-----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, LeR7U17d3Yxi3sWwbHy64F3+5x4BfCUWSpKifWvx/sWMa+o9yDJfJh2AeBN+kV4U cOn3XH+fpYw0JZP+q4/rgA== 0000008598-00-000005.txt : 20000425 0000008598-00-000005.hdr.sgml : 20000425 ACCESSION NUMBER: 0000008598-00-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000424 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: 607076 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 (Mark One) [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period from to For the Fiscal Year ended Commission File Number December 31, 1999 0-4431 AUTO-GRAPHICS, INC. (Exact name of registrant as specified in its charter) California 95-2105641 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification number) 3201 Temple Avenue Pomona, California 91768 (Address of principal (Zip Code) executive offices) Registrant's telephone number: (909) 595-7204 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No The aggregate market value of voting stock held by non-affiliates of the registrant at March 31, 2000 was $35,173,000. The number of shares of the registrant's Common Stock outstanding at March 31, 2000 was 4,822,734 following a 3-for-1 stock split on February 28, 2000. DOCUMENTS INCORPORATED BY REFERENCE The definitive Proxy Statement to be filed pursuant to Regulation 14A for the fiscal year ended December 31, 1999 is incorporated herein by reference in Part III, Items 11-13 of Form 10-K. The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the close of the registrant's most recent calendar year. PART I ITEM 1. BUSINESS Auto-Graphics, Inc., including Datacat, Inc. and A-G Canada, Ltd., its wholly-owned subsidiaries and Dataquad, Inc. and The LibraryCard, Inc., its majority owned subsidiaries (the "Company"), provides software products and services used to create, convert, organize, manage and deliver database information via the Internet/Web, CD-ROM and/or print media. LibraryCard( is an Internet/Web "portal" site (www.LibraryCard.com) offering a virtual library on the Web with access to bibliographic and related information and services for the consumer. Revenue is generated from direct sales, licensing and support of these software products and services including outsourcing contracts to provide hardware, software and other facilities to manage customer Web sites (outsourced Web "hosting"), and by using this technology to distribute "content" via the Company's own web sites. The Company's products and services are presently sold into the following general customer categories: 1) Libraries, especially library consortia requiring systems to create, convert, organize, manage, publish and access large bibliographic and holdings databases of multiple institutions used to implement resource sharing initiatives and services. 2) Consumers who want Internet/Web access to bibliographic and related information/services from such virtual library site and/or from their local library through such library information "portal" site (and sponsors, commercial vendors and advertisers who want to utilize such consumer site for delivery of communications and products to users of the site). 3) Business and government customers who want an XML/SGML based editorial software system and related services enabling such enterprises to create, convert, organize, manage, deliver and access databases and other information dynamically within and outside the enterprise including over the Internet/Web with e-commerce capability. 4) Corporate publishers, primarily manufacturers and distributors, who publish catalogs and promotional content used in their sales and marketing programs. The Company's capability, and customer's needs, now extends into e-commerce applications as a result of the Company's Internet/Web and database information expertise; and 5) Traditional database publishers (encyclopedias, dictionaries and bibles) who use the Company's typesetting products and services to manage the editorial process and to create and publish valuable content. Products/Services The products/services offered by the Company include the following: Impact/Online(tm) is the Internet/Web based online bibliographic database locator and interlibrary loan products/services system is marketed by the Library Services division. Dataquad(tm) Impact/CMS(tm) (Content Management System) is a modular and expandable editorial software system that allows users to create, convert, organize and manage information for multi-purpose publishing. HTML display is created "on the fly" allowing basic data structures to stay intact and providing greater page design flexibility. Customizing modules include e-commerce features providing ordering, credit card purchasing, multi-tier pricing and content scoping controls. These features provide users with capabilities to customize Web sites to individual requirements. Data structures are SGML/XML and are particularly suited to database applications. The system can be configured from a single user to enterprise systems. Editorial control, iteration management and SGML/XML DTD validation are important features of the Company's Dataquad product line. Impact/CMS/Frame(tm) incorporates a module including Adobe's Frame+SGML(tm) software to provide WYSIWYG graphics and interactive database composition. Dataquad(tm) owns and markets the software system to end users and Datacat uses the software to provide services to its customers. Impact/Web(tm) (search and retrieval software) provides custom indexing and retrieval of web content in business to business applications. Dataquad(tm) sells the software system to end users and Datacat uses the software to provide services to its customers. Applications The Company provides outsourcing including Web "hosting" services to various types of customers. The Company has a contract with the State of Texas (Texas Educational Agency or TEA) to develop and operate, on an outsourced "hosting" basis, an Internet/Web based online bibliographic database locator system and interlibrary loan system linking approximately 7,500 kindergarden through grade 12 public school libraries (when the system is fully developed and implemented). Approximately 4,100 school libraries are currently included in this Texas state-wide system. The Company has similar contracts with the States of Connecticut, Kansas, Oklahoma, Tennessee and the Canadian Provinces of British Columbia and Ontario. Customers also include regional library organizations in the States of Illinois, New Jersey, Michigan, Ohio, and New Hampshire. Outsourced Internet/Web database management services presently support approximately 8,000 distinct library sites, enabling library users to access these library services via the Internet/Web from their offices and homes as well as from within the library. This large number of customer/users demonstrates the Company's ability to handle large capacity Internet/Web communications assignments. The Company has developed a bibliographic database containing over 45 million unique records, together with the holdings of many U.S. and Canadian public and university libraries. Through the Company's Internet/Web software, the Company provides online bibliographic records for use by its U.S. and Canadian library customers. The Impact/CMS software system is owned and marketed by Dataquad, Inc. primarily to business customers. Boeing uses the CMS product for the development and maintenance of the database containing all maintenance and support documentation for the C-17 Air Transport project for the Air Force. Houghton-Mifflin uses the CMS product to develop and maintain their English language database for publication of the American Heritage Dictionary and its several spin-off dictionaries (College, High School, Paperback, etc.). Trailer Life uses CMS to develop and maintain its database of North American campgrounds and amenities published annually in the "Trailer Life Campground" directory. In support of a customer's migration to an XML/SGML tagged database, the Company provides conversion services. Services may include consulting on the design and development of the document type definition(DTD), which defines the tagging and structure of the proposed database. The customer provides manuscripts from which to key and/or legacy data in its native format, and Company staff use specialized software and utilities to re-tag the database with the new tags in accordance with the DTD. In 1999, the Company was awarded a major contract by Northrup-Grumman to convert thousands of pages to SGML format during 2000. LibraryCard(tm) is an effort by the Company to combine its extensive bibliographic database, Internet/Web and e-commerce capabilities into a public "portal" site offering a wide range of library and related services and products to consumers, library patrons and librarians, supported by sponsorships and commercial vendors and advertisers. The Company's plan is to develop a site that offers high quality information and research capabilities that will be attractive to consumers. The Company hopes to be able to obtain a "head start" in this particular Internet/Web "space" as a result of its relationship with the over 8,000 library customer sites which already offer library patrons the Company's Impact/Online(tm) library services on a daily basis. In the case of the Company's manufacturing and distribution catalog products, the Company provides services and Internet/Web software to create, maintain and provide access to product databases for these customers. One example is an HVACR-specific product database (heating, ventilation, air conditioning and refrigeration) which is available on an annual site license basis to wholesalers in the HVACR industry. This HVACR database, combined with the Company's Internet/Web software, provides HVACR wholesalers an ability to quickly and easily put their custom catalog on the Internet. The Company's software flexibility provides customers with the capability of individualizing their Internet catalogs to include features such as custom indexing, multi-tier pricing, customer specific pricing and order entry (e-commerce). From the database which is published on the Internet/Web, the Company's customer also has the ability to publish CD-ROM and print catalogs. The Company provides typesetting services to major publishers such as Houghton-Mifflin Co., The American Society of Hospital Pharmacists, Zondervan, TL Enterprises, Columbia University Press and Oxford University Press. Pages may be produced to the customer's specification for use by the customer's printer and output as film, camera ready copy or as postscript datafiles. The Company typeset the previous edition of the "American Heritage Dictionary", as well as the college, high school, and paperback editions of the book. The Company has typeset a number of annual editions of the "Columbia Book of Poetry" for Columbia University Press. The Company has typeset the 20 volume set of the "American National Biography" for Oxford University Press. The Company regularly typesets the annual "Trailer Life Campground" directory for TL Enterprises and the annual "Drug Information Formulary (DI) Book" for The American Society of Hospital Pharmacists. In addition to the Company's Internet/Web database information and knowledge management products and services, the Company will continue to provide ancillary services required by the customers/markets it currently serves. These ancillary services include database entry and database "clean-up", conversion and database loading services. These services enable customers to quickly and easily create an electronic database of information which may then be managed by the customer using the Company's suite of software and services. Product Development Core software embraces industry standard data structures, such as XML, SGML, and standards specific to the markets served, such as MARC and Z39.50 in the library industry. These standards afford customers the ability to create, convert, organize, manage and deliver (output) information/knowledge databases for the benefit of the enterprise and its customers, suppliers and other category of users independent of the media used to publish this data. Flexibility in the ability to distribute and use information/knowledge by an enterprise is increasingly a primary goal and provides the underlying premise of the Company's Internet/Web products and services. All new product development is being written in C++ and runs on Microsoft NT/Intel platforms. The Company is using N-tiered architecture to allow for customer implementation flexibility. Microsoft SQL server provides the database engine for the second generation of the Company's flagship Impact/Online(tm) library software product family. Development is based on an architecture that will work on multiple computers affording the system the ability to grow as the Company's needs increase. Marketing Products are distributed to specific markets discretely branded even though the technology may be similarly applied across all markets served. In addition to corporate marketing staff, the Company utilizes a small direct sales force for each of the individual markets: library, publishing, Datacat(tm) Internet solutions, Dataquad(tm) Impact/CMS(tm) and LibraryCard(tm) portal site. Marketing activities include public relations, advertising, attendance at industry trade shows, and targeted mailings, telemarketing and e-messaging campaigns. LibraryCard is a new service/product category for the Company, which is not yet fully developed/implemented; and marketing activities for LibraryCard, directed at the consumer market, are still under consideration. Products sold to the library market are generally sold by response to RFP's (requests for proposals) and, more frequently than not, competitive bidding managed by governmental purchasing departments. The Company maintains a proposal writing department. Price points for the Company's various products/services are instrumental in determining the type of sales effort deployed by the Company, except that Internet advertising is used in all markets for the Company's products regardless of the price point of the various products/services. With the introduction by the Company of its Internet-centric line of products, branded advertising is undergoing a transition process. As indicated above, these Internet/Web products are now branded for a specific market. However, as to the library market the Company continues to market its products and services under the Company name (not by the name of the specific suite of software products and services used by these library customers). The Company's strategy for its Internet-centric products and services includes the continued introduction of new products/services to the customers and markets the Company currently serves, and to further expand, develop and refine these products for introduction and marketing to customers and markets not currently served by the Company. The Company's strategy for entering new markets in the future will include efforts to utilize strategic relationships with other companies who are already present or are otherwise knowledgeable about these prospective customers/markets. To be successful in these new products/services, customers and markets, the Company will need to be able to create, finance, develop and implement new marketing initiatives and capabilities designed to introduce and market its Internet/Web line of products and services to prospective users who are not already familiar with the Company, its products/services and/or their capabilities. The Company must compete successfully with other companies, many of whom will be larger, more established, better financed, more recognized and more experienced in the development, introduction, marketing, sales and service of the same or similar products and services to these targeted new customers/markets in a rapidly changing technological and distribution environment. Moreover, in respect of the Company's new LibraryCard(tm) public portal site, the Company has no prior experience in such market "space". Accordingly, there can be no assurances that the Company will be able to launch, sustain and profit in the near or long term from these new products /services, customers and markets initiatives. Likewise, no assurances can be given that the Company will be successful in efforts to develop and utilize a strategic alliances strategy to assist in efforts to introduce and market its Internet/Web products and services to a broader range of customers/markets. However, as the market for managing and distributing information and knowledge continues to change, the Company intends, as it has in the past, to be responsive to the changing needs and requirements of customers by offering new products and services representing advances in the information/knowledge. Competition The Company was an early entrant into the computerized database composition business and industry, and believes it may have been offering these products and services longer than any of the other companies in competition with the Company today in respect of these products/services to the library and publishing markets. In the library market, the Company competes with numerous companies, such as OCLC Online Computer Library Center, Inc., which are larger with substantially greater resources than are available to the Company and offer a wider variety of products and services for the library industry. Although the Company has been successful to date in securing many of the awarded contracts involving the development and implementation of Internet/Web based "online" bibliographic catalog and interlibrary loan services systems for state-wide, regional or other consortia of libraries, the Company has not been selected in competitive bidding for all of such contracts including several recent contracts which it was hoping to be awarded and, if this category of library products/services business continues to grow as the Company believes to be the case, increased emphasis on this products/services niche of the library market can be expected to generate increased attention, capability and effort by one or more of the Company's competitors in this now relatively small niche of the library market. The software and computerized database processing services business for corporate and traditional publishing is highly competitive. There are no definitive market share statistics available. Many competitors are smaller and local in character, but some are larger and national with greater financial resources than the Company. Contracts for computerized database publishing services are awarded according to the results of market pricing, competitive bidding, technical capability, and customer relationship and/or past performance. In seeking to expand its customers/markets in the Internet/Web publishing market, the Company can be expected to face intense competition from existing and future competitors with substantially greater financial, technical, marketing, distribution and other resources than the Company and, therefore, may be able to respond more quickly than the Company can to new challenging opportunities, technologies, standards or customer requirements. The Company will compete with other large, well-known software development and Internet/Web database platform companies that offer a variety of software products. In addition to competitors already present in the market, recently several additional large, well-known computer hardware manufactures have announced plans to enter the Internet/Web solutions and outsourced "hosting" business. The Company will also compete with a number of medium-sized, small and start-up companies that have introduced or are developing Internet/Web development, management, publishing and e-commerce products. Increasing competition could result in pricing pressures negatively impacting margins available to companies competing in this market and could make it difficult or even impossible for the Company to gain recognition and acceptance of its particular line of these products and services. Of course, it is also possible that companies that are now or in the future may be competing in the broader market where the Company is seeking to compete may determine to enter the Company's traditional markets with adverse impact on the Company as a result of this new competition. In the case of the Company's LibraryCard(tm) "portal" business, the Company faces substantial, and possibly even insurmountable, obstacles in establishing such site's ability to attract and retain sufficient use to qualify such site as a viable alternative for commercial vendors and advertisers who have the opportunity to do business with established, well- known and proven "portal" sites such as Yahoo, AOL and others. Company Background The Company was founded in 1950 and incorporated in 1960 in the State of California. Beginning in 1964, the Company was one of the pioneers in computerized typesetting and database composition services for the library and publishing industries. Over the years, the Company has migrated its products and services to the most current technology required to address changing customer needs and requirements. The Company started in print, moved to microfilm/fiche and then to CD-ROM as the media of choice for its products/services, and is now completing the process of adapting its products and services to the prevailing Internet/Web environment. Offices/Employees The Company's main office is in Pomona, California, in the greater Los Angeles area. The Company's wholly-owned Canadian subsidiary, A-G Canada, Ltd., is located in Toronto, Canada. Marketing representatives are located in California, Missouri, New York, Washington, and Toronto, Canada. The Company including its subsidiaries employs approximately 90 persons in all locations. Financial Information About Geographic Areas See Note 1, "Segment Reporting" of Notes to the Consolidated Financial Statements. ITEM 2. PROPERTIES The Company leases its corporate office and production facility in Pomona, California from a limited partnership owned by a current and former director/stockholder of the Company. The Company has an option to purchase a one-third interest in the partnership from the former director/stockholder for an amount not to exceed $150,000. During 1999, the Company leased 29,260 square feet having an annual base rent of $351,000 (plus expenses). The lease term expires in June 2001. In April 2000, the Company will complete a planned consolidation, which reduced the square footage occupied by the Company from 29,260 to 19,460 for a reduction in the Company's annualized rent expense of $118,000 (plus expenses). (See Note 6 of Notes to Consolidated Financial Statements, and Item 13. "Certain Relationships and Related Transactions"). Management believes that the reconfigured space will be sufficient for the Company's needs for the foreseeable future, however, should the Company experience substantial growth necessitating increases in staffing, the Company may require additional space. The Company leases a small sales and support office for A-G Canada, Ltd. in Etobicoke, near Toronto, Ontario, Canada. The Company also plans to reduce the space occupied in this facility from 3700 to1750 square feet consistent with its expected future needs. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Stock quotations. 1999 Bid Ask Price Range High Low High Low First Quarter $ 1.042 $ .792 $ 1.417 $ 1.000 Second Quarter 2.083 .792 2.250 1.333 Third Quarter 2.250 1.792 2.375 2.000 Fourth Quarter 5.333 2.125 5.667 2.333 1998 Bid Ask High Low High Low First Quarter $ .875 $ .875 $ 1.333 $ 1.167 Second Quarter 1.167 .875 1.875 1.167 Third Quarter 1.833 1.208 2.500 1.333 Fourth Quarter .917 .833 1.333 1.000 Share prices above have been retroactively adjusted to reflect a 3-for-1 stock split which occurred on February 28, 2000. Trading in the Company's Common Stock is reported on the electronic OTC Bulletin Board under the symbol "AUGR" (Cusip Number 052725 10 8). The stock quotations set forth above have been provided by the National Quotation Bureau, Inc., and represent the highest and lowest closing bid and asked prices quoted by broker/dealers making a market in the Company's Common Stock in the OTC market for the periods presented. Prices quoted do not include retail markup, markdown or commissions and may not reflect actual transactions in shares of the Company's stock. The Company plans to apply for listing of its Common Stock on the National Association of Securities Dealers Automated Quotation (NASDAQ) system for "Small Cap" stocks. The Company believes that it meets or will then meet all of the NASDAQ Small Cap listing requirements (or that the application will be approved conditionally upon the Company satisfying all applicable requirements). As of March 31, 2000, the number of holder accounts of record (including depository and nominee or "street name") of the Company's Common Stock was approximately 230. The Company believes that the number of record and beneficial owners of the Company's Common Stock is in excess of 500 stockholders. The Company has never paid a cash dividend and there are no plans to do so in the near future. (See Note 3 of Notes to Consolidated Financial Statements for information as to the bank loan restriction on the payment of dividends). ITEM 6. SELECTED FINANCIAL DATA Dollar amounts in thousands except per share data. (See Note 1 of Notes to Consolidated Financial Statements under "Other Assets") Years Ended December 31, 1999 1998 1997 1996 1995 Operating results: Net sales $ 8,391 $ 9,099 $ 10,036 $ 9,218 $ 9,559 Net income/(loss) 105 ( 1,065) 212 236 194 Basic Earnings/ (loss)per share .03 ( .33) .06 .07 .05 Diluted Earnings/ (loss)per share .03 ( .33) .06 .07 .05 At year-end: Total assets 10,647 7,573 8,852 7,132 6,688 Long-term debt 3,153 2,588 2,911 2,101 1,906 No cash dividends have been declared. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General and Future Business Trends Liquidity and Capital Resources Management believes that liquidity and capital resources will be adequate to fund operations including development of the business of the Company's two new majority owned subsidiaries, Dataquad(tm) and LibraryCard(tm), during 2000 and into 2001. In order to accelerate development and expand the scope of the Company's Internet/Web initiatives and business, the Company will continue to explore opportunities to raise additional equity. In 1999, the Company raised approximately $3.1 million through the sale of stock in the Company and in the Dataquad(tm) and LibraryCard(tm) subsidiaries. At December 31, 1999, the Company's cash position was approximately $3.8 million; and the balance in the Company's revolving working capital line of credit was zero. In December of 1999, the Company accelerated the retirement and paid off the $295,000 balance of the $750,000 term credit facility, which the Company used to partially fund the 1997 acquisition of the Company's Canadian subsidiary. In February 2000, the Company raised an additional $930,000 in equity through the sale of stock, and used $600,000 of such proceeds to pay down the Company's $3.0 million capital line of credit to $2.4 million. The average price per share of the 1,726,200 shares of stock (post 3-for-1 stock split) sold by the Company in 1999 and in February 2000 was $1.26 for total gross and net proceeds from the sale of such stock, respectively, of $2,181,000 and $1,936,000. Cash flow from operations increased by $740,000, from $1,310,000 in 1998 to $2,050,000 in 1999, primarily as a result of a return to profitability in 1999. Cash flow attributable to (non-cash) depreciation and amortization was $1,381,000, net collection of accounts receivable was $276,000 and additional customer advances (deferred income) was $452,000 in 1999. Accounts receivable collection improved in 1999 from the prior year due in part to lower sales and improved cash collections. The average collection days for accounts receivable declined from 66 days in 1998 to 55 days in 1999. Liquidity has improved significantly primarily as a result of the cash raised through the sale of stock as indicated above. Cash at December 31, 1999 was $3.8 million up $3.5 million over the end of the year in 1998. Working capital at December 31, 1999 was $3.1 million (compared to a negative $459,000 at the end of 1998). At December 31, 1999, the Company's principal financial commitments involved the lease of computer equipment and the lease of corporate facilities in Pomona, California and in Toronto, Canada. (See Note 5 of Notes to Consolidated Financial Statements). As a result of a program to consolidate the Company's office and production leased space in 2000, the Company reduced the space leased at its Pomona facility by approximately 36% with a corresponding reduction in rent and expenses. A 53% reduction in leased space is also planned in Toronto in June 2000. See Item 2. "Properties" herein. The Company's principal use of cash for investing activities, $1,417,000 in 1999, $968,000 in 1998 and $2,141,000 in 1997, were for the continuing system development of the Company's Impact/ONLINE(tm) software (bibliographic finding and interlibrary loan service using the Internet), Impact/Web(tm) search and retrieval engine and Dataquad(tm) Impact/CMS(tm) (Content Management System) for the management and maintenance of XML/SGML databases, for the 1997 purchase of a Canadian bibliographic database containing the holdings of most public and university libraries in Canada and for upgrades to the Company's computer (Internet servers) equipment used to expand and enhance online services to the Company's current (and prospective) Internet/Web customers. The Company's capital resources are available for use as working capital, for capital investments, and possible future acquisitions of businesses, products and/or technologies complementary to the Company's existing and anticipated future information technology business. Management believes that it is imperative for the Company to continue to invest in Internet/Web capability for the foreseeable future. Accordingly, it is likely that the Company will need to raise additional capital in the future to continue to develop and refine its Internet/Web line of products and services and to seek to expand the market for such products/services. In 2000, the Company will look for attractive opportunities to raise additional equity and debt financing - - although there can be no assurances that any such additional financing will be available on terms and conditions favorable to the Company or at all. In 1999, the Company renewed its commercial bank lines of credit through May 2000. (See Notes 2 and 3 of Notes to the Consolidated Financial Statements). The Company has reached an agreement in principle with its bank (Wells Fargo Bank, N.A.) to restructure and extend the term of its bank loan through May 2002. The plan is to consolidate the Company's two existing lines of credit into a single revolving line of credit. In light of the Company's present and anticipated cash resources, and resulting need for bank credit, the newly implemented line of credit will start at $3.0 million and decrease over the term of the loan to $2.0 million, with a somewhat lower rate of interest than presently applies. The proposed new loan covenants will provide the Company with greater flexibility to commit its cash resources to new initiatives consistent with such revised financial ratio covenants; and the Company will agree to maintain conservative liquidity ratios which are designed to encourage the Company to finance future growth with investment (as opposed to bank) capital. (In this regard, the bank has indicated an interest in assisting the Company to raise additional equity to be used to finance future growth plans). Such new bank loan should be finalized in the next 45 days. Results of Operations Overall, 1999 consolidated sales were down approximately $708,000 or 8% from 1998 ($9.10 million in 1998 versus $8.39 million in 1999). Revenues from Internet/Web products and services, however, were up 37% in 1999, and now account for over 58% of the Company's total sales. The transition from the Company's CD-ROM products and services to Internet/Web continued in 1999, and is now largely complete. The Company also completed its plan to discontinue offering and supporting PC computer sales and service to its library customers (who now buy such computers/services directly from the manufacturers or other sources) for use with the Company's software, online products and services. The decline in 1999 sales was almost entirely attributable to the Company's traditional publishing business which has been declining for several years (and is expected to decline further in 2000). Sales from such traditional publishing business (sophisticated typesetting services for catalogs, Bibles and reference works) declined over 50% in 1999 (from $2.1 million in 1998 to $1.0 million in 1999). As desktop publishing software capabilities have improved, and computer hardware has become more powerful and less expensive, the market for such "outside" typesetting services has become increasingly competitive especially as it impacts the Company's relatively "high end" segment of such typesetting services market. Due to the highly skilled and labor intensive nature of the typesetting business, profit margins on such business are relatively low. Consequently, the Company has focused on developing and marketing of its electronic publishing software and services and e-commerce business via the Internet/Web and the Company's XML and SGML expertise. Sales attributable to the Company's electronic publishing business were up 43% in 1999 over 1998. Overall, sales in Canada were down 15% in 1999 (from $2.0 million in 1998 to $1.7 million in 1999), primarily as a result of several large information processing contracts which were completed in 1998. The Company's bibliographic cataloging business continued to decline in 1999 and was down 11% from 1998 levels. Libraries in both the United States and Canada appear to be seeking reduced costs (or free) sources for such cataloging services; and appear to be willing to accept lesser quality records than the Company offers and such libraries historically preferred, in order to achieve such cost reduction objective. In response to this trend, the Company has implemented a revised selling model shifting from a fee per record based service to a subscription based service offering library customers quality bibliographic cataloging record information for a flat fee per year. Overall