-----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, L/V8YkEGCl/Lr5E2zGOvYfXeh9/PiND/rqFtiXrdwi+iouQDtLwA/e7EOgG15UXV /RUb2m/9cj8M/fjqKoiM6g== /in/edgar/work/0000950144-00-014202/0000950144-00-014202.txt : 20001121 0000950144-00-014202.hdr.sgml : 20001121 ACCESSION NUMBER: 0000950144-00-014202 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001120 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INSURANCE MANAGEMENT SOLUTIONS GROUP INC CENTRAL INDEX KEY: 0001063167 STANDARD INDUSTRIAL CLASSIFICATION: [6331 ] IRS NUMBER: 593422536 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25273 FILM NUMBER: 772806 BUSINESS ADDRESS: STREET 1: 360 CENTRAL AVENUE CITY: ST PETERSBURG STATE: FL ZIP: 33701 BUSINESS PHONE: 7278032040 MAIL ADDRESS: STREET 1: 360 CENTRAL AVENUE CITY: ST PETERSBURG STATE: FL ZIP: 33701 10-Q 1 g65484e10-q.txt INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. 1 =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 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: 000-25273 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) FLORIDA 59-3422536 ------------------------------ ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 360 CENTRAL AVENUE, ST. PETERSBURG, FLORIDA 33701 ------------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) (727) 803-2040 -------------------------------------------------- Registrant's telephone number, including area code 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 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 the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: Class: Common Stock, $.01 par value Outstanding at November 14, 2000: 12,800,261 =============================================================================== 2 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. FORM 10-Q QUARTERLY REPORT TABLE OF CONTENTS
Page Number ----------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements...................................................... 1 Consolidated Balance Sheets as of December 31, 1999 and September 30, 2000.................................................... 1 Consolidated Statements of Operations for the three months and nine months ended September 30, 1999 and 2000......................... 2 Consolidated Statement of Shareholders' Equity for the year ended December 31, 1999 and the nine months ended September 30, 2000........................................................ 3 Consolidated Statements of Cash Flows for the nine months ended September 30, 1999 and 2000......................................... 4 Notes to Consolidated Financial Statements................................ 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 8 Item 3. Quantitative and Qualitative Disclosures about Market Risk................ 12 PART II.. OTHER INFORMATION Item 1. Legal Proceedings......................................................... 12 Item 5. Other Information........................................................ 13 Item 6. Exhibits and Reports on Form 8-K.......................................... 13
The statements contained in this report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding the Company's expectations, hopes, beliefs, intentions, or strategies regarding the future. Forward-looking statements include statements regarding, among other things: (i) the potential loss of material customers; (ii) the failure to properly manage growth and successfully integrate acquired businesses; (iii) the Company's financing plans; (iv) trends affecting the Company's financial condition or results of operations; (v) the Company's growth and operating strategies; (vi) the ability to attract and retain qualified sales, information services and management personnel; (vii) the impact of competition from new and existing competitors; (viii) the financial condition of the Company's clients; (ix) potential increases in the Company's costs; (x) the declaration and payment of dividends; (xi) the potential for unfavorable interpretation of existing government regulations or new government legislation; (xii) the impact of general economic conditions and interest rate fluctuations on the demand for the Company's services, including flood zone determination services; (xiii) the outcome of certain administrative and judicial proceedings involving the Company's principal customer; (xiv) uncertainties regarding the market acceptance of the Company's new services;(xv) difficulties in establishing positive name recognition in the marketplace; (xvi) the Company's ability to service new unaffiliated customers, including the development and implementation of e-business initiatives; (xvii) difficulties in achieving expected expense reductions as a result of management initiatives; and (xviii) the outcome of certain pending litigation against the Company and certain of its officers and directors. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. All forward-looking statements included in this document are based on information available to the Company on the date hereof and the Company assumes no obligation to update any such forward-looking statement. Among the factors that could cause actual results to differ materially are the factors detailed in Item 2 of this report and the risks discussed under the caption "Risk Factors" included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999, as filed with the Securities Exchange Commission on March 30, 2000. Prospective investors should also consult the risks described from time to time in the Company's Reports on Form 10-Q, 8-K and 10-K and Annual Reports to Shareholders. ii 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30, 1999 2000 ----------- ----------- (UNAUDITED) ASSETS CURRENT ASSETS Cash and cash equivalents .................................. $ 4,702,861 $ 5,207,466 Accounts receivable, net ................................... 3,621,714 3,103,618 Due from affiliates ........................................ 2,920,543 2,882,495 Income taxes receivable .................................... -- 314,006 Prepaid expenses and other assets .......................... 1,572,976 1,581,954 ----------- ----------- Total current assets .................................. 12,818,094 13,089,539 PROPERTY AND EQUIPMENT, net ................................... 7,225,494 8,333,454 OTHER ASSETS Goodwill, net .............................................. 16,257,663 15,578,417 Customer contracts, net .................................... 1,116,667 966,667 Deferred tax assets ........................................ 1,063,366 686,980 Capitalized software costs, net ............................ 976,225 954,005 Other ...................................................... 33,398 496,233 ----------- ----------- Total assets ......................................... $39,490,907 $40,105,295 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt .......................... $ 481,637 $ 309,120 Accounts payable, trade .................................... 990,495 1,886,920 Due to affiliates .......................................... 12,833 37,835 Employee related accrued expenses .......................... 2,294,858 2,520,234 Other accrued expenses ..................................... 1,293,060 1,731,585 Income taxes payable ....................................... 413,241 -- Deferred revenue ........................................... 214,891 53,723 ----------- ----------- Total current liabilities ............................ 5,701,015 6,539,417 LONG-TERM DEBT, less current portion .......................... 219,857 -- DEFERRED REVENUE .............................................. 684,915 660,876 SHAREHOLDERS' EQUITY Preferred Stock, $.01 par value; 20,000,000 shares authorized, no shares issued and outstanding ............. -- -- Common Stock, $.01 par value; 100,000,000 shares authorized, 12,678,743 and 12,800,261 shares issued and outstanding at December 31, 1999 and September 30, 2000, respectively ... 126,787 128,002 Additional paid-in capital ................................. 26,810,282 27,582,267 Retained earnings .......................................... 5,948,051 5,194,733 ----------- ----------- Total shareholders' equity ........................... 32,885,120 32,905,002 ----------- ----------- Total liabilities and shareholders' equity ........... $39,490,907 $40,105,295 =========== ===========
The accompanying notes are an integral part of these consolidated statements. 1 4 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------- ------------------------------- 1999 2000 1999 2000 ------------ ------------ ------------ ------------ (UNAUDITED) (UNAUDITED) REVENUES Outsourcing services - affiliated ............ $ 9,757,699 $ 9,677,754 $ 32,488,239 $ 28,659,004 Outsourcing services ......................... 1,503,489 1,744,877 5,549,683 4,809,871 Flood zone determination services ............ 4,170,414 4,471,168 13,782,952 12,635,221 Flood zone determination services - affiliated ................................ 214,946 276,545 409,001 749,184 ------------ ------------ ------------ ------------ Total revenues ......................... 15,646,548 16,170,344 52,229,875 46,853,280 ------------ ------------ ------------ ------------ EXPENSES Cost of outsourcing services ................. 9,084,260 9,072,449 26,859,161 26,826,525 Cost of flood zone determination services .... 1,899,411 1,992,061 6,224,736 5,852,919 Selling, general and administrative .......... 2,742,060 3,916,174 7,688,998 9,431,440 Management services from Parent .............. 535,813 515,870 1,734,168 1,494,918 Depreciation and amortization ................ 1,405,120 1,297,120 4,137,069 4,049,729 ------------ ------------ ------------ ------------ Total expenses ......................... 15,666,664 16,793,674 46,644,132 47,655,531 ------------ ------------ ------------ ------------ OPERATING INCOME (LOSS) ......................... (20,116) (623,330) 5,585,743 (802,251) ------------ ------------ ------------ ------------ OTHER INCOME (EXPENSE): Interest income .............................. 68,009 71,091 290,247 201,247 Interest expense ............................. (295,864) (10,421) (776,370) (52,831) ------------ ------------ ------------ ------------ Total other income (expense) ........... (227,855) 60,670 (486,123) 148,416 INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES ............................. (247,971) (562,660) 5,099,620 (653,835) PROVISION (BENEFIT) FOR INCOME TAXES ............ (19,900) (6,117) 2,160,700 99,483 ------------ ------------ ------------ ------------ NET INCOME (LOSS) ............................... $ (228,071) $ (556,543) $ 2,938,920 $ (753,318) ============ ============ ============ ============ NET INCOME (LOSS) PER COMMON SHARE .............. $ (.02) $ (.04) $ .24 $ (.06) ============ ============ ============ ============ Weighted average common shares outstanding ...... 12,678,743 12,800,261 12,370,485 12,791,835 ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated statements. 2 5 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
ADDITIONAL COMMON PAID-IN RETAINED STOCK CAPITAL EARNINGS TOTAL -------- ----------- ----------- ------------ Balance at January 1, 1999 ..................... $105,242 $ 5,830,930 $ 2,752,991 $ 8,689,163 Issuance of Common Stock as partial consideration for the acquisition of Colonial Claims .......................... 1,545 1,698,455 -- 1,700,000 Initial public offering of Common Stock, net of offering costs ..................... 20,000 19,143,897 -- 19,163,897 Issuance of stock options to non-employees ............................. -- 137,000 -- 137,000 Net income ................................. -- -- 3,195,060 3,195,060 -------- ----------- ----------- ------------ Balance at December 31, 1999 ................... 126,787 26,810,282 5,948,051 32,885,120 Issuance of Common Stock in connection with earn-out computation for Colonial Claims acquisition (unaudited)............. 1,215 298,785 -- 300,000 Non-cash compensation expense related to phantom stock plans (unaudited) ........... -- 338,200 -- 338,200 Compensation expense related to stock options issued to non-employees (unaudited) ............................... -- 135,000 -- 135,000 Net loss (unaudited) ....................... -- -- (753,318) (753,318) -------- ----------- ----------- ------------ Balance at September 30, 2000 (unaudited) ...... $128,002 $27,582,267 $ 5,194,733 $ 32,905,002 ======== =========== =========== ============
