwise in connection with such action or proceeding. Except as provided in this paragraph, the undersigned parties are to bear their own costs and expenses including attorneys' fees, in connection with the Action and execution of this Agreement. VII. ENTIRE AGREEMENT. A. This Agreement constitutes the entire agreement and understanding concerning the subject matter hereof between the undersigned parties, and supersedes and replaces all prior negotiations, proposed agreements and agreements, written or oral. This Agreement is intended to and shall be deemed for all purposes to be for the benefit of, be binding upon and be enforceable against the undersigned parties and their respective successors, assigns, heirs, administrators and/or executors. Except as may be expressly provided for herein, this Agreement is not intended and shall not be deemed or otherwise interpreted to be for the benefit of any person or entity which is not a party/signatory to this Agreement. B. The undersigned parties acknowledge and agree for the benefit of each other that they have not entered into and agreed to perform this Agreement based upon or in consideration of any statement, representation, warranty, understanding, agreement, covenant, promise, guaranty or any other matter which is not expressly set forth or otherwise provided for in this Agreement. C. The undersigned parties' representations, warranties, agreements and/or covenants as set forth in this Agreement are, where applicable, intended to survive and remain fully operative and enforceable against the party(s) providing such representations, warranties, agreements and/or covenants following the actual settlement and dismissal of the instant Action in accordance with the terms of any and all such representations, warranties, agreements and/or covenants. VIII. CHOICE OF LAWS. A. This Agreement shall in all respects be interpreted, enforced and governed by the laws of the State of California. IX. NO ADMISSION OF LIABILITY. A. It Is expressly understood and agreed by the undersigned parties including the Parties that this Agreement is being made solely for the purpose of avoiding the expense and inconvenience of further litigation and that it is not an admission on the part of any party to this Agreement of any unlawful or wrongful conduct or of any liability to any other Party as alleged in the above referenced Action or otherwise, all of which is expressly denied. X. COUNTERPARTS. A. This Agreement may be executed in several counterparts, each of which shall be an original as against any party who signed it, and all of which shall constitute one and the some document. Facsimile signatures may be used as originals for the purposes of effectuating this Agreement. XI. SEVERABILITY. A. If any term or provision of this Agreement shall be finally determined to be illegal or unenforceable for any reason, all other terms and provisions in this Agreement shall nevertheless remain effective and be enforced to the fullest extent permitted by law. XII. JOINTLY DRAFTED. A. The undersigned parties' legal counsel have jointly drafted the provisions of this Agreement, and no inference or rule of construction shall be made by reason of the party who has drafted any provisions contained in this Agreement. For the purposes of interpretation, it shall be assumed that all of the undersigned parties drafted each provision and each party expressly waives the doctrine of contra proferentum as it might otherwise apply to interpreting this Agreement. IN WITNESS WHEREOF, the undersigned parties, thereunto duly authorized, have executed and delivered this Agreement as of the date first set forth above. Nasib Gannam Ss/ Nasib Gannam T. Ron Kahraman Ss/ T. Ron Kahraman DIVERSIFIED PRINTING AND PUBLISHING SERVICES, INC. By: Ss/Nasib Gannam Title: President GANNAM KUBAT PUBLISHING, INC. By: Ss/Nasib Gannam Title: President Robert S. Cope Ss/Robert S. Cope AUTO-GRAPHICS, INC. By: Ss/Robert S. Cope Robert S. Cope, President APPROVED AS TO FORM ONLY: LAW OFFICES OF ROBERT H. BRETZ, P.C. By: Ss/Robert H. Bretz Robert H. Bretz, Attorney for Auto-Graphics, Inc. and Robert S. Cope LAW OFFICES OF RANDY STILES By: Ss/Randy Stiles Randy Stiles, Attorney for Datacat, Inc. GRAHAM & JAMES LLP By: Ss/Kenneth B. Julian Kenneth B. Julian, Attorneys for Diversified Printing & Publishing Services, Inc., Gannam/Kubat Publishing, Inc., Nasib Gannam and T. Ron Kahraman EX-10.25 12 DESCRIPTION - 1997 Non-Qualified Stock Option Plan dated December 31, 1997. 1997 NON-QUALIFIED STOCK OPTION PLAN The Company's 1997 Non-Qualified Stock Option Plan (the "Plan") shall include the following terms and conditions: 1. Number of Shares. The number of shares of the Company's plan shall be and include one hundred thousand shares (100,000) of the Company's Common Stock which is approximately equal to ten percent (10%) of the Company's currently issued and outstanding shares of such stock (collectively herein the "Stock"). 2. Units. Options to purchase shares of such Stock ("options") shall be granted to employees and/or persons regularly retained by the Company pursuant to and in accordance with the Plan in increments of one thousand (1,000) shares (herein a "Unit") up to a maximum of 100 such Units. 