-----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, NJfHklt7boRLxyXJatAapuQ2Ty8dTOAqa29K0i1XUjzjIhbMmdRQlSjGYKHJ4NUU ++JnJsDayvgJRILswLHeSg== 0000950150-01-500277.txt : 20010504 0000950150-01-500277.hdr.sgml : 20010504 ACCESSION NUMBER: 0000950150-01-500277 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010503 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: 1621797 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 a71643e10-k.txt FORM 10-K FOR YEAR ENDING 12-31-2000 1 - ----------------------------------------------------------------------------- Securities and Exchange Commission Washington, D.C. 20549 FORM 10-K [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period from____________________________ to___________________ For the Fiscal Year Ended Commission File Number December 31, 2000 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: (800) 776-6939 --------------------------------------------- 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 30, 2001 was $1,973,000. The number of shares of the registrant's Common Stock outstanding at March 30, 2001 was 4,997,234 following a 3-for-1 stock split on February 28, 2000. DOCUMENTS INCORPORATED BY REFERENCE Except for exhibits, none. 2 PART I ITEM 1. BUSINESS Auto-Graphics, Inc. including its wholly-owned A-G Canada, Ltd. and Datacat, Inc. subsidiaries and its majority-owned (61%) subsidiaries Dataquad, Inc. and The LibraryCard, Inc. (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(TM) is an Internet/Web "portal" site, www.LibraryCard.com, being developed to offer library type information services to consumers (people in their homes, schools, libraries and offices). 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"). The Company's products and services, including Web design, development and hosting, 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) 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; 3) 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; 4) Business and government customers who want Internet/Web design, development and/or Web "hosting" services for their proposed or existing Web sites. 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 content; and 6) Consumers who want Internet/Web access to bibliographic and other library information type services offered by such site including services offered by libraries which can be accessed through such "portal" site (and sponsor, advertisers and/or commercial vendors who want to utilize such consumer site for delivery of communications and/or products to users of the site). 2 3 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 marketed by the Library Services division. A new version of Impact/ONLINE (IOL2) was completed in 2000, utilizing the NT operating system and Microsoft's SQL Server Relational Database Management System. The Company's customers began to implement this new version in late 2000, with the remaining Impact/ONLINE customers expected to convert to IOL2 during 2001. In addition to incorporating and upgrading current technologies and expanding capacity, the new version of Impact/ONLINE includes a number of functional enhancements requested by users and broadens the Company's markets. In February of 2001, the Company completed the purchase of software and related assets of Maxcess Library Systems, Inc. This purchase and resulting offering will afford the Company the opportunity to expand its current ASP (Application Service Provider) IMPACT/ONLINE(TM) product/services offering in the library automation area to include a fully Web based integrated library system (ILS) which will be offered to libraries, including those who currently use the Company's SLiMS (Small Library Management System) product, for license for "in library" use or as an ASP service under the trade name IMPACT/VERSO(TM). Acquisition of the Company's new ILS software on an ASP basis will provide libraries with a low capital investment alternative to their ILS needs, with no local software/hardware requirements (other than a Web browser and a PC workstation), allowing the library and their patrons to access and utilize the library's bibliographic holdings information via the Internet/Web. Impact/CMS(TM) (Content Management System) is a modular editorial, publishing and management component software system used to create, organize, maintain and manage information databases in XML (eXtensible Markup Language) standard format. The system can be configured for a single user or a multi-user enterprise system. Editorial revision and control, iteration management and DTD (Document Type Definition) validation are important functional capabilities of the system. Integrated components include data content validation, data authentication based on control and authority files, revision control and version control, complete record routing and approval management. The database resides under an Oracle or Sequel relational database system, which is provided by the user or by Dataquad. Impact/CMS can include a Web page preview capability used to validate electronic publishing compatibility. With the integration of Impact/WEB(TM) as an indexing and searching module, the CMS system provides a fully functioning editorial research and query platform. Adobe's Framemaker + SGML(TM) or other high-end composition system engines can be integrated or added to the CMS system to provide integrated composition and WYSIWYG viewing of the content for traditional print applications as desired. Dataquad owns the Impact/CMS software and markets it directly to end users and plans to expand distribution via third party distributors and partners. Dataquad has licensed the use of the CMS software system to Datacat for marketing to the HVACR (Heating, Ventilation, Air Conditioning, and Refrigeration) industry. Dataquad also offers full implementation services to convert legacy data to XML. In addition to the CMS software system, Dataquad also offers full Web site design, development, installation and maintenance including e-commerce capabilities and outsourced Web "hosting" facilities and follow-on support to business and other non-library customers. 3 4 Impact/WEB(TM) (Web access and publishing software) is owned by Auto-Graphics and is licensed for resale to Dataquad and Datacat and for use by LibraryCard. The system is the core software for all Web publishing applications and solutions offered by the Company including the Impact/ONLINE (IOL) system for libraries. This system provides custom indexing, search, content scoping, retrieval and display of database content. Customized modules include support for Oracle and MS Sequel database, XML and MARC data and e-commerce features. Impact/WEB is a "stand alone" Web publishing system. DHTML (dynamic HTML) pages are created "on the fly" based on database, application and/or user specific parameters and standard tools such as Application Server Pages, thereby eliminating the high cost of creating and managing static HTML based Web sites. Applications The Company provides outsourcing including Web "hosting" services to various types of customers, including libraries and businesses. 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 kindergarten through grade 12 public school libraries (when the system is fully developed and implemented). Approximately 5,100 school libraries are currently included in this Texas statewide 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 Massachusetts, Illinois, New Jersey, Michigan, Ohio, and New Hampshire. Outsourced Internet/Web database management services presently support over 10,000 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. The Company has acquired, developed and owns a substantial bibliographic database (including REMARC(TM) database of over four million records) and also makes available public agency databases including those offered by the United States Library of Congress, National Library of Canada, British Library and many U.S. and Canadian public and university libraries as a compendium of databases containing over 40 million unique records. The Company provides online bibliographic records for use by its U.S. and Canadian library customers via the Internet. The Impact/CMS(TM) software system is owned and marketed by Dataquad primarily to business customers. The Boeing Company uses the CMS product for the development and maintenance of a database containing all maintenance and support documentation for the C-17 Air Transport project for the Air Force. Houghton Mifflin Co. 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.). Affinity Group Database Publishing uses CMS to develop and maintain its database of North American campgrounds and amenities published annually in the "Trailer Life Campground, RV Parks and Services Directory". 4 5 In support of customer migration to an XML/SGML tagged database, the Company continues to provide data 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 2000, the Company completed a major contract with Northrup-Grumman Marine Systems to convert thousands of pages to SGML format. The Company believes that Dataquad, with its ability to offer a full complement of software and services to meet customers needs for (1) legacy data conversion, (2) content development and management, (3) content distribution or delivery in electronic and other form and (4) e-commerce capability, may be unique in such end-to-end ("E2E") in-house services/capability offering. 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 and library patrons supported by sponsors, commercial vendors and/or advertisers. LibraryCard is in the process of refining, developing and introducing the "core" features which the Company believes will distinguish its site from competing book selling sites, including: "Find-A-Book" (find a book using the LibraryCard bibliographic database including if the book is available at a local library which location service will initially be available in select geographic areas and eventually on a nationwide basis); "Buy-A-Book" (price the book comparing the LibraryCard price and the prices offered by competing book selling sites such as Amazon.com and Barnes and Noble.com and purchase the book from LibraryCard or by "clicking" through to a competing site to purchase the book in which case the Company earns a commission on such competing sale); "LibraryCard-Connect" (buy the book at a substantial discount and contribute the book, when you are through reading it, to a library seeking to acquire such title and which is willing to purchase the book at a substantial discount from the price otherwise available to the library); and the "Reference Room" (find information available on the Web by using the library-like index of information selected, classified and categorized by LibraryCard for such purpose). When the development and implementation of the above referenced features of the site are completed, it is believed that the LibraryCard bibliographic database will be the largest (most titles) in the Web world. The Company is assisting LibraryCard to complete development of its proposed "core" features. Further development and marketing/promotion of the LibraryCard site will require substantial outside funding. See "Liquidity and Capital Resources" as discussed in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. The Company provides services and Internet/Web software to create, maintain and provide access to product databases for its customers engaged in manufacturing and distribution and which use catalogs in the marketing and sales of their products and services to their customers. One example is Datacat's HVACR-specific product database, which is available on an annual site license basis to wholesalers and others in the HVACR industry. This HVACR database, combined with the Company's Internet/Web software, provides HVACR wholesalers and manufacturers the 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). Using the database, which is published on the Internet/Web, the Company's customer has the ability to publish a CD-ROM or print catalogs. 5 6 The Company provides database composition services to major publishers such as Houghton Mifflin Co., The American Society of Health System Pharmacists, Zondervan, TL Enterprises and Oxford University Press. Pages may be produced to the customer's specification for use by the customer's printer and output as postscript data files, film, or camera-ready copy. The Company typeset the 24-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)" edition for The American Society of Health System Pharmacists. In addition to the Company's Internet/Web database products and services, the Company provides ancillary services required by the customers and markets it currently serves. These ancillary services include database entry and database "clean-up", database conversion and database loading services. These services enable customers to quickly and easily direct the development of an electronic information database, which may then be customized 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) databases for the benefit of the enterprise and its customers, suppliers and other categories of users independent of the media used to publish this data. Flexibility to distribute and use information by an enterprise is an important goal and provides the underlying premise of the Company's Internet/Web products and services. All new product development is being programmed 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 The technology utilized and developed in the Company's products and services is applicable to a diverse group of markets and customers. The Company's marketing team is comprised of a corporate marketing staff and is augmented by a small direct sales force for each of the individual markets: library, publishing, HVACR industry, XML/SGML editorial content systems for business and government, Internet/Web solutions for business and government, and consumer Internet/Web library information services. Marketing activities include public relations, advertising, display and presentation at industry trade shows, targeted mailings, telemarketing and e-messaging campaigns. 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, which focuses on the identification of bidding opportunities and subsequent follow through documentation and processing activities. 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. 6 7 The Company's strategy for its Internet-centric products and services includes the continued development and acquisition of new products and services for existing customers. The Company also develops and refines these products for introduction to new customers and markets not currently served by the Company. The Company's strategy for entering new markets in the future will include acquisitions of companies and 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. 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. 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 as they evolve by offering new and enhanced products and services representing advances in the information and knowledge management industry. 7 8 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 and, if this category of library products/services business continues to grow as the Company believes should 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. Software sales of the Impact/CMS(TM) and Impact/WEB(TM) systems as well as complementary design, development and processing services are highly competitive. There are no definitive market share statistics available, however, the market is sizable and there are many companies attempting to establish a position in this emerging market. Many competitors are smaller and local in character; however, many are larger and national with greater financial and other resources than the Company. Purchase contracts are generally awarded according to the results of pricing, technical capability, customer references and service 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 large, well-known computer hardware manufacturers 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, may be in the future, 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 increased 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 sponsors, commercial vendors and/or advertisers who have the opportunity to do business with established, well-known and proven "portal" sites such as Yahoo!(R), AOL, MSN(R) and others. 8 9 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 continuing 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, Washington, Maryland and Toronto, Canada. The Company including its subsidiaries employs approximately 100 persons in all locations. The Company believes that relationships with its employees are good. Financial Information About Geographic Areas See Note 1, "Segment Reporting" of Notes to Consolidated Financial Statements. ITEM 2. PROPERTIES The Company leases its corporate office and production facility from a limited partnership owned by a current and former director/stockholder of the Company ("Lessor"). The Company has an option to purchase a one-third interest in the partnership from the Lessor for an amount not to exceed $150,000. From January 2000 through March 2000, the Company leased 29,260 square feet having an annual base rent of $351,000 (plus expenses). From May 2000 through December 2000 the Company leased 19,480 square feet having an annual base rent of $233,000 (plus expenses). The reduction in space was completed as a result of a planned consolidation and resulted in a decrease in the Company's annualized rent expense of $118,000 (plus expenses). The current lease term expires in June 2001. (See Note 6 of Notes to Consolidated Financial Statements, and Item 13). The Company presently plans to enter into a new lease agreement with the Lessor prior to the expiration of the current lease. Management believes that the reconfigured space is now and 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 small sales and sales support office space in Seattle, Washington and also in Maryland. In addition, the Company leases a small sales and support office for A-G Canada, Ltd. in Etobicoke, near Toronto, Ontario, Canada. The Company planned and implemented a reduction in the space occupied in this facility from 3700 to 1730 square feet in June 2000. The reduction in space is consistent with its expected future needs. 9 10 ITEM 3. LEGAL PROCEEDINGS None. In December 1999, the Company and an associate formed two new subsidiaries, Dataquad, Inc. and The LibraryCard, Inc. Both parties contributed nominal cash consideration. The Company also contributed certain software and other assets to such subsidiaries. A third party investor (who also invested in the Company's 1999 private placement offering) invested $1.0 million in cash in each of the subsidiary's in return for a 24.5% ownership interest. The Company retained 60.9% and the associate retained a 5.5% interest personally and a 9.1% interest as trustee, after the issuance of 700,000 shares of Common Stock of each subsidiary to the associate as trustee for their stock option/purchase plans. In October 2000, the third party investor reported to the Company that he did not believe that the Company had fully performed all of its obligations in respect of such subsidiaries securities sale and purchase transactions; and that, because the Company had not satisfied the investor's expectations regarding the Dataquad transaction, the investor maintained that his investment in LibraryCard was also put into issue. The investor indicated that he has no facts upon which to base any belief that the LibraryCard stock purchase transaction was not in accordance with the party's agreement. The Company believes that, with the recent significant decline in the market valuations for technology including Internet stocks and the near term prospects for same, the investor may be experiencing "buyer's remorse". The Company is not aware of any factual basis for the investor asserting any misrepresentation, securities laws or similar claims against the Company and/or LibraryCard in connection with the investor's purchase of shares of LibraryCard (or the Company). The Company is not aware of any facts upon which the investor could be expected to prevail in any action asserting similar claims against Dataquad (or the Company) in connection with the investor's purchase of shares of Dataquad. The Company invited the investor to submit a written complaint setting forth whatever claims he thinks he may nevertheless have against the Company arising out of his investment in Dataquad and the facts supporting any claim he believes he may have against Dataquad, which was subsequently received. At the beginning of 2001, the Company completed a merger reorganization whereby all of the Company's Datacat subsidiaries non-HVACR assets/business was contributed to Dataquad. Following such reorganization, which was implemented by the Company independent of the investor's complaints to the Company regarding the Dataquad transaction, the Company has received no further communication from the investor in respect of his previously submitted complaints. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 10 11 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Stock quotations.
2000 ---------------------------------------------- Bid Ask -------------------- -------------------- Price Range High Low High Low - ----------- ------- ------- ------- ------- First Quarter $13.500 $ 5.333 $15.000 $ 5.667 Second Quarter 12.000 5.063 13.000 6.250 Third Quarter 5.500 2.250 6.500 2.875 Fourth Quarter 3.750 1.250 4.438 1.438
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
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 Pink Sheets LLC, (formerly 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. As of March 30, 2001, the number of holder accounts of record (including depository and nominee or "street name") of the Company's Common Stock was approximately 225. The Company believes that the number of record and beneficial owners of the Company's Common Stock is in excess of 450 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. 11 12 ITEM 6. SELECTED FINANCIAL DATA Dollar amounts in thousands except per share data (which has been adjusted to reflect the 3-for-1 stock split in February 2000).