The accompanying notes are an integral part of this consolidated statement. 3 6 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------ 1999 2000 ------------ ----------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ............................................ $ 2,938,920 $ (753,318) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization .............................. 4,137,069 4,049,729 Loss on disposal of property and equipment ................. 163,228 177,546 Compensation expense related to issuance of stock options to non-employees ......................................... -- 135,000 Non-cash compensation expense related to phantom stock plans .............................................. -- 338,200 Write-off of deferred financing costs ...................... 244,752 -- Deferred income taxes, net ................................. 451,911 376,386 Changes in assets and liabilities: Accounts receivable ...................................... 664,954 518,096 Income taxes recoverable ................................. 1,142,858 (314,006) Prepaid expenses and other current assets ................ (310,196) 104,425 Other assets ............................................. (59,874) (478,992) Accounts payable, trade .................................. (25,664) 896,425 Employee related accrued expenses ........................ 657,776 225,376 Other accrued expenses ................................... (708,867) 738,525 Income taxes payable ..................................... -- (413,241) Deferred revenue ......................................... 4,183 (185,207) ------------ ----------- Net cash provided by operating activities .............. 9,301,050 5,414,944 ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Colonial Claims, net of cash acquired ......... 1,092 -- Repayment of acquisition debt ................................ (500,000) -- Payment of dividend to prior Colonial Claims shareholders .... (670,000) -- Issuance of note receivable .................................. -- (500,000) Purchases of property and equipment .......................... (2,231,214) (4,081,015) ------------ ----------- Net cash used in investing activities .................. (3,400,122) (4,581,015) ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds received from initial public offering ........... 19,163,897 -- Repayment of debt ............................................ (9,660,613) (392,374) Repayment of affiliated notes and interest payable ........... (14,708,420) -- Collection of affiliated note and interest receivable ........ 5,271,406 -- Net advances to (from) affiliates ............................ (4,474,831) 63,050 ------------ ----------- Net cash used in financing activities ................. (4,408,561) (329,324) ------------ ----------- INCREASE IN CASH AND CASH EQUIVALENTS .......................... 1,492,367 504,605 CASH AND CASH EQUIVALENTS, beginning of period .................. 1,868,867 4,702,861 ------------ ----------- CASH AND CASH EQUIVALENTS, end of period ........................ $ 3,361,234 $ 5,207,466 ============ =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES: Cash paid for interest ........................................ $ 1,013,716 $ 50,557 ============ =========== Cash paid for income taxes .................................... $ 920,000 $ 450,345 ============ =========== SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Purchase of net assets of Colonial Claims: Total consideration consists of: Common Stock ...................................... $ 1,700,000 Cash .............................................. 500,000 Short term obligation ............................. 500,000 ------------ $ 2,700,000 ============ Fair value of assets acquired ..................... $ 1,846,555 Liabilities assumed ............................... 1,478,306 ------------ Net assets ........................................ 368,249 Goodwill .......................................... 2,331,751 ------------ $ 2,700,000 ============
The accompanying notes are an integral part of these consolidated statements. 4 7 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements of Insurance Management Solutions Group, Inc. and subsidiaries (the "Company") have been prepared in accordance with the instructions to Form 10-Q and do not include all of the disclosures required by generally accepted accounting principles. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments, consisting of normal and recurring adjustments necessary for a fair presentation of the consolidated financial position, results of operations and cash flows for the periods presented. The accompanying consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1999, as filed with the Securities and Exchange Commission on March 30, 2000. The results of operations for the three months and nine months ended September 30, 2000 are not necessarily indicative of the results that should be expected for a full fiscal year. Net Income (Loss) Per Common Share Net income (loss) per common share, which represents both basic and diluted earnings per share ("EPS"), is computed by dividing net income (loss) by the weighted average common shares outstanding. The following table reconciles the numerator and denominator of the basic and dilutive EPS computation:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------- ----------------------------- 1999 2000 1999 2000 ------------ ------------ ----------- ------------ Numerator: Net income (loss) ......................... $ (228,071) $ (556,543) $ 2,938,920 $ (753,318) ============ ============ =========== ============ Denominator: Weighted average number of Common Shares used in basic EPS ...................... 12,678,743 12,800,261 12,370,485 12,791,835 Diluted stock options ..................... -- -- -- -- ------------ ------------ ----------- ------------ Weighted average number of Common Shares and diluted potential Common Shares used in diluted EPS ......................... 12,678,943 12,800,261 12,370,485 12,791,835 ============ ============ =========== ============
As of September 30, 1999 and 2000, options to purchase 635,500 and 703,000 shares, respectively, of Common Stock were outstanding but were not included in the computation of diluted earnings per share as the inclusion of such shares would have an anti-dilutive effect. Reclassifications Certain prior year balances have been reclassified in order to conform to the current year's presentation. Compensation Expense During the three months ended September 30, 2000, the Company recognized approximately $338,000 in additional compensation expense (of which approximately $145,000 relates to prior quarters in 2000 and 1999) resulting from the vesting of benefits payable to certain current and former officers and directors of the Company under the Amended and Completely Restated Phantom Stock Plan (the "BFC Plan") of Bankers Financial Corporation ("BFC"), the parent corporation of Bankers Insurance Group, Inc. ("BIG"), and the Amended and Restated Phantom Stock Plan (the "VCC Plan") of Venture Capital Corporation ("VCC"). The foregoing compensation charge is a non-recurring, non-cash item to the Company, as all such benefits under such plans were fully vested as of September 30, 2000 and constitute the respective obligations of BFC and VCC, not the Company. In addition, the offset to such compensation expense is an increase to additional paid-in capital, since the ultimate cash obligations under these plans are that of BFC and VCC, respectively, and not of the Company. 5 8 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) NOTE 2. NOTE RECEIVABLE In August, 2000 the Company loaned $500,000 to an unaffiliated customer in connection with the termination of the outsourcing services agreement between the Company and such unaffiliated customer and received in return a $500,000 promissory note from such entity. The note provides for monthly payments equal to the greater of (a) ten thousand dollars ($10,000), or (b) one and one-half percent (1-1/2%) of net written premium (as defined) issued by such customer on or after August 1, 2000. In accordance with the terms of the note, ninety-two and one-half percent (92-1/2%) of each monthly payment shall be applied to the reduction of the outstanding principal balance and seven and one-half percent (7-1/2%) shall be interest under the note. The note is collateralized by all of the borrower's assets. The current and non-current portions of the note, which totaled $120,000 and $380,000, respectively, at September 30, 2000, are included in "Prepaid expenses and other assets" and "Other assets," respectively, in the accompanying consolidated balance sheet. NOTE 3. CONTINGENCIES On September 28, 2000, October 25, 2000 and October 30, 2000, three alleged shareholders of the Company, Murrel Neal, David Muti and Todd M. Speir, filed three nearly identical lawsuits in the United States District Court for the Middle District of Florida (Case Nos. 8:00-CV-2013-T-26F, 8:00-CV-2210-T-27B and 8:00-CV-2246-T-27F), each on behalf of a putative class of all persons who purchased shares of the Company's Common Stock pursuant and/or traceable to the registration statement for the Company's February 1999 initial public offering (the "IPO"). The suits name as defendants the following parties: the Company; Geotrac of America, Inc. ("GEOTRAC"), a wholly-owned subsidiary of the Company; Bankers Insurance Group, Inc. ("BIG"), the principal shareholder of the Company; Venture Capital Corporation, a selling shareholder in the IPO; all directors of the Company at the time of the IPO; and Raymond James & Associates, Inc. and Keefe, Bruyette & Woods, Inc., individually and as representatives of the underwriters for the IPO. The complaints allege, among other things, that the defendants violated Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended, by making certain false and misleading statements in the roadshow presentations, registration statement and prospectus relating to the IPO. More specifically, the complaints allege that, in connection with the IPO, the defendants made various material misrepresentations and/or omissions relating to (i) the Company's ability to integrate Geotrac's flood zone determination business with the Company's insurance outsourcing services business and (ii) actual and anticipated synergies between the two businesses. The complaints seek unspecified damages, including interest, and equitable relief, including a rescission remedy. Management of the Company believes the material allegations of the complaints are without merit and intends to vigorously defend the lawsuits. No assurances can be given, however, with respect to the outcome of the litigation. Bankers Insurance Company ("BIC"), a subsidiary of BIG, and Bankers Life Insurance Company ("BLIC") and Bankers Security Insurance Company ("BSIC"), subsidiaries of BIC, have been subject to an investigation by the Florida Department of Insurance (the "DOI"), the principal regulator of insurance activities in the State of Florida, stemming from their use of a private investigator to gather information on a DOI employee and the private investigator's unauthorized use of illegal wiretaps in connection therewith. On March 23, 2000, the Treasurer and Insurance Commissioner of the State of Florida, as head of the DOI, filed an administrative complaint against BIC, BLIC and BSIC based upon the results of such investigation. The administrative complaint charges BIC, BLIC and BSIC with violating various provisions of the Florida Insurance Code including, among other things, a provision requiring insurance companies to have management, officers or directors that are, among other things, trustworthy. The complaint further notifies BIC, BLIC and BSIC that the Insurance Commissioner intends to impose such penalties or take such other administrative actions as may be proper or appropriate under applicable law, including possibly entering an order suspending or revoking the certificates of authority of BIC, BLIC and BSIC to conduct business as insurance companies in the State of Florida. BIC, BLIC and BSIC have informed the Company that they intend to vigorously defend against such action, but no assurances can be given as to the outcome thereof. In the event the DOI were to enter an order suspending or revoking the certificates of authority of BIC, BLIC and BSIC to conduct business as insurance companies in the State of Florida, or impose other significant penalties on any of them, it would materially adversely affect the business and/or operations of BIG and, in turn, could result in the loss of or material decrease in the Company's business from BIG, which would have a material adverse effect on the Company's business, financial condition and results of operations. On November 19, 1999, the United States, on behalf of the Federal Emergency Management Agency ("FEMA"), filed a civil action against BIC in the U.S. District Court for the District of Maryland stemming from FEMA's investigation of certain cash management and claims processing practices of BIC in connection with its participation in the National Flood Insurance Program ("NFIP"). The complaint alleges, among other things, that BIC knowingly failed to report and pay interest income it had earned on NFIP funds to the United States in violation of the False Claims Act. The complaint further alleges various common law theories, including fraud, breach of contract, unjust enrichment and negligent misrepresentation. The complaint seeks civil penalties of $1.08 million and actual damages of approximately $1.1 million as well as treble, punitive and consequential damages, costs and interest. The suit is currently administratively closed pending an appeal on the preliminary issue of whether the controversy is subject to arbitration. BIC has informed the Company that it intends to vigorously defend against the action, but no assurances can be given as to the outcome thereof. However, BIG and its legal counsel have advised the Company that an adverse judgment in this action should not have a material adverse affect on the business and/or operations of BIC, although no assurances can be given in this regard. 6 9 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) NOTE 3. CONTINGENCIES - (CONTINUED) FEMA's investigation of certain claims processing practices of BIC in connection with its participation in the NFIP is continuing, and BIC has produced documentation in connection therewith. If the parties are unable to reach agreement in these matters, the United States could amend its complaint against BIC to add additional claims under the False Claims Act and/or various common law and equitable theories relating to such matters. In the event such continuing investigation or any consequence thereof materially adversely affects the business or operations of BIC, it could result in the loss of or material decrease in the Company's business from BIC, which would have a material adverse effect on the Company's business, financial condition and results of operations. The Company is involved in various other legal actions arising in the ordinary course of business. Management believes that the ultimate resolution of these actions will not have a material adverse effect on the Company's financial position, results of operations, or liquidity, although no assurances can be given in this regard. NOTE 4. SEGMENT INFORMATION The following table presents summarized financial information for the Company's reportable segments:
INTERCOMPANY OUTSOURCING FLOOD ZONE ELIMINATIONS CONSOLIDATED SERVICES DETERMINATIONS AND OTHER TOTALS ------------ ----------- ------------ ------------ THREE MONTHS ENDED SEPTEMBER 30, 1999 - (UNAUDITED) Operating revenues - affiliated .... $ 9,987,895 $ 214,946 $ (230,196) $ 9,972,645 Operating revenues - unaffiliated .. 1,503,489 4,170,414 -- 5,673,903 Operating income ................... (918,929) 898,813 -- (20,116) Identifiable assets ................ 24,826,261 25,155,030 (11,550,755) 38,430,536 THREE MONTHS ENDED SEPTEMBER 30, 2000 - (UNAUDITED) Operating revenues - affiliated .... $ 9,959,049 $ 276,545 $ (281,295) $ 9,954,299 Operating revenues - unaffiliated .. 1,744,877 4,471,168 -- 6,216,045 Operating income (loss) ............ (1,791,038) 1,167,708 -- (623,330) Identifiable assets ................ 29,606,136 26,926,790 (16,427,631) 40,105,295 NINE MONTHS ENDED SEPTEMBER 30, 1999- (UNAUDITED) Operating revenues - affiliated .... $ 32,940,990 $ 409,001 $ (452,751) $ 32,897,240 Operating revenues - unaffiliated .. 5,549,683 13,782,952 -- 19,332,635 Operating income ................... 2,568,064 3,017,679 -- 5,585,743 Identifiable assets ................ 24,826,261 25,155,030 (11,550,755) 38,430,536 NINE MONTHS ENDED SEPTEMBER 30, 2000- (UNAUDITED) Operating revenues - affiliated .... $ 29,437,938 $ 749,184 $ (778,934) $ 29,408,188 Operating revenues - unaffiliated .. 4,809,871 12,635,221 -- 17,445,092 Operating income (loss) ............ (3,548,462) 2,746,211 -- (802,251) Identifiable assets ................ 29,606,136 26,926,790 (16,427,631) 40,105,295
7 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth for the periods indicated certain selected unaudited historical operating results of the Company as a percentage of total revenues:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ------------------ 1999 2000 1999 2000 ----- ----- ----- ----- REVENUES Outsourcing services .................... 72.0% 70.6% 72.8% 71.4% Flood zone determination services ....... 28.0 29.4 27.2 28.6 ----- ----- ----- ----- Total revenues ...................... 100.0 100.0 100.0 100.0 ----- ----- ----- ----- EXPENSES Cost of outsourcing services ............ 58.1 56.1 51.4 57.3 Cost of flood zone determination services ............................. 12.1 12.3 11.9 12.5 Selling, general and administrative ..... 17.5 24.2 14.7 20.1 Management services from Parent ......... 3.4 3.2 3.4 3.2 Depreciation and amortization ........... 9.0 8.0 7.9 8.6 ----- ----- ----- ----- Total expenses ...................... 100.1 103.8 89.3 101.7 ----- ----- ----- ----- Operating income (loss) ................... (0.1) (3.8) 10.7 (1.7) Interest income ........................... 0.4 0.4 0.6 0.4 Interest expense .......................... (1.9) (0.1) (1.5) (0.1) ----- ----- ----- ----- Income (loss) before provision (benefit) for income taxes ......................... (1.6) (3.5) 9.8 (1.4) Provision (benefit) for income taxes ...... (0.1) 0.0 4.2 0.2 ----- ----- ----- ----- Net income (loss) ......................... (1.5)% (3.5)% 5.6% (1.6)% ===== ===== ===== =====
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 Outsourcing Services Revenues. Outsourcing services revenues increased $161,000, or 1.4%, to $11.4 million for the three months ended September 30, 2000 from $11.3 million for the corresponding period in 1999. The increase in outsourcing services revenues during the third quarter of 2000 was primarily attributable to (i) revenue generated under an automobile claims processing agreement, entered into April, 2000, with an unaffiliated customer, which customer has subsequently defaulted on payment for services provided under the agreement (see "Selling, General and Administrative Expenses" below for further information), (ii) an increase in flood premium processed on behalf of the Company's unaffiliated customers, and (iii) an increase in flood, homeowners and commercial premium, partially offset by a decrease in automobile premium, processed on behalf of the Company's affiliated customers. Flood Zone Determination Services Revenues. Flood zone determination services revenues increased $362,000, or 8.3%, to $4.7 million for the three months ended September 30, 2000 from $4.4 million for the corresponding period in 1999. The increase was primarily attributable to an increase in the number of flood zone determinations processed during the three months ended September 30, 2000 as compared to the corresponding period in 1999, partially offset by a decrease in the average selling price per flood zone determination as a result of (i) increased pricing pressures and (ii) an increase in the number of automated flood zone determinations processed by the Company on behalf of other flood zone vendors at reduced rates. Cost of Outsourcing Services. Cost of outsourcing services decreased $12,000, or 0.1%, to $9.07 million for the three months ended September 30, 2000 from $9.08 million for the corresponding period in 1999. As a percentage of outsourcing services revenues, cost of outsourcing services decreased to 79.4% for the three months ended September 30, 2000 from 80.7% for the corresponding period in 1999 primarily as a result of an increase in the dollar amount of outsourcing services revenues and a decrease in the cost of outsourcing services during the three months ended September 30, 2000 from the corresponding period in 1999. The decrease in the dollar amount of cost of outsourcing services was primarily attributable to a decrease in revenue from the Company's claims catastrophe subsidiary, which pays approximately 70% of each dollar of revenue received to the independent adjusters who adjust the claims on the Company's such subsidiary's behalf. The decrease in the dollar amount of expenses from the Company's claims catastrophe subsidiary was partially offset by increases in the Company's personnel costs due to staff additions and the use of contract 8 11 programmers to develop and staff new unaffiliated programs as well as an increase in facilities costs due to the occupancy of the Company's new operating and call center facility. Cost of Flood Zone Determination Services. Cost of flood zone determination services increased $93,000, or 4.9%, to $2.0 million for the three months ended September 30, 2000 from $1.9 million for the corresponding period in 1999. As a percentage of flood zone determination services revenues, cost of flood zone determination services decreased to 42.0% for the three months ended September 30, 2000 from 43.3% for the corresponding period in 1999 primarily as a result of (i) various production workflow changes made during 1999 that enabled the Company to increase employee productivity and reduce operating expenses, primarily personnel related costs, and (ii) increased utilization of a flood zone determination vendor located in India, which has been able to perform manual flood zone determinations at costs significantly below U.S. market rates. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $1.2 million, or 42.8%, to $3.9 million for the three months ended September 30, 2000 from $2.7 million for the corresponding period in 1999. The increase in selling, general and administrative expenses is primarily attributable to (i) the write-off of an accounts receivable balance from an unaffiliated customer, which balance totaled $848,000 at September 30, 2000, for claims services rendered since April, 2000, (ii) the continued assumption of certain administrative services, including human resource, agency accounting, cash management and legal services, that were previously provided to the Company under the management service agreement with BIG, and (iii) the recognition of $338,000 in additional compensation expense (of which approximately $145,000 relates to prior quarters in 2000 and 1999) resulting from the vesting of benefits payable to certain current and former officers and directors of the Company under the Amended and Completely Restated Phantom Stock Plan (the "BFC Plan") of Bankers Financial Corporation ("BFC"), the parent corporation of BIG, and the Amended and Restated Phantom Stock Plan (the "VCC Plan") of Venture Capital Corporation ("VCC"). The foregoing compensation charge is a non-recurring, non-cash item to the Company, as all such benefits under such plans were fully vested as of September 30, 2000 and constitute the respective obligations of BFC and VCC, not the Company. In addition, the offset to such compensation expense is an increase to additional paid-in capital, since the ultimate cash obligations under these plans are that of BFC and VCC, respectively, and not of the Company. See "Item 5. Other Information" for additional information. Management Services from Parent. Management services from Parent decreased $20,000, or 3.7%, to $516,000 for the three months ended September 30, 2000 from $536,000 for the corresponding period in 1999. This decrease was primarily related to the continued assumption by the Company of certain administrative services, including human resource, agency accounting, cash management and legal services, that were previously provided to the Company under the management service agreement with BIG. Such decrease was partially offset by both an increase in rent expense from BIG as a result of an annual rent escalation and an increase in the square footage being leased. Interest Expense. Interest expense decreased $285,000, or 96.5%, to $10,000 for the three months ended September 30, 2000 from $296,000 for the corresponding period in 1999. This decrease was primarily related to the early repayment of most of the Company's debt obligations during 1999 from the net proceeds received by the Company from its initial public offering in February, 1999. COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 Outsourcing Services Revenues. Outsourcing services revenues decreased $4.6 million, or 12.0%, to $33.5 million for the nine months ended September 30, 2000 from $38.0 million for the corresponding period in 1999. The decrease was primarily attributable to revenue generated during 1999 under an affiliated technical support services arrangement. No revenue was generated under this arrangement during the corresponding period in 2000. Additionally, effective April 1, 1999, the Company amended its existing service agreements with affiliated insurers to provide for minimum aggregate quarterly service fee payments through December 31, 1999 with respect to certain lines of business. The minimum service fee arrangement was established to compensate the Company for maintaining an infrastructure to process certain lines of business of affiliated insurers that have not grown as rapidly as originally forecasted. If such minimum service fee requirements with respect to said lines of business under the agreements had not been implemented as of April 1, 1999, aggregate affiliated outsourcing services revenues, which totaled $32.5 million for the nine months ended September 30, 1999, would have been $30.6 million in accordance with the terms of the affiliated service agreements as in effect prior to April 1, 1999. The amended agreement requiring such minimums expired in December, 1999 and was not subsequently renewed. The decrease in outsourcing services revenues was also due to a decrease in the volume of flood and wind damage claims administered by the Company's outsourcing operations during the nine months ended September 30, 2000 as compared to the corresponding period in 1999. During the nine months ended September 30, 1999, the 9 12 Company recognized revenues totaling approximately $4.5 million from the administration of property damage claims resulting from Hurricane Georges, which storm occurred in September 1998. In comparison, the Company recognized revenues of approximately $1.7 million during the nine months ended September 30, 2000 from the administration of property damage claims resulting from Hurricanes Floyd and Irene, which storms occurred during the fourth quarter of 1999. Additionally, a decline in the volume of automobile premium processed on behalf of the Company's affiliated customers contributed to the decrease in outsourcing services revenues during the nine months ended September 30, 2000. These decreases in outsourcing services revenues were partially offset by (i) an increase in outsourcing services revenues generated under an automobile claims processing agreement, entered into April, 2000, with an unaffiliated customer, which customer has subsequently defaulted on payment for services provided under the agreement (see "Selling, General and Administrative Expenses" below for further information), (ii) an increase in flood premium processed on behalf of the Company's