3. Initial Grant. An initial grant of options to purchase shares of the Stock under the Plan, expressed in Units, is hereby made subject to the terms and conditions set forth herein, as follows (the "Initial Grant"): Recipient No. Units Robert Bretz 10.0 Eric Jung 7.5 William Kliss 20.0 Daniel Luebben 10.0 47.5 4. Remaining Shares. Following the Initial Grant, forty-seven thousand five hundred (47,500) shares representing forty-seven and one-half (47.5) Units, fifty-two thousand five hundred shares representing 52.5 Units remain available for grant by the Company (the "Remaining Shares" as such number of shares shall be adjusted from time to time). If any of the Units (and underlying options/shares) terminate in accordance with the terms of the Plan during the term thereof, then such Units (and underlying options/shares) shall automatically be returned to the status of Remaining Shares available for grant under and in accordance with the Plan. 5. Term of the Plan. The term of the Plan, during which time options to purchase shares of the Stock covered by the Plan may be granted/issued, shall be for the period ending and ended December 31, 2002 (the "Term"). Thereafter, no more options may be granted/issued under the Plan; however, all options granted, issued and outstanding prior to or at the end of the Term of the Plan shall remain issued and outstanding and otherwise effective and exercisable in all respects pursuant to and in accordance with the Plan. 6. Option Price. The cash price per share to be paid by the recipients of the Initial Grant of Options shall be $1.65 (the "Exercise Price") which is the approximate mean average of the published representative bid and asked price of shares of the Company's stock in the public trading market for such stock at the effective date of the Plan less a forty-five percent (45%) discount reflecting the restricted nature of such shares of Stock to be issued in one or more private transactions without registration under applicable federal and state securities laws, requiring the holder of the shares of Stock purchased pursuant to such options to hold such shares of Stock for a minimum of one (1) year following the actual purchase thereof before such Stock can be sold in the public trading market for such Stock, and such other qualifications as to the recipient's right to exercise the option and purchase such Stock as provided for herein. Notwithstanding the foregoing, if the published representative mean average of the bid and asked price for the Company's stock in the public trading market for such stock should increase during the thirty (30) day period following the effective date of the Plan (December 31, 1997) by more than ten percent (10%), then the Exercise Price of the shares of Stock constituting the Initial Grant shall be automatically adjusted to reflect such increased representative public trading market price of the Company's stock as adjusted by such 45% discount attributable to the restricted nature of such Stock (the "Adjusted Exercise Price"). Any such adjustment in the Exercise Price as provided for herein shall be memorialized in a further resolution of this Board of Directors filed in the Company's Minute Book within sixty (60) days following the initial date of such grant/issuance of options. The recipient of the option may, subject to the satisfaction of all requirements in respect thereof as set forth in this Plan, but shall not be obligated to exercise the option to purchase all or any portion of the shares of Stock covered by such particular option. The recipients of options granted under the Plan shall be responsible for and shall pay any and all federal and/or state taxes attributable to or otherwise resulting from the grant and/or receipt of the options, if any, and the exercise, purchase and sale of the shares by such recipients of stock covered by such option; however, the Company shall, as a part of the Plan, be obligated to and shall reimburse each recipient for the amount of federal and state taxes paid by the recipient in respect of the exercise and/or sale of the shares of Stock received pursuant to the option in the year or years in which the recipient pays any such taxes within sixty (60) days of receipt by the Company from the recipient of appropriate written confirmation establishing the actual payment and amount of such taxes. Except as expressly provided for hereinabove, the Company shall have no further responsibility, obligation or liability in respect of taxes due and owing by, and or paid by, the recipient in respect of the grant and/or exercise of the options, the receipt and/or sale of shares of the Stock thereunder and/or the reimbursement by the Company of the taxes paid by the recipient attributable to the exercise and sale of such Stock (including in respect of the recognition, if any, of any further taxes which may be due and owing by the recipient attributable to the payment of taxes by the Company as provided for hereinabove which payment of any such additional taxes is the sole responsibility, obligation and/or liability of the recipient). 