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 February 15, 2002 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
February 27, 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 February 27, 2002, at 3:00 p.m. for the following purposes:
1. To elect directors.
2. To approve the adoption of the 2002 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 consider one shareholder proposal described in the
accompanying Proxy Statement.
7. To transact such other business as may properly come
before the meeting.
Only shareholders of record at the close of business on December
31, 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 21, 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 31, 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
February , 2002
AUTO-GRAPHICS, INC.
3201 Temple Avenue
Pomona, California 91768
PROXY STATEMENT FOR ANNUAL MEETING
OF SHAREHOLDERS
To Be Held February 27, 2002
GENERAL INFORMATION
This Proxy Statement, which will be first mailed to shareholders on
or about February 15, 2002, 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 February 27, 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 31,
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 31, 2001, there were 4,997,234 shares of Common Stock
outstanding.
BACKGROUND AND CHRONOLOGY OF ABANDONED PROXY CONTEST
On or about September 5, 2001 Corey M. Patick, as Chairman of the Special
Shareholders Committee ("Committee"), filed a preliminary proxy statement on
behalf of the Committee.
The Committee stated in its proxy statement that its purposes were for
the Company to address the Committee's concerns regarding: (1) there having
been no annual meeting since 1999; (2) potential "conflict of interest" over
the Company and Robert S. Cope as the controlling owner and managing general
partner of the 664 Company, which California limited partnership owns and
leases to the Company its facility in Pomona, California which lease has now
expired; and (3) questions and claims regarding the current Board of
Directors.
The board of directors believes all of the concerns raised by the Committee
have been or are being addressed in the following manner: (1) an annual
meeting will be held February 27, 2002; (2) the board of directors is
reviewing a proposal for significantly reduced space at rental rate and
terms identical to the two other non-affiliated tenants that occupy the
Company's facility and any new lease will be submitted for approval of
the disinterested members of Auto-Graphics' board of directors; and
(3) the board of directors has proposed a slate of directors that is
capable of working together to deal with the problems of the Company.
The Articles of Incorporation currently provide for the Company to have a
three member board of directors. The two longstanding members are Robert S.
Cope (37 years) and Robert H. Bretz (13 years). The third director, Douglas
K. Bisch resigned from the board of directors in 1997. Mr. James R. Yarter
joined the board of directors on June 21, 2001 after Mr. Robert S. Cope
solicited nine shareholders to obtain a majority of the shareholders to
consent to Mr. Yarter's appointment. This occurred after Messrs. Cope and
Bretz could not agree to the appointment of a third director. Although, Mr.
Robert H. Bretz has disputed Mr. Yarter's appointment, the Company's legal
counsel responded to Mr. Bretz's objections and Mr. Yarter has served on the
board of directors since his election on June 21, 2001.
Mr. Robert S. Cope met with the Committee on September 21, 2001 and
September 23, 2001 at which time Mr. Cope agreed to support an expansion of
the board to five directors, four of which would be independent but would
not include Mr. Bretz. The board of directors will seek to expand the
Company's board of directors to five members if its resolution amending
the articles of incorporation and bylaws are approved. At the present
time the board of directors does not have a schedule for adopting an
amendment to expand the board to five members nor is there a schedule to
submit the amendment for approval to the shareholders. On or about October
9, 2001, Mr. Patick informed the U.S. Securities and Exchange Commission
that the Committee was abandoning its solicitation of proxies.
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 Other Underlying All
Other
Principal Position Year Salary Bonus Compensation Options(#)
Compensation
------------------ ---- -------- ----- ------------ ----------- ------
------
Robert S. Cope 2000 $137,000 -0- $43,391 -0- -
0-
Chairman of the 1999 156,000 -0- 32,708 -0- -
0-
Board (1) 1998 133,000 -0- 31,497 -0- -
0-
Michael .K. Skiles 2000 $102,000 -0- -0- -0- -
0-
President
Corey M. Patick EVP 2000 $145,000 -0- -0- -0- -
0-
Daniel E. Luebben CFO 2000 $108,000 -0- -0- -0- -
0-
1999 93,000 -0- -0- -0- -
0-
1998 100,000 -0- -0- -0- -
0-
William J. Kliss COO 2000 $ 69,000 -0- -0- -0- -
0-
1999 138,000 -0- -0- -0- -
0-
1998 138,000 -0- -0- -0- -
0-
(1) The Other Annual Compensation amounts disclosed for Mr. Cope includes
$508 each year for disability insurance premiums and $7,674, $7,160, and
$6,541 for life insurance premiums for the years 2000, 1999, and 1998,
respectively; $21,706, $13,339, and $13,003 for Company vehicle lease
payments and operation cost for the years 2000, 1999, and 1998, respectively;
$13,503, $11,701, and $11,445 for club dues and costs for the years 2000,
1999, and 1998, respectively.
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 shares 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" for the sole benefit of Mr.
Bretz that requested personal representations, warranties and assurances
from Messrs. Cope, Skiles and Ferguson regarding the accuracy and
completeness of the Company's financial statements. 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.