unaffiliated customers, and (iii) an increase in flood, homeowners and commercial premium processed on behalf of the Company's affiliated customers. Flood Zone Determination Services Revenues. Flood zone determination services revenues decreased $808,000, or 5.7%, to $13.4 million for the nine months ended September 30, 2000 from $14.2 million for the corresponding period in 1999. This decrease was primarily attributable to the termination of the Company's "life-of-loan" insurance policy, effective April 1, 1999, under which, prior to the termination of the policy, the Company was compensated for performing flood zone re-determinations for certain existing customers. Prior to the termination of the life-of-loan policy, the Company paid an insurance premium for every flood zone determination issued which required life-of-loan tracking. In exchange for the premium, the Company received a fixed amount for every flood zone determination that had to be reissued as a result of a change in the underlying flood zone classification of a property. Additionally, a decrease in the average selling price per flood zone determination as a result of (i) increased pricing pressures and (ii) an increase in the number of automated flood zone determinations processed by the Company on behalf of other flood zone vendors at reduced rates, contributed to the decrease in flood zone determination services revenues during the nine months ended September 30, 2000. These decreases in flood zone determination services revenues were partially offset by an increase in number of flood zone determinations processed during the nine months ended September 30, 2000 as compared to the corresponding period in 1999. Cost of Outsourcing Services. Cost of outsourcing services decreased $33,000, or 0.1%, to $26.8 million for the nine months ended September 30, 2000 from $26.9 million for the corresponding period in 1999. As a percentage of outsourcing services revenues, however, cost of outsourcing services increased to 80.2% for the nine months ended September 30, 2000 from 70.6% for the corresponding period in 1999 primarily as a result of a decrease in the dollar amount of outsourcing services revenues during the nine months ended September 30, 2000 from the corresponding period in 1999. The decrease in the dollar amount of cost of outsourcing services was primarily attributable to a decrease in revenue from the Company's claims catastrophe subsidiary, which pays approximately 70% of each dollar of revenue received to the independent adjusters who adjust the claims on the Company's such subsidiary's behalf. The decrease in the dollar amount of expenses from the Company's claims catastrophe subsidiary was partially offset by increases in the Company's personnel costs due to staff additions and the use of contract programmers to develop and staff new unaffiliated programs as well as an increase in facilities costs due to the occupancy of the Company's new operating and call center facility. Cost of Flood Zone Determination Services. Cost of flood zone determination services decreased $372,000, or 6.0%, to $5.9 million for the nine months ended September 30, 2000 from $6.2 million for the corresponding period in 1999. As a percentage of flood zone determination services revenues, cost of flood zone determination services decreased to 43.7% for the nine months ended September 30, 2000 from 43.9% for the corresponding period in 1999 primarily as a result of (i) various production workflow changes made during 1999 that enabled the Company to increase employee productivity and reduce operating expenses, primarily personnel related costs, and (ii) increased utilization of a flood zone determination vendor, located in India, which has been able to perform manual flood zone determinations at costs significantly below U.S. market rates. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $1.7 million, or 22.7%, to $9.4 million for the nine months ended September 30, 2000 from $7.7 million for the corresponding period in 1999. The increase in selling, general and administrative expenses is primarily attributable to (i) the write-off of an accounts receivable balance from an unaffiliated customer, which balance totaled $848,000 at September 30, 2000, for claims services rendered since April, 2000, (ii) the continued assumption of certain administrative services, including human resource, agency accounting, cash management and legal services, that were previously provided to the Company under the management service agreement with BIG, and (iii) the recognition of $338,000 in additional compensation expense (of which approximately $102,000 relates to prior quarters in 1999) resulting from the vesting of benefits payable to certain current and former officers and directors of the Company under the BFC Plan and the VCC Plan. The foregoing compensation charge is a non-recurring, non-cash item to the 10 13 Company, as all such benefits under such plans were fully vested as of September 30, 2000 and constitute the respective obligations of BFC and VCC, not the Company. In addition, the offset to such compensation expense is an increase to additional paid-in capital, since the ultimate cash obligations under these plans are that of BFC and VCC, respectively, and not of the Company. See "Item 5. Other Information" for additional information. Management Services from Parent. Management services from Parent decreased $239,000, or 13.8%, to $1.5 million for the nine months ended September 30, 2000 from $1.7 million for the corresponding period in 1999. This decrease was primarily related to the continued assumption by the Company of certain administrative services, including human resource, agency accounting, cash management and legal services, that were previously provided to the Company under the management service agreement with BIG. Such decrease was partially offset by both an increase in rent expense from BIG as a result of an annual rent escalation and an increase in the square footage being leased. Interest Expense. Interest expense decreased $724,000, or 93.2%, to $53,000 for the nine months ended September 30, 2000 from $776,000 for the corresponding period in 1999. This decrease was primarily related to the early repayment of most of the Company's debt obligations during 1999 from the net proceeds received by the Company from its initial public offering in February, 1999. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2000, the Company's principal sources of liquidity consisted of cash on-hand, cash flows from operations and available borrowings under the Company's revolving credit facility. In February, 1999, the Company completed an initial public offering of 3,350,000 shares of Common Stock at a price of $11 per share. Of the 3,350,000 shares sold, 1,350,000 were sold by VCC. The offering generated net proceeds ("Offering Proceeds") to the Company of approximately $19.2 million after deducting offering expenses paid by the Company of approximately $1.3 million. The Offering Proceeds, together with funds received from BIG from proceeds made available to BIG by a subsidiary of VCC, were used during 1999 to repay all obligations with BIG and its affiliates and to repay most of the Company's third-party debt obligations. In June, 1999, the Company entered into a revolving line of credit agreement ("LOC") with a financial institution that provides for borrowings of up to two times the rolling four quarter earnings before interest, taxes, depreciation and amortization ("EBITDA"), but in no event more than $12,000,000. The LOC bears interest at a specified percentage over LIBOR (8.38% at September 30, 2000) based on the ratio of funded debt (as defined) to EBITDA. Interest payments are payable monthly and the remaining unpaid principal balance is due in full in July, 2001. The LOC is collateralized by substantially all of the Company's assets and is subject to certain quarterly financial covenants requiring the Company to maintain the following minimum ratios: (i) interest bearing debt to EBITDA of not more than 2.0 to 1.0; (ii) total liabilities to tangible net worth of not more than 1.0 to 1.0; and (iii) fixed charge coverage (as defined) of not less than 2.5 to 1.0. As of September 30, 2000, the outstanding balance and available line of credit was $0 and $10,421,992, respectively. The Company believes that cash on-hand, cash flows from operations and available borrowings under the Company's LOC facility will be sufficient to satisfy currently anticipated working capital and capital expenditure requirements for the next twelve months. This belief is based on the assumption that the Company will be able to renegotiate or replace its existing LOC facility, which is currently scheduled to expire on June 5, 2001. In the event the Company is unable to successfully renegotiate or replace its existing LOC facility upon acceptable terms, it may be required to seek alternative sources of debt or equity financing. No assurances can be given, however, that such alternative sources of debt or equity financing would be available upon acceptable terms. The Company's inability to successfully renegotiate or replace its existing LOC facility, or to obtain alternative debt or equity financing, could have a material adverse effect on the Company's anticipated liquidity needs. Additionally, unanticipated rapid expansion, business or systems development, or potential acquisitions may cause the Company to require additional funds. The Company identifies and assesses, in the normal course of business, potential acquisitions of technologies or businesses which it believes strategically fit its business plan. The Company may enter into such transactions should opportunities present themselves in the future. 11 14 YEAR 2000 COMPLIANCE During the first nine months of 2000, the Company continued its remediation program related to a universal situation commonly referred to as the "Year 2000 Problem." The Year 2000 Problem relates to the inability of certain computer software programs to properly recognize and process date-sensitive information relative to the Year 2000 and beyond, and the inability of non-information technology systems to function properly when the Year 2000 arrives. As of the date of this report, the Company has not experienced any significant problems related to the Year 2000 Problem. Additionally, the Company has not become aware of any significant Year 2000 issues affecting the Company's major customers or suppliers, nor has it received any material complaints regarding Year 2000 Problems related to its services. The Company does not anticipate any remaining costs to address additional Year 2000 Problems will be material, although no assurances can be given in this regard. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has not entered into any transactions using derivative financial instruments or derivative commodity instruments and believes that its exposure to market risk associated with other financial instruments (such as variable rate debt) are not material. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On September 28, 2000, October 25, 2000 and October 30, 2000, three alleged shareholders of the Company, Murrel Neal, David Muti and Todd M. Speir, filed three nearly identical lawsuits in the United States District Court for the Middle District of Florida (Case Nos. 8:00-CV-2013-T-26F, 8:00-CV-2210-T-27B and 8:00-CV-2246-T-27F), each on behalf of a putative class of all persons who purchased shares of the Company's Common Stock pursuant and/or traceable to the registration statement for the Company's February 1999 initial public offering (the "IPO"). The suits name as defendants the following parties: the Company; Geotrac of America, Inc. ("GEOTRAC"), a wholly-owned subsidiary of the Company; BIG; VCC; all directors of the Company at the time of the IPO; and Raymond James & Associates, Inc. and Keefe, Bruyette & Woods, Inc., individually and as representatives of the underwriters for the IPO. The complaints allege, among other things, that the defendants violated Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended, by making certain false and misleading statements in the roadshow presentations, registration statement and prospectus relating to the IPO. More specifically, the complaints allege that, in connection with the IPO, the defendants made various material misrepresentations and/or omissions relating to (i) the Company's ability to integrate Geotrac's flood zone determination business with the Company's insurance outsourcing services business and (ii) actual and anticipated synergies between the two businesses. The complaints seek unspecified damages, including interest, and equitable relief, including a rescission remedy. Management of the Company believes the material allegations of the complaints are without merit and intends to vigorously defend the lawsuits. No assurances can be given, however, with respect to the outcome of the litigation. Except as set forth in the preceding paragraph, there have been no material changes to the disclosure set forth under the caption "Item 3. Legal Proceedings" in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. 