7. Future Grants/Exercise Price. Remaining Shares of the Stock which are the subject of options to be granted under the Plan following the Initial Grant shall have such exercise price as the Board shall set from time to time as the Board acts to grant and issue such Options to purchase all or any portion of the Remaining Shares in the Plan. 8. Conditions to Exercise. Subject to the provisions of paragraph 9 of this Agreement, to be entitled to exercise options granted/issued under the Plan, and to purchase and acquire shares of the Stock represented by the options which are being exercised by the recipient thereof from time to time, the recipient must be an employee of the Company or have been regularly retained and have been providing services to the Company (i) at the time of any such exercise and (ii) for the two (2) year period immediately preceding any such exercise (the "Service Term"). If the recipient of any options granted under the Plan (the "recipient" or "option holder") ceases being an employee of, or no longer is regularly providing services to, the Company at any time prior to the exercise of options held by the recipient, whether such cessation of employment or other services is voluntary or not, all options held by such recipient shall automatically terminate and expire (and return to the status of Remaining Shares), and be of no further force or effect (unless the Board of Directors acting in its sole discretion and election adopts a further written resolution providing to the contrary). All persons receiving option grants under the Plan shall, prior to the actual issuance of any such options, provide the Company with a written acknowledgement and agreement to the within described Service Term condition to such option grant, and the person's rights and entitlements thereunder, in form/content satisfactory to the Company and its counsel. The exercise of options by any recipient within five (5) business days following any involuntary (at the Company's election and direction) termination of employment or other services with or for the Company shall, assuming all other conditions pertaining to such exercise as provided for herein are satisfied (including without limitation the Market Price condition provided for below), be deemed to satisfy the Services Term provided for herein. If any option granted and issued under the Plan including without limitation the Initial Grant has not previously been exercised in accordance with the terms/conditions of the Plan, and is not exercised by the recipient in accordance with the terms/conditions of the Plan within the above referenced five business day period following termination of employment or services of the recipient, then any and all options held by any such terminating recipient shall thereafter be null and void and of no further force or effect. If the Service Term has been satisfied, and all other conditions shall also have been satisfied (including without limitation the Market Price condition provided for below), then upon the death or permanent disability of the recipient, the recipient in the case of such disabled recipient, or the heirs or other beneficiaries in the event of the death of the recipient, shall have ninety (90) days following any such permanent disability or death to exercise any and all options previously granted to but unexercised by any such recipient and held by any such disabled or deceased recipient. If any such unexercised options are not timely exercised by any such permanently disabled recipient or for such deceased recipient in accordance with the terms and conditions hereof, then any and all options held by any such disabled or deceased recipient shall thereafter be null and void and of no further force or effect. Further, to be eligible to exercise options granted/issued under this Plan, the reported public trading market price of the Company's Common Stock (low "Bid" or last/closing price) shall have reached $6.50 per share (for the majority of trading days in the thirty (30) day period preceding the date of exercise) for purposes of the Initial Grant and such other increased public trading market price for the Remaining Shares and option grants in respect thereof as the Board shall determine to be appropriate at the time of any such further grants by the Board (the "Market Price" condition). 9. Change of Ownership or Control. If there is a change of ownership or control of the Company at any time or from time to time during the Term of the Plan, including any event or transaction whereby Robert S. Cope (exclusive of other members of the Cope Family or in his capacity as Trustee) no longer owns shares of the Company's Common Stock representing at least 25% of the Company's issued and outstanding Common Stock, unless the recipients of any unexercised options under the Plan shall have entered into written employment agreements with the Company, or its successor following any such purchase of assets change of ownership or control transaction, within thirty (30) days of the effective date of any such event or transaction at the election and sole satisfaction of each such recipient of outstanding and unexercised options, then any and each of such recipients who were employed by the Company or otherwise providing services to the Company at the time of any such change of ownership or control transaction shall have the absolute and unqualified right but shall not be obligated to require that the Company and/or any such successor in interest where applicable, and at the request of any recipient the Company and/or any such successor shall be obligated to and shall, purchase all or such part, as may be designated by the recipient, of such recipient's options and interest therein and thereto for a cash purchase price, payable within sixty (60) days of such change of ownership or control transaction, equal to the maximum or highest price per share which was paid for the shares of the Company's Common Stock including to Robert S. Cope by the purchaser/successor