FORM 10-K ANNUAL REPORT
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended April 30, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____________ to ______________
Commission file number: 2-33108
ACCESS CORPORATION
- ------------------
(Exact name of registrant as specified in its charter)
Ohio 31-0673364
__________ _____
State of Incorporation I. R. S. Employer Identification Number
4350 Glendale-Milford Road, Suite 250, Cincinnati, Ohio 45242-3700
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (513)786-8350
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (l) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and
(2) has been subject to the filing requirements for at
least the past 90 days. Yes X . No ___.
Indicate by check mark if disclosure of
delinquent fillers pursuant to Item 405 of Regulation
S-K ( 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this
Form 10-K. [ ] Inapplicable.
State the aggregate market value of the voting
stock held by non-affiliates of the registrant. The
aggregate market value shall be computed by reference
to the price at which the stock was sold, or the
average bid and asked prices of such stock, as of a
specified date within 60 days prior to the date of
filing. Because there is no established market for the
Common Stock of the Company, it is not possible to
determine the aggregate market value of such Common
Stock held by non-affiliates.
Indicate the number of shares outstanding of
each of the registrant's classes of common stock, as of
the close of the period covered by this report. Common
Stock, without par value: 4,865,559 shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The 1997 Annual Report to the shareholders of the
Company for the fiscal year ended April 30, 1997, is
incorporated herein by reference in Parts I and II to
the extent specified in such Parts.
PART I
ITEM 1. BUSINESS
The registrant (Access or the Company) was
incorporated under the laws of the State of Ohio on
November 18, 1963. Its executive offices are located at
4350 Glendale-Milford Road, Suite 250, Cincinnati, Ohio
45242-3700, and its telephone number is (513) 786-8350.
DESCRIPTION OF PRODUCTS AND SERVICES
Access, a Cincinnati-based company has two
business units: Hardware Service, which maintains and
installs components and systems, and Electronic
Document Management Systems (EDMS).
Founded over thirty years ago, Access has
designed systems for use by organizations throughout
the world. Some have been in continuous use for as
long as twenty years.
The Hardware Service business unit provides
hardware maintenance services for components and
systems. The Company is currently striving to grow its
third-party equipment and prepress maintenance
business. The Company is working with manufacturers
and distributors of high-value integrated equipment to
provide maintenance services for equipment manufactured
or sold by them. Access' EDMS business unit provides
software and professional services to assist its
customers in the design, configuration, installation
and maintenance of electronic document systems.
HARDWARE SERVICE BUSINESS
Access Hardware Service business unit
provides quality hardware service on a nationwide basis
to the prepress industry, owners of equipment
manufactured and sold by third parties, and the
Company"s installed base of EDMS customers. The
hardware service revenue from services for equipment
manufactured and sold by third parties grew by 12% in
fiscal 1997 over fiscal 1996. In April 1997, Access
acquired the assets of a company which provided
hardware services for the prepress industry within the
United States. At this time, the Company is
formalizing relationships with two major manufacturers
of prepress equipment to provide services for equipment
manufactured by them.
Third-party maintenance includes the support
of non-Access electronic and electromechanical
equipment such as card embossers, microfiche
duplicators, microfilm scanners, large drawing format
scanners, large format plotters, highly sophisticated
5-1/4" and 12" laser drives, optical jukebox systems,
and prepress equipment. Access has a number of
hardware manufacturers and vendors and Support Partners
that recommend Access as their nationwide service
provider.
Growth in maintenance of third-party
manufactured equipment is an Access strategic
objective. Access continues to pursue additional
third-party service opportunities with manufacturers
and distributors of other electronic and
electromechanical products. Access's key to success in
third-party maintenance is the ability to provide its
Support Partners with the benefits of having their own
national service company without having to build and
support the infrastructure of a nationwide service
organization. Access offers a 24 hour-a-day, toll-free
dispatch center; rapid on-site service response,
quality repairs and preventive maintenance for their
customers.
Access is qualified to meet the demands of
today's electronic prepress multi-vendor environment.
Access engineers are trained and cross-trained on a
wide range of imagesetters, scanners, networks/servers,
and software applications ensuring the resolution of a
service problem.
EDMS BUSINESS UNIT
Access Corporation is dedicated to enhancing
the quality of its customers' products by providing
software and professional services for their document
based processes. Access' early success in automating
the handling of document based information positioned
the Company to take a leadership role in the evolution
of computer technology in the specialized area of
imaging, document and workflow management. Access
provides document and workflow management in three
distinct markets: Discrete Manufacturing, Oil & Gas,
and Utilities. Access provides both software and
professional services to configure, install and
maintain electronic document management solutions.
Access' extensive history in sales and service of
document based retrieval technology has allowed the
Company to build an expertise in applying current state
of the art technologies to customers' document
management products.
The EDMS Business Unit experienced significant
growth in fiscal 1996, in terms of both revenues and
staffing. In the first quarter of fiscal 1996, Access
acquired CimSoft, Inc., a systems integrator servicing
a wide base of EDMS customers within the United States.
At the same time, Access also formalized a strategic
alliance with Cimage Enterprise Systems Ltd. (Cimage),
making Access the exclusive distribution and support
provider for Cimage products within North America.
These two business ventures positioned Access for rapid
growth through three changes: an increased customer
base, an additional leading edge software offering, and
additional personnel skilled in the sale and support of
EDMS applications. In addition to this new role as a
software reseller, Access continues to maintain
Document Management Software and still provides the
industry's only large format EDMS available on the IBM
AS/400 computer.
Access' EDMS software offerings fall into two
product areas: EDICS (Engineering Document Image
Control System) and the Cimage Document Manager System.
EDICS is primarily focused at providing Document Life
Cycle Management on the IBM AS/400 platform, while the
Cimage Document Management is focused on Document
Distribution applications using UNIX and Microsoft
Windows NT servers.
Both products utilize a powerful database
application for managing documents and related
information, including paper-based documents, A through
J-size drawings, Computer Aided Design (CAD) data,
company procedures and office correspondence. These
documents come from multiple sources in multiple
formats. The EDMS applications integrate all of them
into a single system which fully automates the revision
and distribution processes, and also provides flexible
tools for viewing, editing, and printing.
Access also provides professional services to
its customers. Access' industry specialization allows
it to apply its document system expertise to its
customer business problem in Document Management
Applications. While the various software modules are
the same at each customer, each implementation is
unique through the tailoring of the document
organizational structure, document-to-document
relationships, and user interface presentation.
Through Access' understanding of Document Management
requirements, customers have been able to achieve
industry compliance with regulatory agencies, become
ISO 9000 certified, and achieve system implementations
in extremely short time periods.
MARKETING
The Company generally markets its own services
and products in the United States. Marketing of
hardware maintenance services for third-party and
prepress equipment is conducted from Cincinnati, Ohio
by two senior sales managers, both of whom have run
service operations and worked with the Company's
Support Partners, manufacturers, and distributors to
grow Access' base of end-user customers.
The EDMS Marketing operations are conducted
from the Company's headquarters in Cincinnati, Ohio and
its branch office in Irvine, California. The Company
employs nine sales and marketing personnel in this
business unit.
Electrical Document Management Systems (EDMS),
as well as related computer systems, are produced and
configured only in response to firm orders. At the end
of fiscal years 1997 and 1996, EDMS backlog totaled
approximately $511,000 and $600,000, respectively. The
EDMS backlog at the end of fiscal 1997 is expected to
be delivered within fiscal 1998.
EDMS systems have been installed in 48 states,
Japan, Europe, Australia, Canada, Mexico, Jamaica,
Puerto Rico, the Middle East, China, and the former
Soviet Union. Sales in and outside the United States
are handled predominantly on a direct basis. There is
no recurring geographic market concentration with
respect to the sales of Access systems in the United
States.
Aggregate sales to international customers
represented 1% of the Company's annual sales in fiscal
1997. In fiscal year 1997, no domestic distributors
were employed.
EDMS' primary marketing focus is the sale of
the Electronic Document Management System products to
manufacturers, information processors, utilities and
other users of technical documentation.
No single customer accounts for a significant
percentage of the Company's revenues on a continuing
basis. Net sales to the utilities industry were 12.4%
of fiscal 1997 revenues and 33.4% of fiscal 1996
revenues; net sales to the various agencies of the
federal government represented 5.7% of fiscal 1997
revenues and 10.9% of fiscal 1996 revenues, (these
contracts could have been canceled at the election of
the government); net sales to the manufacturing
industry were 17.4% of fiscal 1997 revenues and 1.5% of
fiscal 1996 revenues; and net sales to the aerospace
industry were 22% of fiscal 1997 revenues and 14.9% of
fiscal 1996 revenues. See Note 7 of Notes to Financial
Statements included on page 21 of the 1997 Annual
Report to Shareholders of the Company, which
information on such page is filed as part of this
Annual Report on Form 10-K and incorporated by
reference herein.
COMPETITION
Increases in Electronic Document Management
Systems (EDMS) competition continue to push system
prices down to historically unprecedented low levels.
The highly publicized changes within IBM have inhibited
the growth of the Company's relationship with that
organization. IBM discontinued many partner programs
which previously helped in marketing the Company's
product.
The Company has experienced competition from
companies such as Altras, Documentum, and Novasoft in
the EDMS market.
There are few companies, like Access, in the
fragmented market of Hardware Service, which are small
and service on a national basis. There are a number of
large companies such as Decision One, IBM, and Tab in
this market.
PURCHASING AND PRODUCTION
The majority of the EDMS software is supplied
by Cimage. The EDMS hardware and some miscellaneous
software and supplies are purchased by the Company from
a number of suppliers. In the case of certain
materials, the Company employs a single source of
supply, although alternative sources are available. The
Company integrates and installs the EDMS hardware and
software.
PATENTS
At the current time, technology utilized in
the micrographic storage and retrieval unit and related
products sold by the Company are protected by three
unexpired United States patents owned by the Company.
EDMS PRODUCT DEVELOPMENT
Development to enhance the current technical
document management and distributions systems is in
process. In its development operations, the Company
currently employs approximately 10 persons with degrees
in engineering and related fields. Some of these
individuals are also involved in the delivery and
maintenance of systems or engaged in consulting with
respect to these systems. During fiscal 1997 and
fiscal 1996, the Company spent $577,197 and $922,036,
respectively, on these activities. See Note 5 of Notes
to Financial Statements included on page 20 of the 1997
Annual Report to shareholders of the Company, which
information on such page is filed as part of this
Annual Report on Form 10-K and incorporated by
reference herein.
EMPLOYEE RELATIONS
The Company employs approximately 67 persons,
all on a full-time basis and all of whom are non-union.
Approximately eleven employees are connected with
marketing activities, while the others are involved in
production, installation, service, product development,
and financial or administrative operations.
Standard hospitalization, prescription drug,
dental, life insurance, and disability protection are
provided for all full-time employees. The Company has
a 401(k) Plan and a Section 125 Plan. The Company
considers its employee relations to be good.
ITEM 2. PROPERTIES
The principal operations of the Company are
conducted in approximately 19,678 square feet of leased
plant and office space in Cincinnati, Ohio. The
Cincinnati property is occupied under a lease which
extends through May 1, 2000. The annual rental under
this lease is $166,000.
The Company also operates a sales office in
Irvine, California. The Irvine property is occupied
under a lease which extends through July 2, 1998. The
annual rent under this lease is $44,956.
The Company also operates an approximately
9600 square feet service depot, manufacturing and parts
activity facility in Hebron, Kentucky. This property
is occupied under a lease, effective July 1, 1997,
which extends to June 30, 2004. The annual rent under
this lease is $58,656.
The Company owns automatic, custom-made
machines used in the production of its proprietary
media and owns various standard tools and equipment
used in the production of Access products.
The capacity of the Company's Hardware Service
and EDMS facilities and equipment exceeds the current
requirements of the Company's operations.
The Company owns computer hardware and
software used for development, support, and
installation for its EDMS product.
The Cincinnati building occupied by the
Company and the fixtures and equipment therein are
modern, well maintained, in satisfactory operating
condition and adequately insured. The building is air-
conditioned.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material
pending legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Information with respect to the market for the
Company's Shares of Common Stock and related security
holder matters is set forth on page 21 of the 1997
Annual Report to the shareholders of the Company, which
information on such page is filed as part of this
Annual Report on Form 10-K and incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
Information with respect to selected financial
data of the Company is set forth on page 7 of the 1997
Annual Report to the shareholders of the Company, which
information on such page is filed as part of this
Annual Report on Form 10-K and incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Management's Discussion and Analysis of
Financial Condition and Results of Operations" is set
forth on pages 8 through 10 of the 1997 Annual Report
to the shareholders of the Company, which pages are
filed as part of this Annual Report on Form 10-K and
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is set
forth on pages 12 through 15 of the 1997 Annual Report
to the shareholders of the Company, which information
on such pages is filed as part of this Annual Report on
Form 10-K and incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors. Set forth below is certain
information regarding the directors of the Company,
which information has been obtained in part from the
records of the Company and in part from the Directors.
All Directors have been elected by the holders of the
Company's Common Stock. All Directors are elected
annually.
NEWTON D. BAKER, age 63. Mr. Baker has been
the Executive Vice President of the Company since
October 1986. He has been the Treasurer of the Company
since July 1970 and Assistant Secretary since June
1974. He has been a Director of the Company since
1988. Mr. Baker was appointed Secretary in November
1996.
KENT P. FRIEL, age 61. Mr. Friel has been
Chairman of the Board of the Company since April 1986.
Since June 1989 Mr. Friel has been President of
Schonberg Associates, Inc., which performs outplacement
services for organizations which may include the
Company. He was President and Chief Executive Officer
of the Company from February 1986 through May 1989. He
has been a Director of the Company since 1983.
ROBERT J. KALTHOFF, age 71. Dr. Kalthoff has
been Chairman and Chief Executive Officer of Kalthoff
International since January 1996, and was Chairman,
President and Treasurer from March 1990 to January
1995. Kalthoff International is an information service
and consulting firm for users and vendors in electronic
image information management industries. He has been a
Director of the Company since 1963.
DENNIS J. SULLIVAN, JR., age 65. Mr. Sullivan
is currently an Executive Counselor for Dan Pinger
Public Relations, Inc. Mr. Sullivan served as
Executive Vice President and Chief Financial Officer of
Cincinnati Bell, Inc. from 1987 to February 1993. Mr.
Sullivan is a director of Fifth Third Bancorp, Fifth
Third Bank, Associated Insurance, Anthem, Inc., and
Kalthoff International. He has been a Director of the
Company since 1990.
SCOTT D. WATKINS, age 48. Mr. Watkins has
been President of the Company and Chief Operating
Officer since April 1989, and Chief Executive Officer
since May 1989. Mr. Watkins is a Director of
Cincinnati State Community and Technical College. He
has been a Director of the Company since 1989.
JOHN W. WEIL, age 69. Dr. Weil has been
President of Weil Associates, Inc., which provides
consulting services to industrial and non-profit
organizations since January 1985. He is a director
of Weil Associates, Inc. He has been a Director of
the Company since 1985.
JAMES H. HARDIE, age 67. Mr. Hardie is, and
since 1965 has been, a partner in the law firm of Reed
Smith Shaw & McClay, Pittsburgh, Pennsylvania. That
firm performs and has performed certain legal services
from time to time for Oce and certain of its
subsidiaries since 1967. Mr. Hardie is also a Director
of Kiene Diesel Accessories, Inc., Respironics, Inc.,
and several U.S. subsidiaries of Oce N.V. Mr. Hardie
has been a Director of the Company since 1987.
The following person is being nominated as a
Director:
JAMES M. ANDERSON, age 55. Mr. Anderson has
been the President and Chief Executive Officer of
Children's Hospital, Cincinnati, Ohio, since November
1996. Mr. Anderson was a partner of the law firm of
Taft, Stettinius & Hollister from January 1982 to
October 1996. He is currently a Consultant to the
Access Board of Directors, was the Secretary from 1984
to 1996, and since November 1996, has received
consultation fees equal to the fees paid to Directors
as described below. Taft, Stettinius & Hollister has
served as general counsel for Access for many years.
(b) Executive Officers. Set forth below is
certain information regarding the Executive Officers of
the Company. All Executive Officers are elected
annually by the Board of Directors.
Name Age Position & Business Experience
Scott D. Watkins 48 President and Chief Operating
since April 1989, and Chief Executive
Officer since May 1989.
Newton D. Baker 63 Executive Vice Officer
President of the Company since October1986; Treasurer and
Assistant Secretary of the Company since
prior to 1982.
Kim Bollinger 39 Vice President of Customer Ser-
vices for the Company since May 1993;
Director of Systems Management from June
1992 to May 1993, and Manager of
Consulting Services from January 1990 to
June 1992.
Marc D. Baines 37 Vice President of Sales for the Company
since August 1995; Vice President, CimSoft
Inc. June 1995 to August 1995; Sales
Director, Cimage Corporation from March
1990 to May 1995.
Joseph Schneider 53 Vice President of Hardware Service for the
Company since March 1997; Branch
Manager, DecisionOne, April 1994 to March
1997. Vice President and General Manager,
May 1990 to November 1993, for the
Company.
Joseph Musgrave 39 Senior Vice President of Prepress Sales for
the Company since April 1997; President,
Graphic Systems Technology, Inc. ("GST")
from September 1985 to April 1997. GST
filed a voluntary petition for reorganiza-
tion under Article 11 of the Bankruptcy
Code in 1997. The petition was later
withdrawn and substantially all of the
assets of GST were purchased by the
Company from GST's secured creditor. None
of the proceeds of such sale were
received by Mr.Musgrave.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth for the fiscal
years ended April 30, 1997, 1996 and 1995, certain
information regarding cash compensation as well as
certain other compensation paid to or accrued for the
services rendered during such years to each of the
Executive Officers of the Company whose total salary and
bonus exceeded $100,000 in all capacities in which they served.
<TABLE>
I. SUMMARY COMPENSATION TABLE
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Long-Term Compensation
Annual Awards Payouts
Compensation
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities
Annual Restricted Underlying All
Compen- Stock Options/ LTIP Other
Fiscal Salary (1) Bonus(1) sation Award SARS Payouts Compen.
Name and Principal Position Year ($) ($) ($) ($) (#)(3) ($) ($)(4)
- -----------------------------------------------------------------------------------------------------------------------
Scott D. Watkins 1997 170,000.00 - - - - - 6,717.50
President and Chief Executive 1996 155,000.04 50,000.00 - - 200,000 - 7,103.88
Officer 1995 155,000.04 32,000.00 - - - - 6,717.50
Newton D. Baker 1997 125,000.00 - - - - - 4,000.00
Exec. Vice President,Treasurer 1996 115,009.09 25,000.00 - - 100,000 - 4,000.00
& Asst. Secretary 1995 115,009.09 18,000.00 - - - - 4,000.00
Kimberly A.Bollinger 1997 83,600.00 - - - - - -
Vice President 1996 82,500.00 28,000.00 - - - - -
Customer Services 1995 77,500.00 12,500.00 - - - - -
Marc D. Baines 1997 84,600.00 5,225.70 54,496.27(5) - - - -
Vice President 1996 68,726.68 - 71,818.07(5) - 50,000 - -
Sales 1995 - - - - - - -
<FN>
(1) These include amounts that would have been
payable, but were deferred pursuant to election of
an Executive Officer, such as through the
Company's 401(k) Savings Plan.