12 15 ITEM 5. OTHER INFORMATION On August 31, 2000, after exploring various strategic alternatives for the Company's flood zone determination business for approximately ten months and rejecting a final proposal to acquire the Company's Geotrac subsidiary, the Company ceased all further efforts to pursue the possible disposition of Geotrac or its flood zone determination business. The Company originally announced its intention to pursue strategic alternatives for Geotrac and its flood zone determination business in a press release dated October 28, 1999. Effective September 30, 2000, the BFC and VCC Plans were amended to provide for, among other things, immediate vesting of benefits payable thereunder to certain current and former officers and directors of the Company. Accordingly, as of September 30, 2000, the total discounted and non-discounted benefits payable under these plans, which have accrued since February 11, 1999, the date of the Company's initial public offering (the "IPO Date"), totaled $327,000 and $894,000, respectively, for the BFC Plan and $12,000 and $43,000, respectively, for the VCC Plan. Benefits under each of such plans generally are payable in 120 equal installments beginning at age 60. Although resulting in compensation expense (on a discounted basis) to the Company, all of such benefits under such plans were granted on or before the IPO Date and constitute the respective obligations of BFC and VCC, not the Company. The benefits described herein exclude amounts vested prior to the IPO Date and/or allocable to services provided to BIG or its affiliated entities (other than the Company or its subsidiaries) since the IPO Date. The aggregate amount (on a non-discounted basis) in benefits payable to each of the Company's current and former executive officers and directors of the Company under the BFC Plan and the VCC Plan, respectively, and which have accrued from the IPO Date through September 30, 2000, are as follows: David K. Meehan, $0 and $0; David M. Howard, $247,515 and $25,523; Robert G. Gantley, $217,583 and $0; Christopher P. Breakiron, $0 and $0; Daniel J. White, $0 and $0; Kathleen M. Batson, $43,348 and $6,160; John A. Grant, Jr., $154,100 and $9,210; William D. Hussey, $100,000 and $0; E. Ray Solomon, $100,000 and $0; and Alejandro M. Sanchez, $0 and $0. The foregoing benefits exclude amounts vested prior to the IPO Date and/or allocable to services provided to BIG or its affiliated entities (other than the Company or its subsidiaries) since the IPO Date. Except as set forth below, since the IPO Date, no officers or directors of the Company have been eligible to receive additional grants under such phantom stock plans or have been subject to future allocations of profits or losses with respect thereto. In addition, except as set forth below, all current officers and directors of the Company were fully vested, as of September 30, 2000, in all benefits under such plans. Notwithstanding the foregoing, Robert G. Menke, a director of the Company, and David K. Meehan, Chairman of the Board of the Company, will continue to be eligible to receive grants, vest in benefits received and share in profits and losses under such plans in their capacity as officers and directors of BIG and its affiliated entities. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits EXHIBIT NO. DESCRIPTION 10.1 Insurance Administration Services Agreement Termination and Interim Services Addendum, effective as of August 1, 2000, by and between Insurance Management Solutions, Inc., International Catastrophe Insurance Managers, LLC and Clarendon National Insurance Company, including all schedules and exhibits thereto 27.1 Financial Data Schedule (for SEC use only) b) Reports on Form 8-K None 13 16 SIGNATURES Pursuant to the requirements 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. Date: November 17, 2000 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. (Registrant) By: /s/ DAVID M. HOWARD ---------------------------------- David M. Howard President and Chief Executive Officer (Principal Executive Officer) By: /s/ CHRISTOPHER P. BREAKIRON ---------------------------------- Christopher P. Breakiron Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer) 14 17 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - ------ ----------- 10.1 Insurance Administration Services Agreement Termination and Interim Services Addendum, effective as of August 1, 2000, by and between Insurance Management Solutions, Inc., International Catastrophe Insurance Managers, LLC and Clarendon National Insurance Company, including all schedules and exhibits thereto 27.1 Financial Data Schedule (for SEC use only) 15 EX-10.1 2 g65484ex10-1.txt INSURANCE ADMINISTRATION SERVICES AGREEMENT 1 Exhibit 10.1 INSURANCE ADMINISTRATION AND SERVICES AGREEMENT TERMINATION AND INTERIM SERVICES ADDENDUM (the "Addendum") Effective as of August 1, 2000 (the "Addendum Effective Date") WHEREAS, Insurance Management Solutions, Inc. (the "Administrator"), International Catastrophe Insurance Managers, LLC (the "General Agent") and Clarendon National Insurance Company (the "Company"; the Administrator, the General Agent and the Company are hereinafter collectively referred to as the "Parties") entered into an Insurance Administration and Services Agreement effective as of April 1, 1999 (the "Policy Administration Agreement"), for the supervision and administration by the Administrator on behalf of the General Agent of the Company's policies (the "Policies"; individually a "Policy") produced by the General Agent pursuant to the General Agency Agreement between the Company and the General Agent dated as of October 1, 1998 (the "Agency Agreement"); and WHEREAS, the Parties desire that the General Agent assume the supervision and administration of the Policies; that until the General Agent assumes all aspects of such supervision and administration, the Administrator remain responsible for the performance of certain duties and responsibilities with respect to the Policies; and that upon the General Agent's assumption of such supervision and administration, but in no event later than February 1, 2001, the Policy Administration Agreement be terminated. NOW, THEREFORE, in consideration of the premises and mutual covenants contained in this Addendum, the Parties agree as follows: I. MODIFICATION AND CONTINUED EFFECTIVENESS OF POLICY ADMINISTRATION AGREEMENT. As of the Addendum Effective Date: (a) the Administrator shall perform certain duties as set forth in SCHEDULE A, "ADMINISTRATOR'S RESPONSIBILITIES; FEES", attached hereto and forming part of this Addendum, which duties are set forth in the column titled "Process/Function" in SCHEDULE A; (b) the Administrator shall perform each Process/Function set forth in SCHEDULE A in accordance with the requirements set forth in the column titled "Specific Requirements" in SCHEDULE A; Page 1 of 24 EJK CB GO ---- --- ---- ICAT IMS CNIC 2 (c) in the event the Administrator fails to perform its Process/Functions in accordance with the Specific Requirements, as set forth on the column titled "Definition of Failure" in SCHEDULE A, then in such event the Administrator shall be liable for fees (hereinafter "Fees") as are provided in SCHEDULE A; (d) all Fees incurred in excess of one thousand ($1,000) dollars per calendar month ("Excess Fees") shall be credited or paid as follows: (i) in the event the outstanding principal due under a certain Secured Promissory Note (the "Note") of even date attached hereto as SCHEDULE B and forming part of this Addendum exceeds fifty thousand ($50,000) dollars, such Excess Fees shall be applied against the Note and shall reduce the principal balance to the extent of such Excess Fees; (ii) in the event the outstanding principal balance of the Note is equal to or less than $50,000, any Excess Fees in an amount up to $50,000 shall reduce the principal balance to the extent of such Excess Fees, and the balance, if any, shall be payable to ICAT upon demand; (iii) in the event the Note is paid in full, any Excess Fees shall be payable to ICAT upon demand, however in no event shall Excess Fees payable to ICAT in any calendar month exceed $50,000, and IMS shall be excused from payment of any Excess Fees incurred during any calendar month after the Note is paid in full to the extent such Excess Fees exceed $50,000; and (iv) notwithstanding anything herein to the contrary, in the event and to the extent ICAT shall be in default under the Note, Excess Fees shall not be applied against the Note or payable to ICAT; (e) in the event IMS fails to provide any report to ICAT, as requested in writing by ICAT, during the term of this Agreement, such obligation shall survive the termination of this Agreement; (f) to the extent that any provision of the Policy Administration Agreement conflicts with any provision of SCHEDULE A, the provision of SCHEDULE A shall govern; Page 2 of 24 EJK CB GO ---- --- ---- ICAT IMS CNIC 3 (g) the Administrator's authority to issue binders or Policies under the Policy Administration Agreement is hereby terminated; (h) the obligation of the General Agent to pay, and the right of the Administrator to receive, a Servicing Fee pursuant to Article 2 of the Policy Administration Agreement is hereby terminated; (i) Article 7 of the Policy Administration Agreement is hereby amended by changing the address of the General Agent to the following: International Catastrophe Insurance Managers, LLC 2995 Wilderness Place, Suite 1NE Boulder, Colorado 80301 Attention: Edmund J. Kelly, Chief Financial Officer and (j) all other provisions of the Policy Administration Agreement, to the extent they do not conflict with any provision of this Addendum, including without limitation any Schedule hereto, shall remain in full force and effect until the Termination Date, as defined below. II. TERMINATION DATE. The Policy Administration Agreement shall terminate on the Termination Date, which shall be the earlier of: (a) the date that the General Agent gives written notice to the other Parties that it will assume all responsibilities to administer and service the Policies; (b) the date that the Policy Administration Agreement is terminated in accordance with the provisions of Section 8.2 thereof; or (c) February 1, 2001. III. FINANCING. IMS agrees to advance the sum of five hundred thousand ($500,000) dollars to ICAT in four equal weekly installments of one hundred twenty five thousand ($125,000) dollars, the first installment to be advanced to ICAT no later than the Page 3 of 24 EJK CB GO ---- --- ---- ICAT IMS CNIC 4 Addendum Effective Date, and the second, third and fourth installments to be advanced to ICAT no later than one, two and three weeks, respectively, from the Addendum Effective Date. To secure the repayment of such advances, ICAT shall execute and deliver to IMS a Note in the form attached hereto as SCHEDULE B and a Security Agreement attached hereto as SCHEDULE C. In the event IMS fails to advance the foregoing sums, or any part thereof, to ICAT, then in such event ICAT, upon notice to IMS, may terminate this Addendum ab initio. IV. LATE CHARGE. Any Excess Fees payable to ICAT pursuant to Section I, paragraph (d) (ii) and (iii) hereof not received by ICAT within ten (10) days of ICAT's demand therefor shall be subject to, and it is agreed that ICAT shall collect thereon and therewith a "late charge" in the amount of three (3%) per cent of the payment upon any and all such delinquent Excess Fees. Said "late charge" shall be immediately due and payable upon demand. V. CLAIMS ADMINISTRATION AGREEMENT. Nothing in this Addendum shall affect the Claims Administration Agreement between the Parties dated as of December 8, 1999 (the "Claims Administration Agreement"), which shall remain in full force and effect unless and until the authority of the Administrator thereunder is suspended, or the Claims Administration Agreement is terminated, in accordance with the provisions thereof. VI. RELEASES; CONFIDENTIALITY. (a) Release of Administrator by General Agent and Company. The General Agent and the Company hereby release and forever discharge the Administrator, its subsidiaries and affiliated entities, and their respective officers, directors, employees, agents, representatives and attorneys, and their respective successors and assigns, and each and all thereof, from and after the Addendum Effective Date from any and all manner of demands, debts, dues, sums of money, accounts, claims, bonds, bills, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, actions, suits, judgments and executions, whatsoever, direct or indirect, which the General Agent or the Page 4 of 24 EJK CB GO ---- --- ---- ICAT IMS CNIC 5 Company, their subsidiaries and affiliated entities, and their respective officers, directors, employees, representatives and agents, and their respective successors and assigns, and each and all thereof, ever had or has as of the Addendum Effective Date, as a result of being a party to the Policy Administration Agreement, or otherwise arising out of or relating to the Policy Administration Agreement; PROVIDED, HOWEVER, that this paragraph does NOT release the Administrator, its subsidiaries and affiliated entities, and their respective officers, directors, employees, agents, representatives and attorneys and their respective successors and assigns, from any claim arising from or in connection with: (i) this Addendum, including without limitation any Schedule hereto; (ii) the Claims Administration Agreement, including without limitation any provision thereunder which concerns or involves the use by the Administrator or transmission by the Administrator to a person or entity not a party to the Claims Administration Agreement of any data respecting a Policy or Policies; (iii) any provision of the Policy Administration Agreement respecting Trust Funds, as defined in Section 9.3 of the Policy Administration