-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DkPowZTC7w439e/zuMiVYHBcuTHbGlS7PRfZuGqFnBLiMFEfhBgKiloN0vS2wePX LshzOdSbgXaHKMYMxOfZhg== 0000927356-97-001499.txt : 19971230 0000927356-97-001499.hdr.sgml : 19971230 ACCESSION NUMBER: 0000927356-97-001499 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971229 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANALYTICAL SURVEYS INC CENTRAL INDEX KEY: 0000753048 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 840846389 STATE OF INCORPORATION: CO FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-13111 FILM NUMBER: 97745656 BUSINESS ADDRESS: STREET 1: 1935 JAMBOREE DR STREET 2: SUITE 100 CITY: COLORADO SPRINGS STATE: CO ZIP: 80920 BUSINESS PHONE: 7195930093 MAIL ADDRESS: STREET 1: 1935 JAMBOREE DRIVE STREET 2: SUITE 100 CITY: COLORADO SPRINGS STATE: CO ZIP: 80920 10-K 1 FORM 10-K ANALYTICAL SURVEYS, INC FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ________________ COMMISSION FILE NUMBER 0-13111 Analytical Surveys, Inc. ------------------------ (Exact name of registrant as specified in its charter) Colorado 84-0846389 ------------------------------ ------------------ State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) 1935 Jamboree Drive, Colorado Springs, CO 80920 ----------------------------------------- --------- (Address or principal executive offices) (Zip Code) Registrant's telephone number, including area code (719) 593-0093 ---------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Securities registered pursuant to section 12(g) of the Act: Common Stock --------------------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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. [ ] The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant is $147,532,000, based on the closing price of the Common Stock on December 22, 1997. The number of shares outstanding of the registrant's Common Stock, as of December 22, 1997, was 6,127,390. DOCUMENTS INCORPORATED BY REFERENCE The following documents are incorporated by reference into Part III of this Report: the definitive proxy statement dated January 6, 1998. TABLE OF CONTENTS Page ---- PART I Item 1. Business Item 2. Properties Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders PART II Item 5. Market for Common Equity and Related Stockholder Matters Item 6. Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7. Financial Statements Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure PART III Item 9. Directors and Executive Officers of the Registrant Item 10. Executive Compensation Item 11. Security Ownership of Certain Beneficial Owners and Management Item 12. Certain Relationships and Related Transactions PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K PART I ITEM 1. BUSINESS. General Analytical Surveys, Inc. ("ASI" or the "Company") is a Colorado corporation incorporated in 1981. ASI's primary business is the production of precise computerized maps that are integrated with computerized information files or databases and are used in geographic information systems ("Geographic Information Systems" or "GIS"). Geographic Information Systems are used by federal, state and local governmental agencies, utilities, and businesses to store, retrieve, analyze and display information about the physical, technical, financial, and other characteristics of such diverse assets as utilities systems, natural resources properties, transportation networks, and residential and commercial communities. A GIS typically is created by converting a high resolution aerial photograph or paper map into a computerized base map, and then integrating various data with the base map. A distinguishing characteristic of GIS is that it allows the user to pinpoint a desired location on a computer screen that contains a highly accurate visual representation or map of the desired location and then to retrieve large amounts of stored data relating to that location. With computer technology, various types of information can be layered onto the map so as to enable the user to see the interrelationships of such types of data on a two- or three- dimensional basis. The Company also conducts a civil engineering practice through a division of MSE Corporation, a subsidiary of the Company. The Company completed two acquisitions during the fiscal year ended September 30, 1996 and another in fiscal 1997 in order to expand its capacity and to broaden its market exposure and expertise in various facets of the GIS data conversion business. Services Provided by ASI A Geographic Information System consists of four components: computer hardware, applications software, computerized maps, and computerized information (database) files. ASI produces the last two components of the GIS. ASI does not manufacture the computer hardware or applications software required by GIS end users but increasingly is purchasing and reselling hardware and software as a part of its services to customers. ASI produces maps for use on GIS computers from aerial photography through the use of analytical stereoplotters, computer equipment, and internally developed proprietary software. The Company also converts existing printed maps and other information into -1- computerized maps and computer information files. The final product can be delivered either as a computer data file or as a printed image. ASI employs subcontractors for tasks outside its expertise, such as aerial photography and ground survey. The Company also uses subcontractors for work similar to that performed by ASI employees in order to expand capacity, to meet deadlines, to reduce production costs, to manage work load and to encourage businesses owned by women and minorities. ASI conducts business in four facets of the GIS industry--facilities conversion, photogrammetric mapping, cadastral mapping, and digital orthophotography. Facilities conversion typically involves the detailed mapping of a physical plant, such as the power generation facility or electric distribution system of a utilities company. Large amounts of data can be input into a computer and tied to a particular location within the system that is being mapped. The user then can view a replica of the system on a computer screen and obtain selected data concerning any location on the screen. With facilities conversion, data can be stored and retrieved on a multi-dimensional basis so that, for example, data relating to one network can be viewed while superimposed on another network, or can be viewed separately. Most of ASI's customers in this area are investor-owned utilities and, to a lesser degree, municipal-owned utilities. Photogrammetric mapping involves the creation of a land-based map viewed as if from the air. The process of photogrammetric mapping typically starts with aerial photographs and, with an analytical stereoplotter (a three-dimensional viewing and data recording device) and proprietary software owned by ASI, involves the deletion of distortions that are inherent with aerial photographs so that the map becomes a highly precise replica of what exists on the ground. Photogrammetric mapping also can include contour maps and elevation models in order to create additional uses. The principal customers of ASI in this facet of the GIS industry are utilities companies (both investor and municipal-owned), and municipal entities who wish to use photogrammetric maps for such things as land use planning, tax assessments, management of public rights-of-way, and water and sewer facilities. In addition, ASI performs photogrammetric mapping services for engineering companies, the federal government, and mining companies. Cadastral mapping involves the creation of maps that show property lines, zoning of property, use restrictions relating to property, and other characteristics. Cadastral maps generally are prepared by digitizing existing paper maps or converting the legal descriptions of properties into map coordinates. The principal users of cadastral maps are local governments. Finally, digital orthophotography involves the creation of richly detailed maps that have the appearance of, and are based on, aerial photographs. Aerial photographs are scanned into a computer and then are corrected (orthorectified) to delete the distortions -2- inherent in all aerial photographs in order to arrive at a highly precise map. Through the GIS process, vector lines can be superimposed so as to enable the user to determine the precise location of a feature. Digital orthophotography can be considered a subset of photogrammetric mapping but is different in that its primary value is to create a highly precise map which looks like a photograph, without the ability to attach data to the map and to retrieve data through the computer process. The Company engages in research and development activities to develop new production process software and to improve existing process software. Research and development expenditures were $274,905 in fiscal year 1997 and $283,872 in fiscal year 1996. In addition, the Company often receives reimbursement from customers for software enhancements that are used for the customer's project but also may be used on other projects. Certain activities (principally ongoing software refinement) that previously were performed by the research and development group were transferred to operations staff in 1996. The GIS industry has grown dramatically over the last several years, as technical and price improvements in GIS hardware and software have made GIS systems more cost-effective and versatile. Marketing and Sales Virtually all of ASI's revenues are earned under fixed price contracts that cover a specific scope of work. The contracts typically are terminable by the customer on relatively short notice; however, the Company's experience is that a termination in the midst of a contract is rare. Slowdowns in the rate of new delivery orders and cuts in the scope of a project in order to satisfy the customer's own budget or cash flow requirements sometimes occur but are relatively uncommon. The Company is dependent upon its ability to secure new contracts from new as well as existing customers. The Company employs twelve sales representatives to market and sell its products and services throughout the United States and internationally. The Company maintains memberships in professional and trade associations and participates in industry conferences by presenting exhibits and technical papers. Contracts are awarded by customers through direct negotiation, competitive technical evaluation, competitive bid or a combination of such methods. ASI has directed its marketing efforts towards a clientele that requires high- quality digital mapping. ASI's customers include cities, counties, engineering companies, utility companies and federal governmental agencies. Historically, approximately half of ASI's revenues have been derived from state and local government contracts. These contracts may contain termination provisions for the convenience of the customer, lack of appropriated funds or default by the Company. Contracts with the United States government, which represent less than 10% of ASI's revenues, also may be subject to -3- renegotiation or termination. The Company expects that an increasing percentage of its new customers will be industrial and municipal GIS users. ASI receives a portion of its business from consultants who provide GIS consulting services to customers on a "turnkey" basis. These consultants typically identify the needs of their customer and then contract with the customer to find solutions for those needs. The consulting firms will acquire hardware and applications software for the project then will bid for GIS services from GIS production companies such as ASI. Consulting firms of this sort are a valuable source of business for ASI, and the Company's ability to operate profitably is dependent in part on the continuation of projects for such consulting firms. From time to time, the revenues earned on a specific contract may exceed ten percent of total Company revenues earned in a year. The only customer that accounted for more than 10% of the Company's revenues in the last two fiscal years was Southern New England Telephone, which accounted for 10% of revenues in 1996. The Company is unable to state whether any customer will account for more than 10% of revenues in 1998. Backlog represents the value of revenue not yet earned on contracts awarded to the Company; backlog increases when new contracts are awarded and decreases as revenue is earned. The Company's backlog was approximately $97,000,000 at September 30, 1997, up from $40,000,000 at September 30, 1996. The Company's current backlog includes several large projects that will extend over one to four years. Contracts for larger projects generally increase the Company's risk due to inflation (as well as due to changes in customer expectations and funding availability), but the Company receives the benefit of efficiencies in the utilization of staff due to the larger amount of work involved. ASI is required to furnish performance bonds to customers on some of its contracts. The percentage of the Company's work requiring bonds varies between 10% and 30%, depending on the mix of work in progress. Performance bonds are issued by a limited number of insurance companies. For the Company to continue to be able to obtain performance bonds, the Company must continue to be able to meet the underwriting standards of potential issuers and surety market conditions. Competition The GIS industry is highly fragmented, and ASI faces competition in all facets of the GIS data conversion business, from several relatively large companies and from numerous smaller companies. Competition may intensify in the future, both from existing companies that seek to expand their customer base and capabilities, and from new entrants to the industry. The Company also may face competition from commercial satellite companies, as improvements in the resolution of satellite photography are made. Management of the Company believes that the most significant form of competition would occur if a new entrant (or a group of regional companies that banded together) obtained large amounts of capital and consolidated the GIS data conversion business through acquisitions. Many of -4- the companies that now compete with the Company or that may compete with the Company in the future may have greater financial, technical and personnel resources than the Company. ASI seeks to compete on the basis of the quality of its products and the efficiency with which it can provide digital mapping services to customers. The Company uses its internally-developed proprietary software as well as commercially available software to automate much of the production process. The Company believes that its systematic approach enables it to achieve more consistent quality than it could if it used more manually-intensive methods. The performance of GIS services is labor intensive, and ASI's ability to operate competitively and on a profitable basis is dependent in part upon its ability to hire, train, and retain skilled employees in order to input the large amounts of data that are necessary for ASI's projects. As with many of its competitors, ASI utilizes the services of overseas independent contractors to perform certain data capture tasks at lower costs than could be achieved in the United States. In 1995, ASI obtained an option to purchase the business of an independent contractor in India that has been providing services to the Company; ASI exercised the option in 1997 and the closing is expected to occur in the near future, pending governmental approval from India. While management of the Company believes that it could replace the personnel in India and while the amounts paid overseas for the performance of services is not material, the ability of the Company to perform services under some existing contracts on a profitable basis is dependent upon the continued availability of lower-cost overseas contractors. Management of the Company believes that it is critical to the ability of the Company to compete in the GIS data conversion industry for it to retain highly qualified managers and executive officers. Recent Acquisitions The Company has acquired three GIS data conversion companies in the last two fiscal years. The acquisitions have expanded and diversified the Company's customer base, significantly increased backlog, and diversified the Company's geographical presence and market mix. ASI also has gained benefits from the acquisitions in the form of economies of scale and opportunities to utilize the "best practices" of all of the companies acquired. The most recent and largest of the three acquisitions was MSE Corporation ("MSE") which was acquired in July 1997. MSE, based in Indianapolis, Indiana, has focused on the utilities facilities data conversion business and offered ASI a significant inroad to markets in the Midwest. The acquisition also resulted in a doubling of the Company's backlog and added approximately 335 employees to the Company's work force. -5- The acquisition of Westinghouse Landmark GIS (now ASI Landmark) in July 1996 strengthened the Company's participation in the parcel mapping and deeds research mapping aspects of the cadastral mapping business, and gives the Company greater presence in the Southeast. Approximately 100 GIS professionals were added to the work force as a result of this acquisition. The first of the three acquisitions was Intelligraphics, Inc., which occurred in December 1995. This acquisition gave the Company a stronger presence in the utilities facilities data conversion business and a significant presence in the Midwest, added approximately 200 employees to ASI's work force, and gave the Company exposure to an international client base. Management of the Company believes that the ability of the Company to assimilate these three businesses (and other businesses that the Company may acquire) is critical to the success of the Company. Employees At September 30, 1997, ASI had approximately 800 employees, virtually all of whom are full-time. ASI offers its employees a typical benefits package including health, life, disability, and dental insurance; a 401-K tax deferred retirement savings plan; vacations and holidays. The Company does not provide any other retirement plan to its employees. ASI does not have a collective-bargaining agreement with any of its employees and generally considers relations with its employees to be good. ITEM 2. PROPERTIES The Company leases its office and production facilities under leases described in the table below.
Location Square Footage Lease Termination - -------- -------------- ----------------- Colorado Springs, Colorado 32,000 2004 Cary, North Carolina 23,400 2000 Waukesha, Wisconsin 25,300 1999 Indianapolis, Indiana 100,000 2001 (with two five-year options available to ASI)
-6- Management of the Company believes that these facilities are in generally good condition and adequate for the foreseeable needs of the Company. ASI also operates sales offices in Sterling, Virginia (near Washington, D.C.), Mt. Laurel, New Jersey, and West Palm Beach, Florida. The Company develops and uses proprietary software and production techniques in its business. These production tools are generally not sold to customers, but the Company relies on them for competitive advantages in quality and productivity. ITEM 3. LEGAL PROCEEDINGS. Neither the Company nor any of its properties is the subject of any material pending legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no matters submitted to a vote of the Company's shareholders during the fourth quarter of the year ended September 30, 1997. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Common Stock is traded over-the-counter in the NASDAQ National Market System under the symbol ANLT. The trading volume in the Common Stock has ranged from 378,000 shares per month to 1,647,000 shares per month in the year ended September 30, 1997. This range of trading volume may contribute to stock price volatility and limited trading liquidity. The Company's Board of Directors authorized a three for two stock split of the Common Stock for all shareholders of record on June 27, 1996. All share, option and per share amounts included in this Report have been adjusted for the effects of the stock split. The table below sets forth the range of high and low prices per share of Common Stock for each quarterly period for the fiscal years ended September 30, 1996, and 1997, as reported by the National Association of Securities Dealers Automated Quotations System (NASDAQ). These prices reflect inter-dealer quotations without adjustments for retail markup, markdown or commission, and do not necessarily represent actual transactions. -7-
Fiscal Year Ended September 30, 1996 High Low First Quarter $ 6.83 $ 4.59 Second Quarter $10.33 $ 6.00 Third Quarter $16.00 $ 8.08 Fourth Quarter $17.50 $ 8.75 Fiscal Year Ended September 30, 1997 First Quarter $13.00 $ 8.62 Second Quarter $13.38 $ 9.50 Third Quarter $14.25 $10.25 Fourth Quarter $24.62 $13.75
American Securities Transfer, Inc., the transfer agent for the Common Stock, has reported that there were approximately 400 shareholders of record as of September 30, 1997. This does not include the number of investors holding stock in "street name," which the Company estimates at 3,500 investors. Holders of the Common Stock are entitled to receive dividends as and when they may be declared by the Company's Board of Directors. No dividends have ever been paid with respect to the Common Stock, and the Company does not anticipate paying dividends in the foreseeable future. Under its present bank loan agreement, the Company must obtain the bank's consent if the Company wishes to pay a dividend; the bank has agreed not to withhold such consent unreasonably, but there is no assurance that the Company would receive the bank's consent to pay a dividend if the Company were to desire to do so. -8- Item 6. Selected Financial Data. Year ended September 30, ------------------------ (In thousands except per share amounts)
1997 1996 1995 1994 1993 ------- ------- ------- ------- ------ Statement of Operations Data (1) Sales $40,799 $22,669 $13,538 $11,176 $9,107 Costs and expenses 34,586 19,264 11,519 9,696 8,124 Other expenses, net 770 339 119 184 200 Income tax expense 2,112 1,153 716 492 298 ------- ------- ------- ------- ------ Net earnings (2) $ 3,331 $ 1,913 $ 1,184 $ 804 $ 485 ======= ======= ======= ======= ====== Weighted average shares outstanding 5,562 5,033 4,408 4,010 4,004 Earnings per share (2) (3) $0.60 $0.38 $0.27 $0.20 $0.12 ======= ======= ======= ======= ====== Balance Sheet Data September 30, ------------- (In thousands) 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Current assets $32,844 $16,452 $ 8,554 $ 6,443 $5,012 Current liabilities 11,759 6,466 2,816 2,749 2,133 ------- ------- ------- ------- ------ Working Capital $21,085 $ 9,986 $ 5,738 $ 3,693 $2,879 ======= ======= ======= ======= ====== Total assets $50,146 $21,988 $10,048 $ 8,016 $7,158 Long-term debt less current portion (4) $14,145 $ 4,528 $ 408 $ 391 $ 907 Stockholders' equity $23,831 $10,926 $ 6,654 $ 4,597 $3,738
Notes to Selected Financial Data (1) See note 2 to the Consolidated Financial Statements describing the Company's three business combinations. (2) All from continuing operations. (3) All per share amounts have been adjusted to reflect the 3 for 2 stock split that occurred on July 1, 1996. (4) Includes capital leases. -9- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS. THE DISCUSSION BELOW OF ASI'S RESULTS OF OPERATIONS AND FINANCIAL CONDITION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO. WITH THE EXCEPTION OF HISTORICAL MATTERS AND STATEMENTS OF CURRENT STATUS, CERTAIN MATTERS DISCUSSED BELOW AND ELSEWHERE IN THIS REPORT ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM TARGETS OR PROJECTED RESULTS. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY INCLUDE, AMONG OTHERS, GROWTH THROUGH BUSINESS COMBINATIONS AND INTERNAL EXPANSION, THE ABILITY TO ATTRACT AND RETAIN QUALIFIED EMPLOYEES AND CONSULTANTS, DEPENDENCE ON ASI'S ABILITY TO CONTINUE TO OBTAIN NEW CONTRACTS FOR ITS SERVICES, MANAGEMENT OF A LARGE AND RAPIDLY GROWING BUSINESS, ASSIMILATION OF RECENTLY ACQUIRED BUSINESSES, PROJECT RISKS ASSOCIATED WITH HIGHER THAN EXPECTED COSTS TO PERFORM UNDER CONTRACTS, PRICING AND MARGIN PRESSURE, AND COMPETITION. GENERAL MARKET CONDITIONS ALSO MAY AFFECT FUTURE RESULTS, INCLUDING THE ECONOMIC HEALTH OF THE UTILITIES MARKET, INTERNATIONAL ECONOMIC CONDITIONS, LOCAL TAX COLLECTIONS AND OTHER BUDGETARY CONSTRAINTS APPLICABLE TO MUNICIPALITIES, MUNICIPALITIES, AND FEDERAL GOVERNMENT SPENDING LEVELS. MANY OF THESE FACTORS ARE BEYOND THE COMPANY'S ABILITY TO PREDICT OR CONTROL. AS A RESULT OF THESE AND OTHER FACTORS, THE COMPANY'S PAST FINANCIAL PERFORMANCE SHOULD NOT BE RELIED ON AS AN INDICATION OF FUTURE PERFORMANCE. -10- Results of Operations The table below summarizes the changes in several key operating indicators. The percentages on the left show the relationship of various income and expense items to net revenues. The percentages on the right measure year-to-year changes.