gross margins increased significantly in 1999 to 41% of sales up from 31% in 1998 (however 1998 results included additional depreciation and amortization expense of $383,000 associated with adjustments in the useful life of certain computer hardware and software assets). The Company is continuing to emphasize its Internet/Web hosting library services, which are less labor intensive and, therefore, generally have higher profit margins. As the mix of products and services offered by the Company continues to move toward such higher margin business, gross margins should continue to improve in the near future. As a result of the substantial loss suffered by the Company in 1998, and the decline in sales in recent years, the Company is implementing a cost reduction program. Staff levels, particularly in the Company's traditional typesetting business, have been reduced by 50% as a result of the lower volume of such work. Likewise, selling, general and administrative expenses in 1999 declined $793,000 in 1999 from 1998 as staffing was reduced and other related expenses were curtailed. SG&A expense in 1998 was abnormally high as a result of certain non-recurring payroll and severance expense and accruals associated with a reduction in staff, primarily in the Company's Canadian operation. Further expense reductions in variable product costs, and related fixed costs, will become increasingly difficult to achieve given the Company's current largely fixed cost structure. Notwithstanding lower than average borrowings, interest expense was up $29,000 in 1999 over 1998 as a result of higher interest rate charges (up 100 basis points) and loan fees paid in 1999 attributable to renewal of the Company's bank loan in such year (following the substantial loss incurred by the Company in 1998). As a result of the pre-tax loss in 1998 in the amount of $1,462,000, the Company filed amended tax returns for prior years where applicable, and obtained refunds of income taxes (primarily Federal and California) previously paid. At December 31, 1999, the Company had available Federal, state and Canadian net operating loss carryforwards of approximately $385,000, $498,000 and $337,000, respectively (expiring in 2018 for Federal taxes and in 2005 for state and Canadian taxes). A valuation allowance in the amount of $231,000 for unrecognized U.S. and foreign tax loss carryforwards. Results of Operations in 2000 Management believes that sales will rebound in 2000. The additional equity raised by the Company in 1999 and in 2000 will be used to fund the Company's Internet/Web initiatives in 2000 (and 2001). Under AICPA Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities", all costs incurred by the Company of a "start-up" nature will necessarily need to be expensed as incurred. Such "start-up" expenses, and other non-capitalized costs/expenses associated with the Company's new Internet/Web initiatives, primarily in the Company's Dataquad(tm) and LibraryCard(tm) subsidiaries, are anticipated to result in the Company reporting a consolidated loss for the year ended December 31, 2000 in the $750,000-$1 million range (although the Company's on-going business is expected to be profitable again in 2000). Information Relating To Forward-Looking Statements This Report includes forward-looking statements which reflect the Company's current views with respect to future events and financial performance. The Company undertakes no obligation to publicly update or revise any forward- looking statements, whether as a result of new information, future events or otherwise. Impact of Inflation General price inflation is not anticipated to have a material effect on the Company's business in the near future. Historical dollar accounting does not reflect changing costs of operations, the future cost of expansion and the changing purchasing power of the dollar. Should more than moderate inflation occur in the future, it can be expected to impact the Company in an adverse manner, as prices cannot be adjusted quickly due to the contract nature of a substantial amount of the Company's business, while costs of personnel, materials and other purchases tend to escalate more rapidly. Foreign Exchange The functional and reporting currency of the Company is the U.S. dollar, while the functional and reporting currency for A-G Canada Ltd., the Company's wholly-owned Canadian subsidiary, is the Canadian dollar. Accordingly, the Company is exposed to foreign currency translation gains or losses as the relationship between the Canadian dollar and U.S. dollar fluctuates. Foreign currency gains, expressed in terms of U.S. dollars, were approximately $53,000 in 1999 as compared to losses of $47,000 in 1998. Further increases in the value of the Canadian dollar will result in additional foreign currency translation gains, and declines in the value of the Canadian dollar against the U.S. dollar will result in additional foreign exchange losses. Other than for sales by A-G Canada in Canada, all other transactions involving the Company are denominated in U.S. dollars. (See Note 1 of Notes to Consolidated Financial Statements). Pending Pronouncements See "Pending Pronouncements" in Note 1 of Notes to Consolidated Financial Statements. Year 2000 The Company is continuing to monitor its mission critical systems for potential Year 2000 related software problems, and has experienced only minor, readily correctable problems. Should the Company experience an unforeseen Year 2000 problem with its products/services, it is believed that the Company has sufficient technical personnel and resources to address and resolve any such problems. ITEM 7a. MARKET RISK See Note 1 "Foreign Currency Translation," "Credit Risk," and "Fair Value of Financial Instruments" of Notes to the Consolidated Financial Statements. ITEM 8. FINANCIAL STATEMENTS Index to Financial Statements covered by Reports of Independent Certified Public Accountants. Page Reference Report of Independent Certified Public Accountants 15 Report of Independent Auditors 16 Consolidated Balance Sheets at December 31, 1999 and 1998 17 Consolidated Statements of Operations for the years ended 18 December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows for the years 19 ended December 31, 1999, 1998 and 1997 Consolidated Statements of Stockholders' Equity for the 20 years ended December 31, 1999, 1998 and 1997 Notes to Consolidated Financial Statements 21 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors and Stockholders Auto-Graphics, Inc. Pomona, California We have audited the accompanying consolidated balance sheet of Auto-Graphics, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Auto- Graphics, Inc. and its subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. BDO SEIDMAN, LLP Los Angeles, California February 29, 2000 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Auto-Graphics, Inc. We have audited the accompanying consolidated statements of operations, stockholders' equity, and cash flows of Auto-Graphics, Inc. for the year ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements of Auto-Graphics, Inc. referred to above present fairly, in all material respects, the consolidated results of its operations and its cash flows for the year ended December 31, 1997, in conformity with accounting principles generally accepted in the United States. ERNST & YOUNG LLP Riverside, California April 8, 1998 AUTO-GRAPHICS, INC. ____________ CONSOLIDATED BALANCE SHEETS December 31, 1999 and 1998 ASSETS 1999 1998 Current assets: Cash $ 3,816,286 $ 292,744 Accounts receivable, less allowance for doubtful accounts ($38,000 in 1999 and 1998) 1,401,325 1,697,826 Unbilled production costs 27,891 86,573 Other current assets 109,987 360,170 Total current assets 5,355,489 2,437,313 Software, equipment and leasehold improvements, net (See Note 1) 5,110,231 5,016,627 Other assets 181,595 119,162 $ 10,647,315 $ 7,573,102 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 293,798 $ 632,809 Deferred income 1,273,873 813,113 Accrued payroll and related liabilities 497,076 578,569 Other accrued liabilities 124,601 84,282 Current portion of long-term debt 70,000 787,500 Total current liabilities 2,259,348 2,896,273 Long-term debt, less current portion (See Note 3) 3,153,249 2,587,500 Deferred taxes based on income (See Note 4) 475,236 486,000 Total liabilities 5,887,833 5,969,773 Commitments and contingencies (see Note 5) Minority Interests 676,850 - Stockholders' equity: Notes Receivable - Stock (Note 7) (127,500) - Common Stock, 12,000,000 shares authorized, 4,784,934 shares issued and outstanding in 1999 and 3,193,434 shares issued and outstanding in 1998 (See Note 7) 3,793,332 1,230,347 Retained earnings 438,977 375,389 Accumulated other comprehensive income ( 22,177) (2,407) Total stockholders' equity 4,082,632 1,603,329 $ 10,647,315 $ 7,573,102 See Notes to Consolidated Financial Statements. AUTO-GRAPHICS, INC. ____________ CONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 31, 1999, 1998, 1997 1999 1998 1997 Net sales $ 8,391,323 $ 9,099,198 $ 10,035,824 Costs and expenses Cost of sales 4,872,445 6,258,523 6,264,141 Selling, general and administrative 3,149,754 3,943,143 3,076,078 8,022,199 10,201,666 9,340,219 Income/(loss) from operations 369,124 ( 1,102,468) 695,605 Interest expense, net ( 347,957) ( 311,797) ( 278,591) Other income/(expense) 52,591 ( 47,357) ( 12,264) Income/(loss) before taxes 73,758 ( 1,461,622) 404,750 Provision/(benefit) for taxes ( 46,630) ( 397,000) 193,000 Minority Interests 15,200 - - Net income/(loss) 105,188 ( 1,064,622) 211,750 Foreign currency translation adjustments ( 19,770) 157 (2,564) Total comprehensive income/(loss) $ 85,418 $( 1,064,465) $ 209,186 Basic earnings per share $ .03 $ ( .33) $ .06 Weighted average shares outstanding (See Note 7) 3,684,009 3,199,935 3,271,833 Diluted earnings per share $ .03 $ ( .33) $ .06 Weighted average shares outstanding (See Note 7) 3,776,004 3,199,935 3,271,833 Note: Shares outstanding have been retroactively adjusted to reflect a 3-for- 1 stock split which occurred on February 28, 2000. (See Notes 1 "Earnings per Share" and 7 "2000 Stock Split" in Notes to the Consolidated Financial Statements). See Notes to Consolidated Financial Statements. AUTO-GRAPHICS, INC. ____________ CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1999, 1998, 1997 1999 1998 1997 Cash flows from operating activities: Net income/(loss) $ 105,188 ($ 1,064,622) $ 211,750 Adjustments to reconcile net Income/(loss) to net cash provided by operating activities: Depreciation and amortization 1,381,053 1,676,056 1,134,348 Deferred taxes ( 10,764) ( 209,000) 30,061 Minority Interest 15,200 - - Changes in operating assets and liabilities, net of the effect of acquisitions Accounts receivable 276,121 637,971 ( 405,058) Unbilled production costs 58,682 ( 3,149) 166,380 Other current assets 204,933 ( 241,303) ( 39,908) Other assets ( 35,362) 22,245 ( 284,166) Accounts payable ( 341,215) ( 32,062) 338,977 Deferred income 452,067 277,642 ( 99,306) Accrued payroll and related liabilities ( 93,925) 313,030 2,275 Other accrued liabilities 37,876 ( 66,698) 28,343 Net cash provided by operating activities 2,049,854 1,310,110 1,083,696 Cash flows from investing activities: Capital expenditures ( 664,335) ( 173,233) ( 420,676) Capitalized software development ( 750,000) ( 795,000) ( 750,676) Investment in Dataquad, Inc. ( 1,500) - - Investment in The LibraryCard, Inc.( 1,500) - - Investment in Datacat, Inc., net of cash acquired - - ( 182,175) Investment in A-G Canada, Ltd. - - ( 787,095) Net cash used in investing ( 1,417,335) ( 968,233) (2,140,622) Cash flows from financing activities: Borrowings under long-term debt - 650,927 1,603,016 Payments under long-term debt ( 375,000) ( 1,030,000) ( 605,000) Borrowings under life insurance 7,064 150,278 - Borrowings under capital lease, net 223,250 - - Proceeds from stock sales 3,106,000 - - Repurchase of capital stock ( 47,466) ( 101,750) ( 58,000) Net cash provided by (used in) financing activities 2,913,848 ( 330,545) 940,016 Net increase(decrease)in cash 3,546,367 11,332 ( 116,910) Foreign currency effect on cash (22,825) 36,792 ( 2,564) Cash at beginning of year 292,744 244,620 364,094 Cash at end of year $ 3,816,286 $ 292,744 $ 244,620 See Notes to Consolidated Financial Statements. AUTO-GRAPHICS, INC. ____________ CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years ended December 31, 1999, 1998, 1997 Other Compre- Total Common Stock Retained hensive Stockholders' Shares Amount Earnings Income Equity Balances at January 1, 1996 3,327,834 $1,249,579 $ 1,368,780 $ - $ 2,618,359 Net income - - 211,750 - 211,750 Common Stock Retired ( 56,400) ( 12,212) ( 45,789) - ( 58,001) Foreign Currency Translation Adjustments - - - ( 2,564) ( 2,564) Balances at December 31, 1997 3,271,434 $1,237,367 $ 1,534,741 ($ 2,564) $ 2,769,544 Net loss - - ( 1,064,622) - ( 1,064,622) Common Stock Retired ( 78,000) ( 7,020) ( 94,730) - ( 101,750) Foreign Currency Translation Adjustments - - - 157 157 Balances at December 31, 1998 3,193,434 1,230,347 375,389 ( 2,407) 1,603,329 Net income - - 105,188 - 105,188 Notes Receivable - ( 127,500) - - ( 127,500) Common Stock Issued in: Parent 1,654,200 1,225,501 - - 1,225,501 Subsidiaries Net of Minority Interests 1,343,350 1,343,350 Common Stock Retired ( 62,700)( 5,866) ( 41,600) - ( 47,466) Foreign Currency Translation Adjustments - - - ( 19,770) ( 19,770) Balances at December 31, 1999 4,784,934 $3,665,832 $ 438,977 $( 22,177) $ 4,082,632 Note: Shares outstanding have been retroactively adjusted to reflect a 3-for- 1 stock split which occurred on February 28, 2000. (See Notes 1 "Earnings per Share" and 7 "2000 Stock Split" in Notes to the Consolidated Financial Statements). See Notes to Consolidated Financial Statements. AUTO-GRAPHICS, INC. ____________ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 1. Summary of significant accounting policies. Description of Business Auto-Graphics, Inc., including Datacat, Inc. and A-G Canada, Ltd., its wholly-owned subsidiaries and Dataquad, Inc. and The LibraryCard, Inc., its majority owned subsidiaries (the "Company"), provides software products and services used to create, convert, organize, manage and deliver database information via the Internet/Web, CD-ROM and/or print media. LibraryCard( is an Internet/Web "portal" site (www.LibraryCard.com) offering a virtual library on the Web with access to bibliographic and related information and services for the consumer. Basis of Presentation The consolidated financial statements include the accounts of Auto- Graphics, Inc. and its wholly and majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated. Revenue Recognition Sales are recognized as services are rendered monthly or when finished goods are shipped to customers. Certain future software support costs are accrued in accordance with American Institute of Certified Public Accountant's Statement of Position ("SOP") 97-2, "Software Revenue Recognition", as amended by SOP 98-4 and SOP 98-9. Use of Estimates The preparation of the financial statements of the Company in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and sales and expenses during the reporting period. These estimates are based on information available as of the date of the financial statements. Actual results may differ from those estimated. Foreign Currency Translation The functional and reporting currency for operations located in Canada is the Canadian dollar. Consequently, assets and liabilities must be translated into U.S. dollars using current exchange rates and the effects of the foreign currency translation adjustments are accumulated as other comprehensive income and included as a component of stockholders' equity. The net foreign exchange transaction gains for 1999 were $52,591 compared to transaction losses of $47,357 in 1998. All other Company transactions are currently denominated in U.S. dollars. Credit Risk The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains reserves for potential losses from uncollectible accounts, and actual losses have been within management's expectations. Nevertheless, the Company may be exposed to credit risk for trade receivables beyond the reserves established by the Company for such purposes. Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practical to estimate that value: Cash and Receivables. The carrying amounts approximates fair value because of the short-term maturity of these instruments. Long-term Debt. The carrying amounts approximates fair value, since the interest rate on the debt is at least equal to the bank's prime rate. Unbilled Production Costs Costs associated with work in process inventory including labor, materials, supplies, and overhead (excluding selling, general and administrative expenses) are stated at the lower of cost or net realizable value, and are removed from inventory on an average unit cost basis. Software, Equipment and Leasehold Improvements Software, equipment and leasehold improvements are recorded at historical cost. Software, equipment, furniture, fixtures and leasehold improvements at December 31, 1999 and 1998, consist of the following: 1999 1998 Computer software and database $8,317,115 $7,575,129 Equipment 2,925,612 3,015,946 Furniture and fixtures 563,361 534,134 Leasehold improvements 275,675 273,973 12,081,763 11,399,182 Less accumulated depreciation and amortization 6,971,532 6,382,555 $5,110,231 $5,016,627 Capitalized Acquisition Costs Certain legal and accounting costs associated with several asset acquisitions in 1997 have been capitalized as asset acquisition costs and are being amortized over a five-year period. Depreciation and Amortization Depreciation: Depreciation is based on the straight-line method over the estimated useful life of the asset and commences in the year the asset is placed in and/or is available for service or sale using the half-year convention method. Amortization: Certain costs incurred related to the development and purchase of computer software are capitalized and amortized in accordance with Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed". Amortization is based on the straight-line method and commences in the first year of product availability. Unamortized computer software was approximately $3,909,000 in 1999, $3,695,000 in 1998, and $3,734,000 in 1997. Amortization of computer software was approximately $838,000 in 1999, $798,000 in 1998, and $579,000 in 1997. The following estimated useful lives are generally observed for the respective asset categories: Equipment - 5 years Computer software and databases - 7 years Furniture and fixtures - 5 to 10 years Leasehold improvements - the lesser of 5 to 15 years, or the lease term Depreciation and amortization was $1,381,000 in 1999, $1,676,000 in 1998 and $1,134,000 in 1997. Other Assets Investment in Dataquad, Inc. In December 1999, the Company and an associate formed a new subsidiary called Dataquad, Inc. with nominal cash investments, and the Company contributed certain software having a net book value of approximately $800,000 and a backlog of contracts totaling approximately $900,000 to the new subsidiary. A third party investor (who also invested in the Company's 1999 private placement offering) invested an additional $1.0 million in cash in return for a 27% interest in Dataquad(tm), and the Company and the associate hold a 67% and 6% interest, respectively. Dataquad is completing development and is beginning to market XML/SGML based editorial software products and services, which enable enterprises to create, convert, organize, manage and deliver database and other information dynamically within and outside the enterprise including over the Internet/Web. The financial statements of Dataquad have been consolidated with the Company's financial statements for the year ended December 31, 1999. Investment in The LibraryCard, Inc. In December 1999, the Company and an associate formed a new subsidiary called The LibraryCard, Inc. for the purpose of developing and marketing a new Internet/Web "portal" site ("www.LibraryCard.com") which offers a virtual library on the Web with access to bibliographic and related information/services for the consumer. The Company and the associate made nominal cash investments, and a third party investor (who also invested in the Company's 1999 private placement offering) invested an additional $1.0 million in cash in return for a 27% interest in LibraryCard(tm), and the Company and the associate hold a 67% and 6% interest, respectively. The Company retained the exclusive right to market products and services to the library market (as opposed to the consumer market). The financial statements of The LibraryCard have been consolidated with the Company's financial statements for the year ended December 31, 1999. Investment in A-G Canada, Ltd. In July 1997, the Company acquired the assets of the Library Information Systems ("LIS") division of ISM Information Systems Management Manitoba Corporation, a subsidiary of IBM Canada, Ltd. The LIS business includes bibliographic cataloging and interlibrary loan resource sharing software and related services. The Company formed a wholly-owned Canadian subsidiary, A-G Canada Ltd., for purposes of acquiring and operating the LIS business located in Etobicoke, Ontario near Toronto. The financial statements of A-G Canada have been consolidated with the Company's financial statements for the six-month period ended December 31, 1997, and the years ended December 31, 1998 and 1999. Investment in Datacat, Inc. Datacat(tm) owns a proprietary database of heating, ventilation, air conditioning and refrigeration (HVACR) parts, and provides publishing and related services to the wholesale HVACR industry including Internet/Web products and services, CD-ROM and printed parts catalogs. Datacat also provides Internet/Web solutions including outsourced "hosting" services to the Company's non-library customers. The investment was previously accounted for using the equity method, prior to the October 2, 1997 purchase by the Company of the remaining 50% interest in Datacat that it did not already own. The financial statements of Datacat have been consolidated with the Company's financial statements for the three-month period ended December 31, 1997, and the years ended December 31, 1998 and 1999. Earnings Per Share Shares outstanding have been retroactively adjusted to reflect a 3- for-1 stock split, which occurred on February 28, 2000. As of December 31, 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share". The Statement requires the Company to present basic earnings per share and diluted earnings per share if applicable, using a revised methodology and requires restatement of prior earnings per share data presented. Basic and diluted earnings per share computations presented by the Company conform to the standard and are based on the weighted average number of shares of Common Stock outstanding during the year. (See Note 7 "Warrants" and "2000 Stock Split" of Notes to Consolidated Financial Statements). Comprehensive Income As of January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income". The Statement establishes standards for reporting and display of comprehensive income and its components in interim and annual financial statements. Comprehensive income is defined as the change in the equity (net assets) of an entity during a period from transactions, events and circumstances excluding all transactions involving investments by or distributions to the owners. Supplemental Disclosure of Cash Flow Information The Company paid net interest in the amount of $342,815 in 1999, $326,294 in 1998, and $290,937 in 1997. The Company paid income taxes in the amount of $19,295 in 1999, $59,609 in 1998 and $182,682 in 1997. Stock Based Compensation In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation". As permitted by this statement, the Company has continued to account for employee stock options under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. There are presently no outstanding grants under the Company's 1997 Non-Qualified Stock Option Plan, and, therefore, no compensation expense has been recognized. (See Note 7 "1997 Non-Qualified Stock Option Plan" of Notes to the Consolidated Financial Statements). Segment Reporting As of the year ended December 31, 1998, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information". The Statement establishes standards for reporting information about operating segments in interim and annual financial statements. The following table summarizes sales based on the location of the customers and assets based on the location of the asset presented on the basis of generally accepted accounting principles for the years ended December 31, 1999, 1998 and 1997: 1999 1998 1997 Geographic areas Net sales United States $ 6,648,752 $ 6,967,453 $ 7,856,245 Foreign - Canada 1,693,966 1,924,660 1,648,535 Foreign - Japan/Other 48,605 207,085 531,044 Long-lived assets, net United States 4,916,734 4,796,917 5,468,218 Foreign - Canada 193,497 219,710 319,083 The Company has one customer, the Texas Education Agency (TEA), which represents approximately 10% of the Company's 1999 sales. The Company has a contract with TEA to develop and operate, on an outsourced "hosting" basis, an Internet/Web based online bibliographic database locator and interlibrary loan system linking approximately 7,500 kindergarden through grade 12 public school libraries when the system is fully developed and implemented. Management believes that the loss of a single large customer, such as the TEA, would have a material adverse effect on the Company. Pending Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", which was amended by Statement of Financial Accounting Standards No. 137, effective for fiscal quarters of all fiscal years beginning after June 15, 1999. The Company plans to adopt the Statement in the fiscal year ending December 31, 2000. The Statement establishes standards for accounting for derivatives and hedging instruments (of which the Company currently has none) and, therefore, the Company does not expect this Statement will have a material effect on the Company's financial position or results of operations. In February 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 135, "Rescission of FASB Statement No. 75 and Technical Corrections", which is effective for financial statements issued for fiscal years ending after February 15, 1999. The Company does not expect this Statement will have a material effect on the Company's financial position or results of operations. Reclassification Certain amounts reported in 1998 and 1997 have been reclassified to conform to the 1999 consolidated financial statement presentation. 2. Note Payable to Bank. The Company has a revolving credit agreement under which borrowings are secured by accounts receivable whereby the Company may borrow against its eligible accounts receivable up to a maximum of $1,000,000 ($1,000,000 available at December 31, 1999) with interest at the bank prime rate plus 1% (9.75% at December 31, 1999). The credit facility is renewable annually with the next renewal in June 2000. Among other requirements, the revolving line of credit requires the Company to maintain minimum financial covenant ratios, and restricts the payment of cash dividends. There are no compensating balance requirements and there are currently no guarantor requirements. The credit facility includes a commitment fee of $44,000 covering both the working capital line of credit and capital line of credit facilities. For the year ended December 31, 1999, the Company was not in compliance with several minor loan covenants, however, the bank has waived its default rights involving these covenant violations under the Company's bank loan agreements. (See Note 3 of Notes to the Consolidated Financial Statements). 3. Long-term Debt. Long-term debt at December 31, 1999 and 1998 consists of the following: 1999 1998 Capital line of credit with interest at the bank prime rate plus 1% (9.75% at December 31, 1999) with no principal payments, maturing in June, 2000 and secured by software, equipment and leasehold improvements with a net book value of approximately $5,122,000 at December 31, 1999. $3,000,000 $3,000,000 Term note with interest at bank prime plus 1% (9.75% at December 31, 1999) and 11 monthly installments of $16,000 through June 1, 2000. Fully repaid and retired as of December 31, 1999 - 375,000 Capital lease of computer equipment with monthly payments of $7,371 223,249 - Total long-term debt 3,223,249 3,375,000 Less current portion 70,000 787,500 Long-term portion $ 3,153,249 $ 2,587,500 Maturities of long-term debt due after one year are not material. The capital line of credit provides for maximum borrowings of $3,000,000 for the purchase of equipment and software, and financing of up to $1,000,000 annually in internal software development costs. The capital line of credit is renewable annually with the next renewal in June 2000. The loan agreement contains a one-time option whereby the Company may cancel the capital line of credit and amortize the outstanding principal balance over a five year term provided there exists no event of default as defined in the loan agreement. This agreement contains the same loan covenants as the revolving line of credit. (See Note 2 of Notes to the Consolidated Financial Statements). The term note provided financing of $750,000 for the acquisition of the LIS division of ISM Information Systems Management Manitoba Corporation in July 1997. In December 1999, the Company repaid and retired the remaining principal balance of the term debt financing. The Company is negotiating and believes it has an agreement in principle with the Bank to renew and replace the above line of credit facilities with a single multi-purpose $3.0 million line of credit facility for a two year term commencing June 1, 2000. The total credit commitment will decrease in increments of $250,000 over the two year period to a maximum of $2.0 million in June 1, 2002. This proposed new credit facility is intended to reflect the Company's current and anticipated bank credit requirements over the two year period. The new facility eliminates commitment fees and will carry a reduced interest rate. The new facility will contain financial ratio and other covenants, which should provide the Company with greater flexibility to invest in new technology and new product ideas, which are expected to generate consolidated net losses over the next two years. As of December 31, 1999, the Company had $230,000 in computer equipment under capital leases. Accumulated amortization on these assets was $23,000 at December 31 1999. The following is a schedule of future minimum lease payments required under the capital leases together with their estimated present values: Year Ending December 31, 2000 $ 88,452 2001 88,452 2002 81,081 Total Minimum Lease Payments 257,985 Interest 34,736 Present Value of Minimum Lease Payments 223,249 Current Portion ( 70,000) Long-term Portion $ 153,249 4. Taxes Based on Income. The provision/(benefit) for taxes based on income is composed of the following for the years ended December 31, 1999, 1998 and 1997: 1999 1998 1997 Current taxes based on income Federal $ 22,000 $(188,000) $ 63,000 State 5,000 ( 35,000) 47,000 Foreign - - 42,000 27,000 223,000) 152,000 Deferred taxes based on income Federal ( 68,000) ( 147,000) 55,000 State 28,000 ( 27,000) ( 14,000) Foreign ( 34,000) - - ( 74,000) ( 174,000) 41,000 $( 47,000) $(397,000) $ 193,000 A reconciliation of the provision for taxes based on income follows for the years ended December 31, 1999, 1998 and 1997: 1999 1998 1997 Statutory U.S. Federal income tax $ 25,000 ($497,000) $ 137,600 Adjustments for foreign tax rates 9,000 ( 55,000) 11,800 Valuation allowance ( 23,000) 254,000 - State tax, net of Federal benefit 4,000 ( 77,000) 21,800 Prior year NOL for which no benefit was previously recognized ( 98,000) - - Other 36,000 ( 22,000) 21,800 $( 47,000) $(397,000) $ 193,000 The statutory U.S. Federal income tax rate was 34% in 1999, 1998 and 1997. The deferred tax assets and liabilities are composed of the following at December 31, 1999, 1998 and 1997: 1999 1998 1997 Deferred tax liabilities: Tax over book amortization and depreciation $ 595,000 $ 729,000 $ 695,000 State taxes - 28,000 - Total deferred tax liabilities 595,000 757,000 695,000 Deferred tax assets: Net operating loss 311,000 462,000 - Bad debts/accrued vacation/other 103,000 63,000 57,000 State taxes - - 11,000 Total deferred tax assets 414,000 525,000 68,000 Valuation allowance ( 231,000) (254,000) - Net deferred tax assets 183,000 271,000 68,000 Net deferred tax liability $ 412,000 $ 486,000 $ 627,000 Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been reported in the Company's financial statements or tax returns. The valuation allowance at December 31, 1998 and 1999 reflects an unrecognized U.S. and foreign tax loss carry- forward. At December 31, 1999, the Company has available federal, state and Canadian net operating loss carryforwards of approximately $385,000, $498,000 and $337,000, respectively, for income tax purposes. These net operating loss carryforwards expire in 2018 for federal taxes, 2005 for state and foreign taxes. 5. Commitments and Contingencies. The Company incurred total facilities and equipment lease and rental expense of approximately $374,000 in 1999, $415,000 in 1998 and $509,000 in 1997. The Company is obligated under certain non-cancelable operating leases for office facilities and equipment. Approximate minimum lease commitments as of December 31, 1999 are as follows: Years ended Operating December 31, Leases 2000 393,000 2001 235,000 2002 81,000 Total minimum lease payments $ 709,000 From time to time, the Company is involved in legal proceedings incidental to its normal business activities. Management does not believe that the outcome of these proceedings will have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. 6. Related Party Transactions. The Company leases its corporate office and production facility from a limited partnership owned by a current and former director/stockholder of the Company. The Company has an option to purchase a one-third interest in the partnership from the former director/stockholder for an amount not to exceed $150,000. During 1999, the Company leased 29,260 square feet having an annual base rent of $351,000 (plus expenses). The lease term expires in June 2001. In April 2000, the Company completed a planned consolidation, which reduced the square footage occupied by the Company from 29,260 to 19,460 for a reduction in the Company's annualized rent expense of $118,000 (plus expenses). In February 2000, the Company accelerated the purchase and retired the remaining 62,400 shares outstanding under a stock repurchase agreement with a former director/stockholder of the Company for $203,000 in cash consideration. The Company also transferred an insurance policy to the seller having a cash surrender value of approximately $75,000. 