UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [__}
Check the appropriate box:
[ X ] Preliminary Proxy Statement
[___] Confidential, for Use of the Commission Only
[___] Definitive Proxy Statement
[___] Definitive Additional Materials
[___] Soliciting Material Pursuant to Rule 240.14a-12
AUTO-GRAPHICS, INC.
-------------------------
(Name of Registrant)
Not Applicable
- -------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_X_] No fee required.
Cover Letter Information
NOTE: It is proposed that definitive proxy materials be mailed on or
before December 3, 2001 if at all possible.
CONTACT: For information regarding this proxy statement/filing, please call
Daniel E. Luebben, Secretary at (909) 595-7204 ext. 499
or 3201 Temple Avenue, Pomona, Ca 91768
AUTO-GRAPHICS, INC.
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
December 20, 2001
To the Shareholders:
The annual meeting of the shareholders ("Meeting") of Auto-Graphics, Inc.
will be held at 3201 Temple Avenue, Pomona, California 91768 on December
20, 2001, at 3:00 p.m. for the following purposes:
1. To elect directors.
2. To approve the adoption of the 2001 Stock Plan.
3. To amend the Articles of Incorporation with Amendment No. 1 to delete
the provision that provides for the number of directors to be stated in the
Articles of Incorporation.
4. To amend the Articles of Incorporation with Amendment No. 2 to add a
provision to eliminate or limit the personal liability of directors for
money damages.
5. To amend the Bylaws to state the number of directors shall be at
least three (3) and not more than five (5) directors, with the current exact
number to be three (3) directors.
6. To transact such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on November 26, 2001,
are entitled to notice of, and to vote at, this Meeting. A complete list of
the shareholders entitled to vote at the Meeting will be available and open
to the examination of any shareholder for any purpose germane to the Meeting
during ordinary business hours from and after December 3, 2001, at the
office of the Company. You are cordially invited to attend the Meeting.
If you hold your shares through a broker or other nominee, proof of
ownership will be accepted by the Company only if you bring either a copy of
the voting instruction card provided by your broker or nominee, or a copy of
a brokerage statement showing your share ownership in the Company as of
November 26, 2001.
YOU SHOULD READ THE PROXY STATEMENT BECAUSE IMPORTANT INFORMATION IS
GOING TO BE IN THE PROXY STATEMENT AND THE PROXY STATEMENT CAN BE
OBTAINED FOR FREE EITHER AT THE U.S. SECURITIES AND EXCHANGE COMMISSION
WEBSITE AT "http://www.sec.gov" AND FROM AUTO-GRAPHICS, INC., ATTENTION:
DANIEL E. LUEBBEN, SECRETARY, 3201 TEMPLE AVENUE, POMONA, CA 91768. THE
TELEPHONE NUMBER IS 1-800-776-6939 EXTENSION 499 AND THE FAX NUMBER IS
909-595-5190.
IF YOU HAVE ANY QUESTIONS, OR NEED ASSISTANCE VOTING, PLEASE CONTACT,
DANIEL E. LUEBBEN, THE SECRETARY OF THE COMPANY, AT 1-800-776-6939.
BY ORDER OF THE BOARD OF DIRECTORS
Daniel E. Luebben
Secretary
Pomona, California
November , 2001
AUTO-GRAPHICS, INC.
3201 Temple Avenue
Pomona, California 91768
PROXY STATEMENT FOR ANNUAL MEETING
OF SHAREHOLDERS
To Be Held December 20, 2001
GENERAL INFORMATION
This Proxy Statement, which will be first mailed to shareholders on or about
December 3, 2001, is furnished in connection with the solicitation of
proxies by the Board of directors of Auto-Graphics, Inc. (the "Company" or
"Auto-Graphics"), to be voted at the Annual Meeting of the
Shareholders("Meeting") of the Company, which will be held at 3:00 p.m. on
December 20, 2001, at 3201 Temple Avenue, Pomona, California 91768. The
purpose of the Meeting and the matters expected to be acted upon are set
forth in the accompanying Notice of Annual Meeting of Shareholders.
Shareholders who execute proxies retain the right to revoke them at any time
before the shares are voted by proxy at the meeting. A shareholder may
revoke a proxy by delivering a signed statement to the Secretary of the
Company at or prior to the Meeting or by executing another proxy dated as of
the later date. The Company will pay the cost of solicitation of proxies.
Shareholders of record at the close of business on November 26, 2001 will be
entitled to vote at the meeting on the basis of one vote for each share
held, however, any shareholder eligible to vote for the election of
directors is entitled to cumulate votes and give one candidate a number of
votes equal to the number of directors to be elected multiplied by the
number of votes to which the shareholder's shares are entitled, or to
distribute the shareholder's votes on the same principle among as many
candidates as the shareholder thinks fit.