(2) No perquisites were provided or other personal
benefits paid to a named Executive Officer in
fiscal year 1997, 1996 or 1995 which exceeded the
lesser of $50,000 or 10% of the total annual
salary and bonus reported for such named Executive
Officer.
(3) These numbers represent options for shares of
Common Stock awarded pursuant to the Company's stock
option plans. See the next table titled, "Option/SAR
Exercises and Year-End Value Table" for more detailed
information on such options.
(4) Represents life insurance compensation.
(5) Represents commissions.
</FN>
</TABLE>
(a) Cash Compensation of Executive Officers
Compensation Committee Interlocks and Insider
Participation. The Board has established an Executive
Compensation Committee which considers and makes
recommendations to the Board of Directors concerning
the compensation of the executives of the Company.
During the fiscal year ended April 30, 1997, this
committee met one time and consisted of Messrs. Friel,
Hardie and Sullivan.
Neither Mr. Hardie nor Mr.
Sullivan was an officer or employee of the Company or
any of its subsidiaries in fiscal 1997 or any prior
year. As noted above, Mr. Friel, who is not an
employee of the Company, has been Chairman of the Board
of the Company since April 1986 and was President and
Chief Executive Officer of the Company from February
1986 through May 1989.
<TABLE>
II. OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth information with respect
to the named Executive Officers
concerning the exercise of options and/or SAR's during
fiscal year 1997 and unexercised
options and SAR's held at April 30, 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR, AND FY- END
OPTION/SAR VALUE
<CAPTION>
<S> <C> <C> <C> <C>
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
Shares Value at FY-End (#) at FY-End ($)
Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
- ---------------------------------------------------------------------
Scott D. Watkins 0 0 246,667/133,333 *
Newton D. Baker 0 0 163,333/66,667 *
Kimberly A. Bollinger 0 0 32,500/0 *
Marc D. Baines 0 0 16,667/33,333 *
<FN>
* Access Common Stock is not traded actively; therefore, there is no
established market value and the value of the Options/SARs is not
quantifiable.
</TABLE>
(b) Compensation of Directors. Each non-
employee director receives an annual fee of $6,000.
Any such person who is the Chairman, any member of the
Audit Committee, or a director who resides outside the
metropolitan Cincinnati area receives an additional
$2,000 annually for each position held. In addition,
each such director is reimbursed for expenses incurred
in connection with his attendance at any Board or
Committee meeting. (Mr. Hardie is to be compensated on
the same basis as the other non-employee directors
until the meeting.) Directors may be granted options
under one of the Company's Stock Option plans; however,
no options were granted in fiscal 1997.
Retention Agreements:
On August 24, 1994, the Company entered into
Executive Retention Agreements with each of Mr. Watkins
and Mr. Baker. These Agreements provide if during the
six months preceding or the 24 months following a
Change in Control (as defined therein), Mr. Watkins' or
Mr. Baker's employment is terminated by the Company
(other than for Cause or Disability) or by such
executive officer for Good Reason, such executive
officer shall be entitled to a severence payment equal
to twice his highest annual salary in the last five
years, continued insurance coverage and up to $25,000
for outplacement services. Change of Control is
defined to include a merger or other business
combination after which the existing shareholders of
the Company have less than 50% of the voting power, the
sale of all or substantially all of the assets of the
Company, the acquisition by, or commencement of a
tender offer by any person other than Oce or
Prudential, of or for 20% of the Company's voting
power, or a change in the majority of the Board of
Directors without approval of the existing directors.
Good Reason includes an adverse change in salary,
authority or benefits.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of July 12,
1997, the beneficial ownership of the Company's Common
Stock by (l) each person known to the Company to own
more than 5% of the outstanding shares of Common Stock,
(2) each Director, nominee for Director, and named
Executive Officer individually, and (3) all Directors,
nominees for Director, and Officers as a group. The
information in the table has been in part received from
the persons listed and in part taken from the records
of the Company.
Beneficial ownership of Common Stock of the
Company has been determined for this purpose in
accordance with Rule 13d-3 of the Securities and
Exchange Commission ("SEC"), under which a person is
deemed to be the beneficial owner of Common Stock if he
has or shares voting power or investment power in
respect of such Common Stock or has the right to
acquire such ownership within 60 days. Accordingly,
the amounts shown on the table represent beneficial
ownership for the purposes of compliance with SEC
reporting requirements, and do not necessarily bear on
the economic incidents of ownership of Common Stock.
Amount & Nature
Name and, with of Beneficial
Respect to 5% Ownership
Ownership, Percent of
Address Direct Indirect Common Stock
________________ _______ ________ _____________
Oce N.V. (1) 100 2,180,854 44.67%
St. Urbanusweg 43
5900 MA Venlo
The Netherlands
Kent P. Friel, 2,180,854 -- 44.67%
Dennis J. Sullivan, Jr.,
John W. Weil, and
Scott D. Watkins as
Voting Trustees (1)(2)
James M. Anderson 23,700 -- .49%
Newton D. Baker (2)(3) 954,103 -- 18.91%
Kimberly A. Bollinger 32,500 -- .66%
Marc D. Baines 16,667 -- .34%
Kent P. Friel (4) 10,742 -- .22%
James H. Hardie (5) -- -- --
Robert J. Kalthoff 133,564 58,181 3.93%
Dennis J.Sullivan,Jr. (4) 20,100 -- .41%
Scott D. Watkins (2)(3)(4) 1,054,877 -- 20.57%
John W. Weil (4) 15,000 -- .31%
All directors and 2,280,753 58,181 43.0%
officers as a group
(11 persons)(2)(3)(4)
(1) On April 27, 1992, Oce entered into the Voting
Trust Agreement appointing Kent P. Friel, Dennis J.
Sullivan, Jr., John W. Weil, and Scott D. Watkins (the
"Voting Trustees") as voting trustees for 2,180,854
shares. The Voting Trustees vote on matters relating
to the election of directors, including setting the
number of directors, in their discretion, except that
the Voting Trustees must vote for up to two nominees
for director designated by Oce in its discretion. Oce
retains the right to obtain the Voting Trustees' proxy
as to the voting of such shares with respect to all
issues not related to the election of directors. (See
"Certain Transactions-Agreements with Oce".) Oce
retains the right to dispose of such shares, subject to
certain restrictions in the Note Purchase Agreement.
As a result of these arrangements, Oce and the Voting
Trustees share beneficial ownership of such shares.
The Voting Trust created under the Voting
Trust Agreement has a term of 10 years, and Oce has
agreed to renew it for an additional term of 10 years.
The Voting Trust will terminate upon the sale of the
shares of Common Stock subject thereto, but only with
respect to those so sold and subject to the proviso
that Oce may not sell more than 50% of its shares
without consent of the Company, the closing of any
underwritten public offering of Common Stock as a
result of which not less than $10 million in aggregate
sales price to the public of Common Stock shall have
been sold in such offering plus any previously
underwritten public offering or the acquisition by any
person of more shares of Common Stock than are held by
Oce. Oce can also terminate the Voting Trust by notice
given at any time after October 3, 1995, but if Oce
does so, it may be required to make a tender offer on
specified terms for all shares of Common Stock
following the fiscal year in which the anniversary of
the giving of notice occurs.
Mr. Watkins is President and Chief Executive
Officer of the Company. Mr. Friel is Chairman of the
Board of Directors of the Company but is not an
employee of the Company. Messrs. Sullivan and Weil are
also non-employee directors of the Company. The Voting
Trustees have no current intention to change the
composition of the Board of Directors of the Company.
Except as set forth above, there are no
arrangements or understandings among Oce and the Voting
Trustees with respect to the election of directors or
other matters.
(2) The address of the Voting Trustees, Mr. Baker
and Mr. Watkins is: Access Corporation, 4350 Glendale-
Milford Road, Suite 250, Cincinnati, Ohio 45242.
(3) Includes 476,667 shares which all Directors
and Officers as a group have the right to acquire upon
the exercise of immediately exercisable stock options,
including 246,667 exercisable by Mr. Watkins, 163,333
exercisable by Mr. Baker, 32,500 exercisable by Ms.
Bollinger, and 16,667 exercisable by Mr. Baines.
(4) Does not include shares held by the Voting
Trustees in their capacity as such.
(5) Does not include shares held by Oce.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Oce holds 10,000 shares of 7% Class One Preferred Stock,
2,500 shares of 9% Class One Preferred Stock, and 2,500 shares of
variable rate Class One Preferred Stock.
Annual dividends on the Preferred Stock for
any fiscal year are cumulative to the extent of 50% of
the Company's net after-tax earnings, as defined, for
such year. At April 30, 1997, no Preferred Stock
dividends were accrued. Annually, beginning in 1995,
the Company is required to redeem the Preferred Stock
at a price of $100 per share plus accumulated dividends
in an amount equal to a specified portion of after-tax
earnings, as defined. Unless dividends on the Preferred
Stock are current, the Company may not declare a
dividend on, or repurchase any of, the Common Stock.
Under the Note Purchase Agreement, Oce agreed to
limitations on the voting and transfer of its stock
(including the transfer of such stock to a voting
trust, the trustees of which are four of the Company's
directors) and Oce was released from its obligation
under certain circumstances to make a tender offer for
the Company's common stock. As of April 30, 1997, the
Company had authorized and issued a total of 15,000
shares of Class One Preferred Stock. The Company was
not required to and has not redeemed any Class One
Preferred Stock in fiscal 1997.
Pursuant to the Note Purchase Agreement,
upon the conversion of the Class B Stock into Common
Stock on April 27, 1992, Oce, the Company and four
directors elected by the holders of Common Stock,
entered into the Voting Trust Agreement. 2,180,854
shares of Common Stock held by Oce were transferred to
Kent P. Friel, Scott D. Watkins, John W. Weil, and
Dennis J. Sullivan, Jr., as Voting Trustees, by Oce.
This Agreement is irrevocable for a period of ten
years, except for certain circumstances. (See Item
12.)
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND
REPORTS ON FORM 8-K
(a) (1) The following financial statements
for Access Corporation, included on pages 11
through 19 of the 1997 Annual Report to the
Shareholders of the Company, which pages are
filed as part of this Annual Report on Form
10-K and incorporated herein by reference:
(i) Independent Auditors' Report;
(ii) Balance sheets as of April 30, 1997
and April 30, 1996;
(iii) Statements of Operations for the
years ended April 30, 1997, April
30,1996 and April 30, 1995;
(iv) Statements of Capital Stock and
Other Stockholders' Equity for the
years ended April 30, 1997, April 30, 1996
and April 30, 1995;
(v) Statements of Cash Flows for
the years ended April 30, 1997,
April 30, 1996 and April 30, 1995;
and
(vi) Notes to Financial Statements.
(2) Exhibits: Refer to EXHIBIT INDEX on page X-l of this Annual Report on
Form 10-K.
(b) Reports on Form 8-K: None.
SUPPLEMENTAL INFORMATION TO BE FURNISHED
WITH REPORTS FILED PURSUANT TO SECTION 15(D)
The Company expects to furnish to its security
holders subsequent to the date of the filing of this
Form 10-K, its Annual Report to Shareholders, and Proxy
Statement and form of Proxy. The Company will furnish
four copies of such material to the Commission for its
information when it is mailed to security holders.
SIGNATURES
Pursuant to the requirements of the Section
15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on
its behalf by the undersigned, there unto duly
authorized, as of the 26th day of July, 1997.
ACCESS CORPORATION
/SCOTT D. WATKINS
_________________
Scott D. Watkins
President & Chief Executive Officer
Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the
registrant and in the capacities indicated as of the
26th day of July, 1997.
SCOTT D. WATKINS
____________________________ President & Chief
Executive Officer
Scott D. Watkins
NEWTON D. BAKER
____________________________ Executive Vice President
Newton D. Baker and Treasurer (Principal
Financial and Accounting
Officer), Director
/s/ Kent P. Friel* Chairman of the Board
____________________
Kent P. Friel
/s/ James H. Hardie* Director
____________________
James H. Hardie
/s/ Robert J. Kalthoff* Director
____________________
Robert J. Kalthoff
/s/ John W. Weil* Director
____________________
John W. Weil
/s/ Dennis J. Sullivan, Jr.* Director
____________________
Dennis J. Sullivan, Jr.
* Pursuant to Power of
Attorney
NEWTON D. BAKER
_____________________
Newton D. Baker
Attorney-In-Fact
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> APR-30-1997
<CASH> 1404708
<SECURITIES> 0
<RECEIVABLES> 2151829
<ALLOWANCES> 12000
<INVENTORY> 166625
<CURRENT-ASSETS> 3970524
<PP&E> 2528414
<DEPRECIATION> 2289920
<TOTAL-ASSETS> 5017591
<CURRENT-LIABILITIES> 1307054
<BONDS> 0
1500000
0
<COMMON> 488183
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1535292
<SALES> 6929353
<TOTAL-REVENUES> 6929353
<CGS> 5433071
<TOTAL-COSTS> 8067004
<OTHER-EXPENSES> (91844)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4925
<INCOME-PRETAX> (1050732)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1050732)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1050732)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> (.22)
</TABLE>
<TABLE>
ACCESS CORPORATION
CALCULATION OF NET EARNINGS (LOSS) PER COMMON SHARE
AND COMMON SHARE EQUIVALENTS
YEAR ENDED APRIL 30
<CAPTION>
-----------------------------------------------------
1993 1994 1995 1996 1997
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net earnings (loss) applicable to
Common Share and Common Share
Equivalents:
Net earnings (loss) Before
Cumulative Effect of change in
Accounting Principle ($182,731) ($615,239) $129,370 $205,021 (1,050,732)
Cumulative Effect as of May 1,1992
of a change in the Accounting for
income taxes, net of valuation
allowance of $2,220,000 $730,000
Preferred Dividend ($64,685) ($102,510)
Net earnings (loss) applicable to
Common Shares and Common
Share Equivalents After
Cumulative Effect and
Preferred Dividend $547,269 ($615,239) $64,685 $102,511 (1,050,732)
-------- ---------- ------- --------- -----------
Calculation of primary net earnings
(loss) per Common Share and
Common Share Equivalents:
Average number of Common Shares
and Common Share Equivalents
outstanding; 4,865,559 4,865,559 4,865,559 4,865,559 4,865,559
---------- ---------- --------- ---------- ----------
Average number of Common Shares
and Common Share Equivalents
outstanding; 4,865,559 4,865,559 4,865,559 4,865,559 4,865,559
---------- ---------- ---------- ---------- ----------
Primary net earnings (loss) per
Common Share and Common Share
Equivalent Before Cumulative
Effect of change in Accounting
Principle ($0.04) ($0.13) $0.01 $0.02 ($0.22)
Cumulative Effect of change in
Accounting Principle per
Common Shares and
Common Share Equivalents $0.15
Primary net earnings (loss) per Common
Share and Common Share Equivalent
After Cumulative Effect of change
in Accounting Principle $0.11 ($0.13) $0.01 $0.02 ($0.22)
</TABLE>
CONTENTS
Letter to Shareholders 1
Selected Financial Data 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Independent Auditors' Report 11
Statements of Operations 12
Statements of Capital Stock and Other Stockholder's Equity 13
Balance Sheets 14
Statements of Cash Flows 15
Notes to Financial Statements 16
Corporate Profile 23
ACCESS Directors, Officers and Shareholder Information 25
<PAGE>
<TABLE>
ACCESS CORPORATION
SELECTED FINANCIAL DATA
<CAPTION>
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED April 30, 1997 April 30, 1996 April 30 1995 April 30 1994 April 30 1993
Summary of Earnings (Loss) from Operations
Net Sales $ 6,929,353 $ 8,704,452 $ 6,041,782 $ 6,896,352 $ 7,020,074
Gross Profit 1,496,282 3,310,058 2,352,750 2,573,260 2,871,200
Gross Profit as percentage
of net sales 22% 38% 39% 37% 41%
Interest Expense 4,925 9,378 31,911 26,450 53,246
Net Earnings (Loss) from
Continuing Operations (1,050,732) 205,021 129,370 (551,376) (23,947)
Net Earnings (Loss) before
cumulative effect of
accounting change (1,050,732) 205,021 129,370 (615,239) (182,731)
Cumulative effect of
accounting change 730,000
Net Earnings (Loss) (1,050,732) 205,021 129,370 (615,239) 547,269
Preferred Dividend - 102,510 64,685 - -
Income(loss) applicable to
common shares $ (1,050,732) $ 102,511 $ 64,685 $ (615,239) $ 547,269
Average common and common
share equivalents
outstanding 4,865,559 4,865,559 4,865,559 4,865,559 4,865,559
Per Common Share Statistics
Net Earnings (Loss) from
Continuing Operations $ (0.22) $ 0.02 $ 0.01 $ (0.11) $ (0.00)
Net Earnings (Loss) before
cumulative effect of
accounting change (0.22) 0.02 0.01 (0.13) (0.04)
Cumulative effect of
accounting change 0.15
Net Earnings (Loss) $ (0.22) $ 0.02 $ 0.01 $ (0.13) $ 0.11
Balance Sheet Data
Working Capital $ 2,663,470 $ 2,925,217 $ 1,734,779 $ 695,922 $ 342,444
Working Capital Ratio 3.0:1 3.0:1 3.3:1 1.7:1 1.1:1
Total Assets 5,017,591 6,241,633 5,129,248 5,132,511 7,242,855
Mandatorily redeemable
preferred stock 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000
Capital Stock and Other
Stockholders' equity $1,535,292 $ 2,586,024 $ 2,483,512 $ 2,418,826 $ 3,035,419
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
NET REVENUES
(In thousands)
1997 Change 1996 Change 1995
Net Revenues $6,929 20% $8,704 44% $6,042
ACCESS Corporation has two primary lines of business. Originally, the
Company's service activities were limited to the support of its proprietary
products in mission critical environments. Through this support, it developed
an effective service organization that maintained electromechanical equipment
operating as part of a networked computer system. The Company is currently
building and growing this service maintenance by providing service for
equipment manufactured and sold by third parties. The Company is working
with manufacturers and distributors of high value equipment to provide
service both through these manufacturers and distributors and direct to
their customers. The Company services, on a nationwide basis, end users on
both maintenance contracts and a time and material basis. In April 1997,
through the acquisition of the assets of Graphic Systems Technology, Inc., a
company doing third party maintenance in the prepress industry, Access has
expanded into this market. The Company is also a leader in the Electronic
Document Management Systems (EDMS) software business. In this line of
business, the Company is the exclusive North American reseller of the Cimage
software which provides software solutions for its customers' technical
processes.