Years Ended December 31, ------------------------------------------------------------ 2000 1999 1998 1997 1996 ------- ------- ------- ------- ------ Operating results: Net sales $ 8,323 $ 8,391 $ 9,099 $10,036 $9,218 Net income/(loss) (875) 105 (1,064) 212 236 Basic Earnings/ (loss)per share (.18) .03 (.33) .06 .07 Diluted Earnings/ (loss)per share (.18) .03 (.33) .06 .07 At year-end: Total assets 8,153 10,647 7,573 8,852 7,132 Long-term debt 2,057 3,153 2,588 2,911 2,101
No cash dividends have been declared. 12 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources Management believes that liquidity and capital resources will be adequate to fund operations of the Company for 2001. The Company has cash balances remaining from the Company's sale of private placement stock in 1999/2000, has and is implementing cost savings steps in the Company's LibraryCard and Dataquad subsidiaries and completed a U.S. $1.5 million Japanese licensing transaction in the 1st Quarter of 2001. In 1999 and 2000, the Company raised approximately $4 million through the sale of stock in the Company and in the Dataquad and LibraryCard subsidiaries. At December 31, 2000, the Company's cash position was approximately $1.2 million down $2.6 million (including a $1 million paydown in bank debt) from $3.8 million in cash at December 31, 1999. The balance in the Company's revolving reducing line of credit at December 31, 2000 was $2 million as compared to the prior capital line of credit balance at December 31, 1999, which was $3 million. The equity raised by the Company was used in 2000 to fund the Company's Internet/Web initiatives and the Company's new LibraryCard and Dataquad subsidiaries. Under AICPA Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities", all costs incurred by such subsidiaries of a "start-up" nature were expensed as incurred. Such "start-up" expenses, and other non-capitalized costs/expenses, associated with such activities are not anticipated to have the same impact in 2001 as in 2000. LibraryCard's available cash resources were substantially consumed in 2000 in the process of developing the consumer "portal" Internet/Web site, www.LibraryCard.com. On November 1, 2000 the Company entered into a revolving line of credit agreement with its majority-owned (61%) subsidiary, LibraryCard, whereby the Company agreed to loan LibraryCard up to $250,000 for use as working capital during the twelve month period ending October 31, 2001. Amounts loaned to LibraryCard under the line of credit bear interest at the rate of 10% (which was the then current rate applicable under the Company's line of credit with Wells Fargo Bank). The outstanding balance of such credit line is scheduled to be repaid no later than October 31, 2001. As of December 31, 2000, no funds had been loaned by the Company. LibraryCard received and used an advance of approximately $225,000 from the Company in the 1st Quarter of 2001 to continue such development efforts. The Company anticipates that the full amount of the $250,000 credit line will be loaned to LibraryCard by the end of April 2001. Management believes that LibraryCard's ability to raise additional funds in late 2000 and early 2001 have been negatively affected by the existing unfavorable market conditions for Internet and related companies' stock offerings. LibraryCard's ability to raise capital in the near future is limited until the investment environment is more receptive to any such possible offering. The Company's ability to advance further monies to LibraryCard is limited by the Company's bank line of credit agreement that restricts loans by the Company to its subsidiaries to a maximum aggregate total amount of $350,000. In February 2001 the LibraryCard staff was reduced to a minimum level with the intention that Auto-Graphics personnel will assist LibraryCard on an ongoing basis to complete development of its proposed "core" features at which time LibraryCard will resume efforts to obtain outside funding for the further development, operation and marketing/promotion of the LibraryCard site (estimated to be a minimum of $2 million) from outside sponsors, advertisers and/or investors. See Item 1 herein at page 5. Pending the outcome of such funding efforts, and the development and implementation of a business model that would allow LibraryCard to operate profitability, the Company intends to assist LibraryCard to continue development and operation of the site through at least 2001. 13 14 In March 2001, the Company licensed use of its REMARC(TM) bibliographic database of Library of Congress pre 1968 holdings to a Japanese Company for use exclusively in Japan for a one-time payment of U.S. $1.5 million. Such transaction will have a material affect on the results of operations to be reported by the Company for the 1st Quarter and year ended December 31, 2001. In February of 2001, the Company completed the purchase of software and related assets of Maxcess Library Systems, Inc. for approximately $200,000. This purchase and resulting offering will afford the Company the opportunity to expand its current ASP (Application Service Provider) Impact/ONLINE(TM) product/services in the library automation area to include a fully Web based integrated library system (ILS) which will be offered to libraries, including those who currently use the Company's SLiMS (Small Library Management System) product, for license for "in library" use or as an ASP service under the trade name Impact/VERSO(TM). Acquisition of the Company's new ILS software on an ASP basis will provide libraries with a low capital investment alternative to their ILS needs, with no local software/hardware requirements (other than a Web browser and a PC workstation), allowing the library and their patrons to access and utilize the library's bibliographic holdings information via the Internet/Web. In 2000, cash flow from operations was a negative $512,000 and in 1999 it was a positive $2,050,000. The decrease cash flow in 2000 was primarily attributable to the start-up costs incurred by the two new subsidiaries, Dataquad and LibraryCard. The cash flow in 2000 attributable to (non-cash) depreciation and amortization was $1,412,000 and net collection of accounts receivable was $139,000. Cash flow from operations in 2000 was partially offset by a reduction in customer advances (deferred income) of $281,000. As a result of the planned reduction in cash expenditures by LibraryCard and Dataquad, the negative cash flow in 2001 should be substantially less than 2000. At December 31, 2000, the Company's principal financial commitments, other than its bank line of credit, involved the lease of computer equipment ($147,000) 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 it occupied and leased at its Pomona facility by approximately 33% with a corresponding reduction in rent and expenses. A 53% reduction in occupied and leased space in Toronto was also implemented in June 2000. See Item 2. Properties herein. The Company's principal use of cash for investing activities during 2000, 1999 and 1998 were directed primarily towards continuing the improvement and development of the Company's Impact/ONLINE(TM) software (bibliographic finding and interlibrary loan service using the Internet), to enhance the Impact/WEB search and retrieval engine and to further develop Dataquad's Impact/CMS(TM) (Content Management System) for the management and maintenance of XML/SGML databases. The amounts invested were $775,000, $750,000 and $795,000 respectively. The remainder of investing activities were to acquire hardware and software used to expand and enhance online services to the Company's current (and prospective) Internet/Web customers as well as leasehold improvements associated with its reduction in occupied space. 14 15 Cash flows used for financing activities for the Company for the years 2000, 1999 and 1998 were directed primarily towards the reduction of long-term debt totaling over $1.7 million while the primary source of cash from investing activities was sales of stock totaling approximately $4 million. In 2000, the Company used a portion ($1 million) of the proceeds from the sales of stock in 1999 and 2000 to lower bank debt. In addition, the Company restructured its bank agreement and as a result the Company agreed to maintain consolidated cash balances of 40% of the maximum borrowing capability as provided in the bank agreement ($1.1 million at December 31, 2000). (See Notes 2 and 3 of Notes to Consolidated Financial Statements). Also, in 2000 the Company repurchased stock from a former director/stockholder and a former officer of the Company ($380,000). (See Note 7 of Notes to Consolidated Financial Statements). In 1999, the Company's consolidated cash increased by approximately $3.1 million as a result of the sale of stock by the Company and its LibraryCard and Dataquad majority-owned (61%) subsidiaries. The Company used a portion ($375,000) of the proceeds to reduce long-term debt in 1999. In 1998, the primary use of cash under financing activities was a net reduction in long-term debt of $379,000. The Company's capital resources are available for use as working capital, for capital investments, possible future acquisitions of businesses, products and/or technologies complementary to the Company's existing and anticipated future information technology business. Management believes that to attain the Company's goals it is essential for the Company to continue to invest in Internet/Web capability for the foreseeable future. See prior reference to the Company's Maxcess acquisition in February 2001 as representative of the Company's acquisition strategy for the foreseeable future. In August 2000 the Company implemented a revolving credit agreement to replace its prior capital line of credit. The proceeds from the new line of credit were used to repay the capital line of credit. Upon commencement of the new line of credit, the maximum borrowings were $3,000,000. The maximum credit commitment under the new line of credit reduces periodically over the term of the credit commitment and reaches a maximum of $2,000,000 on April 2, 2002 and, the agreement matures on June 2, 2002. The interest rate on the line of credit is one-half of one percent above the bank prime rate in effect from time to time. The agreement also requires that the Company maintain consolidated cash balances equal to 40% of the maximum credit commitment in effect throughout the term of the agreement. The credit line is secured by all of the assets of the Company and its subsidiaries. It also requires that the Company maintain certain minimum financial covenant ratios, restricts the payment of cash dividends and limits the amount of certain types of equity investments, including the repurchase of Company stock as well as limiting the amount of loans to third parties, including, subsidiaries. As of December 31, 2000, the Company was in compliance with all of its loan covenants. See Note 3 of Notes to Consolidated Financial Statements. 15 16 Results of Operations 2000 Compared to 1999 Overall, 2000 sales as compared to 1999 were down $69,000 or 0.8% (from $8.39 million in 1999 to $8.32 million in 2000). The primary products/services offering within the Company's total reported sales is Internet/Web and related product/services. These products/services are a substantial part of the Company's sales to the library industry. Consolidated sales from Internet/Web products/services were down $85,000 or 1.7% in 2000. These products/services accounted for over 58% of the Company's total sales in both 2000 and 1999. During 2000, Canadian sales of Internet/Web products/services decreased $86,000 while sales of similar products and services in the United States were unchanged. The Company expects that the U.S. and Canadian markets for such Internet/Web products/services will continue to be very competitive and that further erosion of sales in Canada will likely occur during 2001. The remainder of sales in the library division were down $230,000 or 12.8% (from $1.78 million in 1999 to $1.55 million in 2000). The primary reason for the decrease was a reduction in the number and volume of special one-time data conversion type projects. These projects tend to have a high labor content and therefore, low margins. The Company has not emphasized this area of service in 1999 and 2000 because of the lower margins. Publishing division sales increased $244,000 or 14.8% (from $1.65 million in 1999 to $1.90 million in 2000). The increase was primarily a result of a $549,000 increase in conversion services that are performed on an individual project basis. The increase was partially offset by a decrease of $125,000 in traditional publishing (database management services for catalogs, Bibles and reference works) and a decrease of $180,000 in software licenses and support. The Company's traditional publishing business has been declining for several years and is expected to decline further in 2001. Sales for such traditional publishing business declined over 12% in 2000 (from $996,000 in 1999 to $871,000 in 2000). Sales in Canada overall were down $57,000 or 3.4% in 2000 (from $1.69 million in 1999 to $1.64 million in 2000). Libraries in both the United States and Canada appear to be seeking reduced cost (or free) sources for such cataloging services; and are sometimes willing to accept lesser quality records than the Company offers and such libraries historically preferred, in order to achieve such cost reduction objectives. 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 decreased $635,000 or 18% (from $3.5 million, or 41% of sales in 1999 to $2.9 million or 35% of sales in 2000). The decrease in gross margin results from losses (negative gross margin) in the amount of $493,000 that were attributable to start-up costs of the Company's two new subsidiaries, Dataquad and LibraryCard. The Company continues to emphasize its Internet/Web hosting library services, which are less labor intensive and, therefore, generally have higher gross margins than the high labor content work such as the publishing database business. As the mix of products and services offered by the Company continues to move toward such higher margin business, gross margins should improve as a result when combined with the expectation that losses for LibraryCard will be substantially less than in 2000. Selling, general and administrative expenses in 2000 increased $1,067,000 or 34% (from $3.15 million in 1999 to $4.22 million in 2000). The increase was primarily a result of increased expenses at the Company's two new subsidiaries, Dataquad and LibraryCard, where such combined expenses were $978,000 for 2000. SG&A expenses for 2001 will be reduced as a result of staff and other cost reduction efforts at LibraryCard which occurred in February 2001. 16 17 Net interest expense in 2000 was down $244,000 or 70% (from $348,000 in 1999 to $104,000 in 2000). The decrease results from the overall lower borrowings from the bank, a lower interest rate on the bank debt and increased interest income that resulted from the investing the cash balances required to be maintained by the credit agreement with the bank. At December 31, 2000, the Company had available Federal, state and Canadian net operating loss carryforwards of approximately $2,454,000, $615,000 and $137,000, respectively (expiring in 2020 for Federal taxes, in 2006 for state taxes and 2005 for Canadian taxes). A valuation allowance in the amount of $531,000 for unrecognized U.S. tax loss carryforwards. 1999 Compared to 1998 Overall, 1999 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 accounted 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 was largely complete. In 1999, the Company 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. Sales from such traditional publishing business (database publishing services for catalogs, Bibles and reference works) declined over 50% in 1999 (from $2.1 million in 1998 to $1.0 million in 1999). Overall, sales in Canada were down 15% in 1999 ($2.0 million in 1998 versus $1.7 million in 1999), as a result of several large information processing contracts that were completed in 1998. The Company's bibliographic cataloging business continued to decline in 1999 and was down 11% from 1998 levels. 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 emphasized its Internet/Web hosting library services, which are less labor intensive and, therefore, generally have higher profit margins. Gross margins were anticipated to improve as a result of an emphasis on products and services with higher margins. 17 18 In 1999, the Company implemented a cost reduction program. Staff levels, particularly in the Company's traditional database publishing business, were reduced by 50% as a result of the lower volume of such work. Likewise, selling, general and administrative expenses in 1999 declined $793,000 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. 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). 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 contractual nature of a substantial amount of the Company's business, while costs of personnel, materials and other purchases tend to escalate more rapidly. 18 19 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 United States dollar fluctuates. The value of the Canadian dollar decreased in relation to the U.S. dollar in 2000 (whereas the opposite occurred in 1999) and, the result was a net foreign currency loss for the Company. The net foreign exchange transaction losses, expressed in U.S. dollars for 2000 were $68,817 compared to transaction gains of $52,591 in 1999. Further decreases in the value of the Canadian dollar will result in additional foreign currency translation losses, and increases in the value of the Canadian dollar against the U.S. dollar will result in foreign exchange gains. 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 Note 1 "Pending Pronouncements" of Notes to Consolidated Financial Statements. ITEM 7a. MARKET RISK See Note 1 "Foreign Currency Translation," "Credit Risk," and "Fair Value of Financial Instruments" of Notes to Consolidated Financial Statements. 19 20 ITEM 8. FINANCIAL STATEMENTS Index to Consolidated Financial Statements covered by Report of Independent Certified Public Accountants.
Page Reference --------- Report of Independent Certified Public Accountants 21 Balance Sheets at December 31, 2000 and 1999 22 Statements of Operations and Comprehensive Income (Loss) for years ended December 31, 2000, 1999 and 1998 23 Statements of Stockholders' Equity for the years ended December 31, 2000, 1999 and 1998 24 Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 25 Notes to Consolidated Financial Statements 26
20 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 sheets of Auto-Graphics, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations and comprehensive income (loss), stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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 audits provide 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, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. BDO SEIDMAN, LLP Los Angeles, California March 9, 2001 21 22 AUTO-GRAPHICS, INC. ------------ CONSOLIDATED BALANCE SHEETS December 31, 2000 and 1999
ASSETS (Notes 2 and 3) 2000 1999 ---------------------- ------------ ------------ Current assets: Cash $ 1,202,442 $ 3,816,286 Accounts receivable, less allowance for doubtful accounts ($38,000 in 2000 and 1999) 1,280,977 1,401,325 Unbilled production costs 251,088 27,891 Other current assets 181,902 109,987 ------------ ------------ Total current assets 2,916,409 5,355,489 Software, equipment and leasehold improvements, net (Note 1) 5,121,592 5,110,231 Other assets 114,696 181,595 ------------ ------------ $ 8,152,697 $ 10,647,315 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable $ 481,136 $ 293,798 Deferred income 982,166 1,273,873 Accrued payroll and related liabilities 436,510 497,076 Other accrued liabilities 63,845 124,601 Current portion of long-term debt (Note 3) 77,257 70,000 ------------ ------------ Total current liabilities 2,040,914 2,259,348 Long-term debt, less current portion (Note 3) 2,056,876 3,153,249 Deferred taxes (Note 4) 387,900 475,236 ------------ ------------ Total liabilities 4,485,690 5,887,833 Commitments and contingencies (Note 5) Minority Interests 248,114 676,850 Stockholders' equity: Notes Receivable - Stock (Note 7) (77,500) (127,500) Common Stock, 12,000,000 shares authorized, 4,997,234 shares issued and outstanding in 2000 and 4,784,934 shares issued and outstanding in 1999 (Note 7) 4,201,755 3,793,332 Retained earnings/(accumulated deficit) (694,381) 438,977 Accumulated other comprehensive income/(loss) (10,981) (22,177) ------------ ------------ Total stockholders' equity 3,418,893 4,082,632 ------------ ------------ $ 8,152,697 $ 10,647,315 ============ ============
See Notes to Consolidated Financial Statements. 22 23 AUTO-GRAPHICS, INC. ------------ CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) Years ended December 31, 2000, 1999, 1998
2000 1999 1998 ----------- ------------ ------------ Net sales $ 8,322,604 $ 8,391,323 $ 9,099,198 Costs and expenses Cost of sales 5,439,035 4,872,445 6,258,523 Selling, general and administrative 4,217,306 3,149,754 3,943,143 ----------- ------------ ------------ 9,656,341 8,022,199 10,201,666 ----------- ------------ ------------ Income/(loss) from operations (1,333,737) 369,124 (1,102,468) Interest expense, net (103,648) (347,957) (311,797) Other income/(expense) (68,817) 52,591 (47,357) ----------- ------------ ------------ Income/(loss) before taxes (1,506,202) 73,758 (1,461,622) Income tax benefit (Note 4) (98,000) (46,630) (397,000) Minority interest in income/ (loss) of subsidiaries (533,504) 15,200 -- ----------- ------------ ------------ Net income/(loss) (874,698) 105,188 (1,064,622) ----------- ------------ ------------ Foreign currency translation adjustments 11,196 (19,770) 157 ----------- ------------ ------------ Total comprehensive income/(loss) $ (863,502) $ 85,418 $ (1,064,465) =========== ============ ============ Basic earnings/(loss) per share $ (.18) $ .03 $ (.33) =========== ============ ============ Weighted average shares outstanding (Note 1) 4,821,321 3,684,009 3,199,935 =========== ============ ============ Diluted earnings/(loss) per share $ (.18) $ .03 $ (.33) =========== ============ ============ Weighted average shares outstanding (Note 1) 4,821,321 3,776,004 3,199,935 =========== ============ ============
Note: Shares outstanding have been retroactively adjusted to reflect a 3-for-1 stock split which occurred on February 28, 2000. See Note 1 "Earnings per Share" in Notes to Consolidated Financial Statements. See Notes to Consolidated Financial Statements. 23 24 AUTO-GRAPHICS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years ended December 31, 2000, 1999, 1998
Retained Common Stock Earnings/ Other Total ---------------------------- (Accumulated Comprehensive Stockholders' Shares Amount Deficit) Income/(Loss) Equity ---------- ----------- ------------ ------------- ------------- 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 Net loss (874,698) (874,698) Common Stock Issued in: Parent 225,000 930,000 -- -- 930,000 Warrants exercised in Parent 240,000 8,800 -- -- 8,800 Common Stock Retired (252,700) (171,848) (258,660) -- (430,508) Note Receivable -- 50,000 -- -- 50,000 Cost of Equity Funding -- (253,760) -- -- (253,760) Change in Minority Interest -- (104,769) -- -- (104,769) Foreign Currency Translation Adjustments -- -- -- 11,196 11,196 ---------- ----------- ----------- -------- ----------- Balances at December 31, 2000 4,997,234 $ 4,124,255 $ (694,381) $(10,981) $ 3,418,893 ========== =========== =========== ======== ===========
See Notes to Consolidated Financial Statements. 24 25 AUTO-GRAPHICS, INC. ------------ CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 2000, 1999, 1998
2000 1999 1998 ----------- ----------- ----------- Cash flows from operating activities: Net income/(loss) $ (874,698) $ 105,188 $(1,064,622) Adjustments to reconcile net Income/(loss) to net cash provided by (used in operating activities: Depreciation and amortization 1,412,328 1,381,053 1,676,056 Deferred taxes (98,000) (74,000) (174,000) Minority Interest (533,504) 15,200 -- Changes in operating assets and liabilities, net of the effect of acquisitions Accounts receivable 138,991 276,121 637,971 Unbilled production costs (223,197) 58,682 (3,149) Other current assets (72,407) 204,933 (241,303) Other assets 36,616 27,874 (12,755) Accounts payable 187,592 (341,215) (32,062) Deferred income (281,463) 452,067 277,642 Accrued payroll and related liabilities (145,922) (93,925) 313,030 Other accrued liabilities (58,091) 37,876 (66,698) ----------- ----------- ----------- Net cash provided by (used in) operating activities (511,755) 2,049,854 1,310,110 ----------- ----------- ----------- Cash flows from investing activities: Capital expenditures (654,085) (664,335) (173,233) Capitalized software development (775,000) (750,000) (795,000) Investment in Dataquad, Inc. -- (1,500) -- Investment in TheLibraryCard, Inc. -- (1,500) . ----------- ----------- ----------- Net cash used in investing (1,429,085) (1,417,335) (968,233) ----------- ----------- ----------- Cash flows from financing activities: Borrowings under long-term debt 100,287 -- 650,927 Payments under long-term debt (1,026,945) (375,000) (1,030,000) Borrowings under life insurance 7,064 150,278 Borrowings (payments) under capital lease, net (69,430) 223,250 -- Proceeds from stock/warrant sales 685,041 3,106,000 -- Repurchase of capital stock (380,508) (47,466) (101,750) ----------- ----------- ----------- Net cash provided by (used in) financing activities (691,555) 2,913,848 (330,545) ----------- ----------- ----------- Net increase/(decrease) in cash (2,632,395) 3,546,367 11,332 Foreign currency effect on cash 18,551 (22,825) 36,792 Cash at beginning of year 3,816,286 292,744 244,620 ----------- ----------- ----------- Cash at end of year $ 1,202,442 $ 3,816,286 $ 292,744 =========== =========== ===========