Percentage of Sales* Year Ended September 30 Percentage Change* - ----------------------- --------------------------- 1997 1996 1995 1996 to 1997 1995 to 1996 - ---- ---- ---- ------------- ------------ 100 100 100 Sales 80 67 Costs and expenses: Salaries, Wages and 49 46 39 Related Benefits 88 100 14 17 24 Subcontractor Costs 51 20 17 16 16 General and Administrative 93 64 5 6 6 Depreciation and Amortization 50 51 15 15 15 Earnings from Operations 82 69 (2) (2) (1) Interest Expense 120 195 - - - Other Expense 13 13 14 Earnings before Income Taxes 78 61 5 5 5 Income Tax Expense 83 61 -- -- -- 8 8 9 Net Earnings 74 62 == == ==
*Rounded to the nearest whole percent. 1997 Compared to 1996 The Company continued its strategy of acquiring key participants in the GIS data conversion service industry through its acquisition of MSE Corporation ("MSE") in July 1997. MSE's primary focus has been to provide data conversion services to utilities, so that the acquisition has further increased the Company's penetration of that market. MSE also performs photogrammetric mapping and digital orthophotography for utilities and municipal clients. Approximately 20% of MSE's revenues are earned from its civil engineering practice. The MSE acquisition, combined with the two acquisitions made in fiscal year 1996 and internal growth, were the principal cause of the 80% increase in sales and the 82% increase in earnings from operations from 1996 to 1997. Total costs and expenses, including the amortization of goodwill recorded in the acquisitions, also increased 80 percent, matching the growth in sales. The combination of salaries plus subcontractor costs remained at 63% of sales, while salaries increased as a percentage of sales from 46% to 49% and subcontractor -11- costs decreased from 17% to 14%. This shift from subcontractors to salaries enables the Company to perform more tasks internally and reduce its use of external subcontractors. Interest expense, which increased by 120% from 1996 to 1997, represents virtually the entire amount of other expenses. Most of the increase in interest expense was attributable to term debt undertaken to fund the acquisitions. Earnings per share increased by 58% in 1997 over 1996. The increase in net earnings of 74% was partially offset by the 11% increase in average common shares outstanding. Common shares outstanding increased primarily due to the issuance of 925,000 shares in July 1997 in connection with the acquisition of MSE and the issuance of shares from the exercise of stock options. The Company's backlog of signed contracts increased to approximately $97,000,000, up 142% from 1996. The Company's expansion strategy has enabled it to obtain significant contracts with utilities customers, as well as municipal customers and commercial companies. Some of these projects are large, multiple- year contracts that offer the Company the benefit of increased work but also subject the Company to increased risks due to possible inflation and changing customer expectations. The Company continues to seek and perform both larger and smaller projects for future work. 1996 Compared to 1995 The Company acquired Intelligraphics Inc. ("Intelligraphics") in December 1995 in order to implement a strategy to enter the utilities facilities data conversion market. The acquisition allowed the Company to enter the utilities data conversion market more quickly and at a lower cost than would have been the case under a strategy of developing the technology and market presence internally. The utilities data conversion market is highly competitive, and margins are generally lower than those earned by the Company in its other markets, but the lower margins are usually mitigated by the larger contract size and term and the expected greater volume of conversion work to be done in this market. A second acquisition in July 1996, Westinghouse Landmark GIS, also contributed to the Company's growth strategy and provided the capability to perform deeds research tax mapping, which the Company had conducted through outside subcontractors. This acquisition also provided additional capacity in the Company's photogrammetry and cadastral mapping markets, as well as an enhanced regional presence in the east and southeast regions of the United States. The two acquisitions, combined with the Company's original Colorado-based business, caused net income from continuing operations (net earnings) to increase by 62% from 1995 to 1996, on a sales increase of 67%. Total costs and expenses remained at 85% of sales, with salaries, wages and benefits increasing to 46% from 39% of sales, while subcontractor costs decreased to 17% of sales from 24% for 1995. The combination of -12- salaries plus subcontractor costs remained at 63% of sales. This shift towards a greater salaries component reflected the higher labor input required at the two acquired production facilities and a lower use of outside subcontractors in those locations. The two acquisitions have permitted the Company to complete a greater proportion of its production work using internal resources as opposed to outside subcontractors. Interest expense increased by 195% from 1995 to 1996, due to the increased debt undertaken to complete the two acquisitions. Earnings per share increased by 41% over the previous year. This increase reflects the 62% increase in net earnings (all from operations) and the 14% increase in average common shares outstanding in 1996 over 1995. Approximately 40% of the increase in average shares outstanding is the result of 345,000 shares issued in connection with the Intelligraphics acquisition, and the balance is due to the issuance of shares for stock option exercises. Liquidity and Capital Resources Cash flows from operating activities increased by 252% in 1997 over 1996. Net earnings plus depreciation and amortization increased by 65% in 1997 over 1996. The tax benefit relating to the exercise of stock options increased by $422,000 to $1,307,000 from 1996 to 1997. These increases were partially offset by the increased investment in the net current assets of the Company (caused principally by revenues in excess of billings). Cash flows from operating activities increased by 30% in 1996 over 1995. Net earnings plus depreciation and amortization increased by 57% from $1,969,000 in 1995 to $3,097,000 in 1996. Cash flows from operations were also favorably affected by the 103% increase in tax benefit relating to exercise of employee stock options. Cash flows from operations were reduced by increased investment in the net current assets of the Company, principally due to accounts receivable and revenues in excess of billings. These contract-related balances fluctuate due to the aggregate effect of the progress on specific projects and billing and payment terms of the contracts for such projects. Cash flows used in investing activities are comprised of the cash component of the cost of the net assets acquired in the MSE acquisition and routine capital equipment additions. Cash flows from financing activities are comprised of the proceeds of term debt used for the cash component of the cost of the net assets acquired in acquisitions, routine use of the Company's bank line of credit, scheduled debt repayments, and the proceeds of stock option exercises. Short-term liquidity requirements are met primarily through operating receipts supplemented by a bank line of credit with a $4,850,000 limit. At September 30, 1997, the Company's balance on the line of credit was $1,473,000. The cost of capital equipment is -13- usually financed through term debt or capitalized leases with terms of from three to five years. The Company has up to $1,000,000 available under its line of credit for equipment acquisitions through the end of February 1998. The Company has not committed to any material capital purchases. Management expects to meet long-term liquidity requirements through cash flows generated by operations supplemented from time to time by short-term borrowings on a bank line of credit. Routine capital expenditures will usually be financed with a combination of term debt and capital leases. Management believes that the line of credit combined with cash flows from operations are adequate to finance ongoing operations. Management also believes that the Company will be able to finance any required capital expenditures from a combination of operating cash flows and new term debt or lease arrangements. Recent Accounting Pronouncements For the quarter ended December 31, 1997, the Company will be required to adopt Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"). SFAS 128 requires the restatement of all prior-period earnings per share ("EPS") data. SFAS 128 replaces the presentation of the primary EPS, with a presentation of "basic EPS" and "diluted EPS." Under SFAS 128, basic EPS excludes dilution for common stock equivalents and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Upon adopting SFAS 128, the Company's diluted EPS will be the same as the income per share as currently reported by the Company, while the Company's basic EPS will be greater than the income per share as currently reported. -14- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Independent Auditors' Report Financial Statements: Consolidated Balance Sheets September 30, 1997 and 1996 Consolidated Statements of Operations, Years Ended September 30, 1997, 1996 and 1995 Consolidated Statements of Stockholders' Equity, Years Ended September 30, 1997, 1996 and 1995 Consolidated Statements of Cash Flows, Years Ended September 30, 1997, 1996 and 1995 Notes to Consolidated Financial Statements -15- INDEPENDENT AUDITORS' REPORT ---------------------------- THE BOARD OF DIRECTORS AND STOCKHOLDERS ANALYTICAL SURVEYS, INC.: We have audited the accompanying consolidated balance sheets of Analytical Surveys, Inc. and subsidiaries as of September 30, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended September 30, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Analytical Surveys, Inc. and subsidiaries as of September 30, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended September 30, 1997 in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Denver, Colorado October 31, 1997 16 ANALYTICAL SURVEYS, INC. AND SUBSIDIARIES Consolidated Balance Sheets SEPTEMBER 30, 1997 AND 1996
Assets (note 4) 1997 1996 - --------------- ---- ---- (In thousands) Current assets: Cash $ 1,559 1,022 Accounts receivable, net of allowance for doubtful accounts of $164 and $60 in 1997 and 1996, respectively (notes 3 and 10) 8,991 5,781 Revenue in excess of billings (note 3) 21,613 9,329 Deferred income taxes (note 6) 136 105 Prepaid expenses and other 545 215 ------- ------ Total current assets 32,844 16,452 ------- ------ Equipment and leasehold improvements, at cost: Equipment 7,983 7,544 Furniture and fixtures 1,151 957 Leasehold improvements 499 162 ------- ------ 9,633 8,663 Less accumulated depreciation and amortization (5,483) (6,049) ------- ------ 4,150 2,614 ------- ------ Deferred income taxes 41 Goodwill, net of accumulated amortization of $368 and $141 in 1997 and 1996, respectively (note 2) 12,353 2,881 Other assets, net of accumulated amortization of $130 in 1997 758 41 ------- ------ Total assets $50,146 21,988 ======= ====== (Continued)
17 ANALYTICAL SURVEYS, INC. AND SUBSIDIARIES Consolidated Balance Sheets, Continued
Liabilities and Stockholders' Equity 1997 1996 - ------------------------------------ ---- ---- (In thousands) Current liabilities: Lines-of-credit with banks (note 4) $ 1,473 500 Current portion of long-term debt (note 4) 3,051 1,247 Billings in excess of revenue (note 3) 789 1,091 Accounts payable and other accrued liabilities 3,693 2,288 Accrued payroll and related benefits 2,753 1,340 ------- ------ Total current liabilities 11,759 6,466 Long-term debt, less current portion (note 4) 14,145 4,528 Deferred compensation payable 411 68 ------- ------ Total liabilities 26,315 11,062 ------- ------ Stockholders' equity (note 7): Preferred stock, no par value. Authorized 2,500 shares; none issued or outstanding -- -- Common stock, no par value. Authorized 100,000 shares; 6,114 and 4,887 shares issued and outstanding in 1997 and 1996, respectively 15,269 5,695 Retained earnings 8,562 5,231 ------- ------ Total stockholders' equity 23,831 10,926 ------- ------ Commitments and contingencies (notes 5 and 7) Total liabilities and stockholders' equity $50,146 21,988 ======= ======
See accompanying notes to consolidated financial statements. 18 ANALYTICAL SURVEYS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
1997 1996 1995 ---- ---- ---- (In thousands, except per share amounts) Sales $40,799 22,669 13,538 ------- ------ ------ Costs and expenses: Salaries, wages and related benefits 19,792 10,501 5,247 Subcontractor costs 5,899 3,898 3,244 Other general and administrative 7,115 3,681 2,243 Depreciation and amortization 1,780 1,184 785 ------- ------ ------ 34,586 19,264 11,519 ------- ------ ------ Earnings from operations 6,213 3,405 2,019 ------- ------ ------ Other income (expense): Interest expense, net (772) (351) (119) Other 2 12 ------- ------ ------ (770) (339) (119) ------- ------ ------ Earnings before income taxes 5,443 3,066 1,900 Income tax expense (note 6) 2,112 1,153 716 ------- ------ ------ Net earnings $ 3,331 1,913 1,184 ======= ====== ====== Earnings per common and common equivalent share $ .60 .38 .27 ======= ====== ====== Weighted average outstanding common and common equivalent shares 5,562 5,033 4,408 ======= ====== ======
See accompanying notes to consolidated financial statements. 19 ANALYTICAL SURVEYS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
1997 1996 1995 ---- ---- ---- (In thousands) Cash flows from operating activities: Net earnings $ 3,331 1,913 1,184 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 1,780 1,184 785 Gain on sale of assets (2) (12) Deferred income tax benefit (55) (163) (108) Tax benefit relating to exercise of stock options 1,307 885 437 Changes in operating assets and liabilities, net of effect of business combinations: Accounts receivable, net 951 (481) (1,226) Revenue in excess of billings (4,746) (2,820) (717) Prepaid expenses and other 9 (18) (67) Billings in excess of revenue (302) 163 (243) Accounts payable and other accrued liabilities (111) (9) 466 Accrued payroll and related benefits 555 130 83 -------- ------ ------ Net cash provided by operating activities 2,717 772 594 -------- ------ ------ Cash flows from investing activities: Purchase of equipment and leasehold improvements (1,596) (919) (704) Proceeds from sale of equipment 159 12 -- Payments for net assets acquired in business combinations, net of cash acquired (11,092) (5,541) -- -------- ------ ------ Net cash used by investing activities (12,529) (6,448) (704) -------- ------ ------ Cash flows from financing activities: Net borrowings (payments) under lines-of-credit with bank (2,027) 500 Proceeds from issuance of long-term debt 12,714 5,765 521 Principal payments on long-term debt (1,292) (815) (735) Proceeds from exercise of stock options 954 583 562 Purchase and retirement of common shares -- -- (125) -------- ------ ------ Net cash provided by financing activities 10,349 6,033 223 -------- ------ ------ Net increase in cash 537 357 113 Cash at beginning of year 1,022 665 552 -------- ------ ------ Cash at end of year $ 1,559 1,022 665 ======== ====== ====== Supplemental disclosures of cash flow information: Cash paid for interest $ 815 344 112 ======== ====== ====== Cash paid for income taxes $ 888 376 765 ======== ====== ====== Common stock issued for net assets acquired in business combinations $ 7,313 891 -- ======== ====== ======
See accompanying notes to consolidated financial statements. 20 ANALYTICAL SURVEYS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
Common stock ----------------------- Retained Shares Amount earnings Total ------ ------ -------- ----- (In thousands) BALANCES AT OCTOBER 1, 1994 3,835 $ 2,462 2,134 4,596 Exercise of stock options 447 562 -- 562 Tax benefit relating to exercise of stock options -- 437 -- 437 Purchase and retirement of common stock (35) (125) -- (125) Net earnings -- -- 1,184 1,184 ------ ------- ----- ------ BALANCES AT SEPTEMBER 30, 1995 4,247 3,336 3,318 6,654 Common stock issued in connection with business combination (note 2) 345 891 -- 891 Exercise of stock options 295 583 -- 583 Tax benefit relating to exercise of stock options -- 885 -- 885 Net earnings -- -- 1,913 1,913 ------ ------- ----- ------ BALANCES AT SEPTEMBER 30, 1996 4,887 5,695 5,231 10,926 Common stock issued in connection with business combination (note 2) 925 7,313 -- 7,313 Exercise of stock options 302 954 -- 954 Tax benefit relating to exercise of stock options -- 1,307 -- 1,307 Net earnings -- -- 3,331 3,331 ------ ------- ----- ------ BALANCES AT SEPTEMBER 30, 1997 6,114 $15,269 8,562 23,831 ====== ======= ===== ======
See accompanying notes to consolidated financial statements. 21 ANALYTICAL SURVEYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997, 1996 AND 1995 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) BUSINESS AND BASIS OF FINANCIAL STATEMENT PRESENTATION Analytical Surveys, Inc. (ASI or the Company) is a Colorado corporation formed in 1981. ASI's primary business is the production of precision computerized maps and information files used in Geographic Information Systems (GIS). Federal, state and local government agencies and commercial companies use GIS to manage information relating to utilities, natural resources, streets, land use and property taxation. The consolidated financial statements include the accounts of the Company and its wholly and majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. 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 results could differ from those estimates. (b) EQUIPMENT AND LEASEHOLD IMPROVEMENTS Equipment and leasehold improvements are recorded at cost. Depreciation and amortization are provided using the straight-line method over the following estimated useful lives: Equipment 3 to 10 years Furniture and fixtures 5 to 10 years Leasehold improvements 5 to 10 years Maintenance, repairs and renewals which do not add to the value of an asset or extend its useful life are charged to expense as incurred. (c) REVENUE RECOGNITION The Company recognizes revenue using percentage of completion accounting based on the cost-to-cost method, whereby the percentage complete is based on costs incurred in relation to total estimated costs. Costs associated with obtaining contracts are expensed as incurred. The Company does not combine contracts for purposes of recognizing revenue and, generally, does not segment contracts. 22 ANALYTICAL SURVEYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Revenue in excess of billings represents revenue related to services completed but not billed. The Company bills customers based upon the terms included in the contract, which is generally upon delivery. When billed, such amounts are recorded as accounts receivable. Billings in excess of revenue represent billings in advance of services performed. The Company recognizes losses on contracts in the period such losses are determined. The Company does not believe warranty obligations on completed contracts are significant. (d) GOODWILL Goodwill represents the excess of the purchase price over net assets acquired in business combinations and is being amortized over a fifteen-year period using the straight-line method. (e) INCOME TAXES The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). SFAS 109 requires the use of the asset and liability method of accounting for income taxes. Under the asset and liability method of SFAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (f) STOCK-BASED COMPENSATION The Company accounts for its stock-based employee compensation plans using the intrinsic value based method prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations (APB 25). The Company has provided pro forma disclosures of net income as if the fair value based method of accounting for the plans, as prescribed by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123), had been applied. Pro forma disclosures include the effects of employee stock options granted during the years ended September 30, 1997 and 1996. 23 ANALYTICAL SURVEYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (g) IMPAIRMENT OF LONG-LIVED ASSETS Effective October 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to Be Disposed Of (SFAS 121) which requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss is recognized when estimated undiscounted future cash flows expected to be generated by an asset are less than its carrying value. Measurement of the impairment loss is based on the fair value of the asset, which is generally determined using valuation techniques such as the discounted present value of expected future cash flows or independent appraisal. The adoption of SFAS 121 on October 1, 1996 had no effect on the consolidated financial statements of the Company. (h) RESEARCH AND DEVELOPMENT COSTS The Company expenses research and development costs as they are incurred. Research and development costs, which are included in general and administrative expenses in the consolidated statements of operations, totaled $274,905, $283,872 and $347,321 for the years ended September 30, 1997, 1996 and 1995, respectively. (i) EARNINGS PER SHARE The computation of earnings per common share is based on the weighted average number of common shares outstanding plus the effect of common stock equivalents, consisting of stock options, determined using the treasury stock method. (j) FINANCIAL INSTRUMENTS The carrying amounts of the Company's financial instruments at September 30, 1997 and 1996 approximate estimated fair values. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying amounts of cash and cash equivalents, receivables, accounts payable and accrued liabilities approximate fair value due to the short maturity of these instruments. The carrying amounts of debt approximate fair value due to the variable nature of the interest rates of these instruments. (k) RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to the 1997 presentation. 24 ANALYTICAL SURVEYS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued - -------------------------------------------------------------------------------- (2) BUSINESS COMBINATIONS In July 1997, the Company acquired all of the issued and outstanding common stock of MSE Corporation for cash of $12,500,000 and 925,000 shares of restricted common stock valued at $7,313,000, for total consideration of $19,813,000. In July 1996, the Company, through its wholly owned subsidiary, ASI Landmark, Inc., acquired substantially all of the assets and assumed certain liabilities of Westinghouse Landmark GIS, Inc. which provides photogrammetic mapping and data conversion services to the municipal and county markets for cash of $1,992,598. In December 1995, the Company acquired substantially all of the assets and assumed certain liabilities of Intelligraphics, Inc. which provides data conversion services primarily to the utilities market, for $3,548,019 cash and 345,000 shares of restricted common stock valued at $891,250, for total consideration of $4,439,269. All of the acquisitions were accounted for using the purchase method of accounting and, accordingly, the accompanying consolidated financial statements include the results of operations of the acquired businesses since the date of acquisition. The aggregate purchase prices of the acquisitions were allocated based on fair values as follows (amounts in thousands): Year ended September 30, ------------------------ 1997 1996 -------- -------- Current Assets $13,463 4,286 Equipment 1,500 1,245 Other assets, including Goodwill 10,996 3,022 Current liabilities (5,526) (2,121) Non-current liabilities (620) -- ------- ------ $19,813 6,432 ======= ====== The following unaudited pro forma information presents the results of operations of the Company as if the acquisitions of MSE Corporation, Intelligraphics, Inc. and Westinghouse Landmark GIS, Inc. had occurred on October 1, 1995 (in thousands, except per share amounts): Year ended September 30, ------------------------ 1997 1996 ------- ------- Sales $58,861 50,256 ======= ====== Net earnings $ 4,342 1,044 ======= ====== Earnings per share $ .69 .18 ======= ====== 25 ANALYTICAL SURVEYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- The pro forma information is based on historical results and does not necessarily reflect the actual operating results that would have occurred nor is it necessarily indicative of future results of operations of the combined enterprises. (3) ACCOUNTS RECEIVABLE, REVENUE IN EXCESS OF BILLINGS AND BILLINGS IN EXCESS OF REVENUE At September 30, 1996, the estimated period to complete contracts in process ranges from one to twenty-one months, and the Company expects to collect substantially all related accounts receivable and revenue in excess of billings within one year. The following summarizes contracts in process at September 30 (in thousands): 1997 1996 -------- ------- Costs incurred on uncompleted contracts $ 73,344 39,007 Estimated earnings 30,911 19,464 -------- ------- 104,255 58,471 Less billings to date (83,431) (50,233) -------- ------- $ 20,824 8,238 ======== ======= Included in the accompanying balance sheets as follows: Revenue in excess of billings $ 21,613 9,329 Billings in excess of revenue (789) (1,091) -------- ------- $ 20,824 8,238 ======== ======= (4) DEBT The Company has two revolving lines-of-credit with banks which provide for total borrowings of $4,850,000, expire in February 1998, and bear interest at .25% over the prime rate (8.75% at September 30, 1997) and the prime rate (8.5% at September 30, 1997). The lines-of-credit are collateralized by substantially all of the assets of the Company. Borrowings of $1,473,000 and $500,000 were outstanding under the lines-of-credit as of September 30, 1997 and 1996, respectively. In February 1997 the Company entered into an additional $1,000,000 revolving line-of-credit with a bank bearing interest at 8.25%. The line- of-credit is collateralized by all equipment and general intangibles and expires February 2003. No borrowings were outstanding under the line-of- credit as of September 30, 1997. 26 ANALYTICAL SURVEYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) DEBT (CONTINUED) Long-term debt consists of the following at September 30: 1997 1996 ---- ---- (in thousands) Note payable to a bank payable in monthly installments with interest at 8.09% through June 1998, and based on LIBOR or the prime rate plus applicable margins ranging from .25% to 2.5% thereafter (8.09% at September 30, 1997), final payment in June 2002, secured by substantially all assets of the Company (a) $12,109 - Note payable to a bank payable in monthly installments ranging from $74,028 to $88,834 at .5% over the base rate (9% at September 30, 1997), final payment in November 2001, secured by accounts receivable and work-in-process 4,117 4,962 Notes payable to a bank under a $1,250,000 equipment draw-down term loan, bearing interest at effective rates ranging from 8.15% to 11.83% at September 30, 1997, payable in monthly installments through August 1999, secured by certain equipment (a) 595 810 Other 375 3 ------- ------ 17,196 5,775 Less current portion (3,051) (1,247) ------- ------ $14,145 4,528 ======= ======
Maturities of long-term debt as of September 30, 1997, are as follows (in thousands): Years ending September 30: 1998 $ 3,051 1999 2,953 2000 3,189 2001 3,566 2002 4,437 -------- $ 17,196 ======== (a) These loan agreements contain restrictive covenants which require, among other things, the maintenance of certain financial ratios and include certain limitations on capital expenditures and dividend payments. 27 ANALYTICAL SURVEYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (5) LEASES The Company leases its facilities and certain equipment under operating leases. Amounts due under noncancelable operating leases with terms of one year or more at September 30, 1997 are as follows (in thousands):
Years ending September 30: 1998 $ 3,028 1999 2,550 2000 2,138 2001 1,703 2002 1,394 Thereafter 791 ------- Total minimum operating lease payments $11,604 =======
Rent expense totaled $1,345,310, $535,203 and $302,303 for the years ended September 30, 1997, 1996 and 1995, respectively. (6) INCOME TAXES Income tax expense (benefit) for the years ended September 30 is as follows (in thousands):
1997 1996 1995 ---- ---- ---- Current: Federal $1,847 1,148 713 State and local 320 168 111 ------ ----- ---- 2,167 1,316 824 ------ ----- ---- Deferred: Federal (42) (141) (94) State and local (13) (22) (14) ------ ----- ---- (55) (163) (108) ------ ----- ---- $2,112 1,153 716 ====== ===== ====