in interest in or otherwise related to any such change of ownership/control transaction but in no event less than $6.50 per share of Stock covered by such options or, if such change of ownership/control transaction did not involve the purchase of any shares of the Company's Common Stock, the higher of $6.50 per share (of the shares covered by any such unexercised option) or the amount of net worth per share (assets minus liabilities), prior to the change of ownership or control transaction and the exercise of any options then outstanding under the Plan, as reflected on the Company's most recent audited Balance Sheet (the "Recipient's Purchase Election"); provided, however, that the Recipient's Purchase Election is not intended and shall not otherwise be deemed to include or apply to any sale by Robert S. Cope of shares of the Company's Common Stock to an employee stock ownership trust and/or plan, generally described as a qualified stock bonus plan or a combination stock bonus and money purchase pension plan that meets certain requirements under the Employee Retirement Income Security Act of 1974 as amended and under the Internal Revenue Code of 1986 as amended that allows the plan to borrow from or on the credit of the Company or its shareholders for the purpose of investing in the Company's securities (the "ESOP Exception"). For purposes of this paragraph of the Plan, unless otherwise expressly provided for "change of ownership or control" shall include any event or transaction covered by Section 181 of the California General Corporation Laws. Notwithstanding anything to the contrary set forth in this Plan, including in paragraph 6 wherein the Company agrees to be responsible to reimburse recipients for taxes paid in respect of the options and the exercise and/or sale of Stock thereunder, the Company shall not be responsible, obligated and/or liable in any manner for payment of taxes attributable to the repurchase of options from recipients as provided for in this paragraph, which shall be solely the responsibility, obligation and liability of the recipients. 10. Notice of Exercise and Payment For and Delivery of Stock Purchased Pursuant to Options Granted Under the Plan. Recipients of options to purchase shares of Stock under the Plan, who desire to and are entitled to exercise such options during the Term of the Plan in accordance with the terms and conditions of the Plan including the Service Term and Market Price conditions to such exercisability, shall exercise such options by written notice to the Company ("Notice of Exercise") signed by the recipient and stating the number of shares of Stock covered by outstanding options which the recipient intends to purchase pursuant to such Notice of Exercise (the "Purchased Stock") and the total cash consideration to be paid by the recipient for such shares of Purchased Stock (the "Purchase Price") and confirming the recipient's belief that all of the conditions to the recipient's right to exercise the option to purchase the Purchased Stock have been satisfied at the date of the Notice of Exercise. Upon receipt by the Company, the Board of Directors shall review the Notice of Exercise and deliver to the recipient providing such Notice of Exercise a return notice, within (30) days following receipt of such Notice of Exercise, confirming the recipient's right to purchase the Purchased Stock for the Purchase Price set forth in the Notice of Exercise and setting a date for the consummation of such stock sale and purchase transaction, including the payment by the recipient of the Purchase Price and the delivery by the Company of the certificate representing the Purchased Stock, or setting forth any deficiencies in the Notice of Exercise effecting the recipient's right to exercise the option and/or the Purchase Price to be paid for the Stock where the recipient is eligible to exercise the option but has made an error in computing such Purchase Price (the "Company's Notice"). The Company's Notice shall also reference the number of option shares of stock remaining to be purchased by the recipient, and the remaining time within which such shares must be purchased before the option period expires if less than the total number of shares of stock covered by options granted to the recipient are covered by the recipient's Notice of Exercise. Recipients are not required to purchase all shares covered by options granted to them at one time and may exercise their option to purchase shares of Stock covered thereby from time to time without limitation during the period such option remains outstanding and exercisable by the recipient; provided, however, that all of the conditions to the exercise of the option must be satisfied at the time of the exercise of the option and each time such option is exercised if the recipient elects to exercise the option to purchase less than the total number of shares covered by the option on any particular occasion. The length of the option, being the period of time within which the option must be exercised to purchase all of the shares of stock covered by such option before it automatically expires and is of no further force or effect (the "Option Term") is five (5) years from the date of issuance for the Initial Grant (all options described herein as being part of the Initial Grant) and, for all other options granted in respect of the Remaining Shares, the Option Term shall, unless otherwise expressly provided