See Notes to Consolidated Financial Statements. 25 26 AUTO-GRAPHICS, INC. ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 1. Summary of significant accounting policies. Description of Business Auto-Graphics, Inc. including its wholly-owned A-G Canada, Ltd. and Datacat, Inc. subsidiaries and its majority-owned (61%) subsidiaries Dataquad, Inc. and The LibraryCard, Inc. (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(TM) is an Internet/Web "portal" site, www.LibraryCard.com, being developed to offer library type information services to consumers (people in their homes, schools, libraries and offices). 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 $800,000 and a backlog of contracts totaling approximately $730,000 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. The remaining shares were held by the Company (67%) and the associate (6%). Dataquad's owners agreed to set aside 700,000 shares of Dataquad's stock for possible future issuance to employees and similar persons in a stock purchase and option program to be implemented by Dataquad's management. Following the issuance of such 700,000 shares to the associate as "trustee" for such stock purchase/option program, the Company, such associate and the investor owned, respectively, 4,690,000 shares (61%), 1,120,000 shares (15%), and 1,890,000 shares (24%) of Dataquad's issued and outstanding stock, respectively. Dataquad is marketing 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. At the beginning of 2001, the Company implemented a reorganization of Dataquad and Datacat whereby the Company's wholly owned subsidiary, Datacat, merged its non HVACR business with and into Dataquad, the Company's 61% owned subsidiary. Such reorganization was completed without increasing the Company's ownership interest in such corporation or the payment of any consideration to the Company. The financial statements of Dataquad have been consolidated with the Company's financial statements for the year ended December 31, 2000 and 1999. 26 27 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") that offers a wide range of library and related information services to consumers (people in their homes, schools, libraries and offices). The Company was capitalized as a result of the contribution and transfer of certain intellectual property and other assets by the Company, nominal cash consideration contributed by the Company and an associate and the purchase of shares of LibraryCard by a third party investor for $1 million. The initial ownership was respectively, the Company (67%), the third party investor (27%) and the associate (6%). LibraryCard's owners agreed to set aside 700,000 shares of LibraryCard's stock for possible future issuance to employees and similar persons in a stock purchase and option program to be implemented by LibraryCard's management. Following the issuance of such 700,000 shares to the associate as "trustee" for such stock purchase/option program, the Company, such associate and the investor owned, respectively, 4,690,000 shares (61%), 1,120,000 shares (15%), and 1,890,000 shares (24%) of LibraryCard's issued and outstanding stock, respectively. The Company committed to assist in the design and implementation of the Internet/Web "hosting" of LibraryCard Website for three years under an arrangement whereby LibraryCard would reimburse the Company for its cost plus 10% to render such services, and subsequently agreed to advance up to $250,000 for working capital. (See Note 5 Commitments and Contingencies). The financial statements of LibraryCard have been consolidated with the Company's financial statements for the year ended December 31, 2000 and 1999. Change in Minority Interest As a result of the issuance of 700,000 shares each in Dataquad and LibraryCard as described above the Company's interest in the subsidiaries was diluted which resulted in a change in the value of the Company's minority interest. The changes in the Company's minority interest resulted in a charge to Stockholders' Equity in the amount of $104,769. 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. 27 28 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 losses for 2000 were $68,817 compared to transaction gains of $52,591 in 1999 and transaction losses of $47,357 in 1998 and are included in "Other income/(expense)" in the Consolidated Statements of Operations and Comprehensive Income/(Loss). 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. The Company places its cash with high credit quality financial institutions. At times such cash may be in excess of the FDIC limit. 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 which the Company believes is reflective of rates it could currently obtain. Unbilled Production Costs Costs associated with work in process (WIP) include: 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 WIP on a standard 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, 2000 and 1999, consist of the following:
2000 1999 ----------- ----------- Computer software and database $ 8,704,485 $ 8,317,115 Equipment 3,212,987 2,925,612 Furniture and fixtures 731,135 563,361 Leasehold improvements 273,974 275,675 ----------- ----------- 12,922,581 12,081,763 Less accumulated depreciation and amortization 7,800,989 6,971,532 ----------- ----------- $ 5,121,592 $ 5,110,231 =========== ===========
28 29 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 $3,745,000 in 2000 and $3,909,000 in 1999. Amortization of computer software was approximately $939,000 in 2000, $838,000 in 1999, and $798,000 in 1998. 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 $1,412,000 in 2000, $1,381,000 in 1999 and $1,676,000 in 1998. Earnings Per Share 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. The number of Common Stock equivalents in 1999 was 91,995. For the year ended December 31, 2000 there were no warrants, options or convertible securities outstanding. 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 a share repurchase. (See Note 7 Stockholders' Equity). 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. 29 30 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 $103,648 in 2000, $342,815 in 1999 and $326,294 in 1998. The Company paid income taxes in the amount of $16,702 in 2000, $19,295 in 1999 and $59,609 in 1998. Stock Based Compensation In October 1995, the Financial Accounting Standards Board (FASB) 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 Stockholders' Equity "1997 Non-Qualified Stock Option Plan". 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 Company believes that it operates within one segment as there is not enough difference between the types of services provided by the Company to justify segmented reporting by type of service. 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, 2000, 1999 and 1998:
2000 1999 1998 ---------- ---------- ---------- Geographic areas Net sales United States $6,663,704 $6,648,752 $6,967,453 Foreign - Canada 1,635,295 1,693,966 1,924,660 Foreign - Japan/Other 23,605 48,605 207,085 Long-lived assets, net United States 5,005,602 4,916,734 4,796,917 Foreign - Canada 115,990 193,497 219,710
30 31 The Company has one customer, the Texas Education Agency (TEA), which represents approximately 12% in 2000, and 10% in 1999 of the Company's 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 kindergarten 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. Income Taxes The Company uses the asset and liability method of accounting for income taxes. Deferred income taxes are recognized based on the differences between financial statement and income tax valuations of assets and liabilities using applicable tax rates for the year in which the differences are expected to reverse. Valuation allowances are established, when necessary, to reduce deferred tax asset amounts to the amount expected to be realized. The provision for income taxes represents the tax payable (or benefit) for the period and the change in deferred tax assets and liabilities during the year. Pending Pronouncements In March 2000, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board reached a consensus on EITF Issue 00-02, "Accounting for Web Site Development Costs". This consensus provides guidance on what types of costs incurred to develop Web sites should be capitalized or expensed. The consensus is effective for Web site development costs incurred for fiscal quarters beginning after June 30, 2000. The adoption of this EITF consensus did not have a material impact on the Company's financial position or results of operations. In October 2000, the Company adopted Financial Accounting Standards Board SFAS No. 133. "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reposting standards requiring derivative instrument, including certain derivative instruments embedded in other contracts, be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement also requires changes in the derivative's fair value to be recognized in earnings unless specific hedge accounting criteria are met. The adoption of SFAS 133 did not have a material impact on the consolidated financial statements of the Company. In December 1999, the Securities and Exchange Commission ("SEC") released Staff Accounting Bulletin ("SAB") No. 101. "Revenue Recognition in Financial Statements", which provides guidance on the recognition, presentations and disclosure of revenue in the financial statements filed with the SEC. Subsequently, the SEC released SAB 101B, which delayed the implementation date of SAB 101 for registrants with fiscal years that begin between December 16, 1999 and March 15, 2000. The Company was required to be in conformity with provisions of SAB 101, as amended by SAB 101B, no later than October 1, 2000. The Company believes the adoption of SAB 101, as amended by SAB 101B, has not had a material effect on the financial position, results of operations or cash flows of the Company for the year ended December 31, 2000. 31 32 In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation, the Interpretation of APB Opinion No. 25" ("FIN 44"). The Interpretation is intended to clarify certain problems that have arisen in practice since the issuance of APB No. 25, "Accounting for Stock Issued to Employees". The effective date of the Interpretation was July 1, 2000. The provisions of the Interpretation apply prospectively, but they will also cover certain events occurring after December 15, 1998 and after January 12, 2000. The adoption of FIN 44 did not have a material affect on the current and historical consolidated financial statements of the Company. 2. Note Payable to Bank. In August 2000 the Company implemented a revolving reducing credit agreement to replace its prior capital line of credit. The proceeds from the new line of credit were used to repay the capital line of credit. Upon commencement of the new line of credit, the maximum commitment was $3,000,000. The maximum available under the new line of credit reduces $250,000 every six months. The first reduction in the maximum commitment occurred October 1, 2000. Reductions occur over the term of the agreement until the maximum commitment reaches $2,000,000 on April 2, 2002. The agreement matures on June 2, 2002. The interest rate on the line of credit is one-half of one percent above the bank prime rate in effect from time to time (10% at December 31, 2000). The agreement requires that the Company maintain consolidated cash balances equal to 40% of the maximum commitment in effect throughout the term of the agreement ($1.1 million at December 31, 2000). Approximately $750,000 was available for use by the Company under the credit line at December 31, 2000. The credit line is secured by all of the assets of the Company and its subsidiaries. It also requires that the Company maintain certain minimum financial covenant ratios, restricts the payment of cash dividends and limits the amount of certain types of equity investments, and the repurchase of Company stock as well as limiting the amount of loans to third parties and subsidiaries. As of December 31, 2000, the Company was in compliance with all of its loan covenants. See Note 3 Long-term Debt. 3. Long-term Debt. Long-term debt at December 31, 2000 and 1999 consists of the following:
2000 1999 ---------- ---------- Revolving reducing credit line with interest at the bank prime rate plus one-half of one percent (10.00% at December 31, 2000) secured by all of the assets of the Company and its subsidiaries, with maximum borrowings reducing by $250,000 each in April 2001, October 2001 and April 2002 1,986,694 -- Capital line of credit with interest at the bank prime rate plus 1% (9.50% at December 31, 1999) -- $3,000,000 Capital lease of computer equipment with monthly payments of $7,371 147,439 223,249 ---------- ---------- Total long-term debt 2,134,133 3,223,249 Less current portion 77,257 70,000 ---------- ---------- Long-term portion $2,056,876 $3,153,249 ========== ==========
32 33 As of December 31, 2000, the Company had $230,000 in computer equipment under capital leases. Accumulated amortization on these assets was $69,000 at December 31, 2000. The present value of minimum lease payments at December 1999 was $223,000. 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, - ------------------------ 2001 $ 81,081 2002 81,081 -------- Total Minimum Lease Payments 162,162 Less interest 14,723 -------- Present Value of Minimum Lease Payments 147,439 Current Portion (77,257) -------- Long-term Portion $ 70,182 ========
4. Taxes Based on Income. The provision/(benefit) for taxes based on income is composed of the following for the years ended December 31, 2000, 1999 and 1998:
2000 1999 1998 --------- --------- ---------- Current taxes based on income Federal $(10,000) $ 22,000 $(188,000) State 8,000 5,000 (35,000) Foreign 2,000 -- -- --------- --------- ---------- -- 27,000 (223,000) --------- --------- ---------- Deferred taxes based on income Federal (68,000) (68,000) (147,000) State 5,000 28,000 (27,000) Foreign (35,000) (34,000) -- --------- --------- ---------- (98,000) (74,000) (174,000) --------- --------- ---------- $ (98,000) $ (47,000) $ (397,000) ========= ========= ==========
A reconciliation of the provision/(benefit) for taxes based on income follows for the years ended December 31, 2000, 1999 and 1998:
2000 1999 1998 --------- --------- --------- Statutory U.S. Federal income tax $(512,000) $ 25,000 $(497,000) Adjustments for foreign tax rates 6,000 9,000 (55,000) Valuation allowance 300,000 (23,000) 254,000 State tax, net of Federal benefit (89,000) 4,000 (77,000) Benefit of prior year NOL carryforward 180,000 (98,000) -- Other 17,000 36,000 (22,000) --------- --------- --------- $ (98,000) $ (47,000) $(397,000) ========= ========= =========
33 34 The statutory U.S. Federal income tax rate was 34% in 2000, 1999 and 1998. The deferred tax assets and liabilities are composed of the following at December 31, 2000 and 1999:
2000 1999 --------- --------- Deferred tax liabilities: Tax over book amortization and depreciation $ 680,000 $ 595,000 --------- --------- Deferred tax assets: Net operating loss 821,000 311,000 Bad debts/accrued vacation/other 76,000 103,000 --------- --------- Total deferred tax assets 897,000 414,000 Valuation allowance (531,000) (231,000) --------- --------- Net deferred tax assets 366,000 183,000 --------- --------- Net deferred tax liability $ 314,000 $ 412,000 ========= =========
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, 2000, 1999 and 1998 reflects an unrecognized U.S. and foreign tax loss carryforward. At December 31, 2000, the Company has available federal, state and Canadian net operating loss carryforwards of approximately $2,454,000, $615,000 and $137,000, respectively, for income tax purposes. These net operating loss carryforwards expire in 2020 for federal taxes, 2006 for state and 2005 for foreign taxes. 5. Commitments and Contingencies. The Company incurred total facilities and equipment lease and rental expense of approximately $307,000 in 2000, $374,000 in 1999 and $415,000 in 1998. The Company is obligated under certain non-cancelable operating leases for office facilities and equipment. Approximate minimum lease commitments as of December 31, 2000 are as follows:
Years ended Operating December 31, Leases ------------ -------- 2001 $260,000 2002 108,000 2003 5,000 -------- Total minimum lease payments $373,000 ========
On November 1, 2000 the Company entered into a line of credit agreement with its majority-owned subsidiary, LibraryCard, whereby the Company agreed to loan LibraryCard up to $250,000 for use as working capital during the twelve month period ending October 31, 2001. Amounts loaned to LibraryCard under the line of credit bear interest at the rate of 10% (which was the then current rate applicable under the Company's line of credit with Wells Fargo Bank). The outstanding balance of such credit line is scheduled to be repaid by no later than October 31, 2001. As of December 31, 2000, no funds had been loaned by the Company. The Company anticipates that the full amount of the $250,000 line of credit will be loaned to LibraryCard by the end of April 2001. 34 35 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 ("Lessor"). From January 2000 through April 2000, the Company leased 29,260 square feet having an annual base rent of $351,000 (plus expenses). From May 2000 through December 2000 the Company leased 19,460 square feet having an annual base rent of $233,000 (plus expenses). The reduction in space was completed as a result of a planned consolidation and resulted in a decrease in the Company's annualized rent expense of $118,000 (plus expenses). The current lease term expires in June 2001. The Company presently plans to enter into a new lease agreement with the Lessor prior to the expiration of the current lease. The Company has an option to purchase a one-third interest in the partnership for an amount not to exceed $150,000. Robert H. Bretz is a director of the Company and also serves as the Company's outside legal counsel. The Company paid Mr. Bretz's law firm $345,000 and $340,000, respectively, for 1999 and 2000, for legal services rendered to the Company for such years. 7. Stockholders' Equity. Private Placement Offerings In May of 1999, the Company initiated a private placement offering of its Common Stock at $0.83 per share (after adjustment of the 3-for-1 stock split which occurred on February 28, 2000). Shares offered and sold in the offering were classified as "restricted" stock, meaning that these shares could 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. In July of 2000, 60,000 shares were repurchased from a senior management person in conjunction with the settlement of a lawsuit. The corresponding note receivable of $50,000 was simultaneously canceled. The remaining notes are presented as "Notes Receivable - Stock" in the Stockholders' equity section of the Company's Consolidated Balance Sheet. 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. 35 36 The Company incurred direct and incremental expenses in connection with the 1999 private placement offering of $1,251,000, the sales of $2.0 million in shares of the Company's Dataquad, Inc. and The LibraryCard, Inc. subsidiaries, and 2000 private placement offering of $930,000 resulting in gross proceeds from the sale of all such securities of $4,181,000. Equity funding costs and expenses in 2000, including legal, and selling expenses totaling $254,000, have been offset against the total equity raised. Warrants In May 1999, the Company entered into a selling agreement with an associate pertaining to the Company's 1999 private placement offering, which raised $1,251,000 in equity investment and resulted in the sale/ issuance of an additional 1,501,200 shares of the Company's (restricted) Common Stock. In November 2000, 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 $.033 per share. Subsequently, the associate sold the warrants to the Company's outside director for an amount representing a substantial discount for the (restricted) shares of the Company's Common Stock underlying such warrants as compared to the reported market price for "free trading" shares of the Company's Common Stock; and the purchaser/transferee then exercised the warrants and purchased, and the Company caused to be sold and issued, the 240,000 shares of the Company's (restricted) Common Stock covered by such warrants for the exercise (purchase) price for such shares under the warrants (aggregating $8,000 or $0.033 per share). There are no warrants outstanding at December 31, 2000. Option to Purchase Restricted Shares In May 1999, Robert S. Cope and the Cope Family Trust granted an option to Corey M. Patick to purchase 1,125,000 (or 22%) of the Company's Common Stock for $1.67 per share (adjusted for the 3-for-1 stock split effective February 28, 2000). Patick subsequently exercised the option in November of 2000 and the closing for the purchase of and payment for the option shares, originally scheduled for November 2000, has been extended several times by the parties; and such closing is currently scheduled to take place no later than August 31, 2001. Mr. Patick owns 91,980 or 2% of the shares of the Company's Common Stock (without taking the option shares into account). Purchase of the option shares by Mr. Patick would increase his stock ownership to 1,216,980 shares or 24% of the Company's issued and outstanding stock and would represent a "change of control" of the Company (under applicable securities law definitions). Repurchase of Stock In February 2000, the Company accelerated the purchase and retired the remaining 187,200 shares (after giving affect to the 3-for-1 stock split) 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 net cash surrender value of approximately $72,000. In July 2000, the Company settled a lawsuit with a former officer for total consideration of $225,000 including the repurchase of 65,500 shares of the Company's Common Stock for $105,000. 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. As of December 31, 1999 and 2000, there were no outstanding grants of options under the Plan. 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 as a match against employee contributions to the 401(k) plan. The Company contribution was approximately $35,000 in 2000, $23,000 in 1999 and $25,000 in 1998. 36 37 9. Subsequent Events. In February of 2001, the Company completed the purchase of software and related assets of Maxcess Library Systems, Inc. for approximately $200,000. This purchase and resulting offering will afford the Company the opportunity to expand its current ASP (Application Service Provider) product/services offering in the library automation area. In March 2001, the Company licensed use of its REMARC(TM) bibliographic database of Library of Congress pre 1968 holdings to a Japanese Company for use exclusively in Japan for a one-time payment of U.S. $1.5 million. Such transaction will have a material affect on the results of operations to be reported by the Company for the 1st Quarter and year ended December 31, 2001. 10. Quarterly Results (Unaudited) Quarterly results for the years ended December 31, 2000 and 1999 are reflected below:
Fourth Third Second First ----------- ----------- ----------- ----------- 2000 Revenue $ 2,084,480 $ 1,858,787 $ 2,269,456 $ 2,109,881 Operating loss $ (607,383) $ (483,600) $ (122,199) $ (120,555) Net (loss) $ (321,079) $ (312,908) $ (107,297) $ (122,218) Basic (loss) per share $ (.07) $ (.07) $ (.02) $ (.03) Diluted (loss) per share $ (.07) $ (.07) $ (.02) $ (.03) 1999 Revenue $ 2,463,085 $ 1,904,796 $ 2,041,412 $ 1,982,030 Operating income $ 101,099 $ 109,428 $ 67,852 $ 90,975 Net income $ 28,860 $ 24,934 $ 14,172 $ 17,452 Basic earnings per share $ .01 $ .01 $ .01 $ .01 Diluted earnings per share $ .01 $ .01 $ .01 $ .01
Quarterly and year-to-date computations of per share amounts are made independently. Therefore, the sum of per share amounts for the quarters may not agree with the per share amounts for the year. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 37 38 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, certain directors and officers of the Company at December 31, 2000:
Name Age Position ---- --- -------- Robert S. Cope 65 Chairman of the Board and Director. Has served in these capacities for more than ten years. Robert H. Bretz 57 Director and Assistant Secretary. Attorney who has acted as the Company's outside general legal counsel for more than ten years. Michael K. Skiles 57 President. Has served in this capacity since May 2000. Mr. Skiles formerly served as President of Gaylord Information Systems for 3 years. Prior to Gaylord, Mr. Skiles, was a Vice President at Data Research Associates for 2 years.