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 set for hearing on November
14, 2001, in response, Mr. Bretz filed no opposition and offered to amend
his cross complaint. 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 its motion for the
court to order Mr. Bretz to furnish a bond to cover reasonable expenses of
the Company. The individuals are also in the process of preparing and filing
their motions with the court.
Mr. Bretz filed a complaint on December 10, 2001, in Los Angeles Superior
Court Case No BC263256, against Robert S. Cope, Daniel E. Luebben, James R.
Yarter, and Craig O. Dobler, Esq. and named Auto-Graphics, as a nominal
defendant to enforce director's inspection/copying rights under California
Corporations Code Section 1602. Messrs. Cope, Luebben, Yarter, Dobler and
Auto-Graphics have filed a demurrer to the complaint.
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. The
Company estimates that expenses during the fourth quarter of 2001 were
reduced by approximately $500,000.
Section 16(a) Beneficial Ownership Reporting Compliance
Robert H. Bretz was late in filing form 4 for the purchase of 240,000
warrants from Corey M. Patick to purchase 240,000 shares and also in the
acquisition of the 240,000 shares. Further, Mr. Bretz has not provided
the Company with a copy of the form 4 for the sale of 120,000 shares to
Mr. Patick in November of 2001. Robert S. Cope was late in filing form 4
for the purchase of 30,000 shares.
2. PROPOSAL FOR APPROVAL OF THE 2002 STOCK PLAN
At the Meeting, the shareholders will be requested to approve the
Auto-Graphics' 2002 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 2002 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.
Agreement to Issue Option
In addition to the Company's general intention to issue incentive stock
options and non-qualified stock options to its employees, directors and
consultants, there exists an obligation to grant 11,250 incentive
stock options to Eric A. Jung and 15,000 incentive stock options to Daniel
E. Luebben arising from the termination of a prior stock option plan.
NEW PLAN BENEFITS TABLE
2002 STOCK PLAN
Name and Principal Position Dollar Value ($)(1) Number of Units
--------------------------- ------------------- ---------------
Robert S. Cope -0- -0-
President and
Chairman of the Board
Daniel E. Luebben 7,050 15,000
CFO and Secretary
James R. Yarter -0- -0-
Director
All Current Executive Officers 7,050 15,000
All Current Directors
who are not Executive Officers -0- -0-
All Employees
who are not Executive Officers 5,288 11,250
(1) Dollar value is computed on the basis of the closing price of the
Company stock on the Over-the-Counter Bulletin Board on January 18, 2002.
Actual dollar value will be computed on the arithmetic mean between asked
and the bid prices on the closing of the market of the Company stock on
the Over-the-Counter Bulletin Board on the date of grant of the incentive
stock option.
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.
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 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.
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
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 TO STATE THE NUMBER
OF DIRECTORS IN THE BYLAWS.
At the meeting, the shareholders will be requested to approve an
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 this 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:
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.
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 Amendment to the Bylaws.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF THIS
AMENDMENT TO THE BYLAWS.
6. SHAREHOLDER PROPOSAL.
Paul Shepherd, 2951 East Valley Road, Montecito, California 93108, phone
(805) 969-7370, has notified the Company that he intends to submit the
following proposal at this year's annual meeting:
Mr. Shepherd has proposed the following amendment to the Company's By-Laws:
RESOLVED, that the Company's By-laws, Article V, Section 5, be and is hereby
amended by the shareholders of the Company (the "Amendment") to retain
Section 5 as it currently appears but to add immediately following existing
Section 5 "CONTRACTS, ETC." the following new Section 5.1. "RELATED PARTY
TRANSACTIONS, CONTRACTS" to read as follows (the "Amendment"):
"Section 5.1 RELATED PARTY TRANSACTIONS, CONTRACTS. Any contract or
transaction between the Company and any director of the Company and/or any
company or other entity in which any such director or any member of such
director's family holds any interest (herein "related party") shall first be
submitted for review, approval and authorization in good faith (following
full disclosure of all relevant facts and circumstances as to such proposed
transaction and/or contract including the director's interest therein) by
the shareholders of the Company with the shares owned by the interested
director not be entitled to vote thereon, or by a vote of the board of
directors sufficient without counting the vote of the interested director,
as being in the Company's just and reasonable to the Company. In no event
shall any such "related party" transaction or contract be entered into
and/or performed by the Company without the prior formal approval of the
Company's shareholders or board of directors as provided for herein.
Notwithstanding any contrary provision in these By-Laws, this section of the
By-Laws shall only be amended by a majority vote (excluding shares owned by
the interested shareholder) of shares entitled to vote at any annual meeting
of shareholders as provided for in these By-Laws."
Supporting Statement.
Mr. Shepherd recommends to the shareholders of the Company for the adoption
of the proposal at the Company's 2001 Annual Meeting of Shareholders to
provide that all transactions and contracts by and between the Company and
any such "related party" are first reviewed, approved and authorized by the
disinterested shareholders or disinterested directors are just and reasonable
to the Company. During the last ten years, the Company has entered into a
lease with the 664 Company, a California partnership ("The 664 Company") in
which Mr. Cope is the managing general partner and which owns the land and
building in Pomona, California leased by the Company as its corporate office
and production facility. Total payments by Auto-Graphics to The 664 Company
in respect of such lease during the last ten (10) years approximated
$4,500,000, including pro rata share of operating expenses.