The fluctuations in the Company's revenues overall are primarily a
result of the changes in its EDMS operations. System sales from these
operations were $2,894,600, $3,800,800, and $1,275,000 in fiscal years 1997,
1996 and 1995, respectively. These sales represented 42%, 44% and 21% of
total revenues, respectively. The decrease between 1997 and 1996 sales was
the result in fiscal 1996 of a major customer ordering a very large non
cancelable software license which expires in fiscal 1998. The Company did
not have a similar major order in fiscal 1997.
The Company continues to have a stable base of revenue and gross
profits from its service operations. On April 11, 1997, the Company
acquired the assets of Graphic Systems Technology, Inc. At that time,
Access began to supply service to the prepress industry, which generated
$72,200 in revenue for the month of April 1997. Overall, service sales are
comprised of hardware and software support to the Company's installed base
of customers, the new prepress customers and third-party maintenance
contracts. Service sales were $4,034,800, $4,768,800 and $4,538,900 in
fiscal years 1997, 1996 and 1995, respectively. These sales made up 58%,
55% and 75% of total revenues in these fiscal years, respectively. The
increase in the percentage of total sales in fiscal 1997 reflects the
decrease in sales in the EDMS line of business. The Company is experiencing
a decrease in micrographic hardware service. These systems are slowly being
replaced with equipment using more current technology. The Company
expects this trend to continue. The Company has been substantially
replacing the decreased micrographic revenue with third party contracts for
maintenance of scanners, plotters, jukeboxes and similar high volume mission
critical equipment. It expects substantial growth in it's service business
as a result of entering the prepress market.
In fiscal year 1997 sales to the U.S. commercial market continued
to exceed those to the federal government and international markets. Sales
to the U.S. commercial market represented 90% of the total revenue in fiscal
1997, compared with 88% in fiscal 1996 and 78% in fiscal 1995. The federal
government accounted for 6% of total revenue in fiscal 1997, compared with
11% in 1996 and 18% in 1995. This reflects the Company's emphasis on
marketing to the commercial market. Sales to international markets
accounted for 1% of fiscal 1997 revenues, compared with 1% in 1996 and 4%
in 1995.
Gross Profits
(In Thousands) 1997 Change 1996 Change 1995
Gross Profits $1,496 55% $3,310 41% $2,353
Percentage of net revenues 22% 38% 39%
The above Gross Profits for 1997, 1996 and 1995 were net of
$1,068,900, $673,700 and $673,700 of amortization of computer software
costs, respectively. EDMS gross margins before amortization in fiscal 1997
were 44%, which was a decrease from fiscal 1996 level of 46% and an increase
from the fiscal 1995 level of 43%. EDMS gross margins after amortization in
fiscal 1997 were 7%, which was a decrease from the fiscal 1996 level of 28%
and an increase from fiscal 1995 level of (10%),respectively. While the
Company continues to maintain and support its AS/400 EDMS software product,
it does not believe that future revenues of this product reduced by the
estimated future costs, including maintenance and support, are sufficient to
absorb the amortization of the software costs previously capitalized.
Therefore, the Company accelerated the amortization of the remaining
unamortized cost of $732,000 in the third quarter of fiscal 1997. Service
gross margins of 32% decreased from fiscal 1996 and 1995 levels of 46% and
55%, respectively. This decrease in gross margin in fiscal 1997 is the
result of the reduction of the high gross margin micrographic hardware
service being replaced with low gross margin third party service.
Selling, general and administrative expenses were $2,368,800,
$2,433,400 and $1,528,500 for fiscal 1997, fiscal 1996 and fiscal 1995,
respectively. The primary contributor to the increase in expenses in fiscal
1996 was in personnel and related expenses. CimSoft Incorporated had a
sales office and personnel in Irvine, California, which the Company assumed
at the time of the acquisition of Cimsoft in fiscal 1996.
Engineering, Research and Development (R&D) expenditures were
incurred for maintaining and upgrading existing products. Engineering and
research and development expenses decreased from $611,300 in fiscal 1996 to
$265,100 in fiscal 1997. Fiscal 1997 operating expenses for R&D were 57%
lower than fiscal 1996 and 55% lower than fiscal 1995. In fiscal 1997
Cimage software development was provided by Cimage Enterprise Systems, Ltd.;
as a result the Company was not required to provide development.
The Net Loss Before Income Tax in fiscal 1997 of $1,050,700 compared
to a Net Profit Before Income Tax of $310,600 decreased $1,361,400 from that
of fiscal 1996. When excluding amortization for capitalized software, a
non-cash charge, in fiscal 1997, the Company generated $18,000 Net Profit
Before Income Tax compared to $984,300 in fiscal 1996. In fiscal 1996 the
Company received a major customer order for a very large noncancelable
software license which expires in fiscal 1998. The Company did not have a
similar major order in fiscal 1997. The company's gross margin decreased 16%
in fiscal 1997. The Company decreased operating expenses by $410,700 in
fiscal 1997 due to decreased selling expenses of $468,300 in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a cash balance of $1,404,700 and no bank borrowing
at April 30, 1997. There was a decrease of approximately $109,700 of cash
from operating activities in fiscal 1997. The Company did not utilize the
bank line of credit in either year.
Accounts receivable, excluding the Graphic Systems Technology Inc.'s
accounts receivable, decreased approximately $120,700 during fiscal 1997.
This decrease is the result of lower sales in the fourth quarter of fiscal
1997 compared to fiscal 1996.
Prepaid maintenance contracts at April 30, 1997 increased
approximately $66,200 from April 30, 1996. This increase reflected the
increase in annual prepaid maintenance for third party hardware service
customers.
The Company receives progress payments on some of its large EDMS
System orders based on predetermined events. Reported as current
liabilities, these progress payments totaled approximately $195,100 at
April 30, 1997, which represents a decrease of approximately $213,300 from
April 30, 1996.
Accrued royalties at April 30, 1997 increased approximately $228,700
from April 30, 1996. The increase in accrued royalties are basically a
royalty due Cimage Enterprise Systems Limited for $268,000 for a delivery in
April 1997.
Working capital on April 30, 1997 was $2,663,500, compared with
$2,925,200 on April 30, 1996. The Company has a loan agreement which
provides for a line of credit through April 7, 1998 (See Note 2 of the Notes
to the Financial Statements). The bank line of credit permits borrowing of
up to $400,000 at April 30, 1997, of which none was outstanding.
Revenues from maintenance services for products manufactured and
sold by its hardware service partners, as well as from the Company's
recurring service business, are expected to provide the cash flow required
to operate the Company.
The Company believes it is well positioned for the future. The
Company is a relatively small participant in the technically dynamic market
which is populated by large players like Microsoft and IBM, as well as many
middle and small size firms. In this fragmented market, a great many
companies are competing for each new customer order. The Company faces a
future filled with opportunities but also filled with a great many risks,
many of which are beyond its control.
<PAGE>
Independent Auditors' Report
Stockholders and Board of Directors:
We have audited the accompanying balance sheets of ACCESS Corporation
as of April 30, 1997 and 1996, and the related statements of operations, of
capital stock and other stockholders' equity and of cash flows for each of
the three years in the period ended April 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of ACCESS
Corporation as of April 30, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended
April 30, 1997, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Cincinnati, Ohio
May 29, 1997
<PAGE>
ACCESS CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED APRIL 30, 1997, 1996 AND 1995
1997 1996 1995
REVENUE:
System Sales $ 2,894,566 $ 3,800,795 $ 1,274,996
Service 4,034,787 4,903,657 4,766,786
----------- ------------ ------------
Total 6,929,353 8,704,452 6,041,782
COST:
System sales, exclusive of
amoritization shown
separately below 1,633,974 2,052,266 729,965
Service 2,730,175 2,668,424 2,285,363
----------- ------------ ------------
Total 4,364,149 4,720,690 3,015,328
GROSS PROFIT BEFORE
AMORTIZATION 2,565,204 3,983,762 3,026,454
AMORTIZATION OF COMPUTER
SOFTWARE COST (Note 1) 1,068,922 673,704 673,704
GROSS PROFIT 1,496,282 3,310,058 2,352,750
OPERATING EXPENSES:
Selling, general and
administrative 2,368,804 2,433,376 1,528,460
Engineering, research and
development 265,129 611,295 592,504
----------- ----------- ------------
OPERATING INCOME (LOSS) (1,137,651) 265,387 231,786
OTHER INCOME(EXPENSE) 91,844 54,612 (3,805)
INTEREST EXPENSE (4,925) (9,378) (31,911)
---------- ----------- ------------
EARNINGS (LOSS) BEFORE
INCOME TAXES (1,050,732) 310,621 196,070
INCOME TAXES (Note 6) - 105,600 66,700
---------- ------------ -----------
NET EARNINGS (LOSS) (1,050,732) 205,021 129,370
PREFERRED DIVIDEND - 102,510 64,685
------------ ------------ -----------
INCOME (LOSS) APPLICABLE TO
COMMON SHARES $ (1,050,732) $ 102,511 $ 64,685
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 4,865,559 4,865,559 4,865,559
PER COMMON SHARE AND COMMON
SHARE EQUIVALENT (Note 4):
Net earnings (loss) $ (0.22) $ 0.02 $ 0.01
See notes to financial statements.
<PAGE>
<TABLE>
ACCESS CORPORATION
STATEMENTS OF CAPITAL STOCK AND OTHER STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED APRIL 30, 1997, 1996 AND 1995
- -----------------------------------------------------------
Additional Retained
Treasury Common Class A Common Paid-in Earnings
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares Amount Shares Amount Shares Amount Capital (Deficit)
BALANCE, April 30, 1994 16,270 $(15,383) 3,453,257 $ 345,326 1,428,572 $ 142,857 $ 10,824,847 $ (8,878,819)
Class One Preferred Stock
dividends (64,685)
Net earnings 129,370
------ --------- ---------- -------- --------- --------- ----------- -----------
BALANCE, April 30, 1995 16,270 (15,383) 3,453,257 345,326 1,428,572 142,857 10,760,162 (8,749,449)
Class One Preferred Stock
dividends (102,510)
Conversion of Class A Common
Stock to Common Stock 1,428,572 142,857 (1,428,572) (142,857)
Net earnings 205,021
------ --------- ---------- -------- --------- --------- ----------- -----------
BALANCE, April 30, 1996 16,270 (15,383) 4,881,829 488,183 - - 10,657,652 (8,544,428)
Net loss (1,050,732)
------ --------- ---------- -------- --------- --------- ----------- -----------
BALANCE, April 30, 1997 16,270 $(15,383) 4,881,829 $488,183 - $ - $ 10,657,652 $ (9,595,160)
<FN>
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
ACCESS CORPORATION
<CAPTION>
<S> <C> <C> <C> <C> <C>
BALANCE SHEETS
APRIL 30, 1997 AND 1996
- ------------------------------
LIABILITIES AND CAPITAL STOCK AND
ASSETS 1997 1996 OTHER STOCKHOLDERS' EQUITY 1997 1996
CURRENT ASSETS: CURRENT LIABILITIES:
Cash and cash equivalents $ 1,404,708 $ 2,071,772 Accounts payable $291,339 $ 285,703
Accounts receivable, less Accrued salaries, wages and commissions 216,232 367,282
allowance for doubtful Accrued royalty 519,916 291,192
accounts of $12,000
in 1997 and $189,685 in
1996 (Note 2): 2,151,829 1,890,673 Accrued taxes 4,198 22,400
Inventories (Note 2): Accrued warranty expense 11,018 -
Raw materials and purchased
parts 96,673 64,553 Other accrued liabilities 69,206 49,385
Work-in-process 56,401 102,900 Advances from customers 195,145 408,460
Finished goods 13,551 21,057 Capital leases - 19,599
---------- --------- ---------- ----------
Total inventories 166,625 188,510 Total current liabilities 1,307,054 1,444,021
Prepaid expenses 135,362 106,283
Deferred income tax, net of PREPAID MAINTENANCE CONTRACTS 675,245 609,078
valuation allowance of
$300,000 (Note 6) 112,000 112,000
--------- ---------
TOTAL CURRENT ASSETS 3,970,524 4,369,238 MANDATORILY REDEEMABLE CLASS ONE
PREFERRED STOCK (Note 3) 1,500,000 1,500,000
EQUIPMENT AND LEASEHOLD Preferred Dividends - Accrued - 102,510
IMPROVEMENTS (Note 2):
Computer hardware
and software 1,533,592 1,449,310 CAPITAL STOCK AND OTHER
Machinery and equipment 503,337 503,337 STOCKHOLDERS' EQUITY (Notes 2,4):
Office and service equip 380,248 364,492 Capital Stock:
Leasehold improvements 13,405 13,405 Common Stock, no par value, authorized,
Tools, dies and fixtures 97,832 115,013 8,000,000 shares; issued and outstanding
--------- ---------- 4,881,829 in 1997 and 1996 488,183 488,183
Total 2,528,414 2,445,557
Less accumulated
depreciation 2,289,920 2,187,785 Additional paid-in capital 10,657,652 10,657,652
---------- ----------
Net 238,494 257,772 Deficit from April 1, 1985 (9,595,160) (8,544,428)
16,270 Common Stock shares in treasury,
COMPUTER SOFTWARE COSTS, net of at cost (15,383) (15,383)
accumulated amortization of
$3,368,518 in 1997 and Total capital stock and other
$2,299,595 in 1996 - 1.068,923 stockholders' equity 1,535,292 2,586,024
------------ ------------
GOODWILL (Note 10) 259,691 TOTAL $ 5,017,591 $6,241,633
DEFERRED INCOME TAX BENEFIT,
net of valuation allowance of
$2,649,018 in 1997 and
$2,134,000 in 1996 (Note 6) 548,882 545,700
---------- ----------
TOTAL $ 5,017,591 $ 6,241,633
<FN>
See notes to financial statements.
</TABLE>
<PAGE>
ACCESS CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED APRIL 30, 1997, 1996 AND 1995
- -------------------------------------------------
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $(1,050,732) $205,021 $129,370
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in) operating
activities:
Amortization 1,068,922 673,704 673,704
Depreciation 131,755 143,027 139,819
Deferred income taxes (3,182) 105,600 66,700
Loss (gain) on disposal of fixed assets (1,357) 1,111 7,028
Prepaid maintenance contracts 66,167 294,324 100,606
Change in assets and liabilities:
Accounts receivable (120,675) 162,968 (124,211)
Inventories 74,548 224,355 103,163
Prepaid expenses (16,520) (37,293) 37,672
Accounts payable 5,656 86,215 (62,481)
Accrued liabilities (279,702) 244,716 (54,023)
Accrued royalties 228,724 (33,299) -
Advances from customers (213,314) (448,994) 30,151
-------------------------------
Net cash provided by (used in) operating
activities (109,710) 1,621,455 1,047,498
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business, net of cash received (324,128) (148,629)
Capital additions (124,515) (166,010) (22,779)
Proceeds from disposal of fixed assets 13,397 6,267 2,156
-------------------------------
Net cash used in investing activities (435,246) (308,372) (20,623)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on bank line of credit (71,807)
Dividends on Class One Preferred Stock (102,510) (64,685)
Payments on capital leases (19,599) (60,112) (75,081)
-------------------------------
Net cash used in financing activities (122,109) (124,797) (146,888)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (667,065) 1,188,286 879,987
CASH AND CASH EQUIVALENTS, Beginning of year 2,071,773 883,487 3,500
-------------------------------
CASH AND CASH EQUIVALENTS, End of year $1,404,708 $2,071,773 $883,487
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest $ 3,400 $ 9,400 $ 31,900
Dividends declared but unpaid on Class One Preferred Stock totaled
$102,510 (1996) and $64,685 (1995)
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS ACCESS Corporation
For the years ended April 30, 1997, 1996 and 1995
NOTE 1: A Summary of Significant Accounting Policies
Nature of Business
The Company services hardware and software for its installed base of
customers and third parties. It also markets software for the electronic
storage, control and processing of technical documentation.
Revenue Recognition
Revenues from the sale of new systems are recognized upon shipment. If
there are services performed, revenue is recognized at the time of
customer acceptance.
Revenue from prepaid maintenance agreements is recognized ratably over
the life of the maintenance contracts.
Inventories
Inventories comprised of material, labor, and related overhead expenses
are stated at the lower of cost (first-in, first-out method) or market.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are recorded at cost and
depreciated over their estimated useful lives using the straight-line
method. Computer software purchased for internal use is depreciated over
two years or its useful life, whichever is less.
Computer Software Development Costs
Computer software development costs are recorded in accordance with
Statement of Financial Accounting Standards No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed.
Costs incurred up to the point of establishing technological feasibility
are expensed currently. Costs incurred after establishment of
technological feasibility were capitalized. Amortization of these
capitalized costs began in March 1993 when the products were released to
customers and were amortized over a period not to exceed five years.
Amortization expense was $673,704 and $673,704 for fiscal years 1996 and
1995, respectively.
While the Company continues to maintain and support its AS/400 EDMS
software product, it does not believe that future revenues of this
product reduced by the estimated future costs, including maintenance and
support, are sufficient to absorb the amortization of the software costs
previously capitalized. Therefore, the Company accelerated the
amortization of the remaining unamortized cost. In fiscal year 1997
the Company wrote off $1,068,923, which was the total that remained
unamortized.
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual amounts could differ from
those estimates.
Statement of Cash Flows
Cash and cash equivalents consist of cash on hand, cash on deposit, and
short-term investments with original maturities less than ninety days.
Product Warranties
Under its product warranty policy, the Company has agreed to replace
certain parts or provide remedial service during the designated warranty
period. Costs associated with these programs are determined on the basis
of estimated net future costs.
Stock-Based Compensation
The FASB issued Statement of Financial Accounting Standards No. 123-
Accounting for Stock-Based Compensation in October 1995. The standard
defines a fair-value based method of accounting for stock-based
compensation but permits compensation expense to continue to be measured
using the intrinsic value-based method previously used. The Company
intends to continue measuring compensation expense using the intrinsic
value-based method and under the provisions of the standard, which was
adopted in 1997.
Goodwill
In April 1997, the Company established Goodwill with the purchase of the
assets of Graphic Systems Technology, Inc. The Company will amortize this
cost over a ten year period.
Note 2: Bank Line of Credit
The Company's current line of credit agreement ($400,000 as of
April 30, 1997) extends through April 7, 1998. Borrowings under the
agreement bear interest at one percent over the prime rate, 8 1/2% at
April 30, 1997. Maximum availability is based upon the levels (as set
forth in the loan agreement) of eligible accounts receivable. To secure
any borrowing, the Company has pledged accounts receivable, inventories,
fixed assets, and general intangibles. The agreement contains
restrictive and other covenants which require the Company to maintain
certain levels of indebtedness to net worth, current ratio and cash flow
from operations. It also restricts new borrowings, capital expenditures,
and dividends on its capital stock.