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. Management Changes On February 9, 2001 the Company's Board of Directors appointed Michael F. Ferguson as Chief Financial Officer and Secretary of the Company. Mr. Ferguson is a Certified Public Accountant and holds an MBA in Management from the University of California, Los Angeles. Mr. Ferguson formerly served as Chief Financial Officer at D/T Carson Enterprises, Inc. for 2 years and has served in the capacity of Chief Financial Officer at several companies for over 12 years, prior to joining the Company. During 2000, Corey M. Patick served as the Company's Executive Vice President - Corporate Development, and served as an officer and director of the Company's Dataquad and LibraryCard subsidiaries. In 1999, Mr. Patick obtained an option to purchase shares of the Company's Common Stock from Robert S. Cope. (See Item 13 Certain Relationships and Related Transactions). In 2001, Mr. Patick joined Banc of America Investment Services, Inc. in Los Angeles. Mr. Patick continues to hold a substantial stock ownership interest in the Company; and, in his capacity as a shareholder of the Company, continues to assist the Company in corporate finance, shareholder relations and related matters. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors, executive officers and 10% shareholders to file forms with the SEC to report their ownership of the Company's shares and any changes in said ownership. Anyone required to file forms with the SEC must also send copies of the forms to the Company. The Company is not aware of any current delinquency in the filing of such forms. 38 39 ITEM 11. EXECUTIVE COMPENSATION The following table summarizes the aggregate annual cash compensation and long-term incentive compensation of the Company's chief executive officer and each of the named executive officers whose total cash compensation for the fiscal year ended December 31, 2000 for services rendered in all capacities exceeded $100,000 and cash compensation received by each named executive officer for the Company's two previous fiscal years: Summary Compensation Table
Long-Term Compensation Annual Compensation ----------------------- Principal ---------------------- Number of Securities Name Position Year Salary($) Underlying Options ---- --------- ----- ------------ ----------------------- R. S. Cope COB 2000 $ 137,000 None 1999 156,000 1998 133,000 M. K. Skiles President 2000 $ 102,000 None C. M. Patick EVP 2000 $ 145,000 None D. E. Luebben CFO 2000 $ 108,000 None 1999 93,000 1998 100,000 W. J. Kliss COO 2000 $ 69,000 None 1999 138,000 1998 138,000
There have been no restricted stock awards for the three years ending December 31, 2000. Restricted stock holdings (owned personally) as of the fiscal year ended December 31, 2000 are as follows: R. S. Cope, 1,614,675 shares, C. M. Patick, 91,980 shares, and D. E. Luebben, 15,000 shares, respectively. Mr. Kliss is no longer employed by the Company as of April, 2000. Mr. Patick is no longer employed by the Company as of January, 2001. Mr. Luebben is no longer employed by the Company as of February 2001. See Item 12 Security Ownership of Certain Beneficial Owners and Management. 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, 2000, there were no outstanding grants of options under the Plan. The Plan was filed as an exhibit (10.25) to the Company's Annual Report to the SEC on Form 10-K for the year ended December 31, 1997, and is incorporated herein by reference. The Company's management intends to propose for approval by the Company's stockholders at the Company's 2001 Annual Meeting of Stockholders a qualified (incentive stock option) plan consisting of approximately 10% (currently 500,000 shares) of the Company's then issued and outstanding shares of Common Stock to be reserved for future issuance to employees of the Company. 39 40 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The table below reflects information pertaining to certain beneficial owners of the Company's Common Stock known to own more than 5% of the Company's securities and all officers and directors of the Company as a group as of March 30, 2001:
Shares of the Company's Common Stock Owned Percent Beneficially as of Name of Beneficial Owner of Record Date Class - ------------------------ --------------- ------- Robert S. Cope 2,176,527 44% Chairman of the Board Auto-Graphics, Inc. Paul R. Cope 373,602 7% Chief Technology Officer Auto-Graphics, Inc. Robert H. Bretz 309,000 6% Director Auto-Graphics, Inc. All Officers and Directors 2,111,925 42% as a group (5 persons)
The shares listed above as beneficially owned by Robert S. Cope are owned by him and his wife as Trustees of the Cope Family Trust (32%) or by certain members of his immediate family (12%), inclusive of 373,602 shares (7%) owned by Paul R. Cope. In May 1999, Robert S. Cope and the Cope Family Trust granted an option to Corey M. Patick to purchase 1,125,000 (or 22%) of the Company's Common Stock for $1.67 per share (adjusted for the 3-for-1 stock split effective February 28, 2000). Patick subsequently exercised the option in November of 2000 and the closing for the purchase of and payment for the option shares, originally scheduled for November 2000, has been extended several times by the parties and such closing is currently scheduled to take place no later than August 31, 2001. Mr. Patick owns 91,980 or 2% of the shares of the Company's Common Stock (without taking the option shares into account). Purchase of the option shares by Mr. Patick would increase his stock ownership to 1,216,980 shares or 24% of the Company's issued and outstanding stock and would represent a "change of control" of the Company (under applicable securities law definitions). See Item 13 Certain Relationships and Related Transactions herein. 40 41 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company leases its corporate office and production facility from a limited partnership owned by Robert S. Cope and a former director/stockholder of the Company, Douglas K. Bisch ("Lessor"). During 1999 and through April 2000, the Company leased 29,260 square feet having an annual base rent of $351,000 (plus expenses). 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). During 2000, the Company paid base rent of $273,000 (plus expenses) to the Lessor. The Company presently plans to enter into a new lease agreement with the Lessor prior to the expiration in June 2001. The Company also has an option to purchase a one-third interest in the Lessor from Mr. Bisch for an amount not to exceed $150,000. Robert H. Bretz is a director of the Company and also serves as the Company's outside legal counsel. The Company paid Mr. Bretz' law firm $345,000 and $340,000, respectively, in 1999 and 2000, for legal services rendered to the Company for such years. In May 1999, the Company entered into a Selling Agreement with Corey M. Patick, pertaining to the Company's 1999 private placement offering, which raised $1,251,000 in equity investment and resulted in the sale/issuance of an additional 1,501,200 shares of the Company's "restricted" Common Stock. (See Exhibit 10.31, "Selling Agreement" to the Company's Annual Report on Form 10-K for the period ended December 31, 1999, and incorporated herein by reference). Pursuant to the Selling Agreement and in light of the successful completion of the private offering, the Company sold for $800 and issued to Mr. Patick 3-year warrants entitling him to purchase up to 240,000 shares of the Company's restricted Common Stock for $.033 per share. In November 2000, Mr. Patick sold the warrants to the Company's outside director, Robert H. Bretz, for an amount representing a substantial discount from the (restricted) shares of the Company's Common Stock underlying such warrants as compared to the reported market price for "free trading" shares of the Company's Common Stock. Mr. Bretz then exercised the warrants and purchased, and the Company caused to be sold and issued, the 240,000 shares of the Company's (restricted) Common Stock covered by such warrants for the exercise (purchase) price for such shares under the warrants (aggregating $8,000 or $0.033 per share). Assuming that the warrants and underlying shares are subjected to a 50% discount due to the restricted nature of such securities, a 4.55% risk free rate and a 25% volatility factor, under the Black-Scholes option pricing model, the warrants would carry a value of approximately $79,000. In May 1999, Mr. Cope and the Cope Family Trust granted an option to Corey M. Patick to purchase 1,125,000 (or 22%) of the Company's Common Stock for $1.67 per share (adjusted for the 3-for-1 stock split effective February 28, 2000). Patick subsequently exercised the option in November of 2000 and the closing for the purchase of and payment for the option shares, originally scheduled for November 2000, has been extended several times by the parties; and such closing is currently scheduled to take place no later than August 31, 2001. Mr. Patick owns 91,980 or 2% of the shares of the Company's Common Stock (without taking the option shares into account). Purchase of the option shares by Mr. Patick would increase his stock ownership to 1,216,980 shares or 24% of the Company's issued and outstanding stock and would represent a "change of control" of the Company (under applicable securities law definitions). 41 42 In July 2000, the Company settled a lawsuit with a former officer, William J. Kliss, for total consideration of $225,000 including the repurchase of 65,500 shares (after giving effect to the 3 for 1 stock split that occurred in February 2000) of the Company's Common Stock for $105,000. In 2000, the Company's LibraryCard and Dataquad subsidiaries implemented a previously planned stock purchase/option plan whereby each of such subsidiaries sold and issued 700,000 shares of its capital stock representing 10% of total outstanding stock following such issuance by each such corporation. Such stock was sold and issued by the subsidiaries to Corey M. Patick as "trustee" for use in implementing such subsidiaries' employee and related party stock ownership/option plans. Patick purchased the stock using promissory notes totaling an aggregate of $280,500 representing the per share price paid by a third party investor in such subsidiaries in "arm's length" transactions at the time of the organization of the subsidiaries in December of 1999. (See Exhibit 10.40 to the Company's 10-Q for the fiscal quarter ended June 30, 2000). If the subject stock is not subsequently sold or optioned to the intended employee and related recipients, the trustee has the right to return such stock to the subsidiaries in return for the cancellation of the balance due and owing on the purchaser's full recourse promissory note, and the subsidiaries have the right in December of 2002 to reacquire such stock from the trustee at the price paid to the subsidiaries for such stock. The amount of earnings/(loss) reflected as "minority interest" in the Company's accompanying 2000 Consolidated Statement of Operations attributable to such subsidiaries' stock purchase/option plans stock was approximately a $142,000 loss in 2000. If the subsidiaries 10% stock purchase plan/option stock should be returned by the purchaser/trustee a balance sheet adjustment, representing the principal balance of the purchase promissory notes used to purchase such stock, would be required ($280,500 at December 31, 2000). There were no transactions by Patick regarding the subsidiaries' stock purchase/option plans stock in 2000. Effective January 1, 2001, Robert S. Cope replaced Patick as the owner/trustee of the subsidiaries stock purchase/option plans stock and provided replacement (full recourse) promissory notes to the subsidiaries following Patick's new employment with the Banc of America. 42 43 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). 43 44 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). 44 45 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 (incorporated by reference as filed with the SEC as Exhibit 10.30 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.31 Selling Agreement (formerly Employment Agreement) dated May 15, 1999 between Auto-Graphics, Inc. and Corey M. Patick (as amended) (incorporated by reference as filed with the SEC as Exhibit 10.31 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.32 Sixth Amendment to Credit Agreement between Auto- Graphics, Inc. and Wells Fargo Bank dated June 30, 1999 (incorporated by reference as filed with the SEC as Exhibit 10.32 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.33 Continuing Guaranty between Auto-Graphics, Inc. and Wells Fargo Bank dated June 30, 1999 (incorporated by reference as filed with the SEC as Exhibit 10.33 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.34 Amendment to Continuing Guaranty between Auto-Graphics, Inc. and Wells Fargo Bank dated June 30, 1999 (incorporated by reference as filed with the SEC as Exhibit 10.34 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 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 (incorporated by reference as filed with the SEC as Exhibit 10.35 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.36 Revolving Line of Credit Note (capital) $3,000,000 between Auto-Graphics, Inc. and Wells Fargo Bank dated June 30, 1999 (incorporated by reference as filed with the SEC as Exhibit 10.36 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 45 46 10.37 Term Note $750,000 between Auto-Graphics, Inc. and Wells Fargo Bank dated June 30, 1999 (incorporated by reference as filed with the SEC as Exhibit 10.37 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.38 Stock Purchase Agreement between Auto-Graphics, Inc. and Gibraltar Permanente Assurance dated February 14, 2000 (incorporated by reference as filed with the SEC as Exhibit 10.38 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.39 Letter of Intent between Auto-Graphics, Inc. and Steve White dated December 29, 1999 (incorporated by reference as filed with the SEC as Exhibit 10.39 to Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 10.40 Form of Patick Stock Purchase Agreement dated June 30, 2000 (incorporated by reference as filed with the SEC as Exhibit 10.40 to Item 14(a) in the registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2000). 10.41 First Amended and Restated Credit Agreement between Wells Fargo and Auto-Graphics, Inc. dated August 1, 2000 (incorporated by reference as filed with the SEC as Exhibit 10.41 to Item 14(a) in the registrant's Quarterly Report on Form 10-Q/A for the fiscal quarter ended September 30,2000). 10.42 Revolving Reducing Note dated August 1, 2000 (incorporated by reference as filed with the SEC as Exhibit 10.41 to Item 14(a) in the registrant's Quarterly Report on Form 10-Q/A for the fiscal quarter ended September 30,2000). 10.43 LibraryCard Revolving Line of Credit Agreement and Note dated November 1, 2000 (incorporated by reference as filed with the SEC as Exhibit 10.41 to Item 14(a) in the registrant's Quarterly Report on Form 10-Q/A for the fiscal quarter ended September 30,2000). 10.44 Settlement Agreement Including General Release and Stock Purchase Agreement with William J. Kliss dated July 11, 2000. 10.45 Employment offer letter -- Michael K. Skiles dated April 28, 2000. 10.46 Amendment to Option Agreement Re: Option Closing Date with Robert S. Cope and Corey M. Patick dated January 31, 2000. 10.47 Warrant Purchase and Exercise Agreement with Corey M. Patick dated October 23, 2000. 10.48 Japanese licensing agreement dated February 21, 2001. 10.49 Eric Jung agreement (salary protection following change of control) dated October 22, 1999. 46 47 10.50 Maxcess Library Systems, Inc. Asset Purchase Agreement dated January 2, 2001. 10.51 Cope Stock Purchase Agreement (subsidiaries stock purchase/plan) dated January 1, 2001. 10.52 Further Amendment to Option Re Closing Date and Other Matters dated April 13, 2001. (b) The Company has filed a Report on Form 8-K dated April 30, 2000 covering exhibits to the Form 10-K report for the year ended December 31, 1999. These exhibits were separated from the 10-K prior to the filing thereof and were subsequently refiled during the period covered by this report. (c) The following document is filed herewith for information purposes, but is not part of this Annual Report, except as otherwise indicated: None. (d) None. 47 48 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: May 3, 2001 By /s/ ROBERT S. COPE -------------------------- ---------------------------------------- Robert S. Cope, Director 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: May 3, 2001 By /s/ ROBERT S. COPE -------------------------- ---------------------------------------- Robert S. Cope, Director and Treasurer Date: May 3, 2001 By /s/ MICHAEL K. SKILES -------------------------- ---------------------------------------- Michael K. Skiles, President Date: May 3, 2001 By /s/ MICHAEL F. FERGUSON -------------------------- ---------------------------------------- Michael F. Ferguson, Chief Financial Officer and Secretary Date: By -------------------------- ---------------------------------------- Robert H. Bretz, Director 48 EX-10.44 2 a71643ex10-44.txt EXHIBIT 10.44 1 EXHIBIT 10.44 SETTLEMENT INCLUDING GENERAL RELEASE AND STOCK PURCHASE AGREEMENT This Settlement Including General Release And Stock Purchase Agreement (hereafter "Agreement") is dated for purposes of reference as of July 11, 2000, by and between William J. Kliss, an individual (herein "Kliss" and the "Plaintiff"), and Auto-Graphics, Inc., a California corporation (the "Company"), in reference to that certain complaint and action filed by Kliss in Orange County Superior Court, Case No. 000004363, captioned William Kliss v. Auto-Graphics, Inc., et al. (the "Action") and Sixty-Five Thousand and Five Hundred (65,500) shares of the Company's issued and outstanding Common Stock standing in the name of or otherwise owned or held by Kliss (the "Kliss Stock"). Kliss and the Company are sometimes collectively referred to herein as the "Parties"). RECITALS WHEREAS, the Action is pending in the above referenced Court, and the Parties desire to and hereby do agree to finally and forever compromise, adjust, resolve, settle and dismiss with prejudice in its entirety and for all purposes the Action and to finally resolve and dispose of any and all claims and matters between, among or otherwise involving them (the "Settlement"); and WHEREAS, the Parties also desire to arrange and provide for the purchase, sale and transfer of the Kliss Stock from Kliss to the Company and/or its designee purchasers (collectively herein the "Company"); WHEREAS, this Agreement memorializes the terms and conditions of the Parties' agreements in respect of the Settlement and the purchase, sale and transfer of the Kliss Stock; NOW, THEREFORE, in consideration of the mutual promises, covenants, representations and warranties contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows: 1. Incorporation of Recitals. The foregoing Recitals are incorporated herein and made a part of this Agreement by this reference. 2. Payment to Kliss. Upon the execution of this Agreement by the Parties, and the delivery to the Company of the Kliss Stock, and as full payment to Kliss for or otherwise in respect of the Settlement (including the Dismissal as provided for in Section 3 herein) and the purchase, sale and transfer of the Kliss Stock as provided for in Section 6 of this Agreement, the Company shall pay Kliss a total of Two Hundred and Twenty Five Thousand Dollars ($225,000) as follows: 2.1 Down Payment. One Hundred Thousand Dollars ($100,000) in the form of the Company's check payable to "William J. Kliss and Joel W. Baruch"; and 2.2 Promissory Note. The Company's promissory note in the principal amount of One Hundred and Twenty Five Thousand Dollars ($125,000) in the form attached hereto and incorporated herein as Exhibit A (the "Promissory Note"). 2 Except for the above referenced payments (Section 2.1 and 2.2), the Company shall not be obligated to pay, and Kliss shall not be entitled to receive, any additional payments of money of whatsoever kind or nature or (other than the Release In Favor Of Kliss as provided for in Section 4) other consideration of any kind of nature whatsoever under or otherwise in respect of this Agreement including without limitation for and in respect of the Settlement and the sale and transfer of the Kliss Stock by Kliss). 3. Dismissal of Action. The Parties will forthwith jointly sign and file with the above referenced Court where the Action is pending the Request For Dismissal (entire action, all parties, with prejudice, all parties to bear their own costs) attached hereto and incorporated herein as Exhibit B ("Dismissal"); and the Parties will jointly take such further action as the Court may request or otherwise require to accomplish the Settlement and the Dismissal of the Action as provided for herein until such time as the Action is actually, fully and finally dismissed. 4. Mutual Releases Between And In Favor Of Kliss and the Company. For and in consideration of the mutual promises and considerations as set forth herein, the Company including for and on behalf of its agents, attorneys, representatives, successors in interest, assigns, and all persons claiming rights under it, if any, hereby fully, completely and generally release and discharge Plaintiff (Kliss) including his agents, attorneys, representatives, successors in interests, assigns, and all persons claiming rights under him, if any, from any and all claims and causes of action of any kind, nature and description whatsoever, known or unknown, fixed or contingent, liquidated or unliquidated, which the Company had, has, may have or claims to have against the Plaintiff arising from or in connection with the Action, the sale, purchase and transfer of the Kliss Stock and otherwise (the "Release In Favor Of Kliss"). For and in consideration of the mutual promises and considerations as set forth herein, Plaintiff (Kliss) including for and on behalf of his agents, attorneys, representatives, successors in interests, assigns, and all persons claiming rights under him, if any, hereby fully, completely and generally releases and discharges the Company including its agents, attorneys, representatives, predecessors and successors in interests, assigns, subsidiaries and all persons claiming rights under, relating to or derivative of the Company, if any, from any and all claims and causes of action of any kind, nature and description whatsoever, known or unknown, fixed or contingent liquidated or unliquidated, which Plaintiff either had, presently has, or may claim to later have, against the Company arising from or in connection with either the Action, the purchase, sale and transfer of the Kliss Stock or otherwise (the "Release In Favor Of the Company"). The Release In Favor of Kliss and the Release In Favor Of The Company are collectively referred to herein as the "Mutual Releases". 5. Waiver of Provisions of California Civil Code Section 1542. Without limiting the general effect of the Mutual Releases being provided for herein, the Parties acknowledge that it is their intention by granting the Mutual Releases set forth herein, to release each other from any and all liability arising from or in connection with the Action and the Kliss Stock sale, purchase and transfer transaction provided for herein. In connection with the above referenced Mutual Releases as specifically described and provided for in this Agreement and for no other purpose, each of the Parties hereby waives the 3 provisions of Section 1542 of the Civil Code of the State of California which reads as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release which, if known by him, must have materially affected his settlement with the debtor." Each of the Parties hereto acknowledges, warrants and represents that they fully understand the terms contained herein, the respective waiver of Section 1542 of the Civil Code of the State of California, that they understand the significance of this Agreement and the matters provided for herein and further, that each of the Parties hereto relies solely on such Party's judgment and in so doing each of the Parties voluntarily accepts the terms set forth above for the purpose of making a full and final compromise, adjustment, resolution, and settlement of any claims, causes of action and damages which any of the Parties may have suffered, claims to have suffered or may suffer in connection with the Mutual Releases in the future. Each of the Parties further warrant and represent that they have been advised by their respective legal counsel, and that each such Party is acting knowingly and intelligently, among other things, upon the advice provided by their respective counsel. 6. Kliss Stock Transaction. In consideration of this Agreement, including the Settlement and the sale, purchase and transfer of the Kliss Stock and the payment by the Company to Kliss as provided for in Section 2 of this Agreement, Kliss agrees to sell, assign and transfer, and the Company (including its designees as provided for elsewhere herein) agrees to purchase, acquire and receive, the Kliss Stock. Kliss agrees to provide the Company with a stock power covering the Kliss Stock in form and substance satisfactory to cause the transfer of the Kliss Stock by the Company's stock transfer agent on the stock books and records of the Company; and further Kliss agrees to take such other action as may reasonably be requested or deemed necessary by the Company to accomplish the subject stock transfer. The allocation of the payment provided for in Section 2 of this Agreement to and in respect of the sale by Kliss and the purchase of the Kliss Stock shall be determined by the Company (with the concurrence of its outside accounting firm). Kliss agrees to look solely to the Company (Auto-Graphics, Inc.) for payment of the Promissory Note. 7. Recovery of Attorney's Fees and Costs. In respect of the Action, the Settlement and the sale, purchase and transfer of the Kliss Stock transaction, the Parties agree to and shall bear their own costs including attorneys' fees. In the event of any dispute, however, to enforce or interpret the terms of this Agreement by any Party hereto, the prevailing party in said dispute shall be entitled to be awarded reasonable attorney's fees as costs, together with all other costs paid or incurred in connection therewith. 