by the Company's Board of Directors at the time of any such grant, be three (3) years from the date of issuance of any such option in respect of any of the Remaining Shares so that, in no event, will the Option Term of any option granted and issued under the Plan extend beyond December 31, 2005. Notwithstanding anything to the contrary contained herein, unless any option granted under this Plan is exercised for all of the shares of Stock covered thereby on or before the end of the Option Term of any such option, the option and the right to purchase Shares of the Company's Stock as provided or under the option and the Plan shall automatically expire and terminate at the end of such Option Term and any and all such expired options shall have no remaining right, entitlement and/or benefit to the recipient thereof or to any other person or entity and any and all expired options shall have no legal or other force or effect. The options granted under the Plan, including the right to exercise such options and purchase the Stock covered thereby, is personal to the recipient thereof; and shall not be sold, transferred or assigned by the recipient and is not otherwise transferable, assignable or alienable by operation of law or otherwise, except in the case of the death of the recipient as provided for in paragraph 8 of this Plan. Upon grant and issuance by the Company pursuant to and in accordance with the Plan, the option is personal property of the recipient; however, the right to exercise the option and purchase the Stock covered thereby is subject to and conditioned upon the requirements set forth in this Plan including without limitation satisfaction of the Service Term and the Market Price condition and, except as otherwise provided for under paragraph 9 (Change of Ownership or Control), unless and until the Service Term and Market Price conditions are satisfied (and are satisfied from time to time in the case of an option which is exercised for less than all of the shares of Stock covered thereby and then is the subject of a subsequent notice of exercise) the options granted and issued by the Company under the Plan have no economic value or benefit to the recipient in respect of the recipient's right to exercise the option and purchase shares of Stock thereunder. Subject to the satisfaction and completion of all requirements therefor as set froth in the Plan, at the date specified in the Company's Notice to the recipient the Company shall sell, issue and deliver to the recipient the shares of stock including a certificate registered in the name of the recipient covered by the option which are being purchase by the recipient as set forth in the Notice of Exercise, and the recipient shall purchase, acquire and accept delivery of such shares of and certificates of Stock and make payment in full therefore at the time of such sale/purchase transaction; and the recipient/purchaser shall execute and deliver to the Company such documentation including acknowledgements and agreements by the recipient/purchaser as the Company and its legal counsel shall reasonably request and require including without limitation in order to comply with all applicable securities laws requirements attending or otherwise in respect of the subject sale of Stock by the Company to the recipient in a private transaction without registration under applicable federal or state securities laws. 11. Protection Against Dilution. In the event that the Company issues any new shares of Common Stock in excess of ten percent (10%) of the total number of such shares actually issued and outstanding at the effective date of the plan (1,090,478 shares), or the Company issues any other class of voting stock or other securities convertible into voting stock of the Company in excess of 10% of the total number of such shares of voting Common Stock actually issued and outstanding at the effective date of the Plan, at any time during the Term of the Plan or thereafter when any option(s) issued pursuant to the Plan remain outstanding and exercisable by the recipient thereof), then, and all shares of the Company's Common Stock covered by options previously granted and issued by the Company to any recipient thereof, the total number of shares of the Company's Common Stock constituting and comprising the Plan shall automatically increase to that number of shares the Company's Common Stock which, following any such increase shall maintain the parity between the number of shares covered by the Plan, including the shares covered by options already granted and issued, and the total number of shares issued and outstanding at the effective date of the Plan or approximately ten percent (10%) so as to protect against dilution of the shares of Stock covered by the Plan and the shares of Stock covered by options already granted and issued by the Plan as a result of the issuance of any additional shares of voting stock by the Company during the Term of the Plan or otherwise while any options issued thereunder remain issued, outstanding and exercisable. For example, if the Company had one million shares of Common Stock issued and outstanding at the effective date of the Plan, and thereafter issued an aggregate of an additional 100,000 shares of its Common Stock during the Term of the Plan, there would be no change (no increase) in the number of shares of Stock covered by the Plan or in the number of shares underlying options granted and issued