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 21, 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
January 15, 2002
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 January 15, 2002, 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 December
19, 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
January 3, 2002, 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 December 19, 2001.
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
ss/Daniel E. Luebben
-------------------------
Daniel E. Luebben
Secretary
Pomona, California
December , 2001
AUTO-GRAPHICS, INC.
3201 Temple Avenue
Pomona, California 91768
PROXY STATEMENT FOR ANNUAL MEETING
OF SHAREHOLDERS
To Be Held January 15, 2002
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 January 15, 2002, 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 December 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 December 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 President and
Chief Executive Officer of the following companies: Block Medical, a
division of Hillenbrand Industries, Inc., a company listed on the New
York Stock Exchange for the period 1994-1996; US Medical, a start-up
company for the period 1996-1997; and Gish Biomedical, Inc., a company
listed on NASDAQ for the period 1999-2000. 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 1,829,725(1) 36.6%
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) 2,613,827 52.3
(1) Includes the following shares held by family members and
relatives: 1,641,475 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
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. On or about November 26, 2001, Bretz filed an
amended cross-complaint. The Company is in the process of preparing and
filing their motion for the court to order Mr. Bretz a bond to cover
reasonable expenses of the Company.
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. The Board recommends approval of Amendment No.1. The
original Articles of Incorporation were filed with the California
Secretary of State on August 15, 1960. The Articles of Incorporation
currently provide that the board of directors shall consist of three
members as follows:
FOURTH: (a) the number of directors of the
corporation is three.
(b) the names and addresses of the persons who are
appointed to act as first directors are:
(1) Ira C. Cope, 1216 South Mayflower Avenue,
Monrovia, California.
(2) Opal T. Cope, 1216 South Mayflower
Avenue, Monrovia, California.
(3) Charles M. Cope, 915 West Olive Avenue,
Monrovia, California.
Amendment No. 1 provides for the deletion of the provision stating the
number of directors on the Company's board of directors as follows:
Article FOURTH of the Articles of Incorporation of this
corporation shall be stricken in its entirety from the
Articles of Incorporation.
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.
The positive effect of this amendment for the Company's
shareholders is fourfold: (i) Faster appointment to the board of
directors; (ii) A more diversified board of directors, because of more
members; and (iii) Cost savings because the board of directors can fill
any vacancies on the board of directors; and (iv) Members of the board of
directors who are experienced in directorship duties could be filling any
vacancies on the board of directors.
The negative effect of this amendment for the Company's
shareholders would be that shareholders will be allowing the Company's
board of directors to fill any vacancy that may occur on the board of
directors.
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 of Incorporation.
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. The Board recommends approval of Amendment No. 2. When
the original Articles of Incorporation 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 of Incorporation to
eliminate or limit the personal liability of directors for money damages.
In 1987 the California Corporations Code was amended to permit the
Articles of Incorporation 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. Amendment No.2 is as follows:
Article SIXTH as set forth herein shall be added to the Articles of
Incorporation as follows:
SIXTH: The liability (except for violation of any federal
securities laws or federal law generally) of the directors of
the corporation for monetary damages shall be eliminated to
the fullest extent permissible under California law. This
Article SIXTH is effective only for acts committed after this
amendment is approved by the required vote of the
shareholders and the board of directors of this corporation.
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 of
directors.
The positive effect of the adoption of Amendment No. 2 for Auto-
Graphics' shareholders is that it will attract qualified individuals to
serve on the board of directors. At the present time other California
corporations have this provision in their Articles of Incorporation and
Auto-Graphics is competing with these corporations for qualified
individuals to serve on their board of directors. Thus, this amendment
will allow Auto-Graphics to compete equally with other California
corporations to attract qualified individuals to serve on its board of
directors.
The board of directors does not believe there is any negative
effect to the adoption of Amendment No. 2 for the Auto-Graphics'
shareholders, because the benefit of attracting qualified individuals to
serve on the board of directors greatly outweighs any potential increased
costs to the Company.
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 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
board recommends approval of the Amendment to the Bylaws.
The current provision in the Company's Bylaws reads as follows:
Section 2. Number of Directors and Qualifications. The
authorized number of Directors of the corporation shall be not less than
five (5) nor more than eight (8) until changed by amendment of the
Articles of Incorporation or by a By-Law duly adopted by the shareholders
amending this section 2. The exact number of Directors of the
corporation shall be seven (7) until changed, within the limits specified
in the preceding sentence, by a By-Law or amendment thereof duly adopted
by the shareholders or by the Board of Directors amending this Section 2.
Provided, however, that if it is proposed to reduce the authorized
number of Directors below five (5), the vote or written consent of
shareholders holding more than eighty percent (80%) of the voting power
shall be necessary for such reduction.
Because the current Articles of Incorporation of Auto-Graphics
states that the number of directors is three, only an amendment to the
Articles of Incorporation can change the number of directors. Since,
there was never an amendment to the Articles of Incorporation to change
number of directors, the current Section 2 of the Bylaws is erroneous and
has no force or effect.
Previously, in Item No. 3 of this Proxy Statement, it was
explained that the Articles of Incorporation are being amended to remove
the provision for the stated number of directors, so that the Bylaws can
provide for the number of directors. The Amendment to the Bylaws will
read as follow:
Section 2. NUMBER OF DIRECTORS AND QUALIFICATION tc \l2 "Section
2. NUMBER OF DIRECTORS AND QUALIFICATION . The authorized number of
directors shall be not less than three (3) nor more than five (5) until
changed by a duly adopted amendment to the articles of incorporation or
by an amendment to this bylaw adopted by the vote or written consent of
holders of a majority of the outstanding shares entitled to vote. The
exact number of directors shall be fixed, within the limits specified, by
amendment of the next sentence duly adopted either by the Board or the
shareholders. The exact number of directors shall be three (3) until
changed as provided in this Section 2.
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.
Auto-Graphics' board of directors does not have a schedule for adopting
an amendment to expand the board to five (5) members nor is there a
schedule to submit the amendment to the shareholders.
As stated earlier, under Item No. 3 of this Proxy Statement, the
positive effect of this amendment for the Company's shareholders is
fourfold: (i) Faster appointment to the board of directors; (ii) A more
diversified board of directors, because of more members; and (iii) Cost
savings because the board of directors can fill any vacancies on the
board of directors; and (iv) Members of the board of directors who are
experienced in directorship duties could be filling any vacancies on the
board of directors.
The negative effect of this amendment for the Company's
shareholders would be that shareholders will be allowing the Company's
board of directors to fill any vacancy that may occur on the board of
directors.
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 31, 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 31, 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 31, 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
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, December , 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 January 15,
2002 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.
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A440/0000(GEN)/Proxy/JAN152002PROXY.DOC