7. Stockholders' Equity. 1999 Private Placement Offering In May of 1999, the Company initiated a private placement offering of its Common Stock at $0.83 per share. Shares offered and sold in the offering were classified as "restricted" stock, meaning that these shares can not be sold in the public trading market for the Company's stock for a minimum period of one year. The offering was concluded in October 1999 with a total of 1,654,200 shares sold, increasing total shares outstanding to 4,784,934, and raising gross proceeds of $1,378,500. The Company sold 1,501,200 shares at $0.83 per share raising a total of $1,251,000 in cash. An additional 153,000 shares at $0.83 per share (for total investment of $127,500) were sold to certain senior management of the Company on four year interest bearing full recourse notes. These notes are presented as "Notes Receivable - Stock" on the Company's Consolidated Balance Sheet. Warrants In May 1999, the Company entered into a selling agreement with an associate pertaining to the Company's private placement offering. Pursuant to the agreement, the Company sold and issued 240,000 3-year warrants for $800 entitling the associate to purchase one share of the Company's (restricted) Common Stock for each warrant for $.03 per share, which warrants remain issued and outstanding but unexercised at December 31, 1999. Fully diluted earnings per share computations include the shares of stock represented by the warrants. Assuming that the warrants and underlying shares are subjected to a 50% discount due to the restricted nature of such securities, a 6.25% risk free rate and a 25% volatility factor, under the Black-Scholes option pricing model, the warrants would carry a value of $92,705. The Company's principal director/shareholder granted an option to the associate to purchase 1,125,000 shares of the Company's (restricted) Common Stock owned by such individual (and his Family Trust) through November 2000, subject to a one year renewal provision in favor of the recipient, for $1.67 per share. The shares which are the subject of this option represent approximately 23% of the Company's issued and outstanding Common Stock at December 31, 1999. Dataquad, Inc. and The LibraryCard, Inc. In December 1999, the Company and an associate formed two new subsidiaries, Dataquad, Inc. and The LibraryCard, Inc., and contributed nominal cash consideration to such subsidiaries, and the Company contributed certain software and other assets to Dataquad(tm). A third party investor (who also invested in the Company's 1999 private placement offering) contributed $1.0 million in cash to each of the subsidiaries in return for a 27% ownership interest, and the Company and the associate hold 67% and 6% interests, respectively. (See Note 1 of Notes to the Consolidated Financial Statements). Utilizing the simplified method under Statement of Financial Accounting Standards No. 123, "Stock Based Compensation", the Company has ascribed a fair market value of $60,150 for the shares purchased by the associate for a total valuation for the stock of both subsidiaries of $120,300. 2000 Stock Split On January 31, 2000, the Company announced a 3-for-1 stock split of its Common Stock to shareholders of record on February 12, 2000, which occurred on February 28, 2000. Two additional shares were issued for each share held on the record date. Following the stock split, shares authorized increased from 4,000,000 to 12,000,000 and shares issued and outstanding from 1,607,578 to 4,822,734 following the above referenced share repurchase (See Note 1 "Earnings Per Share", Note 6 of Notes to Consolidated Financial Statements and the "2000 Private Placement" below). Share amounts in the Statement of Operations including basic and diluted earnings per share, the Consolidated Balance Sheet, and Consolidated Statements Of Stockholders' Equity have been adjusted retroactively to reflect the stock split for the periods presented. Equity Funding Costs and Expenses The Company incurred direct and incremental expenses in connection with the above referenced 1999 $1,251,000 private placement offering, and the sale of the $2.0 million in shares of the Company's Dataquad, Inc. and The LibraryCard,Inc. subsidiaries, resulting in gross proceeds from the sale of such Securities of $3,251,000. Equity funding costs and expenses, including legal, accounting, and selling expenses totaled $145,000, which have been offset against the total equity raised for net proceeds of $3,106,000 as reflected in the Company's Consolidated Statements of Cash Flows herein. 1997 Non-Qualified Stock Option Plan The Company adopted a 1997 Non-Qualified Stock Option Plan effective December 31, 1997. The Plan consists of 300,000 shares of the Company's authorized but unissued Common Stock which shares have been reserved for possible future issuance under the Plan. The plan is a non-qualified plan covering only senior executives and related persons. At the inception of the plan, the Company granted options to four persons whereby they were entitled to purchase up to a total of 142,500 shares over the next five years at a price of $0.55 per share. In 1999, all options granted were relinquished by the participants and as of December 31, 1999, there were no outstanding grants of options under the Plan. The Company's management intends to propose for approval by the Company's stockholders at the Company's 2000 Annual Meeting of Stockholders a qualified (incentive stock option) plan consisting of approximately 10% (currently 482,000 shares) of the Company's then issued and outstanding shares of Common Stock to be reserved for future issuance to employees of the Company. 2000 Private Placement In February 2000, the Company consummated a private placement of 225,000 shares (after giving effect to the 3-for-1 stock split) of its (restricted) Common Stock with an offshore investment company for $4.125 per share for gross proceeds of $930,000. The Company used a portion of the net proceeds from the sale of such stock to reduce its capital line of credit with the bank by $600,000. 8. Defined Benefit Plan. The Company sponsors a defined contribution plan qualified under Section 401(k) of the Internal Revenue Code for the benefit of its U.S. based employees. All full time employees are eligible to participate. The Company pays the administrative expenses of the plan, which are immaterial. Annually, the Company may, at its sole discretion, award an amount out of the profits of the Company as a match against employee contributions to the 401(k) plan. The Company contribution was approximately $23,000 in 1999, $25,000 in 1998, and $24,000 in 1997. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the names and ages of, and the positions and offices within the Company held by, all directors and executive officers of the Company at December 31, 1999: Name Age Position Robert S. Cope 64 Director, President and Treasurer. Has served in these capacities for more than ten years. Robert H. Bretz 56 Director and Assistant Secretary. Attorney who has acted as the Company's outside general legal counsel for more than ten years. William J. Kliss 52 Chief Operating Officer. Has served the Company in this capacity for four years. Prior to this position, Mr. Kliss served as the Company's Vice President and General Manager of Library Services for two years. Mr. Kliss formerly served as Vice President of Operations at Scan- Optics, Inc. for fifteen years prior to his employment with the Company. Daniel E. Luebben 51 Chief Financial Officer and Secretary. Has served in these capacities for four years. Prior to these positions, Mr. Luebben served as the Company's Vice President, Operations and Controller for the past six years. Mr. Luebben formerly served as Controller of Ultrasystems Defense, Inc. for two years prior to his employment with the Company. Directors serve until their successors are elected at the annual meeting of stockholders. All executive officers serve at the discretion of the Company's Board of Directors. Future Management Decisions As part of the Company's focus on efforts to increase sales in 2000 and beyond, the Board of Directors has decided that it will be in the Company's best interests to seek a successor for Mr. Kliss. In this regard, the Company will attempt to negotiate an amicable severance arrangement with Mr. Kliss. However, Mr. Kliss has indicated his expectations regarding such severance arrangement, and they are substantially in excess of what the Company believes would be reasonable. Therefore, it is possible that the issue of Mr. Kliss' separation from the Company will be the subject of legal proceedings while the parties engage in efforts to negotiate a mutually acceptable severance arrangement. Although the Company has no current plans regarding a change in Daniel Luebben's employment status, a similar situation may apply to him. Recently, both Messrs. Kliss and Luebben asserted positions adverse to the Company regarding aspects of their employment relationships with the Company pertaining to their status as "at will" employees under California law, salary protection in the event that there is a change of control of the Company at any time in the future and the effect of the outcome of such issues on such persons' purchase of shares of the Company's (restricted) Common Stock in the 1999 private placement and the prior relinquishment of options previously granted to such individuals in consideration of the acquisition of shares in the private placement offering and the contemplated opportunity for such persons to receive grants under the Company's proposed new qualified stock option plan. In any event, the Company believes that such employee related matters can be successfully resolved consistent with reserves covering employee severance matters. New Subsidiaries In March 2000, the Company's Dataquad(tm) subsidiary appointed William B. Ting as President of such newly organized majority owned subsidiary. Dataquad is in the process of finalizing the development and formalization of a marketing and promotional program for its content management system software product. This product provides users with a single software system allowing users to convert, create, edit and manage data on a dynamic basis using XML and SGML as its technology backbone. The user can then distribute and publish such enterprise-wide information in simultaneous multi-media formats including print, CD-ROM and over the Internet/Web including in an e- commerce environment using the user's own computer system or on an outsourced "host" basis. (See Item. 1. "Business"). Mr. Ting, age 51, holds a Ph.D. in Quantitative Methodology and International Political Economics, and he has extensive background and experience in the areas of business management, planning, marketing and finance, including in the software and information systems areas. Mr. Ting has previously served on the faculty of the University of Michigan, and he also has experience in international trade. The Company's LibraryCard(tm) majority owned subsidiary is presently seeking to hire an individual to act as the president of such newly organized company. Currently, the Executive Vice President - Business Development of LibraryCard, Leland R. Ireland, is serving as the principal executive officer of such subsidiary. Mr. Ireland, age 51, holds a MA in Library Sciences and an MBA in Marketing degrees, and he has been employed by several library automation companies in sales/marketing capacities. Prior to joining LibraryCard in January 2000, Mr. Ireland served as the Company's Vice President - Marketing for approximately one and a half years. LibraryCard is an Internet/Web "portal" which, when fully developed, will make bibliographic and other reference type information and services available to consumers. LibraryCard offers information-related products and services to assist the general public in taking advantage of the book lending and related information/services available from their local libraries. Introduction of the LibraryCard site through the Company's existing customer base, consisting of approximately 8,000 libraries and schools (which already allows patrons to access such bibliographic services from their home/office) should provide LibraryCard with a "first mover" advantage in this particular segment of the information technology market. (See Item. 1. "Business"). ITEM 11. EXECUTIVE COMPENSATION A definitive Proxy Statement will be filed with the Securities and Exchange Commission ("Commission") pursuant to Regulation 14A within 120 days after the close of the Company's most recent calendar year, and, accordingly, Item 11 is incorporated by reference to said definitive Proxy Statement. The Proxy Statement includes information covering this item under the caption "Compensation of Executive Officers". ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT A definitive Proxy Statement will be filed with the Commission pursuant to Regulation 14A within 120 days after the close of the Company's most recent calendar year, and, accordingly, Item 12 is incorporated by reference to said definitive Proxy Statement. The Proxy Statement includes information covering this item under the caption "Security Ownership of Certain Beneficial Owners and Management" and "Nominees for Election as Directors". ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS A definitive Proxy Statement will be filed with the Commission pursuant to Regulation 14A within 120 days after the close of the Company's most recent calendar year, and, accordingly, Item 13 is incorporated by reference to said definitive Proxy Statement. The Proxy Statement includes information covering this item under the caption "Certain Relationships and Related Transactions". PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial statements and financial statement schedules and exhibits: (1) Financial Statements: See Item 8. "Financial Statements". (2) All schedules are omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements, including the notes thereto. (3) Exhibits: 3.1 Articles of Incorporation of Auto-Graphics, Inc., as amended (incorporated by reference as filed with the SEC as Exhibit 3.1 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1989), as amended by within additional Exhibit 3.1 filing of the amendment to the Articles covering 3-for-1 stock split effectuated February 28, 2000. 3.2 Bylaws, as amended (incorporated by reference as filed with the SEC as Exhibit 3.2 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1989). 10.8 Lease Agreement between 664 Company and Auto-Graphics, Inc. dated May 27, 1986 (incorporated by reference as filed with the SEC as Exhibit 10.7 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990). 10.9 Agreement by, between and among Auto-Graphics, Inc. and Douglas K. and Ruth T. Bisch executed February 15, 1995 (incorporated by reference as filed with the SEC as Exhibit 10.9 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.10 Asset Purchase Agreement between A-G Canada, Ltd., a wholly owned subsidiary of Auto-Graphics, Inc. and ISM Information Systems Management Manitoba Corporation, a subsidiary of IBM Canada, Ltd. dated June 30, 1997 incorporated by reference as filed with the SEC in the registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1997). 10.15 Credit Agreement between Wells Fargo Bank and Auto-Graphics, Inc. dated May 12, 1997 (incorporated by reference as filed with the SEC as Exhibit 10.15 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 10.16 First Amendment to Credit Agreement between Wells Fargo Bank and Auto- Graphics, Inc. dated June 23, 1997 (incorporated by reference as filed with the SEC as Exhibit 10.16 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 10.17 Second Amendment to Credit Agreement between Wells Fargo and Auto- Graphics, Inc. dated October 31, 1997 (incorporated by reference as filed with the SEC as Exhibit 10.17 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 10.18 Revolving Line of Credit Note (Working Capital) between Wells Fargo Bank and Auto-Graphics, Inc. dated May 12, 1997 (incorporated by reference as filed with the SEC as Exhibit 10.18 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 10.19 Revolving Line of Credit Note (Capital Equipment) between Wells Fargo Bank and Auto-Graphics, Inc. dated May 12, 1997 (incorporated by reference as filed with the SEC as Exhibit 10.19 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 10.20 Term Note between Wells Fargo Bank and Auto-Graphics, Inc. dated May 12, 1997 (incorporated by reference as filed with the SEC as Exhibit 10.20 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 10.21 Continuing Security Agreement Rights to Payment and Inventory between Wells Fargo Bank and Auto-Graphics, Inc. dated May 12, 1997 (incorporated by reference as filed with the SEC as Exhibit 10.21 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 10.22 Security Agreement Equipment between Wells Fargo Bank and Auto- Graphics, Inc. dated May 12, 1997 (incorporated by reference as filed with the SEC as Exhibit 10.22 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 10.23 Guaranty between Wells Fargo Bank and Robert S. Cope dated May 12, 1997 (incorporated by reference as filed with the SEC as Exhibit 10.23 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 10.24 Settlement Agreement and Mutual Release between Diversified Printing & Publishing Services, Inc., Gannam/Kubat Publishing, Inc. Nasib Gannam, and T. Ron Kahraman, and Datacat, Inc., Auto-Graphics, Inc. and Robert S. Cope dated September 30, 1997 (incorporated by reference as filed with the SEC as Exhibit 10.24 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 10.25 1997 Non-Qualified Stock Option Plan dated December 31, 1997 (incorporated by reference as filed with the SEC as Exhibit 10.25 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 10.26 Third Amendment to Credit Agreement between Wells Fargo Bank and Auto- Graphics, Inc. dated June 1, 1998 (incorporated by reference as filed with the SEC as Exhibit 10.26 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 10.27 Term Note between Wells Fargo Bank and Auto-Graphics, Inc. dated June 1, 1998 (incorporated by reference as filed with the SEC as Exhibit 10.27 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 10.28 Fourth Amendment to Credit Agreement between Wells Fargo Bank and Auto- Graphics, Inc. dated September 15, 1998 (incorporated by reference as filed with the SEC as Exhibit 10.28 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 10.29 Fifth Amendment to Credit Agreement between Wells Fargo Bank and Auto- Graphics, Inc. dated December 24, 1998 (incorporated by reference as filed with the SEC as Exhibit 10.29 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 10.30 Option Agreement dated May 15, 1999 between Robert S. Cope and Elizabeth Cope and the Cope Family Trust and Corey M. Patick. 10.31 Selling Agreement (formerly Employment Agreement) dated May 15, 1999 between Auto-Graphics, Inc. and Corey M. Patick (as amended). 10.32 Sixth Amendment to Credit Agreement between Auto- Graphics, Inc. and Wells Fargo Bank dated June 30, 1999. 10.33 Continuing Guaranty between Auto-Graphics, Inc. and Wells Fargo Bank dated June 30, 1999. 10.34 Amendment to Continuing Guaranty between Auto- Graphics, Inc. and Wells Fargo Bank dated June 30, 1999. 10.35 Revolving Line of Credit Note (working capital) $1,000,000 between Auto-Graphics, Inc. and Wells Fargo Bank dated June 30, 1999. 10.36 Revolving Line of Credit Note (capital) $3,000,000 between Auto-Graphics, Inc. and Wells Fargo Bank dated dated June 30, 1999. 10.37 Term Note $750,000 between Auto-Graphics, Inc. and Wells Fargo Bank dated June 30, 1999. 10.38 Stock Purchase Agreement between Auto-Graphics, Inc. and Gibralter Permanente Assurance dated February 14, 2000. 10.39 Letter of Intent between Auto-Graphics, Inc. and Steve White dated December 29, 1999. (b) The Company has filed a Report on Form 8-K dated April 6, 1999 reporting a net loss for the year ended December 31, 1998. (c) The Company has filed a Report on Form 8-K dated August 9, 1999 reporting a potential for a change in control of the Company. (d) The following document is filed herewith for information purposes, but is not part of this Annual Report, except as otherwise indicated: None. (d) None. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AUTO-GRAPHICS, INC. (Registrant) Date: 4/20/00 By ss/ Robert S. Cope Robert S. Cope, Director, President, and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacity and on the dates indicated. Date: 4/20/00 By ss/ Robert S. Cope Robert S. Cope, Director, President, and Treasurer Date: 4/20/00 By ss/ Daniel E. Luebben Daniel E. Luebben, Chief Financial Officer and Secretary Date: 4/20/00 By ss/ Robert H. Bretz Robert H. Bretz, Director EX-3.1 2 EXHIBIT 3.1 CERTIFICATE OF AMENDMENT OF THE ARTICLES OF INCORPORATION OF AUTO-GRAPHICS, INC. The undersigned President and Secretary of Auto-Graphics, Inc. (the "Company") hereby certify the following: 1. Article Fifth of the Company's Articles of Incorporation shall be stricken in its entirety and shall be and is hereby amended to read as follows (the "Amendment"): "FIFTH: The total number of shares which the corporation is authorized to issue is Twelve Million (12,000,000) shares of Common Stock. No distinction shall exist between the shares of the corporation or the holders thereof. Upon the filing of the Amendment, the holders of outstanding shares shall be entitled to receive from the corporation two (2) additional shares of Common Stock for each share held by record by such holders." 2. The Amendment has been approved by the Company's Board of Directors. 3. Pursuant to Section 902(c) of the California Corporations Code, the 4. Amendment may be approved by the Board alone without the need for approval of the outstanding shares. In Witness Whereof, the undersigned being the president and secretary of Auto-Graphics, Inc. have executed this Certificate of Amendment of the Articles of Incorporation in such capacities in Pomona, California, The undersigned projects declare, under penalty of perjury under California law, that the matters set forth in this Certificate are true and correct of their own knowledge. Date: April 10, 2000 ss/Robert S. Cope - -------------------------------- Robert S. Cope, President ss/Daniel E. Luebben - -------------------------------- Daniel E. Luebben, Secretary EX-10.30 3 Exhibit 10.30 OPTION AGREEMENT OPTION AGREEMENT This OPTION AGREEMENT dated May 15, 1999 (the "Agreement") is made by and between Robert S. Cope and Elizabeth Cope, husband and wife, and the Cope Family Trust dated September 12, 1972 (the "Trust") and Robert S. Cope in his capacity as Trustee of the Trust (herein individually and collectively "Cope"), on the one hand and Corey M. Patick, an individual, and/or his designee or assignee (herein collectively "Patick"), on the other hand. R E C I T A L S WHEREAS, Cope is the owner of 523,391 shares of the issued and outstanding Common Stock of Auto-Graphics, Inc., a California corporation (the "Company") registered in the name of and owned by the Trust (the "Stock"); WHEREAS, Cope desires to sell the Stock, and in furtherance thereof desires to sell and grant Patick the irrevocable right and option (the "Option") to purchase Three Hundred and Seventy-Five Thousand (375,000) shares of such Stock (the "Option Stock") for a price of $5 per share totaling One Million Eight Hundred Seventy-Five Thousand Dollars ($1,875,000) (the "Purchase Price"); WHEREAS, Patick desires to explore the Purchase of the Stock and, therefore, desires to purchase and acquire from Cope the Option; WHEREAS, the Company has entered into an Employment Agreement with Patick of even date herewith whereby Patick has agreed to assist the Company to offer and sell a minimum of 200,000 shares of the Company's authorized and unissued Common Stock at a price per share of $2.50 for aggregate proceeds to the Company of $500,000 to be completed by no later than September 14, 1999 (herein the "Successful Offering"). WHEREAS, the parties have memorialized their understandings and agreements regarding the Option and the Stock in this Agreement; A G R E E M E N T NOW, THEREFORE, the undersigned parties intending to be legally bound and obligated thereby, in consideration of the premises and the covenants contained herein, subject to the conditions set forth herein, do hereby agree as follows: 1. Recitals. The Recitals set forth above, including the definitions set forth therein, are hereby incorporated in their entirety into and made a part of this Agreement. 2. Option. Cope hereby sells, transfers and conveys to Patick, and Patick hereby purchases and acquires the Option from Cope, for the purchase price of One Thousand Dollars ($1,000) receipt of which is hereby acknowledged by Cope. 3. Term of the Option. Subject to the provisions of paragraph 4 hereof, the Term of the Option, unless extended as provided for herein, shall be for a period of eighteen (18) months commencing on the date first above written and ending on November 14, 2001 (the "Initial Option Term"). If not previously terminated by Cope in accordance with paragraph 4, the Initial Option Term can and shall be extended, at the sole discretion and election of Patick, for a period of one (1) year upon payment to Cope of One Hundred and Twenty-Five Thousand Dollars ($125,000) for such purpose prior to the expiration of the Initial Option Term (the "Extended Option Term"). Unless exercised in accordance with the provisions of paragraph 5 hereof, the Option shall automatically terminate and expire at the end of the Initial Option Term or, if applicable, the Extended Option Term (the Initial Option Term and the Extended Option Term are, together, hereinafter referred to as the "Option Term"). 4. Termination of the Option. Notwithstanding anything herein to the contrary, in the event that the Successful Offering has not occurred, then Cope shall be entitled in his sole and absolute discretion and election, but shall not be obligated, to terminate the Option without further obligation under this Agreement in respect of such Option ("Cope Right of Termination"). Unless Cope provides Patick with written notice within ten (10) days following the deadline (September 14, 1999) for the Successful Offering that he is waiving his rights under the Cope Right of Termination, then the Option shall automatically terminate and be of no further force or effect ("Option Continuation Notice"). If Cope provides Patick with the Option Continuation Notice, then the Option shall continue in full force and effect in accordance with the provisions of this Agreement notwithstanding the Company's inability to achieve the Successful Offering. 5. Exercise of the Option. Unless terminated in accordance with the Cope Right of Termination as provided for in paragraph 4, Patick may exercise the Option at any time before the expiration of the Option Term (including the Extended Option Term if applicable) as provided for herein, by written notice in accordance with paragraph 23 hereof (the "Option Exercise Notice"), stating that the Option to purchase the Stock is exercised and indicating the registered purchaser(s) thereof and stating a date and time for the closing ("Option Closing") of the transaction whereby Patick will pay for, purchase and acquire, and physically receive certificates representing, the Stock registered in the name of the purchaser(s) as indicated in the notice or endorsed for transfer into the name of the purchaser(s), such Option Closing to take place any time within forty-five (45) days from the date of the Option Exercise Notice. Subject to timely exercise of the Option in accordance with the provisions of this Agreement, and payment therefor, Cope agrees and promises to sell, transfer and deliver to Patick the shares of Option Stock which are the subject of the Option at the Option Closing. The Option Closing shall take place at the corporate offices of the Company in Pomona, California or at such other place as the parties may mutually agree upon in writing. At the Option Closing, Patick shall pay for the Option Stock being purchased in cash or by cashier's or certified check in the full amount of the Purchase Price for the Option Stock ($1,875,000) payable to the Trust or its designee ("Option Stock Purchase Price"). 6. Cope Put. Within ten (10) days from the date of the Option Exercise Notice, Cope shall have the irrevocable right, in his sole and absolute discretion and election (the "Cope Stock Put"), to require including as a condition to the Option Closing and Patick's right to purchase the Option Stock at such Closing that Patick purchase and acquire from Cope at the Option Closing the balance of the Stock owned by Cope being 148,391 shares of the Company's Common Stock or 25,000 share increments thereof (the "Put Stock"). Cope shall provide Patick with written notice in accordance with paragraph 23 hereof that Cope is exercising the Cope Stock Put, and the number of shares of the Put Stock to be sold, within ten (10) days following the date of the Option Exercise Notice by Patick (the "Put Notice"). If Cope does not, for any reason, timely provide Patick with the Put Notice in accordance with the provisions of paragraph 23, then the Cope Stock Put shall automatically terminate and expire and be of no further force and effect including, notwithstanding any other provision in this Agreement to the contrary, as a condition to the Option Closing and the purchase of the Option Stock by Patick. The purchase price for the Put Stock shall be Four Dollars and Seventy-Five Cents ($4.75) per share for a total of up to Seven Hundred and Four Thousand Eight Hundred and Fifty-Seven Dollars and Twenty-Five Cents ($704,857.25) if all of such Put Stock is sold (the exact amount, being $4.75 times the actual number of shares of the Put Stock which is the subject of the Put Notice, is referred to herein as the "Put Stock Purchase Price"), and such Put Stock Purchase Price shall be paid at the Option Closing one-half (50%) down in cash or cashier's check or certified check payable to the Trust and the balance in the form of the purchaser's promissory note payable to the Trust in equal quarterly installments, together with interest on the unpaid balance at the rate of six percent (6%) per annum, over a period of three (3) years from the date of the Option Closing. Upon receipt of the Put Notice, Patick will provide Cope with the name of the purchaser(s) including herein his designee and/or assignees who will purchase the Put Stock from Cope at the Option Closing. At the Option Closing, Cope shall sell, deliver and transfer, and the purchaser will purchase, acquire and take delivery of, the Put Stock, including certificates representing such Put Stock registered in the name of the purchaser or stock powers covering the Put Stock properly endorsed for transfer to the purchaser, free and clear of all liens, claims and encumbrances whatsoever, except only for a customary securities legend and stop transfer instruction indicating that such stock is deemed to be restricted stock under applicable securities laws, rules and regulations (the "Purchased Put Stock"). Following the Option Closing, Cope shall retain no right, title or interest in the Purchased Put Stock. In the event that payment for the Purchased Put Stock includes the purchaser(s) promissory note as provide for above, then one half (50%) of the Purchased Put Stock shall be pledged to Cope to secure payment of such promissory note (the "Pledged Stock"); however, notwithstanding such pledge, the purchaser(s) shall retain all incidents of ownership of the Pledged Stock including without limitation voting rights to such Pledged Stock. Following installment payments of the promissory note, a portion of the Pledged Stock shall be released from the pledge in an amount equal to the amount of the note which has been paid at the time of each of such installment payments. 7. Escrow/Voting Rights. Within forty-five (45) days following the date of this Agreement, Cope and Patick will mutually arrange for an escrow or other similar arrangement ("Escrow") acceptable to them whereby an escrow holder or other similar party will hold the Option Stock (together with stock powers separate from certificate properly endorsed in blank for transfer) pursuant to and in accordance with the parties' respective rights and obligations under this Agreement (the "Escrow Holder"). The parties shall share equally (50/50) the cost of the Escrow. The Escrow Holder shall agree in writing to abide by the terms and conditions set forth in this Agreement and to hold safe the Option Stock (and stock powers) and impartially administer, implement and effectuate the parties' agreement in respect of the subject matter of the Escrow and the Agreement. The parties hereby agree to enter into an agreement with the Escrow Holder as may reasonably be required by the Escrow Holder in respect of the Escrow. Upon the termination or expiration of the Option Term as provided for and in accordance with the provisions of this Agreement, the Escrow Holder shall return to Cope the Option Stock (and stock powers) and the Escrow shall thereby expire and be of no further force or effect. Notwithstanding the existence of this Agreement, and the deposit of the Option Stock into the Escrow, pending the actual purchase of the Option Stock at the Options Closing as herein provided for, and subject to Patick's right to purchase the Option Stock, Cope shall retain, and be entitled to exercise in his sole and absolute discretion and election, full voting and other rights of ownership in and to the Option Stock. Likewise, pending the actual purchase of the Option Stock at the Option Closing, Cope shall be entitled to receive and own, subject to Patick's rights under this Agreement to the Option Stock and attendaments thereto, any cash or stock dividend or other rights, title or interest, attributable to or distributed in respect of the Option Stock (collectively the "Attendaments") which Attendaments shall forthwith be transferred and deposited by Cope, or delivered directly by the Company, into the Escrow and all of such Attendaments shall be deemed and treated for all purposes as part of the Option Stock to be sold by Cope and purchased by Patick for the Option Stock Purchase Price. (Although not required to be held in Escrow, the Put Stock will be held by Cope subject to the provisions of this Agreement and shall be understood to include all Attendaments as part of the Put Stock Purchase Price and that, pending any sale of the Put Stock to Patick, Cope retains all voting and other incidents of ownership of such Put Stock). 