The exercise of non-qualified stock options results in state and federal income tax deductions to the Company related to the difference between the market price at the date of exercise and the option exercise price. The benefit of such deductions is recorded as an increase to stockholders' equity and totaled $1,306,536, $884,459 and $437,242 in 1997, 1996 and 1995, respectively. 28 ANALYTICAL SURVEYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Actual income tax expense differs from the amount computed using the federal statutory rate of 34% for the years ended September 30 as follows (in thousands):
1997 1996 1995 ---- ---- ---- Computed "expected" income tax expense $1,851 1,042 646 State income taxes, net of federal tax effect 203 96 63 Other 58 15 7 ------ ----- ---- Actual income tax expense $2,112 1,153 716 ====== ===== ====
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at September 30, are presented below (in thousands):
1997 1996 ---- ---- Current deferred tax assets and liabilities: Accounts receivable, primarily due to allowance for doubtful accounts $ 22 22 Accrued liabilities, primarily due to accrued compensated absences for financial statement purposes 143 99 Prepaid expenses, primarily due to marketing commissions expensed for income tax purposes (34) (21) Other 5 5 ----- ----
Total net current deferred tax asset $ 136 105 ===== ==== NONCURRENT DEFERRED TAX ASSETS AND LIABILITIES: DEFERRED COMPENSATION ACCRUED FOR FINANCIAL STATEMENT PURPOSES ONLY $ 24 24 Equipment and leasehold improvements, primarily due to differences in depreciation 17 (24) ----- ---- Total net noncurrent deferred tax asset $ 41 - ===== ====
Management believes that it is more likely than not that future operations will generate sufficient taxable income to realize the deferred tax assets. (7) STOCKHOLDERS' EQUITY AND STOCK OPTIONS The Board of Directors may issue preferred stock with rates of dividends, voting rights, redemption prices, liquidation prices, liquidation premiums, conversion rights and other requirements without a vote of the shareholders. 29 ANALYTICAL SURVEYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (7) STOCKHOLDERS' EQUITY AND STOCK OPTIONS (CONTINUED) The Company currently has six nonqualified stock option plans under which the Board of Directors may grant options to purchase approximately 267,000 shares of the Company's common stock to officers, directors and key employees. The exercise price of the options is established by the Board of Directors on the date of grant. Employees may vest in their options either 100% on date of grant or 25% six months from date of grant and 25% on the anniversary of date of grant thereafter, as determined by the Board of Directors. The options are exercisable in whole or in part for a period of up to ten years from date of grant. As discussed in note 1, the Company applies APB Opinion 25 and related interpretations in accounting for its stock option plans. Accordingly, because the Company grants its options at or above market value at date of grant, no compensation cost has been recognized under the plans. Had compensation cost for the Company's stock-based compensation plans been determined based upon the fair value of options on the grant dates, consistent with the provisions of SFAS 123, the Company's 1997 and 1996 pro forma net income and earnings per share would have been approximately $2.8 million and $1.8 million and $.50 and $.35, respectively. The weighted average fair value of options granted during 1997 and 1996 was $5.49 and $4.99 per share, respectively. The weighted average remaining contractual life of all options at September 30, 1997 was approximately three years. The fair value of each option grant was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: no expected dividends, expected life of the options of three years, 60% volatility and a risk-free interest rate of 6.00%. Stock option activity for the plans for the years ended September 30 are summarized as follows (in thousands, except per share amounts):
Weighted average Number of exercise price Options per share --------- -------------- Balance, October 1, 1994 1,117 $ 1.51 Granted 426 4.39 Exercised (447) 1.26 Canceled (29) 2.52 ----- ------ Balance, September 30, 1995 1,067 2.73 Granted 238 11.07 Exercised (295) 1.99 Canceled (21) 3.17 ----- ------
(continued) 30 ANALYTICAL SURVEYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Weighted average Number of exercise price Options per share --------- ---------------- Balance, September 30, 1996 989 $ 4.95 Granted 641 13.06 Exercised (302) 3.16 Canceled (40) 10.64 --------- --------- Balance, September 30, 1997 1,288 9.23 ========= ========= Options exercisable at September 30, 1997 466 4.67 ========= ========= (8) EMPLOYEE BENEFIT PLAN The Company sponsors a qualified tax deferred savings plan in accordance with the provisions of section 401(k) of the Internal Revenue Code. Employees may defer up to 15% of their compensation, subject to certain limitations. The Company matches 50% of the employee contributions up to 4% of their compensation. The Company contributed $185,602, $65,756 and $60,494 to the plan in 1997, 1996 and 1995, respectively. (9) MAJOR CUSTOMERS Sales to individual customers amounting to more than 10% of total sales were as follows: Year ended September 30: 1996 Customer A 10% 1995 Customer B 12% There were no sales to individual customers amounting to more than 10% of total sales for the year ended September 30, 1997. (10) CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially expose the Company to concentrations of credit risk, as defined by Financial Accounting Standards Board's Statement No. 105, Disclosure of Information about Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentration of Credit Risk, consist primarily of accounts receivable with the Company's various customers. Historically, the Company's customers have included cities, counties, engineering companies, utility companies and federal government agencies. Substantially more than 50% of revenues have historically been derived from state and local government contracts. In addition, a significant portion of the Company's revenues are generated from utility clients, both commercial and municipal. 31 ANALYTICAL SURVEYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (10) CONCENTRATIONS OF CREDIT RISK (CONTINUED) The Company's accounts receivable are due from a variety of organizations throughout the United States. The Company provides for uncollectible amounts upon recognition of revenue and when specific credit and collection issues arise. Management's estimates of uncollectible amounts have been adequate in prior years, and management believes that all significant credit and collection risks have been identified and adequately provided for at September 30, 1997. 32 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. The Company's independent accountants have neither resigned nor been dismissed during the Company's two most recent fiscal years or through the date of this Report. PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information required by this item is contained in the Company's definitive proxy statement for its 1998 Annual Meeting of Shareholders, which is to be filed on or before January 20, 1998. Such information is incorporated into this Report by reference. ITEM 11. EXECUTIVE COMPENSATION. Information required by this item is contained in the Company's definitive proxy statement for its 1998 Annual Meeting of Shareholders, which is to be filed on or before January 20, 1998. Such information is incorporated into this Report by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information required by this item is contained in the Company's definitive proxy statement for its 1998 Annual Meeting of Shareholders, which is to be filed on or before January 20, 1998. Such information is incorporated into this Report by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information required by this item is contained in the Company's definitive proxy statement for its 1998 Annual Meeting of Shareholders, which is to be filed on or before January 20, 1998. Such information is incorporated into this Report by reference. PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) The following documents are filed as exhibits as a part of this report. (1) The financial statements listed in response to Item 8 of this report. (2) The financial statement schedules listed in response to Item 8 of this report. (3) The exhibits described below. 2. Plan of acquisition, reorganization, arrangement, liquidation or succession: 2.1 Purchase Agreement dated July 2, 1997 between Analytical Surveys, Inc. (buyer) and Sol C. Miller (seller) (filed with Report on Form 8-K dated July 16, 1997, as amended on September 9, 1997, and hereby incorporated by reference). 2.2 Registration Rights Agreement dated July 2, 1997, between Analytical Surveys, Inc. and Sol C. Miller (filed with Report on Form 8-K dated July 16, 1997, as amended on September 9, 1997, and hereby incorporated by reference). 2.3 Consulting and Non-Competition Agreement dated July 2, 1997, between Analytical Surveys, Inc. and Sol C. Miller (filed with Report on Form 8-K dated July 16, 1997, as amended on September 9, 1997, and hereby incorporated by reference). -33- 3. Articles of Incorporation and By-Laws 3.1 Articles of incorporation (as amended) are incorporated by reference to the Exhibits to the Company's Registration Statement on Form S-18, Registration No. 2-93108-D. 3.2 By-laws are incorporated by reference to the Exhibits to the Company's Registration Statement on Form S-18, Registration No. 2-93108-D. 4. Instruments defining the rights of Security Holders including Indentures Form of Stock Certificate (filed with Registration Statement No. 2-93108-D and hereby incorporated by reference). 9. Voting Trust Agreement 9.1 Voting Trust Agreement dated as of December 22, 1995, between the Company, various selling shareholders of Intelligraphics, Inc. and the members of the Board of Directors of the Company (as voting trustees), incorporated by reference from the registrant's report on Form 8-K dated January 9, 1996, as amended on February 16, 1996. 10. Material Contracts 10.1 Employment agreement dated June 27, 1994 between ASI and Sidney V. Corder, Chief Executive Officer and President, incorporated herein by reference to registrant's Quarterly Report on Form 10-QSB for June 30, 1994. 10.2 Stock Option Plan dated December 17, 1987 and amended on August 31, 1992 incorporated herein by reference to registrant's Annual Report on Form 10-K for Fiscal Year ended September 30, 1992. 10.3 1990 Non-Qualified Stock Option Plan dated September 21, 1990 and amended and restated on December 17, 1990 and further amended on August 31, 1992 incorporated herein by reference to registrant's Annual Report on Form 10-K for Fiscal Year ended September 30, 1992. 10.4 1991 Non-Qualified Stock Option Plan dated December 17, 1990 and amended on August 31, 1992 incorporated herein by reference to registrant's Annual Report on Form 10-K for Fiscal Year ended September 30, 1992. -34- 10.5 1993 Non-Qualified Stock Option Plan dated December 11, 1992 incorporated herein by reference to registrant's Proxy Statement dated January 11, 1993. 10.6 Analytical Surveys, Inc. 401-K Plan dated October 1, 1988 and amended and restated May 22, 1992 incorporated herein by reference to registrant's Annual Report on Form 10-K for Fiscal Year ended September 30, 1992. 10.7 Analytical Surveys, Inc. Incentive Bonus Plan incorporated herein by reference to registrant's Annual Report on Form 10-K for Fiscal Year ended September 30, 1992. 10.8 Building lease dated August 1, 1994 incorporated herein by reference to registrant's Annual Report on Form 10-KSB for the Fiscal Year ended September 39, 1994. 10.9 Employment agreement dated September 20, 1995 between ASI and Scott C. Benger, Senior Vice President, Finance and Secretary/Treasurer incorporated herein by reference to registrant's Annual Report on Form 10-KSB for the fiscal year ended September 30, 1995. 10.10 1995 Non-Qualified Stock Option Plan dated August 22, 1995 incorporated herein by reference to registrant's Annual Report on Form 10-KSB for the fiscal year ended September 30, 1995. 10.11 Employment agreement dated December 22, 1995 between ASI and William D. Nantell, Senior Vice President incorporated herein by reference to registrant's report on Form 10-KSB for the Fiscal Year ended September 30, 1996. 10.12 Real Estate Lease between MSE Realty, LLC and MSE Corporation, dated July 2, 1997. 10.13 Employment Agreement dated July 2, 1997 between Analytical Surveys, Inc. and Randal J. Sage. 10.14 Employment Agreement dated July 2, 1997 between Analytical Surveys, Inc. and John J. Dillon III. 10.15 Consulting Agreement between Analytical Surveys and John A. Thorpe, dated June 27, 1997. 10.16 Analytical Surveys, Inc. 1997 Incentive Stock Option Plan. -35- 23. Consent of Experts: Consent of KPMG Peat Marwick LLP (included in the exhibits section). 27. Financial Data Schedule (b) The registrant filed a Form 8-K on July 16, 1997, as amended on September 9, 1997 which described the Company's acquisition of MSE Corporation. The following financial statements were filed as a part of such Report: Proforma balance sheet of MSE Corporation for June 30, 1997. Proforma income statement of MSE Corporation: year ended September 30, 1996; and 9 months ended June 30, 1997. -36- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Analytical Surveys, Inc. By: /s/ Sidney V. Corder Date: December 26, 1997 --------------------- Sidney V. Corder, Chairman of the Board, President,Chief Executive Officer, and Director 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 and on the dates indicated. Signature Date: --------- ----- By: /s/ Sidney V. Corder December 26, 1997 --------------------- Sidney V. Corder, Director, Chairman of the Board, President, Chief Executive Officer, and Director By: /s/ Scott C. Benger December 26, 1997 ------------------- Scott C. Benger, Sr. Vice President Finance and Secretary/ Treasurer (principal financial officer and principal accounting officer) By: /s/ William Howell December 26, 1997 ------------------ William Howell, Controller By: /s/ Richard P. MacLeod December 26, 1997 ---------------------- Richard P. MacLeod, Director By: /s/ James T. Rothe December 26, 1997 ------------------ James T. Rothe, Director By: /s/ Robert H. Keeley December 26, 1997 ------------------------- Robert H. Keeley, Director -37- By: /s/ John A. Thorpe December 26, 1997 ------------------------- John A. Thorpe, Director By: /s/ Willem H. J. Andersen December 26, 1997 ------------------------- Willem H. J. Andersen, Director By: /s/ Sol C. Miller December 26,1997 ------------------------- Sol C. Miller, Director -38- EXHIBIT INDEX The following exhibits are filed with the Report on Form 10-K of Analytical Surveys, Inc. for the Fiscal Year ended September 30, 1997: Financial Statements Consolidated Balance Sheets September 30, 1997 and 1996 Consolidated Statements of Operations, Years Ended September 30, 1997, 1996 and 1995 Consolidated Statements of Stockholders' Equity, Years Ended September 30, 1997, 1996 and 1995 Consolidated Statements of Cash Flows, Years Ended September 30, 1997, 1996 and 1995 Notes to Consolidated Financial Statements Real Estate Lease between MSE Realty, LLC and MSE Corporation, dated July 2, 1997. Employment Agreement dated July 2, 1997 between Analytical Surveys, Inc. and Randal J. Sage. Employment Agreement dated July 2, 1997 between Analytical Surveys, Inc. and John J. Dillon III. Consulting Agreement between Analytical Surveys and John A. Thorpe, dated June 27, 1997. Analytical Surveys, Inc. 1997 Incentive Stock Option Plan. Consent of KPMG Peat Marwick LLP. Financial Data Schedule. -39- EX-10.12 2 REAL ESTATE LEASE EXHIBIT 10.12 REAL ESTATE LEASE THIS LEASE ("Lease") is made by and between MSE REALTY, LLC, an Indiana, limited liability company ("Lessor"), and MSE CORPORATION, an Indiana corporation, ("Lessee"), as of the 2nd day of July, 1997. ARTICLE 1 LEASED PREMISES The Lessor hereby leases to the Lessee and the Lessee hereby leases from the Lessor, certain real estate, together with all improvements thereon, located in the City of Indianapolis, Marion County, Indiana, and more particularly described in Exhibit "A" attached hereto and made a part hereof; consisting of Tract I having a common street address of 941 N. Meridian Street and consisting of four buildings of approximately 99,416 rentable square feet and a surface parking area of approximately .988 acres, more or less, and Tract II having a common street address of 930-946 N. Meridian Street and consisting of one building of approximately 14,868 rentable square feet and two surface parking areas on the north and south. The real estate shall include all buildings, structures, and other improvements located or erected thereon either permanently installed, or which belong to or are used in connection with the real estate, wherever located, including all fixtures of whatsoever kind or nature attached thereto together with all tenements, hereditaments, rights, privileges, interests, easements, and other appurtenances belonging or otherwise related or appertaining to the real estate or improvements thereto, any and all tangible personal property and equipment of every kind and nature owned by Lessor and installed, located or situated in, on or about the real estate or improvements, or used in connection with the operation or maintenance of the real estate or the improvements. The foregoing real estate, improvements, fixtures, appurtenances and personal property shall be referred to herein as the "Leased Premises." ARTICLE 2 TERM The term of this Lease shall be for an initial period of approximately five (5) years commencing on July 2, 1997, and continuing until midnight, June 30, 2002, unless earlier terminated as provided for herein. If Lessee is not in default of any of the terms and conditions of this Lease beyond any applicable notice and cure period, then Lessee may elect to extend this Lease for two (2) additional terms of five (5) years each, subject to the adjustment of the rent due hereunder as provided for in Article 3 below, and written notice of Lessee's election delivered to Lessor not less than six (6) months prior to the expiration of the current term. ARTICLE 3 RENT Section 3.01 Base Rent. Lessee shall pay the sum of One Hundred Eleven --------- Thousand One Hundred Eighty Dollars ($111,180.00) per month, except as may be abated pursuant to specific provisions of this Lease, without setoff or deduction, as rent for the Leased Premises without relief from valuation or appraisement laws to the Lessor at the address specified in Article 1 8. Such monthly rental payments to be paid in advance commencing on the first day of August, 1997, and continuing on the first day of each calendar month thereafter for the term of this Lease. To the extent that this Lease commences on a day other than the first of day of a calendar month or any portion of the term of this Lease is for less than a full calendar month, the rent for such partial month(s) shall be prorated accordingly and shall be paid upon the commencement of this Lease or upon the first day of the partial month upon expiration or termination of this Lease. Any and all other sums due and payable hereunder by the Lessee, whether designated as rent or additional rent, shall at all times be considered as rent hereunder. Section 3.02 Adjustment in Base Rent. In the event that Lessee elects to ----------------------- extend the term of this Lease as provided under Article 2 above, the Base Rent due hereunder shall be adjusted and changed by the increase, if any, in the Consumer Price Index for all Urban Consumers, U.S. City average, all items, (1982-1984 = 100) as issued by the Department of Labor, Bureau of Labor Statistics (the "CPI") as follows: (a) The average CPI for the twelve calendar months of 1997, (the "Base CPI") shall be compared to the CPI for the month of January immediately preceding the commencement date of the renewal term (the "Adjustment CPI"). If the Adjustment CPI has increased over the Base CPI, Lessor shall determine the percentage increase in the CPI as being the equal to the fraction, the numerator of which is the Adjustment CPI minus the Base CPI, and the denominator of which is the Base CPI. (b) The current annual Base Rent for the current term shall be multiplied by the percentage increase in the CPI to determine the increase in the Base Rent for the renewal term. (c) The amount of the increase in the annual Base Rent shall be added to the annual Base Rent in effect in the expiring term and this new amount shall be the new Base Rent for the renewal term, payable in monthly installments pursuant to the terms and conditions of this Lease. In no event shall the annual Base Rent during any renewal term of this Lease be less than the annual Base Rent payable during the immediately preceding term. If the CPI is discontinued or revised, the parties shall agree on a reliable governmental or financial authority which evaluates the purchasing power of the consumer dollar to replace it in order to obtain substantially the same result as would be obtained if the CPI had not been discontinued or revised. Section 3.03 Additional Rent. The actual "Operating Expenses" (as defined --------------- below) incurred or accrued for the Leased Premises for calendar year 1997 shall be the Base Year -2- Operating Expenses. Lessee shall pay to Lessor any increase in the Operating Expenses above the Base Year Operating Expenses incurred in subsequent calendar years of the term as additional Rent. Lessor will notify Lessee of any increase in actual Operating Expenses above the Base Year Operating Expenses, together with a detailed written explanation of the increase, after the conclusion of the calendar year in which such Operating Expenses were incurred. Within thirty (30) days after receipt of such notice, Lessee will pay the increased amount to Lessor, subject to Lessee's right of audit set forth below. If Lessor projects Operating Expenses for any coming calendar year after 1997 to be in excess of the Base Year Operating Expenses, Lessor may notify Lessee of its projections, with a detailed explanation of the increase, and Lessee will pay the estimated projected excess in advance in equal monthly installments. If Lessor exercises its right to project estimated Operating Expense increases over the Base Year Operating Expenses and collect for such projected increases over the calendar year in which the expenses are incurred, Lessor shall provide Lessee with a detailed written statement of the actual Operating Expenses paid for such year, within sixty (60) days of the end of the such year. Any overpayment by Lessee based on the projections will be credited to Lessee's account for the coming year or if paid during the last year of the Lease term, refunded upon termination of this Lease. Lessee shall have the right to conduct an audit of Operating Expenses pertaining to a particular calendar year at any time until the 90th day following Lessee's receipt of a written statement from Landlord setting forth the actual Operating Expenses incurred or paid for such calendar year. Lessee shall give Lessor ten (10) days prior written notice to conduct an audit of the Operating Expenses. If the results of such audit show that the Lessee's charges have been overstated, Lessor shall refund immediately any balance due Lessee and, if the audit determines that the amount charged to Lessee was overstated by three percent (3%) or more, Lessor shall reimburse Lessee for the cost of the audit. If the term hereunder does not terminate on the last day of a calendar year, the Operating Expenses shall be pro rated based upon Lessee's occupancy during the final calendar year on a per diem basis. It is acknowledged and agreed that if Lessee files a timely objection to any excess in Operating Expenses as a result of an audit, Lessee shall not be in default hereunder for failure to pay such excess. (a) "Operating Expenses" shall mean all reasonable and customary expenses, costs, and amounts of every kind and nature which Lessor pays or incurs in any calendar year in connection with the ownership, management, repair, maintenance and operation of the Leased Premises, including, but not limited to, all utility costs, professional services, tools and supplies, insurance, janitorial services, rubbish and trash removal, snow removal, Real Estate Taxes (as defined below), and all other costs and expenses incurred or paid by Lessor in connection with the Leased Premises provided such costs are of type typically incurred or paid in the ownership, management, repair, maintenance and operation of similar office building located in the downtown Indianapolis area. Operating Expenses shall specifically exclude those items which Lessee pays for itself or which Lessee reimburses Lessor for under the terms of this Lease and shall also exclude: (i) any ground lease rental and payments on any financing; (ii) depreciation, amortization and other non-cash expenditures; -3- (iii) costs incurred for repairs or other items to the extent Lessor is reimbursed by insurance proceeds or third parties; (iv) costs of capital improvements and repairs; (v) the cost of any service performed by an affiliate of Lessor or a manager of the Leased Premises to the extent such cost is in excess of the cost that would be paid to an unaffiliated, third party provider of similar service; (vi) the cost of any management fee or administrative fee or Lessor's overhead; (vii) any costs, including, without limitation, fines and penalties, incurred by Lessor due to the violation or alleged violation of the Leased Premises caused solely by the acts or omissions of the Lessor of any law or regulation and any cost to bring the Leased Premises into compliance with any law or regulations following such a violation or alleged violation. (b) "Real Estate Taxes" shall mean all ad valorem real property taxes and currently due installments of assessments levied upon or with respect to the Leased Premises, including all land and improvements, and all taxes, levies and charges which may levied or imposed by any governmental authority in replacement of, in lieu of, or in addition to ad valorem real property taxes, in whole or in part, including, but not limited to a state or local option tax designed for property tax relief purposes, or a license or franchise fee measured by rents received for the Leased Premises, or otherwise measured or based upon Lessor's interest in the Leased Premises. It does not include any federal or state income tax. ARTICLE 4 SECURITY DEPOSIT Upon any assignment of this Lease, Lessor specifically reserves the right to require Lessee to pay to Lessor the sum of One Hundred Eleven Thousand One Hundred Eighty Dollars ($111,180.00) ("Security Deposit") as security for the performance of such assignee's obligations as Lessee under this Lease, including, but not limited to, the payment of rent and all other sums due hereunder and the procurement and maintenance of insurance. In the event of a default by the assignee, Lessor may apply all or such part of the Security Deposit as may be necessary to cure the default and immediately upon demand assignee shall redeposit with Lessor an amount equal to the sum applied to cure the default. It is understood, acknowledged and agreed that the full security deposit shall be on hand and on deposit with Lessor during the term of this Lease. Lessor shall hold the deposit for the benefit of assignee but shall not be required to segregate it from Lessor's other funds or to pay interest on it. Upon the termination of the Lease (provided that assignee is not in default and is in full compliance with all of the terms and conditions of the Lease), Lessor shall refund to assignee any balance of the Security Deposit remaining after application of any funds necessary to meet assignee's obligations hereunder upon termination or expiration of this Lease. In the event of a sale, lease or other transfer of Lessor's interest in the Leased Premises, Lessor shall have to the right to transfer the Security Deposit to its purchaser, lessee, transferee or successor in interest. Lessee agrees to look solely -4- to the new lessor hereunder for the return of the Security Deposit following such transfer and agrees that the provisions of this Article 4 shall apply to every transfer or assignment made of the Security Deposit to new lessor. ARTICLE 5 SERVICES AND REPAIRS Section 5.01 Services. If Lessee is not in Default hereunder and subject -------- to the provisions elsewhere contained in this