To be entitled to exercise cumulative voting rights for the election of
directors, a shareholder must give notice at the Meeting of such person's
desire to cumulate votes for one or more candidates whose name(s) have been
placed in nomination prior to the commencement of voting for the election of
directors. If any shareholder exercises the right to cumulate votes for the
election of directors, then all shareholders are entitled to cumulative
voting rights for the election of directors. Cumulative voting applies only
to voting for the election of directors (not for the other proposals before
the meeting).
On November 26, 2001, there were 4,997,234 shares of Common Stock
outstanding.
ANNUAL REPORT
The Annual Report of the Company for the fiscal year ended December 31, 2000
is being mailed with the Proxy Statement.
Stockholders are referred to the Annual Report for financial and other
information about the activities of the Company. The Annual Report is not
incorporated by reference into this Proxy Statement and is not deemed to be
a part of it.
1. ELECTION OF DIRECTORS AND MANAGEMENT INFORMATION
The Company's board of directors currently consists of three members. Three
directors are to be elected at the Meeting to hold office until the next
annual meeting of shareholders and until their successors are elected and
qualified. It is intended that the accompanying proxy will be voted in
favor of the following persons to serve as directors unless the shareholder
indicates to the contrary on the proxy. The election of the company's
directors requires a plurality of the votes cast in person or by proxy at
the meeting. The board of directors expects that each of the nominees will
be available for election, but if any of them is not a candidate at the time
the election occurs, it is intended that such proxy will be voted for the
election of another nominee to be designated by the board of directors to
fill any such vacancy.
In the event all three of the board of directors' nominees cannot be
elected, then the board of directors in its discretion may instruct Robert
S. Cope to vote cumulatively for less than three of the board of directors'
nominees. In such event it is the board of directors' current intention to
instruct Mr. Cope to vote proxies received by the board of directors for the
reelection of Robert S. Cope and James R. Yarter.
Nominees Proposed by the Board of Directors
Set forth below is certain information pertaining to the persons who are
proposed as nominees for election to the Company's board of directors.
Robert S. Cope, 66, along with his family is a 44% shareholder of the
Company, a current director of the Company, and holds the officer positions
of President and Chairman of the Board of the Company, will be seeking
reelection to the Board. During the previous five years Mr. Cope has served
the Company as Chief Executive Officer, President and Treasurer.
Mr. Yarter, 64, is a 2% shareholder of the Company. Mr. Yarter's prior
business background and experience covers a period of 35 years. During the
past five years, his experience includes being the Chief Executive Officer
of several companies, including two companies listed on the NASDAQ Stock
Exchange. Besides being on the Company's Board of Directors, Mr. Yarter is
currently on the board of directors of Advant Medical and Group 3 Inc. On
June 21, 2001, Mr. Robert S. Cope filed a Notice of Written Consent of
Shareholders to Fill a Vacancy on the Board of Directors and a Proxy
Statement to solicit the necessary shareholder written consents ("Notice").
The Notice identified that the record date for voting to fill the vacancy
was June 14, 2001. Mr. Cope obtained the required number of votes through
the solicitation of less than ten (10) shareholders by use of written
consent forms and Mr. James R. Yarter was elected to the board of directors
to serve until a successor shall be duly elected and qualified.
Robert L. Lovett, 64, is a retired medical doctor and a 4% shareholder of
the Company. During the past five years Dr. Lovett has been a private
investor. Dr Lovett has also served on the board of directors of the Lovett
Pinetum Charitable Foundation. Dr. Lovett is a first time nominee for a
position on the Company's Board.
The following table sets forth information regarding the beneficial
ownership of the Company's common shares by the board nominees for
directors, the Company's Chief Executive Officer and the four other highest
paid executive officers (the "Named Executive Officers"), and the directors
and executive officers as a group.
Amount and Nature of
Beneficial Ownership of Percent
Common Shares as of of
Names 11/26/01 Class
- ------------------------------------ -------------------- ------
Robert S. Cope 1,823,925(1) 36.5%
Paul R. Cope 373,602 7.5%
James R. Yarter 120,000 2.4%
Robert L. Lovett 195,000 3.9%
Executive Officers and Directors
as a Group (6 Persons) 2,608,027 52.2%
(1) Includes the following shares held by family members and relatives:
1,635,675 shares held by the Cope Family Trust of which Mr. Cope is the
trustee; 71,625 shares held by Bryan A. Cope; 101,625 shares held by
Lizabeth L. Cope; and 15,000 shares held by William R. McConnell.
During the Company's year ended December 31, 2000, the board of directors
did not hold any meetings, but acted by unanimous written consent on eight
(8) occasions. For the calendar year 2001, the board of directors has held
five meetings. In addition to these meetings the Board has acted by
unanimous written consent on one occasion.
The Company's board of directors does not maintain standing audit,
nominating or compensation committees. These matters are considered and
acted upon by the entire board of directors.
Cash Compensation
The following table discloses compensation received for the three fiscal
years ended December 31, 2000, by the Named Executive Officers.