1997 1996 1995
Maximum borrowings
during the year $ -0- $ -0- $ 127,354
Average outstanding balance
during the year $ -0- $ -0- $ 27,956
Weighted average
interest rate 9.1%
(determined on a monthly basis)
Note 3: Mandatorily Redeemable Preferred Stock and Notes Payable
On October 28, 1991, the Company entered into a Note Purchase Agreement
with Oce N.V. ("Oce"), which provided for borrowing by the Company of up
to $1.5 million to fund a major software development project. On
August 26, 1992, $1,000,000 of then outstanding notes were redeemed in
exchange for 10,000 shares of mandatorily redeemable Class One Preferred
Stock. In April 1993, the Company issued to Oce an additional 5,000
shares of mandatorily redeemable Class One Preferred Stock for $500,000.
The Class One Preferred Stock is divided into three series: 10,000
shares of 7% Class One Preferred Stock ($1,000,000); 2,500 shares of 9%
Class One Preferred Stock ($250,000), and 2,500 shares of variable rate
Class One Preferred Stock ($250,000). The variable rate Class One
Preferred Stock was issued at the rate of 9%. Dividends on the Class One
Preferred Stock for any fiscal year are cumulative only to the extent of
50% of the Company's net after-tax earnings, as defined, for such year.
Annually, beginning in 1995, the Company is required to redeem the
Class One Preferred Stock at $100 per share plus accumulated dividends in
an amount equal to a specified portion of after-tax earnings, as
defined. Unless dividends on the Class One Preferred Stock are current,
the Company may not declare a dividend on its common shares or redeem or
purchase any of its common shares. Under the Note Purchase Agreement,
Oce agreed to limitations on the voting and transfer of the Company's
stock (including the transfer of such stock to a voting trust, the
trustees of which are four of the Company's directors) and Oce was
released from its obligation under certain circumstances to make a tender
offer for the Company's common stock. As of April 30, 1997, the Company
had authorized and issued a total of 15,000 shares of Class One Preferred
Stock. The Company was not required to and has not redeemed any Class
One Preferred Stock in fiscal year 1997 or previously.
Note 4: Capital Stock
In 1992 the Company entered into a Voting Trust Agreement with Oce. The
Voting Trust Agreement required Oce to place the certificates for
1,904,763 of the Company's Common Stock, less 100 shares, into a voting
trust. The trustees of the trust are four directors of the Company.
Pursuant to the Voting Trust Agreement, the shares will be voted for
matters related to the election of directors in the discretion of the
voting trustees (except that such shares will be voted for up to two
director nominees designated by Oce) and on all other matters by Oce
pursuant to a proxy to be granted to it by the voting trustees.
The Voting Trust Agreement is irrevocable for a period of ten years and
may be renewed, at the option of Oce, for additional periods of not more
than ten years each. The Voting Trust Agreement will automatically
terminate:
* with respect to any such shares sold to a party unrelated to Oce
* upon the closing of any underwritten public offering of Common Stock
which results in not less than $10,000,000 in aggregate sales
price of Common Stock having been sold.
* upon the acquisition by any person of beneficial ownership of as
many or more shares of Common Stock as are owned by Oce.
Further, the Voting Trust Agreement may be terminated by notice by Oce
to the voting trustees at anytime after October 3, 1995.
If the Voting Trust Agreement is terminated by notice or is not renewed
on its tenth anniversary, Oce is required to make a tender offer for any
and all of the shares of Common Stock at a price per share not less than
that defined in the Note Purchase Agreement (Note 3) and calculated using
the Company's audited financial statements. If the calculated price per
share is less than zero, Oce is not required to make a tender offer.
If the Voting Trust Agreement is terminated by notice to the voting
trustees, the tender offer is required not later than six months after
the end of the fiscal year in which the first anniversary of the notice
affected the termination. If the agreement is not renewed, the tender
offer is required not later than six months after the end of that fiscal
year end.
Common Shares
Holders of Common Stock ,including the voting trustees, have one vote
per share. Actions by a majority of voting trustees constitute the act
of the voting trust. In fiscal year 1996, the Company's Class A Common
Stock was converted to Common Stock.
Earnings Per Share
The earnings (loss) per share computations are based on the weighted
average number of common shares outstanding during the year adjusted for
the effect of common share equivalents where dilutive. Fully diluted
earnings (loss) per share are not presented as the effect of the dilution
is less than 3% or is anti-dilutive for the years 1995 - 1997. The
Company is required to implement SFAS 128 Earnings Per Share, which was
issued February 1997, effective the third quarter of fiscal 1998. The
effect of implementing SFAS 128 is not expected to be material.
Stock Option Plans
During the year ended April 30, 1994, the Company adopted the 1993
incentive stock option plan covering 500,000 shares of its Common
Stock. The Company also amended the 1983, 1985 and 1991 plans to add
provisions providing that all outstanding stock options will become
exercisable upon the occurrence of a change of control or similar event.
Options may be granted under the 1991 and 1993 plans to officers and
key employees of the Company. Additionally, directors of the Company and
other persons in business relationships with the Company, such as
independent contractors and consultants, may be granted non-qualified
options under the 1991 plan. No further options may be granted under the
1983 and 1985 plans. Incentive stock options may be granted only to
Company employees.
The option price under the plans may not be less than the fair market
value of the Common Stock at the date of grant, as determined by the
Board of Directors, which administers the plans. All options granted
under the 1985 plan and any incentive stock options granted under the
1983, 1991 and 1993 plans may not be exercised prior to one year from
date of grant and expire ten years from the date of grant.
Changes in stock options were as follows:
Weighted
Number of Shares Average
Reserved Granted Exercise
Price
Balance, April 30, 1995 785,300 362,400 $ .72
Issued 350,000 .15
Canceled ( 2,400) ( 2,400) ( 5.25)
------- ---------- ------
Balance,April 30,1996 & 1997 779,900 710,000 $ .42
- -----------------------------------------------------------------------------
Options Outstanding and Exercisable at April 30, 1997:
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Number of Remaining Average Number Average
Range of Options Contractual Exercise of Options Exercise
Exercise Price Outstanding Life (Months) Price Exercisable Price
$.15 - $.50 575,000 70 $ .28 341,666 $ .38
$.51 - $1.00 135,000 36 $1.00 135,000 $1. 00
-------- --------
710,000 476,666
Had compensation cost for the Company's stock options been determined based
on the fair value at the grant dates for awards under the plan consistent
with the method of SFAS 123, the Company's net income (loss) and earnings
per share for 1997 and 1996 would have been the pro forma amounts indicated
below.
Pro Forma Net Income and Net Income Per Share
1997 1996
Net income (loss)
As reported ($1,050,732) $ 102,511
Pro forma ($1,050,732) $ 87,491
Net income (loss) per share
As reported ($.22) $.02
Pro forma ($.22) $.02
The fair value of the options was calculated utilizing the Black-Scholes
option-pricing model and the following key assumptions:
ASSUMPTIONS:
1997 1996
Risk -free interest rate 6.4% 6.4%
Dividend growth 0% 0%
Volatility 0% 0%
Expected Life (months) 70 70
Note 5: Engineering, Research and Development
Engineering, research and development costs for the years ended
April 30, 1997, 1996 and 1995 are as follows:
1997 1996 1995
Charged to specific customer orders $312,068 $380,741 $ 495,887
Charged directly to engineering,
research and development 265,129 611,295 592,504
--------------------------------------
Total cost of engineering, research and
development efforts $577,197 $922,036 $1,088,391
=====================================
Note 6: Income Taxes
The provision for income taxes (benefit) includes the following:
1997 1996 1995
Federal:
Deferred $(415,682) $105,600 $66,700
Currently payable (Refundable) 3,182 164,000 66,700
Tax benefit of net operating loss
carryforward (164,000) (66,700)
Valuation Allowance 412,500
----------------------------------------
Total $ 0 $105,600 $66,700
=======================================
Deferred income taxes reflect the net income tax effects of (a)
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes, and (b) net operating loss carryforwards. The
income tax effects of significant items comprising the Company's net
deferred income tax asset as of April 30, 1997 and 1996 are as follows:
1997 1996
Net operating loss carryforwards
Federal $3,173,700 $2,826,600
State 217,400 75,800
Temporary differences:
Customer Deposits -0- 67,500
Inventory capitalization 96,400 96,400
Other 122,400 131,100
----------- ----------
Total $3,609,900 $3,197,400
Less Valuation Allowance (2,949,000) (2,539,700)
----------- ----------
Net deferred income tax asset $ 660,900 $ 657,700
======== ========
The amounts and expiration dates for the Company's net operating loss
carryforwards for income tax return purposes are summarized as follows:
Year Ending April 30 Federal
2002 $1,301,400
2004 2,762,000
2005 3,027,000
2008 459,000
2009 803,000
2012 982,000
-------------
Total $9,334,400
========
Note 7: Revenues to Major Customers
On a continuing basis, no single customer accounts for a significant
percentage of the Company's net sales. However, net revenues to
customers in selected industries as a percent of total revenues are as
follows:
1997 1996 1995
Federal Government 5.7% 10.9% 18.4%
Aerospace 22.0% 14.9% 18.8%
Petroleum 9.3% 4.5% 4.9%
Computer 10.9% 10.5% 10.5%
Medical 2.9% 8.6% 7.2%
Manufacturing 17.4% 1.5% 12.4%
Utilities 12.4% 33.4% 4.6%
Accounts receivable from these customers at April 30, 1997 and
April 30, 1996 were $1,689,800 and $1,100,800, respectively.
Note 8: Lease Commitments
The Company leases office facilities and equipment under operating
leases. Rent expense was $351,259 (1997), $244,718 (1996), and $223,977
(1995) of which $111,485 (1997), $64,313 (1996) and $60,281 (1995), were
under short-term cancelable leases.
As of April 30, 1997, minimum annual payments under all non-cancelable
long-term operating lease agreements are: $211,740 (1998), $178,440
(1999), and $170,950 (2000).
Note 9: CimSoft Acquisition
On July 31, 1995, the Company acquired CimSoft Incorporated, which
started business in June 1995, for $257,500 in a business combination
which was accounted for using the purchase method. The results of
operations of the company include CimSoft from the date of acquisition.
Pro forma results of operations of CimSoft are not material. CimSoft was
a distributor of Cimage software and a Cimage service provider in North
America.
Note 10: Graphic Systems Technology Asset Purchase
On April 11, 1997, the Company purchased certain assets of Graphic
Systems Technology, Inc. from Star Bank for $463,000. The Company
simultaneously sold the assets related to the Chameleon product line to
Fong Brothers Printing for $138,900, resulting in a cash purchase price of
$324,100. The Company also incurred liabilities of approximately $130,000.
The purchase price was assigned to the assets purchased and liabilities
incurred based on an estimated fair value, which included goodwill of
approximately $259,691, which was recorded as part of the transaction.
The fair value of assets purchased is based on information currently
available and is subject to adjustment as additional information,
principally accounts receivable, is finalized. Pro forma results of
operations of Graphic Systems Technology, Inc. are not meaningful.
Graphic Systems Technology, Inc. was a third party service provider in the
prepress industry.
Note 11: Subsequent Event
On May 9, 1997 the Company executed a letter of intent to join Vision 21
in a Cincinnati-based venture that intends to acquire and operate
companies in the design automation, document management and technical
services fields throughout the United States. The Vision 21 venture is
contingent upon successful due diligence of 12 companies, each of the 12
companies, including Access, reaching binding definitive agreements and
the successful completion of an initial public offering by Vision 21.
<PAGE>
CORPORATE PROFILE
Access, a Cincinnati based company, has two business units: Hardware
Service, which maintains and installs components and systems, and
Electronic Document Management Systems (EDMS).
Founded over thirty years ago, Access has designed systems for use by
organizations throughout the world. Some have been in continuous use for
as long as twenty years.
The Hardware Service business unit provides hardware service for
components and systems. The Company is currently striving to grow its
third-party and prepress equipment maintenance business. The Company is
working with manufacturers and distributors of high-value, integrated
equipment to provide maintenance services for equipment manufactured or
sold by them.
Access' EDMS business unit provides software and professional services
to assist its customers in the design, configuration, installation and
maintenance of electronic document systems.
Hardware Service
Access' Hardware Service business unit provides quality hardware
service on a nationwide basis to the prepress industry, owners of
equipment manufactured and sold by third parties, and the company's
installed base of EDMS customers. The Hardware Service revenue from
services for equipment manufactured and sold by third parties grew by 12%
in fiscal 1997 over fiscal 1996.
In April 1997 Access acquired the assets of a company which provided
hardware services for the prepress industry with the United States. At
this time Access is formalizing relationships with two major manufacturers
of prepress equipment to provide service for equipment manufactured by
them.
Third-party maintenance includes the support of non-Access electronic
and electro-mechanical equipment such as card embossers, microfiche
duplicators, microfilm scanners, large drawing format scanners, large
format plotters, highly sophisticated 5-1/4" and 12" laser drives,
optical jukebox systems and imagesetters. Access has a number of Support
Partners that recommend Access as their nationwide service provider.
Growth in maintenance of third party manufactured equipment is an
Access strategic objective. Access continues to pursue additional
third-party service opportunities with manufacturers and distributors of
other electronic and electromechanical products. Access' key to success
in third-party maintenance is the ability to provide their Support
Partners with the benefits of having their own national service company
without having to build and support the infrastructure of a nationwide
service organization. Access offers a 24 hour a day, toll free dispatch
center; rapid on-site service response; quality repairs and preventive
maintenance for their customers.
Access is qualified to meet the demands of today's electronic prepress
multi-vendor environment. Access engineers are trained and cross-trained
on a wide range of imagesetters, scanners, networks/servers, and software
applications ensuring the resolution of a service problem.
Access EDMS Business Unit
Access Corporation is dedicated to enhancing the quality of its
customers' products by providing world class software and professional
services for their document based processes. Access' early success in
automating the handling of document based information positioned the
Company to take a leadership role in the evolution of computer technology
in the specialized area of imaging, document and workflow management.
Access provides document and workflow management in three distinct
markets: Discrete Manufacturing, Oil & Gas, and Utilities. Access
provides both software and professional services to configure, install
and maintain electronic document management solutions. Access' extensive
history in sales and service of document based retrieval technology has
allowed the company to build an expertise in applying current state of
the art technologies to customers' document management products.
The EDMS Business Unit experienced significant growth in fiscal 1996,
in terms of both revenues and staffing. In the first quarter of fiscal
1996, Access acquired CimSoft Inc., a systems integrator servicing a wide
base of EDMS customers within the United States. At the same time,
Access also formalized a partnership with Cimage Enterprise Systems Ltd.,
making Access the exclusive distribution and support provider for Cimage
products within North America. These two business ventures well
positioned Access for rapid growth through three changes: an increased
customer base, an additional leading edge software offering, and
additional personnel skilled in the sale and support of EDMS
applications. In addition to this new role as a software reseller,
Access continues to maintain Document Management Software and still
provides the industry's only large format EDMS available on the IBM
AS/400 computer.
Access' EDMS software offerings fall into two product areas: EDICS
(Engineering Document Image Control System) and the Cimage Document
Manager System. EDICS is primarily focused at providing Document Life
Cycle Management on the IBM AS/400 platform, while the Cimage Document
Management is focused on Document Distribution applications using UNIX
and Microsoft Windows NT servers.
Both products utilize a powerful database application for managing
documents and related information, including paper based documents, A
through J size drawings, Computer Aided Design (CAD) data, company
procedures and office correspondence. These documents both come from
multiple sources, and are in multiple formats. The EDMS applications
integrate all of these into a single system which fully automates the
revision process, the distribution process, and also provides flexible
tools for viewing, editing, and printing.
Access also delivers high-quality, high-value Professional Services to
its customers. Access' industry specialization allows it to apply its
document system expertise to its customers' business problems in
Document Management Applications. While the various software modules
are the same at each customer, each implementation is unique through
the "tailoring" of the document organizational structure,
document-to-document relationships, and user interface presentation.
Through Access' understanding of Document Management requirements,
customers have been able to achieve industry compliance with regulatory
agencies, become ISO 9000 certified, and achieve system implementations
in extremely short time periods.
Sales
EDMS systems have been installed in 48 states, Japan, Europe,
Australia, Canada, Mexico, Jamaica, Puerto Rico, the Middle East,
China, and the former Soviet Union. Sales in and outside the United
States are handled predominantly on a direct basis. There is no
recurring geographic market concentration with respect to the sales of
Access systems in the United States.
Access' primary marketing focus is the sale of its EDMS products to
discrete manufacturers, oil and gas, and utility providers. The market
segment which accounted for the highest percentage of the Company's
revenue was aerospace, at 22% of total company revenues.
Common Stock
Currently there is no established market for the Company's Common
Stock and the Company is not aware of any reported bid quotations.
The Company has not paid, and has no plans to pay, dividends on its
Common Stock. The number of holders of record of Access Corporation's
Common Stock as of April 30, 1997, was 381.
Form 10-K Available
An Annual Report of Form 10-K will be filed with the Securities and
Exchange Commission for the fiscal year ending April 30, 1997. A
shareholder may obtain a copy of this report at no charge by writing to
Access Corporation, 4350 Glendale-Milford Road, Suite 250, Cincinnati,
Ohio, 45242, Attention: Treasurer.
<PAGE>
ACCESS Directors, Officers and Shareholder Information
Board of Directors
Kent P. Friel
Chairman of the Board
President, Schonberg
Associates, Inc.
Cincinnati, Ohio
Scott D. Watkins
President and Chief
Executive Officer
Newton D. Baker
Executive Vice President
and Treasurer
James M. Anderson
President and Chief Executive Officer,
Childrens Hospital Medical Center
Cincinnati, Ohio
James H. Hardie
Partner in law firm
of Reed Smith Shaw
& McClay
Pittsburgh, Pennsylvania
Robert J. Kalthoff
Chairman of the Kalthoff
Group, Inc.
Cincinnati, Ohio
Dennis J. Sullivan, Jr.
Executive Counselor
Dan Pinger Relations, Inc.
Cincinnati, Ohio
John W. Weil
President
Weil Associates, Inc.
Bloomfield Hills, Michigan
Officers
Scott D. Watkins
President and Chief
Executive Officer
Newton D. Baker
Executive Vice President
and Treasurer
Kim Bollinger
Vice President,
Customer Services
Marc Baines
Vice President,
Sales and Marketing
Joseph Schneider
Vice President,
Service
Joseph Musgrave
Senior Vice President,
Prepress Sales
Shareholder Information
Transfer Agent/Registrar
Fifth Third Bank
Fifth Third Center
Corporate Trust
Cincinnati, OH 45263
Independent Auditors
Deloitte & Touche LLP
250 East Fifth Street
Cincinnati, Ohio
45201-5340
General Counsel
Taft, Stettinius & Hollister
1800 Star Bank Center
Cincinnati, Ohio 45202
Patent Counsel
Wood, Herron & Evans
2700 Carew Tower
Cincinnati, Ohio 45202
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statement Nos. 2-67785, 2-91016, 33-00158, 33-38194 and
33-48195 of ACCESS Corporation on Forms S-8 of our reports
dated May 29, 1997, appearing in and incorporated by
reference in the Annual Report on Form 10-K of ACCESS
Corporation for the year ended April 30, 1997.