8. Cooperation by Cope. During the Option Term, Cope agrees and promises not to take, cause to be taken or, where within his control, permit any action to be taken including by the Company intended, or which would reasonably be understood, to prejudice Patick's rights and entitlements under the Option and/or in respect of the Option Stock. 9. Future Lease Obligation. Pending termination of the Option as provided for in paragraph 4 hereof, or the subsequent expiration of the Option Term, Cope will not cause the Company to enter into a new lease or other arrangement whereby the Company is obligated to lease or otherwise occupy the real property and improvements located at and generally described as 3201 Temple Avenue, Pomona, California 91768 (the "Real Property") which Real Property is presently leased and occupied by the Company as its corporate offices facility pursuant to a lease with that certain Partnership in respect of which Cope is a two-thirds owner through June 30, 2001 (the "Lease"), beyond the expiration of the current Lease term plus twelve (12) months (through June 30, 2002) at a rate not to exceed the Lease rate in effect at the end of the current Lease term. 10. Certain Representations, Covenants and Warranties by Cope. For purposes of this Agreement, and the transactions contemplated by and provided for herein, Cope represents, covenants and warrants to Patick, as follows: (A) the Stock is owned exclusively by the Trust, and is free and clear of all liens, claims and encumbrances of whatsoever nature or kind and will remain so during the Term of the Option; (B) the Company's 1998 year-end audited financial statements are accurate and complete in all material respects and fairly present the results of operations, financial condition and changes of cash flows and equity as presented therein in accordance with generally accepted accounting principles consistently applied, and the Company's 1999 year-end financial statements, when and if provided to Patick pursuant to the provisions of this Agreement will be accurate and complete in all material respects and fairly present the results of operations, financial condition and changes of cash flows and equity as presented therein in accordance with generally accepted accounting principles consistently applied; and (C) Cope has not received any claim or threat of a claim, or notice of any action or proceeding in respect of the Company which are not reflected on the Company's financial statements referenced herein or otherwise identified and described on a schedule provided to Patick for such purposes by Cope or the Company. 11. Certain Other Covenants by Cope. Pending termination of the Option as provided for in paragraph 4 hereof, or the subsequent expiration of the Option Term, Cope agrees and promises at his sole cost and expense where applicable (A) to retain ownership of the Option Stock; (B) not to enter into any agreement or other arrangement regarding the sale, fractionalization, hypothecation, pledge, assignment, granting of a voting proxy for, transfer and/or other disposition or possible future disposition of the Option Stock or any interest therein; (C) to keep the Option Stock free and clear of any and all liens, claims and encumbrances of whatsoever nature; (D) not to permit any lien, claim or encumbrance to be placed or otherwise exit in, on or otherwise in respect of the Option Stock and to promptly seek to cause to be removed any such lien, claim or encumbrance that should come into existence following the date of this Agreement; (E) to promptly notify Patick in the event and when Cope first becomes aware of any actual or threatened claim, lien or encumbrance in, on or otherwise affecting the Option Stock; (F) to cause the Company to prepare and to promptly provide to Patick quarterly and annual consolidated financial statements for the Company accurately and completely presenting the results of operations, financial condition and changes in cash flows and equity and, if Patick timely exercises the Option to obtain and deliver to Patick prior to the Option Closing written authorization from the Company's independent certified public accountants, whose report covers the Company's most recently completed annual audited consolidated financial statements, written authorization by such accountants for Patick to rely upon such accountant's audit report thereon for purposes of purchasing the Option Stock; and (G) Cope will not cause the Company to increase his salary or other form of compensation and/or the lease payments the Company pays for the Real Property without the prior written consent of Patick, or to cause the Company to repurchase any of the Stock or to otherwise make any distribution to Cope in respect of such Stock or to repurchase or make any distribution in respect of any other shares of the Company's Common Stock or to offer, sell or issue, or commit to offer, sell and/or issue any shares of the Company's Common Stock or other securities (other than the proposed Public Offering as contemplated by and described in that certain Employment Agreement referenced elsewhere herein) without the prior written consent of Patick. 12. Conditions To The Parties' Obligations To Closing. Notwithstanding anything herein to the contrary, the parties' respective obligations to close and otherwise consummate the transactions contemplated and provided for in this Agreement, and each of them, at the Option Closing, or as otherwise provided for herein, are subject to and are expressly conditioned upon the following events, occurrences and other matters: A. To Cope's Obligations: (1) the timely and full performance by Patick of his agreements and promises (covenants) as set forth in this Agreement including, if applicable, in respect of the Cope Put Option and the Put Stock; and (2) compliance with all applicable securities laws, rules and regulations. B. To Patick's Obligations: (1) the truth and accuracy of Cope's representations and warranties at the date of this Agreement and as at the time of the Option's Closing; (2) the timely and full performance by Cope of his agreements and promises (covenants) as set forth in this Agreement; (3) the timely and full performance by the Company of any of its undertakings, agreements and/or promises (covenants) as set forth in the Agreement; (4) the timely and full performance of the Company's obligations to Patick under that certain Employment Agreement between the Company and Patick of even date herewith; (5) compliance with all applicable securities laws, rules and regulations; (6) confirmation by Patick in his sole and absolute discretion and election that there has been no adverse change in the Company, its business, results of operations, financial condition, prospects and matters pertaining to the Option Stock (including the Put Stock if applicable) since the date of the last year-end financial statements of the Company provided to Patick prior to the Option Closing including pursuant to and in accordance with Patick's right to conduct "due diligence" as provided for in paragraph 28 and further referenced in paragraph 29 of this Agreement; and (7) the obtaining by Patick of such assurances as he shall determine in his sole and absolute discretion and election to be satisfactory that the then current officers and directors will continue to serve in such capacities for a reasonable period of time following the Options Closing. Prior to or at the Option Closing, the respective parties are entitled (but are not required) to waive the occurrence of any one or more of the conditions to such party's obligations under this Agreement. The waiver of one or more of such conditions by any party shall not act to constitute a waiver of any other condition(s). Likewise, the failure of any party to timely enforce any right, benefit or entitlement in favor of such party as provided for in this Agreement or otherwise shall not be deemed and shall not act as a waiver or relinquishment of any such right, benefit or entitlement or any other right, benefit or entitlement under this Agreement. 13. Free Assignability. Nothing herein contained is intended or shall be interpreted to preclude or limit Patick's right, ability and entitlement to sell, assign or transfer this Agreement in whole or in part, and Patick's rights and obligations, including without limitation in respect of and to the Option and the right to purchase the Option Stock for the Purchase Price, as provided for herein. 14. ESOT/ESOP. In the event that Patick assigns and transfers, in whole or in part, the Option including Patick's rights, responsibilities and obligations hereunder including in respect of the Cope Put, then the purchase price to be paid to and received by Cope for the Option Stock (and/or the Put Stock if applicable) at the Option Closing shall be reduced by an amount equal to the capital gains tax (presently 18%) otherwise applicable and payable by Cope in respect of the sale of such Stock, provided that Cope shall be entitled to defer payment of such taxes pursuant to and in accordance with applicable Internal Revenue Service Code S1042 as confirmed by an interpretative letter from the IRS and/or a legal opinion from a reputable income tax accountant or attorney reasonably acceptable to Cope. 15. Cope Consulting Agreement and Covenant Not To Compete. In the event that Patick exercises the Option and purchases the Option Stock, at the sole discretion and election of Patick, Cope hereby agrees and promises (A) to provide part-time (up to 25 hours per week, 40 weeks per year) consulting services to the Company and, further, (B) agrees and promises not to compete against the Company, directly or indirectly, or to assist in any manner any one else to compete against the Company and, further, (C) to continue serving on the Company's Board of Directors (absent the occurrence of any actual conflict of interest between the Company and Cope that should arise following the Option Closing Date), all [(A) through (C)] for a period of forty-two (42) months following the Option Closing Date for total aggregate compensation at the rate of Fifty Thousand Dollars ($50,000) per year, to be allocated by the Company in its sole discretion and election, and paid by the Company to Cope on a semi- monthly basis in accordance with the Company's then current payroll policies and procedures for outside consultants. 16. Indemnity By The Parties. Patick and Cope each agree and promise to indemnify and hold harmless the other against any claims, debts, obligations, costs, expenses (including reasonable attorney's and professional's fees) and/or liabilities of whatsoever kind or nature which arise or otherwise result from the refusal and/or failure of the indemnifying party to timely and fully perform such party's agreements and promises (covenants) as set forth herein and/or as a result of the inaccuracy of any representation or warranty made herein by the party against which such indemnification is sought. 17. Deductible Amount. Notwithstanding any provision of this Agreement to the contrary, none of the parties to this Agreement shall be required to make any indemnification or related payment under this Agreement or otherwise with respect to a claim asserted following the Option Closing alleging any breach of any of such party's representations, agreements, promises (covenants) and/or warranties under this Agreement, except to the extent that the cumulative amount of the damages actually incurred by the party seeking any such indemnification as a direct result of all such breaches of such representations, agreements, promises (covenants) and/or warranties actually exceeds, in the aggregate, the Deductible Amount (as define herein). The "Deductible Amount" shall be One Hundred Thousand Dollars ($100,000). 18. Knowledge of Breach. Unless specifically provided in writing at the time of Closing for purposes of this paragraph, none of the parties to this Agreement shall be deemed to have breached any representation, agreement, promise (covenant) and/or warranty if the party seeking indemnification under the Agreement obtained (by means of a diligent investigation or otherwise), on or prior to the Option Closing date, any actual and independently demonstrable knowledge of the breach of such representation, agreement, promise (covenant) and/or warranty by the party against which any claim of indemnification is being sought. 19. Survival of Representations and Warranties. All of the parties' representations and/or warranties as set forth in this Agreement shall survive the Option Closing; however, the rights, claims, benefits and entitlements of the parties following the Closing attributable to such representations and warranties shall, notwithstanding any contrary provision in this Agreement, automatically terminate and expire, and shall cease to be of any force or effect, and all liability of Cope and Patick with respect to such representations and/or warranties shall be extinguished and be of no further legal force or effect, on the first anniversary date of the Option Closing; provided, however, that if, on or prior to such first anniversary date, either of the parties shall have duly delivered a written claim notice to the other party, then the specific indemnification claim set forth in such claim notice shall survive such first anniversary (and shall not be extinguished as otherwise provided for by this provision). 20. Compliance With Securities Laws. The offer, sale and issuance of the Option and the Stock as provided for herein shall be in compliance with all applicable securities laws, rules and regulations. The parties each agree and promise to cooperate and assist in efforts to satisfy all requirements applicable to the transactions contemplated and as provided for in this Agreement under Federal and state securities laws, rules or regulations. 21. Complete Agreement. This Agreement contains all of the parties' statements, representations, understandings, agreements, promises, covenants, assurances, warranties, guarantees and other matters regarding the subject matter of the Agreement. This Agreement may only be supplemented, modified, amended or otherwise changed by a further writing, referencing this paragraph, and signed by the party sought to be bound by any such supplement, modification, amendment. This Agreement has and shall be deemed for all purposes to have been drafted and otherwise prepared by both of the parties and, should any ambiguity subsequently be determined to exist in or in respect of this Agreement including the language used herein, then neither party shall suffer and prejudice or disability as a result of any such ambiguity. Each of the parties acknowledges to the other that they have had the opportunity to have this Agreement and matters relating thereto reviewed by their own respective individual professional advisors including attorneys. 22. Choice Of Law. This Agreement is made and shall be governed and interpreted for all purposes under the laws of the State of California (without regard to its conflict of law provisions). 23. Notices. Notices to be given under or in respect of this Agreement shall be provided in writing and shall be deemed effective upon receipt if personally delivered or on the third day following mailing in United States Mail, certified mail - return receipt requested, addressed as follows: If To "Cope" Robert S. Cope 547 Rancho Del Monico Covina, CA 91724 With a copy to - Daniel H. Luciano, Esq. 242A West Valley Brook Road Califon, New Jersey 07830 If To "Patick" Corey M. Patick 2806 Sheridan Way Stockton, CA 95207 With a copy to - Bill D. Ringer, Esq. 1401 N. Hunter Street San Joaquin, CA 95202 If To The "Company" Auto-Graphics, Inc. 3201 Temple Avenue Pomona, CA 91768-3200 With a copy to - Robert H. Bretz, Esq. 520 Washington Blvd, PMB #428 Marina del Rey, CA 90292 Any party may, from time to time, update or otherwise change its address for purposes of notice under this Agreement by providing such notice in accordance with the provisions of this Agreement. 24. Time Is Of The Essence. For purpose of this Agreement, and the performance of the parties responsibilities and obligations hereunder and/or the satisfaction of conditions as provided for herein, time shall be deemed to be of the essence. 25. Severability. If any provision of this Agreement is hereafter finally determined to be unenforceable for any reason, then such provision shall be deemed and treated for all purposes as severed from this Agreement; and the balance of this Agreement shall remain in full force and effect as between the parties notwithstanding any such unenforceable and severed provision. 26. Attorney's Fees/Costs. Accept as specifically provided for in paragraph 7 of this Agreement, the parties to this Agreement shall each bear their own legal fees and other costs and expenses associated with the negotiation and preparation of this Agreement and matters relating thereto and attributable to the Option Closing and the sale, purchase, transfer and issuance of the Option Stock (and the Put Stock if applicable). If any party initiates any legal action or proceeding seeking to enforce such party's rights or otherwise under or in respect of this Agreement then, in additional to whatever other relief such party may be entitled to receive as a result of such action/proceeding, such party (or the other party if determined to be the prevailing party in any such legal action or proceeding) shall be entitled to recover its reasonable attorney's and other professional's fees and costs paid or incurred by such party in connection with such legal action/proceeding including in respect of an appeal in such action/proceeding. 27. Headings. The headings of the paragraphs (and any subparagraphs) of this Agreement are included for the convenience of reference only and are not intended to affect the meaning or interpretation of this Agreement. 28. Third Party Beneficiaries. The parties do not, by this Agreement or otherwise, intend to benefit any specific third person or entity; and no person or entity, who is not a signatory party to this Agreement, shall have or assert any right under or otherwise in respect of this Agreement. The Company is not intended and shall not be deemed for any reason to be a signatory party to this Agreement; and, the Company's "Acknowledged/Agreed" signature below is intended solely to indicate that the Company agrees and promises not to act in a manner that is inconsistent with the parties' agreements and promises (covenants), as they relate to the Company, where such agreements and promises (covenants) are not inconsistent with the Company's Articles of Incorporation, By-Laws or under the laws of the State (California) wherein the Company is incorporated, and that the Company does hereby agree and promise to allow Patick, if and when Patick actually exercises the Option to purchase the Option Stock and prior to the Option Closing, and his representatives to conduct such "due diligence" as is customary in the case of similar stock purchase transactions - - and for no other purpose. 29. Documents To Be Delivered By Patick At the Closing. If the Option is exercised, then Patick is entitled to conduct "due diligence" as provided for in the foregoing paragraph; and, at the Option Closing and as a condition thereto, Patick shall provide Cope and the Company with the following representations, warranties and other assurances: A. Patick is acquiring the Option Stock (and the Put Stock if applicable) for investment purposes and not with a view to resell or otherwise transfer such Stock; B. Patick has carefully reviewed the financial condition of the Company as presented in the latest annual and quarterly financial statements which were provided to Patick by Cope (or the Company) as provided for in paragraph 11(F) hereof; C. Patick has carefully reviewed the Company's periodic reports filed with the SEC (10-K, 10-Q and 8-K Reports) with the United States Securities and Exchange Commission (the "SEC") which were provided to Patick by Cope (or the Company) as provided for in paragraph 11(F) hereof; D. Patick has been provided the opportunity to obtain any other information regarding the Company, its business, results of operations, financial condition, prospects and/or the Company's Common Stock; E. Patick acknowledges his understanding that the offer and sale by Cope of the Option Stock (and the Put Stock if applicable) has not been registered and/or qualified under any state or Federal securities laws, rules and regulations and is, therefore, deemed to be "restricted securities" under the Securities Exchange Act of 1934, as amended, and that the certificates representing such Stock when issued to Patick will be subject to "stop transfer" instructions given to the Company's stock transfer agent and such certificates will contain the following or a substantially similar legend to be approved by the Company's legal counsel: "The securities represented by this certificate have not been registered under the United States Securities Act of 1933, as amended (the "Act") or any state securities law. These shares have been acquired for investment and may not be offered for sale, hypothecated, sold or transferred, nor will any assignee or transferee thereof be recognized by the Company as having any interest in such shares, in the absence of (i) an effective registration statement with respect to the shares under the Act, and any other applicable state law, or (ii) an opinion of counsel satisfactory to the Company that such shares will be offered for sale, hypothecated, sold or transferred only in a transaction which is exempt under or is otherwise in compliance with the applicable securities laws." F. Patick has evaluated the risks associated with the acquisition of the Option Stock (and the Put Stock if applicable) and has determined that the acquisition of such Stock is a suitable investment and that Patick can bear the entire risk of loss associated with the purchase of such Stock; and G. Patick understands and acknowledges that neither Cope (including the Trust) nor any of his agents, if any, have made any representations to Patick regarding the Company, its business future or business prospects or the future price of the Common Stock of the Company, except as otherwise provided for in this Agreement and as indicated on any schedule that Patick shall provide to Cope (and the Company) confirming any additional representations which have been provided to Patick which, when approved by Cope (and/or the Company where appropriate), Patick shall be entitled to rely upon in determining to purchase the Option Stock (and the Put Stock if applicable) under this Agreement. 30. Successors In Interest. This Agreement, including all rights and obligations provided for herein, is binding upon the parties including their heirs, executors, administrators, trustees and successor trustees, designees, assigns, and other successors in interest. IN WITNESS WHEREOF, the parties thereunto duly authorized have executed this Agreement in Pomona, California effective as of the date first set forth above. ("Cope") ss/ Robert S. Cope Robert S. Cope ss/ Elizabeth Cope Elizabeth Cope THE COPE FAMILY TRUST By ss/ Robert S. Cope Robert S. Cope, Trustee ("Patick") ss/ Corey M. Patick Corey M. Patick Acknowledged and Agreed AUTO-GRAPHICS, INC. (the "Company") By ss/Robert S. Cope Robert S, Cope, President By ss/Daniel E. Luebben Daniel L. Luebben, Secretary EX-10.31 4 EXHIBIT 10.31 SELLING AGREEMENT This SELLING AGREEMENT dated May 15, 1999 (the "Agreement") is made and entered into by and between Auto-Graphics, Inc., a California corporation (the "Company") on the one hand and Corey M. Patick, an individual ("Patick") on the other hand. RECITALS WHEREAS, the Company would like to obtain additional equity capital through the offer and sale of shares of its authorized but unissued Common Stock in a private and/or public offering of such stock (collectively the "Securities Offerings"); WHEREAS, the Company would like to offer and sell between 200,000 and 450,000 shares of its authorized but unissued Common Stock in a private offering (restricted stock) for a price per share of $2.50 (the "Private Offering"); WHEREAS, if the Private Offering is successful (the Company raises at least $500,000 in such Offering as more fully defined herein), then the Company would like to proceed to offer and sell up to an additional 1,000,000 shares of its authorized and unissued shares of Common Stock at a minimum price of $5 per share in an SEC registered offering (the "Public Offering"); WHEREAS, Patick has a background and experience in the finance and securities areas and desires to assist the Company with the above referenced Securities Offerings and the Company desires to secure such services; WHEREAS, the Company and Patick desire to memorialize in this Agreement their understandings and agreements regarding assistance by Patick in respect of such Securities Offerings; AGREEMENT NOW, THEREFORE, the undersigned parties intending to be legally bound and obligated thereby, in consideration of the premises and the covenants contained in this Agreement, and subject to the conditions set forth herein, do hereby agree as follow: 1. Selling Assistance. During the Term of this Agreement, and subject to paragraph 7 hereof, Patick agrees to assist and the Company hereby engages Patick to assist the Company in respect of the Securities Offerings (the "Services"). Such Services shall be on a substantially full-time basis (no less than an average of 35 hours per week). For purposes of rendering the Services, Patick's activities shall be generally described as "Vice-President - Special Projects" or such other position or name as the Company and Patick shall subsequently determine to be appropriate for purposes of the Services to be rendered and rendered by Patick in connection with the Securities Offerings. 2. Limitations On Services. Due to the special, limited nature of the Services to be rendered by Patick as provided for under this Agreement, Patick agrees and promises not to attempt to and/or actually bind and/or obligate the Company in respect of any matters or things other than the subject matter of the Securities Offering as specifically reviewed and approved by the Company's Board of Directors and set forth in the securities disclosure document(s) submitted to and approved by the Board or as otherwise authorized by the Company's Board of Directors in writing. 3. Term. The Term of this Agreement shall commence on May 15, 1999 and continue on a continuous basis, unless earlier terminated pursuant to paragraph 7 hereof, for a period of nine (9) months ending February 14,2000 (herein the "Term"). 4. Compensation. During the Term of the Agreement, in consideration for the Services, the Company shall pay Patick and Patick will receive from the Company the following compensation and other opportunities: A. Payments. In consideration for the Services, the Company will pay Patick a monthly payment of $15,000; and B. Performance Opportunity/Private Offering. If the Private Offering is in fact successful, defined as no less than $500,000 actually raised and received by the Company in a Private Offering, complying in all respects with applicable securities laws, rules and regulations, within one hundred and twenty (120) days of the date of this Agreement ("Successful Offering"), then Patick shall have the right ("Performance Opportunity") to purchase from the Company warrants at a price of $.01 per warrant entitling Patick, for a period of three (3)years from the date of issuance, to purchase shares of the Company's authorized and unissued Common Stock at a price equal to the par value ($.10) of such stock in a private offering (restricted stock including a legend restricting transfer with an appropriate stop transfer instruction on file with the Company's stock transfer agent). Subject to the above requirement for a Successful Offering, for each share sold in the Private Offering Patick shall be entitled to .1875 warrants (each whole warrant representing the right to purchase one share of stock) rounded to the nearest whole number of warrants up to a maximum of 80,000 warrants and underlying shares of the Company's restricted Common Stock (the "Warrants"). The Warrants shall not be assignable or transferable by Patick absent the approval of the Company which will not be unreasonably withheld. Such Performance Opportunity shall not be deemed or treated as compensation to Patick but rather an investment opportunity to Patick conditioned upon the success of the Private Offering as provided for herein. If the Company is not able to conduct and complete a Successful Offering, then the Company shall have the right to terminate this Agreement as provided for in paragraph 7 hereof. C. Possible Further Performance Bonus/Public Offering. The parties agree that they will defer discussion and agreement as to what, if any, possible further performance bonus opportunity the Company might make available to and Patick might receive in respect of the proposed Public Offering and the success of Patick's efforts to assist the Company to arrange and the Company's actual ability to conduct and successfully complete such possible offering during the Term of this Agreement. The parties acknowledge that they may not ultimately reach a mutually acceptable agreement in respect of this particular further performance opportunity matter and that, if they do not reach any such mutual agreement at any time in the future, no rights, benefits, entitlements, duties, responsibilities, obligations and/or liabilities shall attach thereto or result therefrom on the part of either party relating to such performance bonus opportunity as referenced herein. Patick further acknowledges that the Company's ability to proceed with and conduct any such Public Offering, or any alternative public offering, is subject to numerous uncertainties many of which are beyond the Company's control such as the Company's ability to obtain "effectiveness" of the registration statement covering such offering with the U.S. Securities and Exchange Commission and the registration and/or qualification of such Offering with the various state regulatory agencies who would have jurisdiction over any such Offering. Accordingly, Patick agrees and promises not to provide any prospective investor or other person with any assurances that any such Public Offering or any securities offering by the Company will be actually undertaken or, if undertaken, will be successfully completed or otherwise represent any benefit to the Company and/or investors in the Private Offering. D. Expenses. Patick will be responsible for his own travel and related expenses paid or incurred by Patick in performing the Services, and the Company shall have no obligation to Patick in respect of any such costs or expenses (and Patick will not obligate the Company in respect of any such costs/expenses). 5. Certain Covenants By The Company And Patick Re Private Offering. The Company with the assistance of its outside legal counsel and independent certified public accountants will cause to be prepared the Private Offering memorandum, including any necessary or advisable investor subscription and related documentation, to be used for and in conducting the Private Offering (collectively the "Offering Materials"); and Patick agrees and promises to use, exclusively, such Offering Materials to conduct the Private Offering and, further Patick agrees and promises not to provide any prospective or actual investor in the Private Offering with any information, statements, materials, and/or assurances which have not previously been reviewed and approved in writing by the Company for such purpose. The Company further agrees and covenants to use its best efforts to ensure that all of the Offering Materials are accurate and complete in all material respects and do not contain any false or misleading statements or omit to make any statements which, based on the statements that are contained in such Offering Materials, render such statements false or misleading in any material respect. Except for the use of the Offering Materials by Patick as provided for herein intended to facilitate compliance with applicable securities laws pertaining to the Private Offering, the Company will not seek to or have the right to direct or control, and will not interfere with, Patick's activities to locate prospective investors and to cause such prospective investors to subscribe to the Private Offering; provided that all of Patick's activities, including the methods and means of conducting the subject Private Offering, are lawful which Patick represents and warrants will be the case. 6. Indemnity By The Parties. The parties hereby each agree and promise to indemnify and hold harmless the other against any claims, debts, judgments, obligations, costs, expenses (including reasonable attorney's and professional's fees) and/or liabilities of whatsoever kind or nature which arise or otherwise result from the refusal and/or failure of the indemnifying party to timely and fully perform such party's agreements and promises as set forth herein. 7. Termination By The Company. In the event that the Company is not able for any reason to timely conclude a Successful Offering (as defined herein in paragraph 4.B.), then either the Company or Patick shall have the absolute right, in either of such party's sole and absolute discretion and election to terminate this Agreement and all of such parties' responsibilities and obligations (including without limitation the Company's obligation to pay Patick any further compensation and to sell and issue Patick any Warrants or underlying shares of stock) under this Agreement, except only that the parties' respective rights and obligations under paragraphs 10 and 11 hereof shall survive any such termination. 