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------
Long-term
Compensation
Annual Compensation Awards
------------------- Securities
Name and Underlying All Other
Principal Position Year Salary Bonus Options(#) Compensation
- ------------------ ---- -------- ----- ---------- ------------
Robert S. Cope 2000 $137,000 -0- -0- -0-
Chairman of the Board 1999 156,000 -0- -0- -0-
1998 133,000 -0- -0- -0-
Michael .K. Skiles 2000 $102,000 -0- -0- -0-
President
Corey M. Patick EVP 2000 $145,000 -0- -0- -0-
Daniel E. Luebben CFO 2000 $108,000 -0- -0- -0-
1999 93,000 -0- -0- -0-
1998 100,000 -0- -0- -0-
William J. Kliss COO 2000 $ 69,000 -0- -0- -0-
1999 138,000 -0- -0- -0-
1998 138,000 -0- -0- -0-
Compensation pursuant to Stock Options
There have been no stock option grants for the three years ending December
31, 2000.
Certain Relationships and Related Transactions
In November 2000, the Company sold and issued 240,000 3-year warrants for
$800 entitling Corey M. Patick to purchase one share of the Company's
(restricted) Common Stock for each warrant for $.033 per share.
Subsequently, Corey M. Patick sold the warrants to Robert H. Bretz. Robert
H. Bretz then exercised the warrants and purchased 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 $.033 per share). There are no warrants outstanding at December
31, 2000. Subsequently Corey M. Patick purchased 120,000 shares from
Robert H. Bretz and in November' 2001, James R. Yarter purchased those
120,000 from Corey M. Patick.
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). Mr. 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, and was extended several times by
the parties. By the terms of the most recent extension, Mr. Patick's option
expired on August 31, 2001, without the purchase of and payment for the
option shares having been consummated by Mr. Patick.
Robert H. Bretz was the longtime general counsel of the Company in addition
to his position as a director. Mr. Bretz was terminated as general counsel
to the Company on May 9, 2001. Mr. Bretz had billed the Company on average
$339,000 per year for the three (3) years prior to his termination. In
addition to Mr. Bretz's billing, Mr. Bretz became disruptive to the business
of the Company. In the period prior to the Company's filing of its Form 10-
K, Mr. Bretz refused to sign the Form 10-K unless the Company signed a
Safety Net Agreement (paying Mr. Bretz upon a change of control one years
gross legal billing based upon the prior three year average) and a comfort
letter. The Company filed its Form 10-K without Mr. Bretz's signature one
day prior to when the Company's operating line of credit would have been
discontinued by the bank because of its failure to file its Form 10-K.
Using his position as a director, asserting a right of "director due
diligence," Mr. Bretz has intimidated and issued veiled threats to the
officers of the Company. For example, during the period January 1, 2001
through April 30, 2001, Mr. Bretz sent 580 e-mails requesting information.
These due diligence requests virtually brought the daily operations of the
Company to a standstill until such time as the Company advised Mr. Bretz
that such "due diligence" would be subject to the rights of inspection and
copying under California Corporations Code Section 1602.
On May 17, 2001, the Company filed a Complaint with the California State Bar
alleging the matters discussed above which is currently being investigated .
Following Mr. Bretz' termination, Mr. Bretz filed on behalf of the Company,
Auto-Graphics, Inc. v. The 664 Company, Ltd. ("The 664 Company") and Robert
S. Cope, Los Angeles Superior Court Case No. BC252517 ("664 Lawsuit')
alleging that The 664 Company's lease with the Company (the "Lease")
violated Section 310 of the California Corporations Code. Mr. Bretz
retained himself and his own law firm to represent the Company without
authorization of the Company's Board of directors or management. On August
8, 2001 the 664 Lawsuit, was dismissed by the Los Angeles California
Superior Court upon the court holding that the Action by Unanimous Written
Consent signed solely by Mr. Bretz was invalid because it failed to satisfy
the requirements of California Corporations Code Section 307(b).
The Lease commenced on July 1, 1986, for an original term of five years and
for 27,000 square feet of office space. The Lease provided for two options
to extend the Lease for a period of five years each (the "Lease Options").
Prior to its execution, the Lease was approved unanimously by the three
disinterested members of the Board of directors of the Company. During the
term of the Lease, The 664 Company agreed in 1998 to reduce the rental rate
by 22% and in 2000 allowed the Company to reduce its space leased by
approximately 10,000 square feet. The Lease Options were exercised by the
Company without any further approvals of the disinterested members of the
Board of directors. Mr. Bretz, as its general counsel at the time, did not
advise the Company that any such approval might be required. The Lease that
Mr. Bretz alleges is unfair is at a rental rate of $1.55 per foot per month.
The rental rates paid by the two other non-affiliated tenants located in the
Company's facility are at a rental rate of $1.65 per foot per month.
An internal report prepared at the request of Robert H. Bretz concluded that
the Company saved approximately $1,300,000 as a result of The 664 Company
waiving all but one cost of living adjustment over the 15 year term of the
Lease.