Lease, Lessor shall furnish to the Leased Premises, as reasonably required, all utilities (including heat and air conditioning from 8:00 a.m to 6:00 p.m. on Monday through Friday and 9:00 a.m. to 1:00 p.m. on Saturday and all generally recognized business days, except New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day), and such other services as are customarily provided to tenants occupying similar office buildings in the downtown Indianapolis area. Lessor shall provide cleaning and janitorial service, including the supplying and installing of paper towels, toilet tissue and soap in the restroom facilities. Lessor shall not provide carpet cleaning services other than routine vacuuming. Washing of windows will be at intervals reasonably established by the Lessor, Lessor will replace all lamps, bulbs, starter and ballasts in the Leased Premises and in the outdoor lighting fixtures using standard office lighting supplies and equipment as required from time to time as a result of normal usage. Lessor will maintain the current landscaping and will remove rubbish and snow from all parking, pedestrian and loading areas located on the Leased Premises. Lessee shall have the right to request any other utilities or services in addition to those set forth above or any of the above utilities or building services in frequency, scope, quality or quantity substantially greater than those which Lessor determines are normally required for general office uses, and in such event Lessor shall use reasonable efforts to attempt to furnish the Lessee with such additional utilities or services. The costs for these additional utilities and services shall be passed through to Lessee as Operating Expenses. Lessor shall have no liability to Lessee, including, without limitation, liability for consequential damages arising out of, resulting from or related to any such interruption of utility services or other services beyond Lessor's reasonable control; however, the rent shall be abated in an equitable amount based upon the portion of the Leased Premises that are untenantable or which are not usable or used by Lessee for a period of three (3) business days or more due to the interruption of any utilities or services. Section 5.02 Lessor's Reserved Rights. Lessor reserves the right to ------------------------ suspend service of the heating, plumbing, electrical, air conditioning or other mechanical systems when necessary by reason of governmental regulations, civil commotion or riot, accident or emergency, or for repairs, alterations or improvements which are in the reasonable judgment of Lessor desirable or necessary, or for any other reasons beyond the power or control of Lessor (including, without limitation, the unavailability of fuel or energy or compliance by Lessor with any applicable laws, rules or regulations relating thereto), without liability in damages therefor. The exercise of such right by Lessor shall not constitute an actual or constructive eviction in whole or in part, or -5- entitle Lessee to any abatement or diminution of rent (except as otherwise provided in this Lease), or relieve Lessee from any of Lessee's obligations under this Lease, or impose any liability upon Lessor or its agents by reason of inconvenience or annoyance to Lessee or injury to or interruption of Lessee's business or otherwise. Lessor will use reasonable efforts to minimize disruption to Lessee's business resulting from the suspension of utilities or other services for purposes of making repairs, alterations or improvements. Section 5.03 Repairs. Lessor shall at all times during the term keep the ------- Leased Premises in good condition and repair, except for (i) improvements to the Leased Premises made by Lessee after the date of this Lease ("Lessee Improvements"), and (ii) damage caused by Lessee, its employees, licensees, agents, contractors or invitees after the date of this Lease in excess of ordinary wear and tear and not covered by Lessor's or Lessee's insurance. Lessee shall, at Lessee's sole cost and expense, repair and maintain all Lessee Improvements in good order, condition and repair, ordinary wear and tear excepted, and shall be responsible to Lessor and reimburse Lessor for all damages to the Leased Premises caused by Lessee, its employees, licensees, agents, contractors or invitees in excess of ordinary wear and tear and not covered by or in excess of the proceeds from Lessor's or Lessee's insurance. ARTICLE 6 PERSONAL PROPERTY TAXES Lessee shall be responsible for and shall pay for any and all personal property or other taxes or assessments that may from time to time be assessed or charged against the equipment, trade fixtures or other personal property belonging to Lessee located on or used in connection with the Leased Premises. ARTICLE 7 INSURANCE, INDEMNIFICATION AND WAIVER OF SUBROGATION Section 7.01 Waiver, Indemnity and Insurance. With respect to the ------------------------------- Lessee's obligations under this section of the Lease, it is understood and agreed that the Lessee's obligations shall relate solely to occurrences and events occurring on or after the date of this Lease. (a) Lessor, its officers, members, agents and employees shall have no liability to Lessee for any injury or damages to Lessee, its officers, agents, employees, licensees, contractors or invitees or to any property of Lessee, or such other third parties, regardless of the cause, excluding Lessor's negligence or willful acts or omissions. Except as herein provided in this Lease, Lessee hereby waives all claims for recovery from and releases Lessor, its officers, members, agents and employees, from any loss or damage to the property of Lessee. No such occurrence shall be deemed to be an actual or constructive eviction from the Leased Premises. (b) Lessor shall not be liable for damage to any person or property, including consequential damages arising therefrom, due to any condition of the Leased Premises caused -6- by the Lessee or by reason of the occurrence of any accident in or about the Leased Premises or due to any act or neglect of the Lessee, or any other occupant of the Leased Premises or of any other person. (c) Lessee shall indemnify and hold harmless Lessor, and its agents and employees from and against any and all liability, damages, expenses, fees, penalties, actions, causes of action, suits, costs, claims and judgments, including reasonable attorneys' fees, arising from injury to any persons or property in or about the Leased Premises from any cause whatsoever, other than Lessor's negligence or willful acts or omissions. (d) Lessee shall procure and maintain during the term commercial general liability and property damage insurance, written by an insurance company reasonably acceptable to Lessor, insuring Lessee against any and all losses, claims, demands or actions or injury to or death of any one or more persons and for damages to property arising from Lessee's use of and its conduct and operation of its business on the Leased Premises with contractual liability endorsements to a combined single limit of not less than One Million Dollars ($1,000,000). Lessor and any mortgagee of the Leased Premises identified by Lessor to Lessee shall be named as additional insureds on Lessee's liability insurance policies. If Lessee fails to procure such insurance, Lessor may, at its option, procure the same for Lessee, and the cost thereof shall be paid to Lessor by Lessee as Additional Rent as billed. (e) Lessee shall procure and maintain during the term fire and extended coverage insurance on the Leased Premises, written by an insurance company and for such amounts as shall be reasonably acceptable to Lessor, insuring Lessee, and with loss payee endorsements, Lessor and any mortgagees of Lessor identified to Lessee against any loss or damage from fire, windstorm, tornado, hail, water damage, lightning, vandalism, malicious mischief, earthquake and against loss or damage by such further and additional risks as now are or hereafter may be embraced by the standard "all risk forms" or endorsements. All proceeds from such policies shall be payable to the Lessor. If Lessee fails to procure such insurance, Lessor may, at its option, procure the same for Lessee, and the cost thereof shall be paid to Lessor by Lessee as Additional Rent as billed. (f) All such insurance policies shall contain a clause that the insurer will give the Lessor thirty (30) days prior written notice of any cancellation, termination or modification of such insurance. Lessee shall furnish the Lessor with certificates of insurance for all such insurance coverage. Section 7.02 Waiver of Subrogation. Anything in this Lease to the contrary --------------------- notwithstanding, Lessor and Lessee hereby waive and release each other of and from any and all rights of recovery, claim, action or cause of action, against each other, their members, agents, officers and employees, for any loss or damage that may occur to the Leased Premises and the improvements to the Leased Premises, or personal property (building contents) within the Leased Premises, by reason of fire, the elements or any other cause which could be insured -7- against under the terms of standard fire and extended coverage insurance policies, with vandalism, malicious mischief and "all risk" endorsements, regardless of cause or origin, including the negligence of Lessor or Lessee, and their members, agents, officers and employees. Because this paragraph will preclude the assignment of any claim mentioned in it by way of subrogation (or otherwise) to an insurance company (or any other person), each party to this Lease agrees immediately to give to each insurance company which has issued to it policies of fire and extended coverage insurance, written notice of the terms of the mutual waivers contained in this paragraph, and to have the insurance policies properly endorsed, if necessary, to prevent the invalidation of the insurance coverage by reason of the mutual waivers contained in this paragraph. ARTICLE 8 USE OF LEASED PREMISES Lessee shall use the Leased Premises solely for the purpose of general office and storage use ancillary to the operation of a full service engineering firm. Lessee shall not use the Leased Premises in any manner constituting a violation of any ordinance, statute, regulation or order of any governmental authority, including, but not limited, to zoning ordinances, building construction standards, and health and environmental laws. Lessee covenants and agrees that Lessee will use, maintain and occupy the Leased Premisses in a careful, safe and proper manner, will not commit waste thereon. Lessee shall not cause or permit any Hazardous Material to be brought upon, kept or used in or about the Leased Premises by Lessee, its agents, employees, contractors or invitees, without the prior written consent of the Lessor other than Hazardous Material necessary to or useful in the operation of Lessee's business and if such permitted Hazardous Materials are used, kept and stored in compliance with all laws regulating Hazardous Materials. The term "Hazardous Material" means any hazardous or toxic substance, material or waste which is or becomes regulated by any local governmental authority, the State of Indiana or the United States Government. If the Lessee breaches the obligations stated in this Article 8, or if the presence of Hazardous Material on the Leased Premises caused or permitted by the Lessee results in the contamination of the Leased Premises, or if contamination of the Leased Premises by Hazardous Material otherwise occurs for which the Lessee is legally liable to the Lessor for damage resulting therefrom, then the Lessee shall indemnify, defend and hold the Lessor harmless from any and all claims, judgments, damages, penalties, fines, costs, liabilities or losses (including, without limitation, the diminution in value of the Leased Premises, damages for the loss or restriction on use of rentable or useable space or of any amenity of the Leased Premises, damages arising from any adverse impact on marketing of the Leased Premises and sums paid in settlement of claims, attorneys' fees, consulting fees and expert fees) which arise during or after the term of this Lease as a result of such contamination. This indemnification of the Lessor by the Lessee shall survive the termination of this Lease and includes, without limitation, costs incurred in connection with any investigation of site condition or any cleanup, remedial, removal or restoration work required by any federal, state or local governmental agency or political subdivision because of the Hazardous Material present in the soil or groundwater on or under the Leased Premises. Without limiting the foregoing, if the -8- presence of any Hazardous Material on the Leased Premises caused or permitted by the Lessee results in any contamination of the Leased Premises, the Lessee shalt promptly notify the Lessor and take all actions at its sole expense as are necessary to return the Leased Premises to the condition existing prior to the introduction of any such Hazardous Material to the Leased Premises or to otherwise appropriately (as is reasonably determined by Lessor) remediate the condition of the Leased Premises; provided, that Lessor's approval of such action shall first be obtained, which approval shall not be unreasonably withheld or delayed so long as such actions would not potentially have any material adverse long-term or short-term effect on the Leased Premises. Notwithstanding anything to the contrary contained in this Article 8, Lessee shall have no liability or other obligation to Lessor under Article 8 of this Lease with respect to any act or omission of Lessee relating to Hazardous Materials which occurred prior to the date of this Lease. ARTICLE 9 ALTERATIONS Lessee shall not make or permit any material alterations, installations or additions to or upon any part of the Leased Premises without first obtaining the Lessor's consent which consent shall not be unreasonably withheld or delayed. All contractors, mechanics, suppliers and laborers used in the performance of any such work for or on behalf of the Lessee shall be subject to the reasonable prior written approval of the Lessor. All alterations to the Leased Premises shall be made under no- lien contracts in compliance with I.C. (S) 32-8-3-1, as presently written and as may be amended in the future, and in accordance with all applicable laws. All improvements and alterations shall remain for the benefit of the Lessor unless at the expiration of the Lease, Lessee can remove such alterations, installations, and additions and restore the Leased Premises to their original condition; provided, however, that the Lessee shall indemnify and hold harmless the Lessor from all costs, loss or expense in connection with any construction, repair, installation or alteration made by Lessee. Lessee shall, at its sole cost and expense, be entitled to remove or relocate work stations or partitions between work stations or to make any non-structural alterations to the Leased Premises involving a cost of less than $10,000, without Lessor's consent. Lessee shall contractually provide to the fullest extent permitted by law and take any and all other action necessary to avoid the filing and maintaining of any mechanic's, materialmen's or similar liens against the Leased Premises or any action against the Lessor. Lessee shall in any case remove within thirty (30) days of the date Lessee is notified of the filing, or bond or otherwise provide adequate security for the removal of any such lien resulting from work contracted for by Lessee that may be filed against the Leased Premises or for the dismissal of any action filed against the Lessor. No person shall be entitled to any lien directly or indirectly derived through or under the Lessee or through or by virtue of any act or omission of the Lessee 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, on account of, any matter or thing whatsoever. Nothing contained in this Lease shall be construed to constitute a consent by the Lessor to the creation of any lien against the Leased Premises. Lessee shall, at the termination of the Lease Term, remove all of -9- Lessee's trade fixtures and equipment. The Lessee shall also repair any damage to the Leased Premises resulting from such removal. ARTICLE 10 LIENS Lessee shall keep the Leased Premises free from any liens, including but not limited to mechanics' liens, arising from any act or failure to act on the part of Lessee. If Lessee fails to remove any such lien or to provide a bond or other adequate security therefor within 30 days of the date Lessee is notified of the filing of the lien, Lessor shall have the right, but not the obligation, to pay the amount of such lien to cause its release, and such amount shall be paid by Lessee to Lessor on demand with interest at twelve percent (12%) per annum from the date the lien attached. All such amounts due by Lessee to Lessor shall be considered Additional Rent hereunder. All liens and encumbrances created or suffered by Lessee shall attach to Lessee's interest only. ARTICLE 11 RIGHTS ON TERMINATION Section 11.01 Surrender of Leased Premises. Upon the expiration or ---------------------------- other termination of this Lease, Lessee shall peaceably surrender to Lessor the Leased Premises, together with all improvements or additions upon or belonging to the Leased Premises, by whomsoever made, except as provided below, in the same condition as received or first installed, ordinary wear and tear, condemnation, and damage by Casualty (as defined in Article 16) excepted. Upon the termination of this Lease, Lessee shall, at Lessee's sole cost, remove all counters, trade fixtures, signs, office furniture and equipment installed by Lessee, unless otherwise agreed to in writing by Lessor. Any such property not so removed shall be deemed abandoned by Lessee at the termination of this Lease, and title to such property shall thereupon pass to Lessor. Any damage caused to the Leased Premises by the removal of such property shall be promptly repaired by Lessee to the satisfaction of Lessor. Lessee shall indemnify Lessor against any loss or liability resulting from delay by Lessee in so surrendering the Leased Premises, including, without limitation, any claims made by any succeeding tenant arising by reason of such delay. The obligations of Lessee under this article shall survive the expiration or other termination of this Lease. Section 11.02 Holding Over. If Lessee should remain in possession of the ------------ Leased Premises after expiration of the term of this Lease without execution by Lessor and Lessee of a new lease, Lessee shall be deemed to be occupying the Leased Premises as a tenant at sufferance subject to all of the covenants and obligations of this Lease, and Lessee shall pay to Lessor at a daily rental of one hundred twenty-five percent (125%) of the per diem rental rate provided hereunder for the immediately prior period computed on the basis of a thirty (30)-day month, together with all damages sustained by Lessor by reason of such retention, and the acceptance by Lessor of rent after such termination shall not constitute a renewal or extension and shall not be -10- deemed to waive Lessor's right to re-entry or any other right hereunder or at law. However, Lessor may elect, by giving written notice of such election to Lessee, to deem the continuing occupancy of Lessee to constitute the creation of a month-to-month tenancy at the monthly rental for the last period prior to the date of such termination, which month-to-month tenancy shall continue until either party shall have given the other party thirty (30) days prior written notice of an intention to terminate such month-to-month tenancy. If the Lessee surrenders one but not both of the buildings, commonly known as 941 N. Meridian Street and 930 N. Meridian Street respectively, included in the Leased Premises, Base Rent at the holdover rate shall be apportioned based upon the ratio of the rentable square footage of the building that Lessee continues to occupy (either 99,416 or 14,868 as the case may be) to 114,284 square feet. ARTICLE 12 SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE Section 12.01 Subordination. This Lease, and the rights of Lessee ------------- hereunder, shall be subject and subordinate to any ground lease relating to the Leased Premises and the lien or liens of any mortgage or mortgages, now in force against the Leased Premises, and upon the execution a non-disturbance agreement between the Lessee and any future mortgage holder or ground lessor, as to such future mortgages or ground leases, and to all advances made or hereafter to be made upon the security thereof, all without the necessity of having further instruments executed on the part of Lessee to effectuate such subordination. If requested by the lessor under any such ground lease or the holder of any such mortgage or mortgages, Lessee shall execute and deliver to such holder an instrument, in form and substance reasonably satisfactory to such lessor or holder and to Lessee, specifically subordinating this Lease to the lien of such ground lease, mortgage and mortgages. However, the holder of any such mortgage shall have the right at any time to declare this Lease to be superior in priority to the lien of said mortgage notwithstanding the dates of execution or recording of such mortgage. Section 12.02 Attornment. If by reason of any default on the part of ---------- Lessor as mortgagor under any mortgage or mortgages to which this Lease is subordinate, any such mortgage is foreclosed by legal proceedings or extinguished by conveyance in lieu of foreclosure or otherwise, Lessee, upon the election of the holder of any such mortgage, but not otherwise, shall attorn to and recognize such mortgage holder and its successors and assigns, including any purchaser in foreclosure or grantee of a deed in leu thereof, as landlord under this Lease. Lessee shall execute and deliver at any time, upon request of Lessor or any holder of a mortgage to which this Lease is subordinate, an instrument to evidence such attornment and containing the agreement of Lessee that no action taken to enforce any such mortgage by reason of default thereunder shall terminate this Lease or invalidate or constitute a breach of any of the terms hereof. The attornment provisions of this article are entirely independent of and not contingent upon the subordination provisions of this article. If several requests by mortgagees having security interests with different priorities are made of Lessee, Lessee shall attorn to the mortgagees in the order of their priority. -11- Section 12.03 Non-Disturbance. Notwithstanding anything to the contrary --------------- contained in this Article 12, Lessee's subordination of this Lease to any existing or future mortgage or ground lease or attornment to any mortgagee or ground lessor shall be conditioned upon such mortgagee's or ground lessor's entry into a non-disturbance agreement, in a form reasonably satisfactory to Lessee, in which the mortgagee or ground lessor, as the case may be, covenants and agrees not to disturb Lessee in its possession of the Leased Premises so long as Lessee is not in default under the terms of this Lease beyond any applicable notice and cure periods, and to assume and perform the obligations of Lessor under the Lease from and after the date such mortgagee or ground lessor takes possession of or title to the Leased Premises or any part thereof. In addition, Lessor shall use all reasonable commercial efforts to obtain a non- disturbance agreement in a form reasonably satisfactory to Lessee from the existing mortgage holders and ground lessor within six (6) months following the date of this Lease. If Lessor fails to obtain any such non-disturbance agreement within the six month period, Lessee shall be entitled to terminate this Lease. In connection with any future mortgage or ground lease, Lessee may condition its consent to subordination of this Lease under Section 12.01 above on obtaining a non-disturbance agreement from the mortgage holder or ground lessor in a form reasonably acceptable to the Lessee. ARTICLE 13 DEFAULT AND REMEDIES UPON DEFAULT Section 13.01 Default. The occurrence of one or more of the following ------- events constitutes a default ("Default") by the Lessee under this Lease: (a) Failure to pay the Base Rent or any Additional Rent as herein provided within ten (10) days of the date due and such failure continues for five (5) days following notice from Lessor, it being understood and agreed that Lessor shall not be required to give notice to Lessee more than two (2) times in any calendar year; (b) Failure to pay any other moneys or amounts of money as herein provided within ten (10) days of the date of notice of demand therefor; (c) Failure by Lessee to observe or perform any of the covenants in respect to assignment and subletting set forth herein; (d) Failure by Lessee to cure forthwith, promptly after receipt of notice from Lessor, any hazardous condition which Lessee has created in violation of law or of this Lease; (e) Failure by Lessee to observe or perform any other covenant, agreement, condition or provision of this Lease to be observed or performed by Lessee if such failure continues for thirty (30) days after notice to Lessee by Lessor, unless -12- the nonobservance or performance is of a nature that it cannot be corrected in thirty (30) days and Lessee has commenced the cure or observance or performance and is pursuing it with diligence, provided in all events that such curative action is successfully concluded within sixty (60) days after the initial written notice or demand from Lessor; (f) The levy upon under execution or the attachment by legal process of the Leased Premises or the leasehold interest of Lessee, or the filing or creation of a lien in respect of the Leased Premises or such leasehold interest which Lessee does not discharge or bond over in thirty (30) days; (g) Lessee vacates or abandons the Leased Premises; (h) Lessee becomes insolvent or admits in writing its inability to pay its debts as they mature, or makes a general assignment for the benefit of creditors, or applies for or consents in writing to the appointment of a trustee or receiver for Lessee or for the major part of its property; (i) A trustee or receiver is appointed for Lessee or for the major part of its property and is not discharged within thirty (30) days after such appointment; or (j) Any proceedings for reorganization, liquidation, dissolution or relief under any bankruptcy law, or similar law for the relief of debtors, are instituted by or against Lessee, and, if instituted against Lessee, are consented to by it, or are not dismissed within sixty (60) days after such institution. Section 13.02 Remedies. Upon the occurrence of any Default, Lessor may: -------- (a) terminate this Lease by notice thereof to Lessee, in which event the term shall end, and all right, title and interest of Lessee hereunder shall expire on the date stated in such notice; (b) terminate the right of Lessee to possession of the Leased Premises without terminating this Lease by giving notice to Lessee that Lessee's right of possession shall end on the date stated in such notice, whereupon the right of Lessee to possession of the Leased Premises or any part thereof shall cease on the date stated in such notice; and (c) force the provisions of this Lease and enforce and protect the rights of Lessor hereunder by a suit or suits in equity or at law for the specific performance of any covenant or agreement contained herein, or for the enforcement of any other appropriate legal or equitable remedy, including recovery of all moneys due or to become due from Lessee under any of the provisions of this Lease. -13- Section 13.03 Surrender. If Lessor exercises either of the remedies --------- provided for in paragraphs (a) or (b) of Section 13.02 above, Lessee shall surrender possession of and vacate the Leased Premises immediately and deliver possession thereof to Lessor, and Lessor may then or at any time thereafter re- enter and take complete and peaceful possession of the Leased Premises, with or without process of law, and Lessor may remove all occupants and property therefrom, using such force as may be necessary, without being deemed in any manner guilty of trespass, eviction or forcible entry and detainer, and without relinquishing Lessor's right to rental or any other right given to Lessor hereunder or by operation of law. Section 13.04 Termination of Possession. If Lessor terminates the right ------------------------- of Lessee to possession of the Leased Premises without terminating this Lease pursuant to paragraph (b) of Section 