8. Subsequent Services. At the end of the Term of this Agreement, Patick and the Company will negotiate the terms and conditions of the continuation of Services and/or alternative services by Patick to the Company for a minimum period of one year. 9. Compliance With Securities Laws. The offer, sale and issuance of the Securities, including the shares of stock in the Private Offering and the Warrants and underlying shares of stock, shall be in compliance with all applicable securities laws, rules and regulations. 10. Confidential Information/Covenant Not To Compete. In the event this Agreement is earlier terminated or expires in accordance with its terms (including the Term as defined herein), or when the period of Services by Patick otherwise ends, Patick hereby agrees and promises that (A) he will not directly or indirectly take, avail himself of, use or otherwise seek to take advantage of any confidential, trade secret or other proprietary materials and/or information of the Company ("Confidential Information"); (B) Patick will use his best efforts to treat, preserve and protect all Confidential Information provided to or obtained by him during the period of his Services to the Company and thereafter; (C) at the time when Patick is no longer rendering Services to the Company, he will return and/or deliver to the Company all written documents, writings and things including information provided to him by the Company or otherwise obtained by him from any source in connection with his rendering Services to the Company or otherwise, without retaining any copies or other duplicates including excerpts thereof, and that he will provide the Company with a certificate under penalty of perjury under California law confirming his compliance with this subparagraph (C); (D) Patick will not while he is rendering Services to the Company or for a period of one (1) year after the period of his Services to the Company ends, solicit, induce or attempt to induce any employee and/or other representative of the Company to terminate his/her employment with and/or other services to the Company; and that (E) Patick will not while he is rendering Services to the Company or for a period of one (1) year after the termination or cessation of such Services, solicit, induce or attempt to induce any person or entity having a business relationship with the Company formed prior to or during the period of time when Patick was rendering Services to the Company to terminate such business relationship with the Company or to do any thing, directly or indirectly, to interfere in a materially adverse manner with any such relationship between the Company and any such person or entity. Further, Patick agrees and promises that, at the time that he is no longer rendering Services to the Company, he will not, directly or indirectly, including through employment, consulting or other relationship and/or ownership interest in any company or business venture, compete with the Company in respect of its business as now or then engaged in by the Company for a period of one (1) year from the last date of his rendering Services to the Company under this Agreement. 11. Inventions/Copyright/Patent And Other Rights To The Company. Any and all inventions, improvements, discoveries, processes, copyrights, patents and all other creative efforts of Patick conceived, discovered, undertaken, written, made, developed or otherwise coming into existence during the period of time that Patick is rendering Services to the Company shall be owned, without the payment by the Company of any additional compensation to Patick, entirely by the Company; and Patick agrees and promises to make immediate and full disclosure to the Company of any and all such inventions, improvements, discoveries, processes, copyrights, patents and other creative efforts and to cooperate and assist the Company in all ways and manner to perfect and protect its right, title and interest in and to such intellectual property. 12. Complete Agreement. This Agreement contains all of the parties' statements, representations, understandings, agreements, promises, covenants, assurances, warranties, guarantees and other matters regarding the subject matter of the Agreement. The Recitals which appear at the outset of this Agreement are incorporated and made a part of this Agreement. This Agreement supersedes and corrects that certain prior agreement dated as of this same date pertaining to the services by Patick to the Company in respect of the Securities Offerings by the Company. This Agreement may only be supplemented, modified, amended or otherwise changed by a further writing, referencing this paragraph, and signed by the party sought to be bound by any such supplement, modification, amendment. This Agreement has and shall be deemed for all purposes to have been drafted and otherwise prepared by both of the parties and, should any ambiguity subsequently be determined to exist in or in respect of this Agreement including the language used herein or otherwise, then neither party shall suffer any prejudice or disability as a result of any such ambiguity. Each of the parties acknowledges to the other that they have had the opportunity to have this Agreement and matters relating thereto reviewed by their own respective individual attorney and/or other professional advisor. 13. Choice Of Law. This Agreement is made and shall be governed and interpreted for all purposes under the laws of the State of California without regard to its conflict of law provisions. 14. Notices. Notices to be given under or in respect of this Agreement shall be provided in writing and shall be deemed effective upon receipt if personally delivered or on the third (3rd) day following mailing in the United States Mail by certified mail - return receipt requested, addressed as follows: If To The Company Auto-Graphics, Inc. 3201 Temple Avenue Pomona, CA 91768-3200 With a copy to - Robert H. Bretz, Esq. 520 Washington Blvd, PMB #428 Marina del Rey, CA 90292 If To Patick Corey M. Patick 21626 Acanthus Circle Walnut, California 91789 With a copy to - Bill D. Ringer, Esq. 1401 N. Hunter Street San Joaquin, CA 95202 Any party may, from time to time, update or otherwise change its address for purposes of notice under this Agreement by providing such notice in accordance with the provisions of this paragraph. 15. Time Is Of The Essence. For purpose of this Agreement, including the performance of the parties' responsibilities, duties and obligations hereunder, time shall be deemed to be of the essence. 16. Assignment and Other Matters. The parties to this Agreement shall not have the right, absent the other party's prior written approval and consent which will not be unreasonably withheld, to assign or otherwise transfer this Agreement including any of their rights, duties, responsibilities and/or obligations hereunder to any person or entity. Patick acknowledges that the Company regards the Services to be rendered hereunder by him as personal and unique to Patick and that the Company would not elect to enter into this Agreement with any one but Patick. 17. Severability. If any provision of this Agreement is hereafter finally determined to be unenforceable for any reason, then such provision shall be deemed and treated for all purposes as severed from this Agreement; and the balance of this Agreement shall remain in full force and effect as between the parties notwithstanding any such unenforceable and severed provision. 18. Attorney's Fees. If either party initiates any legal action or proceeding seeking to enforce such party's rights or otherwise under or in respect of this Agreement then, in additional to whatever other relief such party may be entitled to receive as a result of such action/proceeding, such party (or the other party if determined to be the prevailing party in any such legal action or proceeding) shall be entitled to recover its reasonable attorney's and other professional's fees and costs paid or incurred by such party in connection with such legal action/proceeding including in respect of an appeal in such action/proceeding. 19. Headings. The headings of the paragraphs (and any subparagraphs) of this Agreement are included for the convenience of reference only and are not intended to affect the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, the parties thereunto duly authorized have executed this Agreement in Pomona, California effective as of the date first set forth above. AUTO-GRAPHICS, INC. (the "Company") By ss/Robert S. Cope Robert S. Cope, President By ss/Daniel E. Luebben Daniel E . Luebben, Secretary ("Patick") ss/Corey M. Patick Corey M. Patick EX-10.32 5 EXHIBIT 10.32 SIXTH AMENDMENT TO CREDIT AGREEMENT THIS SIXTH AMENDMENT TO CREDIT AGREEMENT (this Amendment) is entered into as of June 30, 1999 by and between AUTO-GRAPHICS, INC., a California corporation (Borrower), and WELLS FARGO BANK, NATIONAL ASSOCIATION (Bank). RECITALS A. Borrower is currently indebted to Bank pursuant to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of May 12, 1997 as amended from time to time (Credit Agreement). B. Pursuant to the Credit Agreement, Borrower remains indebted to Bank under a Line of Credit in the maximum principal amount of One Million Two-Hundred Fifty Thousand Dollars ($1,250,000.00) (Line of Credit) which is evidenced by that certain promissory note executed by Borrower in favor of Bank in the amount of the Line of Credit and dated as of May 12, 1997 (Prior Line of Credit Note). The Line of Credit matured and became due and payable in full on June 1, 1999 and as of the date hereof, the outstanding principal balance under the Line of Credit is $191,807.04, plus accrued but unpaid interest. C. Pursuant to the Credit Agreement, Borrower remains indebted to Bank under a term loan in the maximum principal amount of Three Million Dollars ($3,000,000.00) (Equipment Line of Credit) which is evidenced by that certain promissory note executed by Borrower in favor of Bank in the amount of the Equipment Line of Credit and dated as of May 12, 1997 (Prior Equipment Line of Credit Note). The Equipment Line of Credit matured and become due and payable in full on June 1, 1999 and as of the date hereof, the outstanding principal balance under Equipment Line of Credit is $3,000,000.00, plus accrued but unpaid interest. D. Pursuant to the Credit Agreement, Borrower remains indebted to Bank under a term loan in the original principal amount of Three Hundred Seventy-five Thousand Dollars ($375,000.00) (Term Loan) which is evidenced by that certain promissory note executed by Borrower in favor of Bank in the amount of the Term Loan and dated as of June 1, 1998 (Prior Term Note). As of the date hereof, the outstanding principal balance under the Term Note is $374,999.99, plus accrued but unpaid interest. E. Borrower has requested that Bank extend the maturity dates of the Line of Credit and the Equipment Line of Credit and replace the Prior Term Note, and Bank has agreed to the foregoing subject to the terms and conditions set forth herein. NOW THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Bank and Borrower hereby agree that the Credit Agreement shall be amended as follows to reflect said changes; provided, however, that nothing shall terminate any security interest or guaranties in favor of Bank and all such security interests and guaranties shall continue in full force and effect. 1. Section 1.1 (a) of the Credit Agreement is hereby deleted in its entirety and the following substituted therefor: (a) Line of Credit. Subject to the terms and conditions of this Agreement, Bank hereby agrees to make advances to Borrower from time to time up to and including June 1, 2000, not to exceed at any time the aggregate principal amount of One Million Dollars ($1,000,000.00), the proceeds of which shall be used for working capital. Borrower's obligation to repay advances under the Line of Credit shall be evidenced by a promissory note substantially in the form of Exhibit A attached hereto (Line of Credit Note), all terms of which are incorporated herein by this reference. The foregoing change shall become effective upon the execution and delivery to Bank of a promissory note substantially in the form of Exhibit A attached hereto (which promissory note shall replace and be deemed the Line of Credit Note defined in and made pursuant to the Credit Agreement) and all other contracts, instruments and documents required by Bank to evidence such change; provided, however, that outstanding advances under the Line of Credit heretofore provided Borrower by Bank in connection with the Prior Line of Credit Note shall be deemed outstanding advances under the Line of Credit Note in effect hereby. 2. Section 1.2 (a) of the Credit Agreement is hereby amended by deleting June 1, 1999 as the last day on which Bank will make advances under the Equipment Line of Credit, and by substituting for said date June 1, 2000, with such change to be effective upon the execution and delivery to Bank of a promissory note substantially in the form of Exhibit B attached hereto (which promissory note shall replace and be deemed the Equipment Line of Credit Note defined in and made pursuant to the Credit Agreement) and all other contracts, instruments and documents required by Bank to evidence such change; provided, however, that all outstanding advances under the Equipment Line of Credit heretofore provided Borrower by Bank in connection with the Prior Equipment Line of Credit Note shall be deemed outstanding advances under the Equipment Line of Credit Note in effect hereby. 3. Borrower's obligation to repay the outstanding principal balance under Term Loan shall be evidenced by a new promissory note substantially in the form of Exhibit C attached hereto (which promissory note shall replace the Prior Term Note and be deemed the Term Note defined in and made pursuant to Section 1.3 of the Credit Agreement) with such change to be effective upon Borrower's execution and delivery of the new promissory note and all other contracts, instruments and documents and documents required by Bank to evidence such change. 4. Section 1.7 of the Credit Agreement is hereby deleted in its entirety, and the following substituted therefor: 1.7. GUARANTEES. All indebtedness of Borrower to Bank shall be guaranteed by Robert S. Cope in the principal amount of up to $4,375,000.00, as evidenced by and subject to the terms of a guaranty in form and substance satisfactory to Bank. All indebtedness of Borrower to Bank shall continue to be guaranteed by A-G Canada pursuant to the terms of that certain Guaranty in favor of Bank executed by A-G Canada and dated as of October 31, 1997. 5. Section 4.8 (a) of the Credit Agreement is hereby deleted in its entirety, and the following substituted therefor: (a) EBITDA not less than $270,000.00 per fiscal quarter, measured each fiscal quarter end and fiscal year end, on a cumulative basis, with EBITDA defined as net profit before tax plus interest expense (net of capitalized interest expense), depreciation expense and amortization expense. 6. Section 4.8 (b) of the Credit Agreement is hereby deleted in its entirety, and the following substituted therefor: (b) Operating Income not less than $1.00 per fiscal quarter, measured each fiscal quarter end and fiscal year end, on a cumulative basis, with Operating Income defined as net sales, less cost of sales, sales and administrative expenses and excluding expenses paid or incurred in connection with raising New Capital. As used herein, New Capital shall mean cash and cash equivalents received and deposited by Borrower on or after June 30, 1999 in the form of a capital contribution in immediately available funds (prior to the deduction of any and all selling commissions and other costs and expenses, including legal fees attributable to the offering). 7. A new Section 4.8 (c) is hereby added to the Credit Agreement, as follows: (c) Tangible Net Worth shall not be less than $1,573,000.00 as of each fiscal quarter end and as of fiscal year end, with Tangible Net Worth defined as the aggregate of total stockholders' equity plus subordinated debt less any intangible assets. For purposes of this Agreement, capitalized software development and acquisition cost is considered a tangible asset. 8. Sections 4.8 (d) and 4.8(e) of the Credit Agreement are hereby deleted in their entirety. 9. The following is hereby added to the Credit Agreement as Section 4.11: SECTION 4.11. WAIVER. Borrower hereby waives all of its rights under California Civil Code Section 2822, which provides as follows: (a) The acceptance, by a creditor, of anything in partial satisfaction of an obligation, reduces the obligation of a surety thereof, in the same measure as that of the principal, but does not otherwise affect it. However, if the surety is liable upon only a portion of an obligation and the principal provides partial satisfaction of the obligation, the principal may designate the portion of the obligation that is to be satisfied. (b) For purposes of this section and Section 2819, an agreement by a creditor to accept from the principal debtor a sum less than the balance owed on the original obligation, without the prior consent of the surety and without any other change to the underlying agreement between the creditor and principal debtor, shall not exonerate the surety for the lesser sum agreed upon by the creditor and principal debtor. 10. Section 6.1(i) of the Credit Agreement is hereby deleted in its entirety. 11. Borrower shall pay to Bank, in immediately available funds, a non-refundable commitment fee in an amount equal to Forty Three- Thousand Seven-Hundred Fifty Dollars ($43,750.00) which fee shall be due in three installments as follows: (a) Fifteen Thousand Dollars ($15,000.00) shall be due and payable upon Borrower's execution and delivery to Bank of this Amendment; (b) Fifteen Thousand Dollars ($15,000.00) shall be due and payable thirty (30) days after Borrower's execution and delivery to Bank of this Amendment; and (c) Thirteen Thousand Seven Hundred Fifty Dollars ($13,750.00) shall be due and payable sixty (60) days after Borrower's execution and delivery to Bank of this Amendment. Borrower further acknowledges and agrees that the commitment fee shall be fully earned by Bank upon Borrower's execution and delivery to Bank of this Amendment. 12. The obligation of Bank to amend the terms and conditions of the Credit Agreement as set forth herein is subject to the fulfillment to Bank's satisfaction of all of the following conditions: (a) Bank shall have received, in form and substance satisfactory to Bank, each of the following: (i) This Amendment, the Line of Credit Note, Equipment Line of Credit and Term Note. (ii) Certificate of Incumbency. (iii) Corporate Resolution: Borrowing. (iv) Continuing Guaranty from Robert S. Cope. (v) Guarantors Consent, Reaffirmation and General Release attached hereto (A-G Canada). (vi) Guarantor's Consent and General Release attached hereto (Robert S. Cope). (vii) Such other documents as Bank may require under any other section of this Amendment. (b) Borrower shall have delivered to Bank all amounts due under Paragraph 11 (a) above. 13. General Release. In consideration of the benefits provided to Borrower under the terms and provisions hereof, Borrower and each guarantor hereunder hereby agree as follows (General Release): (a) Borrower and each guarantor hereunder, for itself and on behalf of its respective successors and assigns, do hereby release, acquit and forever discharge Bank, all of Bank's predecessors in interest, and all of Bank's past and present officers, directors, attorneys, affiliates, employees and agents, of and from any and all claims, demands, obligations, liabilities, indebtedness, breaches of contract, breaches of duty or of any relationship, acts, omissions, misfeasance, malfeasance, causes of action, defenses, offsets, debts, sums of money, accounts, compensation, contracts, controversies, promises, damages, costs, losses and expenses, of every type, kind, nature, description or character, whether known or unknown, suspected or unsuspected, liquidated or unliquidated, each as though fully set forth herein at length (each, a Released Claim and collectively, the Released Claims), that Borrower or any guarantor hereunder now has or may acquire as of the later of: (i) the date this Amendment becomes effective through the satisfaction (or waiver by Bank) of all conditions hereto; or (ii) the date that Borrower and each guarantor hereunder have executed and delivered this Amendment to Bank (hereafter, the Release Date), including without limitation, those Released Claims in any way arising out of, connected with or related to any and all prior credit accommodations, if any, provided by Bank, or any of Bank's predecessors in interest, to Borrower or any guarantor hereunder, and any agreements, notes or documents of any kind related thereto or the transactions contemplated thereby or hereby, or any other agreement or document referred to herein or therein. (b) Borrower and each guarantor hereunder hereby acknowledge, represent and warrant to Bank as follows: (i) Borrower and such guarantor understand the meaning and effect of Section 1542 of the California Civil Code which provides: Section 1542. GENERAL RELEASE; EXTENT. A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. (ii) With regard to Section 1542 of the California Civil Code, Borrower and each such guarantor agree to assume the risk of any and all unknown, unanticipated or misunderstood defenses and Released Claims which are released by the provisions of this General Release in favor of Bank, and Borrower and each such guarantor hereby waive and release all rights and benefits which they might otherwise have under Section 1542 of the California Civil Code with regard to the release of such unknown, unanticipated or misunderstood defenses and Released Claims. (c) Each person signing below on behalf of Borrower or any guarantor hereunder acknowledges that he or she has read each of the provisions of this General Release. Each such person fully understands that this General Release has important legal consequences, and each such person realizes that they are releasing any and all Released Claims that Borrower or any such guarantor may have as of the Release Date. Borrower and each guarantor hereunder hereby acknowledge that each of them has had an opportunity to obtain a lawyer's advice concerning the legal consequences of each of the provisions of this General Release. (d) Borrower and each guarantor hereunder hereby specifically acknowledge and agree that: (i) none of the provisions of this General Release shall be construed as or constitute an admission of any liability on the part of Bank; (ii) the provisions of this General Release shall constitute an absolute bar to any Released Claim of any kind, whether any such Released Claim is based on contract, tort, warranty, mistake or any other theory, whether legal, statutory or equitable; and (iii) any attempt to assert a Released Claim barred by the provisions of this General Release shall subject Borrower and each guarantor hereunder to the provisions of applicable law setting forth the remedies for the bringing of groundless, frivolous or baseless claims or causes of action. 14. Except as specifically provided herein, all terms and conditions of the Credit Agreement remain in full force and effect, without waiver or modification. All terms defined in the Credit Agreement shall have the same meaning when used in this Amendment. This Amendment and the Credit Agreement shall be read together, as one document. 15. Borrower hereby remakes all representations and warranties contained in the Credit Agreement and reaffirms all covenants set forth therein. Borrower further certifies that as of the date of this Amendment there exists no Event of Default as defined in the Credit Agreement, nor any condition, act or event which with the giving of notice or the passage of time or both would constitute any such Event of Default. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first written above. AUTO-GRAPHICS, INC. WELLS FARGO BANK, NATIONAL ASSOCIATION By: ss/Robert S. Cope By: ss/Darryl S. Hallie Robert S. Cope Darryl S. Hallie Title:_President/CEO Vice President GUARANTOR'S CONSENT, REAFFIRMATION AND GENERAL RELEASE The undersigned guarantor of all indebtedness of Auto- Graphics, Inc. to Wells Fargo Bank, National Association hereby: (i) consents to the foregoing Amendment; (ii) reaffirms its obligations under its Guaranty dated as of October 31, 1997; (iii) reaffirms its waivers of each and every one of the defenses to such obligations as set forth in its Guaranty; (iv) reaffirms that its obligations under its Guaranty are separate and distinct from the obligations of any other party under said Amendment and the other Loan Documents described therein; and (v) agrees to join in and be bound by all of the terms and provisions of the General Release contained in Paragraph 13 thereof. GUARANTOR: A-G CANADA LTD. By: ss/Robert S. Cope Robert S. Cope Title: Director GUARANTOR'S CONSENT AND GENERAL RELEASE The undersigned guarantor of all indebtedness of Auto- Graphics, Inc. to Wells Fargo Bank, National Association hereby, subject to the terms and conditions of the Continuing Guaranty, including the Addendum thereto, executed concurrently herewith: (i) consents to the foregoing Amendment; and (ii) agrees to join in and be bound by all of the terms and provisions of the General Release contained in Paragraph 13 thereof. GUARANTOR: Robert S. Cope EX-10.33 6 EXHIBIT 10.33 CONTINUING GUARANTY TO: WELLS FARGO BANK. NATIONAL ASSOCIATION 1. GUARANTY; DEFINITIONS. In consideration of the credit or other financial accommodation described herein and extended or made to AUTO-GRAPHICS, INC. (Borrowers), or any of them, by WELLS FARGO BANK, NATIONAL ASSOCIATION (Bank), and for other valuable consideration, the undersigned ROBERT S. COPE (Guarantor), jointly and severally unconditionally guarantees and promises to pay to Bank or order, on demand in lawful money of the United States of America and in immediately available funds, any and all Indebtedness of any of the Borrowers to Bank. The term Indebtedness is used herein in its most comprehensive sense and includes any and all advances, debts, obligations and liabilities of Borrowers, or any of them, heretofore. now or hereafter made, incurred or created. whether voluntary or involuntary and however arising, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether Borrowers may be liable individually or jointly with others, or whether recovery upon such Indebtedness may be or hereafter becomes unenforceable. 2. MAXIMUM LIABILITY; SUCCESSIVE TRANSACTIONS; REVOCATION; OBLIGATION UNDER OTHER GUARANTIES. The liability of Guarantor shall not exceed at any one time the sum of $4,375,000.00 for principal, plus all interest thereon and costs and expenses pertaining to the enforcement of this Guaranty and/or the collection of the indebtedness of any of the Borrowers to Bank. Notwithstanding the foregoing, Bank may permit the Indebtedness of Borrowers to exceed Guarantor's liability. This is a continuing guaranty and all rights, powers and remedies hereunder shall apply to all past, present and future Indebtedness of each of the Borrowers to Bank, including that arising under successive transactions which shall either continue the Indebtedness, increase or decrease it, or from time to time create new indebtedness after all or any prior Indebtedness has been satisfied and notwithstanding the death, incapacity, dissolution, liquidation or bankruptcy of any Borrowers or Guarantor or any other event or proceeding affecting any of the Borrowers or Guarantor. This Guaranty shall not apply to any new Indebtedness created after actual receipt by Bank of written notice of its revocation as to such new Indebtedness; provided however, that loans or advances made by the Bank to any of the Borrowers after revocation under the commitments existing prior to receipt by Bank of such revocation, and extensions, renewals or modifications, of any kind, of indebtedness incurred by any of the Borrowers or committed by Bank prior to receipt by Bank of such revocation, shall not be considered new Indebtedness. Any such notice must be sent to Bank by registered US mail, postage prepaid, addressed to its office at 333 South Grand Ave. 9th Floor, Los Angeles, CA 90071, or at such other address as Bank shall from time to time designate. Any payment by Guarantor with respect to the Indebtedness shall not reduce Guarantor's maximum obligation hereunder unless written notice to that effect is actually received by the Bank at or prior to the time of such payment. The obligations of Guarantor hereunder shall be in addition to any obligations of Guarantor under any other guaranties of any liabilities or obligations of any of the Borrowers or any other persons heretofore or hereafter given to Bank unless said other guaranties are expressly modified or revoked in writing; and this Guaranty shall not, unless expressly herein provided, affect or invalidate any such other guaranties. 3. OBLIGATIONS JOINT AND SEVERAL; SEPARATE ACTIONS; WAIVER OF STATUTE OF LIMITATIONS; REINSTATEMENT OF LIABILITY. The obligations hereunder are joint and several and independent of the obligations of Borrowers, and a separate action or actions may be brought and prosecuted against Guarantor whether action is brought against any of the Borrowers or any other person, or whether any of the Borrowers or any other person is joined in any such action or actions. Guarantor acknowledges that this Guaranty is absolute and unconditional, there are no conditions precedent to the effectiveness of this Guaranty, and this Guaranty is in full force and effect and is binding on Guarantor as of the date written below, regardless of whether Bank obtains collateral or any guaranties from others or takes any other action contemplated by Guarantor. Guarantor waives the benefit of any statute of limitations affecting Guarantor's liability hereunder or the enforcement thereof, and Guarantor agrees that any payment of any Note Indebtedness or other act which shall toll any statute of limitations applicable thereto shall similarly operate to toll such statute of limitations applicable to Guarantor's liability hereunder. The liability of Guarantor hereunder shall be reinstated and revived and the rights of Bank shall continue if and to the extent that for any reason any amount at any time paid on account of any Note Indebtedness guaranteed hereby is rescinded or must otherwise be restored by Bank, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, all as though such amount had not been paid. The determination as to whether any amount so paid must be rescinded or restored shall be made by Bank in its sole discretion; provided however, that if Bank chooses to contest any such matter at the request of Guarantor, Guarantor agrees to indemnify and hold Bank harmless from and against all costs and expenses, including reasonable attorneys' fees, expended or incurred by Bank in connection therewith, including without limitation, in any litigation with respect thereto. 4. AUTHORIZATIONS TO BANK. Guarantor authorizes Bank, without notice to or demand an Guarantor. and without affecting Guarantor's liability hereunder, from time to time to: (a) alter, compromise, renew, extend, accelerate or otherwise change the time for payment of, or otherwise change the terms of, the Note Indebtedness or any portion thereof, including increase or decrease of the rate of interest thereon; (b) take and hold security for the payment of this Guaranty or the Note Indebtedness or any portion thereof, and exchange, enforce, waive, subordinate or release any such security; (c) apply such security and direct the order or manner of sale thereof, including without limitation, a non-judicial sale permitted by the terms of the controlling security agreement or deed of trust, as Bank in its discretion may determine; (d) release or substitute any one or more of the endorsers or any other guarantors of the Note Indebtedness, or any portion thereof, or any other party thereto; and (e) apply payments received by Bank from any of the Borrowers to any Indebtedness of any of the Borrowers to Bank, in such order as Bank shall determine in its sole discretion, whether or not such Indebtedness is covered by this Guaranty, and Guarantor hereby waives any provision of law regarding application of payments which specifies otherwise. Bank may without notice assign this Guaranty in whole or in part. Upon Bank's request, Guarantor agrees to provide to Bank copies of Guarantor's financial statements. 5. REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to Bank that: (a) this Guaranty is executed at Borrowers' request; (b) Guarantor shall not, without Bank's prior written consent, sell, lease assign, encumber, hypothecate, transfer or otherwise dispose of all or a substantial or material part of Guarantors assets other than in the ordinary course of Guarantor's business; (c) Bank has made no representation to Guarantor as to the creditworthiness of any of the Borrowers; and (d) Guarantor has established adequate means of obtaining from each of the Borrowers on a continuing basis financial and other information pertaining to Borrowers' financial condition. Guarantor agrees to keep adequately informed from such means of any facts, events or circumstances which might in any way affect Guarantor's risks hereunder, and Guarantor further agrees that Bank shall have no obligation to disclose to Guarantor any information or material about any of the Borrowers which is acquired by Bank in any manner. 