The Lease, originally due to expire on June 30, 2001, was extended for 90
days upon its same terms and conditions. On September 30, 2001, the Lease
expired. The 664 Company has agreed to allow the Company to holdover at its
current rental rate until December 31, 2001 so as to allow the Company to
assess its space requirements.
The 664 Company has proposed that the Company enter into a new lease for a
term of five years upon the same rate and terms as the two other non-
affiliated tenants in the Company's facility for approximately 25% less
space. Any new lease will be submitted for approval of the disinterested
members of the Company's board of directors pursuant to California
Corporations Code Section 310.
The Company filed a complaint against Mr. Bretz on June 29, 2001 for damages
and injunctive relief for breach of fiduciary duty. In Case No. BC 253322
in Los Angeles California Superior Court captioned Auto-Graphics, Inc. vs.
Robert H. Bretz et al. The Company, alleges that Mr. Bretz has become
disruptive and harmful to the business operations of the company and has
damaged the Company by his various actions including his excessive billings
to the Company, filing of the unauthorized lawsuits on behalf of the Company
and harassment of its officers and employees.
Mr. Bretz answered denying the claims of the Company and filed a derivative
cross-complaint against three of the Company's officers and former officers,
Robert S. Cope, Michael K. Skiles and Michael F. Ferguson for breach of
fiduciary duty, fraud and deceit, misrepresentation, breach of
contract/employment, removal for cause and other declaratory and injunctive
relief. The cross-complaint was filed on July 16, 2001 in Los Angeles,
California Superior Court. The officers have filed a special and general
demurrer to the cross-complaint which was heard on November 14, 2001. At
the hearing on November 14, 2001, the court ruled that: (i) Mr. Bretz has 10
days to filed an amended cross-complaint; (ii) Within 30 days after being
served with the amended cross-complaint, Auto-Graphics can file a motion for
the court to order Mr. Bretz to furnish a bond to cover the reasonable
expenses of the Company; and (iii) All discovery pertaining to this case is
suspended until February 15, 2002.
Recent Developments
On September 28, 2001 the Company's Board of directors replaced Michael K.
Skiles as President with Robert S. Cope and replaced Michael F. Ferguson as
Chief Financial Officer with Daniel E. Luebben effective as of October 4,
2001. The Company is developing a plan to reduce expenses during the fourth
quarter of 2001 to return the Company to profitability for the year 2002.
This will be accomplished primarily by reducing payroll and overhead
associated with the initiatives begun in 2000 via the majority-owned
subsidiaries, DataQuad and LibraryCard.
Section 16(a) Beneficial Ownership Reporting Compliance
Robert H. Bretz was late in filing form 4 for the purchase of 240,000
warrants to purchase 240,000 shares and also in the acquisition of the
240,000 shares. Robert S. Cope was late in filing form 4 for the purchase
of 30,000 shares.
2. PROPOSAL FOR APPROVAL OF THE 2001 STOCK PLAN
At the Meeting, the shareholders will be requested to approve the Auto-
Graphics' 2001 Stock Plan (the "Stock Plan"). The Board of directors
("Board") recommends approval of the new Stock Plan to allow the Company to
continue to attract and retain the best available employees, directors and
consultants and provide an incentive for them to use their best efforts on
the Company's behalf. For these reasons, the Board is recommending to the
shareholders for their approval, the Stock Plan. A copy of the Stock Plan
may be obtained upon written request to Auto-Graphics, Inc., Attn: Daniel E.
Luebben, 3201 Temple Avenue, Pomona, California 91768.
Description of the Plan
General. The purposes of this Stock Plan are to attract and retain the best
available individuals for positions of substantial responsibility to provide
additional incentive to such individuals, and to promote the success of
Auto-Graphics' business by aligning the financial interests of employees,
directors, and consultants providing personal services to the Company or its
affiliates with long-term shareholder value. Stock options may be granted
under the Stock Plan. Options granted under the Stock Plan may be either
"incentive stock options," as defined in Section 422 of the Internal Revenue
Code ("Code"), or nonqualified stock options.
Administration. The Stock Plan will be administered by the Board.
New Plan Benefits. Because benefits under the Stock Plan will depend on the
Board's actions and the fair market value of common stock at various future
dates, it is not possible to determine the benefits that will be received by
officers and other employees if the Stock Plan is approved by the
shareholders.
Eligibility. Incentive stock options may be granted only to employees of
the Company or its subsidiaries. Nonqualified stock options may be granted
under the Stock Plan to employees, directors, and consultants of the
Company, its affiliates and subsidiaries, as well as to persons to whom
offers of employment as employees have been granted. The Board, in its
discretion, will select the individuals to whom options will be granted, the
time or times at which such options are granted, the number of shares
subject to each grant, and vesting schedule.
Shares Subject to the Stock Plan. Shares of the Company common stock which
may be awarded and delivered under the Stock Plan may be authorized, but
unissued, or reacquired common shares. The Company expects there to be
approximately 499,000 shares available for future awards under the Stock
Plan as of January 1, 2002, the effective date of the Stock Plan.