13.02, such termination of possession shall not release Lessee, in whole or in part, from Lessee's obligation to pay the rental hereunder for the full term, and the present value of the excess of the aggregate amount of the Base Rent over the amount of rent Lessor reasonably could receive by reletting the Leased Premises for the period from the date stated in the notice terminating possession to the end of the term shall at once mature and be immediately due and payable by Lessee to Lessor, together with any and all other moneys due hereunder, and Lessor shall have the right to immediate recovery of all such amounts. In addition, Lessor shall have the right, from time to time, to recover from Lessee, and Lessee shall remain liable for, all Additional Rent and any other sums thereafter accruing as they become due under this Lease during the period from the date of such notice of termination of possession to the stated end of the term. In any such case, Lessor may make repairs, alterations and additions to the Leased Premises, change the locks to the Leased Premises, and redecorate the Leased Premises to the extent deemed by Lessor as necessary or desirable to relet the Leased Premises, and Lessee shall upon demand pay to Lessor all costs and expenses thereof. In the event that Lessor should relet the Leased Premises or some portion thereof during the balance of the term, the proceeds of such reletting, after deduction of all reasonable costs and expenses in connection with the repossession and reletting of the Leased Premises (including, without limitation, all reasonable attorneys' fees, leasing commissions, expenses of repairs, alterations and redecoration and similar expenses), shall be applied to the payment of rentals and the satisfaction of other obligations of Lessee hereunder. Section 13.05 Termination of Lease. If this Lease is terminated by -------------------- Lessor pursuant to paragraph (a) of Section 13.02, Lessor shall be entitled to recover from Lessee all the fixed dollar amounts of rentals accrued and unpaid for the period up to and including such termination date, as well as all other additional sums payable by Lessee, or for which Lessee is liable or in respect of which Lessee has agreed to indemnify Lessor under any of the provisions of this Lease, which may be then owing and unpaid, and all reasonable costs and expenses, including court costs and attorneys' fees incurred by Lessor in the enforcement of its rights and remedies hereunder. In addition, Lessor shall be entitled to recover as damages for loss of bargain and not as a penalty: (i) the aggregate sum which at the time of such termination shall be equal to the present value of the excess of the aggregate rentals for the remainder of the term over the aggregate fair rental value of the Leased Premises for the balance of the term, and (ii) any -14- damages, including reasonable attorneys' fees and court costs, which Lessor shall have sustained by reason of a breach of any of the covenants of this Lease other than for the payment of rent. Section 13.06 Property. All property removed from the Leased Premises by -------- Lessor pursuant to any provisions of this Lease or of law may be handled, removed or stored by Lessor at the cost and expense of Lessee, and Lessor shall in no event be responsible for the value, preservation, or safekeeping thereof. Lessee shall pay Lessor for all expenses incurred by Lessor in such removal and storage charges against such property so long as it is in Lessor's possession or under Lessor's control. All property not removed from the Leased Premises or retaken from storage by Lessee within thirty (30) days after the end of the Lease term, however terminated, may be sold with the proceeds thereof applied to the rentals owed by Lessee. Section 13.07 Suit on Installments. Lessor shall have the right at any -------------------- time to file suit to recover any sums which have fallen due under this Lease from time to time on one or more occasions without being obligated to wait until the expiration of the term of this Lease, including, without limitation, past due Base Rent or Additional Rent, interest, late payment charges, advances, and attorneys' fees. Section 13.08 No Waiver: Remedies Cumulative. The failure of Lessor to ------------------------------ exercise any remedy herein provided in the event of a Default shall not constitute a waiver of such Default or any subsequent Default. The rights and remedies of Lessor in this Lease are distinct, separate and cumulative remedies, and shall not operate to exclude or deprive Lessor of any other right or remedy provided by law or equity. ARTICLE 14 LESSOR'S RESERVED RIGHTS Lessor shall have the following rights, exercisable without notice and without liability to Lessee for damage or injury to property, person or business (all claims for damage being hereby released, except for damages or injury resulting from Lessor's negligence or willful acts or omissions), and without effecting an eviction or disturbance of Lessee's use or possession or giving rise to any claim for off-sets or abatement of rent, except as otherwise expressly provided in this Lease: (a) To enter the Leased Premises to make inspections, repairs, alterations or additions in or to the Leased Premises or to exhibit the Leased Premises to prospective tenants, purchasers or others, at reasonable hours and upon prior notice to Lessee and at any time without notice in the event of an emergency, and to perform any acts related to the safety, protection, preservation, reletting, sale or improvement of the Leased Premises; -15- (b) To decorate, alter, repair or improve the Leased Premises at any time, including the right of Lessor and its representatives to enter on and about the Leased Premises with such materials as Lessor may deem necessary, erect scaffolding and all other necessary structures on or about the Leased Premises and close or temporarily suspend operations of entrances, doors, corridors and other facilities, provided that in the exercise of its rights under this paragraph, Lessor shall not unreasonably interfere with the conduct of Lessee's business and shall provide Lessee with at least three business days prior notice of such activities; and (c) To do or permit to be done any work in or about the Leased Premises or any adjacent or nearby building, land, street or alley; provided that such work does not unreasonably interfere with the conduct of Lessee's business or Lessee's access to the Leased Premises and Lessee is given at least three days prior notice. ARTICLE 15 EMINENT DOMAIN If all or any substantial part of the buildings constituting the Leased Premises shall be condemned by any public or quasi-public or other competent authority, or conveyed or transferred in lieu of condemnation, this Lease shall end on the date when the possession of the part so taken shall be required by such authority, without apportionment of the award to or for the benefit of Lessee. If any condemnation proceeding shall be instituted in which it is sought to take or damage any part of the buildings, or if any part of the buildings is conveyed or transferred in lieu of condemnation, and such partial taking makes it necessary or desirable to remodel the buildings to conform to the taking, either Lessor or Lessee may cancel this Lease upon not less than sixty (60) days' prior written notice to the other party. If this Lease is terminated as hereinabove provided, the rentals at the then current rate shall be apportioned as of the date of termination. No money or other consideration shall be payable by Lessor to Lessee for the right of termination of this Lease pursuant to this article. All condemnation awards and other sums awarded shall be agreed upon by Lessor and the condemning authority for the taking of the interest of Lessor and Lessee, whether as damages or as compensation, and shall be the property of Lessor, free of any claim of Lessee, except that Lessor shall not be entitled to any award or compensation paid to Lessee for its moving expenses, business interruption damages or for any personal property of Lessee that may be taken in any such proceeding. If all or any portion of the Leased Premises which constitutes a parking area shall be taken, then Lessor shall use all reasonable efforts to make available to Lessee reasonably comparable replacement parking. ARTICLE 16 FIRE AND OTHER CASUALTY If the Leased Premises, including the buildings and improvements, are substantially damaged by fire or other casualty, cause, condition or thing whatsoever (the "Casualty"), and -16- Lessor elects not to restore the Leased Premises, then Lessor may terminate this Lease by notice to Lessee given within ninety (90) days after the date of such Casualty (the "Casualty Date"). Such termination shall become effective as of the Casualty Date if the Leased Premises are untenantable, or as of a date ninety (90) days following the service of such notice of lease termination if the Leased Premises are not untenantable. Unless the Lease is terminated as hereinabove provided, Lessor shall restore all damaged portions of the Leased Premises within 1 80 days following the Casualty Date unless the Lessee exercises it right to terminate, provided below, except for Lessee Improvements, which shall be restored by and at the expense of Lessee. If the Leased Premises are made partially or wholly untenantable as a result of Casualty, and if Lessor fails, within one hundred eighty (180) days after the Casualty Date, to substantially restore the Leased Premises, either Lessor or Lessee may terminate this Lease as of the end of said one hundred eighty (180) days by notice to the other given not later than thirty (30) days after the expiration of said one hundred eighty (180)-day period. In the event of termination of this Lease pursuant to this article, rental at the then current rate shall be pro-rated on a per diem basis and paid only to the effective date of such termination. If all of the Leased Premises are untenantable but this Lease is not terminated, all rent shall abate from the Casualty Date until the Leased Premises are substantially restored and reasonably accessible for occupancy by Lessee. If part of the Leased Premises are untenantable, rent shall abated on a per diem basis in proportion to the percentage of the building and other improvements of the Leased Premises (excluding all parking, pedestrian or loading areas) which are rendered unusable by Lessee until the damaged part is ready for Lessee's occupancy. In all cases, due allowance shall be made for reasonable delay caused by adjustment of insurance loss, strikes, labor difficulties or any cause beyond Lessor's reasonable control. Lessor shall have no duty to repair, restore or replace Lessee Improvements. If at any time during the term of this Lease 50% or more of the rentable area of the Leased Premises is rendered untenantable by a Casualty, or if, during the last twelve months of the term of this Lease, 10% or more of the rentable area of the Leased Premises is rendered untenantable by Casualty, Lessee shall have the right to terminate this Lease upon written notice to Lessor given within thirty (30) days following the Casualty Date. ARTICLE 17 LESSOR'S LIABILITY The Lessee shall be responsible for and liable to the Lessor for any and all damage to the Leased Premises, any person or other property on the Leased Premises and for any act done thereon by the Lessee, its employees, agents or any other person coming on the Leased Premises by the invitation or license of the Lessee, expressed or implied, and Lessee shall fully indemnify and save Lessor harmless from any or all liability to any person for all such damage and from any other damage to any person or property resulting from use of the Leased Premises. Lessee's liability, if any to Lessor under this Article 17 shall extend only to actions and events which occur from and after the date of this Lease The term "Lessor" as used in this Lease, as far as covenants or agreements on the part of Lessor are concerned, shall be limited to mean and include only the owner or owners of Lessor's interest in this Lease at the time in question, and in the event of any transfer or transfers of such interest (except a transfer by way of security), -17- Lessor herein named (and in the case of any subsequent transfer, the then transferor) shall be automatically freed and relieved from and after the date of such transfer of all liability as respects the performance of any covenants or agreements on the part of Lessor contained in this Lease to be performed after such transfer. Any funds in which Lessee has an interest and which are in the hands of Lessor or the then transferor at the time of such transfer shall be turned over to the transferee, and any amount then due and payable to Lessee by Lessor or the then transferor under any provisions of this Lease shall be paid to Lessee. Upon any such transfer, provided the transferee shall have assumed, in writing, the obligations of Lessor under this Lease, subject to the limitations of this Section, all the covenants, agreements and conditions in this Lease contained to be performed on the part of Lessor, it being intended hereby that the covenants and agreements contained in this Lease on the part of Lessor shall, subject as aforesaid, be binding on Lessor, its successors and assigns, only during and in respect of their respective successive periods of ownership. In any event and notwithstanding any other provisions of this Lease, no officer, director, agent, partner, beneficiary, trustee or employee of Lessor or of any subsequent owner of the Leased Premises shall be responsible or liable in his individual or personal capacity for the performance or nonperformance of any agreement, covenant or obligation of Lessor contained in this Lease. ARTICLE 18 NOTICE Any notice required or permitted to be given or served by either party to this Lease shall be in writing and shall be served personally or sent by certified or registered mail, return receipt requested, first class postage prepaid, or by courier, telecopy or facsimile and addressed to the intended recipient as follows: LESSOR: MSE REALTY, LLC 941 N. Meridian Street Indianapolis, Indiana 46204-1061 Attn: Sol C. Miller Telecopy: (317) 634-3576 with a copy: LOCKE REYNOLDS BOYD & WEISELL 1000 Capital Center South 201 N. Illinois Street Indianapolis, Indiana 46204 Attn: Michael J. Schneider Telecopy: (317) 237-3900 LESSEE: MSE CORPORATION 941 N. Meridian Street Indianapolis, Indiana 46204-1061 Attn: ___________________________ Telecopy: (317) 634-3576 -18- with a copy to: ANALYTICAL SURVEYS, INC. 1935 Jamboree Drive, Suite 100 Colorado Springs, Colorado 80920 Attn: Sidney V. Corder Telecopy: (719) 598-9626 with another copy to: SHERMAN & HOWARD L.L.C. 633 Seventeenth Street, Suite 3000 Denver, Colorado 80202 Attn: James F. Wood, Esq. Telecopy: (303) 298-0940 All rental payments and other sums due Lessor hereunder shall be made to the Lessor at the above address. The addresses may be changed from time to time by either party by serving notice as above provided. Any such notice shall be deemed to have been given as of the earlier of (i) the date of the actual receipt of such notice, or (ii) the third business day following the date on which the piece of mail containing such notices posted if sent by certified or registered United States mail. ARTICLE 19 MISCELLANEOUS PROVISIONS Section 19.01 Assignment and Subletting. Lessee shall not assign this ------------------------- Lease or sublet the Leased Premises in whole or in part without the prior written consent of Lessor which consent shall not be unreasonably withheld or delayed. Notwithstanding any of the foregoing, Lessee shall be permitted, without Lessor's consent, to assign or sublet any or all of the Leased Premises to any entity which directly or indirectly controls, is controlled by or is under common control with, Lessee, or in connection with a sale of all or substantially all of Lessee's assets. In addition, no assignment of this Lease shall be binding upon Lessor unless the assignee shall have executed and delivered to Lessor a written assumption of Lessee's obligations under this Lease. In the event of any assignment of this Lease or any subletting of the Leased Premises, whether with or without the consent of Lessor, Lessee shall remain fully liable for the performance all of the covenants, conditions and provisions in this Lease, including, without limitation, the payment of Base Rent and Additional Rent as provided herein. Section 19.02 Quiet Environment. Lessor agrees and covenants that if the ----------------- Lessee shall perform all of the covenants and agreements herein provided to be performed on the Lessee's part, the Lessee shall, at all times during the term, have the peaceful and quiet enjoyment of possession of the Leased Premises without any manner of hindrance from the Lessor or any persons or entities lawfully claiming under the Lessor Section 19.03 Lessee Certificates. From time to time upon not less than ------------------- fifteen (15) days' prior request by Lessor, Lessee shall execute and deliver to Lessor, or any mortgagee or -19- prospective mortgagee of Lessor's interest in the Leased Premises, or any purchaser or prospective purchaser of Lessor's interest in the Leased Premises, a statement in writing certifying: (i) that this Lease is unmodified and in full force and effect (or if there have been any modifications that the Lease as modified is in full force and effect); (ii) the dates to which the rental and other charges have been paid, (iii) the date of commencement and expiration of the Lease term; (iv) that, to the knowledge of Lessee, Lessor is not in default under any provision of this Lease, or, if in default, the nature thereof in detail; and (v) such other matters as Lessor may reasonably request. Lessor agrees to provide a similar estoppel certificate to Lessee within 15 days following Lessee's request therefor. Section 19.04 Waiver by Lessor. No covenant, condition or provision of ---------------- this Lease shall be deemed to have been waived by Lessor unless executed in writing by Lessor. No waiver by Lessor of any covenant, condition or provision of this Lease shall be deemed, or shall constitute, a waiver of such covenant, condition or provision in the future, or a waiver of any subsequent breach of such covenant, condition or provision, or a waiver of any other covenants, conditions or provisions of this Lease, whether or not similar. The subsequent acceptance or payment of rent or other performance hereunder by Lessor shall not be deemed to be a waiver of any preceding breach by Lessee of any covenant, condition or provision of this Lease, regardless of Lessor's knowledge of such preceding breach at the time of acceptance or payment of such rental or other performance, unless Lessor shall expressly so state in writing. Section 19.05 Air and Light. This Lease does not grant or guarantee ------------- Lessee a continuance of light and air over any property adjoining the Leased Premises. Section 19.06 No Option. The submission of this Lease for examination or --------- signature by Lessee does not constitute a reservation of or option for the Leased Premises. This instrument shall become effective as a Lease only upon execution and delivery by both Lessor and Lessee. Section 19.07 Right to Cure Lessee Breaches. If Lessee shall fail to ----------------------------- perform any of Lessee's covenants or obligations under this Lease, and such failure shall continue after the expiration of any cure period or grace period provided in this Lease with respect to such covenants or obligations, Lessor shall have the right, but not the obligation, to perform such covenants or obligations for the account and at the expense of Lessee, without notice to Lessee. All monies spent and costs and expenses incurred by Lessor in performing such covenants or obligations shall become Additional Rent hereunder and shall be due and payable by Lessee on demand by Lessor and shall bear interest at the rate of twelve percent (12%) per annum from the date due until paid in full. Section 19.08 Expenses of Enforcement. Lessee shall pay or reimburse Lessor ----------------------- for all costs and expenses, including court costs and reasonable attorneys' fees, incurred by Lessor in enforcing, or attempting to enforce, any of its rights and remedies under this Lease, whether or not litigation is commenced to enforce such rights or remedies, including, without limitation, any negotiations or transactions relating to, or arising out of, this Lease in which Lessor -20- becomes involved or concerned. All such costs and expenses incurred by Lessor, together with interest at the rate of twelve percent (12%) per annum, shall become Additional Rent due hereunder and shall be due and payable by Lessee on demand by Lessor. In the event that either party defaults in the performance or observance of any of the terms and conditions, covenants or obligations contained in this Lease after the expiration of all applicable notice and cure periods, and the other party employs attorneys to enforce all or any part of this Lease, (or in the case of the Lessor) to collect any rent due or to recover possession of the Leased Premises, the prevailing party agrees to reimburse the other party for the reasonable attorneys' fees incurred thereby, whether or not suit is filed. Section 19.09 Memorandum of Lease. At the request of either party, the ------------------- parties shall execute and record a memorandum of this Lease. Section 19.10 Severability. If any provision of this Lease is held to ------------ be unenforceable, invalid or void, such provision shall be deemed to be severable from the remaining provisions of this Lease, and such holding shall in no way impair or affect the validly or enforceability of the remaining provisions of this Lease, which shall then be construed as if such invalid or unenforceable provision were omitted. Section 19.11 Successors and Assigns. Except as herein limited, this ---------------------- Lease shall be binding upon, and inure to the benefit of, the parties hereto and their respective heirs, personal or legal representatives, successors and assigns. Section 19.12 Entire Lease. This Lease, together with any and all ------------ exhibits and schedules attached hereto, constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements, representations, and understandings of the parties, written or oral. Section 19.13 Amendments. No supplement, modification or amendment of ---------- any provision of this Lease shall be binding unless executed in writing by all of the parties to this Lease. Section 19.14 Controlling Law. This Lease and the rights and obligations --------------- of the parties hereto shall be construed in accordance with the laws of the State of Indiana, without giving effect to the choice of law provisions thereof. All parties to this Lease hereby agree that any legal action against them in connection with this Lease, or any transaction contemplated by this Lease, may be commenced against them in any state or federal court of competent jurisdiction located in Marion County, Indiana. Section 19.15 Mediation. Notwithstanding Section 19.14 above, if a --------- dispute arises under or in connection with this Lease, including, without limitation, those involving claims for specific performance or other equitable relief, notice must be given pursuant to the Article 18. After such notice has been given by one party to the other, the parties in good faith will attempt -21- to negotiate or mediate a resolution of the dispute with the aid of a mediator who has been mutually agreed upon by the parties. Section 19.16 Arbitration. If such efforts provided for in Section ----------- 19.15 do not within 30 days resolve the dispute, upon demand of any party, whether made before or after the institution of any judicial proceeding, the dispute will be resolved by binding arbitration under the Commercial Arbitration Rules of the American Arbitration Association. Institution of a judicial proceeding by a party does not waive the right of that party to demand arbitration under this Lease, provided that arbitration is commenced within 70 days after such judicial proceedings are commenced. The American Arbitration Association will choose one arbitrator to hear the parties and settle any dispute. All arbitration hearings will be conducted in Kansas City, Missouri. All applicable statutes of limitation will apply to any dispute. The arbitrator will have no power to award punitive or exemplary damages, to ignore or vary the terms of this Lease, and will be bound to apply controlling law. The Lessor and the Lessee each will pay for one-half of the arbitrator's fees and expenses and each such party will bear its own costs and expenses incurred in connection with the arbitration, except that the arbitrator will award either party reimbursement of its share of the costs and expenses of arbitration, such party's costs and expenses (including attorneys' fees and expenses), and any special or extraordinary fees or costs incurred in connection with any such arbitration or dispute, if the other party commences or conducts the arbitration in bad faith. A judgment upon the award may be entered in any court having jurisdiction. Notwithstanding anything to the contrary contained in this Section 19.16, the parties preserve, without diminution, certain remedies that any of them may employ or exercise freely, either alone, in conjunction with, or during a dispute. The parties to this Lease have the right to proceed in any court of proper jurisdiction or by self-help to exercise or prosecute the following remedies, as applicable: (i) all rights of self-help including peaceful occupation of the Leased Premises and collection of rents, set off and peaceful possession of personal property; and (ii) obtaining provisional or ancillary remedies including injunctive relief, requestration, garnishment, attachment, appointment of a receiver and filing an involuntary bankruptcy proceeding. Preservation of these remedies does not limit the power of an arbitrator to grant similar remedies that may be requested by a party in a dispute. It is further understood and agreed that notwithstanding these provisions requiring arbitration and mediation, the Lessor shall retain the right to obtain preliminary injunctive relief or other temporary relief from any court of competent jurisdiction in the case of an emergency or in other circumstances where the rights and interests of the Lessor in the Leased Premises would be unreasonably and materially adversely affected by such mediation and/or arbitration procedures, pending resolution of the merits of the dispute by arbitration. Section 19.17 Construction. The headings of Articles, Sections and ------------ paragraphs in this Lease are for descriptive purposes only and shall not control, alter or otherwise affect the meaning, scope or intent of any provisions of this Lease. Except as expressly provided otherwise in this Lease, any reference to an Article or Section shall mean and refer to an Article or Section of this Lease. Except where the context of their use clearly requires a different interpretation, singular terms shall include the plural, and masculine terms shall include the feminine or neuter, -22- and vice versa, to the extent necessary to give the defined terms or other terms used in this Lease their proper meanings. The locative adverbs, "herein," "hereof," "hereunder," "hereto," "hereinafter," "hereinbefore," and similar words, wherever they appear in this Lease, shall mean and refer to this Lease in its entirety and not to any specific Article, Section or paragraph of this Lease, unless the context of their use clearly requires a different interpretation. Section 19.18 Incorporation by Reference. All Exhibits identified -------------------------- herein, and any amendments, riders and addenda attached hereto and signed by both Lessor and Lessee, are hereby incorporated herein by this reference and made a part hereof. Section 19.19 Counterparts. This Lease may be executed concurrently in ------------ two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Lease, or multiple counterparts thereof, each of which is deemed an original, as of the date first written above. "LESSOR" MSE REALTY, LLC By: ________________________________ Sol C. Miller Printed Signature ___________________________________ Printed Signature Title Member ---------------------------- "LESSEE" MSE CORPORATION "LESSEE" By: _______________________________ Sidney V. Corder ___________________________________ Printed Signature Title Chairman/Chief Executive Officer -------------------------------- GUARANTY The