8. Holder of Rights. Each of the Parties acknowledges and agrees that they have not at any time assigned or transferred any rights or remedies that they may have against the other which, but for any such assignment would be subject to the Mutual Releases being conveyed herewith, and that they have the complete and 4 requisite authority to execute this Agreement and to bind themselves hereto. Further, Kliss acknowledges and agrees that he is the sole and exclusive owner and holder of the Kliss Stock, that such Kliss Stock is free and clear of any and all liens, claims, encumbrances and restrictions; and that he is entitled to sell and transfer the Kliss Stock to the Company as provided for in this Agreement, and that the entering into this Agreement and the sale and transfer of the Kliss Stock by Kliss as provided for herein will not violate any agreement or arrangement in respect of such Stock that Kliss has or may be obligated under with any third person or entity. 9. Not An Admission of Liability. The execution and delivery of this Agreement and the performance of the terms and conditions contained herein shall not constitute nor be construed as an admission of any guilt, fault, liability, wrong doing or sanctionable activity on the part of any of the Parties hereto. This Agreement is executed voluntarily by each of the Parties hereto without any duress or undue influence on the part of, or on behalf or, any of them, and is made for the sole purpose of the compromise and settlement of the Action and within disputed claims and providing for the sale, purchase and transfer of the Kliss Stock. 10. Execution of Counterparts. It is understood that this Agreement may be executed in any number of counterparts, which shall, in the aggregate be signed by all Parties hereto, and each counterpart so signed shall be deemed an original instrument and all counterparts taken together shall constitute an original. Counterpart execution of this Agreement may be transmitted by facsimile and such facsimile signatures shall have the force and effect of an original signature, and be deemed an original for all purposes. 11. Interpretation And Enforcement. This Agreement shall be deemed to have been made, executed and delivered within the State of California, and the rights and obligations of the Parties hereto shall be construed, interpreted and enforced in accordance with and governed by the law of said State. 12. Fully Integrated Agreement; Amendments. This Agreement constitutes the entire understanding and agreement between the Parties with respect to the subject matter hereof and is intended to supersede all prior and contemporaneous written or oral agreements and discussions. This Agreement may be amended only by an agreement in writing and signed by all the Parties hereto. Each of the Parties represents and warrants, and agrees with the other, that in entering into and performing this Agreement, they have not received and are not otherwise relying upon any statement, fact, circumstance, representation, understanding, agreement, covenant, promise, guaranty, warranty, assurance and/or any other matter which is/are not expressly set forth in this Agreement; and that they will not at any time assert otherwise (whether by way of any claims in contract, tort, or otherwise), in any action, proceeding or otherwise against or in respect of any of such Parties to this Agreement. 13. Rules of Construction. Each of the Parties hereto acknowledges having fully participated and cooperated in the negotiations, drafting, and preparation of this Agreement, and the opportunity to make such revisions and/or modifications as 5 they deemed necessary and desirable. Accordingly, the Parties agree that any rule of construction of contracts resolving any ambiguities against the drafting party shall be inapplicable to this Agreement. 14. Voluntary Execution On Advice of Independent Counsel. Each of the respective Parties hereto acknowledge having received their own independent legal advice and counsel with respect to this Agreement and the Settlement, and that they have been fully advised as to the terms, provisions, consequences and effects hereof, and that they are entering into this Agreement knowingly and voluntarily, without duress or coercion of any kind or nature whatsoever. 15. Covenant to Reasonably Cooperate in Good Faith. Subsequent to the execution of this Agreement, each of the Parties agrees and promises to take all appropriate action, and agrees to promptly and properly execute and deliver any and all documents of any kind which may be reasonable, necessary and/or desirable to carry out the terms, provisions and intent of this Agreement as stated herein. The failure or refusal of any of the Parties hereto to comply with this provision shall, following written notice and demand therefor which is not cured by the Party receiving any such notice/demand within ten (10) days of receipt of any such notice/demand, be deemed a material breach of this Agreement. (signatures appear on the next page) IN WITNESS WHEREOF, the Parties have executed duplicate originals of this Agreement effective as of the date first set forth above. William J. Kliss Dated: August ___, 2000 AUTO-GRAPHICS, INC. (the "Company") By -------------------------------- Michael K. Skiles, President 6 Dated: August ___, 2000 APPROVED AS TO FORM LAW OFFICES OF JOEL W. BARUCH, P.C. By ------------------------------------------ Joel W. Baruch, Esq. (signatures continued on the following page) APPROVED AS TO FORM ROBERT H. BRETZ, P.C. By ------------------------------------------ Robert H. Bretz, Esq. SPOUSAL CONSENT The undersigned wife of William J. Kliss effective as of the date of this Agreement, having had the opportunity to consult with an attorney of her own choice regarding this Agreement and the matters provided for herein, including without limitation the Settlement, the Dismissal and the Kliss Stock sale, purchase and transfer transaction, does hereby acknowledge this Agreement and such matters and approve, consent to and ratify such Agreement and all such matters if, and to the extent, that the undersigned has any community or other interest in the subject matter of this Agreement including without limitation the Kliss Stock. Dated: August ___, 2000 7 PROMISSORY NOTE $125,000 August __, 2000 FOR VALUABLE CONSIDERATION, the undersigned AUTO-GRAPHICS, INC., a California corporation (the "Company"), hereby promises to pay to William J. Kliss and Joel W. Baruch, Esq., or order (the "Payee"), the principal sum of ONE HUNDRED AND TWENTY-FIVE THOUSAND DOLLARS ($125,000) in fifteen equal monthly installments of $8,333.33 beginning on September 10, 2000 and on the 10th of each successive month thereafter until the principal amount has been paid in full. Together with the last monthly installment payment, the Company shall also pay the Payee an additional amount equal to interest on the unpaid balance of this Promissory Note, from the date hereof until the time of such final installment payment, at the rate of Five Percent (5%) per year. If any payment required to be made by the Company hereunder is not paid as scheduled, then the Payee will provide the Company with written demand for such payment and the Company shall make any such payment to the Payee within ten (10) days following the receipt of such notice by the Company. If such required payment is not made within such notice/cure period, then the Payee may at its option and by written notice to the Company accelerate the balance of the unpaid principal amount of this Promissory Note as all due and owing as of the date of such notice of acceleration. If legal action is instituted by the Payee on this Promissory Note for any reason then, in addition to whatever relief the Payee may be entitled to by such action, the Payee shall also recover his/its costs including reasonable attorney's fees paid or incurred as a result of such legal action including any appeal thereof. Other than the notice of non-payment and opportunity to cure as herein provided for, and any possible notice of acceleration by the Payee if any hereunder, no further demand, notice of non-payment, presentment or other legal formality shall be required of or by the Payee prior to the initiation of legal action by the Payee on this Promissory Note. 8 EXHIBIT A This Promissory Note is expressed and shall be paid in the currency of the United States. This Promissory Note is made and shall be governed and interpreted for all purposes under the laws of the State of California. This Promissory Note is made in reference to that certain Settlement Including General Release And Stock Purchase Agreement dated as of even date herewith. This Promissory Note memorializes all of the terms and conditions of the obligation represented by this Note, and may only be changed, amended or otherwise modified by a further writing signed by the Company so stating. IN WITNESS THEREOF, the undersigned thereunto duly authorized has been executed by the Company as of the date first above stated. AUTO-GRAPHICS, INC. By ---------------------------- Michael K. Skiles, President -2- 9 EXHIBIT B (request for dismissal form to be prepared by Baruch) EX-10.45 3 a71643ex10-45.txt EXHIBIT 10.45 1 EXHIBIT 10.45 AUTO-GRAPHICS, INC. 3201 Temple Avenue Pomona, California April 28, 2000 Via Personal Delivery Mr. Michael Skiles c/o AUTO-GRAPHICS, INC. 3201 Temple Ave. Pomona, CA Re: Auto-Graphics, Inc. Dear Mike: This letter will serve as Auto-Graphics, Inc.'s (the "Company") offer of employment to you. If accepted by you, the offer and your acceptance, are still subject to completion to the Company's satisfaction of certain remaining "due diligence" regarding such employment including without limitation contacting your prior employment references and such other background inquiry as the Company deems appropriate under the circumstances. Position/Title: President of Auto-Graphics, Inc. (the "Company") Starting Date: No later than June 5, 2000, and earlier if convenient (as discussed, it would be helpful if you participate in some or all of the upcoming trip by Cope/Flores to see A-G customers on the East Coast and it is suggested that you attempt to participate in Company matters on an informal basis as soon as possible in an effort to expedite your "hands on" involvement with Company business at the actual "starting date" Responsibilities: Senior officer in charge of and with day-to-day responsibility for managing A-G's library services and LibraryCard businesses and corporate staff, and supervisorial responsibility for the Company's other operating subsidiaries, reporting to 2 the Company's Board of Directors (and particularly Robert Cope in his position as Chairman of the Board of Directors. Of particular importance is the development of a going forward company wide strategic and general "business plan" including operating/capital budgets for review, consideration and approval by the Board of Directors during the 60-120 period following actual commencement of your employment with the Company, and the regular/periodic (no less frequently than annually) updating/review/approval of such going forward plan(s) Compensation: Salary - at the rate of $165,000 per year Bonus - you will be eligible for year-end and/or other performance bonuses based upon your contribution to the Company to be determined from time to time in the sole discretion and election of the Company's Board of Directors Stock Opportunities: (i) you will be provided the opportunity to purchase up to 15,000 shares of the Company's (restricted) Common Stock at $2.50 per share cash subject to the same one-third (5,000 shares) at the end of one year and two-thirds (10,000 shares) at the end of two years "vesting" periods provided for in the ensuing subparagraph, (ii) and, subject to approval of the Company's proposed new qualified stock option ("ISO") plan at the Company's upcoming annual meeting of stockholders, you will be granted 5-year options to purchase for cash 75,000 shares of the Company's (restricted) Common Stock at the then fair market value of such stock at the date of grant under the proposed plan which options will "vest" (perfecting your right to actually exercise the option and purchase such shares of stock) 25,000 shares at the end of the 1st year following the date of grant and 50,000 shares at the end of the 2nd year following the date of grant (also see "Nature of Employment" relationship" herein relating to the Company's "at will" employment discretion/right of termination and possible effect on the "vesting" of the foregoing stock opportunities and the loss of your opportunities/benefits in respect thereof if the Company exercises its rights under such "at will" employment relationship). Vacation: You will be entitled to a paid vacation at the rate of five (5) weeks per calendar year to be prorated for the first year Moving Expenses: The Company will reimburse you for your 3 moving expenses (from New York to the Los Angeles area) up to $8,500 Benefits Package: Standard Company package per the Company's Employee Handbook, to be provided, as in effect from time to time Nature of Employment: "At will" employment relationship whereby the Company reserves the right to terminate the employment relationship in its discretion (with or without cause) upon reasonable notice and subject to the severance benefits provided for in the Company's Employee Handbook as in effect from time to time (and stock opportunities and rights referenced herein are likewise subject to and conditioned upon such "at will" employment relationship continuing at the Company's discretion during the periods of time referenced herein) Termination Benefit: If your employment is terminated by the Company for any reason other than "for cause" anytime prior to the one year anniversary of the commencement of such employment, you will receive, in addition to whatever other benefits might apply per the Employee Handbook, a termination/relocation benefit payment of $35,000 If the foregoing terms/conditions are acceptable to you, subject to the completion of the Company's "due diligence" within seven (7) business days from the date of the return of this letter, please sign, date and return a copy of this letter.We look forward to a productive and rewarding relationship. Very truly yours, OFFER ACCEPTED AS PRESENTED - ------------------------------ Michael Skiles 4 Dated: April ___, 2000 EX-10.46 4 a71643ex10-46.txt EXHIBIT 10.46 1 EXHIBIT 10.46 AMENDMENT TO OPTION AGREEMENT RE OPTION CLOSING DATE This AMENDMENT TO OPTION AGREEMENT RE OPTION CLOSING DATE dated January 31, 2001 (the "Amendment") is made in reference to that certain Option Agreement dated May 15, 1999, as amended (herein collectively the "Option Agreement"), 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, the Option Agreement, Section 5, presently provides for the Option Closing to be held on or before January 31, 2001, and the parties (for consideration received which the parties hereby acknowledge and agree is adequate and sufficient for such purposes) mutually desire and intend and hereby do agree to extend such Option Closing to the date provided for herein below (referred to herein as the "Option Closing Date"); WHEREAS, the parties have memorialized their understandings and agreement regarding the extended Option Closing Date and as otherwise expressly provided for in this Amendment; 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 otherwise, do hereby agree as follows: 1. Recitals. The Recitals set forth above are hereby incorporated into and made a part of this Amendment. 2. Option Closing Date. The Option Closing Date provided for and/or referred to in Section 5 and elsewhere in the Agreement is hereby extended to the earlier of (1) Monday, April 16, 2001 or (1) twenty (20) days following (provided that such date falls on a business day and, if not, on the next succeeding business day) the date upon which Cope and/or the Company provide Patick with the last of the "due diligence" items and information 2 referred to on the Schedule attached hereto and incorporated herein as Exhibit A. 3. 2000 Year-End Financial Statements. Sections 10(B) and (C) and 11(F) of the Agreement are hereby amended to include the Company's 2000 year-end financial statements [except for delivery to Patick of the accountant's (reliance authorization) letter covering such (unaudited) financial statements as otherwise provided for in Section 11(F)]. At the Company's election, in its sole discretion and judgment, such 2000 year-end financial statements may be unaudited so as to expedite the Option Closing Date (as provided for in Exhibit A hereto). 4. Continuation of Option Agreement. This Amendment is pursuant to and in accordance with Section 21 of the Agreement. Defined terms used in the Agreement, and appearing herein, are hereby adopted for purposes of this Amendment. Except as expressly provided for in this Amendment, all terms and conditions of the Option Agreement remain unchanged, in full force and effect and operative and binding on the parties as provided for in the Option 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. ("Cope") ----------------------------------------- Robert S. Cope ----------------------------------------- Elizabeth Cope THE COPE FAMILY TRUST By -------------------------------------- Robert S. Cope, Trustee 3 ("Patick") ----------------------------------------- Corey M. Patick ACKNOWLEDGED AND AGREED AUTO-GRAPHICS, INC. (the "Company") By ----------------------------------------- Michael S. Skiles, President By ----------------------------------------- Daniel L. Luebben, Secretary cc: Daniel H. Luciano, Esq. Bill D. Ringer, Esq. Robert H. Bretz, Esq. ACKNOWLEDGED ROBERT H. BRETZ, AS THE ESCROW HOLDER UNDER THAT CERTAIN ESCROW LETTER AGREEMENT March 23, 2000 4 By ----------------------------------------- Robert H. Bretz, Esq. SCHEDULE 1. 2000 Year-End Financial Statements (Unaudited); 2. 2001 Business Plan; and 3. Forecasts (including assumptions) by product group for 2001, 2002 and 2003, including cash flow and bank covenant compliance projections. EXHIBIT A 5 By -------------------------------------- Robert S. Cope, President EX-10.47 5 a71643ex10-47.txt EXHIBIT 10.47 1 EXHIBIT 10.47 WARRANT PURCHASE AND EXERCISE AGREEMENT This Warrant Purchase And Exercise Agreement dated October 23, 2000 (the "Agreement") is made by and between Corey M. Patick ("Patick") and Robert H. Bretz including his designee ("Purchaser") in respect of that certain warrant agreement dated May 15, 1999, by and between Patick and Auto-Graphics, Inc., a California corporation (the "Company"), pursuant to which Patick including his transferee (herein collectively "Patick") has the right to purchase and acquire up to two hundred forty thousand (240,000) shares of the Company's Common Stock at an exercise price of $.03 per share as adjusted for a three-for-one (3:1) stock split declared by the Company effective on or about February 25, 2000 (the "Warrant"). R E C I T A L S WHEREAS, Patick desires to sell and transfer to the Purchaser and the Purchaser desires to purchase from Patick and acquire all of Patick's right, title and interest in and to the Warrant, including without limitation as provided for in paragraph 4.B. of that certain Selling Agreement dated May 15, 1999, by and between Patick and Auto-Graphics, Inc. and as amended on (herein collectively the "Warrant"), and to simultaneously exercise the Warrant to purchase and acquire from the Company 240,000 shares of the Company's authorized but unissued shares of Common Stock (the "Warrant Stock"), for a purchase price of $.033 per share or an aggregate purchase price of $8,000) and to thereby receive from the Company such Warrant Shares free and clear of all liens, claims, restrictions and/or encumbrances of whatsoever nature or kind (except for the `33 Act Legend referenced in paragraph 2 of this Agreement) including a certificate for such Warrant Stock issued by the Company's stock transfer agent in the name of the Purchaser, pursuant to and in accordance with the Warrant and agreement of the Company in respect thereof as indicated herein; WHEREAS, the foregoing purchase and exercise transaction which is the subject of this Agreement is, pursuant to this Agreement by the Purchaser and Patick and not otherwise, made subject to and conditioned upon the acknowledgment, approval and agreement of the Company as to the subject matter of this Agreement. A G R E E M E N T NOW, THEREFORE, in consideration of the premises and the within covenants, and subject to the conditions provided for herein, the parties 2 intending to be legally bound and obligated thereby do hereby agree, as follows: 1. Sale and Purchase of the Warrant and Warrant Stock. At the Closing, as provided for herein in paragraph 2 (the "Closing") and subject to the satisfaction of the condition provided for herein in paragraph 3 (the "Condition"), Patick hereby agrees to sell, transfer and assign to the Purchaser, and the Purchaser agrees to purchase and obtain from Patick, the Warrant (including all right, title and interest in and to the Warrant Stock provided for in the Warrant) for the consideration provided for in paragraph 4 of this Agreement including Exhibit A hereto (the "Consideration"). 2. The Closing. The Closing shall take place within fifteen (15) days following the satisfaction of the Condition (approval and agreement by the Company). Subject to the satisfaction of the Condition, at the Closing the Purchaser shall (i) pay to Patick the Consideration and (ii) deliver to the Company the purchase price for the Warrant Shares as provided for in the Warrant and Patick shall deliver or cause to be delivered to the Purchaser (1) the Warrant properly endorsed for transfer to the Purchaser in the form reasonable required by the Purchaser and (2) the Certificate in the name of the Purchaser for the Warrant Shares issued by the Company's transfer agent for such purpose. The Purchaser hereby acknowledges for the benefit of Patick and the Company that the Warrant Stock to be issued by the Company and delivered by Patick to the Purchaser at the Closing has not been registered and/or qualified under any state or Federal securities laws, rules and regulations and is/are, therefore, deemed to be "restricted securities" under the Securities Exchange Act of 1934, as amended, and that the certificates representing such Warrant Stock issued by the Company to the Purchaser at the Closing will be subject to "stop transfer" instructions given to the Company's stock transfer agent and that such certificate for the Warrant Stock will contain the following or a substantially similar legend: "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." 3. The Condition. The Purchaser and Patick's rights, duties and obligations as provided for in this Agreement are, by agreement of such parties and not otherwise, made subject to and conditioned upon receipt of the Company's unconditional approval, agreement and commitment in respect of 3 the subject matter of this Agreement, including specifically the Company's agreement to cause its stock transfer agent (ChaseMellon Stock Transfer) to issue the Warrant Stock pursuant to and in accordance with the terms of the Warrant and this Agreement as indicated by the Company's below signature. 4. The Consideration. The Consideration to be paid by the Purchaser to Patick at the Closing for the Warrant as provided for in this Agreement is set forth on the schedule attached hereto and incorporated herein as Exhibit A hereto (herein the "Consideration"). 5. Complete Agreement/Conflict Of Interest. 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, to the extent applicable, by the Company) and, should any ambiguity subsequently be determined to exist in or in respect of this Agreement including the language used herein, then neither party (and/or the Company as the case may be) 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 (and that Marsha M. Patick, as the consenting spouse of Corey M. Patick) has been advised and given the opportunity to consult with her own independent professional advisors including attorneys in respect of the matters which are the subject of this Agreement and her consent thereto). Patick (and, to the extent applicable, the Company) acknowledges his awareness that the Purchaser provides legal representation and services to the Company, and from time to time to Patick (and Marsha M. Patick), that such factor(s) should be taken into account by Patick (including Marsha M. Patick and, where applicable, the Company) including without limitation in discussions with independent legal counsel in determining to enter into and perform this Agreement and the matters provided for herein to the extent that there does and/or may exist any conflict of interest by, between and among the interests of the Purchaser and Patick (including Marsha M. Patick and, where applicable, the Company). 6. 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). 7. 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. IN WITNESS WHEREOF, the parties thereunto duly authorized, and having consulted with independent legal counsel of their choice, have executed this Agreement in Pomona, California, effective as of the date first set forth above. ("Purchaser") 4 Robert H. Bretz ("Patick") Corey M. Patick APPROVED AS TO FORM Bill D. Ringer, Esq. Attorney for Corey M. Patick ACKNOWLEDGED AND AGREED AUTO-GRAPHICS, INC. (the "Company") By --------------------------------- 5 Robert S. Cope, Chairman of the Board EXHIBIT A CONSIDERATION The Consideration to be paid by the Purchaser to Patick at the Closing for the Warrant (including the Warrant Stock) as provided for in paragraph 4 of the Agreement shall be Sixty-Five Thousand Dollars ($65,000). Initials: _______ Patick _______ Purchaser 6 SPOUSAL CONSENT BY MARSHA M. PATICK The undersigned Marsha M. Patick, the spouse of Corey M. Patick, having been previously advised to consult separate and independent legal counsel in respect of such matters including this Consent (collectively the "Agreement"), acknowledges having read and understood the Agreement and the provisions thereof and, recognizing that such Agreement could affect her interests, rights and benefits including without limitation community property rights and interests in and to the Warrant and the Warrant Stock and the amount of Compensation being paid therefor as provided for in the Agreement, voluntarily and finally provides the within consent and approval to the Agreement and the subject matters thereof and thereby and hereby agrees and promises not to subsequently contest or make any claims including without limitation against the Purchaser (and/or the Company) in respect of the Agreement and/or the subject matter thereof. The undersigned acknowledges and agrees that this Consent is for the benefit of the Purchaser (and the Company) and that such Purchaser (and the Company) are entitled to and will rely upon the Consent in determining to enter into and performing this Agreement and the provisions thereof. Marsha M. Patick October ___, 2000 EX-10.48 6 a71643ex10-48.txt EXHIBIT 10.48 1 EXHIBIT 10.48 [AUTO-GRAPHICS, INC. LOGO] Contract Agreement for Licensing the REMARC Bibliographic Database for Re-licensing in 2 Japan by the Maruzen Company Ltd. THIS LICENSE AGREEMENT, entered into this twenty-first day of February, 2001, is made by and between Auto-Graphics, Inc., a California Corporation with its principal place of business at 3201 Temple Avenue, Pomona, California 91768, hereinafter referred to as A-G, and Maruzen Company Ltd., a Japanese Corporation with its principal place of business at Maruzen No. 4 Building, 13-6 Nihombshi 3-chrome, Chuo-ku, Tokyo, Japan 103-0027, hereinafter referred to as Maruzen. 