Limitations. The Stock Plan provides that the aggregate number of Company
common shares underlying all options to be granted is 499,000 shares of
common stock. The aggregate number of shares underlying all incentive stock
options that may be granted under the Stock Plan may not exceed 350,000 and
the aggregate number of shares underlying all nonqualified stock options
that may be granted under the Stock Plan may not exceed 149,000.
Terms and Conditions of Options. Each option is to be evidenced by an
option agreement between the Company and the individual optionee and is
subject to the following additional terms and conditions.
Exercise Price. The Board will determine the exercise price for the shares
of common stock underlying each option at the time the option is granted.
The exercise price for shares under an incentive stock option may not be
less than 100% of the fair market value of the common stock on the date such
option is granted. The exercise price for shares subject to a nonqualified
stock option may not be less than 100% of the fair market value of the
common stock on the date such option is granted. The fair market value
price for a share of Company common stock underlying each option is the
arithmetic mean between the asked and the bid prices on the closing of the
market on such date as reported on the Over-the-Counter Bulletin Board.
Exercise of Option; Form of Consideration. The Board will determine when
options become exercisable. The means of payment for shares issued upon
exercise of an option will be specified in each option agreement. The Stock
Plan permits payment to be made by cash or check.
Term of Option. The term of an option may be no more than ten (10) years
from the date of grant. No option may be exercised after the expiration of
its term.
Death or Disability. If an optionee's employment, directorship or
consulting relationship terminates as a result of his or her death, then all
options he or she could have exercised at the date of death, or would have
been able to exercise within the following twelve (12) months if the
employment, directorship, or consulting relationship had continued, may be
exercised within the twelve (12) month period following the optionee's death
by his or her estate or by the person who acquires the exercise right by
bequest or inheritance. In addition, if an optionee's employment,
directorship, or consulting relationship terminates as a result of the
optionee's total and permanent disability, then the optionee may, within
eighteen (18) months after the termination, exercise all options he or she
could have exercised at the termination date, or would have been able to
exercise within the twelve (12) month period following the termination of
employment, directorship or consulting relationship had continued, provided
that no such option may be exercised after expiration of the term specified
in the option agreement.
Non-transferability of Options. Unless otherwise determined by the Board,
options granted under the Stock Plan are not transferable other than by will
or the laws of descent and distribution and may be exercised during the
optionee's lifetime only by the optionee.
Other Provisions. An option agreement may contain other terms, provisions,
and conditions not inconsistent with the Stock Plan, as may be determined by
the Board.
Stock Options. Incentive stock options may be granted alone, in addition
to, or in tandem with nonqualified stock options under the Stock Plan.
Unless the Board determines otherwise, the stock option agreement will
provide that any non-vested stock is forfeited back to the Company upon the
optionee's termination of employment for any reason.
Adjustments upon Changes in Capitalization, Merger or Sale of Assets. In
the event that the Company's stock changes by reason of any stock split,
dividend, combination, reclassification or other similar change in the
Company's capital structure effected without the receipt of consideration,
appropriate adjustments shall be made in the number and class of shares of
stock subject to the Stock Plan, the number and class of shares of stock
subject to any option outstanding under the Stock Plan, and the exercise
price for shares subject to any such outstanding option.
In the event of a liquidation or dissolution, any unexercised options will
terminate. In the event of a change of control of the Company, as
determined by the Board, the Board, in its discretion, may provide for the
assumption, substitution or adjustment of each outstanding option.
Amendment and Termination of the Stock Plan. The Board may amend, alter,
suspend or terminate the Stock Plan, or any part thereof, at any time and
for any reason. However, the Company shall obtain shareholder approval for
any amendment to the Stock Plan to the extent necessary and desirable to
comply with applicable laws. No such action by the Board or shareholders
may alter or impair any option previously granted under the Stock Plan
without the written consent of the optionee. The Stock Plan shall remain in
effect until termination by action of the Board or operation of law.
Federal Income Tax Consequences Relating to the 2001 Stock Plan
The federal income tax consequence to the Company and its employees of
options under the Stock Plan are complex and subject to change. The
following discussion is only a summary of the general rules applicable to
the Stock Plan. Recipients of options under the Stock Plan should consult
their own tax advisors since a taxpayer's particular situation may be such
that some variation of the rules described below will apply.
As discussed above, several different types of instruments may be issued
under the Stock Plan. The tax consequences related to the issuance of each
is discussed separately below.
Options
As noted above, options granted under the Stock Plan may be either incentive
stock options or nonqualified stock options. Incentive stock options are
options which are designated as such by the Company and which meet certain
requirements under Section 422 of the Code and the regulations thereunder.
Any option which does not satisfy these requirements will be treated as a
non-qualified stock option.