Deloitte & Touche LLP
Cincinnati, Ohio
July 23, 1997.
Exhibit 24 (iv)
POWER OF ATTORNEY
----------------------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned,
officer and/or director of ACCESS Corporation, an Ohio
Corporation, which is about to file with the Securities and
Exchange Commission, Washington, DC, under the provisions of
the Securities Exchange Act of 1934, as amended, a 1997
Annual Report, hereby constitutes Mr. Newton D. Baker, his
true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign such
1997 Annual Report and any or all amendments thereto, and to
file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his
substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set
his hand this 12th day of July, 1997.
KENT P. FREIL
------------------------------
Kent P. Friel
Exhibit 24 (i)
POWER OF ATTORNEY
-------------------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned,
officer and/or director of ACCESS Corporation, an Ohio
Corporation, which is about to file with the Securities and
Exchange Commission, Washington, DC, under the provisions of
the Securities Exchange Act of 1934, as amended, a 1997
Annual Report, hereby constitutes Mr. Newton D. Baker, his
true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign such
1997 Annual Report and any or all amendments thereto, and to
file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his
substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set
his hand this 23rd day of July, 1997.
JAMES H. HARDIE
------------------------------
James H. Hardie
Exhibit 24(ii)
POWER OF ATTORNEY
---------------------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned,
officer and/or director of ACCESS Corporation, an Ohio
Corporation, which is about to file with the Securities and
Exchange Commission, Washington, DC, under the provisions of
the Securities Exchange Act of 1934, as amended, a 1997
Annual Report, hereby constitutes Mr. Newton D. Baker, his
true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign such
1997 Annual Report and any or all amendments thereto, and to
file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his
substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set
his hand this 11th day of July, 1997.
ROBERT J. KALTHOFF
------------------------------
Robert J. Kalthoff
Exhibit 24(v)
Exhibit 24(v)
POWER OF ATTORNEY
----------------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned,
officer and/or director of ACCESS Corporation, an Ohio
Corporation, which is about to file with the Securities and
Exchange Commission, Washington, DC, under the provisions of
the Securities Exchange Act of 1934, as amended, a 1997
Annual Report, hereby constitutes Mr. Newton D. Baker, his
true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign such
1997 Annual Report and any or all amendments thereto, and to
file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his
substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set
his hand this 11th day of July, 1997.
DENNIS P. SULLIVAN
------------------------------
- -------------
Dennis P. Sullivan
Exhibit 24 (iii)
POWER OF ATTORNEY
------------------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned,
officer and/or director of ACCESS Corporation, an Ohio
Corporation, which is about to file with the Securities and
Exchange Commission, Washington, DC, under the provisions of
the Securities Exchange Act of 1934, as amended, a 1997
Annual Report, hereby constitutes Mr. Newton D. Baker, his
true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign such
1997 Annual Report and any or all amendments thereto, and to
file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his
substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set
his hand this 11th day of July, 1997.
JOHN W. WEIL
------------------------------
John W. Weil
ACCESS CORPORATION
SCHEDULE II- Valuation and Qualifiying Accounts
Column A Column B Column C Column D Column E
Balance Charged to Charged to Balance
Beginning Costs and Other End of
Description of Period Expenses Accounts Period
- -------------------------------------------------------------------------------
Year Ended
April 30, 1997
Deferred Income
Tax Benefit
Valuation
Allowance ($2,539,700) ($3,182) $412,500 ($2,949,018)
Allowance for
Doubtful
Accounts $189,685 (2)($12,000) $189,685 $12,000
- -------------------------------------------------------------------------------
Year Ended
April 30, 1996
Deferred Income
Tax Benefit
Valuation
Allowance ($2,539,700) $0 $0 ($2,539,700)
Allowance for
Doubtful
Accounts $18,100 (2)($39,000) (3) ($132,585) $189,685
- -------------------------------------------------------------------------------
Year Ended
April 30, 1995
Deferred Income
Tax Benefit
Valuation
Allowance ($2,539,700) $0 $0 ($2,539,700)
Allowance for
Doubtful
Accounts $17,479 (2) ($4,796) (1) $4,175 $18,100
- ------------------------------------------------------------------------------
(1) Accounts written off as uncollectable.
(2) Net change in reserve.
(3) Net incease as a result of acquision in FY 96
Exhibit 10 (vii)
LEASE AGREEMENT
THIS LEASE is executed this 13th day of June , 1997, by and
between DUKE REALTY LIMITED PARTNERSHIP, an Indiana limited partnership
("Landlord"), and ACCESS CORPORATION, an Ohio corporation ("Tenant").
WITNESSETH:
ARTICLE 1 - LEASE OF PREMISES
Section 1.01. Basic Lease Provisions and Definitions.
A. Building Address: 1971 International Way; Hebron, Kentucky 41068;
Building No. One (the "Building"); located in Southpark (the "Park");
B. Rentable Area: approximately 9,600 square feet;
Landlord shall use commercially reasonable standards, consistently applied,
in determining the Rentable Area and the rentable area of the Building. The
Rentable Area shall include the area within the Leased Premises plus a pro
rata portion of the area covered by the common areas within the Building, as
reasonably determined by Landlord from time to time. Landlord's
determination of Rentable Area made in good faith shall conclusively be
deemed correct for all purposes hereunder, including without limitation the
calculation of Tenant's Building Expense Percentage and Tenant's Minimum
Annual Rent.
C. Tenant's Proportionate Share: 10%;
D. Minimum Annual Rent:
Year 1 $ 0.00 (1 month only)
Year 1 $53,768.00 (11 months only)
Year 2 $58,656.00 per year
Year 3 $58,656.00 per year
Year 4 $58,656.00 per year
Year 5 $58,656.00 per year
Year 6 $ 4,888.00 (1 month only);
E. Monthly Rental Installments:
Months 1 $ 0.00 (1 month only)
Months 2-61 $ 4,888.00 per month;
F. Term: Five (5) years and one (1) month;
G. Commencement Date: July 1, 1997;
H. Security Deposit: $4,888.00;
I. Base Amount: $1.00 included in Minimum Annual Rent
J. Broker(s): Duke Realty Services Limited Partnership representing
Landlord and none representing Tenant;
K. Permitted Use: Warehousing, storage, repair and maintenance of
computers and related purposes and manufacture of Tenant's proprietary cards
and related operations;
L. Address for notices:
Landlord: Duke Realty Limited Partnership
4555 Lake Forest Drive, Suite 400
Cincinnati, OH 45242
Tenant: Access Corporation
4350 Glendale Milford Road, Suite 250
Cincinnati, OH 45242-3700
Address for rental and other payments:
Duke Realty Limited Partnership
P.O. Box 960664
Cincinnati, OH 45296-0664
Section 1.02. Leased Premises. Landlord hereby leases to Tenant
and Tenant leases from Landlord, subject to all of the terms and conditions
set forth herein, that portion of the Building described in the Basic Lease
Provisions and outlined on Exhibit A attached hereto (the "Leased
Premises"). Landlord also grants to Tenant, together with and subject to
the rights granted from time to time by Landlord to other tenants and
occupants of Landlord's premises, the right to use the common parking area
adjoining the Building.
ARTICLE 2 - TERM AND POSSESSION
Section 2.01. Term. The term of this Lease ("Lease Term") shall be
the period of time specified in the Basic Lease Provisions and shall
commence on the Commencement Date described in the Basic Lease
Provisions. Upon delivery of possession of the Leased Premises to
Tenant, Tenant shall execute a letter of understanding acknowledging
(i) the Commencement Date of this Lease, and (ii) that Tenant has
accepted the Leased Premises for occupancy and that the condition of
the Leased Premises (including any tenant finish improvements
constructed thereon) and the Building was at the time satisfactory
and in conformity with the provisions of this Lease in all respects
or, if not satisfactory, setting forth any punchlist items. Such
letter of understanding shall become a part of this Lease. If Tenant
takes possession of and occupies the Leased Premises, Tenant shall be
deemed to have accepted the Leased Premises as described above, even
though Tenant may not have executed the letter of understanding.
Section 2.02. Construction of Tenant Improvements. Tenant has
personally inspected the Leased Premises and accepts the same
"as is" without representation or warranty by Landlord of any kind
except as specifically provided herein and with the understanding
that Landlord shall have no responsibility with respect thereto
except to construct in a good and workmanlike manner the
improvements designated as Landlord's obligations in the attached
Exhibit B, so that the Leased Premises will be available for
Tenant's occupancy by the Commencement Date, unless prevented by
causes beyond Landlord's reasonable control. Such improvements
shall be in accordance with and at the expense of the party
indicated on Exhibit B. Landlord shall provide Tenant with a one
(1) year warranty on the work performed by Landlord on Exhibit B but
excluding ordinary wear and tear and repairs made necessary by the
acts of Tenant.
Section 2.03. Surrender of the Premises. Upon the expiration or
earlier termination of this Lease, or upon the exercise by Landlord
of its right to re-enter the Leased Premises without terminating
this Lease, Tenant shall immediately surrender the Leased Premises
to Landlord, in broom-clean condition and in good order, condition
and repair, except for ordinary wear and tear and damage which
Tenant is not obligated to repair. Tenant shall also remove its
personal property, trade fixtures and any of Tenant's alterations
designated by Landlord; promptly repair any damage caused by such
removal; and restore the Leased Premises to the condition existing
prior to the installation of the items so removed. If Tenant fails
to do so, Landlord may restore the Leased Premises to such condition
at Tenant's expense, and Landlord may cause all of said property to
be removed at Tenant's expense, and Tenant hereby agrees to pay all
the costs and expenses thereby reasonably incurred. All property of
Tenant which is not removed within ten (10) days following
Landlord's written demand therefor shall be conclusively deemed to
have been abandoned by Tenant, and Landlord shall be entitled to
dispose of such property without thereby incurring any liability to
Tenant. The provisions of this section shall survive the expiration
or other termination of this Lease.
Section 2.04. Holding Over. If Tenant retains possession of the
Leased Premises after the expiration or earlier termination of this
Lease, Tenant shall become a tenant from month to month at one
hundred twenty-five percent (125%) of the Monthly Rental Installment
in effect at the end of the Lease Term (plus Additional Rent as
provided in Article 3 hereof), and otherwise upon the terms,
covenants and conditions herein specified, so far as applicable.
Acceptance by Landlord of rent after such expiration or earlier
termination shall not result in a renewal of this Lease, and Tenant
shall vacate and surrender the Leased Premises to Landlord upon
Tenant being given thirty (30) days prior written notice from
Landlord to vacate.
ARTICLE 3 - RENT
Section 3.01. Base Rent. Tenant shall pay to Landlord as Minimum
Annual Rent for the Leased Premises the sum specified in the Basic
Lease Provisions, payable in equal consecutive Monthly Rental
Installments, in advance, without deduction or offset, beginning on
the Commencement Date and on or before the first day of each and
every calendar month thereafter during the Lease Term. The Monthly
Rental Installment for partial calendar months shall be prorated
based on the number of days during the month this Lease was in
effect in relation to the total number of days in such month.
Section 3.02. Additional Rent. In addition to the Minimum Annual
Rent specified in this Lease, Tenant agrees to pay to Landlord for
each calendar year during the Lease Term, as "Additional Rent,"
Tenant's Proportionate Share (as described in the Basic Lease
Provisions) of all costs, charges and expenses paid or incurred by
Landlord during the Lease Term for Real Estate Taxes and Operating
Expenses for the Building and appurtenant common areas
(collectively "Common Area Charges") in excess of the Base Amount.
"Operating Expenses" shall mean all of Landlord's expenses for
operation, repair, replacement and maintenance as necessary to keep
the Building and appurtenant common areas in good order, condition
and repair (including all additional direct costs and expenses of
operation and maintenance of the Building which Landlord reasonably
determines it would have paid or incurred during such year if the
Building had been fully occupied), including, but not limited to,
management fees; utilities; stormwater discharge fees; license,
permit, inspection and other fees; environmental and pollution
testing and consultation fees related thereto; fees and assessments
imposed by any covenants or owners' association; tools and
supplies; security services; insurance premiums; and maintenance
and repair of the driveways and parking areas (including snow
removal), exterior lighting facilities, landscaped areas, walkways,
curbs, drainage strips, sewer lines, exterior walls, foundation,
structural frame, roof and gutters.
Operating Expenses shall not include costs of capital improvements
unless such capital improvements are required by any governmental
authority, law or regulation, in which event such capital
expenditure shall be amortized pursuant to generally accepted
accounting principles, and only the amortized portion thereof shall
be included in Operating Expenses each year.
"Real Estate Taxes" shall include any form of real estate tax or
assessment, general, special, ordinary or extraordinary, and any
license fee, commercial rental tax, improvement bond or bonds, levy
or tax (other than inheritance, personal income or estate taxes)
imposed upon the Leased Premises (or against Landlord's business of
leasing the Building) by any authority having the direct or indirect
power to tax, together with costs and expenses of contesting the
validity or amount of Real Estate Taxes. If the property is not
separately assessed, then Tenant's liability shall be an equitable
proportion of the real estate taxes for all of the land and
improvements included within the tax parcel assessed. Landlord's
reasonable determination thereof, in good faith, shall be
conclusive.
Tenant shall pay, prior to delinquency, all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other
personal property of Tenant contained in the Leased Premises or
elsewhere. Tenant shall cause such trade fixtures, furniture,
equipment and all other personal property to be assessed and billed
separately from the Leased Premises.
Notwithstanding anything in this Lease to the contrary:
a) Uncontrollable Expenses. Tenant will be responsible for
Tenant's Proportionate Share of real estate taxes, including the
reasonable costs and expenses of contesting the validity or amount
of real estate taxes; services payments in lieu of real estate
taxes, insurance premiums; utilities, snow removal and management or
administrative fees applicable to such expenses ("Uncontrollable
Expenses"), without regard to the level of increase in any or all of
the above in any year or other period of time.
b) Controllable Expenses. Tenant's obligation to pay all other
Operating Expenses which are not Uncontrollable Expenses (herein
"Controllable Expenses") shall be limited to a five cent ($0.05)
per annum increase over the amount the Controllable Expenses for
the immediately preceding calendar year would have been had the
Controllable Expenses increased at the rate of five cents ($0.05)
in all previous calendar years beginning with the actual
Controllable Expenses for the year ending December 31, 1997.
Section 3.03. Payment of Additional Rent. Landlord shall be
entitled to estimate the total amount of Additional Rent to be paid
by Tenant during each calendar year of the Lease Term, whereupon
commencing on the Commencement Date, Tenant shall pay to Landlord
each month, at the same time the Monthly Rental Installment is due,
an amount equal to one-twelfth (1/12) of the estimated Additional
Rent for such year. Within one hundred twenty (120) days after the
end of each calendar year, Landlord shall submit to Tenant a
statement of the actual amount of such Additional Rent and within
thirty (30) days after receipt of such statement, Tenant shall pay
any deficiency between the actual amount owed and the estimates paid
during such calendar year, or in the event of overpayment, Landlord
shall credit the amount of such overpayment toward the next
installments of Minimum Rent or refund the amount to Tenant if the
Term of the Lease has expired; provided, however, Tenant shall not
be entitled to a credit if actual Common Area Charges are less than
the Base Amount. To the extent that the Lease Term includes any
partial calendar years, the Additional Rent included in this section
shall be prorated based upon the number of days in such calendar
year included within the Lease Term divided by 360.
Section 3.04. Late Charges. Tenant acknowledges that Landlord
shall incur certain additional unanticipated costs and expenses,
including administrative costs and attorneys' fees, if Tenant fails
to timely pay any payment required hereunder. Therefore, as
compensation for such additional expenses, and in addition to the
other remedies available to Landlord hereunder, if any payment of
Minimum Rent or any other sum or charge required to be paid by
Tenant to Landlord hereunder shall become overdue for a period of
five (5) days, a late charge of seven percent (7%) of the payment so
due shall be paid by Tenant as additional rent. In addition, if
Tenant fails to pay within thirty (30) days after the same is due
and payable any sum or charge required to be paid by Tenant to
Landlord, such unpaid amount shall bear interest from the due date
thereof to the date of payment at the rate of fifteen percent (15%)
per annum.
Section 3.05. Tenant Verification. Tenant shall have the right to
inspect, at reasonable times and in a reasonable manner, during the
one hundred twenty (120) day period following the delivery of
Landlord's statement of the actual amount of the Operating Expenses,
such of Landlord's books of account and records as pertain to and
contain information concerning such costs and expenses in order to
verify the amounts thereof. Tenant's failure to exercise its rights
hereunder within said one hundred twenty (120) day period shall be
deemed a waiver of its right to inspect or contest the method,
accuracy or amount of the Annual Rental Adjustment.
ARTICLE 4 - SECURITY DEPOSIT
Tenant, upon execution of this Lease, shall deposit with Landlord
the Security Deposit as specified in the Basic Lease Provisions as
security for the full and faithful performance by Tenant of all of
the terms, conditions and covenants contained in this Lease on the
part of Tenant to be performed, including but not limited to the
payment of the rent. In the event of a default by Tenant of any
term, condition or covenant herein contained, Landlord may apply all
or any part of such security deposit to curing all or any part of
such default; and Tenant agrees to promptly, upon demand, deposit
such additional sum with Landlord as may be required to maintain the
full amount of the security deposit. All sums held by Landlord
pursuant to this section shall be without interest. At the end of
the Lease Term, provided that there is then no uncured default,
Landlord shall return the security deposit to Tenant.
ARTICLE 5 - USE
Section 5.01. Use of Leased Premises. The Leased Premises are to
be used by Tenant solely as provided in the Basic Lease Provisions,
and for no other purposes without the prior written consent of
Landlord, which consent shall not be unreasonably withheld or
delayed.
Section 5.02. Covenants of Tenant Regarding Use. In connection
with its use of the Leased Premises, Tenant agrees to do the
following:
(a) Tenant shall (i) use and maintain the Leased Premises and
conduct its business thereon in a safe, careful, reputable and
lawful manner, (ii) comply with all laws, rules, regulations,
orders, ordinances, directions and requirements of any governmental
authority or agency, now in force or which may hereafter be in
force, including without limitation those which shall impose upon
Landlord or Tenant any duty with respect to or triggered by a change
in the use or occupation of, or any improvement or alteration to,
the Leased Premises, and (iii) comply with and obey all reasonable
directions of the Landlord, including any Rules and Regulations that
may be adopted by Landlord from time to time.