Agreement, regardless of whether such claim arose before, on or after the Addendum Effective Date; and (iv) any provision of the Policy Administration Agreement, as modified by this Addendum, where such claim arises after the Addendum Effective Date. (b) Release of General Agent and Company by Administrator. The Administrator hereby releases and forever discharges the General Agent and the Company, their subsidiaries and affiliated entities, and their respective officers, directors, employees, agents, representatives and attorneys, and their respective successors and assigns, and each and all thereof, from and after the Addendum Effective Date from any and all manner of demands, debts, dues, sums of money, accounts, claims, bonds, bills, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, actions, suits, judgments and executions, whatsoever, direct or indirect, which the Administrator, its subsidiaries and affiliated entities, and their respective officers, directors, employees, representatives and agents, and their respective successors and assigns, and each and all thereof, ever had or has as of the Page 5 of 24 EJK CB GO ---- --- ---- ICAT IMS CNIC 6 Addendum Effective Date, as a result of being a party to the Policy Administration Agreement, or otherwise arising out of or relating to the Policy Administration Agreement; PROVIDED, HOWEVER, that this paragraph does NOT release the General Agent and the Company, their subsidiaries and affiliated entities, and their respective officers, directors, employees, agents, representatives and attorneys and their respective successors and assigns, from any claim arising from or in connection with: (i) this Addendum, including without limitation any Schedule hereto; (ii) the Claims Administration Agreement; and (iii) any provision of the Policy Administration Agreement, as modified by this Addendum, where such claim arises after the Addendum Effective Date. (c) Releases Freely and Voluntarily Executed, etc. The mutual releases contained in this Section VI are freely and voluntarily executed by the Parties hereto, and each Party acknowledges that it has been advised by its own attorneys, and has performed its own investigation of all relevant information and data necessary to make an informed decision prior to executing this Addendum. The Parties executing this Addendum do not rely on any inducements, silence, promises or representations made by the other Parties hereto (or their attorneys, agents, employees or other representatives), except for promises and representations contained within this Addendum. Furthermore, no inducement, promise or representation has been made by any Party hereto, except as set forth herein. (d) No Other Releases. The provisions hereof are not intended to effect, and shall not be construed as effecting, any release of the General Agent by the Company or of the Company by the General Agent. (e) Confidentiality. The Parties agree to keep the existence and terms of this Addendum confidential. No information concerning this Addendum may be disclosed to any person or entity not a party to this Addendum (other than persons or entities with a need to know any such information, including without Page 6 of 24 EJK CB GO ---- --- ---- ICAT IMS CNIC 7 limitation: reinsurers of the Company; directors, officers and employees of any of the Parties; investment bankers, investors and lendors of the General Agent; and members of the General Agent's Advisory Council) except: (i) pursuant to the advance written approval of the other Parties; or (ii) pursuant to any order of any court, or any statute, regulation or order of any governmental authority, having jurisdiction, compelling such disclosure. IN WITNESS WHEREOF, the parties have executed this Addendum through their duly authorized officers as of the day and year first above written. For and on behalf of the Administrator: INSURANCE MANAGEMENT SOLUTIONS, INC. By: _________________________ For and on behalf of the General Agent: INTERNATIONAL CATASTROPHE INSURANCE MANAGERS, LLC By: __________________________ For and on behalf of the Company: CLARENDON NATIONAL INSURANCE COMPANY By: __________________________ Page 7 of 24 EJK CB GO ---- --- ---- ICAT IMS CNIC 8 SCHEDULE A: ADMINISTRATOR'S RESPONSIBILITIES; FEES
PROCESS/FUNCTION SPECIFIC REQUIREMENTS DEFINITION OF FAILURE 1 Billing - Processing of Timely and accurate billing to insured with Non-timely mailing of the billing endorsements/cancellations copy to agent and ICAT for endorsements and statement; inaccurate information on cancellations; needs to be mailed within 2 statement including: inaccurate insured, business days of receipt from ICAT. agency, amount, mailing address or policy number; duplicate processing of the change; improper distribution, etc. 2 Billing - Wholesalers Timely and accurate billing to wholesalers Non-timely mailing of statements to for new and renewal business bound by ICAT; inaccurate information on wholesaler. Draft wholesaler statements statements including: inaccurate forwarded and received by ICAT by 5th insured, agency, amount, mailing address business day of the month not to exceed the or policy number; duplicate processing 10th calendar of the month. ICAT of the change, improper distribution, edited/approved wholesaler statements mailed calculation of commission, etc. by the 10th of the month via overnight delivery within 1 business day after ICAT has provided edits to IMSG. ICAT mails to wholesalers and charges mailing costs back to IMSG. 3 Billing - Installment Timely and accurate billing of installment Non-timely mailing to insured; Payments payments. Billings to be mailed to insured inaccurate information on statement 30 days prior to due date. including: inaccurate insured name, mailing address, amount due, policy number; duplicate processing of installment payment, improper distribution, past due and/or cancellation notice improperly sent due to late processing into AS400, etc. 4 Disbursements - Agency Timely and accurate production of commission Non-timely production of commission Commission Statements and statements to retailers. Draft retailer statements and checks to retailers; Checks statements forwarded to and received by inaccurate information on statement or ICAT by the 5th business day of the month not checks including: inaccurate insured or to exceed the 10th calendar day of the month. agency name, commission amount, mailing ICAT edited retailer commission statements and address, policy number, improper checks mailed to ICAT via overnight delivery distribution, etc. within 1 business day after ICAT has provided edits to IMSG. ICAT mails to retailers and charges mailing costs back to IMSG. 5 Disbursements - Refunds on Timely processing within 5 business days of Non-timely processing; inaccurate Cancellations/Endorsements request received from ICAT, and accurate information on statement including: disbursement to agency. Disbursements to inaccurate insured or agency name, retailers must be mailed within 10 business mailing address, policy number, days of receipt from ICAT. Disbursements to duplicate processing of the change, wholesalers must be included in monthly improper distribution, etc. statement.
Page 8 of 24 EJK CB GO ---- --- ---- ICAT IMS CNIC 9
PROCESS/FUNCTION SPECIFIC REQUIREMENTS DEFINITION OF FAILURE 6 Collections - EFT for Timely and accurate sweeping of retailers' Non-timely processing of EFT; inaccurate Retailers accounts. Sweep within 5 business days of amount swept, incorrect agency, policy receipt of policy data from ICAT. IMSG will number, multiple sweeps, no notification notify ICAT of rejected bank information to ICAT of unsuccessful sweep, etc. Non- within 1 business day from the date IMSG is timely or inaccurate processing of advised of the rejection. Resubmitted EFT to application of cash. be done within 3 business days after being provided with corrected EFT information from ICAT. Correct processing of application of cash to system within the same time frame. 7 Collections - Retailers Maintain a post office box for daily Non-timely depositing or processing of (Installment Billings) collection and deposit of payments cash collected; inaccurate posting of received within 1 business day of receipt; payment, inaccurate amount due, agency, correct processing of application of cash to policy number, duplicate billing, system. If no paperwork is provided, incorrect past due notice sent; deposit processing of payment will be delayed one of cash into an incorrect bank account, business day. If unable to determine how to etc. Non-timely notification to ICAT of process payment, ICAT will be notified after inability to process payment. 2nd business day. 8 Collections - Retailers Daily collection and deposit of payments Non-timely deposit of returned (Return Commissions) received within 1 business days of receipt; commission, late posting of payment, correct processing of application of cash to posting incorrect amount, agency or system within same time frame. The foregoing insured name, policy number, etc. time frame shall apply to payments received Non-timely notification to ICAT as with proper documentation provided by regards to exception processing Retailer. If proper documentation is not requirements. provided, then "exception processing" time frame applies: Posting and deposit will occur within 2 business days after receipt of inadequately documented payment; in any event, if documentation cannot be reconciled by IMSG, IMSG will notify ICAT within 3 business days that reconciliation cannot be completed within the "exception processing" time frame. 9 Collections - Application of Timely and accurate application of cash Non-timely deposit of cash received from Cash from Wholesalers received from wholesalers. Checks deposited wholesalers; Non timely application of within 2 business days of receipt. cash to policy; inaccurate posting of Application of cash received will be applied amount received, commission taken, to individual policies within 2 business days agency or insured name, policy number, and up to 3 business days for those accounts etc. Non-timely communication of any with exceptions. Any unresolved exceptions unresolved exceptions to ICAT. will be communicated, including all relevant documentation, within 4 business days to ICAT for follow-up with the agency. 10 Collections - Cash Timely and accurate transmittal of cash due Non-timely settlement; inaccurate amount Settlement to ICAT ICAT; minimum of weekly transmission from transmitted; improper bank account PTA to designated ICAT operating account; credited. transmission to ICAT Boulder account within 1 business day of request. Settlement due on Monday evening for all activity processed through the preceding Friday. If Monday is a holiday, the next business day will be used.
Page 9 of 24 EJK CB GO ---- --- ---- ICAT IMS CNIC 10
PROCESS/FUNCTION SPECIFIC REQUIREMENTS DEFINITION OF FAILURE 11 Reporting - CNIC Statistical reporting for all ICAT products Non-timely or inaccurate reports. (BOP, Property, EQ & Wind) by state to Clarendon (ISO specs) and the FWUA, quarterly and annually as required. Reporting is required to meet all calendar year 2000 requirements. ICAT will provide appropriate clarification to IMSG as to the content and the timing of the required reports, as requested by IMSG. 12 Reporting - Reinsurers Timely (to meet all monthly, quarterly and Non-timely or inaccurate reports. annual reporting requirements) providing of information required to enable ICAT to prepare reinsurance reports. IMSG will provide all required information to enable ICAT to prepare the reinsurance reports required to meet the calendar year 2000 requirements, regardless of the date the transition period is terminated. IMSG will be given 15 business days from request of data to provide such data to ICAT. 13 Reporting - Premium Taxes, Timely submission of information required Non-timely or inaccurate reports. Boards, Bureaus and Fees for ICAT and CNIC to meet all quarterly and annual reporting for premium taxes, boards, bureaus and fee reports in the various states that ICAT has business through calendar year 2000. IMSG will be given 15 business days from request of data to provide such data to ICAT. 14 Reporting - 1099's Timely (For ICAT to meet annual reporting Non-timely or inaccurate reports. requirements) and accurate preparation of all 1099 related reporting submitted to ICAT for approval prior to January 25, 2001. 15 Reporting - Aging Daily EFT activity report on activity for the Non-timely or inaccurate reports. Receivable Reports for previous business day. This report will EFT's, Installment Billing, include all EFT transactions completed for and Account Currents the day, those awaiting completion, any failed EFT's (NSF) awaiting to be resubmitted and an analysis for any unusual activity. A monthly accounts receivable aging report on all collections activity by agency and insured (for installment payments). This report should also include an analysis discussing the nature of any overdue items. Monthly aging reports received by ICAT by the 5th business day for the previous month activity. 16 Reporting - Cancellation Monthly report on all pending and executed Non-timely or inaccurate reports. Reports cancellations to be received by ICAT by the 5th business day after the end of the month under consideration. Copies of the individual cancellation notices to be provided to ICAT within 1 business day of the date issued by IMSG. Please refer to list of reports in the detailed business requirements for TX, CA and FL.