6. GUARANTOR'S WAIVERS. (a) Guarantor waives any right to require Bank to: (i) proceed against any of the Borrowers or any other person; (ii) marshal assets or proceed against or exhaust any security held from any of the Borrowers or any other person; (iii) give notice of the terms, time and place of any public or private sale of personal property security held from any of the Borrowers or any other person, or otherwise comply with the provisions of Section 9504 of the California Uniform Commercial Code; (iv) take any action or pursue any other remedy in Bank's power, or (v) make any presentment or demand for performance, or give any notice of nonperformance, protest, notice of protest or notice of dishonor hereunder or in connection with any obligations or evidences of indebtedness held by Bank as security for or which constitute in whole or in part the Note Indebtedness guaranteed hereunder, or in connection with the creation of new or additional Indebtedness. (b) Guarantor waives any defense to its obligations hereunder based upon or arising by reason of: (i) any disability or other defense of any of the Borrowers or any other person; (ii) the cessation or limitation from any cause whatsoever, other than payment in full, of the Note Indebtedness; (iii) any lack of authority of any officer, director, partner, agent or other person acting or purporting to act on behalf of any of the Borrowers which is a corporation, partnership or other type of entity. or any defect in the formation of any such Borrower, (iv) the application by any of the Borrowers of the proceeds of the Note Indebtedness for purposes other than the purposes represented by Borrowers to, or intended or understood by, Bank or Guarantor, (v) any act or omission by Bank which directly or indirectly results in or aids the discharge of any of the Borrowers or any portion of the Note Indebtedness by operation of law or otherwise, or which in any way impairs or suspends any rights or remedies of Bank against any of the Borrowers; (vi) any impairment of the value of any interest in any security for the Note Indebtedness or any portion thereof, including without limitation, the failure to obtain or maintain perfection or recordation of any interest in any such security, the release of any such security without substitution, and/or the failure to preserve the value of, or to comply with applicable law in disposing of, any such security; or (vii) any modification of the Note Indebtedness, in any form whatsoever, including without limitation the renewal. extension, acceleration or other change in time for payment of, or other change in the terms of, the Note Indebtedness or any portion thereof, including increase or decrease of the rate of interest thereon. Until all Note Indebtedness shall have been paid in full, Guarantor shall have no right of subrogation, and Guarantor waives any right to enforce any remedy which Bank now has or may hereafter have against any of the Borrowers or any other person, and waives any benefit of, or any right to participate in, any security now or hereafter held by Bank. Guarantor further waives all rights and defenses Guarantor may have arising out of (A) any election of remedies by Bank, even though that election of remedies. such as a non-judicial foreclosure with respect to any security for any portion of the Note Indebtedness, destroys Guarantor's rights of subrogation or Guarantor's rights to proceed against any of the Borrowers for reimbursement, or (B) any loss of rights Guarantor may suffer by reason of any rights, powers or remedies of any of the Borrowers in connection with any anti-deficiency laws or any other laws limiting, qualifying or discharging Borrowers' Indebtedness, whether by operation of Sections 726, 580a or 580d of the Code of Civil Procedure as from time to time amended, or otherwise, including any rights Guarantor may have to a Section 580a fair market value hearing to determine the size of a deficiency following any trustee's foreclosure sale or other disposition of any real property security for any portion of the Indebtedness. 7. BANK'S RIGHTS WITH RESPECT TO GUARANTOR'S PROPERTY IN BANK'S POSSESSION. In addition to all liens upon and rights of setoff against the monies, securities or other property of Guarantor given to Bank by law, Bank shall have a lien upon and a right of setoff against all monies, securities and other property of Guarantor now or hereafter in the possession of or on deposit with Bank, whether held in a general or special account or deposit or for safekeeping or otherwise, and every such lien and right of setoff may be exercised without demand upon or notice to Guarantor. No lien or right of setoff shall be deemed to have been waived by any act or conduct on the part of Bank, or by any neglect to exercise such right of setoff or to enforce such lien, or by any delay in so doing, and every right of setoff and lien shall continue in full force and effect until such right of setoff or lien is specifically waived or released by Bank in writing. 8. SUBORDINATION. Any Indebtedness of any of the Borrowers now or hereafter held by Guarantor is hereby subordinated to the obligations of Borrowers to Bank under the Note Indebtedness. Such Indebtedness of Borrowers to Guarantor is assigned to Bank as security for this Guaranty and the Note Indebtedness and, if Bank requests, shall be collected and received by Guarantor as trustee for Bank and paid over to Bank on account of the Note Indebtedness but without reducing or affecting in any manner the liability of Guarantor under the other provisions of this Guaranty. Any notes or other instruments now or hereafter evidencing such Indebtedness of any of the Borrowers to Guarantor shall be marked with a legend that the same are subject to this Guaranty and, if Bank so requests, shall be delivered to Bank. Guarantor will, and Bank is hereby authorized in the name of Guarantor from time to time to, execute and file financing statements and continuation statements and execute such other documents and take such other action as Bank deems necessary or appropriate to perfect preserve and enforce its rights hereunder. 9. REMEDIES; NO WAIVER. All rights, powers and remedies of Bank hereunder are cumulative. No delay, failure or discontinuance of Bank in exercising any right, power or remedy hereunder shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by bank of any breach of this Guaranty. or any such waiver of any provisions or conditions hereof, must be in writing and shall be effective only to the extent set forth in writing. 10. COSTS, EXPENSES AND ATTORNEYS' FEES. Guarantor shall pay to Bank immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank's in-house counsel ), expended or incurred by Bank in connection with the enforcement of any of Bank's rights, powers or remedies and/or the collection of any amounts which become due to Bank under this Guaranty, and the prosecution or defense of any action in any way related to this Guaranty, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other (person) relating to Guarantor or any other person or entity. All of the foregoing shall be paid by Guarantor with interest from the date of demand until paid in full at a rate per annum equal to the greater of ten percent (10%) or Bank's Prime Rate in effect from time to time. The Prime Rate is a base rate that Bank from time to time establishes and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. 11. SUCCESSORS; ASSIGNMENT. This Guaranty shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties, provided however, that Guarantor may not assign or transfer any of its interests or rights hereunder without Bank's prior written consent Guarantor acknowledges that Bank has the right to sell, assign, transfer, negotiate or grant participation in all or any part of, or any interest in, the Note Indebtedness and any obligations with respect thereto, including this Guaranty. In connection therewith. Bank may disclose all documents and information which Bank now has or hereafter acquires relating to Guarantor and/or this Guaranty, whether furnished by Borrowers, Guarantor or otherwise. Guarantor further agrees that Bank may disclose such documents and information to Borrowers. 12. AMENDMENT. This Guaranty may be amended or modified only in writing signed by Bank Guarantor. 13. OBLIGATIONS OF MARRIED PERSONS. Any married person who signs this Guaranty as a Guaranty hereby expressly agrees that recourse may be had against his or her separate property for all his or her obligate under this Guaranty. 14. APPLICATION OF SINGULAR AND PLURAL. In all cases where there is but a single Borrower, then all words used herein in the plural shall be deemed to have been used in the singular where the context and construction so require; and when there is more than one Borrower named herein, or when this Guaranty is executed by more than one Guarantor, the word Borrowers and the word Guarantor respectively shall mean all or any one more of them as the context requires. 15. UNDERSTANDING WITH RESPECT TO, WAIVERS; SEVERABILITY OF PROVISIONS. Guarantor warrants and agrees that each of the waivers set forth herein is made with Guarantor's full knowledge of significance and consequences, and that under the circumstances, the waivers are reasonable and not contrary public policy or law. If any waiver or other provision of this Agreement shall be held to be prohibited by or invalid under applicable public policy or law, such waiver or other provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such waiver or other provision or any remaining provisions of this Agreement. 16. GOVERNING LAW. This Guaranty shall be governed by and construed in accordance with the laws of the state of California. 17. ARBITRATION. (a) Arbitration. Upon the demand of any party, any Dispute shall be resolved by binding arbitration (except as set forth in (e) below) in accordance with the terms of this Guaranty. A Dispute shall mean any action, dispute claim or controversy of any kind, whether in contract or tort, statutory or common law, legal or equitable, now existing or hereafter arising under or in connection with, or in any way pertaining to, this Guaranty and each other, document, contract and instrument required hereby or now or hereafter delivered to Bank in connection herewith (collectively, the Documents), or any past present or future extensions of credit and other activities, transactions or obligations of any kind related directly or indirectly to any of the Documents, including without limitation, any of the foregoing arising in connection with the exercise of any self-help, ancillary or other remedies pursuant to any of the Documents. Any party may by summary proceedings bring an action in court to compel arbitration of a dispute. Any party who fails or refuses to submit to arbitration following a lawful demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any Dispute. (b) Governing Rules. Arbitration proceedings shall be administered by the American Arbitration Association (AAA) or such other administrator as the parties shall mutually agree upon in accordance with the AAA Commercial Arbitration Rules. All Disputes submitted to arbitration shall be resolved in accordance with the Federal Arbitration Act (Title 9 of the United States Code) notwithstanding any conflicting choice of law provision in any of the Documents. The arbitration shall be conducted at a location in California selected by the AAA or other administrator. If there is any inconsistency between the terms hereof and any such rules, the terms and procedures set forth herein shall control. All statutes of limitation applicable to any Dispute shall apply to any arbitration proceeding. All discovery activities shall be expressly limited to matters directly relevant to the Dispute being arbitrated. Judgment upon any award rendered in an arbitration may be entered in any court having jurisdiction provided however, that nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. 91 or any similar applicable state law. (c) No Waiver Provisional Remedies, Self-Help and Foreclosure. No provision hereof shall limit the right any party to exercise self-help remedies such as setoff, foreclosure against or sale of any real or personal property collateral or security, or to obtain provisional or ancillary remedies, including without limitation injunctive relief. sequestration, attachment, garnishment or the appointment of a receiver, from a court of competent jurisdiction before, after or during the pendency of any arbitration or other proceeding. The exercise of any such remedy shall not waive the right of any party to compel arbitration or reference hereunder. (d) Arbitrator Qualifications and Powers: Awards. Arbitrators must be active members of the California State Bar or retired judges of the state or federal judiciary of California, with expertise in the substantive law applicable to the subject matter of the Dispute. Arbitrators are empowered to resolve Disputes by summary rulings in response to motions filed prior to the final arbitration hearing. Arbitrators (i) shall resolve all Disputes in accordance with the substantive law of the state of California, (ii) may grant any remedy or relief that a court of the state of California could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award, and (iii) shall have the power to award recovery of all costs and fees, to impose sanctions and to take such other actions as they deem necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil Procedure or other applicable law. Any Dispute in which the amount in controversy is $5,000,000 or less shall be decided by a single arbitrator who shall not render an award of greater than $5,000,000 (including damages, costs, fees and expenses). By submission to a single arbitrator, each party expressly waives any right or claim to recover more than $5,000,000. Any Dispute in which the amount in controversy exceeds $5,000,000 shall be decided by majority vote of a panel of three arbitrators provided however, that all three arbitrators must actively participate in all hearings and deliberations. (e) Judicial Review. Notwithstanding anything herein to the contrary, in any arbitration in which the amount in controversy exceeds $25,000,000, the arbitrators shall be required to make specific, written findings of fact and conclusions of law. In such arbitration's (i) the arbitrators shall not have the power to make any award which is not supported by substantial evidence or which is based on legal error, (ii) an award shall not be binding upon the parties unless the findings of fact are supported by substantial evidence and the conclusions of law are not erroneous under the substantive law of the state of California, and (iii) the parties shall have in addition to the grounds referred to in the Federal Arbitration Act for vacating, modifying or correcting an award the right to judicial review of (A) whether the findings of fact rendered by the arbitrators are supported by substantial evidence, and (B) whether the conclusions of law are erroneous under the substantive law of the state of California. Judgment confirming an award in such a proceeding may be entered only if a court determines the award is supported by substantial evidence and not based on legal error under the substantive law of the state of California. (f) Real Property Collateral: Judicial Reference. Notwithstanding anything herein to the contrary, no Dispute shall be submitted to arbitration if the Dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any real property unless (i) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single action rule statute of California, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, liens and security interests securing such indebtedness and obligations, shall remain fully valid and enforceable. If any such Dispute is not submitted to arbitration, the Dispute shall be referred to a referee in accordance with California Code of Civil Procedure Section 638 et seq., and this general reference agreement is intended to be specifically enforceable in accordance with said Section 638. A referee with the qualifications required herein for arbitrators shall be selected pursuant to the AAA's selection procedures. Judgment upon the decision rendered by a referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645. (g) Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the Dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business, by applicable law or regulation, or to the extent necessary to exercise any judicial review rights set forth herein if more than one agreement for arbitration by or between the parties potentially applies to a Dispute, the arbitration provision most directly related to the Documents or the subject matter of the Dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Documents or any relationship between the parties. IN WITNESS WHEREOF, the undersigned Guarantor has executed this Guaranty as of June 30, 1999. By: ss/ Robert S. Cope ROBERT S. COPE EX-10.34 7 EXHIBIT 10.34 ADDENDUM TO CONTINUING GUARANTY THIS ADDENDUM is attached to and made a part of that certain Continuing Guaranty executed by Robert S. Cope (Guarantor) in favor of WELLS FARGO BANK, NATIONAL ASSOCIATION (Bank) for all indebtedness of Auto-Graphics, Inc. (Borrower) to Bank and dated as of June 30, 1999 (the Guaranty). The following provisions are hereby incorporated into the Guaranty as if fully set forth therein: 18. REDUCTION OF LIABILITY. Notwithstanding anything in the Guaranty or the Credit Agreement to the contrary, the maximum liability of the Guarantor set forth in the first sentence of Paragraph 2 of the Guaranty shall not exceed at any one time the sum of $2,187,500.00 for principal, plus interest thereon and costs and expenses pertaining to the enforcement of the Guaranty and/or the collection of the Indebtedness of any of the Borrowers to Bank if the following conditions are met on or before September 30, 1999: (a) Borrower delivers evidence satisfactory to Bank in its sole discretion that Borrower has received New Capital (defined below) in the aggregate amount of $750,000.00; and (b) at the time of that all evidence necessary to the satisfaction of subparagraph (a) above has been delivered to Bank, no default or Event of Default shall have occurred under any of the documents or instruments evidencing or relating to the Indebtedness of Borrower to Bank. As used herein, New Capital shall mean cash and cash equivalents received and deposited by Borrower on or after June 30, 1999 in the form of a capital contribution in immediately available funds (prior to the deduction of any and all selling commissions and other costs and expenses, including legal fees attributable to the offering). 19. RELEASE FROM LIABILITY. Notwithstanding anything in the Guaranty or the Credit Agreement to the contrary, Guarantor shall be fully, finally and forever released from all liability to Bank under the Guaranty or otherwise, if the following conditions are met on or before the date that all Indebtedness of Borrower to Bank has been paid in full: (a) Borrower delivers evidence satisfactory to Bank in its sole discretion that Borrower has received New Capital in the aggregate amount of $1,250,000.00 (inclusive of the $750,000.00 referenced in Paragraph 18 above); and (b) at the time of that all evidence necessary to the satisfaction of subparagraph (a) above has been delivered to Bank, no default or Event of Default shall have occurred under any of the documents or instruments evidencing or relating to the Indebtedness of Borrower to Bank. This Guaranty supercedes and replaces in its entirety that certain Guaranty executed by Robert S. Cope in favor of the Bank as of May 12, 1997, which is hereby terminated, cancelled and is of no further force or effect as of the date hereof. IN WITNESS WHEREOF, this Addendum has been executed as of the same date as the Guaranty. WELLS FARGO BANK, GUARANTOR NATIONAL ASSOCIATION By:_ ss/Darryl Hallie ss/Robert S. Cope_ Darryl Hallie Robert S. Cope Vice President EX-10.35 8 EXHIBIT 10.35 REVOLVING LINE OF CREDIT NOTE $1,000,000.00 Angeles, California June 30, 1999 FOR VALUE RECEIVED, the undersigned AUTO-GRAPHICS, INC. (Borrower) promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION (Bank) at its office at 333 South Grand Avenue, 9th Floor, Los Angeles, CA 90071, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of One Million Dollars ($1,000,000.00), or so much thereof as may be advanced and be outstanding, with interest thereon, to be computed on each advance from the date of its disbursement as set forth herein. INTEREST: (a) Interest. The outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed) for the designated periods at a rate per annum equal to the corresponding percentages above the Prime Rate in effect from time to time, as follows: Period % Above Prime Rate - ------------------------------- ---------------------- June 30, 1999 to and including September 29, 1999 One Percent (1.00%) September 30, 1999 to and One and One-Quarter Percent including December 30, 1999 (1.25%) December 31, 1999 to and One and One-Half Percent including March 30, 2000 (1.50%) On and after March 31, 2000 One and Three-Quarters Percent (1.75%) Notwithstanding the foregoing, should Borrower deliver evidence satisfactory to Bank in its sole discretion that Borrower has received New Capital (defined below) at the times and in the cumulative amounts shown below, the outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed) for the designated periods at a rate per annum equal to the corresponding percentages above the Prime Rate in effect from time to time, as follows: Deadline for Cumulative Period % Above Prime Receipt of New Amount of New Rate Capital Capital - -------------- ------------- ------------- -------------- September 30, $250,000.00 September 30, One Percent 1999 (the First 1999 to and (1%) Milestone) including December 30, 1999 December 31, $350,000.00 December 31, One Percent 1999 (the Second 1999 to and (1%) if Milestone) including Borrower met March 30, 2000 the First Milestone One and One- Quarter Percent (1.25%)if Borrower did not meet the First Milestone March 31, 2000 $1,000,000.00 On and after One Percent March 31, 2000 (1%) if Borrower met both the First Milestone and the Second Milestone One and One- Quarter Percent (1.25%)if Borrower met either the First Milestone or the Second Milestone, but not both One and One- Half Percent (1.50%) if Borrower received neither the First Milestone nor the Second Milestone As used herein, New Capital shall mean cash and cash equivalents received and deposited by Borrower on or after June 30, 1999 in the form of a capital contribution in immediately available funds (prior to the deduction of any and all selling commissions and other costs and expenses, including legal fees attributable to the offering). The Prime Rate is a base rate that Bank from time to time establishes and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. Each change in the rate of interest hereunder shall become effective on the date each Prime Rate change is announced within Bank. (b) Payment of Interest. Interest accrued on this Note shall be payable on the last day of each month, commencing July 31, 1999. (c) Default Interest. From and after the maturity date of this Note, or such earlier date as all principal owing hereunder becomes due and payable by acceleration or otherwise, the outstanding principal balance of this Note shall bear interest until paid in full at an increased rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to four percent (4%) above the rate of interest from time to time applicable to this Note. BORROWING AND REPAYMENT: (a) Borrowing and Repayment. Borrower may from time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of this Note and of any document executed in connection with or governing this Note; provided however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of principal payments made hereon by or for any Borrower, which balance may be endorsed hereon from time to time by the holder. The outstanding principal balance of this Note shall be due and payable in full on June 1, 2000. (b) Advances. Advances hereunder, to the total amount of the principal sum stated above, may be made by the holder at the oral or written request of (i) DANIEL E. LUEBBEN or ROBERT S. COPE, any one acting alone, who are authorized to request advances and direct the disposition of any advances until written notice of the revocation of such authority is received by the holder at the office designated above, or (ii) any person, with respect to advances deposited to the credit of any account of any Borrower with the holder, which advances, when so deposited, shall be conclusively presumed to have been made to or for the benefit of each Borrower regardless of the fact that persons other than those authorized to request advances may have authority to draw against such account. The holder shall have no obligation to determine whether any person requesting an advance is or has been authorized by any Borrower. (c) Application of Payments. Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof. EVENTS OF DEFAULT: This Note is made pursuant to and is subject to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of May 12, 1997, as amended from time to time (the Credit Agreement). Any default in the payment or performance of any obligation under this Note, or any defined event of default under the Credit Agreement, shall constitute an Event of Default under this Note. MISCELLANEOUS: (a) Remedies. Upon the occurrence of any Event of Default, the holder of this Note, at the holder's option, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment, demand, notice of nonperformance, notice of protest, protest or notice of dishonor, all of which are expressly waived by each Borrower, and the obligation, if any, of the holder to extend any further credit hereunder shall immediately cease and terminate. Each Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of the holder's in-house counsel), expended or incurred by the holder in connection with the enforcement of the holder's rights and/or the collection of any amounts which become due to the holder under this Note, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity. (b) Obligations Joint and Several. Should more than one person or entity sign this Note as a Borrower, the obligations of each such Borrower shall be joint and several. (c) Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California. This Note replaces and supersedes in its entirety that certain promissory note executed by Borrower in favor of Bank in the original principal amount of $1,250,000.00 and dated as of May 12, 1997, which is hereby cancelled. IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above. AUTO-GRAPHICS, INC. By: ss/Robert S. Cope Robert S. Cope Title: President/CEO EX-10.36 9 EXHIBIT 10.36 REVOLVING LINE OF CREDIT NOTE $3,000,000.00 Los Angeles, California June 30, 1999 FOR VALUE RECEIVED, the undersigned AUTO-GRAPHICS, INC. (Borrower) promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION (Bank) at its office at 333 South Grand Avenue, 9th Floor, Los Angeles, CA 90071, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of Three Million Dollars ($3,000,000.00), or so much thereof as may be advanced and be outstanding, with interest thereon, to be computed on each advance from the date of its disbursement as set forth herein. INTEREST: (a) Interest. The outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed) for the designated periods at a rate per annum equal to the corresponding percentages above the Prime Rate in effect from time to time, as follows: Period % Above Prime Rate - ------------------------------- -------------------------- June 30, 1999 to and including September 29, 1999 One Percent (1.00%) September 30, 1999 to and One and One-Quarter Percent including December 30, 1999 (1.25%) December 31, 1999 to and One and One-Half Percent including March 30, 2000 (1.50%) On and after March 31, 2000 One and Three-Quarters Percent (1.75%) Notwithstanding the foregoing, should Borrower deliver evidence satisfactory to Bank in its sole discretion that Borrower has received New Capital (defined below) at the times and in the cumulative amounts shown below, the outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed) for the designated periods at a rate per annum equal to the corresponding percentages above the Prime Rate in effect from time to time, as follows: Deadline for Cumulative Period % Above Prime Receipt of New Amount of New Rate Capital Capital - -------------- ------------- ------------- -------------- September 30, $250,000.00 September 30, One Percent 1999 (the First 1999 to and (1%) Milestone) including December 30, 1999 December 31, $350,000.00 December 31, One Percent 1999 (the Second 1999 to and (1%) if Milestone) including Borrower met March 30, 2000 the First Milestone One and One- Quarter Percent (1.25%)if Borrower did not meet the First Milestone March 31, 2000 $1,000,000.00 On and after One Percent March 31, 2000 (1%) if Borrower met both the First Milestone and the Second Milestone One and One- Quarter Percent (1.25%)if Borrower met either the First Milestone or the Second Milestone, but not both One and One- Half Percent (1.50%) if Borrower received neither the First Milestone nor the Second Milestone As used herein, New Capital shall mean cash and cash equivalents received and deposited by Borrower on or after June 30, 1999 in the form of a capital contribution in immediately available funds (prior to the deduction of any and all selling commissions and other costs and expenses, including legal fees attributable to the offering). The Prime Rate is a base rate that Bank from time to time establishes and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. Each change in the rate of interest hereunder shall become effective on the date each Prime Rate change is announced within Bank. (b) Payment of Interest. Interest accrued on this Note shall be payable on the last day of each month, commencing July 31, 1999. (c) Default Interest. From and after the maturity date of this Note, or such earlier date as all principal owing hereunder becomes due and payable by acceleration or otherwise, the outstanding principal balance of this Note shall bear interest until paid in full at an increased rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to four percent (4%) above the rate of interest from time to time applicable to this Note. BORROWING AND REPAYMENT: (a) Borrowing and Repayment. Borrower may from time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of this Note and of any document executed in connection with or governing this Note; provided however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of principal payments made hereon by or for any Borrower, which balance may be endorsed hereon from time to time by the holder. The outstanding principal balance of this Note shall be due and payable in full on June 1, 2000. (b) Advances. Advances hereunder, to the total amount of the principal sum stated above, may be made by the holder at the oral or written request of (i) DANIEL E. LUEBBEN or ROBERT S. COPE, any one acting alone, who are authorized to request advances and direct the disposition of any advances until written notice of the revocation of such authority is received by the holder at the office designated above, or (ii) any person, with respect to advances deposited to the credit of any account of any Borrower with the holder, which advances, when so deposited, shall be conclusively presumed to have been made to or for the benefit of each Borrower regardless of the fact that persons other than those authorized to request advances may have authority to draw against such account. The holder shall have no obligation to determine whether any person requesting an advance is or has been authorized by any Borrower. (c) Application of Payments. Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof. EVENTS OF DEFAULT: This Note is made pursuant to and is subject to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of May 12, 1997, as amended from time to time (the Credit Agreement). Any default in the payment or performance of any obligation under this Note, or any defined event of default under the Credit Agreement, shall constitute an Event of Default under this Note. MISCELLANEOUS: (a) Remedies. Upon the occurrence of any Event of Default, the holder of this Note, at the holder's option, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment, demand, notice of nonperformance, notice of protest, protest or notice of dishonor, all of which are expressly waived by each Borrower, and the obligation, if any, of the holder to extend any further credit hereunder shall immediately cease and terminate. Each Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of the holder's in-house counsel), expended or incurred by the holder in connection with the enforcement of the holder's rights and/or the collection of any amounts which become due to the holder under this Note, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity. (b) Obligations Joint and Several. Should more than one person or entity sign this Note as a Borrower, the obligations of each such Borrower shall be joint and several. (c) Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California. This Note replaces and supersedes in its entirety that certain promissory note executed by Borrower in favor of Bank in the original principal amount of $3,000,000.00 and dated as of May 12, 1997, which is hereby cancelled. IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above. AUTO-GRAPHICS, INC. By: ss/Robert S. Cope Robert S. Cope Title: President/CEO EX-10.37 10 EXHIBIT 10.37 TERM NOTE $374,999.99 Los Angeles, California June 30, 1999 FOR VALUE RECEIVED, the undersigned AUTO-GRAPHICS, INC. (Borrower) promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION (Bank) at its office at 333 South Grand Avenue, 9th Floor, Los Angeles, CA 90071, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of Three Hundred Seventy-Four Thousand Nine Hundred Ninety Nine and 99/100 Dollars ($374,999.99), with interest thereon as set forth herein. INTEREST: (a) Interest. The outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed) for the designated periods at a rate per annum equal to the corresponding percentages above the Prime Rate in effect from time to time, as follows: Period % Above Prime Rate - ------------------------------- -------------------------- June 30, 1999 to and including September 29, 1999 One Percent (1.00%) September 30, 1999 to and One and One-Quarter Percent including December 30, 1999 (1.25%) December 31, 1999 to and One and One-Half Percent including March 30, 2000 (1.50%) On and after March 31, 2000 One and Three-Quarters Percent (1.75%) Notwithstanding the foregoing, should Borrower deliver evidence satisfactory to Bank in its sole discretion that Borrower has received New Capital (defined below) at the times and in the cumulative amounts shown below, the outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed) for the designated periods at a rate per annum equal to the corresponding percentages above the Prime Rate in effect from time to time, as follows: Deadline for Cumulative Period % Above Prime Receipt of New Amount of New Rate Capital Capital - -------------- ------------- ------------- -------------- September 30, $250,000.00 September 30, One Percent 1999 (the First 1999 to and (1%) Milestone) including December 30, 1999 December 31, $350,000.00 December 31, One Percent 1999 (the Second 1999 to and (1%) if Milestone) including Borrower met March 30, 2000 the First Milestone One and One- Quarter Percent (1.25%)if Borrower did not meet the First Milestone March 31, 2000 $1,000,000.00 On and after One Percent March 31, 2000 (1%) if Borrower met both the First Milestone and the Second Milestone One and One- Quarter Percent (1.25%)if Borrower met either the First Milestone or the Second Milestone, but not both One and One- Half Percent (1.50%) if Borrower received neither the First Milestone nor the Second Milestone As used herein, New Capital shall mean cash and cash equivalents received and deposited by Borrower on or after June 30, 1999 in the form of a capital contribution in immediately available funds (prior to the deduction of any and all selling commissions and other costs and expenses, including legal fees attributable to the offering). The Prime Rate is a base rate that Bank from time to time establishes and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. Each change in the rate of interest hereunder shall become effective on the date each Prime Rate change is announced within Bank. (b) Payment of Interest. Interest accrued on this Note shall be payable on the last day of each month, commencing July 31, 1999. (c) Default Interest. From and after the maturity date of this Note, or such earlier date as all principal owing hereunder becomes due and payable by acceleration or otherwise, the outstanding principal balance of this Note shall bear interest until paid in full at an increased rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to four percent (4%) above the rate of interest from time to time applicable to this Note. REPAYMENT AND PREPAYMENT: (a) Repayment. Principal shall be payable on the last day of each month in installments of Sixteen Thousand Dollars ($16,000.00) each, commencing July 31, 1999, and continuing up to and including May 31, 2000, with a final installment consisting of all remaining unpaid principal due and payable in full on June 1, 2000. (b) Application of Payments. Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof. (c) Prepayment. Borrower may prepay principal on this Note at any time, in any amount and without penalty. All prepayments of principal shall be applied on the most remote principal installment or installments then unpaid. EVENTS OF DEFAULT: This Note is made pursuant to and is subject to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of May 12, 1997, as amended from time to time (the Credit Agreement). Any default in the payment or performance of any obligation under this Note, or any defined event of default under the Credit Agreement, shall constitute an Event of Default under this Note. MISCELLANEOUS: (a) Remedies. Upon the occurrence of any Event of Default, the holder of this Note, at the holder's option, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment, demand, notice of nonperformance, notice of protest, protest or notice of dishonor, all of which are expressly waived by each Borrower. Each Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of the holder's in-house counsel), expended or incurred by the holder in connection with the enforcement of the holder's rights and/or the collection of any amounts which become due to the holder under this Note, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity. (b) Obligations Joint and Several. Should more than one person or entity sign this Note as a Borrower, the obligations of each such Borrower shall be joint and several. (c) Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California. This Note replaces and supersedes in its entirety that certain promissory note executed by Borrower in favor of Bank in the original principal amount of $375,000.00 and dated as of June 1, 1998, which is hereby cancelled. IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above. AUTO-GRAPHICS, INC. By: ss/Robert S. Cope Robert S. Cope Title: President/CEO EX-10.38 11 STOCK PURCHASE AGREEMENT This Stock Purchase Agreement (the "Agreement") is made and entered into as of February 14, 2000 by and between Auto-Graphics, Inc., a California corporation (the "Company"), and Gibralter Permanente Assurance, Ltd., incorporated under the laws of the Republic of Dominica (the "Buyer"). R E C I T A L S WHEREAS, the Company and the Buyer have discussed the possible purchase by the Buyer of shares of the Company authorized but previously unissued Common Stock in a private placement transaction which is exempt from registration and/or qualification under applicable securities laws and would, therefore, require the shares sold and issued by the Company to the Buyer in such stock purchase transaction to be deemed to be "restricted securities" as that term is defined under such securities laws and requiring that the certificate representing such securities carry a legend indicating that such shares of stock are restricted securities; WHEREAS, the parties desire to memorialize their understandings and agreements in respect of such stock purchase transaction in this Agreement; A G R E E M E N T NOW, THEREFORE, in consideration of the within premises and the promises set forth in this Agreement, and subject to the terms and conditions as provided for in this Agreement, the parties intending to be legally bound and obligated thereby do hereby agree, as follows: 1. Sale/Purchase of Stock. The Company will sell, issue and deliver to the Buyer, and the Buyer will purchase, pay for and acquire from the Company at the Closing, as hereinafter defined, Seventy-Five Thousand (75,000) shares of the Company's restricted Common Stock (the "Stock") for a total purchase price ("Purchase Price") of Nine Hundred Thirty Thousand Dollars ($930,000) or $12.40 per share. The Purchase Price shall be paid by the Buyer to the Company at the Closing in cash. The Stock will represent slightly less than 5% of the Company's total issued and outstanding shares of Common Stock immediately following the Closing. 2. Closing. The Closing, where the Company will sell, issue and deliver the Stock to and the Buyer will purchase, pay for and acquire the Stock, including the share certificate representing such Stock, shall be on or before February 18, 2000, or such sooner time as the Buyer notifies the Company in writing that it is ready to consummate the subject transaction (the "Closing Date"). The Closing shall take place at 2:30 P.M. on the Closing Date at such time and place as the Company and the Buyer mutually agree in writing prior to the Closing is convenient (and, if no such mutually convenient place is so designated, then the Closing shall take place at the Company's corporate offices in Pomona, California). If requested by the Buyer, the Closing shall be conducted telephonically. 3. Restricted Stock/Legend. The offer, sale, issuance and delivery of the Stock including the share certificate therefor (herein collectively the "Stock") will not be registered and/or qualified under applicable Federal or any state's securities laws and will be pursuant to and in accordance with one or more exemptions from such registration/qualification. Accordingly, the Stock will be deemed for all purposes to be "restricted stock" as that term is defined under applicable securities laws (including herein statutes, rules and regulations) and, as such, may not be offered, sold, distributed or hypothecated by the Buyer except in accordance with applicable securities laws. In accordance with applicable securities laws, the Stock when issued will carry a legend restricting offer, sale, distribution and/or hypothecation by the Buyer except in accordance with applicable securities laws; and the Company will issue appropriate "stop transfer" instructions to its independent stock transfer agent in respect of such Stock and the restricted nature thereof. A copy of the legend to be affixed to the Stock by the Company's stock transfer agent appears on Exhibit A to this Agreement. 4. Exemption From Registration/Qualification. The Stock is and will be offered, sold, issued and delivered by the Company to the Buyer based upon the Buyer's representation, warranty and agreement to and with the Company in connection with such stock purchase transaction that the Buyer is not acquiring the Stock with a view to resale or other distribution of the Stock and is acquiring and will hold the Stock for investment purposes. Under applicable securities laws, this means that the Buyer must hold the Stock including all interests therein for a minimum period of one year before the Stock is eligible for sale by the Buyer in the public trading market for such Stock and/or in any other "public" distribution of the Stock as that term is broadly defined under applicable securities laws. The Buyer will also be required and hereby agrees to provide the Company with a written questionnaire and subscription agreement covering the Stock and the subject stock purchase transaction, and the Buyer's qualifications to purchase and acquire the Stock in a private placement or "exempt" transaction, as may reasonably be required by the Company to support the "exempt from registration/qualification" nature of the transaction which is a condition to the Company's obligation to consummate the transaction at the Closing under this Agreement. In this regard, the Buyer hereby represents and warrants to the Company that the Buyer is a licensed insurance company in its jurisdiction of incorporation with substantial assets and is, for all purposes, an "accredited investor" as that phrase is defined under applicable securities laws. 5. Buyer's Due Diligence. For purposes of assisting the Buyer to conduct an appropriate inquiry into the investment merits of the Stock ("due diligence"), the Company will provide the Buyer with certain financial and other information about the Company, its securities, the market in which the Company's securities trade, the Company's products/services, prospects, management, results of operations, financial condition and otherwise in respect of the "risks" attending the purchase of the Stock by the Buyer as provided for and contemplated by this Agreement as described on the schedule attached hereto and incorporated herein as Exhibit B ("Due Diligence Materials"). After the Buyer has had the opportunity to review such Due Diligence Materials, the Buyer will be provided the opportunity to conduct such other and further due diligence as the Buyer (and, possibly or at the Buyer's election, his offeree representative) shall deem appropriate under the circumstances for purposes of the Buyer's consummation of the subject stock purchase transaction at the Closing, including without limitation the submission by the Buyer of written questions to the Company, interviews with the Company's management, a tour of the Company's corporate offices and production facility in Pomona, California, demonstration of the Company's products/services, communication with the Company's commercial bank, outside professionals and vendors/suppliers/customers. When and if the Buyer has performed such due diligence to its sole and exclusive satisfaction, then the Buyer may proceed to consummate the subject purchase transaction at the Closing. Completion of the Buyer's due diligence to the Buyer's (including, possibly or at the election of the Buyer, the Buyer's offeree representative) sole satisfaction and election shall be a condition to the Buyer's obligation to consummate the stock purchase transaction and the Closing under this Agreement (and, in the event that the Buyer has not previously notified the Company in writing as to the satisfactory completion of such due diligence, the consummation of the stock purchase transaction at the Closing by the Buyer shall constitute final and conclusive confirmation by the Buyer to the Company and otherwise that such due diligence has in fact been finally and fully so completed). Costs/expenses associated with the due diligence conducted by the Buyer shall be the responsibility of and be paid by the Buyer. The Buyer hereby acknowledges to the Company its awareness that the purchase of and an investment in the securities of the Company, including the Stock which is the subject of this Agreement, is subject to substantial risk. 6. Written Confirmation That The Buyer Is Not Acting In Concert With Any Other Shareholders Of The Company. Prior to the Closing, the Buyer will confirm to the Company in writing, and hereby represents, warrants and agrees to and with the Company for purposes of this Agreement, that in negotiating to purchase and in actually purchasing the Stock and in maintaining such investment, the Buyer is not acting in concert with any other shareholder (person or entity) of the Company; and that the Buyer is acting for his own investment account independent of and separate from any other shareholder of the Company. The Buyer also agrees to confirm to the Company in writing prior to the Closing, and hereby represents, warrants and agrees to and with the Company, that the subject stock purchase transaction is not part of the Company's prior private offering of securities conducted from approximately May 15, 1999 through October 31, 1999, and that the Buyer did not previously discuss with the Company the purchase of any securities of the Company in such prior and completed securities offering. 7. Conditions To The Parties' Obligation To Close. The parties' obligation to consummate and otherwise close the subject stock purchase transaction at the Closing is expressly conditioned upon the following: (A). The Buyer - (i). Completion of the Buyer's due diligence as provided for herein under paragraph 5 of this Agreement. (B). The Company - (i) Review and approval of the Buyer's questionnaire and subscription agreement as provided for in paragraph 4 of this Agreement; (ii) Determination by the Company including its legal counsel to its (their) sole and exclusive satisfaction that the proposed stock purchase transaction, including the offer, sale, issuance and delivery of the Stock, is in fact exempt from registration and/or qualification under applicable securities laws as provided for in paragraph 4 of this Agreement; (iii) Timely and full performance and completion to the Company's satisfaction of all of the Buyer's undertakings and covenants as provided for in this Agreement including without limitation in paragraphs 4 (questionnaire/subscription agreement) and 10 (cooperation); and (iv). The accuracy and completeness of the Buyer's representations and warranties to the Company as provided for in paragraphs 4, 6, 8, 9 and 10 of this Agreement at the time of the Closing. Either party is free, but not obligated to, waive any of the foregoing conditions in whose favor such conditions are indicated to apply prior to or at the Closing. If the Buyer has not notified the Company in writing prior to the Closing that its "due diligence" as provided for in paragraphs 7.(A).(i) and 5 above has NOT been completed to its satisfaction, then the completion of the Buyer's "due diligence" to its satisfaction under this Agreement shall be deemed for all purposes to have been completed to its satisfaction. 8. Finder's Fee. Buyer hereby acknowledges that, subject to the consummation of the subject stock purchase transaction at the Closing, the Company has agreed to pay Gordon Brown or his designee (the "Finder") a "finder's fee" for introducing the Buyer to the Company in the amount of $60,500. The Buyer hereby acknowledges and represents and warrants to the Company that, in entering into this Agreement and in consummating the subject stock purchase transaction at the Closing, the Buyer is not relying on any statement, representation, warranty, understanding, agreement, commitment, assurance and/or guaranty made by the Finder for, on behalf of and/or in the name of the Company; and that the Buyer does not deem or otherwise consider the Finder to be the authorized or implied agent or other representative of the Company for purposes of this Agreement, the subject stock purchase transaction or otherwise. The Company understands and hereby reports to the Buyer its understanding that the Finder is a registered and/or beneficial shareholder of the Company; however, the Finder is not authorized by the Company to make any representations to or provide the Buyer with any assurances concerning which are not part of the Company's published securities disclosure information. Buyer acknowledges that it is not relying on the Finder as an offeree representative, as that term is defined under applicable securities laws or otherwise, for purposes of the subject stock purchase transaction. Except as indicated herein regarding the Finder, the parties represent, warrant and agree to and with each other that they have not obligated the Company to any person or entity for any finder's fee, commission or other form of compensation or remuneration in respect of the matters which are the subject of this Agreement. 9. Beneficial Ownership. The Buyer hereby discloses to the Company that the owners, partners, members or other beneficial owners of the Buyer are as set forth on the schedule attached hereto and incorporated herein as Exhibit C; and the Buyer represents, warrants and agrees with the Company that there are no other beneficial owners of the Buyer, actual or planned, at the date of this Agreement and at the time of the Closing other than as identified on Exhibit C. 10. Cooperation By Buyer. In addition to its agreements and covenants as set forth in this Agreement, the Buyer further agrees and covenants to cooperate and assist the Company in the preparation, execution and delivery of such further documentation, instruments and other matters as may reasonably be requested by the Company of the Buyer in order to facilitate and expedite the consummation of the stock purchase agreement at the Closing in accordance with the provisions of and as otherwise contemplated by this Agreement. 11. Miscellaneous. This Agreement fully and completely memorializes the parties' understandings, representations, warranties, agreements, covenants, promises, commitments and guaranties in respect of the subject matter of this Agreement. This Agreement may only be subsequently modified, amended or otherwise changed by a further writing so stating signed by the party against which any such modification, amendment and/or change is sought to be enforced. In entering into and performing this Agreement, the parties are not relying for any purpose (contract, tort or otherwise) on any statement, understanding, representation, warranty, agreement, covenant, promise, commitment, guaranty or other matter which is not expressly provided for in this Agreement. For purposes of this Agreement, time shall be deemed to be of the essence. This Agreement shall be deemed for all purposes to have been jointly drafted and otherwise prepared by the undersigned parties, and no one party shall be prejudiced as a result of any subsequent judicial determination that any of the language used in this Agreement is unclear or otherwise ambiguous. Attorneys and other professional fees paid or incurred by the respective parties in respect of this Agreement and the subject stock purchase transaction will be borne solely and exclusively by such parties. Buyer acknowledges having had the opportunity to consult with legal counsel and/or other professionals of its choice in respect of this Agreement and the matters set forth herein. By signing this Agreement, the undersigned parties thereby represent, warrant and agree that they are authorized and empowered to do so. IN WITNESS WHEREOF, the undersigned parties have executed this Agreement as of the date first above stated. AUTO-GRAPHICS, INC. By ss/ Robert S. Cope Robert S. Cope, President GIBRALTER PERMANENTE ASSURANCE, LTD. By ss/Michael Licopantis Michael Licopantis,President EX-10.39 12 LETTER OF INTENT This letter of intent dated December 29, 1999 ("Letter") is made by and between Steve White, including his approved assignee ("White"), Auto- Graphics, Inc., a California corporation ("A-G"), LibraryCard.com, Inc., a Nevada corporation ("LibraryCard.com") and A-G Sub, Inc., a Nevada corporation ("A-G Sub"). White, A-G, LibraryCard.com and A-G Sub are sometimes collectively referred to herein as the "parties". LibraryCard.com and A-G Sub may hereinafter collectively be referred to as the "Companies". RECITALS WHEREAS, White and A-G have been discussing an arrangement whereby White would make an investment in the Companies organized by A-G to own, carry-on and conduct the business(es) such parties refer to as (1) "LibraryCard.com" and (2) "CMS" or "A-G Sub". A more detailed description of such proposed businesses is set forth on Exhibit A hereto; and WHEREAS, the parties desire to memorialize their discussions and agreements in this Letter which, when signed by the parties, will constitute and be the parties' legally binding and enforceable agreement, subject to the within terms and conditions, in respect of the matters set forth herein; AGREEMENT NOW, THEREFORE, the parties do hereby agree, subject to the within terms and conditions, as follows: 1. Organize Companies. The Company has organized the Companies to own, carry-out and conduct, respectively, the LibraryCard.com and CMS (A-G Sub) businesses. The businesses of the respective Companies shall be as set forth in Exhibit A, which is incorporated herein, and as further described and mutually agreed upon in writing by the parties ("Exhibit A "). White will be provided with the opportunity to review and approve the articles of incorporation and bylaws of the Companies which approval by White will not be unreasonably withheld. The articles will not provide for preemptive rights or any similar provision. 2. Stock Purchase/Other Matters. At the closing, as provided for in paragraph 9 hereof (the "Closing"), the parties will purchase, pay for and acquire capital stock of the respective Companies, as follows: A. White. White will purchase, pay for, acquire and own that number of shares in the Companies constituting twenty-seven percent (27%) of the respective Companies issued and outstanding shares of capital stock immediately after the Closing for cash consideration in the amount of Two Million Dollars ($2,000,000) being $1 million for each of the Companies; and B. A-G. A-G and Corey M. Patick ("Patick") have or will purchase, pay for, acquire and own that number of shares in the respective Companies constituting the balance of such shares being seventy-three percent (73%) of the Companies issued and outstanding capital stock immediately after the Closing for consideration in the form of, in Patick's case, cash in the maximum amount of Two Thousand Dollars ($2,000) being up to $1,000 for each of the respective Companies and, in A-G's case, assets of A-G and agreements by and between A-G and the Companies ("Non-Cash Contribution") and such cash consideration as A-G may determine in its sole discretion and election to pay for such stock in the maximum amount of Three Thousand Dollars ($3,000) being up to $1,500 for each of the respective Companies; C. Non-Cash Contribution. The Non-Cash Contribution by A-G to the Companies shall be pursuant to and in accordance with Exhibit A, and as otherwise mutually agreed to in writing by the parties, and shall be contributed and transferred by A-G to the Companies and valued by the Companies for accounting purposes at an amount equal to the book g and comprising the Non-Cash Contribution by A-G as set forth on A-G's accounting books and records at the time of the Closing. The Non-Cash Contribution by A- G to the Companies shall be, unless otherwise previously agreed to in writing by the parties, free and clear of any and all liens, claims and/or encumbrances; and A-G represents and warrants to White that it has the authority and power to make such Non-Cash Contribution and that the Companies will obtain, as a result of such transfer by A-G, valid title to the assets and other property which is the subject of such Non-Cash Contribution. D. Private Offer/Sale and Restricted Stock. The stock which has been or will be purchased and acquired by the parties and Patick, and offered, sold and issued by the Companies to the respective parties and to Patick, pursuant to and in accordance with this Letter has been or will be in a private offering and sale/purchase transaction which is exempt from registration and/or qualification under applicable federal and state securities laws, rules and regulations; and, as such, the stock is and will be deemed to be and treated as "restricted stock" under applicable securities laws which means that such stock will be subject to restrictions on future offer, sale and/or other transfer of the stock in whole or in part by the holders thereof. The certificates for the stock will carry restrictive legends and will be subject to "stop transfer" instructions as customarily attend the offer, sale, and/or issuance of such restricted securities. The parties and Patick have and/or will cooperate with the Companies, and will deliver such further undertakings, acknowledgments and agreements as the Companies and their counsel shall reasonably request in respect of such private offer and sale transaction and the issuance of certificates representing the parties' ownership of such shares of stock in the Companies E. Stock Lock-Up For Possible IPO. In the event that the Companies determine to conduct an initial public offering ("IPO") of the securities of such Companies, whether on a "firmly underwritten", "best efforts" or other basis, White and A-G agree and promise, including for the benefit of the Companies as express third party beneficiaries, to enter into a stock "lock-up" agreement whereby White and A-G agree not to offer and/or sell any shares of the Companies securities in a public offering (as defined under federal and state securities laws) for a minimum period of six (6) months following the conclusion of any such IPO. F. A-G Right Of First Refusal. White grants to A-G an unconditional, irrevocable right of first refusal to purchase, on the same terms and conditions contained in any third party offer, shares of the Companies stock which he owns prior to the time he obligates himself to and/or does sell or transfer any or all of the shares of the Companies capital stock owned by him from time to time to any third person or entity ("A-G Right Of First Refusal"). White acknowledges and agrees that the certificates representing shares of the Companies capital stock will carry a legend restricting the sale and transfer of such shares of stock except in accordance with such A-G Right Of First Refusal. White agrees and promises to enter into a further agreement memorializing such Right Of First Refusal and providing further normal and customary details in respect of the description and implementation of such Right Of First Refusal in favor of A-G (the "Additional RFR Agreement"). White will have the right to review and approve such Additional RFR Agreement which approval shall not be unreasonably delayed or withheld. Prior to the time the parties do, in fact, make and enter into such Additional RFR Agreement, this Letter shall constitute the parties A-G Right Of First Refusal agreement. G. Initial Shareholders. Immediately following the Closing, White will be a shareholder of the Companies and be the owner of record of shares of the respective Companies I capital stock in the form of Common Stock equal to twenty-seven percent (27%) of the Companies' issued and outstanding (restricted) capital stock immediately following the issuance of stock to White. Immediately following the Closing, A-G and Patick will be shareholders of the Companies and be the owner of record of shares of the respective Companies' Common Stock equal to seventy-three percent (73%) of the Companies' issued and outstanding (restricted) capital stock. Following the Closing, the Companies will adopt a qualified stock option plan for employees covering shares equal to ten percent (10%) of the Companies' issued and outstanding shares of Common Stock including as referenced herein in paragraph 6 (representing dilution to all shareholders including White, A-G and Patick). H. Right of First Refusal In Favor Of White. If at any time during the eighteen (18) month period following the Closing, the Companies (or either of them) determines to offer, sell and issue shares of its Common Stock or other shares of capital stock to buyers in an offering which is not deemed to be a public offering as that phrase is defined under federal and/or state securities law in effect at such time {a "private offering"), then in addition to whatever other rights White may have under this Letter, White shall be entitled to a right of first refusal to purchase and acquire in such private offering, and thereby be obligated to pay for, that number of shares of Common Stock or other capital stock which shall be required to maintain White's pro rata ownership, if any, in the Companies issued and outstanding shares of capital stock owned by White immediately prior to the offer, sale and; issuance of any such shares of capital stock by the Companies in such private offering for the purchase price or other consideration to be paid to the Companies by the buyers for such shares of capital stock in any such private offering as proposed by the Companies ("White's RFR"). For purposes of this paragraph, it is understood and agreed that White's RFR shall not apply to any of the shares of the Companies' Common Stock including options in respect thereof which are the subject of the Companies' qualified stock option plans and/or sold, issued and/or transferred thereunder. In the event that the Companies actually determine to offer, sell and issue any shares of capital stock or to obligate itself/themselves to do so during the first eighteen (18) months following the Closing, then the Companies determining to engage in any such private offering shall thereafter, and prior to offering, selling and/or issuing any such shares of capital stock to any buyer or prospective buyer shall first provide White with written notice of any such decision to offer, sell and issue such shares of capital stock including the terms and conditions of any such proposed capital stock transaction (the II White RFR Notice II ), and White shall have ten (10) business days following receipt of such White RFR Notice to provide the Companies whose capital stock are the subject of such White RFR Notice with his written agreement (the "White Subscription") to purchase that number of shares of capital stock which will allow White to maintain his pro rata ownership of such shares of capital stock immediately following the completion of any such proposed offer, sale and issuance of such capital stock (the "White RFR Stock"); and White shall tender to the Companies the consideration to be paid by White in consideration of and for such White RFR Stock purchase transaction pursuant to the White Subscription within five (5) business days following the delivery of any such White Subscription to the Companies. If White does not for any reason timely provide the Companies with the White Subscription, then the Companies are free, without further obligation and or liability of any kind to White in respect of such shares of capital stock transaction and/ or otherwise under this paragraph of the Letter, to proceed with, consummate and close the offer, sale and issuance of its/their shares of capital stock as described in the White RFR Notice. If, for any reason, the Companies propose to deviate in any manner from the terms and conditions of the offer, sale and issuance of the capital stock which were the subject of any White RFR Notice, then the Companies shall prior to proceeding with any such offer, sale and/or issuance of any such capital stock issue a revised White RFR Notice covering any such revised offer, sale and/or offering of any such capital stock (the "Revised White RFR Notice"); and the parties shall repeat and follow the procedures set forth herein in respect of any such Revised White RFR Notice and in any such proposed private offering. In the event that White provides the Companies with the required White Subscription, within five (5) business days following the delivery of any such White Subscription to the Companies, White shall fully and finally purchase and pay for the shares of capital stock which are the subject of the Subscription. If White fails for any reason to so perform his purchase and payment obligation under the White Subscription or otherwise under this paragraph then, in addition to whatever other rights the Companies may have against White pursuant to the White Subscription and his failure to consummate the subject Subscription transaction or otherwise under this Letter, the Companies obligation(s) under this paragraph to White" shall automatically and forever terminate, cease to exist and be of no further force and effect. 3. Operating Agreements. Prior to the Closing, the Companies will negotiate with A-G for operating agreements ("Operating Agreements") setting forth the support that A-G will render to the Companies in the development and operation of their Businesses on an on-going basis, and the cost that A-G will charge the Companies for such on-going support services and related matters (rent, utilities, accounting services, etc.). Such Operating Agreements will be submitted for review and written approval by White before they are entered into by A-G and the Companies. White will not unreasonably delay or withhold approval of the proposed Operating Agreements. For a period of three (3) years, A-G will provide the Companies with services required or otherwise needed by the Companies and available from A-G at actual cost plus ten percent. 4. Business Plan. Prior to the Closing, the Companies will prepare or cause to be prepared for the respective Companies preliminary business plans for review by White. Thereafter, if the Companies propose to make any substantial expenditures (such as, for either of the Companies, in excess of $100, 000 for any particular item and/ or expenditures as to particular items which exceed in the aggregate $500,000 over the first two (2) years of operations) which are not already expressly provided for or contemplated by the respective Companies I preliminary business plans (or any subsequent business plan approved in writing by White) or which are not otherwise in the ordinary course of the Companies' business as described by such business plans, then the Companies will submit any such newly proposed substantial expenditure(s) for the prior review and written approval of White which approval will not be unreasonably delayed or withheld by White. 