(b) Tenant shall not (i) use the Leased Premises for any unlawful
purpose or act, (ii) commit or permit any waste or damage to the
Leased Premises, (iii) store any inventory, equipment or any other
materials outside the Leased Premises, or (iv) do or permit anything
to be done in or about the Leased Premises or appurtenant common
areas which constitutes a nuisance or which will in any way obstruct
or interfere with the rights of other tenants or occupants of the
Building or injure or annoy them. Landlord shall not be responsible
to Tenant for the nonperformance by any other tenant or occupant of
the Building of its lease or of any Rules and Regulations, but shall
take reasonable steps to enforce such Rules and Regulations against
all tenants.
(c) Tenant shall not overload the floors of the Leased Premises as
to cause damage to the floor. All damage to the floor structure or
foundation of the Building due to improper positioning or storage of
items or materials shall be repaired by Landlord at the sole expense
of Tenant, who shall reimburse Landlord immediately therefor upon
demand.
(d) Tenant shall not use the Leased Premises, or allow the Leased
Premises to be used, for any purpose or in any manner which would,
in Landlord's opinion, invalidate any policy of insurance now or
hereafter carried on the Building or increase the rate of premiums
payable on any such insurance policy. Should Tenant fail to comply
with this covenant, Landlord may, at its option, require Tenant to
stop engaging in such activity or to reimburse Landlord as
Additional Rent for any increase in premiums charged during the term
of this Lease on the insurance carried by Landlord on the Leased
Premises and attributable to the use being made of the Leased
Premises by Tenant.
(e) Tenant may, at its own expense, erect a sign concerning its
business which shall be in keeping with the decor and other signs on
the Building, provided that such sign is first approved by Landlord
in writing, which approval shall not be unreasonably withheld or
delayed. Landlord's approval, if given, may be conditioned upon
such criteria as Landlord deems appropriate to maintain the area in
a neat and attractive manner. Tenant agrees to maintain any sign in
good state of repair, and upon expiration of the Lease Term, Tenant
shall promptly remove the sign and repair any resulting damage to
the Leased Premises or Building.
Section 5.03. Landlord's Rights Regarding Use. In addition to the
rights specified elsewhere in this Lease, Landlord shall have the
following rights regarding the use of the Leased Premises or the
appurtenant common areas by Tenant, its employees, agents, customers
and invitees, each of which may be exercised without notice or
liability to Tenant:
(a) Landlord may install such signs, advertisements, notices or
tenant identification information as it shall deem necessary or
proper.
(b) Landlord shall have the right at any time to change or
otherwise alter the appurtenant common areas, provided the available
common parking is not materially impaired. Landlord may control the
appurtenant common areas in such manner as it deems necessary or
proper, provided that access to entrances and loading docks are not
materially impaired.
(c) Landlord or Landlord's agent shall be permitted to inspect or
examine the Leased Premises at any reasonable time, and Landlord
shall have the right to make any repairs to the Leased Premises
which are necessary for its preservation; provided, however, that
any repairs made by Landlord shall be at Tenant's expense, except as
provided in Section 7.02 hereof. If Tenant is not present to open
and permit such entry into the Leased Premises at any time when such
entry is necessary or permitted hereunder, Landlord and its
employees and agents may enter the Leased Premises by means of a
master or pass key or otherwise. Landlord shall incur no liability
to Tenant for such entry, nor shall such entry constitute an
eviction of Tenant or a termination of this Lease, or entitle Tenant
to any abatement of rent therefor.
ARTICLE 6 - UTILITIES AND SERVICES
Tenant shall obtain in its own name and shall pay directly to the
appropriate supplier the cost of all utilities and services serving
the Leased Premises, including but not limited to: natural gas,
heat, light, electrical power, telephone, janitorial service, refuse
disposal and other utilities and services. However, if any services
or utilities are jointly metered with other property, Landlord shall
make a reasonable determination of Tenant's proportionate share of
the cost of such utilities and services and Tenant shall pay such
share to Landlord within fifteen (15) days after receipt of
Landlord's written statement. Landlord shall not be liable in
damages or otherwise for any failure or interruption of any utility
service or other service furnished to the Leased Premises; and no
such failure or interruption shall entitle Tenant to terminate this
Lease or withhold sums due hereunder.
ARTICLE 7 - MAINTENANCE AND REPAIRS
Section 7.01. Tenant's Responsibility. During the term of this
Lease, Tenant shall, at its own cost and expense, maintain in good
condition and repair the interior of the Leased Premises, including
but not limited to the electrical systems, heating and air
conditioning systems, plate glass, floors, windows and doors,
sprinkler and plumbing systems. Tenant, at its expense, shall
obtain a preventative maintenance contract on the heating,
ventilating and air-conditioning systems which shall be subject to
Landlord's reasonable approval. Tenant shall provide Landlord with
a copy of the preventative maintenance contract no later than ninety
(90) days after the Commencement Date. The preventative maintenance
contract shall provide for the inspection and maintenance of the
heating, ventilating and air conditioning system on not less than a
semi-annual basis.
Section 7.02. Landlord's Responsibility. During the term of this
Lease, Landlord shall maintain in good condition and repair the
roof, exterior walls, foundation and structural frame of the
Building and the parking and landscaped areas, the costs of which,
except capital expenditures, except as specifically allowed herein
shall be included in Operating Expenses; provided, however, that to
the extent any of the foregoing items require repair because of the
negligence, misuse, or default of Tenant, its employees, agents,
customers or invitees, Landlord shall make such repairs at Tenant's
expense.
Section 7.03. Alterations. Tenant shall not permit structural or
non-structural alterations or additions in or to the Leased Premises
unless and until the plans have been approved by Landlord in
writing, which approval shall not be unreasonably withheld or
delayed. As a condition of such approval, Landlord may require
Tenant to remove the alterations and restore the Leased Premises
upon termination of this Lease; otherwise, all such alterations or
improvements, except movable office furniture, the card room air
conditioner and equipment and trade fixtures, shall at Landlord's
option become a part of the realty and the property of Landlord, and
shall not be removed by Tenant. Tenant agrees to remove the card
room structure and return it to warehouse space upon the expiration
or early termination of this Lease. If Landlord consents to
Tenant's performance of alterations or additions to the Leased
Premises, Tenant shall ensure that all alterations and improvements
which are made or necessitated thereby shall be made in accordance
with all applicable laws, regulations and building codes, in a good
and workmanlike manner and in quality equal to or better than the
original construction of the Building. Landlord's approval of the
plans, specifications and working drawings for Tenant's alterations
shall create no responsibility or liability on the part of Landlord
for their completeness, design sufficiency, or compliance with all
laws, rules and regulations of governmental agencies or authorities.
Tenant shall indemnify and save harmless Landlord from all costs,
loss or expense in connection with any construction or installation.
No person shall be entitled to any lien directly or indirectly
derived through or under Tenant or through or by virtue of any act
or omission of Tenant upon the Leased Premises for any improvements
or fixtures made thereon or installed therein or for or on account
of any labor or material furnished to the Leased Premises or for or
on account of any matter or thing whatsoever; and nothing in this
Lease contained shall be construed to constitute a consent by
Landlord to the creation of any lien. If any lien is filed against
the Leased Premises for work claimed to have been done for, or
material claimed to have been furnished to, Tenant, Tenant shall
cause such lien to be discharged of record within thirty (30) days
after filing by bonding or in any other lawful manner. Tenant shall
indemnify and save harmless Landlord from all costs, losses,
expenses, and attorneys' fees in connection with any such lien.
ARTICLE 8 - CASUALTY
Section 8.01. Casualty. In the event of total or partial
destruction of the Building or the Leased Premises by fire or other
casualty, Landlord agrees to promptly restore and repair the Leased
Premises at Landlord's expense; provided, however, that Landlord's
obligation hereunder shall be limited to the reconstruction of such
of the tenant finish improvements as were originally required to be
made by Landlord, if any. Any insurance proceeds not used by
Landlord in restoring or repairing the Leased Premises shall be the
sole property of Landlord. Rent shall proportionately abate during
the time that the Leased Premises or part thereof are unusable
because of any such damage thereto. Notwithstanding the foregoing,
if the Leased Premises are (i) so destroyed that they cannot be
repaired or rebuilt within one hundred eighty (180) days from the
date on which the insurance claim is adjusted; or (ii) destroyed by
a casualty which is not covered by the insurance required hereunder
or, if covered, such insurance proceeds are not released by any
mortgagee entitled thereto or are insufficient to rebuild the
Building and the Leased Premises; then, in case of a clause (i)
casualty, either Landlord or Tenant may, or, in the case of a clause
(ii) casualty, then Landlord may, upon thirty (30) days written
notice to the other party, terminate and cancel this Lease; and all
further obligations hereunder shall thereupon cease and terminate.
Section 8.02. Fire and Extended Coverage Insurance. During the
term of this Lease, Landlord shall maintain fire and extended
coverage insurance on the Building in amounts customarily maintained
by landlords of similar buildings, but shall not protect Tenant's
property on the Leased Premises; and, notwithstanding the provisions
of Section 9.01, Landlord shall not be liable for any damage to
Tenant's property, regardless of cause, including the negligence of
Landlord and its employees, agents, and invitees. Tenant hereby
expressly waives any right of recovery against Landlord (or any
other tenant of the Building) for damage to any property of Tenant
located in or about the Leased Premises, however caused, including
the negligence of Landlord and its employees, agents, and invitees;
and, notwithstanding the provisions of Section 9.01 below, Landlord
hereby expressly waives any rights of recovery against Tenant for
damage to the Leased Premises or the Building which is insured
against under Landlord's fire and extended coverage insurance. All
insurance policies maintained by Landlord or Tenant as provided in
this section shall contain an agreement by the insurer waiving the
insurer's right of subrogation against the other party to this Lease
and agreeing not to acquire any rights of recovery which the insured
has expressly waived prior to loss.
ARTICLE 9 - LIABILITY INSURANCE
Section 9.01. Tenant's Responsibility. Landlord shall not be
liable to Tenant or to any other person for (i) damage to property
or injury or death to persons due to the condition of the Leased
Premises, the Building or the appurtenant common areas, or (ii) the
occurrence of any accident in or about the Leased Premises or the
appurtenant common areas, or (iii) any act or neglect of Tenant or
any other tenant or occupant of the Building or of any other person,
unless such damage, injury or death is directly and solely the
result of Landlord's negligence; and Tenant hereby releases Landlord
from any and all liability for the same. Tenant shall be liable
for, and shall indemnify and defend Landlord and hold it harmless
from, any and all liability for (i) any act or neglect of Tenant and
any person coming on the Leased Premises or appurtenant common areas
by the license of Tenant, express or implied, (ii) any damage to the
Leased Premises, and (iii) any loss of or damage or injury to any
person (including death resulting therefrom) or property occurring
in, on or about the Leased Premises, regardless of cause, except for
any loss or damage from fire or casualty insured as provided in
Section 8.02 and except for that caused solely and directly by
Landlord's negligence. Notwithstanding the foregoing, Tenant shall
bear the risk of any loss or damage to its property as provided in
Section 8.02.
Section 9.02. Tenant's Insurance. Tenant, in order to insure
against the liabilities specified in this Lease, shall at all times
during the term of this Lease carry, at its own expense, one or more
policies of general public liability and property damage insurance,
issued by one or more insurance companies acceptable to Landlord,
with the following minimum coverages:
A. Worker's Compensation: minimum statutory amount.
B. Comprehensive General Liability Insurance, including blanket,
contractual liability, broad form property damage, personal injury,
completed operations, products liability, and fire damage: Not less
than $1,000,000 Combined Single Limit for both bodily injury and
property damage.
C. Fire and Extended Coverage, Vandalism and Malicious Mischief, and
Sprinkler Leakage insurance, if applicable, for the full cost of
replacement of Tenant's property.
The insurance policy or policies shall protect Tenant and Landlord as their
interests may appear, naming Landlord and Landlord's managing agent and
mortgagee as additional insureds, and shall provide that they may not be
cancelled on less than thirty (30) days prior written notice to Landlord.
Tenant shall furnish Landlord with Certificates of Insurance evidencing all
required coverage. Should Tenant fail to carry such insurance and furnish
Landlord with such Certificates of Insurance after a request to do so,
Landlord shall have the right to obtain such insurance and collect the cost
thereof from Tenant as additional rent.
ARTICLE 10 - EMINENT DOMAIN
If all or any substantial part of the Building or appurtenant common
areas shall be acquired by the exercise of eminent domain, Landlord
may terminate this Lease by giving written notice to Tenant within
fifteen (15) days after possession thereof is so taken. If all or
any part of the Leased Premises shall be acquired by the exercise of
eminent domain in such a manner that the Leased Premises shall
become unusable by Tenant for the purpose for which it is then being
used, Tenant may terminate this Lease by giving written notice to
Landlord within fifteen (15) days after possession of the Leased
Premises or part thereof is so taken. Tenant shall have no claim
against Landlord on account of any such acquisition for the value of
any unexpired lease term remaining after possession of the Leased
Premises is taken. All damages awarded shall belong to and be the
sole property of Landlord; provided, however, that Tenant shall be
entitled to any award expressly made to Tenant by any governmental
authority for the cost of or the removal of Tenant's stock,
equipment and fixtures and other moving expenses.
ARTICLE 11 - ASSIGNMENT AND SUBLEASE
Tenant shall not assign this Lease or sublet the Leased Premises in
whole or in part without Landlord's prior written consent, which
consent shall not be unreasonably withheld. If Landlord consents to
such assignment or subletting, Tenant shall remain primarily liable
to perform all of the covenants and conditions contained in this
Lease, including but not limited to payment of Minimum Rent and
Additional Rent as provided herein. The acceptance of rent from any
other person shall not be deemed to be a waiver of any of the
provisions of this Lease or to be a consent to the assignment of
this Lease or the subletting of the Leased Premises. If Tenant
shall make any assignment or sublease, with Landlord's consent, for
a rental in excess of the rent payable under this Lease, Tenant
shall be entitled to keep one-half of such excess, and Tenant shall
pay to Landlord the other half of any such excess rental upon
receipt.
Without in any way limiting Landlord's right to refuse to consent to
any assignment or subletting of this Lease, Landlord reserves the
right to refuse to give such consent if in Landlord's discretion and
opinion (i) the use of the Leased Premises is or may be in any way
adversely affected; (ii) the business reputation of the proposed
assignee or subtenant is deemed unacceptable; or (iii) the financial
worth of the proposed assignee or subtenant is insufficient to meet
the obligations hereunder or is less than that of Tenant. Landlord
further expressly reserves the right to refuse to give its consent
to any subletting if the proposed rent is to be less than the then
current rent for similar premises in the Park. Tenant agrees to
reimburse Landlord for reasonable accounting and attorneys' fees
incurred in conjunction with the processing and documentation of any
such requested transfer, assignment, subletting or any other
hypothecation of this Lease or Tenant's interest in and to the
Leased Premises.
Notwithstanding the foregoing, Tenant may assign the Lease or
sublease all or any portion of the Leased Premises without
Landlord's consent to any of the following (a "Permitted Transferee"),
provided that the Permitted Transferee's financial condition,
creditworthiness and business reputation following the transfer are
equal to or exceed those of Tenant: (i) any successor corporation or
other entity resulting from a merger or consolidation of Tenant; (ii)
any purchaser of all or substantially all of Tenant's assets; or
(iii) any entity which controls, is controlled by, or is under common
control with Tenant. Tenant shall give Landlord thirty (30) days
prior written notice of such assignment or sublease. Any Permitted
Transferee shall assume in writing all of Tenant's obligations under
this Lease. Tenant shall nevertheless at all times remain fully
responsible and liable for the payment of rent and the performance
and observance of all of Tenant's other obligations under this
Lease. Nothing in this paragraph is intended to nor shall permit
Tenant to transfer its interest under this Lease as part of a fraud
or subterfuge to intentionally avoid its obligations under this
Lease (for example, transferring its interest to a shell corporation
that subsequently files a bankruptcy), and any such transfer shall
constitute an Event of Default hereunder.
ARTICLE 12 - TRANSFERS BY LANDLORD
Section 12.01. Sale and Conveyance of the Building. Landlord shall
have the right to sell and convey the Building at any time during
the term of this Lease, subject only to the rights of Tenant
hereunder; and such sale and conveyance shall operate to release
Landlord from liability hereunder after the date of such
conveyance.
Section 12.02. Subordination and Estoppel Certificate. Landlord
shall have the right to subordinate this Lease to any mortgage
presently existing or hereafter placed upon the Building by so
declaring in such mortgage; and the recording of any such mortgage
shall make it prior and superior to this Lease regardless of the
date of execution or recording of either document, provided there is
non-disturbance to Tenant, if Tenant is not in default hereunder.
Within ten (10) days following receipt of a written request from
Landlord, Tenant shall execute and deliver to Landlord, without
cost:
(a) any instrument which Landlord may deem necessary or desirable to
confirm the subordination of this Lease. If Tenant fails or refuses
to do so, Landlord may execute such instrument in the name and as
the act of Tenant.
(b) an estoppel certificate in such form as Landlord may reasonably
request certifying (i) that this Lease is in full force and effect
and unmodified (or, if modified, stating the nature of such
modification), (ii) the date to which rent has been paid, (iii) that
there are not, to Tenant's knowledge, any uncured defaults (or
specifying such defaults if any are claimed), and (iv) any other
matters or state of facts reasonably required respecting the Lease
or Tenant's occupancy of the Leased Premises. Such estoppel may be
relied upon by Landlord and by any purchaser or mortgagee of all or
any part of the Building. Tenant's failure to deliver such
statement within such period shall be conclusive upon Tenant that
this Lease is in full force and effect and unmodified and that there
are no uncured defaults in Landlord's performance hereunder.
(c) Notwithstanding the foregoing, if the mortgagee shall take title
to the Leased Premises through foreclosure or deed in lieu of
foreclosure, Tenant shall be allowed to continue in possession of
the Leased Premises as provided for in this Lease so long as Tenant
shall not be in default. Tenant shall, in the event any proceedings
are brought to foreclose any such mortgage, attorn to the purchaser
upon any such foreclosure and recognize such purchaser as the
landlord under this Lease.
Section 12.03. Lender's Rights. Landlord shall have the right, at
any time and from time to time, to notify Tenant in writing that
Landlord has placed a mortgage on the Building, specifying the
identity of the Lender ("Lender"). Following receipt of such
notice, Tenant agrees to give such Lender a copy of any notice of
default served by Tenant on Landlord. Tenant further agrees that if
Landlord fails to cure any default as provided in Section 13.03
herein, Lender shall have an additional thirty (30) days within
which to cure such default; provided, however, that if the term,
condition, covenant or obligation to be performed by Landlord is of
such nature that the same cannot reasonably be performed within such
thirty-day period, such default shall be deemed to have been cured
if Lender commences such performance within said thirty-day period
and thereafter diligently completes the same.