thereunder. If, however, the Company issued an aggregate of an additional 150,000 shares of its Common Stock during the Term of the Plan (in excess of 10% of the original one million shares), then the total number of shares of the Company's Common Stock covered by the Plan would automatically increase from 100,000 shares to 115,000 shares and each Unit of Stock would automatically increase from 1,000 shares to 1,115 shares, and each outstanding option and the underlying shares covered thereby would increase accordingly. Notwithstanding the foregoing provision, if the Company acts to reduce the total number of its shares issued and outstanding during the Term of the Plan or while any option(s) granted and issued thereunder remain exercisable, there shall be no reduction in the total number of shares of Stock covered by the Plan including the options previously granted and issued thereunder which remain outstanding and exercisable. Except as otherwise already expressly provided for above, if the number of outstanding shares of Common Stock of the Company are increased or decreased, or if such shares are exchanged for a different number or kind of shares or securities of the Company through reorganization, merger, reverse merger, recapitalization, reclassification, stock dividend, stock split, reverse split, combination of shares or other similar transaction, then the aggregate number of shares of Common Stock subject to the Plan as provided for in Section 1 hereof and the shares of Common Stock subject to issued and outstanding options under the Plan shall be appropriately and proportionately adjusted by the Company. Any such adjustment in the outstanding options shall be made without change in the aggregate purchase price applicable to the unexercised portion of any such option but with an appropriate adjustment in the price for each share or other unit of any security covered by the option. 12. Compliance With Securities and Other Laws. The effectiveness of the Plan, and the issuance of the options and shares of the Company's Stock pursuant to the options covered by the Plan, is subject to compliance with all applicable federal and state securities and other laws by the Company governing the matters which are the subject of the Plan. 13. Miscellaneous. (i). Complete Plan/Agreement/Amendment. The within Plan sets forth all of the terms and conditions of the Plan, which constitutes and comprises the agreements by, between and among the Company and the recipients of options under the Plan in accordance herewith. The Plan, and the agreements arising out of the grant of options under and in accordance with the Plan, may not be amended without a further written resolution adopted by the Company's Board of Directors; and, in any event, agreements between the Company and the recipients arising out of the granting of options under the Plan, may not be modified or otherwise amended without the prior written agreement of such parties consistent with the terms and conditions set forth under the Plan. If, for any reason, it is determined that any ambiguity exits in the language of the Plan and/or the agreements arising out of or resulting from the Plan, then such ambiguity shall be resolved by the Board of Directors of the Company acting in its sole discretion and judgment; and, in no event, shall the existence of any such ambiguity be determined against the Company for the reason that the Company and/or any representative thereof drafted or otherwise prepared the within Plan and/or any acknowledgment or agreement between the Company and any recipient(s) in respect of the Plan. (ii). Governing Law. The Plan, and the rights, duties and obligations represented thereby and thereunder, is intended to be made, governed and interpreted under the laws of the State of California. Any dispute and resulting claim arising out of or otherwise resulting from or under the Plan, and agreements thereunder, shall be resolved in any court of competent jurisdiction located in Los Angeles, California. (iii). Retention In Minute Book. The original copy of the Plan as amended from time to time, and a written record of all options granted thereunder and shares of Stock exercised and purchased under and in accordance with the Plan, is to be maintained in the Company's Minute Book. (iv). Separate Agreements Covering Grants Under The Plan. As indicated elsewhere herein, all grants of options to individual recipients under the Plan shall be memorialized in writing in an agreement by and between the Company and the recipient which agreement(s) shall incorporate by reference this Plan (as amended from time to time). The execution and delivery of such agreement, in form and content satisfactory to the Company and its counsel, shall be deemed to be a condition precedent to the effectiveness of any such grant, and the inception of the recipient's rights and benefits, under the Plan. EX-27 13 ART. 5 FINANCIAL DATA SCHEDULE FOR FYE 12/31/97
5 This schedule contains summary financial information extracted from the Balance Sheet and related Statement of Income of Auto-Graphics, Inc. as of December 31, 1997, and is qualified in its entirety by reference to such financial statements. YEAR DEC-31-1997 DEC-31-1997 244620 0 2403837 38000 83424 2816297 11771730 6195321 8851947 2476330 0 0 0 109048 2660496 8851947 10035824 10035824 6264141 3076078 0 0 290855 404750 193000 211750 0 0 0 211750 .19 .19 -----END PRIVACY-ENHANCED MESSAGE-----