5. Board Representation. White will be entitled to serve, or designate a person to serve as his representative, on the respective Companies' Boards of Directors for a period of three (3) years from the date of the Closing; and A-G agrees and promises to vote shares of the Companies' capital stock registered in the name of A-G to cause White (or his substitute designee) to be elected to the Companies' respective Boards of Directors for such period of time. During the time that White, or his designee, is serving on the Companies Boards of Directors as provided for herein, the Companies will not enlarge the size of their Boards of Directors to more than five (5) persons without the prior written consent of White, or his designee. Following the Closing, the Companies will use their best efforts to purchase and at their expense obtain officer/director liability insurance from a Standard and Poors A+ or better rated company authorized to do business in California. 6. Further Dilution. The parties acknowledge and agree that the Companies will immediately seek to obtain additional financing, in the form of debt and equity and/or any combination thereof, to be used to implement their respective business plans. Such financing efforts could possibly take on the form or otherwise include a "private placement" and/or an initial public offering of the respective Companies' securities the result of any such securities offerings would and/or could be dilutive of the existing shareholders' ownership of the Companies including voting and other rights and benefits attending ownership of the Companies' capital stock. Any such securities offering(s), none of which can be predicted, contemplated and/or assured at this point in time, will be approved and authorized by the boards of directors and/or shareholders of the respective Companies in accordance with applicable corporate law as being in the best interests of such Companies as they may exist from time to time. Notwithstanding the foregoing acknowledgment and agreement, the parties for themselves and for and on behalf of the Companies, hereby agree that the Companies will not, and they will not take any action to cause the Companies, to undertake any such securities offering(s), without the prior review and written approval of said parties if the dilution resulting therefrom will, in respect of any such securities offering and/or in the aggregate of all such securities offerings undertaken by the Companies during the succeeding three (3) year period following the Closing, exceed fifty percent (50%) of such parties' ownership and other rights in the respective Companies. (For example, such securities offerings will not result in White's percentage ownership in the respective Companies during such period of time falling below thirteen and one-half percent (13.5%) on a fully diluted basis). The parties agree, however, that for purposes of such dilution calculation, shares of capital stock issued or issuable to employees of the Companies under qualified stock option plans (limited to a maximum of ten percent (10%) of the Companies' issued and outstanding shares of capital stock at any point in time) shall not be taken into account or otherwise computed. 7. Representations/Warranties. White acknowledges and agrees that A-G is not the proposed seller and issuer of the stock which White agrees to purchase from the Companies pursuant to and in accordance with this Letter; and that the respective Companies will be the issuer(s) of such securities. White further acknowledges and agrees that he will conduct such inquiry and investigation, referred to in this Letter including the following paragraph as "due diligence", as he and his advisors determine to be necessary and appropriate in order for White to determine whether or not to proceed under this Letter including the within agreements; and that White will rely entirely on his own due diligence and judgment in respect thereof in determining to continue to perform under this Letter in accordance with the terms and conditions hereof including the purchase of stock in the Companies as provided for herein. White acknowledges and agrees that, A-G (including without limitation its officers, directors, employees, consultants, designers, attorneys or other representatives) has not and is not making any representations or warranties or providing any assurances of any kind in respect of (1) the investment merits of the capital stock to be purchased by White as provided for in this Letter, (2) the Companies or the investment opportunity associated with the Companies organized or to be organized under the terms of this Letter, (3) the businesses and or the prospects for the businesses to be owned, further developed and operated by the Companies as contemplated by this Letter, (4) the business plans for the Companies to be reviewed by White in accordance with the terms of this Letter, (5) the financial condition and/or the adequacy of the, funding to be provided to or otherwise obtained by the Companies as provided for or contemplated by this Letter or otherwise, and/or (6) the assets and properties to be contributed by A-G to the Companies in accordance with the terms of this Letter. In addition to any other provisions of this Letter, White agrees and promises to indemnify and hold harmless A-G (including without limitation its officers, directors, employees, consultants, designers, attorneys or other representatives) from any and all claims, debts, causes of action, actions, proceedings, obligations, liabilities, expenses and costs (including without limitation attorneys' and other professionals' fees and costs paid or incurred by A-G) in respect of, based upon, arising as a result of, or otherwise under, or in respect of, the specific disclaimers set forth in items (1) through (6) above. Nothing in this paragraph is intended or shall be deemed for any purpose to limit and/or nullify the representations, warranties and agreements of A-G in favor of White expressly set forth in paragraph 2.C. of this Agreement. 8. Due Diligence. A. White Due Diligence. White including his agents at his direction and under his control has conducted and agrees to conduct, and A-G has and agrees to cooperate in the conduct by White, such due diligence and other inquiry and investigations (collectively herein "due diligence") as he reasonably believes to be necessary, appropriate or otherwise advisable as a basis for determining to enter into this Letter and to consummate the subject stock purchase transaction pursuant to and in accordance with the provisions of this Letter. Such due diligence has been and will continue to be at White's sole cost and expense. Any and all due diligence at or similarly involving A-G has been and shall be conducted by White including his agents during normal business hours and, where deemed appropriate by A-G in its sole discretion and election, has and shall be conducted pursuant to confidentiality and non-disclosure agreements in form and content reviewed and approved and to be reviewed and approved in writing by White which approval has not and will not be unreasonably delayed or withheld by White. The purpose of such due diligence is to allow White to obtain information which will allow him to make an informed investment decision regarding the entering into this Letter and the purchase of the stock of the Companies as provided for and contemplated herein; and White has and agrees to rely exclusively on such due diligence in making his decision as to whether or not to enter into this Letter and to purchase such stock. The conduct of such due diligence by White to his sole and exclusive satisfaction is a condition to White's obligation to consummate the purchase of stock at the Closing, and the Companies' obligation to sell and issue the stock to White, as provided for herein. B. A-G Due Diligence. White will provide A-G in writing with the background and other information customarily required from officers/directors of public reporting companies to appear in securities offering, reporting and other disclosure documents under federal and state securities laws so that A-G can conduct a reasonable background inquiry and investigation confirming the accuracy and completeness of such information as part of A-G's due diligence on White as the prospective purchaser and substantial owner of stock in the Companies, A-G agrees to maintain the confidentiality of all information provided by White which is not otherwise a matter of public record. Completion of such A-G due diligence, to A-G's sole and exclusive satisfaction and approval, is a condition to A-G's (and for and on behalf of the Companies' as an express beneficiary of such provision) duties and obligations under this Letter (including the sale of stock in the Companies by the Companies to White at the Closing). 9. Closing. The Closing as referenced herein, whereby White will purchase, pay for, acquire and receive the stock in the Companies as provided for in paragraph 2, will take place on December 31, 1999 at 10:00 o'clock A.M: at A-G's corporate offices in Pomona, California, or such other date, time and place as the parties shall mutually agree to in writing (herein the "Closing"). At the Closing White will purchase and pay for the stock in the Companies by delivering to the Companies bank cashier's checks dated on or prior to the Closing in the total amount of $2 million, as follows: (1) one bank cashier's check for $1 million payable to "LibraryCard.com, Inc." and (2) one bank cashier's check for $1 million payable to " A-G Sub, Inc." (collectively the "Cashier's Checks"). At the Closing, in consideration of the Cashier's Checks, the Companies shall deliver to White (and/or his approved assignees) certificates for the shares of stock in the Companies being purchased by White registered in the name(s) of White and/or such assignees. 10. Conditions To The Closing. The parties' respective duties and obligations under this Letter are conditioned upon the following: A. White's obligations under this Letter, including the purchase of stock in the Companies at the Closing, are conditioned upon the following: (1) Due Diligence. Completion of White's due diligence, as provided for herein at paragraph 8.A. hereof, to his sole satisfaction and approval on or before December 30, 1999. If White has not notified A -G in writing that such due diligence has not been completed to White's satisfaction by the close of business on such date, then White's approval shall be deemed to have finally taken place for all purposes including the satisfaction of this condition. (2) Operating Agreement. Review and approval by White of the proposed Operating Agreement, as provided for in paragraph 3 hereof, to his satisfaction on or before December 30, 1999. If White has not notified A- G in writing that such review and approval of the proposed Operating Agreement has not been completed to White's satisfaction by the close of business on such date, then White's approval shall be deemed to have finally taken place for all purposes including the satisfaction of this condition. (3) Business Plan. Review by White of the proposed Business Plans of the Companies, as provided for in paragraph 4 hereof, on or before December 30, 1999. If White has not notified A-G in writing that such, review of the Business Plans of the Companies has not taken place by the close of business on such date, then such review shall be deemed to have taken place for all purposes including the satisfaction of this condition. (4) Corporate Documents. Review and approval by White of the Articles of Incorporation and Bylaws ("Corporate Documents ") of the Companies, as provided for in paragraph 1 hereof, to his satisfaction on or before December 30, 1999. If White has not notified A-G in writing that such review and approval of the Corporate Documents have not been completed to White's satisfaction by the close of business on such date, then White's approval shall be deemed to have finally taken place for all purposes including the satisfaction of this condition. (5) Additional RFR Agreement. Review and approval by White of the Additional RFR Agreement, as provided for in paragraph 2.F. hereof, to his satisfaction on or before December 30, 1999. If White has not notified A-G in writing that such review and approval of the Additional RFR Agreement has either not taken place or has not been completed to White's satisfaction by the close of business on such date, then White's approval of such Additional RFR Agreement, or alternatively the A-G Right Of First Refusal as set forth herein if no such Additional RFR Agreement has been submitted to and approved by White and in lieu thereof, shall be deemed to have finally occurred and taken place for all purposes including the satisfaction of this condition. If the foregoing conditions are satisfied as to one of the Companies, but not the other, then White's obligations to and in respect of the Company in respect of which any or all of the conditions shall not have been timely satisfied shall be excused based on the non-satisfaction of the conditions applicable to such Company (but White's obligations under this Letter as to the other Company, in respect of which all of the conditions shall have been satisfied, shall be and remain operable and enforceable as to such Company and White's obligation to purchase stock in such Company pursuant to and in accordance with this Letter). B. A-G. A-G's (and the Companies' where and if applicable as express beneficiaries under this Letter) duties and obligations under this Letter (including the sale and issuance of stock in the Companies by the Companies at the Closing), are conditioned upon the following: (1) Due Diligence Re White. Satisfaction to its sole election and judgment of A-G's due diligence as to White's suitability as an investor in the Companies, as provided for in paragraph 8.B. hereof, on or before December 30, 1999. If A-G has not notified White in writing that such due diligence has not been completed to A-G's satisfaction by the close of business on such date, then A-G's approval shall be deemed to have finally taken place for all purposes including the satisfaction of this condition. (2) Compliance With Securities Laws. Satisfaction by the Companies (regardless of whether or not the Companies are deemed to be an express beneficiary of this particular provision which is of important interest to A-G) of any and all applicable securities laws, rules and regulations pertaining to the offer, sale and/or issuance of the stock including certificates of the Companies to be sold by the Companies to and purchased by White as provided for herein. (3) Accounting Clearance. Consultation with, to the extent deemed necessary or advisable by A-G in its sole discretion and election, A-G's and/or the Companies independent auditor(s) and accountant(s) in respect of this Letter and the matters provided for herein from a financial reporting perspective; and A-G's determination and confirmation, to A-G's sole satisfaction and determination, of its understanding and agreement in respect thereof as to such financial reporting matters (" Accounting Clearance"). If A-G has not notified White in writing that such Accounting Clearance has not been obtained to A-G's sole satisfaction and determination prior to the Closing, then A -G ' s review and approval of such Accounting Clearance matters shall be deemed to have finally taken place for all purposes including the satisfaction of this condition. (4) A-G Board Approval. Approval of this Letter and the transactions and arrangements provided for herein by the Board of Directors of A-G and the Companies (collectively the "Board Approval"). If A-G has not notified White in writing that such Board Approval has not been obtained prior to the Closing, then such Board Approval shall be deemed to have finally taken place for all purposes including the satisfaction of this condition. If any of the conditions to White and/or A-G's duties and obligations under this Agreement have not been timely satisfied, then the party in whose favor such condition is applicable shall have the right but not the obligation to waive in writing any such condition(s) prior to or at the Closing 11. If White, on or before January 14, 2000, in his sole, absolute and unreviewable discretion, determines that the Y2K problem (the Y2K or Year 2000 problem is understood to mean the inability of computer software programs to recognize the arrival of the year 2000 because of a common software design feature that describes the current year by only its last two digits) will adversely affect his investment, the Companies or the United States economy, White will have the right to rescind in writing to the Companies and to A-G (the "Notice of Rescission") the prior purchase and payment for such stock of the Companies at any time prior to January 14, 2000 without further obligation of any kind to the Companies and White shall be entitled to the immediate return of the full purchase price of the stock purchased by White from the Companies at the Closing plus interest at the rate of ten percent (10%) per annum in return for the surrender by White and cancellation of the stock of the Companies purchased and paid for by White at the Closing (the "Optional Y2K Post Closing Condition"). If White has not timely provided the Companies and A-G with such Notice of Rescission including the tender of the stock previously purchased by White at the Closing for cancellation by the Companies, then the sale and purchase by White and payment by White for the stock in the Companies as provided for in this Letter and consummated by White at the Closing shall not be, for any reason, subject to any unsatisfied Post Closing Condition; such Closing shall be reaffirmed to have taken place on and effective December 31, 1999 for all purposes whatsoever. 12. Miscellaneous. A. Authority. By signing and returning this Letter, the parties thereby represent, agree and warrant to each other that they are duly authorized and empowered to do so and to fully and timely perform their respective duties and obligations under this Letter. Where the Companies are referenced in this Letter, the parties acknowledge and agree that as of the date of this Letter such Companies are in the process of being incorporated and organized and are not yet actually incorporated and in existence. B. Governing Law/Venue. This Letter shall be interpreted, enforced and otherwise governed for all purposes (without regard to conflict of law provisions) under and in accordance with the laws of the State of California in which state the parties are located at the date of this Letter. This Letter is made and entered into by the parties in Orange County, California. Further, the parties acknowledge and agree with one another (including for and on behalf of the Companies as express party beneficiaries) that should any legal action or proceeding of any kind be initiated, maintained and prosecuted under, arising out of or otherwise in reference to this Letter, such action/proceeding shall be initiated, maintained and prosecuted for all purposes in a court of competent jurisdiction located in Orange County, California, which the parties hereby elect as the best venue for any such action/proceeding . C. Attorneys' Fees/Costs. (1). Legal Action/Proceeding. In the event that any of the parties initiates any legal action or proceeding against any other party (and/or the Companies) seeking to enforce any of the provisions of or otherwise under, arising out of or in reference to this Letter, then the party (or parties) who is determined to have been the "prevailing party (ies)" in any such legal action or proceeding shall be entitled to receive and recover, in addition to whatever other relief and recovery such party (ies) may be entitled to under this Letter or otherwise as a result of such action/proceeding, such prevailing party's (ies') reasonable legal and other professionals' fees and costs paid or incurred by such prevailing party (ies) as a result of any such legal action or proceeding (including any appeal thereto). (2) Reimbursement Of White's Legal Fees. In the event that White timely purchases and pays for in full stock in the Companies as provided for in this Letter, then A-G shall reimburse White for legal fees paid or incurred by White to his attorney in connection with such attorney's representation of White in connection with this Letter and the stock purchase transaction provided for herein up to a maximum aggregate amount by the Companies of Twenty- Five Thousand Dollars ($25,000); and the parties to this Letter shall take such steps as may be necessary or advisable to cause A-G to make such reimbursement within thirty (30) days following the Closing. . D. Approved Assignees(s). If either party desires to assign or otherwise designate or transfer any or all of such party' rights, benefits, duties and/or obligation under this Letter, then such party shall first notify the other party in writing of such proposed assignment/transfer and provide such other party with such facts and information about the proposed assignee and/or designee which the other party may reasonably request for purposes of making an informed decision about the suitability and acceptability of such proposed assignee, designee or transferee and matters relating thereto which other party agrees not to unreasonably withhold approval of any such proposed assignee, designee or transferee (herein " approved assignee"). E. No Waiver. Failure by any party to timely object to any non-performance of or under this Letter shall not be deemed to constitute a waiver of any similar non-performance of or under the Letter or of any other provision (including any term or condition) of the Letter. F. Separate Agreement. This Letter, and the agreements contained and set forth herein, is (are) separate from any other understandings, agreements or documents (including White's subscription to purchase shares of A-G's capital stock in the private placement of such securities pursuant to and in accordance with that certain Private Placement Memorandum, and related Questionnaire and Subscription Agreement, dated May 15, 1999) by, between and among the parties hereto; and shall be so treated for all purposes whatsoever. No party shall claim any right of set-off, offset or other deduction under or otherwise applicable to this Letter in respect of any other duties or obligation(s) owed to such party by any other party or under any other understanding or agreement in respect of this Letter. G. Notices. Any notice required to be given, referenced or which any of the parties desires to provide to the other shall be given and shall be deemed to have been provided by the other party (1) on the third (3rd) business day following the date of mailing of any such notice in the United States Mail postage prepaid in a sealed envelope(s) addressed as set forth below, (2) on the date that any such notice is hand delivered to the other party, (3) on the second (2nd) business day following transmission via facsimile if such notice is in writing and is addressed to the receiving party and transmitted via facsimile, as follows: (1) If to A-G: Auto-Graphics, Inc. 3201 Temple Avenue Pomona, CA 91768 Attention: Robert S. Cope or via facsimile transmission to Fax No. 909/595-3506 addressed as indicated above With a copy to: Robert H. Bretz, Esq. 520 Washington Blvd. Marina del Rey, CA 90292 (Fax No. 310/578-5443) (2) If to White: Mr. Steve White c/o RESNICK & GRAY 4400 MacArthur Blvd., Suite 800 Newport Beach, CA 92658-7849 Attn: Barnet Resnick, Esq (Fax No. 949/833-3445) With a copy to: Barnet Resnick, Esq RESNICK & GRAY 4400 MacArthur Blvd., Suite 800 Newport Beach, CA 92658-7849 (Fax No. 949/833-3445) H. Third Party Beneficiaries. Except as expressly provided in this Letter, no person or entity is intended or shall be deemed or determined to be a third party beneficiary under this Letter and/ or the agreements set forth herein. I. Heirs successors And Assigns. By signing this Letter, the undersigned parties thereby confirm and re-confirm their intention to make legal delivery of the Letter at such time; and that such action is intended and shall be deemed and determined for all purposes to bind any of the parties' respective heirs, successors and assigns for all purposes whatsoever under and otherwise in respect of this Letter. J. Counterpart Signatures. This Letter may be signed and thereby delivered by the parties using counterpart signature pages; and, when all such counterpart signature pages have been exchanged, this Letter including such counterpart signature pages shall be deemed for all purposes to be the original of this Letter. K. Assistance Of Legal Counsel and Other Professionals. The parties represent, agree and warrant to each other that such parties have had and have actually used the opportunity to have this Letter and the form and content hereof reviewed by legal counsel and/or other professionals of the respective parties' own choosing; and that such parties will not claim or otherwise assert that they signed and thereby delivered this Letter without the benefit of the involvement of and advice from such parties' legal and/or other professional advisor(s). Except as expressly provided for in this Letter in paragraph 12.C.(2) in favor of White, the parties shall bear their own legal and other professional fees and costs. L. Brokers Or Other Finders. Each of the parties, represents, agrees and warrants to the other that such party has not made any agreement or otherwise taken any action to engage or otherwise obligate the parties or either of them (or the Companies) to any broker, finder or other person or entity who is thereby or otherwise entitled to be paid or receive a broker's, finder's or other similar fee or other type of compensation for, under, arising out of or otherwise in reference to or connection with this Letter including the stock purchase transaction provided for herein. M. Arm's Length Transaction. The parties acknowledge and agree that they are making and entering into this Letter as a result of and in an "arm's length" negotiation and transaction, and that the parties (including any agent, attorney or other representative thereof) are not under any duty (including any fiduciary or similar duty) or responsibility to the other as it relates to this Letter or otherwise. White acknowledges and agrees that A-G and the Companies including their officers, directors, employees, consultants, designers, attorneys or other representatives) are under no duty and/or responsibility to him in respect of this Letter and the matters covered thereby as a result of his, and/or entities including limited liability companies which he may now of hereafter be associated with, subscription to purchase shares in A-G as referenced in paragraph 12(t) hereof. N. Time of the Essence. For all purposes of this Letter and the matters provided for in or contemplated by this Letter, time shall be deem to be of the essence. 13. Reserved 14. A-G Assurances Re Companies. Without limiting A-G's duties and responsibilities as otherwise set forth in this Letter, A-G does hereby agree and promise to take whatever steps it can reasonably and/or is legally entitled to take from time to time to ensure that he covenants by the Companies to White as expressly set forth in this Letter are timely performed and otherwise fulfilled by the Companies; and A-G agrees and promises not to take any steps or other action which would reasonably be understood to interfere with the Companies' covenants o White, and the timely performance thereof by the Companies, as expressly set forth in this Letter. 15. Complete Agreement/Amendment. This Letter sets forth all of the parties' agreements in respect of the subject matter of this Letter. The parties represent to and agree with each other that, in entering into and performing this Letter, they have not received and are not otherwise relying upon any statements, representations, understandings, agreements, covenants, promises, guaranties, warranties, assurances and/or any other matters which are not expressly set forth in this Letter; and that they will not at 'any time assert otherwise (whether by way of any claims in contract, tort or otherwise). If either of the undersigned parties subsequently attempts r seeks to and/or actually does assert any claim(s) that such party received and/or relied upon any statement, representation, understanding, agreement covenant, promise, guaranty, warranty, assurance or any other matter which is (or are) not expressly set forth in this Letter, other than the implied covenant of good faith and fair dealing, then the party prevailing in respect of any such claim including any action or other proceeding instituted in respect thereof shall be entitled, in addition to whatever other relief such prevailing party may otherwise be entitled to, to be indemnified and held harmless by the other party for any and all costs and expenses (including reasonable attorneys' and other professionals' fees/costs paid or incurred by such prevailing arty), losses and damages paid or incurred by such prevailing party as a result of any assertion the other party which was inconsistent with the above referenced representation and agreement or purposes of such indemnification and hold harmless provision and the underlying representations and warranties, the Companies are deemed to be express third party beneficiaries his Letter (including the within agreement(s) and Exhibit A may only be amended, modified or hanged by a further writing so stating and signed by the party against which any such , amendment, modification and/or change is sought to be enforced. This Letter was and shall be deemed for all purposes to have been drafted and prepared by all of the parties hereto. If the language used and contained in this Letter is subsequently determined for any reason to be unclear or ambiguous in any way, then no party shall suffer any prejudice or detriment as a result of having participated in the drafting or other preparation of this Letter. IN WITNESS WHEREOF, the undersigned parties have executed this Letter in Los Angeles, California effective as of the date first above stated. AUTO-GRAPHICS, INC. ("A-G") By ss/Robert S. Cope - ------------------------- Robert S. Cope President By ss/Daniel E. Luebben - ------------------------- Daniel E. Luebben, Chief Financial Officer LibraryCard.com, Inc. By ss/Corey Patick - ------------------------ Corey Patick CEO By ss/Robert H. Bretz - ------------------------ Robert H. Bretz Secretary A-G Sub, Inc. By ss/Corey Patick - ----------------------- Corey Patick CEO By ss/Robert H. Bretz - ----------------------- Robert H. Bretz Secretary "White" ss/Steve White - ----------------------- Steve White EXHIBIT A Description Of Businesses LibraryCard.com A-G's bibliographic records and other library services and related information directed at and offered to the consumer (as opposed to the in library) market via the Internet or other similar electronic communication system (LibraryCard.com Business). LibraryCard.com is envisioned to be a Internet Web portal/destination site targeted at the consumer market (both individual and business customers) which non-library customers are seeking to purchase or otherwise acquire information in electronic format and other reference materials through e-commerce. It is envisioned that revenue will be generated through sponsorships, commercial advertising, licensing of commercial databases and sale of information in electronic and print formats including the sale books and related items. A-G shall retain all rights of ownership of the information/content. published via the LibraryCard.com Business which is authored, created, compiled developed, obtained, maintained and offered by A-G including any of its other subsidiaries prior to (or authored, created, compiled, developed, obtained, maintained and offered by A-G separately from LibraryCard.com Business after) the Closing. Notwithstanding such Companies' respective ownership of such information, A-G and the .LibraryCard.com Business shall provide each other with an irrevocable, on-going royalty free non-exclusive license and right to publish, sell or use the bibliographic records and other library services and related information authored, created, complied, developed, obtained, maintained and offered from time to time by the other. Nothing herein shall, however, give LibraryCard.com the right to re-sell (versus use in the LibraryCard.com Business) any bibliographic records owned by A-G to any library or other third party purchaser. CMS (and A-G Sub) A-G's content management services product and all, enhancements and improvements thereto offered, sold and/or licensed to any consumer, commercial or government user (the CMS or A-G Sub. Business). Such CMS Business product/service shall include the following customer contracts for all or various sub-components of the product/service (which will be sold, assigned and transferred to the CMS Business): 1. Boeing 2. Northrop/Grumman The CMS product/service is intended to be an "end-to-end" enterprise content management software solution for document preparation, management and delivery/publication in various formats. including Internet, Intranet, CD, print and via e-commerce applications. This product/service seeks to address the growing need for business and other customers to reuse and repurpose content in generating customized online information products/services, in a dynamic environment, that can be published using various media. A-G including any of its other subsidiaries shall retain and obtain from CMS an irrevocable, on-going royalty free license, and right to use the CMS Business product/service including all enhancements and improvements thereto by or for the CMS Business after the Closing for its own internal use and in Connection with the products and services offered, sold or otherwise made available to A-G's customers for purposes other than the intended exploitation by the CMS Business. EX-27 13
5 This schedule contains summary financial information extracted from the Balance Sheet and related Statement of Operations of Auto-Graphics, Inc. as of December 31, 1999 and is qualified in its entirety by reference to such financial statements. 12-MOS DEC-31-1999 DEC-31-1999 3816286 0 1439325 38000 27891 5355489 12081763 6971532 10647315 2259348 0 0 0 159499 3923133 10647315 8391323 8391323 4872445 3149754 (52591) 0 347957 73758 (46630) 105188 0 0 0 105188 .03 .03
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