Incentive Stock Options
If an option granted under the Stock Plan is treated as an incentive stock
option, the optionee will not recognize any income upon either the grant or
the exercise of the option, and the Company will not be allowed a deduction
for federal tax purposes. Upon a sale of the shares, the tax treatment to
the optionee and to the Company will depend primarily upon whether the
optionee has met certain holding period requirements at the time he or she
sells the shares. In addition, as discussed below, the exercise of an
incentive stock option may subject the optionee to alternative minimum tax
liability.
If an optionee exercises an incentive stock option and does not dispose of
the shares received within two years after the date such option was granted
or within one year after the transfer of the shares to him or her, any gain
realized upon the disposition will be characterized as long-term capital
gain and, in such case, the Company will not be entitled to a federal tax
deduction.
If the optionee disposes of the shares either within two years after the
date the option is granted or within one year after the transfer of the
shares to him or her, such disposition will be treated as a disqualifying
disposition and an amount equal to the lesser of (1) the fair market value
of the shares on the date of exercise minus the exercise price, or (2) the
amount realized on the disposition minus the exercise price, will be taxed
as ordinary income to the optionee in the taxable year in which the
disposition occurs. (However, in the case of gifts, sales to related
parties, and certain other transactions, the full difference between the
fair market value of the stock and the purchase price will be treated as
compensation income). The excess, if any, of the amount realized upon
disposition over the fair market value at the time of the exercise of the
option will be treated as long-term capital gain if the shares have been
held for more than one year following the exercise of the option. In the
event of a disqualifying disposition, the Company may withhold income taxes
from the optionee's compensation with respect to the ordinary income
realized by the optionee as a result of the disqualifying disposition.
The exercise of an incentive stock option may subject an optionee to
alternative minimum tax liability. The excess of the fair market value of
the shares at the time an incentive stock option is exercised over the
purchase price of the shares is included in income for purposes of the
alternative minimum tax even though it is not included in taxable income for
purposes of determining the regular tax liability of an employee.
Consequently, an optionee may be obligated to pay alternative minimum tax in
the year he or she exercises an incentive stock option.
In general, there will be no federal income tax deductions allowed to the
Company upon the grant, exercise, or termination of an incentive stock
option. However, in the event an optionee sells or otherwise disposes of
stock received on the exercise of an incentive stock option in a
disqualifying disposition, the Company will be entitled to a deduction for
federal income tax purposes in an amount equal to the ordinary income, if
any, recognized by the optionee upon disposition of the shares, provided
that the deduction is not otherwise disallowed under the Code.
Nonqualified Stock Options
Nonqualified stock options granted under the Stock Plan do not qualify as
"incentive stock options" and will not qualify for any special tax benefits
to the optionee. An optionee generally will not recognize any taxable income
at the time he or she is granted a nonqualified stock option. However, upon
its exercise, the optionee will recognize ordinary income for federal tax
purposes measured by the excess of the then fair market value of the shares
over the exercise price. The income realized by the optionee will be subject
to income and other employee withholding taxes.
The optionee's basis for determination of gain or loss upon the subsequent
disposition of shares acquired upon the exercise of a nonqualified stock
option will be the amount paid for such shares plus any ordinary income
recognized as a result of the exercise of such option. Upon disposition of
any shares acquired pursuant to the exercise of a nonqualified stock option,
the difference between the sale price and the optionee's basis in the shares
will be treated as a capital gain or loss and generally will be
characterized as long-term capital gain or loss if the shares have been held
for more than one year at their disposition.
In general, there will be no federal income tax deduction allowed to the
Company upon the grant or termination of a nonqualified stock option or a
sale or disposition of the shares acquired upon the exercise of a
nonqualified stock option. However, upon the exercise of a nonqualified
stock option, the Company will be entitled to a deduction for federal income
tax purposes equal to the amount of ordinary income that an optionee is
required to recognize as a result of the exercise, provided that the
deduction is not otherwise disallowed under the Code.
Vote Required and Board Recommendation
The affirmative vote of holders of a majority of the shares of common stock
cast in person or by proxy at the meeting is required for approval of the
Stock Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF THE STOCK PLAN.
3. PROPOSAL FOR APPROVAL TO AMEND THE ARTICLES OF INCORPORATION WITH
AMENDMENT NO. 1 TO DELETE THE PROVISION THAT STATES THE NUMBER OF DIRECTORS
IN THE ARTICLES OF INCORPORATION
At the meeting, the shareholders will be requested to approve an amendment
("Amendment No. 1") of the Auto-Graphics, Inc. Articles of Incorporation
("Articles"). The Board recommends approval of Amendment No.1. The
original Articles were filed with the California Secretary of State on
August 15, 1960. The Articles provided that the board of directors shall
consist of three members. Amendment No. 1 provides for the deletion of the
provision stating the number of directors on the Company's board of
directors. The board of directors wish to provide for the numbers of
directors in the bylaws of the Company by means of a variable board of
directors of at least three (3) but not more than five (5) members, with the
exact number currently being three (3) directors until changed by the board
of directors or the shareholders.