1. SCOPE OF AGREEMENT. This Agreement specifies the terms and conditions by which Maruzen will license from A-G, and A-G will provide to Maruzen the REMARC Bibliographic Database. 2. DEFINED TERMS. For the purpose of this Agreement, unless the context otherwise requires, the following terms shall have the respective meanings set out below and grammatical variations of such terms shall have corresponding meanings: (a) "Acceptance" of the REMARC Bibliographic Database shall occur upon written notice by Maruzen to A-G that the database has been physically received by Maruzen in readable format. In the event such notice has not been provided with fourteen (14) days of delivery of the database to Maruzen (in installable condition and format), the database shall be deemed accepted. In the event of written notice of non-acceptance is provided by Maruzen to A-G within such fourteen (14) day period, A-G shall promptly correct the applicable problem or problems and resubmit the database to Maruzen for acceptance as set forth herein. Such correction shall continue until Maruzen has either accepted the database, or following written notice of intention to terminate the Agreement in conjunction with A-G's failure to cure any such defect within thirty (30) days of its receipt of such notice of proposed termination. (b) "REMARC Bibliographic Database" shall be defined as A-G's copy of the REMARC Bibliographic Database. The REMARC Bibliographic Database is a static database consisting of 4,500,000 MARC records representing items in the Library of Congress shelflist prior to 1968. 3 3. ENTIRE AGREEMENT/PRECEDENCE. This Agreement will consist of this Agreement only, which will then be considered to make up the entire Agreement. Each of the parties hereto represents, warrants and covenants to the other that in entering into and performing this Agreement they are not relying upon any statement, representation, undertaking, agreement, covenant, promise, assurance, guarantee, warranty or other matter which is not expressly set forth and contained in this Agreement including the Proposal. No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing specifically referencing this paragraph by the party sought to be bound thereby. 4. PAYMENT TERMS. Total payment of $1.5 million will be made to A-G for the REMARC Bibliographic Database. Payments shall be made via wire transfer in accordance with A-G's wiring instructions, and must be guaranteed by a standby letter of credit in a form acceptable to A-G. All payments shall be in U.S. dollars. The following payment schedule shall apply: (a) Payment of $300,000 within thirty (30) days of signing of this Agreement and of receipt of an itemized invoice submitted by A-G, and; (b) Payment of $1,200,000 within thirty (30) days of Acceptance of the REMARC Bibliographic Database and of receipt of an itemized invoice submitted by A-G. 5. VALIDITY. The invalidity in whole or in part of any provision of this Agreement shall not void or affect validity of any other provision of this Agreement. 6. NOTICE. Any and all notices permitted or required to be given hereunder shall be deemed duly given (1) upon actual delivery, if delivery is by hand; or (2) upon delivery into the United States mail if delivery is by postage paid registered or certified return receipt requested mail; or (3) upon confirmed receipt of telefacsimile transmission. Each such notice shall be sent to the respective party at the address indicated below or to any other address as the respective party may designate from time to time. For A-G: Name: Auto-Graphics, Inc. Attn: Roxanne Lyons Contracts Administrator Address: 3201 Temple Avenue Pomona, California 91768 Telephone: 800-776-6939, ext. 417 FAX: 909-595-3506 Email: rll@auto-graphics.com For Maruzen: Name: Maruzen Company Ltd. Attn: Yasuto Iwasaki Senior General Manager Address: Maruzen No. 4 Building 13-6 Nihombshi 3-chrome, Chuo-ku Tokyo, Japan 103-0027 Telephone: 81-3-3275-8598 FAX: 81-3-3275-0656 4 Email: y_iwasaki@maruzen.co.jp 5 7. TERMINATION. This Agreement may be terminated by Maruzen or A-G upon thirty (30) days' prior written notice from the aggrieved party to the party in default after occurrence of any of the following events: a. If either Maruzen or A-G shall voluntarily or involuntarily go into liquidation or bankruptcy, or have a receiver or trustee appointed to administer either its property or affairs, which proceeding is not discharged within sixty (60) days, or if either one makes a general assignment of its property for the benefit of creditors; or b. If either Maruzen or A-G shall commit a material breach of this Agreement and shall not cure the breach within thirty (30) days after receipt of notice in writing from the other specifying the violation. Failure to remit payment according to the terms in paragraph 4 shall be considered a material breach of contract for the purposes of this Agreement. 8. TAXES. Maruzen shall pay any sales, use, and personal property taxes arising out of or resulting from this Agreement. 9. Maruzen's rights to transfer any interest in the REMARC Bibliographic Database shall be limited to the rights expressly set forth in this agreement, and Maruzen shall have no other rights to sell, assign, or in any other manner transfer or encumber A-G's ownership of the REMARC Bibliographic Database. Maruzen hereby agrees not to make the REMARC Bibliographic Database, or any technical information relating to the REMARC Bibliographic Database, available in any way for the use or benefit of any party except in accordance with the terms and conditions set forth in this agreement. Maruzen acknowledges that no rights of ownership or other proprietary rights in the REMARC Bibliographic Database are transferred to Maruzen nor to any other party by virtue of this agreement, and that title and all proprietary rights to the REMARC Bibliographic Database shall at all times remain in A-G. 10. LIMITATION OF LIABILITY. In no event shall either party be liable to the other for any loss of profits, indirect, incidental, consequential or special damages, or any exemplary or punitive damages, arising out of or resulting from the breach of any provision of this Agreement. 11. REPRESENTATION OF LICENSOR. Licensor (i.e. A-G) represents that it has full rights, power and authority to enter into this Agreement and to perform its obligations hereunder, and to grant Licensee (i.e. Maruzen) all rights provided herein. 12. PROPERTY RIGHTS. Maruzen acknowledges and agrees that it is not, except as expressly contemplated under the terms of this Agreement, acquiring any property rights, whether by way of license, patent, trademark, copyright, or of any other nature whatsoever, in any proprietary information including any software or other intellectual property owned and/or employed by A-G for purposes of performing services under this Agreement. 13. EXCLUSIVITY. During the term of this Agreement including any extension thereof, and subject to Maruzen not being in default of payments to A-G for the REMARC Bibliographic Database, A-G agrees that it will not sell or otherwise provide the REMARC Bibliographic Database, or any work derived therefrom, which A-G is providing to Maruzen under the terms of 6 this Agreement to any other vendor that performs the same service through the Internet or similar computer network within Japan. 7 Notwithstanding the foregoing, under any circumstances which would entitle A-G to terminate this Agreement pursuant to paragraph 7.b above for an uncured material breach by Maruzen of its payment obligations hereunder, A-G may elect instead to terminate the exclusivity provided Maruzen under this paragraph 15. 14. INDEMNIFICATION. Licensor shall indemnify and hold harmless Licensee, its parent, affiliated and subsidiary companies and the directors, officers, employees, representatives, agents, successors and assigns thereof from and against any and all losses, damages, costs and expenses, including but not limited to reasonable attorney's fees, resulting from, arising out of or incident to any suit, claim or demand based on Licensor's breach of the promises, covenants, representations and warranties made by it herein, including but not limited to any infringement of patent, copyright, trademark, or any other intellectual property rights of a third party, or Licensor's advertisement, promotion, sale or distribution of the REMARC Bibliographic Database. 15. DATA USE/RESTRICTIONS. Maruzen acknowledges and agrees to the following: a. The REMARC Bibliographic Database as provided by A-G to Maruzen pursuant to this Agreement is intended for and shall be re-licensed by Maruzen exclusively for use in its system and as a database re-seller within Japan. It is understood and acknowledged that Maruzen may act as an agent for NII (formerly NACSIS) in this capacity and within the framework of this Agreement. b. Maruzen represents and warrants that it has no intention to use or permit the use by any person or entity of all or any portion of the REMARC Bibliographic Database to create, enhance, sell, market or otherwise promote an online bibliographic cataloging system outside of Japan. c. In furtherance of such intended use, Maruzen hereby acknowledges and agrees not to provide or otherwise make available in whole or in part the REMARC Bibliographic Database to any library, library organization, commercial vendor or any other person or entity for sale, lease, distribution by such entity and/or other use as a cataloging resource, product, and/or service except as indicated above to such entities or their respective customers outside of Japan. d. The DATA USE/RESTRICTIONS as defined in 15.a, b, and c, will be in effect during the term of this Agreement and shall survive the expiration and/or termination of this Agreement. 8 IN WITNESS WHEREOF, the undersigned parties thereunto duly authorized have executed this Agreement as of in February 21, 2001 in Pomona, California. FOR: AUTO-GRAPHICS, INC. FOR: MARUZEN - -------------------------------- ----------------------------------------- (Authorized Signature) (Authorized Signature) Michael Skiles Yusaku Takahashi - -------------------------------- ----------------------------------------- (Printed Name) (Printed Name) President Senior General Manager - -------------------------------- ----------------------------------------- (Title) (Title) - -------------------------------- ----------------------------------------- (Date) (Date) (Maruzen Contract 022101) EX-10.49 7 a71643ex10-49.txt EXHIBIT 10.49 1 EXHIBIT 10.49 AGREEMENT RE JUERGEN JUNG This Agreement Re Juergen Jung (the "Agreement") is made and entered into by and between Juergen Jung ("Recipient") and Auto-Graphics, Inc., a California corporation (the "Company"), dated effective October 22, 1999. R E C I T A L S WHEREAS, the Recipient is employed by the Company as its Vice President of Operations; and WHEREAS, the Recipient is to have salary protection in the event that control of the Company changes from its current principal stockholder (Robert S. Cope) to a third party not currently employed by, associated and/or involved with the Company and such new controlling third party does not confirm and/or enter into a relationship or agreement with Recipient to retain the Recipient's services as an employee of the Company on a going forward basis (not substantially dissimilar to the title, position and salary with the Company enjoyed by the Recipient at the time of any such change of 2 control) following such change of control on terms and conditions mutually acceptable to such parties; WHEREAS, the Company desires to provide the Recipient with the salary protection; WHEREAS, the undersigned Recipient and the Company have set forth and otherwise memorialized their understandings and agreements regarding the within salary protection matter into this Agreement; A G R E E M E N T NOW, THEREFORE, the undersigned parties intending to be legally bound and obligated thereby, subject to the within terms and conditions, do hereby agree as follows: 1. Definitions. For purposes of this Agreement, the following terms and phrases shall have the meaning provided for herein: 1.1 Change Of Control. The sale by Robert S. Cope ("Cope") of shares of Common Stock of the Company to any person or entity who/which is not currently employed by, associated with or otherwise involved with the Company (the "Third Party") any time within the five (5) year period following the date of this Agreement with the result that Cope does not retain the registered and beneficial ownership of at least twenty-five percent (25%) of the Company's issued and outstanding Common Stock immediately after such change of ownership and control transaction by Cope to any such Third Party ("Change Of Control"). "Change of ownership or control", and where applicable the "Company", under this Agreement, to the extent it is reasonably required to implement the intended benefit in favor of the Recipient as provided for herein, shall also include any event or transaction covered by Section 181 of the California General Corporation Laws as amended from time to time. Notwithstanding any contrary provision contained herein, for purposes of this Agreement it is specifically understood and agreed that sale of stock by Cope to Corey M. Patick ("Patick") under that certain Option Agreement dated May 15, 1999 or otherwise shall not be deemed a Change Of Control provided that (i) Patick is the registered and beneficial owner of at least a majority of such stock following the consummation of any such transaction or series of transactions and (ii) such Change of Control involving Patick does not thereafter result in the involuntary termination of Recipient within the ninety (90) day period following any such Change of Control. 1.2 Salary Protection. Ninety Thousand Dollars ($90,000), one-half (50%) of which is to be paid by the Company to Recipient upon the termination of the Recipient's employment with the Company following a Change of Control as a result of the Recipient and the Third Party successor owner's failure to enter into a written agreement satisfactory to Recipient, which is not substantially dissimilar to the title, position and salary with the Company enjoyed by the Recipient at the time of any such Change of Control, otherwise in his sole and absolute discretion and election, within thirty (30) days following any such Change of Control and Recipient's resignation as 3 an employee of the Company as a result of the lack of such an agreement the balance of which amount shall be paid by the Company to the Recipient in twelve (12) equal monthly installments beginning on the fifteenth (15th) of the month following the month within which the initial (50%) payment is made in accordance with the within provisions ("Salary Protection"). 1.3 Third Party. A person or entity who/which is not currently employed by, associated with or otherwise involved with the Company ("Third Party"). For purposes of this Agreement, including if he subsequently is no longer employed by the Company for any reason whatsoever, Corey M. Patick ("Patick") is expressly excluded from the within definition of Third Party as used in this Agreement in the event that he should acquire and thereby become the record and beneficial owner of any or all of the shares of the Company's Common Stock under that certain Option Agreement dated May 15, 1999 and/or Patick is otherwise deemed to be a successor owner of such stock or otherwise is deemed to be in control or to have acquired control of the Company, provided that (i) Patick is the registered and beneficial owner of at least a majority of such stock following the consummation of any such transaction or series of transactions and (ii) such Change of Control involving Patick does not thereafter result in the involuntary termination of Recipient within the ninety (90) day period following any such Change of Control. Also expressly excluded from the definition of Third Party is any employee stock ownership trust and/or plan generally described as a qualified stock bonus plan or a combination stock bonus and money purchase pension plan that meets the requirements under the Employee Retirement Income Security Act of 1974 as amended under the Internal Revenue Code of 1986 as amended that allows the plan to borrow from or on the credit of the Company or its shareholders for the purpose of investing in the Company's securities (the "ESOP Exception"). 1.4 The Company. The Company means Auto-Graphics, Inc. including any successor thereto (the "Company"). 1.5 Robert S. Cope. Robert S. Cope and Cope means Robert S. Cope and/or Elizabeth Cope (and specifically excluding members of the Family of Robert S. and Elizabeth Cope who are the owners of shares of Common Stock registered in their names) and specifically including shares of the Company's Common Stock registered in the name of or otherwise deemed to be owned by Robert S. Cope in his capacity as Trustee of the Cope Family Trust dated September 12, 1972 ("Cope"). 1.6 Corey M. Patick. Corey M. Patick or Patick means Corey M. Patick including any business or other entity in which he is the majority (greater than 50%) owner and/or controls a majority (greater than 50%) of the voting power of any such business or other entity ("Patick"). 4 2. Change of Control. If a Change Of Control occurs, Recipient shall be entitled to and shall receive Salary Protection from the Company as provided for herein. If Recipient's employment with the Company is terminated by the Company for any reason (with or without cause) within the sixty (60) day period immediately prior to any Change of Control then, notwithstanding any contrary provision contained herein, such termination shall be deemed and treated for all purposes as having resulted from a Change of Control entitling the Recipient to Salary Protection. 3. Continuation of Certain Medical/Health Benefits. In addition to the Salary Protection provided for in paragraph 2, at the Recipient's written request to the Company at the time of the termination of employment of the Recipient with the Company, the Company will maintain, to the maximum extent allowable under the Company's medical and health insurance policies in existence at such period of time and from time to time thereafter during such period of time, for a period of up to nine (9) months medical and health benefits for the Recipient which the Recipient had immediately prior to any such termination; and the Recipient will continue to make such contributions to the costs of such continued medical and health insurance as the Recipient was making, and would have been required to make if his employment had not terminated, prior to such termination as a result of any Change of Control as provided for herein. Recipient shall notify the Company in writing in the event that the Recipient accepts new employment which provides the Recipient substantially similar medical and health benefits as are provided under the Company's policies of insurance; and, at such point in time, the continuation of the within provided for medical and health insurance coverage shall automatically terminate and be of no further force or effect under this Agreement or otherwise. 4. Confirmation of Prior Waiver/Relinquishment By Recipient. Recipient hereby confirms that the within Agreement and subject Salary Protection in favor of the Recipient is in lieu of any and all rights, benefits and entitlements, including without limitation under paragraph 9, of, under and/or otherwise in respect of the Company's 1997 Non-Qualified Stock Option Plan all of which rights, benefits and entitlements have previously been voluntarily waived, released and relinquished by the Recipient for consideration which is independent and extraneous from this Agreement and the subject matter hereof. By executing this Agreement, the undersigned hereby confirms, and represents to and warrants and agrees with the Company, that to the best of the undersigned's information and belief he has no claim, action and/or cause of action, asserted or unasserted, against or otherwise involving the Company. 5. No Agreement For Ongoing Employment With The Company. Recipient acknowledges and agrees for purposes of this Agreement and otherwise that the Company has made no representations or assurances to and/or agreements or promises with the Recipient as to ongoing or 5 continued employment with or by the Company; and the Recipient further acknowledges and agrees that the Recipient's employment with the Company is deemed for all purposes of this Agreement and otherwise to be "at will" meaning that such employment relationship is terminable by the Company, with or without cause, at any time. If, for any reason, the Recipient voluntarily terminates his employment with the Company or the Company elects to and does terminate the Recipient's employment with the Company (with or without cause), prior to any Change Of Control, then the Recipient's rights, benefits and entitlements under and otherwise in respect of this Agreement shall automatically thereby terminate and be of no further force or effect whatsoever. 6. Miscellaneous. 6.1 Complete Agreement/Amendment. This Agreement sets forth all of the parties' understandings and agreements in respect of the subject matter hereof. The parties represent to and agree with each other that, in entering into and performing this Agreement, 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 Agreement; and that he will not at any time assert otherwise (whether by way of any claim in contract, tort or otherwise). If either of the undersigned parties subsequently attempts or 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 Agreement, 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 party), losses and damages paid or incurred by such prevailing party as a result of any assertion by the other party which was inconsistent with the above referenced representation and agreement. This Agreement may only be amended, modified or changed 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 Agreement 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 Agreement 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 Agreement. 6.2 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 Agreement including the form and content hereof reviewed by 6 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 Agreement without the benefit of the involvement of and advice from such parties' legal and/or other professional advisor(s). The parties shall each bear their own legal and other professional fees and costs paid or incurred as a result of or otherwise in respect of this Agreement and the matters provided for herein. 6.3 Choice of Law/Venue. This Agreement 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. Further, the parties acknowledge and agree with one another 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 Agreement, such action/proceeding shall be initiated, maintained and prosecuted for all purposes in a court of competent jurisdiction located in Los Angeles or Orange County California, which location(s) the parties hereby select and designate for all purposes as the best venue for any such action/proceeding. 6.4 Time of the Essence. For all purposes of this Agreement and the matters provided for herein, time shall be deemed to be of the essence. 6.5 Waiver By Recipient. If for any reason, there is a Change Of Control and such Change Of Control has been the subject of a written notice to the Recipient by the Company and/or the Third Party, and there is no written agreement between the Recipient and the Third Party within the thirty (30) day period following the date of any such notice, and for any reason the Recipient does not tender his written resignation within five (5) business days following the expiration of such thirty day period, then the Recipient shall be conclusively deemed for all purposes to have waived, released and relinquished any right to the Salary Protection provided for under this Agreement. 6.6 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 with written confirmation thereof sent by mail on the same day of such facsimile transmission, as follows: (1) If to the Company: 7 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., #428 Marina del Rey, CA 90292 (Fax No. 310/578-5443) (2) If to Recipient: Juergen Jung c/o Auto-Graphics, Inc. 3201 Temple Avenue Pomona, CA 91768 Envelope Marked "Personal" 6.7 Third Party Beneficiaries. Except as expressly provided for herein, no person or entity is intended or shall be deemed or determined to be a third party beneficiary under this Agreement. 6.8 No Heirs, Successors And Assigns of the Recipient. The undersigned parties hereby acknowledge and agree that this Agreement and the benefit intended to be conferred on the Recipient is personal in nature and shall not under any circumstance inure to or be deemed to inure to the benefit of any of the Recipient's heirs, successors and/or assigns. As to the Company, the obligations, duties and liabilities - - and the rights, benefits and entitlements - - of and to the Company as provided for herein shall inure to and be for the benefit of the Company (including its officers, directors, employees, agents, attorneys and representatives). 6.9 Arm's Length Transaction. The parties acknowledge and agree that they are making and entering into this Agreement 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 Agreement or otherwise. 8 6.10 Severability. If any provision(s) of this Agreement is (are) 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. 