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PROCESS/FUNCTION SPECIFIC REQUIREMENTS DEFINITION OF FAILURE 17 Other - Claims "Ensure all policy data required for claims Non-timely or inaccurate reports. is entered into system on a daily basis. 18 Other - Correspondence Upon request from ICAT, ICAT must have access to copies of all correspondence sent by Copies not provided to ICAT or access IMSG to Producers and/or insureds, i.e. unavailable. cancellation notices, billing notices, commission statements, within 2 business days of ICAT's request. Electronic access to images is acceptable. 19 Other - Correspondence ICAT must receive copies of all Non-timely receipt of correspondence by ICAT. correspondence from Producers within 2 business days of receipt by IMSG. 20 Service - Accounting Daily access to an Accounting/Customer Access unavailable; untimely follow up Service Representative. Response from IMSG response to inquiries. within 1 business day for any outstanding cash issues or customer service queries. 21 Service - I/S Access to an Account Manager and Product Access unavailable. Coordinator to manage all ICAT services and responds to problems within 1 business day. 22 I/S - Web Hosting Transfer Transition the icatmanagers.com domain Non-timely transition. name to ICAT Managers (Change Request filed 6/9/00). 23 I/S - Complete Policy IMSG will implement the policy administration Non-compliance. Administration Systems system and process policies submitted by Required During the ICAT for CA, OR, WA, TX, FL, AL, MS, NC, and Interim Period SC seventy-five calendar days after the filing for the state under consideration is received by IMSG from ICAT and the DBR's and functional specifications are agreed upon between IMSG and ICAT. The DBR and functional specifications will be completed following the IMSG SDLC utilizing a joint effort between ICAT and IMSG. The responsibility for the creation, writing and ultimate completion of the DBR's is IMSG's. ICAT's responsibility in the creation of the DBR's and functional specifications shall be limited to providing IMSG with the state filing and ICAT's DBR's pertaining to that state's website. ICAT will also make staff readily available to IMSG to answer questions and to provide additional documentation reasonably requested by IMSG. ICAT will complete its review within 3 business days of receipt of the DBR's and the functional specifications from IMSG. In any event, it is agreed that IMSG will complete the DBR's and
Page 11 of 24 EJK CB GO ---- --- ---- ICAT IMS CNIC 12
PROCESS/FUNCTION SPECIFIC REQUIREMENTS DEFINITION OF FAILURE I/S - Complete Policy functional specifications within 10 business Administration Systems days of receipt of the state filing, or so Required During the deemed for purposes of determining whether Interim Period (continued) the 75 calendar day time frame has been met. It is agreed that not more than 2 states shall be in the DBR/functional development stage at any point in time. ICAT shall determine which two states shall be in that stage should more than two exist at one time. Notwithstanding the foregoing, the implementation of the policy administration system for CA, FL and TX shall occur not later than September 15, 2000, and MS and AL not later than October 15, 2000. 24 Change Requests IMSG will implement all change requests Non-compliance. within 10 business days after receipt of a signed request from ICAT. IMSG will utilize the SDLC change request process for all changes requested. All changes to the policy administration system, database files, website, forms, and rating will require an implementation date agreed upon by both IMSG and ICAT. However, ongoing web maintenance, i.e., scripts run in production, establishing databases, installing new databases from backups, moving Cold Fusion files and directories, mid-day backups, etc., are critical to managing ICAT's production website. Such activities will be completed as soon as reasonably possible, but in no event more than 2 business days from the date of the request from ICAT, and such requests can be made by phone or email. 25 Policy Issuance: New, ICAT will continue to bill IMSG for policy Nonpayment of invoices within 10 business Renewal, Endorsements, processing; including postage, labor, days. Cancellations equipment and supplies needed to process policies during the transition period. Monthly charge-back from ICAT to IMSG is not to exceed $5,000, or the actual amount, whichever is less.
The term "business day" as used herein shall mean all work days, not including nationally recognized bank holidays and weekends. For purposes of this document, data received by IMSG after 2:00pm Eastern Time will be deemed "received" on the following business day. Page 12 of 24 EJK CB GO ---- --- ---- ICAT IMS CNIC 13 FEES Fees for failures as defined above will be assessed as follows. 1. Non-timely failures and access unavailable will result in a deduction to the outstanding loan amount due IMSG of $100 per day per policy for all Fees applicable to each policy. 2. Inaccuracies will result in a deduction to the outstanding loan amount due IMSG of $100 per policy not to exceed $100 per day per policy for all Fees applicable to each policy. 3. Non-compliance will result in a deduction to the outstanding loan amount due IMSG of $1000 per day. 4. Any penalties, late fees, etc., assessed ICAT from local, state or federal agencies will result in a deduction to the outstanding loan amount due IMSG for the amount assessed if such penalties, late fees, etc., were caused by IMSG as a result of not performing under the Interim Services Agreement. 5. In the event that Fees reach $10,000 in the aggregate, all subsequent Fees will double in amount. 6. In the event IMSG incorrectly returns policy fees and/or inspection fees, IMSG will reimburse ICAT for the fees incorrectly returned. IMSG shall have no right against ICAT, its Producers, or its policyholders to recover such fees. 7. It is agreed that IMSG shall have a Fee allowance of $1,000 per month; i.e., the first $1,000 of Fees incurred by IMSG, per month, shall be waived and forgiven. ICAT will provide timely notification to IMSG of any failures and prepare a monthly report summarizing the failures and Fees to be offset against the outstanding loan. Page 13 of 24 EJK CB GO ---- --- ---- ICAT IMS CNIC 14 SCHEDULE B SECURED PROMISSORY NOTE $500,000, or such lesser Boulder, Colorado amount as provided below. August 1, 2000 FOR VALUE RECEIVED, INTERNATIONAL CATASTROPHE INSURANCE MANAGERS, LLC ("ICAT"), of 2995 Wilderness Place, Boulder, Colorado 80301, promises to pay to the order of INSURANCE MANAGEMENT SOLUTIONS, INC. ("IMS"), of 360 Central Avenue, St. Petersburg, Florida 33701, at the aforesaid address of IMS or such other place as IMS may direct by written notice to ICAT, the principal amount equal to sums advanced by IMS to ICAT under the Insurance Administration and Services Agreement Termination and Interim Services Addendum between ICAT, IMS and Clarendon National Insurance Company effective as of August 1, 2000 (hereinafter called the "Addendum"), which principal amount shall not exceed FIVE HUNDRED THOUSAND ($500,000) DOLLARS, in monthly payments commencing on September 30, 2000 and continuing on the last day of each succeeding month until such time as the entire principal has been paid to IMS. Each monthly payment shall be equal to the greater of (a) TEN THOUSAND ($10,000) DOLLARS, or (b) ONE AND ONE HALF (1 1/2%) PERCENT of Net Written Premium for Policies (as such term is defined in the Insurance Administration and Services Agreement between ICAT, IMS and Clarendon National Insurance Company dated as of October 1, 1998) issued on or after the date hereof. NINETY TWO AND ONE HALF (92 1/2%) PERCENT of each monthly payment shall be applied to the reduction of the principal due under this Note and SEVEN AND ONE HALF (7 1/2%) PERCENT of each monthly payment shall be interest under the Note. The principal due shall be reduced from time to time by one hundred (100%) percent of the Excess Fees (as such term is defined in, and as provided in the Addendum). 1. Subordination. All payments to be made under this Note are subject and subordinate to all payments to be made under: (1) the Amended and Restated Secured Promissory Note dated May 12, 1999 made by ICAT to E.W. Blanch Holdings, Inc.; and (2) the Convertible Promissory Note dated December 1, 1999 made by ICAT to Renaissance US Holdings, Inc. (collectively the "Other Notes"). Provided however, and notwithstanding anything contained in this Note or the Other Notes to the contrary, ICAT shall make all payments due under, and perform all obligations contained in this Note, as fully and completely as if the Other Notes did not exist, unless and until a default (beyond all applicable grace and cure periods) shall occur under either or both of the Other Notes (an "Other Note Default"), and such Other Note Default shall be continuing, Page 14 of 24 EJK ---- ICAT 15 in which case the payment obligation contained in this Note shall be suspended until such Other Note Default is cured. Provided however, nothing contained in this Section 1 shall alter, expand, increase, impair or diminish IMS's rights against ICAT under this Note, or under the Addendum or Security Agreement, including without limitation Paragraph 3, "Subordination" thereof, being executed by ICAT in favor of IMS on or about the date hereof. Further, upon the curing of any Other Note Default, all payments that have accrued under this Note shall become immediately due and payable in full, retroactive to the date of suspension of payment. 2. Security. This Note is secured by a Security Agreement of ICAT in favor of IMS dated the date hereof covering certain collateral, all as more particularly described and provided in said Security Agreement, and is entitled to the benefits thereof. 3. Prepayment. This Note may be prepaid in part or in its entirety at anytime, without penalty, and the entire amount of any prepayment shall be applied to the reduction of the outstanding principal balance. When the outstanding principal balance has been reduced to zero, ICAT shall have no liability to make any further payment to IMS under this Note. 4. Waiver of Presentment, etc. ICAT waives (i) presentment and demand for payment, notice of non-payment, notice of dishonor, protest and notice of protest of this note, and (ii) any defense of laches or statute of limitations in any action brought on this note by the holder. 5. Amendment and Waiver. No term or condition of this Note may be amended or waived except by a writing signed by ICAT and IMS, and no executed written waiver shall extend to or affect any obligation or agreement not expressly waived or impair any rights consequent thereon. 6. Events of Default; Remedies. If any of the following events (Events of Default) shall occur, whatever the reason therefor and whether it shall be voluntary or involuntary or by operation of law, or otherwise, that is to say: (a) default shall be made in the performance of any covenant, term or agreement contained in this Note which shall not be cured within ten (10) days of notice thereof; or (b) ICAT shall (i) apply for or consent to the appointment of a receiver, custodian, trustee or liquidator of itself or all or a substantial part of its assets, (ii) make an assignment for the benefit of its creditors, (iii) commence a voluntary case under the Federal Bankruptcy Code, as same may be amended, (iv) or acquiesce to any petition Page 15 of 24 EJK ---- ICAT 16 filed against it in an involuntary case under the Federal Bankruptcy Code, (v) file a petition seeking to take advantage of any other law providing for the relief of debtors, or (vi) fail for a period of ninety (90) days or longer to dismiss or stay any involuntary proceeding commenced against it in any court seeking the liquidation, reorganization, dissolution or composition or readjustment of its debts or assets, or the appointment of a receiver, trustee, custodian, liquidator, or the like, of it or a substantial part of its assets; then upon the occurrence of an Event of Default, IMS may declare the unpaid principal balance, as reduced by any Fees, to be, and the same shall forthwith become, due and payable. 7. Late Charge. Any installment not received within ten (10) days when due shall be subject to, and it is agreed that IMS shall collect thereon and therewith a "late charge" in the amount of three (3%) percent of the payment on each such delinquent installment. Said "late charge" shall be immediately due and payable upon demand. 8. Attorney's Fees. ICAT agrees to pay IMS reasonable attorney's fees and costs, whether or not an action be brought, for the services of counsel employed after maturity or default to collect this Note or any principal or interest due hereunder, or to protect the security, if any, or to enforce the performance of any other agreement contained in this Note or any instrument of security executed in connection with the loan evidenced hereby, including costs and attorney's fees on any appeal, or in any proceedings under the National Bankruptcy Code or in any post judgment proceedings. 9. Governing Law. This Note shall be governed by, and construed in accordance with, the laws of the State of New York, and any dispute arising out of or relating to this Note shall be resolved in accordance with Article 6 of the Policy Administration Agreement. 