If Amendment No. 1 is approved, it means that the Articles of Incorporation
does not have to be amended if the exact current number of directors is
increased to four (4) or five (5) directors. It would only require an
amendment to the bylaws with either board of director or shareholder
approval. In the event the exact current number of directors is increased
to five (5) members, the board of directors could appoint the two directors
to fill the two vacancies.
Amendment No. 1 is item number 2 in the amendment to the Articles which is
attached hereto as Exhibit "A" and shareholders should read it thoroughly.
The affirmative vote of holders of a majority of the shares of common stock
cast in person or by proxy at the meeting is required for approval of
Amendment No. 1 of the Articles.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF AMENDMENT NO. 1
TO THE ARTICLES OF INCORPORATION.
4. PROPOSAL FOR APPROVAL TO AMEND THE ARTICLES OF INCORPORATION WITH
AMENDMENT NO. 2 TO ADD A PROVISION TO ELIMINATE OR LIMIT THE PERSONAL
LIABILITY OF A DIRECTOR FOR MONEY DAMAGES
At the meeting, the shareholders will also be requested to approve an
amendment ("Amendment No. 2") of the Auto-Graphics, Inc. Articles of
Incorporation ("Articles"). The Board recommends approval of Amendment No.
2. When the original Articles were filed with the California Secretary of
State on August 15, 1960, the California corporation law at that time did
not permit a provision in the Articles to eliminate or limit the personal
liability of directors for money damages.
In 1987 the California Corporations Code was amended to permit the Articles
to contain this provision. Amendment No. 2 provides for addition of the
provision that would eliminate or limit the personal liability (except for
violation of federal securities laws or federal law generally) of directors
for money damages. This Amendment No. 2 is effective only for acts
committed after the amendment is approved by the required vote of the
shareholders and the board of directors of the Company.
However, this provision of eliminating or limiting the personal liability
for money damages for directors, does not extend to director acts that are:
(i) covered under Section 310 of the California Corporations Code (i.e.
contracts in which director has a material financial interest); (ii)
intentional misconduct; (iii) believed to be against the best interest of
the corporation or its shareholders; (iv) involved in the absence of good
faith; (v) transactions where director derived an improper benefit; (vi) a
reckless disregard for the director's duty to the corporation or its
shareholders in circumstances where the director was aware of a risk of
serious injury to the corporation or its shareholders; (vii) an abdication
of the director's duty to the corporation or its shareholders; (viii)
covered under Section 316 of the California Corporations Code (i.e.
corporate actions subjecting directors to joint and several liability).
The Board of directors believes that Amendment No. 2 is necessary in order
to attract qualified individuals to serve on the board.
Amendment No. 2 is item number 3 in the amendment to the Articles which is
attached hereto as Exhibit "A" and shareholders should read it thoroughly.
The affirmative vote of holders of a majority of the shares of common stock
cast in person or by proxy at the meeting is required for approval of
Amendment No. 2 of the Articles.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF AMENDMENT NO. 2
TO THE ARTICLES OF INCORPORATION.
5. PROPOSAL FOR APPROVAL TO AMEND THE BY-LAWS
At the meeting, the shareholders will be requested to approve the amendment
("Amendment") to the Auto-Graphics, Inc. Bylaws ("Bylaws"). The board
recommends approval of the Amendment to the Bylaws.
The Amendment to the Bylaws provides that the authorized number of directors
shall not be less than three (3) nor more than five (5), with the current
number to be three (3) directors until changed by an amendment adopted by
the board of directors or the shareholders.
The Amendment will permit the board of directors to increase the current
exact number of directors from three (3) members to five (5) members. This
will permit the board of directors to appoint two new directors to fill the
two vacancies. This will allow for ease in increasing the number of
directors on the Company's board of directors.
The Amendment to the Bylaws is attached hereto as Exhibit "B" and
shareholders should read it thoroughly.
The affirmative vote of holders of a majority of the shares of common stock
cast in person or by proxy at the meeting is required for approval of the
Amendment to the Bylaws.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF THE AMENDMENT
TO THE BYLAWS.
PROPOSALS OF SHAREHOLDERS FOR THE 2002 ANNUAL MEETING
To be considered for inclusion in next year's Proxy Statement, shareholder
proposals must be received at the Company's principal executive office no
later than the close of business on January 2, 2002.
For any proposal that is not submitted for inclusion in next year's proxy
statement (as described in the preceding paragraph) but is instead sought to
be presented directly at next year's annual meeting, Securities and Exchange
Commission rules permit management to vote proxies in its discretion if (a)
the Company receives notice of the proposal before the close of business on
January 2, 2002 and advises stockholders in next year's proxy statement
about the nature of the matter and how management intends to vote on such
matter, or (b) does not receive notice of the proposal prior to the close of
business on January 2, 2002.
Notices of intention to present proposal at the 2002 annual meeting should
be addressed to Secretary, Auto-Graphics, Inc., 3201 Temple Avenue, Pomona,
California 91768. The Company reserves the right to reject, rule out of
order, or take other appropriate action with respect to any proposal that
does not comply with these and other applicable requirements.