6.11 Headings. The headings of the paragraphs (and any subparagraphs) of this Agreement are included for convenience of reference only and are not intended to affect the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, the undersigned parties thereunto duly authorized have executed this Agreement in Pomona, California as of the date first set forth above. "Recipient" Juergen Jung AUTO-GRAPHICS, INC. (the "Company") By --------------------------------------- Robert S. Cope, President EX-10.50 8 a71643ex10-50.txt EXHIBIT 10.50 1 EXHIBIT 10.50 AUTO-GRAPHICS, INC. 3201 Temple Avenue Pomona, California 91768 1-800-776-6939 January 2, 2001 Mr. Jerry Sherman, President MAXCESS LIBRARY SYSTEMS, INC. 6305 Ivy Lane, Suite 720 Greenbelt, MD 20770 RE: Asset Purchase Agreement Letter Dear Jerry: This Asset Purchase Agreement letter, when signed and timely returned to us, will constitute a legally binding agreement dated and effective as first set forth above (the "Agreement") by and between Auto-Graphics, Inc., a California corporation ("the "Company"), and Maxcess Library Systems, Inc., a Maryland corporation (the "Seller"), whereby the Company will purchase certain assets and property from the Seller constituting and comprising the Seller's Verso and Enterprise 2000 software and product lines and business as more fully described herein (individually and collectively the "Software Business") free and clear of any and all liens, claims and encumbrances of whatsoever nature or kind. The parties have memorialized their agreement and understanding regarding the subject Software Business purchase and sale transaction in this Agreement the terms and conditions of which are set forth in this paragraph and as follows: 1. Software Business Purchase Transaction. At the Closing as defined herein, the Company will purchase and acquire from the Seller and the Seller will sell, transfer and assign to the Company, for the Purchase Price as defined herein, all of the Seller's right, title and interest in and to the assets and property constituting and comprising the Software Business. As used in this Agreement, the "Software Business" is understood to include (1) the software including without limitation source code for the Seller's Verso, Verso 2 Mr. Jerry Sherman January 2, 2000 Page 2 Solo, Verso Enterprise, Verso ASP and Enterprise 2000 software products (individually and collectively the "Verso Software"), (2) the Seller's Verso Software customer contracts and accounts receivable, (3) third party vendor licenses and other rights for and covering software and other proprietary rights, title and interest entitling the Seller to use such third party property embedded in and otherwise used in connection with the Seller's Verso Software and Software Business, (4) manuals, protocols, product literature and other written materials, whether or not copyrighted, covering or otherwise used/owned by the Seller in connection with the Verso Software and the Software Business, (5) tradenames, trade marks, trade dress, copyrights and other intellectual property used and/or proposed to be used in and associated with the ownership, sale and marketing of the Verso Software and Software Business, (6) all other software and hardware owned and used by the Seller as part of the Seller's Software Business, and such other assets and property as specified and described on the Schedule attached hereto and incorporated herein as Exhibit 1. For convenience purposes only, the Seller has scheduled any and all assets or other property owned and/or used by the Seller in its business which assets/property are not the subject of this Agreement (the "Excluded Assets/Property") which schedule is attached hereto and incorporated herein as Exhibit 1-1 [if "None" so state in the Exhibit]. Except as expressly otherwise provided for in this Agreement, no debt or other obligations and/or liability of the Seller is intended or shall be deemed for any purpose to be assumed by the Company under or otherwise in respect of this Agreement and the subject Software Business purchase transaction provided for herein, all of which shall remain the sole and exclusive obligation of, and shall be paid and satisfied during the normal course by, the Seller. 2. Purchase Price. In consideration of the purchase by the Company from the Seller of the Software Business, including without limitation the Verso Software, the Company shall pay the Seller, as the total consideration for the purchase of the Software Business, the following (the "Purchase Price"): (1). Cash. At the Closing, Two Hundred Thousand Dollars ($200,000) in the form of the Company's check made payable to the Seller; and (2). Performance of Customer Contracts. As part of the Purchase Price, the Company will perform any and all executory promises expressly provided for in any of the customer contracts to be sold, assigned and transferred by the Seller to and purchased and acquired by the Company as provided for under paragraph 1 of this Agreement and as expressly set forth on Exhibit 1 of this Agreement (but such agreement to perform such executory services including ongoing maintenance shall not obligate the Company, directly 3 Mr. Jerry Sherman January 2, 2000 Page 3 or indirectly, to any such customers under, in connection with or otherwise in respect of any such assigned customer contracts). (3). Closed Business. Fifty percent (50%) of the software (only) purchase price of purchase contracts with the Company signed by and/or installed at Riveria Beach Public Library and/or US Catholic Conference within ninety (90) days of the date of this Agreement to be paid by the Company to the Seller within fifteen (15) days of the receipt by the Company of payment(s) by such prospective customers (which payment(s) by the Company under this subparagraph shall be in lieu of any royalty payments by the Company attributable to such customer contracts and associated revenue in 2001 as otherwise provided for below); and (4) Royalty Payments. The Company will pay the Seller, or its designee, royalty payments on revenues collected (herein "revenues") by the Company from the sale or license (including ASP service fee and training/support fees) of the Verso Software, as follows (the "Royalty Payments"): A. 2001: 5% of 2001 revenues; B. 2002: 4% of 2002 revenues; and C. 2003: 3% of 2003 revenues. Royalty Payments as provided for above, together with a written report setting forth the applicable revenues for the period, shall be made annually by the Company to the Seller covering the preceding calendar year within forty-five (45) days of the conclusion of such calendar year period. Royalty Payments to be made by the Company as part of the Purchase Price shall be computed based on revenues attributable to Verso Software products determined in accordance with generally accepted accounting principles (GAAP) consistently applied. Where the Verso Software is embedded in any of the Company's products/services, the portion of the revenues attributable to the Verso Software derived by the Company from any such customer contracts/payments shall be in accordance with the purchase contracts between the Company and its customers as to the Verso Software portion of such contracts (or, if not so designated in any such purchase contract, then by the mutual agreement of the parties or as may otherwise be determined to be reasonable under the circumstances). At the Seller's election, and at the Seller's expense, upon reasonable advance written notice but no more frequently that once each in each calendar year, Seller and/or its authorized representative shall be entitled to audit the Company's books and records as may be necessary to verify the Royalty 4 Mr. Jerry Sherman January 2, 2000 Page 4 Payments made by the Company to the Seller for the immediately preceding calendar year. Seller acknowledges that, in determining to enter into and perform this Agreement, the Seller was not relying upon any representation, warranty, guaranty and/or other assurances by the Company (including any employee, officer, director, or other representative thereof) as to the amount of the Royalty Payments likely to be received by the Seller and/or the underlying annual revenues upon which such Royalty Payments are based. The Purchase Price to be paid by the Company to the Seller for the Software Business including the Verso Software as provided for in this paragraph of the Agreement is understood and agreed to be "net" of any and all charges, obligations and liabilities including sales, corporate and other taxes and charges resulting from or otherwise arising as a result of the subject Software Business purchase transaction which is the subject of this Agreement (which the Company has not expressly agreed to assume and pay as part of the consideration to be paid by the Company to the Seller under this Agreement); and the Seller agrees to promptly pay any and all applicable such taxes and charges of whatsoever nature or kind. Except as may otherwise be expressly provided for or contemplated by this Agreement, if any, the Company is not obligated to pay any debts, obligations and/or liabilities of the Seller (including the Seller's sole shareholder as may be the case), including as may exist or subsequently exist by operation of law; and all such debts, obligations and liabilities of the Seller (including the Seller's sole shareholder as may be the case) shall be and remain the sole and exclusive responsibility, obligation and liability of the Seller (including the Seller's sole shareholder as may be the case). 3. Closing. The consummation of the Software Business purchase transaction as provided for and contemplated herein shall take place at the time, date and place as mutually determined and subsequently confirmed in writing by the parties but, in no event, shall the Closing take place later than thirty (30) days following the effective date of this Agreement (the "Closing" and the "Closing Date"). If, for any reason, the parties fail to designate and confirm the Closing date, time and place for the Closing, then such Closing shall take place at the Seller's offices at the above referenced address in Maryland at 3:00 P.M. on Friday, January 19, 2001. 4. Seller's Representations and Warranties to the Company. As an inducement to and as consideration for the Company entering into and performing this Agreement, the Seller and its sole shareholder in such corporate and individual capacities as indicated below (in the Seller's signature block) 5 Mr. Jerry Sherman January 2, 2000 Page 5 hereby represent and warrant to the Company, and acknowledge that the Company is authorized and directed to rely thereon for purposes of this Agreement, as follows: (1) Software Business/Verso Software. The assets and property constituting and comprising the Software Business including the Verso Software as defined herein, which are being purchased and acquired by the Company under this Agreement, are sufficient and adequate to allow and provide the Company with the legal right to use, sell, license and otherwise deal in such Software Business for its own account without obligation of any kind to any third person or entity (except only for the Closed Business and Royalty Payments obligation to the Seller as provided for in paragraphs 2(3) and (4) hereof and as otherwise set forth on the Schedule attached hereto and incorporated herein as Exhibit 4(1) [if "None" so state in the Exhibit]. Nothing in this subparagraph is intended or should be construed for any purpose, except as expressly provided elsewhere in this Agreement, to obligate the Company in respect of any obligation or other matter set forth by the Seller on Exhibit 4(1) which obligations and/or other matters shall remain the sole and exclusive obligations and responsibilities of the Seller which will be paid or otherwise satisfied by the Seller prior to or at the Closing in accordance with the provisions of this Agreement. The Software Business including the Verso Software is suitable for its intended purpose as described in the Seller's published product literature and advertising describing such software product(s). (2) Free and Clear. At the Closing, the Software Business including without limitation the Verso Software being sold by the Seller to and being purchased by the Company from the Seller pursuant to and in accordance with this Agreement will be free and clear of any and all liens, claims and encumbrances of whatsoever nature or kind. The undersigned is not aware of any claim of ownership, or assertion of any lien and/or encumbrance against or in respect of the Software Business including the Verso Software, by any third person or entity except as set forth on the schedule attached hereto and incorporated herein as Exhibit 4(2) [if "None" so state in the Exhibit]. Nothing in this subparagraph is intended or should be construed for any purpose to obligate the Company to pay any lien, claim or other obligation listed on Exhibit 4(2) which liens, claims and/or encumbrances (if any) shall remain the sole and exclusive obligation and responsibility of the Seller. (3) Corporate Authority. The undersigned Jerry Sherman is the President and the sole shareholder of the Seller; and this Agreement has been reviewed and unanimously approved by the Seller's Board of Directors and such shareholder; and the undersigned is duly authorized and empowered to enter 6 Mr. Jerry Sherman January 2, 2000 Page 6 into and timely and completely perform this Agreement in accordance with its terms/conditions. (4) Development Project. Except for the reasons, if any, set forth on the schedule attached hereto and incorporated herein as Exhibit 4(4) [if "None" so state in the Exhibit], the Seller and its sole shareholder are not aware of any reason why the Development Effort described in paragraph 7 of this Agreement cannot reasonably be accomplished by the Company with their cooperation and assistance within a reasonable period of time following the effective date of this Agreement. 5. The Company's Representations and Warranties to the Seller. As an inducement to and as consideration for the Seller entering into and performing this Agreement, the Company hereby represents and warrants to the Seller and its sole shareholder, and acknowledges that the Company and its sole shareholder are authorized and directed to rely thereon for purposes of this Agreement, that all necessary corporate action has been taken by, for and on behalf of the Company including the undersigned representative thereof to enter into and timely and fully perform this Agreement in accordance with its terms/conditions. 6. Conditions to the Company's Obligation to Close. Notwithstanding anything to the contrary contained in this Agreement, the Company's obligation to consummate the Software Business purchase transaction at the Closing pursuant to and in accordance with the provisions of this Agreement is expressly made subject to and conditioned upon the following: (1). Due Diligence. Completion, to satisfaction of the Company and its legal counsel in their sole election and discretion, of the Company's "due diligence" investigation in respect of (A) the Software Business including without limitation the Verso Software and (B) otherwise relating to the matters set forth on the Exhibits and each of them completed by the Seller and made part of this Agreement, all within twenty-five (25) days following the date effective date of this Agreement; (2) Truth/Accuracy of Seller's Representations and Warranties. The truth and accuracy of the Seller's representations and warranties to the Company as set forth in paragraph 4 of the Agreement at such date and as of the Closing Date; (3) Employment Agreement. The entering into employment agreements with Jerry Sherman and Charles Hichak in form and substance satisfactory to the Company. The employment agreement with Jerry Sherman shall 7 Mr. Jerry Sherman January 2, 2000 Page 7 provide, among other things that the term of such agreement shall be for a period of two years (2) years commencing January 1, 2001 and provide for annual compensation of Ninety Thousand Dollars ($90,000) per year; and (4) Third Party Assignments/Transfers. The completion to the Company's satisfaction, in its sole discretion and election, of the assignment and/or transfer of (A) Seller customer contracts and accounts and (B) third party (vendor) agreements including rights, title and interests of and by any and all such third parties (vendors/licensees) as may be necessary and/or deemed reasonably advisable by the Company and its legal counsel to provide the Company with the right to use, sell, license and otherwise deal in the Verso Software products and otherwise own and operate the Software Business which is the subject of this Software Business purchase transaction and Agreement, all as provided for in this Agreement. The Company shall have the right in its sole discretion and election, but shall not be obligated, to waive any or all of the foregoing conditions to Closing. 7. Seller's Cooperation and Assistance. As part of the consideration to be provided by the Seller and its sole shareholder and received by the Company under this Agreement, the Seller and its sole shareholder hereby agree and promise, without the payment of any additional consideration therefor (except for the employment agreement to be entered into between the Company and Jerry Sherman) that, to provide such cooperation and assistance as may be required and reasonably requested by the Company from time to time to integrate the Verso Software product into and with the Company's IOL2 software so as to provide a common interface "look and feel" to customers/users of the Company's IOL2 product/service which integration, together with the re-design of screen formats, will allow the Company to offer to customer/users of the Company's IOL2 product/service circulation, acquisitions and serial services without requiring any additional software deployed at such customer/user location(s) (herein generally referred to as the "Development Project"). Seller and its sole shareholder further agree and promise to cooperate and assist the Company to (1) enter into an employment agreement with Charles Hichak prior to the Closing on such terms and conditions as the parties deem reasonable and appropriate and (2) obtain as assignment (or sublease) of the Company's current lease for its offices/facilities located at the address for the Seller first set forth above for the current lease term and, further, obtain an extension of such lease, or a new lease, for such facilities on terms and conditions as the Company deems reasonable and appropriate under the circumstances. 8. Company's Payment to Third Party Claimants/Lien Creditors. Notwithstanding any contrary provision in this Agreement, if the Company 8 Mr. Jerry Sherman January 2, 2000 Page 8 discovers any third party creditor who has asserted a third party claim and/or claims to have and/or appears to have any lien or encumbrance in, to or otherwise affecting the Software Business including the Verso Software, and which was not listed by the Company on Exhibits 4(1) and/or 4(2) hereto, then the Company shall have the right in its sole election and discretion (but shall not be obligated) to pay-off or otherwise compromise or satisfy any such third party claim(s) and/or underlying debt obligation(s), so as to ensure that the Software Business and Verso Software are in fact sold and transferred by the Seller, and are purchased and acquired by the Company, free and clear of any and all claims, liens and encumbrances as provided for elsewhere in this Agreement, and to deduct any and all such amounts/payments up to a maximum of One Hundred Thousand Dollars ($100,000) from the amount to be paid by the Company to the Seller at the Closing under paragraph 1(1) of this Agreement. Nothing in this paragraph is intended or shall be deemed to limit or restrict the Company's rights under paragraph 6 (Conditions to the Company's Obligation to Close) of this Agreement. 9. Complete Agreement/Amendment and Miscellaneous Provisions. This Agreement sets forth all of the terms and conditions of the parties' agreements regarding or otherwise in respect of the subject matter of such Agreement, and can only be amended, changed or modified by a further writing signed by the party against which any such amendment, change or modification is sought to be enforced. 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 has and shall be deemed for all purposes to have been drafted and otherwise prepared by all of the parties hereto. Should any ambiguity subsequently be determined to exist in or in respect of this Agreement including the language used herein, then no party hereto shall suffer any prejudice or disability as a result of any such ambiguity. The parties hereby acknowledge to one and 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. 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). 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. The representations, agreements, covenants and warranties contained in this Agreement shall survive the Closing. A waiver of any of the covenants and/or conditions set forth in this Agreement by the party for whose benefit such covenants and conditions are intended shall not be deemed to be or constitute a waiver of any other covenant or condition of the Agreement. This Agreement, including all rights and obligations provided for herein, is binding upon the 9 Mr. Jerry Sherman January 2, 2000 Page 9 parties including their heirs, executors, administrators, trustees and successor trustees, designees, assigns, and other successors in interest. As used herein "Agreement" shall be understood to include all Exhibits attached and incorporated herein by references in the Agreement. If the foregoing is acceptable to the Seller, and this letter accurately and completely memorializes all of the terms and conditions constituting and comprising the parties' Agreement in respect of the subject matter of such Agreement, please finalize all Exhibits referred to in this Agreement then sign and return for receipt in hand by the undersigned by no later than the close of business Los Angeles Time on Thursday, January 4, 2001, following which the offer represented by this letter shall automatically expire and terminate and be of no further force or effect. AUTO-GRAPHICS, INC. (the "Company") By Michael Skiles, President (signatures continued on following page) ACCEPTED AND AGREED MAXCESS LIBRARY SERVICES, INC. (the "Seller") By Jerry Sherman, President and sole shareholder of Maxcess Library Services, Inc. in such corporate and individual 10 capacity January ___, 2001 11 EXHIBIT 1 SCHEDULE OF ASSETS BEING PURCHASED (to be provided) 12 EXHIBIT 1-1 EXCLUDED ASSETS/PROPERTY (to be provided) 13 EXHIBIT 4(1) THIRD PARTY OBLIGATIONS (to be provided) 14 EXHIBIT 4(2) LIENS, CLAIMS AND ENCUMBRANCES (to be provided) 15 EXHIBIT 4(4) DEVELOPMENT PROJECT OBSTACLES (to be provided) EX-10.51 9 a71643ex10-51.txt EXHIBIT 10.51 1 EXHIBIT 10.51 COPE STOCK PURCHASE AGREEMENT This COPE STOCK PURCHASE AGREEMENT dated effective January 1, 2001 (the "Agreement") is made and entered into by, between and among Dataquad, Inc., a Nevada corporation ("Dataquad"), The LibraryCard, Inc., a Nevada corporation ("LibraryCard"), Corey M. Patick ("Patick") in his individual capacity and Robert S. Cope in his individual capacity ("Cope"). Dataquad and LibraryCard are collectively sometimes referred to herein as the "Corporations". R E C I T A L S WHEREAS, Dataquad and LibraryCard each previously sold and issued to Patick shares of its Common Stock to be used by Patick for the express purpose of reselling such shares of stock to employees, agents and representatives of such Corporation and for no other purpose (the "Trust Shares"); WHEREAS, Patick agreed to purchase, acquire, hold and use such Trust Shares for such stated purposes and no other; WHEREAS, Patick further agreed to purchase, acquire, hold and use such Trust Shares of stock for such purposes as a "Trustee" of such Shares to be held by Patick in "Trust" for the benefit of the intended beneficiaries of such Shares, namely employees, agents and representatives of the Corporations to whom Patick subsequently determined in his sole discretion and election to sell and issue such Trust Shares in a way and manner which Patick believed in his sole election and discretion would provide motivation and incentive to such recipients to advance the respective business endeavors and interests of the Corporations as Patick reasonably understood such matters; WHEREAS, during the period of time that Patick owned the Trust Shares he is deemed for all purposes to be the registered and beneficial owner of the Trust Shares and he is entitled to exercise all incidents of such ownership including without limitation the voting of such shares; WHEREAS, Patick understood and agreed that if he retained any of the Trust Shares sold and issued to him under this Agreement on December 31, 2002 (the "Possible Further Transfer Date"), he would then resell and transfer such remaining 2 Shares to the respective Corporations which issued the shares to Patick under the agreement with Patick unless either or both of such Corporations notified Patick that it does not desire to purchase any such remaining Trust Shares; WHEREAS, the Trust Shares have previously been sold and issued to Patick who continues to own all of such Trust Shares; WHEREAS, it is now proposed that as of the effective date of this Agreement as first indicated above, Patick would sell, transfer, assign and convey all of his right, title and interest in and to the Trust Shares to Cope who would thereupon and thereafter be, act and serve as the registered and beneficial owner of and the "Trustee" in respect of such Trust Shares in lieu of and as substitute for Patick as more fully provided for in and pursuant to and in accordance with this Agreement; WHEREAS, Cope has agreed to and hereby does acquire and accept such Trust Shares and own, act and serve as the Trustee in respect of such Trust Shares pursuant to and in accordance with this Agreement; accept; and WHEREAS, the undersigned parties desire to memorialize their understandings and agreements in respect of the Trust Shares and matters related thereto in this Agreement; A G R E E M E N T NOW, THEREFORE, the undersigned parties in consideration of the premises and the covenants contained herein hereby agree, subject to the within terms and conditions, as follows: 1. Trust Shares. 1.1 Patick agrees and hereby does sell, transfer, assign and convey to Cope Seven Hundred Thousand (700,000) shares of the Common Stock, $0.001 par value, of Dataquad (the "Dataquad Trust Shares"), for consideration in the amount of One Hundred Eighty Thousand Two Hundred Fifty Dollars ($180,250); and 1.2 Patick agrees and hereby does sell, transfer, 2 3 assign and convey to Cope Seven Hundred Thousand (700,000) shares of the Common Stock, $0.001 par value, of LibraryCard (the "LibraryCard Trust Shares"), for consideration in the amount of One Hundred Thousand Two Hundred Fifty Dollars ($100,250). The Dataquad Trust Shares and the LibraryCard Trust Shares are herein collectively referred to for convenience sake as the "Trust Shares". 