undersigned, Analytical Surveys, Inc., a Colorado corporation, unconditionally, irrevocably and absolutely guarantees to Lessor the prompt payment and performance when due and at all times thereafter (and not merely the ultimate collectibility) of all existing and future agreements, obligations, liabilities and indebtedness of Lessee under and with respect to this Lease, including without limitation, the prompt payment when due of all Base Rent, Additional -23- Rent and other sums due under this Lease. The undersigned also agrees to pay all costs and expenses, including without limitation, court costs and reasonable attorneys' fees, incurred by Lessor in connection with the enforcement or attempted enforcement of this Lease (including this Guaranty), whether in or out of court (including bankruptcy court). The undersigned agrees that, without affecting or impairing its liability and obligations under this Guaranty, the Lease can be amended and Lessor can agree to extend, modify, waive and otherwise change the time and terms of payment and performance of this Lease, without notice to or consent of the undersigned. The undersigned also waives, to the fullest extent permitted by law, all defenses that might otherwise be available to the undersigned to limit the undersigned's liability under this Guaranty relating to the discharge of a surety. Regardless of whether the undersigned has notice thereof or has consented thereto, the validity and enforceability of this Guaranty shall not be impaired or affected by any act or omission of Lessor that might otherwise constitute a discharge of the obligations of the undersigned under this Guaranty, including without limitation, (i) any failure or omission to enforce any right, power or remedy, (ii) any waiver of any right, power or remedy against Lessee or of any default by Lessee, and (iii) any release, surrender, compromise, settlement, subordination or modification in favor of Lessee, with or without consideration. Without limiting the generality of the foregoing, the undersigned will not assert, plead or enforce against Lessor any defense of waiver, release, discharge in bankruptcy, anti-deficiency statute, incapacity, usury, ultra vires, or lack of authorization that may be available to Lessee or any other obligor with respect to the Lease. The undersigned will not exercise or enforce, and hereby waives, any right of contribution, reimbursement, recourse or subrogation available to the undersigned against Lessee or any other person liable for all or any part of Lessee's Lease obligations, or as to any security therefor, unless and until all agreements, obligations, liabilities and indebtedness under and with respect to the Lease have been fully paid and performed without possibility of disgorgement, return or rescission. If any payment applied by Lessor to the Lease is set aside, recovered, rescinded or required to be returned for any reason (including, without limitation, the 27 bankruptcy, reorganization or insolvency of Lessee), the Lease obligation to which the payment was applied shall for the purposes of this Guaranty be deemed to have continued in existence, notwithstanding the application, and this Guaranty shall be enforceable with respect to such Lease obligation as fully as if Lessor had not made the application. This Guaranty is a continuing guaranty, is binding upon the undersigned and its successors and assigns, and will inure to the benefit of Lessor and its successors and assigns. This Guaranty is governed exclusively by Indiana law, without regard to conflict of laws principles. All claims under this Guaranty will be resolved by arbitration in a manner consistent with Section 19.16 of the Lease. -24- Date: July ___, 1997 ANALYTICAL SURVEYS, INC., a Colorado corporation By: __________________________________ Sidney V. Corder ______________________________________ Printed Signature Title Chairman/Chief Executive Officer --------------------------------- -25- TRACT I ------- LAND DESCRIPTION ---------------- 941 BUILDING ------------ Lots 1, 2, 3,4, and 5 in George D. Staat's Subdivision of Lots 26, 27, and 28 of the Joseph R. Praff's Subdivision of a part of Outlot 172 of the Donation Lands of the City of Indianapolis, the plat of which is recorded in Plat Book 1 page 309, in the Office of the Recorder of Marion County, Indiana, together with the West Half of the first alley East of Meridian Street from Sahm Street to St. Joseph Street vacated by Declaratory Resolution 17579, recorded January 7, 1958 in Deed Record 1690, Instrument No.1179, in the Office of the Recorder of Marion County, Indiana. Except 5 feet off the West side taken for the widening of Meridian Street. ALSO; Lots 29, 30 and 31 in Joseph R. Prall's Subdivision of the North part of Outlot 172 of the Donation Lands of the City of Indianapolis, the plat of which is recorded in Plat Book 1, pages 79 and 80, in the Office of the Recorder of Marion County, Indiana. Except 5 feet off the west side, taken for the widening of Meridian Street. Also, excepting that portion conveyed to the City of Indianapolis for public right of way, dated July 15,1985 and recorded August 26, 1985, as Instrument No.85-72273. ALSO: Lots 6, 7, and 8 in George D. Staat's Subdivision of Lots 26, 27, and 28 of J. R.Pratt's Subdivision of Outlot 172 in the City of Indianapolis, Marion County, Indiana, the plat of which is recorded in Plat Book 1, page 309, in the Office of the Recorder of Marion County, Indiana, together with the East Half of the first alley East of Meridian Street from Sahm Street to St. Joseph Street, vacated by Declaratory Resolution 17579, recorded January 7,1958 in Deed Record 1690, Instrument No.1179, in the Office of the Recorder of Marion County, Indiana. -26- TRACT II -------- LAND DESCRIPTION ---------------- GOODRICH -------- Part of Outlot 171 of the Donation Lands of the City of Indianapolis as per plat thereof recorded in Plat Book 1 page 97, in the Office of the Recorder of Marion County, Indiana, more particularly described as follows: Lot 4, and 22 feet 6 inches by parallel lines off the entire North side of Lot 5 in Joseph R. Pratt's Subdivision of Outlot 171, of the Donation Lands of the City of Indianapolis, as per plat thereof recorded in Plat Book 1, page 97, in the Office of the Recorder of Marion County, Indiana. Also, the strip of land 2.7 feet in width, North of and adjoining Lot 4 herein being part of St. Joseph Street, vacated, as described in Declaratory Resolution No. 17025, and recorded in Deed Record 1488, page 447, in the Office of the Recorder of Marion County, Indiana. Except 5 feet taken off the entire East side of the above realty for widening of Meridian Street. Subject to highways, rights-of-way, and easements. LAND DESCRIPTION ---------------- 930 BUILDING ------------ Lot 6 and 40 feet off the South side of Lot 5 in Joseph R. Pratt's Subdivision of Outlot 171 of the Donation Lands of the City of Indianapolis, the plat of said Pratt's Subdivision is recorded in Plat Book 1, page 97, in the Office of the Recorder of Marion County, Indiana. Except 5 feet off the East side taken for the widening of Meridian Street. -27- EX-10.13 3 EMP. AGMT.: 7/2/97 -- ANALYTICAL & RJSAGE EXHIBIT 10.13 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made effective for all purposes and in all respects as of the 2nd day of July, 1997, by and between ANALYTICAL SURVEYS, INC., a Colorado corporation (hereinafter referred to as the "Employer" or the "Corporation"), and RANDAL J. SAGE (hereinafter referred to as the "Employee"). WITNESSETH THAT: WHEREAS, Employee has been employed by MSE Corporation, an Indiana corporation (hereinafter referred to as "MSE"); and WHEREAS, Employer wishes to retain the services of Employee, and Employer and Employee wish to. formalize the terms and conditions of their agreements and understandings, and to continue the term of Employee's employment hereunder; NOW, THEREFORE, in consideration of the foregoing of the mutual promises herein contained, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending legally to be bound, agree as follows: 1. Term of Employment. ------------------ This employment agreement shall supersede all prior employment agreements written or verbal. The term shall commence on July 2, 1997, and shall continue until June 30, 1999, unless sooner terminated in accordance with the provisions of Paragraph 6, and shall be reviewed annually after the initial term referenced above. 2. Duties of Employee: ------------------ 2.1 It is understood and agreed that Employee's principal duties on behalf of Employer at the date of execution hereof are and shall be as Chief Operations Officer of the Corporation. In accepting employment by Employer, Employee shall undertake and assume the responsibility of performing for and on behalf of Employer whatever duties are necessary and required in his position as Chief Operations Officer of the Corporation. The Chief Operations Officer will report to the Chief Executive Officer. Employer agrees that it will not relocate Employee from his current employment in Indianapolis, Indiana, without Employee's prior consent. 2.2 Employee covenants and agrees that at all times during the term of this Agreement, Employee shall devote his full-time efforts to his duties as an employee of the Employer. Employee further covenants and agrees that he will not, directly or indirectly, engage or participate in any activities at any time during the term of this Agreement in conflict with the best interests of Employer. 3. Compensation. 3.1 Salary. As compensation for the services to be rendered by Employee ------ for Employer under this Agreement, Employee shall be paid not less than the following base annual salary, during the term hereof: $170,000, plus annual increases and bonuses, if any, voted him by the Board of Directors of Employer. 3.2 Bonus. Employee shall be a participant in the Analytical Surveys, ----- Inc. bonus plans in effect and on substantially the same basis as other executive officers of the corporation as approved by the Board of Directors; provided, that required accounting principles shall not negatively impact the amount of Employee's bonus. 3.3 Salary Review. Employee's salary will be reviewed annually in ------------- January, commencing January, 1998. 4. Additional Benefits. ------------------- In addition to, and not in limitation of, the compensation referred to in Paragraph 3, Employee shall be paid the following additional benefits during the term hereof: 4.1 Reimbursement. Reimbursement of all reasonable expenses incurred by ------------- him in connection with performance of his duties shall be made upon submission of vouchers in accordance with the corporation policies in effect from time to time. Reasonable expenses shall include, but not limited to all out-of-pocket expenses for entertainment, travel, meals, lodging, automobile expense, professional fees, professional dues and the like incurred by him in the interest of the Employer. 4.2 Participation in Benefit Plans. Employee shall be a participant, to ------------------------------ the extent he meets all eligibility requirements of general application to senior executives of the Corporation, in any and all plans maintained by the Corporation to provide benefits for its employees, at least to the extent specified in the MSE Corporation's Flexible Benefits Workbook, amended November, 1996, a copy of which has been given to Employee. Benefits shall include, but not limited to, group term life insurance, health care insurance, short-term disability, long-term disability, 401K plan, and health care and dependent care expense accounts which allow the use of pre-tax dollars for payment of those expenses. However, while reasonable Employee contributions may be required and reasonable increases may be made in deductible amounts, the maximum insurable benefits under such plans shall at no time be materially less than those in effect for all other officers of the Corporation. Changes in the Corporation Benefit Plan may affect the level of participation by the employee and will be reviewed in accordance with the annual review specified in Paragraph 1 "Term of -2- Employment." At no time will such benefit participation be less than those in effect for all other officers of the Corporation. 4.3 Vacations. Employee shall be entitled to vacations of not less than --------- four (4) weeks per year, in accordance with the Corporation's regular vacation policies established for senior executives; provided, that Employee may accrue any unused vacation time from year to year, and upon termination of employment will be compensated for any unused vacation time. Unused vacation time may be deferred to the following year up to a maximum of two years accrual. Any specific vacation of more than two (2) weeks duration shall be approved in advance by the Chief Executive Officer. 4.4 Other Perquisites. Employee shall be entitled to such additional ----------------- perquisites as may be customarily granted by the Corporation to senior executives, as set forth by the Corporation's Employee Handbook. In addition, Corporation will continue to provide Employee with the use of an automobile of similar nature to the one currently provided at the commencement of the term of this Agreement, and Employer will maintain payments of dues and business related expenses associated Employee's country club membership. Employer shall also pay, on behalf of Employee, a sum of $15,000, for Employee's conversion of his country club membership status from "CH" to "A", at the time when such conversion becomes possible. Said additional perquisites shall be reviewed at the conclusion of the initial term defined in Paragraph 1 "Term of Employment". 4.5 Disability Payments. In the event of the Employee's disability, ------------------- Employee's salary in effect at the time of his disability shall continue to be paid to the Employee, or to his designee, in accordance with existing Corporation executive benefit plans, or from the date of Employee' termination by reason of disability. For the purposes of this Employment agreement, the obligations of the Employer to make the payments upon the disability of Employee shall not become effective, unless and until all of the following conditions are met, as determined by an independent physician selected by the Board of Directors and subject to reasonable consent by Employee: (1) Employee shall become physically or mentally incapable (excluding infrequent and temporary absences due to ordinary illnesses) of properly performing the services required of him in accordance with his obligations under Paragraph 2 hereof or similar provisions of any renewal agreement; (2) such incapacities shall exist or be reasonably expected to exist for more than ninety (90) days in the aggregate during the period of twelve (12) consecutive months; (3) either Employee or Employer shall have given the other thirty (30) days' written notice of his or its intention to terminate the active employment of Employee because of such disability; and, (4) Employee shall have exhausted his Short Term Disability Benefits pursuant to Paragraph 4.2 above. The benefits payable hereunder shall be in addition to, and shall not be offset against, any amounts paid to Employee or his designee by reason of insurance benefits pursuant to Paragraph 4.2 above. -3- 4.6 Life Insurance. At Employee option, Employee shall be provided with a life insurance policy in the amount of $250,000 (provided he can meet the medical conditions for such coverage), payable to such beneficiaries as he shall designate, with an additional $250,000 of accidental death coverage, with the cost of such policies borne by Employer. Should the Employee fail to meet expected medical rating for insurance resulting in higher cost, then Employee will pay for the excess charge above and beyond reasonable expectations. Such coverage shall be in addition to Life Insurance coverage maintained by Employee pursuant to Paragraph 4.2 above. Should the Employee cease to be employed by the corporation, the Employee may assume the entire cost of the premium. Further, the Employee has assignability under the policy. 4.7 Liability Coverage. Employee will be covered under liability policies maintained by the Corporation for Directors and Officers, or if such coverage is not maintained, Employee will continue to be covered by the Umbrella Liability Policy coverage in existence at the time of the commencement of this agreement, to the extent covered in these existing policies. 5. Disclosure of Information. ------------------------- Employee acknowledges that in and as a result of his employment hereunder, he will be making use of, acquiring, and/or adding to confidential information of a special and unique nature and value relating to such matters as Employer's trade secrets, systems, procedures, manuals, confidential reports, and lists of clients. As a material inducement to Employer to enter into this Agreement and to pay to Employee the compensation stated in Paragraph 3' as well as any additional benefits stated Paragraph 4' Employee covenants and agrees that he shall not, other than in the ordinary course of business, at any time during or following the term of his employment, directly or indirectly divulge or disclose for any purpose whatsoever or appropriate to his own use or to the use of others any confidential information that has been obtained by, or disclosed to him, as a result of his employment by Employer, unless required to do so by court order or other similar circumstances, or unless authorized by the Board of Directors. 6. Termination. ----------- 6.1 Termination By Either Party Without Cause. At any time during the ----------------------------------------- term hereof, this Employment Agreement may be terminated "without cause" by either Employer or Employee upon written notice to the other party. (A) In the event of such termination "without cause" by Employee, Employer shall have the option either (a) to accept Employee's resignation, effective immediately on receipt of such notice; or (b) to require Employee to continue to perform his duties hereunder, for a period not to exceed six (6) months from the date of receipt of such written notice. In either event, the Employee' 5 compensation and benefits hereunder shall continue only until the effective date of termination, as defined in Paragraph 6.4 below. -4- (B) In the event of such termination "without cause" by Employer, Employee shall be continued on the payroll for twenty-four (24) months, and shall receive bonuses equal to those received by him during the twenty-four (24) months prior to termination. Such severance pay shall be paid to him in twenty- four (24) equal, successive monthly payments, beginning on the first day of the month immediately following the effective date of termination. Employee shall also be continued under all group benefit plans for a period of twenty-four (24) months from the effective date of termination, as defined in paragraph 6.4 (A) below. 6.2 Termination by Employer for Cause. Notwithstanding any other --------------------------------- provision hereof, Employer may terminate Employee's employment under this Agreement at any time for cause. The termination shall be effective by written notice thereof to the Employee, which shall specify the cause for termination. For purposes hereof, the term "cause" shall mean the failure of Employee for any reason, within thirty (30) days after receipt by Employer of written notice from Employee, to correct, cease, or otherwise alter any action or omission to act that constitutes a material and willful breach of Agreement likely to result in material damage to the Corporation, or willful gross misconduct likely to result in material damage to the Corporation. Upon such termination for cause by Employer, Employee shall not receive termination pay or benefits beyond the effective date of termination, as defined in Paragraph 6.4(B) below. 6.3 Termination by Employee for Cause. Notwithstanding any other --------------------------------- provision hereof, Employee may resign his employment under this Agreement at any time for cause. The termination may be by written notice thereof to Employer, which shall mean the failure of Employer for any reason, within thirty (30) days after receipt by Employer of written notice from Employee, to correct, cease or otherwise alter any adverse change in the conditions of Employee's employment caused by (a) a change in ownership of the corporation; to include but not exclusively the corporation sells all or a portion of MSE effecting, the Employee, the corporation ceases to be a public company, or the corporation is purchased by another public or private company or (b) any other breach of this Agreement by Employer. Upon such termination for cause by Employee, Employee shall be continued on the payroll for twenty-four (24) months from the effective date of termination (as defined in Paragraph 6.4 (b) below) at his then current salary without further responsibilities to the Corporation. Employee shall also be continued under all group benefit plans for a period of twenty-four (24) months from the effective date of termination. 6.4 Effective Date of Termination. ----------------------------- (A) The effective date of termination, as used in Paragraph 6.1 with respect to termination "without cause", shall be the date on which Employee actually ceases to perform his duties hereunder. -5- (B) The effective date of termination, as used in Paragraph 6.2 and 6.3 with respect to termination "for cause", shall be thirty (30) calendar days after the date on which Employee receives or gives written notice of termination. 6.5 Limitation on Severance Compensation. Notwithstanding any other ------------------------------------ provision of the Agreement, solely in the event of a Termination Upon a Change In Control, the aggregate of the amount of severance compensation paid to the Employee under the Agreement or otherwise, but exclusive of any payments to the Employee by virtue of the Employee's exercise of any right or payment of any kind under any incentive or benefit plan upon a change in control, shall not include any amount that the Employer is prohibited from deducting for federal income tax purposes; by virtue of Section 280G of the Internal Revenue Code or any successor provision. 6.6 Covenant Not to Compete. During any applicable period specified in ----------------------- Paragraph 6 (and for six months if a termination under Paragraph 6.2 occurs), the Employee shall not directly or indirectly own, control, operate, manage, consult, own shares in, be employed by, or otherwise participate in any sole proprietorship, corporation, partnership or entity whose primary business is the same or similar to the business of the Corporation. This covenant of non-competition has been negotiated and agreed to by and between the Employer and Employee with full knowledge of, and pursuant to the requirements of applicable law, and is deemed by both parties to be fair and reasonable under terms of that statue. 7. Other Business Activities. ------------------------- During the period of his employment under this Agreement, the Employee shall not be employed by or otherwise engage or be interested in any business whether or not in competition with the Corporation, or with any of its subsidiaries or affiliates, with the following exceptions: (A) Employee's investments in any business shall not be considered a violation of this paragraph, provided that such business is not in competition with the Corporation and the Employee does not render controlling management or other personal services to such business; (B) Employee may consult with other businesses not in competition with the Corporation, provided that each such consulting job shall be expressly considered and approved or disapproved in advance by the audit committee of the Board of Directors. 8. Indemnification. --------------- Employer will not amend its articles or bylaws or the articles or bylaws of MSE in such a manner as to adversely affect any right to indemnification of Employee that exists as of the date of this Agreement. 9. Burden and Benefit. ------------------ -6- This Agreement shall be binding upon, and shall inure to the benefit of, Employer and employee, and their respective heirs, personal and legal representatives, successors, and assigns and shall be expressly binding upon and inure to the benefit of any person or entity assuring the Corporation, by merger, consolidation, purchase of assets or stock or otherwise. 10. Governing Law. -------------- It is understood and agreed that the construction and interpretation of this Agreement shall at all times and in all respects be governed by the laws of the State of Indiana. 11. Severability. ------------ The provisions of this Agreement, including particularly but not solely, the provisions of Paragraphs 5 and 6, shall be deemed severable, and the invalidity or unenforceability of any one of more of the provisions of this Agreement shall not affect the validity and enforceability of the other provisions. 12. Notice. ------ Any notice required to be given shall be sufficient if it is in writing and sent by certified or registered mail, return receipt requested, first-class postage prepaid, to the residence in the case of Employee, and to its principal office in the case of Employer. 13. Entire Agreement. ---------------- This Agreement contains the entire agreement and understanding by and between Employer and Employee with respect to the employment of Employee, and no representations, promises, agreements, or understandings, written or oral, not contained herein shall be of any force or effect. No change or modification of this Agreement shall be valid or binding unless it is in writing and signed by the party against whom the waiver is sought to be enforced. No valid waiver of any provision of this Agreement at any time shall be deemed a waiver of any other provision of this Agreement at such time or at any other time. 14. Counterparts. ------------ The Agreement may be executed in two or more counterparts, any one of which shall be deemed the original without reference to the others. -7- IN WITNESS WHEREOF, Employer and Employee have duly executed this Agreement as of the day and year first above written. EMPLOYER: ATTEST: ANALYTICAL SURVEYS, INC. a Colorado corporation __________________________ by: __________________________________ President EMPLOYEE: ______________________________________ -8- EX-10.14 4 EMP. AGMT.: 7/2/97 -- ANALYTICAL & JJDILLION EXHIBIT 10.14 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made effective for all purposes and in all respects as of the 2nd day of July, 1997, by and between ANALYTICAL SURVEYS, INC., a Colorado corporation (hereinafter referred to as the "Employer" or the "Corporation"), and John J. Dillon, III (hereinafter referred to as the "Employee") WITNESSETH THAT: WHEREAS, Employee has been employed by MSE Corporation, an Indiana corporation (hereinafter referred to as "MSE"); and WHEREAS, Employer wishes to retain the services of Employee, and Employer and Employee wish to formalize the terms and conditions of their agreements and understandings, and to continue the term of Employee's employment hereunder; NOW, THEREFORE, in consideration of the foregoing of the mutual promises herein contained, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending legally to be bound, agree as follows: 1. Term of Employment. ------------------ This employment agreement shall supersede all prior employment agreements written or verbal. The term shall commence on July 2, 1997, and shall continue until June 30, 1999, unless sooner terminated in accordance with the provisions of Paragraph 6, and shall be reviewed annually after the initial term referenced above. 2. Duties of Employee. ------------------- 2.1 It is understood and agreed that Employee's principal duties on behalf of Employer at the date of execution hereof are and shall be as Chief Administrative Officer of the Corporation. In accepting employment by Employer, Employee shall undertake and assume the responsibility of performing for and on behalf of Employer whatever duties are necessary and required in his position as Senior Vice President, Chief Administrative Officer. The Employee will report directly to the Chief Executive Officer. Employer agrees that it will not relocate Employee from his current employment in Indianapolis, Indiana, without Employee's prior consent. 2.2 Employee covenants and agrees that at all times during the term of this Agreement, Employee shall devote his full-time efforts to his duties as an employee of the Employer. Employee further covenants and agrees that he will not, directly or indirectly, engage or participate in any activities at any time during the term of this Agreement in conflict with the best interests of Employer. 