SOLICITATION OF PROXIES
The proxy accompanying this Proxy Statement is solicited by the Board of
directors of the Company. Proxies may be solicited by officers, directors,
and regular supervisory and executive employees of the Company, none of whom
will receive any additional compensation for their services. Such
solicitations may be made personally or by mail, facsimile, telephone,
telegraph, messenger, or via the Internet. The Company will pay persons
holding shares of common stock in their names or in the names of nominees,
but not owning such shares beneficially, such as brokerage houses, banks,
and other fiduciaries, for the expense of forwarding solicitation materials
to their principals. All of the costs of solicitation of proxies will be
paid by the Company.
VOTING PROCEDURES
Tabulation of Votes: Votes cast by proxy or in person at the meeting will
be tabulated by persons appointed as inspectors of election for the meeting.
Effect of an Abstention and Broker Non-Votes: A shareholder who abstains
from voting on any or all proposals will be included in the number of
shareholders present at the meeting for the purpose of determining the
presence of a quorum. Abstentions and broker non-votes will not be counted
either in favor of or against the election of the nominees or other
proposals. Brokers holding stock for the accounts of their clients who have
not been given specific voting instructions as to a matter by their clients
will vote their clients' proxies in their own discretion.
AUDITORS
Representatives of BDO Seidman, LLP, independent public auditors for the
Company for fiscal 2000 and the current fiscal year, will be present at the
Annual Meeting, will have an opportunity to make a statement, and will be
available to respond to appropriate questions.
FEES PAID TO BDO SEIDMAN, LLP
The following table shows the fees paid or accrued by the Company for the
audit and other services provided by BDO Seidman, LLP for the fiscal year
2000.
Audit Fees $85,331
Financial Information System Design and Implementation Fees -0-
All Other Fees -0-
-------
Total $85,331
The Board of directors has considered whether the provision of the non-audit
services listed as "All Other Fees" in the table above is compatible with
maintaining the independence of BDO Seidman LLP.
OTHER MATTERS
The Board of directors does not intend to bring any other business before
the meeting, and so far as is known to the Board, no matters are to be
brought before the meeting except as specified in the notice of the meeting.
As to any other business that may properly come before the meeting, it is
intended that proxies, in the form enclosed, will be voted in respect
thereof in accordance with the judgment of the persons voting such proxies.
If any of your shares of the Company are held in the name of a brokerage
firm, bank, nominee or other institution, only it can vote such shares and
only upon receipt of your specific instructions. Please sign, date and
promptly mail the WHITE proxy card in the envelope provided by your broker.
Remember, your shares cannot be voted unless you return a signed and
executed proxy card to your broker.
This Proxy Statement includes forward looking statements within the meaning
of section 27A of the Securities Act and section 21E of the Exchange Act.
If you have any questions or require any additional information or
assistance or wish a copy of the annual report, please call Daniel E.
Luebben, the Secretary of the Company, at 1-800-776-6939, or send request to
3201 Temple Avenue, Pomona, California 91768.
DATED: Pomona, California, November , 2001.
AUTO-GRAPHICS, INC.
ATTN: CHIEF FINANCIAL OFFICER
3201 TEMPLE AVENUE
POMONA, CALIFORNIA 91768
1-800-776-6939
This proxy when properly signed will be voted in the manner directed herein
by the undersigned shareholder.
IF NO DIRECTION IS PROVIDED, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3,
4, and 5.
Please mark you votes as indicated [X]
FOR WITHHOLD
election of vote
all from all
nominees nominees
1. Election of directors: 01 Robert S. Cope,
02 James R. Yarter, 03 Robert L. Lovett, [_] [_]
Except for nominee(s) listed below from whom vote is withheld:
_______________________________
FOR AGAINST ABSTAIN
2. Proposal to approve the 2001 Stock Plan [_] [_] [_]
3. Amendment No. 1 to Articles of Incorporation [_] [_] [_]
4. Amendment No. 2 to Articles of Incorporation [_] [_] [_]
5. Amendment to Bylaws. [_] [_] [_]
6. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting.
AUTO-GRAPHICS, INC.
P R O X Y
FOR ANNUAL MEETING OF THE
SHAREHOLDERS OF AUTO-GRAPHICS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints ROBERT S. COPE with full power of
substitution, as proxies to vote the shares which the undersigned is
entitled to vote at the Annual Meeting of Shareholders of the Company to be
held at 3201 Temple Avenue, Pomona, California 91768 on December 20, 2001 at
3:00 p.m. and at any adjournments thereof.
IMPORTANT - PLEASE SIGN AND RETURN PROMPTLY. When shares are held by joint
tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by an
authorized person.
Signature_____________________________________________ Dated , 2001
Signature if held jointly_____________________________ Dated: , 2001
YOUR VOTE IS IMPORTANT!
VOTE BY PROXY CARD
Mark, sign and date your proxy card and return it promptly in the enclosed
envelope.
THANK YOU FOR VOTING.