Statement Against Proposal.
The Board recommends a vote against the shareholder proposal. The lease
with The 664 Company ("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 Auto-Graphics to reduce
its space leased by approximately 10,000 square feet. The Lease Options
were exercised by Auto-Graphics without any further approvals of the
disinterested members of the board of directors. Mr. Bretz, as the Company's
general counsel at the time, did not advise Auto-Graphics that any such
approval might be required. The Lease that Mr. Shepherd infers 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 Auto-Graphics' 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
Auto-Graphics 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 Auto-Graphics to holdover at
its current rental rate until March 31, 2002 so as to allow Auto-Graphics
to assess its space requirements.
The 664 Company has proposed that Auto-Graphics 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 than currently leased. Any new lease will be submitted for approval
of the disinterested members of Auto-Graphics' board of directors pursuant
to California Corporations Code Section 310.
California Corporations Code Section 310 places significant restrictions
on contracts and transactions between a company and any of its directors
or with an entity in which any of its directors have a material financial
interest. Section 310(a) of the California Corporation Code provides as
follows:
A contract or transaction between Auto-Graphics and one of its directors or
with an entity in which one of its directors has a material financial
interest is valid, if the contract is:
(1) Approved by the disinterested shareholders ("Shareholder Approval");
or
(2) Approved by the disinterested board of directors and the contract or
transaction is just and reasonable as to Auto-Graphics ("Director Approval");
or
(3) The contract or transaction is just and reasonable as to Auto-
Graphics ("Just and Reasonable Approval").
Thus, if one of the three procedures is followed, then the related party
transaction is valid and binding on the parties.
Also, note that if a disinterested Board of Directors approved the lease
with The 664 Company, the lease must also be just and reasonable as to Auto-
Graphics for the lease to be valid and binding on all parties.
Auto-Graphics is bound by the California Corporations Code to follow Section
310 and thus all of a shareholder's concerns about related party transactions
are already covered by Section 310 of the California Corporations Code in
that any related party transactions involving Director Approval would be
subject to a Just and Reasonable determination.
However, the shareholder proposal would eliminate the Just and Reasonable
Approval procedure. Thus, the shareholder proposal will not allow Auto-
Graphics to avail itself of the Just and Reasonable Approval procedure when
all other corporations in California can do so. Auto-Graphics' objective is
to return Auto-Graphics to profitability. The shareholder proposal does not
cut costs, and if shareholder approval is required for a related party
transaction, it can increase costs when compared to the costs of adhering to
the Just and Reasonable Approval procedure. To burden Auto-Graphics with
such a time consuming and costly procedure would not seem to foster the
objective of restoring profitability. However, Auto-Graphics is going to
submit the 664 Lease to the disinterested board members for their approval
as stated in this Proxy Statement.
The Shareholder's proposal differs from California Corporations Code Section
310 on two major points. First, the related party contract must be
submitted prior to entry into the contract to the disinterested shareholders
or to the disinterested directors for their "review, approval and
authorization". Section 310 does not require prior approval of a related
party transaction.
Second, Section 310 of the California Corporations Code allows for the
enforceability of such related party contracts if the party asserting the
validity of the contract is able to prove that the contract is just and
reasonable to Auto-Graphics. The Shareholder's proposal does not allow for
this approval procedure. Therefore any related party contract not
"reviewed, approved and authorized" in advance by the disinterested
shareholders or the disinterested directors could not be entered into by
Auto-Graphics even though the contract is just and reasonable to Auto-
Graphics and allowed by Section 310 of the California Corporations Code.
Further, under California Corporations Code Section 310, Auto-Graphics has
the right to assert the validity of a related party contract if it proves
that the contract is just and reasonable to Auto-Graphics. Therefore, a
related party contract that is very favorable to Auto-Graphics, can be
asserted by Auto-Graphics to be valid and binding on all parties. Under
the shareholder proposal, Auto-Graphics could not do so, and, in fact, it
couldn't even enter into the contract.
The board of directors believe that California Corporations Code Section
310 already greatly protects the shareholders of the Company.
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
proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE SHAREHOLDER PROPOSAL.
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 March 15, 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 March 15, 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 March 15, 2002.
Notices of intention to present proposals 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 $73,140
Financial Information System Design and Implementation Fees -0-
All Other Fees 21,243
-------
Total $94,383
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, February , 2002.
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, 5, AND AGAINST PROPOSAL 6.
Please mark your 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 2002 Stock Plan [_] [_] [_]
3. Proposal to Approve Amendment No. 1
to Articles of Incorporation [_] [_] [_]
4. Proposal to Approve Amendment No. 2
to Articles of Incorporation [_] [_] [_]
5. Proposal to Approve an Amendment to
the Bylaws to state the number of
directors in the Bylaws [_] [_] [_]
6. Shareholder Proposal [_] [_] [_]
(The Board recommends a vote against
this proposal).
7. 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 February 27,
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: ____________
Signature if held jointly________________________ Dated: ____________
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.
FEB272002PROXY