3. Compensation ------------ 3.1 Salary. As compensation for the services to be rendered by Employee ------ for Employer under this Agreement, Employee shall be paid not less than the following base annual salary, during the term hereof: $125,000, plus annual increases and bonuses, if any, voted him by the Board of Directors of Employer. 3.2 Bonus. Employee shall be a participant in the Analytical Surveys, ----- Inc. bonus plans in effect and on substantially the same basis as other executive officers of the corporation as approved by the Board of Directors; provided, that required accounting principles shall not negatively impact the amount of Employee's bonus. 3.3 Salary Review. Employee's salary will be reviewed annually in ------------- January, commencing January, 1998. 4. Additional Benefits. ------------------- In addition to, and not in limitation of, the compensation referred to in Paragraph 3, Employee shall be paid the following additional benefits during the term hereof: 4.1 Reimbursement. Reimbursement of all reasonable expenses incurred by ------------- him in connection with performance of his duties shall be made upon submission of vouchers in accordance with the corporation policies in effect from time to time. Reasonable expenses shall include, but not limited to all out-of-pocket expenses for entertainment, travel, meals, lodging, automobile expense, professional fees, professional dues and the like incurred by him in the interest of the Employer. 4.2 Participation in Benefit Plans. Employee shall be a participant, to ------------------------------ the extent he meets all eligibility requirements of general application to senior executives of the Corporation, in any and all plans maintained by the Corporation to provide benefits for its employees, at least to the extent specified in the MSE Corporation's Flexible Benefits Workbook, amended November, 1996, a copy of which has been given to Employee. Benefits shall include, but not limited to, group term life insurance, health care insurance, short-term disability, long-term disability, 401K plan, and health care and dependent care expense accounts which allow the use of pre-tax dollars for payment of those expenses. However, while reasonable Employee contributions may be required and reasonable increases may be made in deductible amounts, the maximum insurable benefits under such plans shall at no time be materially less than those in effect for all other officers of the Corporation. Changes in the Corporation Benefit Plan may affect the level of participation by the employee and will be reviewed in accordance with the annual review specified in Paragraph 1 "Term of -2- Employment." At no time will such benefit participation be less than those in effect for all other officers of the Corporation. 4.3 Vacations. Employee shall be entitled to vacations of not less than --------- four (4) weeks per year, in accordance with the Corporation's regular vacation policies established for senior executives; provided, that Employee may accrue any unused vacation time from year to year, and upon termination of employment will be compensated for any unused vacation time. Unused vacation time may be deferred to the following year up to a maximum of two years accrual. Any specific vacation of more than two (2) weeks duration shall be approved in advance by the Chief Executive Officer. 4.4 Other Perquisites. Employee shall be entitled to such additional ----------------- perquisites as may be customarily granted by the Corporation to senior executives, as set forth by the Corporation's Employee Handbook. In addition, Corporation will continue to provide Employee with the use of an automobile of similar nature to the one currently provided at the commencement of the term of this Agreement, and Employer will maintain payments of dues and business related expenses associated Employee's country club membership. Employer will also reimburse Employee for the purchase of season tickets to Indiana Pacers basketball games, most of which are used for corporate marketing purposes. 4.5 Disability Payments. In the event of the Employee's disability, ------------------- Employee's salary in effect at the time of his disability shall continue to be paid to the Employee, or to his designee, in accordance with existing Corporation executive benefit plans, or from the date of Employee' termination by reason of disability. For the purposes of this Employment agreement, the obligations of the Employer to make the payments upon the disability of Employee shall not become effective, unless and until all of the following conditions are met, as determined by an independent physician selected by the Board of Directors and subject to reasonable consent by Employee: (1) Employee shall become physically or mentally incapable (excluding infrequent and temporary absences due to ordinary illnesses) of properly performing the services required of him in accordance with his obligations under Paragraph 2 hereof or similar provisions of any renewal agreement; (2) such incapacities shall exist or be reasonably expected to exist for more than ninety (90) days in the aggregate during the period of twelve (12) consecutive months; (3) either Employee or Employer shall have given the other thirty (30) days' written notice of his or its intention to terminate the active employment of Employee because of such disability; and, (4) Employee shall have exhausted his Short Term Disability Benefits pursuant to Paragraph 4.2 above. The benefits payable hereunder shall be in addition to, and shall not be offset against, any amounts paid to Employee or his designee by reason of insurance benefits pursuant to Paragraph 4.2 above. 4.6 Life Insurance. At Employee option, Employee shall be provided with a -------------- life insurance policy in the amount of $150,000 (provided he can meet the medical conditions for such coverage), payable to such beneficiaries as he shall designate, with an additional $150,000 of accidental death coverage, with the cost of such policies borne by Employer. Should the -3- Employee fail to meet medical ratings for insurance resulting in higher cost then Employee will pay for the excess charge above and beyond reasonable expectations. Such coverage shall be in addition to Life Insurance coverage maintained by Employee pursuant to Paragraph 4.2 above. Should the Employee cease to be employed by the corporation, the Employee may assume the entire cost of the premium. Further, the Employee has assignability under the policy. 5. Disclosure of Information. ------------------------- Employee acknowledges that in and as a result of his employment hereunder, he will be making use of, acquiring, and/or adding to confidential information of a special and unique nature and value relating to such matters as Employer's trade secrets, systems, procedures, manuals, confidential reports, and lists of clients. As a material inducement to Employer to enter into this Agreement and to pay to Employee the compensation stated in Paragraph 3, as well as any additional benefits stated Paragraph 4, Employee covenants and agrees that he shall not, other than in the ordinary course of business, at any time during or following the term of his employment, directly or indirectly divulge or disclose for any purpose whatsoever or appropriate to his own use or to the use of others any confidential information that has been obtained by, or disclosed to him, as a result of his employment by Employer, unless required to do so by court order or other similar circumstances, or unless authorized by the Board of Directors. 6. Termination. ----------- 6.1 Termination by Either Party Without Cause. At any time during the ----------------------------------------- term hereof, this Employment Agreement may be terminated "without cause" by either Employer or Employee upon written notice to the other party. (A) In the event of such termination "without cause" by Employee, Employer shall have the option either (a) to accept Employee's resignation, effective immediately on receipt of such notice; or (b) to require Employee to continue to perform his duties hereunder, for a period not to exceed six (6) months from the date of receipt of such written notice. In either event, the Employee' 5 compensation and benefits hereunder shall continue only until the effective date of termination, as defined in Paragraph 6.4 below. (B) In the event of such termination "without cause" by Employer, Employee shall be continued on the payroll for twenty-four (24) months, and shall receive bonuses equal to those received by him during the twenty-four (24) months prior to termination. Such severance pay shall be paid to him in twenty- four (24) equal, successive monthly payments, beginning on the first day of the month immediately following the effective date of termination. Employee shall also be continued under all group benefit plans for a period of twenty-four (24) months from the effective date of termination, as defined in paragraph 6.4 (A) below. 6.2 Termination by Employer for Cause. Notwithstanding any other provision --------------------------------- hereof, Employer may terminate Employee's employment under this Agreement at any time for cause. -4- The termination shall be effective by written notice thereof to the Employee, which shall specify the cause for termination. For purposes hereof, the term "cause" shall mean the failure of Employee for any reason, within thirty (30) days after receipt by Employer of written notice from Employee, to correct, cease, or otherwise alter any action or omission to act that constitutes a material and willful breach of Agreement likely to result in material damage to the Corporation, or willful gross misconduct likely to result in material damage to the Corporation. Upon such termination for cause by Employer, Employee shall not receive termination pay or benefits beyond the effective date of termination, as defined in Paragraph 6.4(B) below. 6.3 Termination by Employee for Cause. Notwithstanding any other --------------------------------- provision hereof, Employee may resign his employment under this Agreement at any time for cause. The termination may be by written notice thereof to Employer, which shall mean the failure of Employer for any reason, within thirty (30) days after receipt by Employer of written notice from Employee, to correct, cease or otherwise alter any adverse change in the conditions of Employee's employment caused by (a) a change in ownership of the corporation; to include but not exclusively the corporation sells all or a portion of MSE effecting the Employee, the corporation ceases to be a public company, or the corporation is purchased by another public or private company, or (b) any other breach of this Agreement by Employer. Upon such termination for cause by Employee, Employee shall be continued on the payroll for twenty-four (24) months from the effective date of termination (as defined in Paragraph 6.4 (b) below) at his then current salary without further responsibilities to the Corporation. Employee shall also be continued under all group benefit plans for a period of twenty-four (24) months from the effective date of termination. 6.4 Effective Date of Termination. ----------------------------- (A) The effective date of termination, as used in Paragraph 6.1 with respect to termination "without cause", shall be the date on which Employee actually ceases to perform his duties hereunder. (B) The effective date of termination, as used in Paragraph 6.2 and 6.3 with respect to termination "for cause", shall be thirty (30) calendar days after the date on which Employee receives or gives written notice of termination. 6.5 Limitation on Severance Compensation. Notwithstanding any other ------------------------------------ provision of the Agreement, solely in the event of a Termination Upon a Change In Control, the aggregate of the amount of severance compensation paid to the Employee under the Agreement or otherwise, but exclusive of any payments to the Employee by virtue of the Employee's exercise of any right or payment of any kind under any incentive or benefit plan upon a change in control, shall not include any amount that the Employer is prohibited from deducting for federal income tax purposes; by virtue of Section 280G of the Internal Revenue Code or any successor provision. -5- 6.6 Covenant Not to Compete. During any applicable period specified in ----------------------- Paragraph 6 (and for six months if a termination under Paragraph 6.2 occurs), the Employee shall not directly or indirectly own, control, operate, manage, consult, own shares in, be employed by, or otherwise participate in any sole proprietorship, corporation, partnership or entity whose primary business is the same or similar to the business of the Corporation. This covenant of non-competition has been negotiated and agreed to by and between the Employer and Employee with full knowledge of, and pursuant to the requirements of applicable law, and is deemed by both parties to be fair and reasonable under terms of that statue. 7. Other Business Activities. ------------------------- During the period of his employment under this Agreement, the Employee shall not be employed by or otherwise engage or be interested in any business whether or not in competition with the Corporation, or with any of its subsidiaries or affiliates, with the following exceptions: (A) Employee's investments in any business shall not be considered a violation of this paragraph, provided that such business is not in competition with the Corporation and the Employee does not render controlling management or other personal services to such business; (B) Employee may consult with other businesses not in competition with the Corporation, provided that each such consulting job shall be expressly considered and approved or disapproved in advance by the audit committee of the Board of Directors. 8. Indemnification. --------------- Employer will not amend its articles or bylaws or the articles or bylaws of MSE in such a manner as to adversely affect any right to indemnification of Employee that exists as of the date of this Agreement. 9. Burden and Benefit. ------------------ This Agreement shall be binding upon, and shall inure to the benefit of, Employer and employee, and their respective heirs, personal and legal representatives, successors, and assigns and shall be expressly binding upon and inure to the benefit of any person or entity assuring the Corporation, by merger, consolidation, purchase of assets or stock or otherwise. 10. Governing Law. ------------- It is understood and agreed that the construction and interpretation of this Agreement shall at all times and in all respects be governed by the laws of the State of Indiana. 11. Severability. ------------ -6- The provisions of this Agreement, including particularly but not solely, the provisions of Paragraphs 5 and 6, shall be deemed severable, and the invalidity or unenforceability of any one of more of the provisions of this Agreement shall not affect the validity and enforceability of the other provisions. 12. Notice. Any notice required to be given shall be sufficient if it is in ------ writing and sent by certified or registered mail, return receipt requested, first-class postage prepaid, to the residence in the case of Employee, and to its principal office in the case of Employer. 13. Entire Agreement. ---------------- This Agreement contains the entire agreement and understanding by and between Employer and Employee with respect to the employment of Employee, and no representations, promises, agreements, or understandings, written or oral, not contained herein shall be of any force or effect. No change or modification of this Agreement shall be valid or binding unless it is in writing and signed by the party against whom the waiver is sought to be enforced. No valid waiver of any provision of this Agreement at any time shall be deemed a waiver of any other provision of this Agreement at such time or at any other time. 14. Counterparts. The Agreement may be executed in two or more counterparts, ------------ any one of which shall be deemed the original without reference to the others. IN WITNESS WHEREOF, Employer and Employee have duly executed this Agreement as of the day and year first above written. EMPLOYER ATTEST: ANALYTICAL SURVEYS, INC. a Colorado corporation _____________________________ by: ____________________________ President EMPLOYEE: ________________________________ -7- EX-10.15 5 CONSULTING AGMT.: ANALYTICAL & JATHORPE EXHIBIT 10.15 AGREEMENT THIS AGREEMENT is signed as of the 27th day of June 1997, by and between ANALYTICAL SURVEYS, INC., a Colorado corporation (hereinafter referred to as "ASI"), and John A. Thorpe (hereinafter referred to as "Thorpe"). WITNESSETH THAT: WHEREAS, Thorpe has been employed by ASI as a full-time employee, and as Chief Technical Officer of ASI; and WHEREAS, Thorpe's full-time employment will be terminated on May 31, 1997, by reason of Thorpe's desire to semi-retire; and WHEREAS, ASI wants to hire Thorpe on a part-time basis, and ASI and Thorpe desire to state in writing the terms and conditions of their agreements and understandings, and to continue the term of Thorpe's employment on a part-time basis hereunder; NOW, THEREFORE, in consideration of the foregoing, of the mutual promises herein contained, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending legally to be bound, agree as follows: 1. Term of Employment. ------------------ The term shall commence on June 1, 1997, and shall continue through September 30, 1999, unless sooner terminated in accordance with the provisions of Paragraph 4.2 below. 2. Duties. ------ 2.1 It is understood and agreed that Thorpe's principal duties on behalf of ASI are and shall be as technological consultant and member of the Board of Directors, or such additional responsibilities as may be mutually agreed by Thorpe and the Chief Executive Officer ("CEO") of ASI. 2.2 Thorpe covenants and agrees that at all times during the term of this Agreement, he shall devote his best efforts to his duties as an employee of ASI; provided that he shall not be required to work on any set schedule or for any set number of hours. 3. Compensation. ------------ As compensation for the services to be rendered by Thorpe for ASI under this Agreement, including services as a director of ASI, Thorpe shall be paid $38,250 annual salary, on the same basis (biweekly) as ASI's payroll, during the term hereof. 4. Additional Benefits. ------------------- In addition to, and not in limitation of, the compensation referred to in Paragraph 3, Thorpe shall be paid the following additional benefits during the term hereof: 4.1 Reimbursement. Reimbursement of all reasonable expenses incurred by -------------- Thorpe in connection with performance of his duties, upon submission of vouchers. Reasonable expenses shall include, but not limited to all reasonable out of pocket expenses for entertainment, automobile expenses, travel, meals, lodging, professional dues and the like incurred by Thorpe in the interest of ASI, subject to such guidelines and policies as may be promulgated by ASI for senior executives. 4.2 Death or Disability Payments. In the event of Thorpe's disability or ---------------------------- death, prior to September 30, 1999, Thorpe's salary in effect at the time of his death or disability shall continue to be paid to Thorpe, or to his designee, for a period of six (6) calendar months from the date of death or from the date of his termination by reason of disability. For the purposes of this Agreement, the obligations of ASI to make the payments upon the disability of Thorpe shall not become effective unless and until all of the following conditions are met, as determined by an independent physician selected by the CEO of ASI and agreed to by Thorpe: (1) Thorpe shall become physically or mentally incapable (excluding infrequent and temporary absences due to ordinary illness) of properly performing the services required of him in accordance with his obligations under paragraph 2 hereof or similar provisions of any renewal agreement; (2) such incapacities shall exist or be reasonably expected to exist for more than ninety (90) days in the aggregate during the period of twelve (12) consecutive months; and (3) either Thorpe or ASI shall have given the other thirty (30) days' written notice of his or its intention to terminate the active employment of Thorpe because of such disability. 4.3 Life Insurance. Thorpe shall continue to be provided with the -------------- existing $500,000 split-dollar insurance policy (the "Policy") during the term of this Agreement. At the termination of this Agreement, Thorpe shall have the right, at his option, to take over full payments on the Policy, and ownership of the Policy. 4.4 Comparable Benefits. Thorpe shall also be provided with the same ------------------- additional benefits comparable to other senior management Employees of ASI, including but not limited to health, dental, and disability insurance, Section 401(K) plan, and stock options, but shall not be included in the ASI bonus incentive plan, or receive any holiday, sick leave, or vacation benefits. Thorpe shall be eligible for Stock Options on the same basis as other directors of ASI. 5. Disclosure of Information. ------------------------- Thorpe acknowledges that in and as a result of his employment hereunder, he will be making use of, acquiring, and/or adding to confidential information of a special and unique nature and value relating to such matters as ASI's trade secrets, systems, procedures, manuals, confidential reports, and lists of clients. As a material inducement to ASI to enter into this Agreement and to pay to Thorpe the compensation stated in Paragraph 3, as well as any additional benefits stated in Paragraph 4, Thorpe convenants and agrees that he shall not, other than in the ordinary course of business conducted for ASI, at any time during or following the term of his employment, directly or indirectly divulge or disclose for any purpose whatsoever or appropriate to his own use or the use of others any confidential information that has been obtained by, or disclosed to him, as a result of his employment by ASI. 6. Covenant Not To Compete. ----------------------- Thorpe agrees that he shall not directly or indirectly own, control, operate, manage, consult, own shares in, be employed by, or otherwise participate in any sole proprietorship, corporation, partnership or entity whose primary business is the same or similar to the business of ASI during the term of his employment hereunder, nor for a period of ten (10) years after his termination of employment, anywhere within the territory in which ASI does business; provided, that the Chief Executive Officer or the Board of Directors shall have the right (but not be required) to waive this covenant not to compete in writing, with respect to any specific situation presented to them in advance, in writing by Thorpe, where the CEO or the Board, at their sole and absolute discretion, deem Thorpe's intended participation not to be adverse to ASI's interests. The parties hereto recognize that Thorpe has been retained as a member of the senior executive management of ASI, and that in said position he is considered to be part of the professional, management and executive staff of the Corporation. In the event Thorpe violates this covenant of non-competition, both parties acknowledge and agree that ASI shall have the right to bring a lawsuit to enforce this covenant against Thorpe, and to obtain equitable relief in the form of an injunction and, where applicable, damages at law; that the District Court for El Paso County, Colorado shall have venue, and exclusive jurisdiction in such lawsuit; and that Colorado law shall apply. In the event ASI must bring such a lawsuit by reason of Thorpe's breach of this covenant of non-competition, ASI shall be entitled to recover its reasonable attorneys fees, costs, and expenses of litigation, in the event it prevails in such lawsuit. This covenant of non-competition has been negotiated and agreed to by and between ASI and Thorpe with full knowledge of, and pursuant to the requirements of Section 8-2-113 (2) Colorado Revised Statutes, as amended from time to time, and is deemed by both parties to be fair and reasonable under the terms of that statute. 7. Option to Extend. ---------------- At Thorpe's option, upon thirty (30) days prior written notice to ASI, the term of this Agreement will be extended for a period of one (1) additional year, from September 30, 1999 through September 30, 2000, on the same terms and conditions as contained herein. 8. Indemnification. --------------- So long as Thorpe is not found by a court of law to be guilty of a willful and material breach of this Agreement, or to be guilty of willful gross misconduct, he shall be indemnified from and against any and all losses, liability, claims and expenses, damages, or causes of action, proceedings or investigations, or threats thereof (including reasonable attorney fees and expenses of counsel satisfactory to and approved by Thorpe) incurred by Thorpe, arising out of, in connection with, or based upon Thorpe's services and the performance of his duties pursuant to this Agreement, or any other matter contemplated by this Agreement, whether or not resulting in any such liability; and Thorpe shall be reimbursed by ASI as and when incurred for any reasonable legal or other expenses incurred by Thorpe in connection with investigating or defending against any such loss, claim, damage, liability, action, proceeding, investigation or threat thereof, or producing evidence, producing documents or taking any other action in respect thereto (whether or not Thorpe is a defendant in or target of such action, proceeding or investigation). 9. Governing Law. ------------- It is understood and agreed that the construction and interpretation of this Agreement shall at all times and in all respects be governed by the laws of the State of Colorado. 10. Severability. ------------ The provisions of this Agreement shall be deemed severable, and the invalidity or unenforceability of any one or more of the provisions of this Agreement shall not affect the validity and enforceability of the other provisions. 11. Notice. ------ Any notice required to be given shall be sufficient if it is in writing and sent by certified or registered mail, return receipt requested, first-class postage prepaid, to his residence in the case of Thorpe, and to its principal office in the case of ASI. 12. Entire Agreement; Cancellation of Prior Agreements. -------------------------------------------------- 12.1 This Agreement contains the entire agreement and understanding by and between ASI and Thorpe with respect to the employment of Thorpe, and no representations, promises, agreements, or understandings, written or oral, not contained herein shall be of any force or effect. No change or modification of this Agreement shall be valid or binding unless it is in writing and signed by the party intended to be bound. 12.2 This Agreement replaces in its entirety Thorpe's prior Employment Agreement with ASI; provided, however, that the Deferred Compensation which has accrued to date under his previous Employment Agreement (s), in the amount of $85,000.00, will be paid to Thorpe as follows: Paid during regular payroll periods (bi-weekly), in equal amounts of $1,089.74 over a three year period. 12.3 As of June 1, 1997, the existing Stock Redemption Agreement, between ASI and Thorpe, will be canceled and terminated together with the life insurance policy on Thorpe's life pursuant to the Stock Redemption Agreement, and ASI may thereupon, at its option, cancel the "key man" insurance on Thorpe's life. 12.4 No waiver of any provision of this Agreement shall be valid unless it is in writing and signed by the party against whom the waiver is sought to be enforced. No valid waiver of any provision of this Agreement at any time shall be deemed a waiver of any other provision of this Agreement at such time or at any other time. 13. Burden and Benefit. ------------------ This Agreement (together with Thorpe's stock options pursuant to ASI's stock option plans) shall be binding upon, and shall inure to the benefit of, ASI and Thorpe, and their respective heirs, personal and legal representatives, successors, and assigns and shall be expressly binding upon and inure to the benefit of any person or entity acquiring ASI, by merger, consolidation, purchase of assets or stock, or otherwise. The duties of Thorpe hereunder are not assignable by Thorpe without the prior written consent of ASI, and the interests of Thorpe hereunder are not subject to the claims of his creditors, and may not be voluntarily or involuntarily assigned, alienated or encumbered. 