ARTICLE 13 - DEFAULT AND REMEDY
Section 13.01. Default. The occurrence of any of the following
shall be deemed an "Event of Default":
(a) Tenant shall fail to pay any Monthly Rental Installment or
Additional Rent within five (5) days after the same shall be due and
payable, or Tenant shall fail to pay any other amounts due Landlord
from Tenant within ten (10) days after the same shall be due and
payable.
Landlord shall provide Tenant with a written courtesy notice of such
default and Tenant shall have an additional five (5) days to cure
such default before Landlord exercises its default remedies;
provided, however, that Landlord shall not be required to give such
courtesy notice more than one (1) time with respect to any
particular default, nor more than two (2) times in any consecutive
twelve (12) month period with respect to any payment defaults in the
aggregate.
(b) Tenant shall fail to perform or observe any term, condition,
covenant or obligation as required under this Lease for a period of
thirty (30) days after notice thereof from Landlord; provided,
however, that if the nature of Tenant's default is such that more
than thirty (30) days are reasonably required to cure, then such
default shall be deemed to have been cured if Tenant commences such
performance within said thirty (30) day period and thereafter
diligently completes the required action within a reasonable time.
(c) All or substantially all of Tenant's assets in the Leased
Premises or Tenant's interest in this Lease are attached or levied
under execution (and Tenant does not discharge the same within sixty
(60) days thereafter); a petition in bankruptcy, insolvency, or for
reorganization or arrangement is filed by or against Tenant (and
Tenant fails to secure a stay or discharge thereof within sixty (60)
days thereafter); Tenant shall be insolvent and unable to pay its
debts as they become due; Tenant makes a general assignment for the
benefit of creditors; Tenant takes the benefit of any insolvency
action or law; the appointment of a receiver or trustee in
bankruptcy for Tenant or its assets if such receivership has not
been vacated or set aside within thirty (30) days thereafter;
dissolution or other termination of Tenant's corporate charter if
Tenant is a corporation.
Section 13.02. Remedies. Upon the occurrence of any Event of
Default, Landlord shall have the following rights and remedies, in
addition to those allowed by law, any one or more of which may be
exercised without further notice to or demand upon Tenant:
(a) Landlord may apply the security deposit or re-enter the Leased
Premises and cure any default of Tenant, and Tenant shall reimburse
Landlord as additional rent for any costs and expenses which
Landlord thereby incurs; and Landlord shall not be liable to Tenant
for any loss or damage which Tenant may sustain by reason of
Landlord's action, regardless of whether caused by Landlord's
negligence or otherwise.
(b) Landlord may terminate this Lease or, without terminating this
Lease, terminate Tenant's right to possession of the Leased Premises
as of the date of such default, and thereafter (i) neither Tenant
nor any person claiming under or through Tenant shall be entitled to
possession of the Leased Premises, and Tenant shall immediately
surrender the Leased Premises to Landlord; and (ii) Landlord may
re-enter the Leased Premises and dispossess Tenant and any other
occupants of the Leased Premises by any lawful means and may remove
their effects, without prejudice to any other remedy which Landlord
may have. Upon the termination of this Lease, Landlord may declare
the present value (as determined by Landlord) of all rent which
would have been due under this Lease for the balance of the Lease
Term to be immediately due and payable, whereupon Tenant shall be
obligated to pay the same to Landlord, together with all loss or
damage which Landlord may sustain by reason of Tenant's default
("Default Damages"), which shall include without limitation expenses
of preparing the Leased Premises for re-letting, demolition,
repairs, tenant finish improvements, and brokers' and attorneys'
fees, it being expressly understood and agreed that the liabilities
and remedies specified in this subsection (b) shall survive the
termination of this Lease.
(c) Landlord may, without terminating this Lease, re-enter the
Leased Premises and re-let all or any part thereof for a term
different from that which would otherwise have constituted the
balance of the Lease Term and for rent and on terms and conditions
different from those contained herein, whereupon Tenant shall be
immediately obligated to pay to Landlord as liquidated damages the
difference between the rent provided for herein and that provided
for in any lease covering a subsequent re-letting of the Leased
Premises, for the period which would otherwise have constituted the
balance of the Lease Term, together with all of Landlord's Default
Damages.
(d) Landlord may sue for injunctive relief or to recover damages
for any loss resulting from the breach.
(e) In addition to the defaults and remedies described above, the
parties hereto agree that if Tenant defaults in the performance of
any (but not necessarily the same) term or condition of this Lease
three (3) or more times during any twelve (12) month period,
regardless of whether such defaults are ultimately cured, then such
conduct shall, at Landlord's option, represent a separate Event of
Default. Tenant acknowledges that (i) Landlord will incur
additional unanticipated costs as a result of such repetitive
defaults, including but not limited to administrative costs and
legal fees, and (ii) the purpose of this provision is to adequately
compensate Landlord for those costs, which would be difficult to
determine with certainty. Therefore, Tenant agrees to pay to
Landlord upon a default under this habitual default provision the
amount of One Thousand Dollars ($1,000.00) as liquidated damages to
cure such default, payable within ten (10) days after written demand
therefor to Tenant by Landlord.
Section 13.03. Landlord's Default and Tenant's Remedies.
Landlord shall be in default if it shall fail to perform or observe
any term, condition, covenant or obligation as required under this
Lease for a period of thirty (30) days after written notice thereof
from Tenant to Landlord and to Lender, if any; provided, however,
that if the term, condition, covenant or obligation to be performed
by Landlord is of such nature that the same cannot reasonably be
performed within such thirty-day period, such default shall be
deemed to have been cured if Landlord commences such performance
within said thirty-day period and thereafter diligently undertakes
to complete the same. Upon the occurrence of any such default,
Tenant may sue for injunctive relief or to recover damages for any
loss resulting from the breach, but Tenant shall not be entitled to
terminate this Lease or withhold, offset or abate any rent due
hereunder.
Section 13.04. Limitation of Landlord's Liability. If Landlord
shall fail to perform or observe any term, condition, covenant or
obligation required to be performed or observed by it under this
Lease and if Tenant shall, as a consequence thereof, recover a money
judgment against Landlord (whether compensatory or punitive in
nature), Tenant agrees that it shall look solely to Landlord's
right, title and interest in and to the Building for the collection
of such judgment; and Tenant further agrees that no other assets of
Landlord shall be subject to levy, execution or other process for
the satisfaction of Tenant's judgment and that Landlord shall not be
personally liable for any deficiency.
The references to "Landlord" in this Lease shall be limited to mean
and include only the owner or owners, at the time, of the fee simple
interest in the Building. In the event of a sale or transfer of
such interest (except a mortgage or other transfer as security for a
debt), the "Landlord" named herein, or, in the case of a subsequent
transfer, the transferor, shall, after the date of such transfer, be
automatically released from all liability for the performance or
observance of any term, condition, covenant or obligation required
to be performed or observed by Landlord hereunder; and the
transferee shall be deemed to have assumed all of such terms,
conditions, covenants and obligations.
Section 13.05. Nonwaiver of Defaults. Neither party's failure or
delay in exercising any of its rights or remedies or other
provisions of this Lease shall be construed to be a waiver thereof
or affect its right thereafter to exercise or enforce each and every
such right or remedy or other provision. No waiver of any default
shall be deemed to be a waiver of any other default. Landlord's
receipt of less than the full rent due shall not be construed to be
other than a payment on account of rent then due, nor shall any
statement on Tenant's check or any letter accompanying Tenant's
check be deemed an accord and satisfaction, and Landlord may accept
such payment without prejudice to Landlord's right to recover the
balance of the rent due or to pursue any other remedies provided in
this Lease. No act or omission by Landlord or its employees or
agents during the term of this Lease shall be deemed an acceptance
of a surrender of the Leased Premises, and no agreement to accept
such a surrender shall be valid unless in writing and signed by
Landlord.
Section 13.06. Attorneys' Fees. If either party defaults in the
performance or observance of any of the terms, conditions, covenants
or obligations contained in this Lease and the non-defaulting party
obtains a judgment against the defaulting party, then the defaulting
party agrees to reimburse the non-defaulting party for the
attorneys' fees incurred thereby.
ARTICLE 14 - LANDLORD'S RIGHT TO RELOCATE TENANT
Landlord shall have the right, at its option, upon at least one
hundred twenty (120) days' prior written notice to Tenant, to
relocate Tenant and to substitute for the Leased Premises other
space in the Building or in the Park, containing at least as much
rentable area as the Leased Premises. Such substituted space shall
be improved by Landlord, at its expense, with improvements at least
equal in quantity and quality to those in the Leased Premises.
Landlord shall reimburse Tenant for all reasonable expenses incurred
with and caused by such relocation (including telephone
installation, moving of equipment and furniture, and printing of
stationery with the Tenant's new address) within sixty (60) days
following receipt from Tenant of invoices or receipts marked "paid
in full." Landlord agrees to pay Tenant an additional Ten Thousand
Dollars ($10,000.00) for the inconvenience to Tenant caused by such
relocation. In no event shall Landlord be liable to Tenant for any
consequential damages as a result of any such relocation, including,
but not limited to, loss of business income or opportunity. Upon
completion of the relocation, Landlord and Tenant shall amend this
Lease to change the description of the Leased Premises and any other
matters pertinent thereto.
ARTICLE 15 - NOTICE AND PLACE OF PAYMENT
Section 15.01. Notices. Any notice required or permitted to be
given under this Lease or by law shall be deemed to have been given
if it is written and delivered in person or by overnight courier or
mailed by certified mail, postage prepaid, to (i) the party who is
to receive such notice at the address specified in the Basic Lease
Provisions and (ii) in the case of a default notice from Tenant to
Landlord, any Lender designated by Landlord. When so mailed, the
notice shall be deemed to have been given as of the date it was
mailed. Either party may change its address by giving written
notice thereof to the other party.
Section 15.02. Place of Payment. All payments required to be made
by Tenant to Landlord shall be delivered or mailed to Landlord's
management agent at the address specified in the Basic Lease
Provisions or any other address Landlord may specify from time to
time by written notice to Tenant.
ARTICLE 16 - TENANT'S RESPONSIBILITY REGARDING
ENVIRONMENTAL LAWS AND HAZARDOUS SUBSTANCES.
Section 16.01. Definitions.
a. "Environmental Laws" - All federal, state and municipal
laws, ordinances, rules and regulations applicable to the
environmental and ecological condition of the Leased Premises,
including, without limitation, the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended; the Federal Resource Conservation and Recovery Act; the
Federal Toxic Substance Control Act; the Clean Air Act; the Clean
Water Act; the rules and regulations of the Federal Environmental
Protection Agency, or any other federal, state or municipal agency
or governmental board or entity having jurisdiction over the Leased
Premises.
b. "Hazardous Substances" - Includes:
(i) Those substances included within the definitions of
"hazardous substances," "hazardous materials," "toxic
substances" "solid waste" or "infectious waste" in any of
the Environmental Laws; and
(ii) Such other substances, materials and wastes which
are or become regulated under applicable local, state or
federal law, or which are classified as hazardous, toxic or
infectious under present or future Environmental Laws or
other federal, state, or local laws or regulations.
Section 16.02. Compliance. Tenant, at its sole cost and expense,
shall promptly comply with the Environmental Laws which shall impose
any duty upon Tenant with respect to the use, occupancy, maintenance
or alteration of the Leased Premises. Tenant shall promptly comply
with any notice from any source issued pursuant to the Environmental
Laws or with any notice from any insurance company pertaining to
Tenant's use, occupancy, maintenance or alteration of the Leased
Premises, whether such notice shall be served upon Landlord or
Tenant.
Section 16.03. Restrictions on Tenant. Tenant shall not cause or
permit to occur:
a. Any violation of the Environmental Laws related to
environmental conditions on, under, or about the Leased Premises, or
arising from Tenant's use or occupancy of the Leased Premises,
including, but not limited to, soil and ground water conditions.
b. The use, generation, release, manufacture, refining,
production, processing, storage or disposal of any Hazardous
Substances on, under, or about the Leased Premises, or the
transportation to or from the Leased Premises of any Hazardous
Substances, except as necessary and appropriate for general office
use in which case the use, storage or disposal of such Hazardous
Substances shall be performed in compliance with the Environmental
Laws and the highest standards prevailing in the industry.
Section 16.04. Notices, Affidavits, Etc.
a. Tenant shall immediately notify Landlord of (i) any
violation by Tenant, its employees, agents, representatives,
customers, invitees or contractors of the Environmental Laws on,
under or about the Leased Premises, or (ii) the presence or
suspected presence of any Hazardous Substances on, under or about
the Leased Premises and shall immediately deliver to Landlord any
notice received by Tenant relating to (i) and (ii) above from any
source.
b. Tenant shall execute affidavits, representations and the
like from time to time, within five (5) days of Landlord's request
therefor, concerning Tenant's best knowledge and belief regarding
the presence of any Hazardous Substances on, under or about the
Leased Premises.
Section 16.05. Landlord's Rights.
a. Landlord and its agent shall have the right, but not the
duty, upon advance notice (except in the case of emergency when no
notice shall be required) to inspect the Leased Premises and conduct
tests thereon at any time to determine whether or the extent to
which there has been a violation of Environmental Laws by Tenant or
whether there are Hazardous Substances on, under or about the Leased
Premises. In exercising its rights herein, Landlord shall use
reasonable efforts to minimize interference with Tenant's business
but such entry shall not constitute an eviction of Tenant, in whole
or in part, and Landlord shall not be liable for any interference,
loss, or damage to Tenant's property or business caused thereby.
b. If Landlord, any lender or governmental agency shall ever
require testing to ascertain whether there has been a release of
Hazardous Substances on, under or about the Leased Premises or a
violation of the Environmental Laws, and such requirement arose in
whole or in part because of an act or omission on the part of
Tenant, then the reasonable costs thereof shall be reimbursed by
Tenant to Landlord upon demand as Additional Rent.
Section 16.06. Tenant's Indemnification. Tenant shall indemnify
and hold harmless Landlord and Landlord's managing agent from any
and all claims, loss, liability, costs, expenses or damage,
including attorneys' fees and costs of remediation, incurred by
Landlord in connection with any breach by Tenant of its obligations
under this Article 16. The covenants and obligations of Tenant
under this Article 16 shall survive the expiration or earlier
termination of this Lease.
Section 16.07. Landlord's Representation. Landlord represents to
Tenant, to the best of its knowledge, that (i) prior to the date of
this Lease, no spill, disposal or other release of any Hazardous
Substances at, on, in or from the Leased Premises has occurred; (ii)
there are no underground storage tanks on the Leased Premises; and
(iii) Landlord is in compliance with all Environmental Laws.
Notwithstanding anything contained in this Article 16 to the
contrary, Tenant shall not have any liability under this Article 16
for or resulting from any conditions existing, or events occurring,
or the presence, spill, disposal or other release of Hazardous
Substances at, in, on, under, or from the Leased Premises or
Building prior to the Commencement Date of this Lease except to the
extent Tenant exacerbates the same and Landlord shall indemnify and
hold harmless Tenant from any and all claims, loss, liability,
costs, expenses or damage, including attorneys' fees and costs of
remediation, incurred by Tenant in connection with the spill,
disposal or other release of Hazardous Substances at, on, in or from
the Leased Premises during the period of Landlord's ownership
thereof (and prior to the Commencement Date) or Landlord's violation
of any Environmental Laws.
ARTICLE 17 - MISCELLANEOUS
Section 17.01. Benefit of Landlord and Tenant. This Lease and all
of the terms and provisions hereof shall inure to the benefit of and
be binding upon Landlord and Tenant and their respective successors
and assigns.
Section 17.02. Governing Law. This Lease shall be governed in
accordance with the laws of the State of Ohio.
Section 17.03. Guaranty. [Intentionally Omitted]
Section 17.04. Force Majeure. Landlord shall be excused for the
period of any delay in the performance of any obligation hereunder
when such delay is occasioned by causes beyond its control,
including, but not limited to, war, invasion or hostility; work
stoppages, boycotts, slowdowns or strikes; shortages of materials,
equipment, labor or energy; man-made or natural casualties; unusual
weather conditions; acts or omissions of governmental or political
bodies; or civil disturbances or riots.
Section 17.05. Condition of Premises. Tenant acknowledges that
neither Landlord nor any agent of Landlord has made any
representation or warranty with respect to the Leased Premises or
the Building or with respect to the suitability or condition of any
part thereof for the conduct of Tenant's business except as provided
in this Lease.
Section 17.06. Examination of Lease. Submission of this instrument
for examination or signature to Tenant does not constitute a
reservation of or option for Lease, and it is not effective as a
Lease or otherwise until execution by and delivery to both Landlord
and Tenant.
Section 17.07. Indemnification for Leasing Commissions. The
parties hereby represent and warrant that the only real estate
brokers involved in the negotiation and execution of this Lease are
those named in the Basic Lease Provisions and that no other broker
or person is entitled to any leasing commission or compensation as a
result of the negotiation or execution of this Lease. Each party
shall indemnify and hold the other harmless from any and all
liability for the breach of this representation and warranty on its
part and shall pay any compensation to any other broker or person
who may be deemed or held to be entitled thereto.
Section 17.08. Quiet Enjoyment. If Tenant shall perform all of the
covenants and agreements herein provided to be performed by Tenant,
Tenant shall, at all times during the Lease Term, have the quiet
enjoyment and peaceful possession of the Leased Premises without
hindrance from Landlord or any persons lawfully claiming under
Landlord, except as may be provided in Section 12.02 hereunder.
Section 17.09. Severability of Invalid Provisions. If any
provision of this Lease shall be held to be invalid, void or
unenforceable, the remaining provisions hereof shall not be affected
or impaired, and such remaining provisions shall remain in full
force and effect.
Section 17.10. Financial Statements. During the Lease Term and any
extensions thereof, Tenant shall provide to Landlord within thirty
(30) days following Landlord's request, a copy of Tenant's most
recent financial statements prepared as of the end of Tenant's
fiscal year. Such financial statements shall be signed by Tenant or
an authorized officer or representative of Tenant who shall attest
to the truth and accuracy of the information set forth in such
statements. All financial statements provided by Tenant to Landlord
hereunder shall be prepared in conformity with generally accepted
accounting principles, consistently applied.
Section 17.11. Tenant's Representations and Warranties. The
undersigned represents and warrants to Landlord that (i) Tenant is a
corporation that is duly organized, validly existing and in good
standing in accordance with the laws of the state under which it was
organized; (ii) all action necessary to authorize the execution of
this Lease has been taken by Tenant; and (iii) the individual
executing and delivering this Lease on behalf of Tenant has been
authorized to do so, and such execution and delivery shall bind
Tenant. Tenant, at Landlord's request, shall provide Landlord with
evidence of such authority.