1.3 The Trust Shares sold by Patick to Cope under Sections 1.1 and 1.2 hereof shall be registered in the name of and be owned of record and beneficially by Cope. 1.4 Cope is not obligated to sell and issue any or all of the Trust Shares to any recipients; however, if Cope does elect to sell and transfer any of such Trust Shares from time to time prior to the Possible Retransfer Date, Cope shall only sell and transfer such Trust Shares to recipients thereof and provided for and contemplated hereby under the so-called "Trust" arrangement and only pursuant to and in accordance with applicable Federal and state securities laws including as provided for in Section 5 of this Agreement. 2. Payment By Cope. 2.1 Cope shall pay for the Trust Shares being purchased and acquired from Patick by entering into new promissory notes payable to the respective Corporations for the Dataquad Trust Shares and the LibraryCard Trust Shares in the principal amount of the obligation previously owed by Patick to such Corporations for such Trust Shares as of the effective Date of this Agreement in the form attached hereto and incorporated herein as Exhibit A (collectively the "Notes"); and Patick shall no longer be obligated to the Corporations or either of them on, under or otherwise in respect of the Notes made by Patick at the time he purchased and acquired such Trust Shares (which obligation is now "assumed" by Cope pursuant to and in accordance with the Notes and the obligation of Cope represented thereby to the Corporations) and, following receipt of certificates for the Trust Shares by Cope, Patick shall have no duties, responsibilities and/or obligation of any kind to Cope (and/or to the Corporations) in respect of such Shares or the subject matter of this Agreement. 3. Purchase By The Corporations. 3.1 If the Corporations, or either of them, determine at the Possible Retransfer Date (December 31, 2002) that 3 4 they want to purchase and acquire the remaining Trust Shares issued by each of such respective Corporations which Cope still then owns, then such Corporation shall purchase from and pay Cope for such remaining shares of Dataquad Trust Shares and LibraryCard Trust Shares effective as of the Possible Retransfer Date in the same manner as Cope purchased and paid Patick for such Shares as provided for in Section 2; and, upon receipt of such consideration by Cope, Cope including his successors shall sell, transfer and deliver any and all such remaining Trust Shares effective as of such Date. 3.2 If any of the remaining Trust Shares are not purchased by the respective issuer Corporations of such Trust Shares as provided for herein, then Cope shall thereafter remain the registered and beneficial owner of such Trust Shares without any further obligation to such issuer Corporations in respect thereof except for payment in full of the Notes (Exhibit A) used by Cope to pay for such Trust Shares under this Agreement; and, if not already paid for in cash or by check, Cope shall complete payment under such notes for any and all such remaining Trust Shares which Cope shall continue owning on and after the Possible Retransfer Date in accordance with the provisions of this Agreement. 3.3 Notwithstanding any contrary provision contained herein, Cope shall have the right, but not the obligation, in his sole election and judgment at any time during the nine (9) month period following the effective date of this Agreement (ending September 30, 2001) to tender any or all of the Trust Shares then owned by him to the respective issuer Corporations thereof for purchase and payment by such Corporations for the price, in the manner and with the consequences provided for in Section 3.1 hereof (the "Cope Tender Date"); and, if Cope makes such election, then the respective Corporations shall purchase, acquire and pay for any and all of such remaining Trust Shares which are the subject of Cope's tender in accordance with the provisions of Section 3.1 hereof. 4. Sales/Transfer By Cope. 4.1 When Cope sells and transfers any of the Trust Shares to recipients thereof as contemplated by and under this Agreement, Cope shall immediately report such sale/transfer transaction to the respective issuer Corporations, including the consideration paid to and received by Cope for or otherwise in connection with such sold/transferred Trust Shares; and Cope shall simultaneously cause to be registered for transfer all such 4 5 sold/transferred Trust Shares on the stock transfer books and records of the respective Corporation(s) as maintained by such Corporation(s) or its (their) independent stock register and/or transfer agent(s) to the recipients thereof as provided for and contemplated by this Agreement. All proceeds from the sale/transfer of Trust Shares by Cope, prior to the Cope Tender Date or, if less than all the Trust Stock is tendered, the Possible Retransfer Date, must be used by Cope to pay down the balance due and owing by Cope under the Notes (sale/transfer of Dataquad Trust Shares requiring payment on the Note to Dataquad and sale/transfer of LibraryCard Trust Shares requiring payment on the Note to LibraryCard). Following the sale/transfer of Trust Shares by Cope pursuant to and in accordance with this Agreement, Cope shall have no further interest in, to or otherwise in respect of any of such sold/transferred Trust Shares; and, accordingly, Cope shall have no further obligation to the issuer Corporation of such Trust Shares in respect thereof under this Agreement or otherwise. 5. Certain Securities Matters. 5.1 The Trust Shares sold, transferred, assigned and conveyed by Patick to Cope pursuant to this Agreement shall not be registered and/or qualified under Federal or state securities laws and shall be sold, assigned, transferred and conveyed by Patick to Cope, and purchased and acquired by Cope, pursuant to applicable exemptions from such registration or qualification including under the "private placement" exemption from such registration and/or qualification; and, as such, the Trust Shares are understood and shall be treated for all purposes as "restricted securities" as that term is generally understood under applicable securities laws. The certificates representing the Trust Shares shall contain a customary legend restricting the sale and transfer thereof except under applicable securities laws (see Exhibit B hereto); and the Corporations shall place or cause to be placed and implemented customary "stop transfer" instructions in respect of such Trust Shares and the certificates therefor as registered and in the name of Cope. 5.2 Cope shall provide the respective Corporations with such further written assurances as such Corporations or their counsel shall request in connection with the sale, assignment, transfer and conveyance of the Trust Shares by Patick to Cope, and by Cope to recipients thereof, in respect of such securities exemption and related matters; and Cope otherwise hereby agrees and promises to cooperate with and assist the Corporations in respect of the matters which are the subject of 5 6 this Agreement. 5.3 Cope shall exercise reasonable judgment in determining if and when to sell and transfer any of the Trust Shares to any recipients thereof so as not to violate any securities laws pertaining to the registration and/or qualification of any such Trust Shares applicable to the sale and transfer of such Shares by Cope to any recipient thereof. 6. Spousal Consent. 5.1 Cope shall obtain the consent of his spouse in respect of the subject matter of this Agreement and Cope's individual and separate ownership of the Trust Shares in the form attached hereto and incorporated herein as Exhibit C; and Cope hereby further agrees to take such steps as are reasonably necessary to ensure that his successors in interest (including without limitation his executors and administrators) are bound by the terms and conditions of this Agreement in respect of the Trust Shares. 7. Indemnities. 7.1 Cope and the respective Corporations each hereby agree and promise to indemnify and hold harmless the other(s) for any and all costs and expenses (including reasonable attorneys and other professionals' fees and costs paid or incurred), claims, debts, causes of action, judgments and liabilities actual and contingent which may result from, arise or otherwise be asserted or imposed on or against any of the undersigned parties as a result of any of the undersigned party(ies) failure or refusal to perform this Agreement or any agreement, covenant, promise and/or provision hereof. 7.2 The Corporations and each of them, and Cope, hereby agree and promise, jointly and severally, to indemnify and hold harmless Patick for any and all costs and expenses including reasonable attorneys and other professionals' fees and costs paid or incurred, claims, debts, causes of action, judgments and liabilities actual and contingent which may result from, arise or otherwise be asserted or imposed on or against Patick as a result of or in any way relating to his prior ownership of the Trust Shares and/or the instant sale, assignment and transfer of the Trust Shares to Cope pursuant to and in accordance with this Agreement. 8. Events of Default/Notice and Cure. 6 7 8.1 Before declaring any default of this Agreement, the undersigned parties shall first provide the party(ies) alleged to have committed a material breach of this Agreement with written notice including details of any such alleged material breach and opportunity to cure any such breach within the thirty (30) day period following the date of any such notice of alleged default; and, thereafter, the party receiving any such notice of alleged breach having failed to timely cure any such alleged breach, the party(ies) providing any such notice and request for cure shall be entitled to declare an event of default under this agreement and seek relief against any such defaulting party(ies) consistent with Section 9 hereof. 9. Arbitration. 9.1 In the event of any disagreement and/or dispute under or otherwise in respect of this Agreement, the undersigned parties hereby agree to resolve any such disagreement and/or dispute, and all related matters, by binding arbitration. All arbitration proceedings shall be conducted in accordance with the then prevailing and applicable rules of the American Arbitration Association ("AAA") at a city in Los Angeles County, California selected pursuant to such rules. The arbitration shall be conducted by a single arbitrator selected jointly by the parties or, in the event that the parties are enable to mutually agree upon the person to act as such arbitrator within thirty (30) days following the first providing of a notice to arbitrate by any of the parties, then the arbitrator shall be selected by the AAA. For purposes of such arbitration, the parties shall be entitled to avail themselves of all discovery permitted under California Code of Civil Procedure Section 2017 et seq. The arbitrator shall be empowered to provide any relief and make any award that could be provided or made by a court of competent jurisdiction. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. 10. Attorneys/Professionals' Fees/Costs. 10.1 In addition to whatever other relief any of the party(ies) may be entitled to under or otherwise in respect of this Agreement, in the event of any disagreement and/or dispute under or otherwise in respect of this Agreement, the part(ies) prevailing in any such disagreement and/or dispute shall recover the costs of the arbitration proceeding and the acceptance and 7 8 enforcement of any such arbitration award in any judicial proceeding initiated for such purpose by the prevailing party(ies), and such prevailing party(ies) reasonable attorneys and other professionals' fees and costs paid or incurred in asserting, maintaining and prosecuting any such disagreement/dispute and arbitration proceeding and decision in respect thereof. 11. Choice of Law. 11.1 This Agreement has been made, executed and delivered within the State of California, and the rights and obligations of the parties hereto shall be construed, interpreted and enforced in accordance with and governed by the law of said State. 12. Time Is Of The Essence. 12.1 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. 13. Assignment and Other Matters. 13.1 The parties to this Agreement shall not have the right, absent the prior written approval and consent of all of the other parties to this Agreement, to assign or otherwise transfer this Agreement including any of their rights, duties, responsibilities and/or obligations hereunder to any person or entity. 14. Severability. 14.1 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. 15. Notices. 15.1 Notices to be given under or in respect of this Agreement shall be provided in writing and shall be deemed 8 9 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 Dataquad, Inc. Dataquad, 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 The LibraryCard, Inc. The LibraryCard, 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 Cope Robert S. Cope c/o Auto-Graphics, Inc. 3201 Temple Avenue Pomona, CA 91768-3200 With a copy to - Paul Gautreau, Esq. 957 S. Village Oaks Covina CA 91724 9 10 If To Patick Corey M. Patick 269 South Beverly Drive #438 Beverly Hills, CA 90210 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. 16. Headings. 16.1 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. 17. Complete Agreement/Amendment. 17.1 This Agreement constitutes the entire understanding and agreement between the parties with respect to the subject matter hereof and is intended to supersede all prior and contemporaneous written or oral agreements and discussions regarding the matters which are the subject of this Agreement. This Agreement may be amended or otherwise changed only by an agreement in writing so stating and signed by the party(ies) against which any such amendment or other change is sought to be enforced. Each of the parties represents and warrants to, and agrees with, the other that in entering into and performing this Agreement, they have not received and are not otherwise relying upon any statement, fact, circumstance, representation, understanding, agreement, covenant, promise, guaranty, warranty, assurance and/or any other matter which is/are not expressly set forth in this Agreement; and that they will not at any time assert otherwise (whether by way of any claims in contract, tort, or otherwise), in any action, proceeding or otherwise against or in respect of any of such parties to this Agreement. In entering into this Agreement, each of the parties hereby further represents and warrants to, and agrees with, the other that such party had the opportunity to consult with independent counsel of its 10 11 (including his/her) own choosing regarding this Agreement and the subject matter thereof. The parties acknowledge and agree that this Agreement was negotiated, drafted and otherwise prepared jointly by all of the parties and that no party shall suffer any detriment or prejudice as a result of any determination that any of the language of this Agreement is ambiguous or otherwise unclear in any manner. The "Recitals" set forth at the outset of this Agreement are hereby incorporated by this reference into and made part of the "Agreement" portion of this Agreement. IN WITNESS WHEREOF, the undersigned parties thereunto duly authorized have executed and delivered this Agreement in Pomona, California effective as of the date of this Agreement. DATAQUAD, INC. By Robert S. Cope, President THE LIBRARYCARD, INC. By -------------------------------------------- Michael K. Skiles, Acting President Corey M. Patick, an individual Robert S. Cope, an individual 11 12 FORM OF PROMISSORY NOTE $ January 1, 2001 Pomona, California FOR VALUE RECEIVED, the undersigned Robert S. Cope ("Cope") hereby promises to pay to LibraryCard, Inc., a Nevada corporation, or its designee ("________"), at its corporate offices in California, the principal amount of ___________________________________ ($________) plus interest from the date of this Promissory Note until paid in full on the unpaid balance of this Note at the rate of five percent (5%) per annum. This Promissory Note is made and given pursuant to and in accordance with that certain Cope Stock Purchase Agreement dated as of the date of this Note (the "Agreement") which shall, except as expressly provided for herein, govern this Note for all purposes. Unless otherwise expressly provided for in this Note, the defined terms in this Note shall have the same meaning as the terms defined in the Agreement. All principal and interest due and owing on this Note shall be paid no later than December 31, 2002, except that Cope shall have the option in his sole election and discretion to satisfy the principal payment obligation represented by this Note then due and owing by tendering any or all shares of ________ acquired, purchased and received by Cope under the Agreement registered to and owned by Cope as of September 30, 2001 for purchase and acquisition by ________ pursuant to and in accordance with Section 3.3 of the Agreement (the "Cope Tender Date" under the Agreement). All "________ Trust Shares" (as defined in the Agreement) registered to and owned by Cope following the Cope Tender Date (not timely tendered by Cope for purchase and sale by ________) shall continue to be owned by Cope, and Cope's obligation under this Note in respect of such Shares, shall be timely paid by Cope in accordance with the provisions of this Note by no later than December 31, 2002 (the "Possible Retransfer Date" under the Agreement and the maturity date of this Note) unless ________ notifies Cope at or prior to that date that ________ is exercising its rights to purchase and acquire all or any portion of such ________ Trust Shares under Section 3.1 of the Agreement. Any shares purchased and acquired from Cope by ________ pursuant to and in accordance with the provisions of Section 3.1 of the Agreement shall be at the rate that Cope purchased and acquired such Shares under the Agreement ($0.2575 per share), and Cope shall pay the balance then due and owing on this Note following any such repurchase transaction by ________ no later than December 31, 2002. Any tender by Cope of ________ Trust Shares, on or before September 30, 2001 as provided for herein and the Agreement, shall likewise be at the rate of $0.2575 per share. In accordance with the Agreement, any sale and transfer by Cope to any recipient of ________ Trust Shares registered to and owned by Cope as provided for in the Agreement shall require an automatic and immediate payment by Cope to ________ under this Note in the amount of any and all consideration 12 13 when and as received by Cope from the recipient of such Shares as proceeds of the sale of such Shares or otherwise. Notices required or elected to be given under or in respect of this Note shall be given pursuant to and in accordance with the provisions of Section 15 of the Agreement. To the extent not otherwise expressly provided for in this Note, the provision of the Agreement, to the extent applicable, shall be incorporated into, adopted and made a part of this Note for all purposes. Cope hereby waives any and all statutory and other legal requirements under California law applicable to this Note relating to, requiring and/or otherwise in respect of presentment, demand or other similar notice and other procedural requirements applicable to the collection of and under this Note by ________. This Note is made and shall be governed and interpreted for all purposes by and under the laws of the State of California. For purposes of this Note, time shall be deemed to be of the essence. IN WITNESS WHEREOF, the undersigned Robert S. Cope (herein "Cope"), thereunto duly authorized and acting in his individual capacity, and intending to be legally bound and obligated thereby, has executed this Note as of the date first above stated. Robert S. Cope EXHIBIT A 13 14 `33 ACT LEGEND THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT 14 15 SPOUSAL CONSENT The undersigned Elizabeth R. Cope ("Spouse"), the wife of Robert S. Cope, having had the opportunity to consult with her own independent attorney or other professional advisor in respect of such matters and the within Spousal Consent, acknowledges the attached Cope Stock Purchase Agreement and the provisions thereof (the "Agreement"), and hereby acknowledges, agrees and consents to the provisions of the Agreement stating and otherwise providing that the Trust Shares to be sold, assigned, transferred and conveyed by Corey M. Patick to Robert S. Cope pursuant to and in accordance with the Agreement are and shall be for al purposes the separate property of Robert S. Cope as provided for therein; and such undersigned Spouse further hereby irrevocably waives and disclaims any interest of any kind or nature in and to the Trust Shares (the "Spousal Consent"). The undersigned Spouse also acknowledges and agrees that, in entering into and performing the Agreement, the Corporations, Corey M. Patick, and Robert S. Cope in his individual capacity as a signatory to the Agreement, are relying on the within Spousal Consent; and that, in the event that such Spouse or her successors in interest asserts any right, title and/or interest in and/or to the Trust Shares for any reason whatsoever, the prevailing party in any such proceeding or action shall be entitled to recover such person(s)/entity(ies) reasonable attorneys and other professionals' fees and costs paid or incurred in respect of any such proceeding/action. Elizabeth R. Cope EXHIBIT C 15 EX-10.52 10 a71643ex10-52.txt EXHIBIT 10.52 1 EXHIBIT 10.52 FURTHER AMENDMENT TO OPTION RE CLOSING DATE AND OTHER MATTERS This SECOND AMENDMENT TO OPTION AGREEMENT RE OPTION CLOSING DATE AND OTHER MATTERS dated April 13, 2001 (the "Further Amendment") is made in reference to that certain Option Agreement dated May 15, 1999, and as amended on January 31, 2001 (herein collectively the "Option Agreement"), 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. RECITALS WHEREAS, the Option Agreement, Section 5, presently provides for the Option Closing to be held on or before April 16, 2001, and the parties (for consideration received which the parties hereby acknowledge and agree is adequate and sufficient for such purposes including without the within mutual agreements and covenants) mutually desire and intend and hereby do agree to extend such Option Closing to the date provided for herein below (referred to herein as the "Option Closing Date") and to otherwise modify and amend the Option Agreement as provided for herein below; WHEREAS, the parties have memorialized their understandings and agreement regarding the extended Option Closing Date and as otherwise expressly provided for in this Further Amendment; AGREEMENT NOW, THEREFORE, the undersigned parties intending to be legally bound and obligated thereby, in consideration of the premises and otherwise, do hereby agree as follows: 1. Recitals. The Recitals set forth above are hereby incorporated into and made a part of this Further Amendment. 2 2. Option Closing Date. The Option Closing Date provided for and/or referred to in Section 5 and elsewhere in the Option Agreement is hereby extended to August 31, 2001, except that in his sole discretion and election Cope is entitled to terminate the within extended Option Closing Date as expressly provided for in 2.2 below. 2.1 Cope will cause the Company to provide the "Due Diligence" information/material provided for in the Exhibit to the January 31, 2001 Amendment referenced above by no later than May 15, 2001 (or the May 15, 2001 date provided for in Section 2.2 below shall be extended by the number of days after May 15, 2001 that it takes for Cope to cause the Company to provide all of such Due Diligence information/material to Patick). 2.2 If at any time following May 15, 2001, the Company enters into a contract with an investment banker, business broker or other similar person or entity to assist the Company in the sale of all or substantially all of the Company's assets and/or issued and outstanding stock (collectively herein the "Possible Sale of the Company"), which the Company has not yet determined and/or even considered doing, then at any time following the date of the entering into any such contract for the Possible Sale of the Company (the "Event") Cope shall be entitled to provide Patick with thirty (30) days prior written note of such Event ("Event Notice"); and Patick shall thereby be required to consummate the closing and purchase of the Cope Option Stock prior to the expiration of such thirty day period of time (the "Accelerated Option Closing Date") pursuant to and in accordance with the Option Agreement (failing which timely performance Patick's rights to purchase and acquire the Option Stock under the Option Agreement shall thereafter automatically terminate and expire as a result of such nonperformance by Patick following the Event Notice). 3. Accountant's Authorization Letter. The provision in Section 11(F) of the Option Agreement, pertaining to the delivery of a letter from the Company's outside accountant and auditor ("to cause the Company 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") is hereby deleted from the Option Agreement (and Patick will instead rely, as it pertains to such audit report(s), on his status as a shareholder/recipient of the accountant/auditors' reports on the Company's audited 2000 and other Financial Statements for purposes of the Option Agreement). 2 3 4. Cope Stock Put. Section 6 of the Option Agreement (referred to as the "Cope Stock Put") is no longer operative, in light of Cope's lack of exercise of his rights thereunder; and, accordingly, such Section is hereby deleted from the Option Agreement in its entirety. 5. Future Lease Obligation. Section 9 of the Option Agreement is, by mutual agreement of Cope and Patick, deleted from the their Option Agreement in its entirety (without affecting any rights the Company may have in and in respect of such matters). 6. Continuation of Option Agreement. This Further Amendment is made pursuant to and in accordance with Section 21 of the Option Agreement. Defined terms used in the Option Agreement, and appearing herein, are hereby adopted for purposes of this Option Amendment. Except as expressly provided for in this Option Amendment, all terms and conditions of the Option Agreement remain unchanged, in full force and effect and operative and binding on the parties as provided for in the Option 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. ("Cope") Robert S. Cope Elizabeth Cope THE COPE FAMILY TRUST By Robert S. Cope, Trustee 3 4 ("Patick") Corey M. Patick ACKNOWLEDGED AND AGREED AUTO-GRAPHICS, INC. (the "Company") By Michael S. Skiles, President By Michael F. Ferguson, Secretary cc: Daniel H. Luciano, Esq. Bill D. Ringer, Esq. Robert H. Bretz, Esq. ACKNOWLEDGED ROBERT H. BRETZ, AS THE ESCROW HOLDER UNDER THAT CERTAIN ESCROW LETTER AGREEMENT March 23, 2000 By Robert H. Bretz, Esq. 4 -----END PRIVACY-ENHANCED MESSAGE-----