14. Termination. ----------- 14.1 By Thorpe. In the event ASI is acquired by a third party, Thorpe may --------- at his sole option, terminate this Agreement, upon thirty (30) days written notice to ASI. Upon such termination by Thorpe, ASI shall have no further liabilities or obligations to Thorpe hereunder; except under Section 8 (Indemnification), and 12.2 (Deferred Compensation), and Thorpe's only further liabilities to ASI shall be his covenants under Section 5 (Disclosure of Information), and Section 6 (Covenant not to Compete), which Sections shall survive termination of this Agreement. 14.2 By ASI. ASI may terminate Thorpe's employment hereunder only (1) in ------- the event of Thorpe's death or disability, subject to the provisions of Section 4.2 above; or (b) "for cause," which shall be defined as "the failure of Thorpe for any reason, within thirty (30) days after receipt by Thorpe of written notice thereof from ASI, to correct, cease, or otherwise alter any action or omission to act that constitutes a material and willful breach of this Agreement likely to result in material damage to the ASI, or willful gross misconduct likely to result in material damage to the ASI." Upon such termination "for cause" under Section 14.2(b), ASI shall have no further liabilities to Thorpe, except under Section 8 (Indemnification), and 12.2 (Deferred Compensation), and Thorpe's only further liabilities to ASI shall be his covenants under Section 5 (Disclosure of Information), and Section 6 (Covenant not to Compete), which Sections shall survive termination of this Agreement. 15. Counterparts. ------------ The Agreement may be executed in two or more counterparts, any one of which shall be deemed the original without reference to the others. IN WITNESS WHEREOF, ASI and Thorpe have duly executed this Agreement as of the day and year first above written. ASI: ATTEST: ANALYTICAL SURVEYS, INC., a Colorado corporation /s/ Scott C. Benger ____________________________ Secretary By: /s/ Sidney V. Corde ________________________________ CEO THORPE: /s/ John A. Thorpe _____________________________________ JOHN A. THORPE EX-10.16 6 ANALYTICAL 97 INCENTIVE STK. OPTION PLAN EXHIBIT 10.16 ------------- ANALYTICAL SURVEYS, INC. 1997 INCENTIVE STOCK OPTION PLAN SECTION 1 INTRODUCTION 1.1 Establishment. Analytical Surveys, Inc. a Colorado corporation, hereby establishes the Analytical Surveys, Inc. 1997 Incentive Stock Option Plan (the "Plan") for certain key employees of Analytical Surveys, Inc. and its Affiliated Corporations (collectively, the "Company"). 1.2 Purposes. The purposes of the Plan are to provide certain key management employees with added incentives to continue in the service of the Company and to create in such employees a more direct interest in the future success of the operations of the Company by relating incentive compensation to increases in stockholder value, so that the income of the key management employees is more closely aligned with the income of the Company's stockholders. SECTION 2 DEFINITIONS 2.1 Definitions. The following terms shall have the meanings set forth below: (a) "Affiliated Corporation" means any corporation or other entity (including, but not limited to, a partnership) which is affiliated with the Issuer through stock ownership or otherwise and is treated as a common employer under the provisions of Code Sections 414(b) and (c). (b) "Approved Transaction" means any transaction in which the Board (or, if approval of the Board is not required as a matter of law, the stockholders of the Issuer) shall approve (i) any consolidation or merger of the Issuer, or binding share exchange, pursuant to which shares of Stock would be changed or converted into or exchanged for cash, securities or other property, other than any such transaction in which the holders of the Stock immediately prior to such transaction have the same proportionate ownership of the common stock of, and voting power with respect to, the surviving corporation immediately after such transaction, (ii) any merger, consolidation or binding share exchange to which the Issuer is a party as a result of which the persons who are holders of the Stock immediately prior thereto have less than a majority of the combined voting power of the outstanding capital stock of the Issuer ordinarily (and apart from the rights accruing under special circumstances) having the right to vote in the election of directors immediately following such merger, consolidation or binding share exchange, (iii) the adoption of any plan or proposal for the liquidation or dissolution of the Issuer, or (iv) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Issuer, but not a pledge of assets in the context of a bona fide loan. (c) "Board" means the Board of Directors of the Issuer. (d) "Code" means the Internal Revenue Code of 1986, as it may be amended from time to time. (e) "Disabled" or "Disability" means a disability for which the Option Holder is entitled to disability payments under the Option Holder's Employment Agreement. For purposes of this Plan, such Disability will be deemed to have commenced on the first date on which the Option Holder is absent from work with the Company due to such Disability. (f) "Effective Date" means the effective date of the Plan, which will July 2, 1997. (g) "Eligible Employees" means Scott Benger, David Coates, Sidney Corder, John J. Dillon III, William M. Howell, Steve Jenkins, Mark Klimiuk, David Lewis, Jeffrey A. Meyerrose, Robert J. Montgomery, William Nantell and Randal J. Sage. No other employee of the Company will be considered an Eligible Employee for purposes of this Plan. (h) "Employment Agreement" means the employment contract or employment agreement between the Eligible Employee and the Company, as it may be amended and in effect at the time such contract or agreement is subject to reference under this Plan. If no such contract or agreement is in effect at the time of reference under this Plan, "Employment Agreement" will mean the Employment Agreement most recently in effect prior to the time of reference under this Plan. (i) "Fair Market Value" means the officially quoted closing price of the Stock on the NASDAQ National Market System on a particular date. If there are no Stock transactions on such date, the Fair Market Value shall be determined as of the immediately preceding date on which there were Stock transactions. If no such prices are reported on the NASDAQ National Market System, then Fair Market Value shall mean the average of the high and low sale prices for the Stock (or if no sales prices are reported, the average of the high and low bid prices) as reported by the principal regional stock exchange, or if not so reported, as reported by NASDAQ or a quotation system of general circulation to brokers and dealers. If the Stock is not publicly traded, the Fair Market Value of the Stock on any date shall be determined in good faith by the Incentive Plan Committee after such consultation with outside legal, accounting and other experts as the Incentive Plan Committee may deem advisable. (j) "Incentive Plan Committee" means a committee consisting of all of the members of the Board. (k) "Issuer" means Analytical Surveys, Inc. (l) "Option" means a right to purchase Stock at a stated price for a specified period of time. All Options granted under this Plan well be non- statutory stock options which are not intended to qualify as incentive stock options under Code Section 422. (m) "Option Price" means the price at which shares of Stock subject to an Option may be purchased, determined in accordance with section 6.2(b). (n) "Option Holder" means each Eligible Employee who is granted Options under the Plan. (o) "Plan Year" means each 12-month period beginning January 1 and ending the following December 31, except that for the first year of the Plan the Plan Year shall begin on the Effective Date and extend to the first December 31 following the Effective Date. -2- (p) "Share" or "Shares" means a share or shares of Stock. (q) "Stock" means the common stock of the Issuer. 2.2 Gender and Number. Except where otherwise indicated by the context, the masculine gender also shall include the feminine gender, and the definition of any term herein in the singular also shall include the plural. SECTION 3 PLAN ADMINISTRATION The Plan shall be administered by the Incentive Plan Committee. In accordance with the provisions of the Plan, the Incentive Plan Committee may from time to time adopt such rules and regulations for carrying out the purposes of the Plan as it may deem proper and in the best interests of the Company. The Incentive Plan Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any agreement entered into hereunder in the manner and to the extent it shall deem expedient and it shall be the sole and final judge of such expediency. No member of the Incentive Plan Committee shall be liable for any action or determination made in good faith, and all members of the Committee shall, in addition to their rights as directors, be fully protected by the Company with respect to any such action, determination or interpretation. The determinations, interpretations, and other actions of the Incentive Plan Committee pursuant to the provisions of the Plan shall be binding and conclusive for all purposes and on all persons. SECTION 4 ADJUSTMENTS TO STOCK SUBJECT TO THE PLAN 4.1 Adjustments for Stock Split, Stock Dividend, Etc. If the Company shall at any time increase or decrease the number of its outstanding Shares of Stock, or change in any way the rights and privileges of such Shares by means of the payment of a stock dividend or any other distribution upon such Shares payable in Stock, or through a stock split, subdivision, consolidation, combination, reclassification or recapitalization involving the Stock, then in relation to the Stock that is affected by one or more of the above events, the numbers, rights and privileges of the following shall be increased, decreased or changed in like manner as if such Shares had been issued and outstanding, fully paid and nonassessable at the time of such occurrence: (i) the shares of Stock as to which Options may be granted under the Plan; and (ii) the Shares of Stock then included in each outstanding Option granted hereunder. 4.2 General Adjustment Rules. If any adjustment or substitution provided for in this Section 4 shall result in the creation of a fractional Share under any Option, the Company shall, in lieu of issuing such fractional Share, pay to the Option Holder a cash sum in an amount equal to the product of such fraction multiplied by the Fair Market Value of a Share on the date the fractional Share otherwise would have been issued. 4.3 Determination by Incentive Plan Committee, Etc. Adjustments under this Section 4 shall be made by the Incentive Plan Committee, whose determinations with regard thereto shall be final and binding upon all parties. -3- SECTION 5 STOCK OPTIONS 5.1 Grant of Options. The Eligible Employees hereby are granted Options as follows: Jeff Armstrong 10,000 Shares Scott Benger 20,000 Shares David Coates 10,000 Shares Sidney Corder 20,000 Shares John J. Dillon III 21,750 Shares William M. Howell 40,730 Shares Steve Jenkins 10,000 Shares Mark Klimiuk 10,000 Shares David Lewis 10,000 Shares Jeffrey A. Meyerrose 35,480 Shares Robert J. Montgomery 57,730 Shares William Nantell 10,000 Shares Randal J. Sage 89,310 Shares 5.2 Provisions Applicable to Options. Each Option granted under the Plan shall be subject to all of the terms and conditions of this Plan, including the following: (a) Price. The price at which each Share covered by an Option may be purchased shall be $13.75 per Share. (b) Date of Grant. Each Option shall be considered as having been granted on July 2, 1997 (the "Grant Date"). (c) Duration of Options. Each Option must be exercised within ten (10) years from the Grant Date (the "Option Period"). (d) Vesting of Options. Subject to the exercise and termination provisions set forth in Section 5.2(e) below, the Options will vest in accordance with the following schedule: Vesting Date Percentage of Original Options Vested ------------ ------------------------------------- Six months from Grant Date 25% One year from Grant Date 50% Two years from Grant Date 75% Three years from Grant Date 100% (e) Exercise and Termination of Options. Notwithstanding any other provision of this Plan, an Option will be subject to the exercise and termination provisions set forth below: (i) Option Holder's Voluntary Termination of Employment. If the employment of the Option Holder is terminated voluntarily by the Option Holder within the Option Period for any reason (other than for cause, as determined under the Option Holder's Employment Agreement), all Options held by the Option Holder, whether or not vested, thereafter shall be terminated and shall be void for all purposes. (ii) Option Holder's Termination of Own Employment For Cause. If the employment of the Option Holder is terminated by the Option Holder within the Option Period for cause, as determined under the Option Holder's Employment Agreement, all Options held by the Option Holder shall become immediately 100% vested as of such termination of employment, and the Options shall be exercisable for a period of ninety (90) days after such termination of employment. Upon the expiration of the 90-day exercise period, all unexercised Options held by the Option Holder thereafter shall be terminated and shall be void for all purposes. -4- (iii) Option Holder's Death. If the Option Holder dies while employed by the Company (or if the Option Holder dies after termination of employment but during any exercise period set forth in paragraphs (ii), (iv), (v), (vi), or (vii)), and such death occurs within the Option Period, all unvested Options held by the Option Holder at his death thereafter shall be terminated and shall be void for all purposes. All Options vested as of the Option Holder's death may be exercised by the person so entitled to exercise such Option for a period of 180 days after such death. Upon the expiration of the 180-day exercise period, all unexercised Options thereafter shall be terminated and shall be void for all purposes. (iv) Option Holder's Disability. If the Option Holder becomes Disabled while employed by the Company and within the Option Period, all unvested Options held by the Option Holder at his Disability will continue to vest in accordance with paragraph (i) for a period of 36 months from the date of such Disability; provided that the Option Holder survives for the 36-month Disability vesting period. All Options vested as of the Option Holder's Disability, and all Options which become vested during the 36-month period following such Disability, may be exercised by the Option Holder during the 36- month period following the Disability. Upon the expiration of the 36-month exercise period, all unexercised Options thereafter shall be terminated and shall be void for all purposes. (v) Option Holder's Retirement After Age 65. If the Option Holder retires after attaining age 65 while employed by the Company and within the Option Period, all unvested Options held by the Option Holder at his retirement will continue to vest in accordance with Section 5.2(d) for a period of 36 months from the date of such retirement; provided that the Option Holder survives for the 36-month retirement vesting period. All Options vested as of the Option Holder's retirement, and all Options which become vested during the 36-month period following such retirement, may be exercised by the Option Holder during the 36-month period following the retirement. Upon the expiration of the 36-month exercise period, all unexercised Options thereafter shall be terminated and shall be void for all purposes. (vi) Termination of Option Holder's Employment by Company Without Cause. If the Company terminates the employment of the Option Holder within the Option Period for any reason other than for cause (as determined under the Option Holder's Employment Agreement), all unvested Options held by the Option Holder at the date of such termination of employment shall become immediately 100% vested as of such termination of employment, and the Options shall be exercisable for a period of ninety (90) days after such termination of employment. Upon the expiration of the 90-day exercise period, all unexercised Options held by the Option Holder thereafter shall be terminated and shall be void for all purposes. (vii) Termination of Option Holder's Employment by Company For Cause. If the Company terminates the employment of the Option Holder within the Option Period for cause, as determined under the Option Holder's Employment Agreement, all unvested Options thereafter shall be terminated and shall be void for all purposes. All Options vested as of the Option Holder's termination of employment may be exercised by the Option Holder for a period of 15 days after such termination of employment. Upon the expiration of the 15-day exercise period, all unexercised Options thereafter shall be terminated and shall be void for all purposes. (viii) Vesting and Exercise Upon Occurrence of Approved Transaction. In the event of an Approved Transaction, then all outstanding Options shall become 100% vested at the date determined by the Incentive Plan Committee, which date shall be at least thirty (30) days prior to the occurrence of the Approved Transaction. Such vested Options shall be exercisable for a period of thirty (30) days after such vesting date. Upon the expiration of the 30-day exercise period, all unexercised Options held by the -5- Option Holder thereafter shall be terminated and shall be void for all purposes. Notwithstanding the above, if any agreement or plan relating to the Approved Transaction provides for the assumption, exchange, or conversion of the Options for options for securities in the surviving corporation, all Options outstanding under this Plan shall be subject to such assumption, exchange, or conversion, and no accelerated vesting or exercisability shall apply to such Options. (f) Manner of Exercise of Option. (i) An Option may be exercised by delivery to the Corporate Secretary of the Company of written notice specifying the particular Option (or portion thereof) which is being exercised, the number of Shares with respect to which such Option is exercised and including payment of the Option Price. Such notice shall be in a form satisfactory to the Incentive Plan Committee. The exercise of the Option shall be deemed effective upon receipt of such notice by the Corporate Secretary and payment to the Company of the Option Price. The purchase of such Stock shall take place at the principal offices of the Company upon delivery of such notice, at which time the purchase price of the Stock shall be paid in full by any of the methods or any combination of the methods set forth in (ii) below. A properly executed certificate or certificates representing the Stock shall be issued by the Company and delivered to the Option Holder. (ii) The exercise price shall be paid by any of the following methods or any combination of the following methods: (A) in cash; (B) by cashier's check payable to the order of the Company; (C) by delivery to the Company of certificates representing the number of Shares then owned by the Option Holder, the Fair Market Value of which equals the purchase price of the Stock purchased pursuant to the Option, properly endorsed for transfer to the Company. The Fair Market Value of any Shares delivered in payment of the purchase price upon exercise of the Option shall be the Fair Market Value as of the exercise date and the exercise date shall be the day of the delivery of the certificates for the Stock used as payment of the Option Price; or (D) by delivery to the Company of a properly executed notice of exercise together with irrevocable instructions to a broker to deliver to the Company promptly the amount of the proceeds of the sale of all or a portion of the Stock or of a loan from the broker to the Option Holder necessary to pay the exercise price. 5.3 Stockholder Privileges. Prior to the exercise of the Option and the transfer of Shares to the Option Holder, an Option Holder shall have no rights as a stockholder with respect to any Shares subject to any Option granted to such person under this Plan, and until the Option Holder becomes the holder of record of such Stock, no adjustments shall be made for dividends or other distributions or other rights as to which there is a record date preceding the date such Option Holder becomes the holder of record of such Stock, except as provided in Section 4. -6- SECTION 6 GENERAL PROVISIONS 6.1 Employment. Nothing contained in the Plan or in any Option shall confer upon any Eligible Employee any right with respect to the continuation of his or her employment by the Company, or interfere in any way with the right of the Company, subject to the terms of any separate employment agreement to the contrary, at any time to terminate such employment or to increase or decrease the compensation of such Employee from the rate in existence at the time of the grant of an Option. Whether an authorized leave of absence, or absence in military or government service, shall constitute a termination of employment shall be determined by the Incentive Plan Committee at the time. 6.2 Nontransferability. No right or interest of any Option Holder in an Option granted pursuant to the Plan shall be assignable or transferable during the lifetime of the Option Holder, either voluntarily or involuntarily, or be subjected to any lien, directly or indirectly, by operation of law, or otherwise, including execution, levy, garnishment, attachment, pledge or bankruptcy. In the event or an Option Holder's death, an Option Holder's rights and interests in Options shall, to the extent provided in Section 5 be transferable by testamentary will or the laws of decent and distribution. In the opinion of the Incentive Plan Committee, if an Option Holder is disabled from caring for his affairs because of mental condition, physical condition or age, such Option Holder's Options shall be exercised by such person's guardian, conservator or other legal personal representative upon furnishing the Incentive Plan Committee with evidence satisfactory to the Incentive Plan Committee of such status. 6.3 Compliance with Securities Laws. Each Option shall be subject to the requirement that, if at any time counsel to the Company shall determine that the listing, registration or qualification of the Shares subject to such Option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, is necessary as a condition of, or in connection with, the issuance or purchase of Shares thereunder, such Option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the Incentive Plan Committee. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration or qualification. 6.4 Other Employee Benefits. The amount of any compensation deemed to be received by an Option Holder as a result of the exercise of an Option shall not constitute "earnings" with respect to which any other employee benefits of such Option Holder are determined, including without limitation benefits under any pension, profit sharing, life insurance or salary continuation plan. 6.5 Nonexclusivity of Plan. The adoption of the Plan by the Board shall not be construed as creating any limitations on the power or authority of the Board to adopt such other or additional incentive or other compensation arrangements of whatever nature as the Board may deem necessary or desirable or preclude or limit the continuation of any other plan, practice or arrangement for the payment of compensation or fringe benefits to employees generally, or to any class or group of employees, which the Company now has lawfully put into effect, including, without limitation, any retirement, pension, savings and stock purchase plan, insurance, death and disability benefits and executive short-term incentive plans. 6.6 Plan Amendment, Modification, and Termination. The Board may at any time terminate, and from time-to-time may amend or modify, the Plan; provided, however, that no amendment, modification or -7- termination of the Plan shall in any manner adversely affect any Options theretofore granted under the Plan, without the consent of the Option Holder holding such Options. 6.7 Duration of Plan. The Plan shall fully cease and expire at midnight on the date that is ten years from the Effective Date of the Plan. Options outstanding at the time of the Plan termination may continue to be exercised in accordance with their terms. 6.8 Withholding Requirement. The Company's obligations to deliver Shares upon the exercise of an Option shall be subject to the Option Holder's satisfaction of all applicable federal, state and local income and other tax withholding requirements. At the time an Option is exercised by the Option Holder, the Committee, in its sole discretion, may permit the Option Holder to pay all such amounts of tax withholding, or any part thereof, by transferring to the Company, or directing the Company to withhold from Shares otherwise issuable to such Option Holder, Shares having a value equal to the amount required to be withheld or such lesser amount as may be determined by the Committee at such time. The value of Shares to be withheld shall be based on the Fair Market Value of the Stock on the date that the amount of tax to be withheld is to be determined. SECTION 7 REQUIREMENTS OF LAW 7.1 Requirements of Law. The issuance of Stock and the payment of cash pursuant to the Plan shall be subject to all applicable laws, rules and regulations. 7.2 Federal Securities Law Requirements. With respect to persons subject to Section 16 of the 1934 Act, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. 7.3 Governing Law. The Plan shall be construed in accordance with and governed by the laws of the State of Colorado. -8- IN WITNESS THEREOF, the Company and the Option Holders hereby agree to the provisions set forth herein, and have signed their names as of the dates set forth below. ANALYTICAL SURVEYS, INC. By: _________________________________ Title: ______________________________ Date: _______________________________ OPTION HOLDERS: _____________________________________ Jeff Armstrong Date: _______________________________ _____________________________________ Scott Benger Date: _______________________________ _____________________________________ David Coates Date: _______________________________ _____________________________________ Sidney Corder Date: _______________________________ _____________________________________ John J. Dillon III Date: _______________________________ _____________________________________ William M. Howell Date: _______________________________ _____________________________________ Steve Jenkins Date: _______________________________ _____________________________________ Mark Klimiuk Date: _______________________________ _____________________________________ David Lewis Date: _______________________________ _____________________________________ Jeffrey A. Meyerrose Date: _______________________________ _____________________________________ Robert J. Montgomery Date: _______________________________ _____________________________________ William Nantell Date: _______________________________ _____________________________________ Randal J. Sage Date: _______________________________ -9- EX-23 7 CONSENT OF KPMG PEAT MARWICK CONSENT OF INDEPENDENT AUDITORS ------------------------------- THE BOARD OF DIRECTORS ANALYTICAL SURVEYS, INC.: We consent to incorporation by reference in the registration statements (No. 33- 24142, No. 33-33948, No. 33-53950 and No. 33-59940) on Form S-8 of Analytical Surveys, Inc. of our report dated October 31, 1997, relating to the consolidated balance sheets of Analytical Surveys, Inc. and subsidiaries as of September 30, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended September 30, 1997, which report appears in the September 30, 1997 Annual Report on Form 10-K of Analytical Surveys, Inc. KPMG PEAT MARWICK LLP Denver, Colorado December 24, 1997 EX-27 8 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from SEC Form 10-K and is qualified in its entirety by reference to such financial statements. 0000753048 ANALYTICAL SURVEYS, INC. 1,000 12-MOS SEP-30-1997 SEP-30-1997 1,559 0 30,768 164 0 32,844 9,633 5,483 50,146 11,759 0 0 0 15,269 8,562 50,146 0 40,799 0 34,586 (2) 0 772 5,443 2,112 3,331 0 0 0 3,331 .60 .60
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