Section 17.12. Representations and Indemnifications. Any
representations and indemnifications of Landlord contained in the Lease
shall not be binding upon (i) any mortgagee having a mortgage presently
existing or hereafter placed on the Building, or (ii) a successor to
Landlord which has obtained or is in the process of obtaining fee title
interest to the Building as a result of a foreclosure of any mortgage
or a deed in lieu thereof.
Section 17.13. Agency Disclosure. Tenant acknowledges having
reviewed the Agency Disclosure Statement and Tenant acknowledges that
said Statement is signed and attached hereto and made a part hereof as
Exhibit C. The broker identified as representing Landlord in Item J
of Section 1.01 hereof, and its agents and employees, have represented
only Landlord, and have not in any way represented Tenant, in the
marketing, negotiation and completion of this lease transaction.
Section 17.14. Additional Provisions. Additional provisions, if
any, are attached hereto as an Addendum, the provisions of which are
incorporated herein by reference. In the event of any
inconsistencies between the provisions of this Lease and of the
Addendum, the provisions of the Addendum shall control.
Section 17.15. Option to Extend.
A. Grant and Exercise of Option. Provided that Tenant is not
in default hereunder, Tenant shall have one (1) option to extend the
original term of this Lease ("Original Term") for one (1) additional
period of five (5) years (the "Extension Term"). The Extension Term
shall be upon the same terms and conditions contained in the Lease
for the Original Term except (i) Tenant shall not have any further
option to extend and (ii) the Minimum Annual Rent shall be adjusted
as set forth herein ("Rent Adjustment"). Tenant shall exercise such
option by delivering to Landlord, no later than six (6) months prior
to the expiration of the Original Term, written notice of Tenant's
desire to extend the Original Term. Tenant's failure to properly
exercise such option shall waive it. If Tenant properly exercises
its option to extend, Landlord shall notify Tenant of the Rent
Adjustment no later than ninety (90) days prior to the commencement
of the Extension Term. Tenant shall be deemed to have accepted
the Rent Adjustment if it fails to deliver to Landlord a written
objection thereto within five (5) business days after receipt
thereof. If Tenant properly exercises its option to extend,
Landlord and Tenant shall execute an amendment to the Lease (or, at
Landlord's option, a new lease on the form then in use for the
Building) reflecting the terms and conditions of the Extension Term.
B. Market Rent Adjustment. The Minimum Annual Rent for the
Extension Term shall be an amount equal to the Minimum Annual Rent
then being quoted by Landlord to prospective new tenants of the
Building for space of comparable size and quality and with similar
or equivalent improvements as are found in the Building, and if
none, then in similar buildings in the Park, excluding free rent and
other concessions; provided, however, that in no event shall the
Minimum Annual Rent during the Extension Term be less than the
highest Minimum Annual Rent payable during the Original Term. The
Minimum Monthly Rent shall be an amount equal to one-twelfth (1/12)
of the Minimum Annual Rent for the Extension Term and shall be paid
at the same time and in the same manner as provided in the Lease.
Section 17.16. Right of First Refusal. Provided that (i) Tenant is
not in default, (ii) the creditworthiness of Tenant is then
acceptable to Landlord, and (iii) Tenant originally named herein
remains in possession of and has been continuously operating in the
entire Leased Premises throughout the Lease Term to Landlord, and
subject to any prior rights of other tenants to the Refusal Space,
Tenant shall have the right of first refusal ("Refusal Option") to
lease contiguous space in the Building crosshatched on the attached
Exhibit D ("Refusal Space") as such space becomes available for
leasing during the Lease Term. The term for the Refusal Space shall
be coterminous with the Lease Term, provided, however, that the
minimum term for the Refusal Space shall be three (3) years and the
Lease Term shall be extended, if necessary, to be coterminous with
the term for the Refusal Space. The Refusal Space shall be offered
to Tenant at the rental rate and upon such other terms and
conditions, excluding free rent and other concessions, as are then
being offered by Landlord to a specific third party prospective
tenant for such space, but in no event shall such rental rate be
less than the then current rental rate under this Lease. In the
event that the Refusal Space is not leased to the initial third
party prospective tenant, then this Refusal Option shall remain in
effect in the event of an offer to any other specific third party
prospective tenant and the Refusal Space shall again be offered to
Tenant in accordance herewith.
Upon notification in writing by Landlord that the Refusal Space is
available, Tenant shall have five (5) business days in which to
notify Landlord in writing of its election to lease the Refusal
Space at such rental rates described above, in which event this
Lease shall be amended to incorporate such Refusal Space.
In the event Tenant declines or fails to elect to lease the Refusal
Space, then this Refusal Option shall automatically terminate and
shall thereafter be null and void as to such space.
It is understood and agreed that this Refusal Option shall not be
construed to prevent any tenant in the Building from extending or
renewing its lease.
Section 17.17. Early Occupancy. Landlord hereby agrees that Tenant
shall be allowed to take possession of the Leased Premises on or
before June 25, 1997. All terms and conditions of this Lease will
become effective upon Tenant taking possession of the Leased
Premises, except for the payment of Minimum Annual Rent and Annual
Rental Adjustment, which will commence on July 1, 1997.
IN WITNESS WHEREOF, the parties hereto have executed this Lease the
day and year first above written.
LANDLORD:
WITNESSES:
DUKE REALTY LIMITED PARTNERSHIP,
- ------------ an Indiana limited partnership
- ------------
(Printed) By: Duke Realty Investments,
Inc., its General Partner
- ---------------------
- --------------------- By: ROBERT FESSLER
--------------
(Printed) Robert Fessler
General Manager,
Cincinnati Industrial
TENANT:
WITNESSES:
ACCESS CORPORATION, an Ohio
- -------------------- corporation
- --------------------
(Printed) By: -------------------
- ---------------------------- Printed:--------------------
- ----------------------------
(Printed) Title: ____________________
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
Before me, a Notary Public in and for said County and State,
personally appeared Robert Fessler, by me known and by me known to
be the General Manager of Duke Realty Investments, Inc., an Indiana
corporation, the general partner of Duke Realty Limited Partnership,
an Indiana limited partnership, who acknowledged the execution of
the foregoing "Office Lease" on behalf of said partnership.
WITNESS my hand and Notarial Seal this ------ day of -------- , 1997.
--------------------------------
Notary Public
-------------------------------
(Printed Signature)
My Commission Expires:
My County of Residence:
STATE OF )
) SS:
COUNTY OF )
Before me, a Notary Public in and for said County and State, personally
appeared _________________, by me known and by me known to be
the ________________________, of Access Corporation, an Ohio
corporation, who acknowledged the execution of the above and foregoing
Lease Agreement for and on behalf of said corporation.
WITNESS my hand and Notarial Seal this day of
, 1997.
------------------------------
Notary Public
------------------------------
(Printed Signature)
My Commission Expires:
My County of Residence:
f:\realesta.te\spark-ky\leases\access.doc 06/12/97 4:31 PM
RULES AND REGULATIONS
(These Rules and Regulations have been adopted for the purpose of
insuring order and safety in the Building and of maintaining the
rights of Lessee and of the Lessor.)
1. The sidewalks, entrances, driveways and roadways serving and
adjacent to the Leased Premises, are the property of the Lessor, and
shall not be obstructed or used for any purpose other than ingress
and egress. The Lessor shall in all cases retain the right to
control and prevent access to the Property, of all persons whose
presence, in the judgment of the Lessor or its employees, shall be
prejudicial to the safety, character, reputation or interests of the
property or neighboring buildings.
2. No awnings or other projections shall be attached to the
outside walls of the Building. Neither the interior nor the
exterior of any windows shall be coated or otherwise sunscreened
without written consent of Lessor.
3. The water and wash closets and other plumbing fixtures shall
not be used for any purposes other than those for which they were
constructed, and no sweepings, rubbish, rags or other substances
shall be thrown herein. All damages resulting from any misuse of
the fixtures shall be borne by the Lessee who, or whose sublessees,
assignees or any of their servants, employees, agents, visitors or
licensees shall have caused the same.
4. No Lessee shall mark, paint, drill into or in any way deface
any part of the exterior Leased Premises or in the Building. No
boring, cutting or stringing of wires shall be permitted, except
with the prior written consent of the Lessor and Lessor may direct.
5. No birds or animals of any kind shall be brought onto or
kept in or about the Property, and no cooking shall be done or
permitted by any Lessee on the Leased Premises, except that the
preparation of coffee, tea, hot chocolate and similar items for
Lessees and their employees shall be permitted provided power shall
not exceed that amount which can be provided by a 30-amp circuit.
No Lessee shall cause or permit any unusual or objectionable odors
to be produced or permeate outside the Leased Premises.
6. The Leased Premises shall not be used for manufacturing
except for manufacturing of media and related purposes, unless the
use conforms to the zoning applicable to the area and the Lessor
provides written consent. No Lessee shall operate a business or an
office in the Leased Premises for the manufacture or sale of liquor,
narcotics, or tobacco in any form, or as a retail or wholesale store
or general office, in contradiction to the permitted use in this
Lease, without the express written consent of Lessor, not to be
unreasonably withheld. The Leased Premises shall not be used for
lodging or sleeping or for any immoral or illegal purpose.
7. No Lessee shall make, or permit to be made, any noise which
may disturb or interfere with occupants of neighboring buildings
whether by the use of any musical instrument, radio, phonograph,
unusual noise or in any other way.
8. No Lessee, sublessee or assignees nor any of its servants,
employees, agents, visitors or licensees shall at any time bring or
keep upon the Leased Premises any flammable, combustible or
explosive fluid, chemical or substance, other than that which is
ordinary and necessary for the Lessee's use of the Leased Premises,
as contemplated herein.
9. Each Lessee must upon the termination of its tenancy,
deliver to the Lessor all keys to the offices, storage rooms,
toilet rooms, either furnished to, or otherwise procured by, such
Lessee.
10. All persons employed by any Lessee to do work upon the
Leased Premises, while in the Building and outside of the Leased
Premises, shall be subject to and under the control and direction of
the Lessee, and Lessee shall be responsible for all acts of such
persons.
11. Canvassing, soliciting and peddling in the adjacent
buildings are prohibited, and each Lessee shall report and otherwise
cooperate to prevent the same.
12. Lessee agrees that it shall not discriminate upon the basis
of race, color, religion, sex or national origin in the use and
occupancy or in any sublease or subletting of the Leased Premises.
13. No outside storage is permitted including without limitation
the storage of trucks and other vehicles.
14. The Lessor reserves the right to reasonably rescind, modify
or supplement any of these rules and to make such other and further
reasonable rules and regulations which, in the Lessor's judgment may
from time to time be necessary for the safety and cleanliness of the
Leased Premises, and for the assurance of good order therein.
Lessor agrees to provide Lessee with a copy of said rules which
shall be deemed a part of this Lease.
Anything contained in these Rules and Regulations which is contrary to or
inconsistent with any express provision of the Lease shall be void and of no
force and effect.
To Our Shareholders:
Fiscal Year 1997 was a year of dramatic change and mixed financial
results, ending with a solid fourth quarter including our second
acquisition in as many years, which bodes well for FY 1998. Our
continued focus on increasing the quality and quantity of our
services paid off with growth in the strategically important
hardware service sector of our business. As I promised last year,
we combined internal growth with a strategy for obtaining
additional service revenue through acquisition. This culminated
in the April, 1997 acquisition of the assets of Graphic Systems
Technology, Inc., an independent provider of services for the
electronic pre-press industry.
Revenue increases in third party hardware maintenance and software
maintenance were offset by larger than expected revenue decreases
in Access proprietary hardware maintenance and Cimage software.
When excluding amortization for capitalized software, a non cash
charge in fiscal 1997, the Company generated $18,000 Net Profit
Before Income Taxes. This was the result of careful cost control
throughout the year. A $1,069,000 write-off of capitalized
software during this year caused a net loss after taxes of
$1,051,000. Our cash position is healthy, even after the
acquisition late in the year.
Access' business continues to change at a dramatic pace. Rapid
technological change coupled with our focus on new growth oriented
business opportunities has dramatically changed ACCESS Corporation
s' revenue mix. In FY 1997, 64% of our revenue came from
products or services that were not offered as recently as FY 1994.
Financial Results:
Although portions of our company did well in FY 1997, overall,
total company revenue for FY 1997 decreased by 20% to $6,929,000.
This was largely due to revenue reductions in two key areas:
Cimage EDMS software sales (down 30%) and Access System M, the
Company's proprietary storage and retrieval equipment which is no
longer being manufactured, hardware maintenance revenue (down
41%). However, after strong performances in FY 1996,
professional services and software maintenance continued to turn
in solid revenue results for FY 1997 with modest revenue changes
of +1.8% and +3.9%, respectively. Our third party hardware
maintenance business clearly stole the show with a 98% revenue
increase over FY 1996.
Despite the revenue decrease from FY 1996, we were able to end FY
1997 with a very modest operating profit of $18,000 excluding the
amortization of capitalized software. As the year began to
unfold, we managed our cost structure carefully, including a 13%
decrease in operating expense for the year. We showed a large
net loss after taxes of $1,051,000 for the year due to the
accelerated write-off of $1,069,000 of capitalized software
development costs for the year. This write-off represents the
remaining balance of the EDICS/400 software development costs
capitalized in FY 1993. We are committed to continued support for
our existing EDICS/400 customers and we are actively offering this
product for sale to new and existing customers. However, after
reviewing the sales prospects for this software product line, we
concluded that continuing this capitalization was inconsistent
with our future potential revenue.
Access finished the year with a very strong fourth quarter. At
$2,377,000 in revenue, and $207,000 in net income after tax, the
fourth quarter represented an upturn in every area of our
business.
Our cash position continues to remain strong. After investing
approximately $324,000 in net cash in the fourth quarter for the
acquisition of the assets of Graphic Systems Technology, Inc., a
provider of Pre-press field maintenance and related services, we
ended the year with over $1.4 million in cash, and (still) no bank
debt.
Hardware and Software Maintenance:
At $4,040,000, hardware and software maintenance revenue accounted
for 58% of total company revenue in FY 1997.
Since 1992 Access has been aggressively developing a very high
quality, flexible, quick response third party maintenance
operation. Our growth strategy for Third Party Maintenance (TPM)
has been and continues to be one of focusing on delivering
exceptionally high levels of customer satisfaction, servicing
mission critical hardware and software, and providing nationwide
service coverage for our Support Partners. This has delivered
five straight years of high double-digit revenue growth rates, for
an average annual growth rate for the last five years of 86% per
year. At $1,872,000, total hardware and software TPM revenue for
FY 1997 increased by 63% over the previous year, comprising 27% of
total company revenue. At $1,097,000 for FY 1997, Hardware TPM
increased by 98% over FY 1996, while software TPM increased by 31%
to $775,000.
Access Corporation
Third Party Maintenance Revenue
Hardware & Software
Last year I reported that we were supporting 600 customers
worldwide. At this time we are now providing maintenance support
to over 4,000 customers worldwide - more than a 600% increase- and
that number is growing daily. Our Support Partner Program offers
flexible, high quality maintenance services for vendors of
technical hardware and software. As of this writing, 14 companies
have become Access Support Partners, choosing Access to take care
of their customers.
Access Corporation
National Field Service Coverage
Our nationwide service coverage is delivered by over 80 well-
trained, highly qualified technicians. We currently are
supporting customers in 48 states, including Alaska and Hawaii,
and we can add any city in North America to our coverage within
five business days. Our support repertoire includes over 50
different software and 90 different hardware products.
Individually tailored support programs combined with available 24
hour, 7 day per week coverage gives our customers the flexibility
to tailor their support to their unique business needs.
Increasing by 3.8% over last fiscal year, software maintenance
continued its 4th year in a row of revenue growth. Buoyed by a
31% increase in Cimage related software maintenance, software
maintenance was 19% of total company revenue in FY 1997.
Consistent with our overall services strategy, we invested in
technical cross-training of our technical services personnel to
increase our productivity and our ability to provide customer
satisfaction.
Pre-Press Acquisition:
As I discussed last year, we began FY 1997 with a plan to look for
growth opportunities through acquisition. I outlined an
acquisition program designed to bring in additional on-going
service revenue, additional customers, and additional products or
services.
As a result of that program, on Friday April 11, 1996 we purchased
the assets of Graphic Systems Technology, Inc. (GST). GST was a
recognized independent service company for the electronic pre-
press industry. By the following Monday, we were supporting GST's
former customers. Within days, we had hired approximately 20 of
GST's former employees, effectively doubling the number of Access'
field hardware maintenance employees. GST's former Field Service
Representatives (FSR's) have proven to be highly qualified field
engineers with a customer-first culture similar to Access'. This
increased geographical coverage and growth of our field personnel
significantly increases Access' capacity to service additional
Service Partners.
EDMS Business Unit:
Focused EDMS marketing during FY 1997 resulted in a 112% increase
in the number of orders received over FY 1996, evidence of the
underlying strength of the EDMS business. As we began the year,
our primary objective for our EDMS Business unit was to replace in
FY 1997 the $2,148,000 in software revenue contributed by a single
customer in FY 1996. Although our efforts were successful in
producing a dramatic increase in the number of orders received,
total EDMS software revenue decreased from $2,850,000 to
$2,006,000.
Cimage Enterprise Systems (CES), our UK-based provider of the
Cimage software product, continues to invest in product quality
and is a market leader in EDMS functionality. CES also
demonstrated their commitment to the US market place by increasing
their US marketing investment during the year. Cimage related
Professional Services revenue also produced a very strong showing,
increasing by 100% to $574,000
Business Strategy for the Future:
FY 1998 will begin with solid increases in Third Party Maintenance
(TPM) revenue resulting from the aggressive marketing of our
unique capabilities this past year combined with the new Pre-Press
business. We will continue our strategy of delivering exceptional
levels of customer satisfaction to attract quality oriented
Service Partners. Strategic investments in technology to automate
and continuously improve our systems and processes will further
our ability to deliver a very high quality, flexible, quick
response third party maintenance with nationwide coverage. We
expect steady revenue growth from this business unit throughout
the year.
Growth through acquisition has been successful in each of the past
two years. This strategy will continue in FY 1998. The
investments in this area in FY 1997 not only resulted in the April
11 asset acquisition of GST's assets, but also identified a number
of possible acquisition targets which we will pursue in FY 1998.
Our EDMS business unit will continue to focus on the
manufacturing, petrochemical, and utilities market segments where
the Cimage product has proven to meet customer requirements
extremely well. Cimage has scheduled new software releases in the
coming year that promise to further enhance their leading role in
the EDMS market place. Our strategy for EDMS growth includes
combined Cimage and Access marketing directed at these segments
coupled with expanded distribution through reseller partners.
Fiscal Year 1997 saw the continued transformation of your company
to a nationwide service provider and software reseller. We
expect these strategies will continue to expand our coverage and
revenue growth in FY 1998.
Sincerely,
Scott D. Watkins
President & Chief Executive Officer
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