10. Documentary Stamps. This instrument was made, executed and delivered outside the State of Florida, and no Florida documentary stamp tax is due thereon in accordance with F.A.C. 12B-4.053(35). IN WITNESS WHEREOF, ICAT, by its duly authorized officer, has executed this Note the day and year first above written. INTERNATIONAL CATASTROPHE INSURANCE MANAGERS, LLC By: ---------------------------------------------- Page 16 of 24 EJK ---- ICAT 17 SCHEDULE C SECURITY AGREEMENT THIS SECURITY AGREEMENT (the "Agreement") is entered into as of August 1, 2000 by International Catastrophe Insurance Managers, LLC, a Delaware limited liability company ("ICAT") in favor of Insurance Management Solutions, Inc., a Florida corporation ("IMS"). WHEREAS, ICAT, IMS and Clarendon National Insurance Company ("CNIC") are parties to that certain Insurance Administration and Services Agreement entered into as of April 1, 1999 (the "Policy Administration Agreement"); and WHEREAS, ICAT, IMS and CNIC have entered into that certain Insurance Administration and Services Agreement Termination and Interim Services Addendum of even date hereof (the "Addendum"), in connection with which ICAT has made that certain Secured Promissory Note in favor of IMS of even date hereof (the "Note") (the Policy Administration Agreement, the Addendum, the Note and this Agreement are hereinafter collectively called the "Loan Documents"); NOW, THEREFORE, the parties agree as follows: 1. Definitions and Incorporation by Reference. Unless the context otherwise requires, all terms used but not expressly defined herein which are defined in the New York Uniform Commercial Code (the "Code") shall have the same meaning herein as the Code. All of the terms, provisions and definitions of the Policy Administration Agreement, the Addendum and the Note are hereby incorporated herein by reference as though set forth in full herein. 2. Grant of Security Interest. ICAT hereby grants to IMS a security interest in the Collateral to secure the payment and performance of all of the Obligations (defined below). The collateral in which IMS is granted a security interest by this Agreement (collectively, the "Collateral") is described on Exhibit A. 3. Subordination. The security interest created by this Agreement is subject and subordinate to: (1) the Amended and Restated Security Agreement dated May 12, 1999 made by ICAT to E. W. Blanch Holdings, Inc., and (2) the Convertible Promissory Note dated December 1, 1999 made by ICAT to Renaissance US Holdings, Inc. Page 17 of 24 EJK CB ---- --- ICAT IMS 18 4. Obligations Secured. The obligations secured hereby (collectively the "Obligations") are the payment and performance of: (a) all present and future obligations, liabilities and indebtedness of ICAT to IMS pursuant to the loan evidenced by the Note, as amended, modified and renewed from time to time; (b) all costs, including reasonable attorneys' fees, incurred by IMS from time to time to enforce this Agreement and maintain, preserve and collect and realize upon the Collateral; and (c) all obligations of ICAT and rights of IMS under this Agreement. 5. Termination. This Agreement will terminate upon: (i) the full performance of all Obligations of ICAT to IMS, including without limitation the payment of all indebtedness of ICAT evidenced by the Note, to IMS; and (ii) the satisfaction and termination of all Loan Documents by IMS. 6. Warranties of ICAT. ICAT represents and warrants with respect to the Collateral and proceeds thereof (collectively the "Proceeds"): (i) ICAT is the owner thereof; (ii) ICAT has the right to pledge the Collateral and Proceeds; and (iii) all Collateral and Proceeds are genuine; free from liens, adverse claims, setoffs, default, prepayment, defenses and conditions precedent of any kind or character, except as set forth in Paragraph 3, "Subordination", hereof. 7. Covenants of ICAT. (a) ICAT agrees: (i) to pay indebtedness secured by this Agreement, and perform all Obligations when due; (ii) to pay all expenses, including reasonable attorneys' fees and costs, expended or incurred by IMS in the perfection, preservation, realization, enforcement and exercise of its rights, powers, privileges and remedies hereunder; (iii) to permit IMS to exercise its powers; (iv) to execute and deliver such documents as IMS deems necessary to create, perfect and continue the security interests contemplated hereby; (v) not to permit any lien, other than as set forth in Paragraph 3, "Subordination" hereof, on the Collateral or Proceeds, except in favor of IMS or unless it is subordinated, in writing, to the lien of IMS, as preapproved in writing by IMS, on terms acceptable to IMS in its sole discretion; and (vi) not to change its location of the Collateral, or the chief place of business or the place where ICAT keeps its records concerning the Collateral and Proceeds without first giving IMS thirty (30) days prior written notice of the address to which the same is moving. (b) ICAT agrees: (i) to keep complete and accurate records regarding all Page 18 of 24 EJK CB ---- --- ICAT IMS 19 Collateral and Proceeds; (ii) not to sell, hypothecate or otherwise dispose of any Collateral or Proceeds subject hereto at any time, except in the ordinary course of business; provided, however, that this shall not prevent ICAT from selling a membership interest in ICAT to any party in any amount at any price; (iii) at IMS's request, notify any account debtors or any other persons of IMS's interest in the Collateral and Proceeds; (iv) to provide any reasonable service and do any other acts or things necessary to keep the Collateral and Proceeds free and clear of all defenses, rights of offset, counterclaims, liens, encumbrances and security interests (other than as set forth in Paragraph 3, "Subordination" hereof); (v) keep all Collateral in good condition, and defend all Collateral against the claims and demands of all persons at any time claiming an interest therein adverse to IMS (other than those set forth in paragraph 3, "Subordination", hereof); and (vi) promptly furnish to IMS any information with respect to the Collateral reasonably requested from time to time by IMS. 8. Powers of IMS. ICAT appoints IMS its true attorney in fact to perform any of the following powers, which are coupled with an interest, are irrevocable until termination of this Agreement and may be exercised from time to time by IMS's officers and employees, or any of them, at any time ICAT is in default: (a) to perform any obligation of ICAT hereunder in ICAT's name or otherwise; (b) to liquidate any time deposit pledged to IMS hereunder prior to its maturity date and to apply the proceeds thereof to payment of the indebtedness, notwithstanding the fact that such liquidation may give rise to penalties for early withdrawal of funds; (c) to notify any person obligated on any security, instrument or other document subject to this Agreement of IMS's rights hereunder; (d) to demand and to collect by legal proceedings or otherwise all interest, principal or other sums now or hereafter payable upon or on account of the Collateral or Proceeds; (e) to enter into any extension, reorganization, deposit, merger or consolidation agreement, or any other agreement relating to or affecting the Collateral or Proceeds, and in connection therewith to deposit or surrender control of the Collateral and Proceeds, accept other property in exchange for the Collateral or Proceeds, and do and perform such other acts and things as IMS may deem proper, and any money or property received in exchange for the Collateral or Proceeds may be applied to the indebtedness or held by IMS under this Agreement; (f) to make any compromise or settlement IMS deems desirable or proper in respect of the Collateral and Proceeds; and (g) to protect and preserve the Collateral and Proceeds. 9. IMS's Care and Delivery of Collateral. IMS's obligation with respect to Collateral and Proceeds in its possession shall be strictly limited to the duty to exercise reasonable care in the custody and preservation of such Collateral and Proceeds, and Page 19 of 24 EJK CB ---- --- ICAT IMS 20 such duty shall not include any obligation to ascertain or to initiate any action with respect to or to inform ICAT of maturity dates, conversion, call or exchange rights, or offers to purchase the Collateral or Proceeds, or any similar matters, notwithstanding IMS's knowledge of the same. IMS shall have no duty to take any steps necessary to preserve the rights of ICAT against prior parties, or to initiate any action to protect against the possibility of a decline in the market value of the Collateral or Proceeds. IMS shall not be obligated to take any action with respect to the Collateral or Proceeds requested by ICAT, unless such request is made in writing, and IMS determines, in its sole discretion, that the requested action would not reasonably jeopardize the value of the Collateral or Proceeds as security for the indebtedness. IMS may at any time deliver the Collateral and Proceeds, or any part thereof, to ICAT, and the receipt thereof by ICAT shall be a complete and full acquittance for the Collateral and Proceeds so delivered, and IMS shall thereafter be discharged from any liability or responsibility therefor. 10. Events of Default. The occurrence of any of the following shall constitute an "Event of Default" under this Agreement: (a) any default in the payment or performance of any Obligation; (b) any representation or warranty made by ICAT herein shall prove to be at any time incorrect in any material respect; (c) any sale or transfer of all or a substantial or material part of ICAT's assets other than in the ordinary course of business; or (d) a default shall occur under any of the Loan Documents. 11. Remedies. (a) Upon the occurrence of any Event of Default, IMS shall have the right to declare immediately due and payable all indebtedness secured hereby and to terminate any commitments to make loans or otherwise extend credit to ICAT without presentment, demand, protest or notice of dishonor, all of which are expressly waived by ICAT. IMS shall have all other rights, privileges, powers and remedies granted to a secured party upon default under the Code or otherwise provided by law, including without limitation the right to contact any persons obligated to ICAT on Collateral and to instruct such persons to deliver all Proceeds directly to IMS. The rights, privileges, powers and remedies of IMS shall be cumulative. No delay, failure or discontinuance of IMS in exercising any right, power, privilege or remedy shall affect or operate as a waiver of such right, power, privilege or remedy; nor shall any single or partial exercise of any right, power, privilege or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power, privilege or remedy. Any waiver, permit, consent or approval of any kind by IMS of any default hereunder, or Page 20 of 24 EJK CB ---- --- ICAT IMS 21 any such waiver of any provisions or conditions hereof, must be in writing and shall be effective only to the extent set forth in writing. (b) While ICAT is in default: (i) IMS may, at any time and at IMS's sole option, liquidate any time deposits pledged to IMS hereunder, whether or not said time deposits have matured and notwithstanding the fact that such liquidation may give rise to penalties for early withdrawal of funds; (ii) IMS may appropriate the Collateral and apply all Proceeds toward repayment of the indebtedness in such order of application as IMS may from time to time elect or, at IMS's sole option, place any Proceeds in the cash collateral account; and (iii) ICAT will assemble and deliver all Collateral and Proceeds, and books and records pertaining thereto, to IMS at a reasonably convenient place designated by IMS. 12. Disposition of Collateral and Proceeds. Any proceeds of any disposition of any of the Collateral or Proceeds, or any part thereof, may be applied by IMS to the payment of expenses incurred by IMS in connection with the foregoing, including reasonable attorneys' fees, and the balance of such proceeds may be applied by IMS toward the payment of the indebtedness and in such order of application as IMS may from time to time elect. 13. Further Assurances and Power of Attorney. ICAT will execute and deliver to IMS, at IMS's request, at any time and from time to time, such financing statements and other instruments (and pay the cost of filing or recording the same in all public offices reasonably deemed necessary or desirable by IMS) and do such other acts and things as IMS may reasonably deem necessary or desirable in order to establish, maintain and perfect a valid security interest in the Collateral and Proceeds in favor of IMS (free and clear of all other security interests, liens, charges, encumbrances and other claims, whether voluntarily or involuntarily created, except as permitted herein including without limitation as noted in Paragraph 3, "Subordination", hereof) or in order to facilitate the collection of the Collateral. 14. ICAT Remains Liable. Anything herein to the contrary notwithstanding: (a) ICAT shall remain liable for under the contracts and agreements contained in the Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed; (b) the exercise by IMS of any of its rights hereunder shall not release ICAT from any of its duties or obligations under the contracts and agreements included in the Collateral; and (c) Page 21 of 24 EJK CB ---- --- ICAT IMS 22 IMS shall not have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Agreement, nor shall IMS be obligated to perform any of the obligations or duties of ICAT thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. 15. Costs, Expenses and Attorneys' Fees. ICAT shall reimburse IMS for all payments, advances, charges, costs and expenses, including reasonable attorneys' fees, made or incurred by IMS in exercising any right, power, privilege or remedy conferred by this Agreement or in the enforcement thereof, including any of the foregoing incurred in connection with any bankruptcy proceeding relating to ICAT, including without limitation the seeking of relief from or modification of the automatic stay, the negotiation and drafting of a cash collateral order, or any proceeding in bankruptcy relating to the valuation of the Collateral and/or Proceeds. All of the foregoing shall be paid to IMS by ICAT immediately and without demand, together with interest at a rate of seven and one half (7 1/2) percent per annum. 16. Notices. All notices or demands of any kind which IMS may be required or desires to serve upon ICAT under the terms of this Agreement shall be served upon ICAT in accordance with Article 7 of the Policy Administration Agreement, as amended by the Addendum. 17. Successors, Assigns; Governing Law. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties, and shall be governed by and construed in accordance with the laws of the State of New York. Any dispute arising out of or relating to this Agreement shall be resolved in accordance with Article 6 of the Policy Administration Agreement. 18. Severability of Provisions. If any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or any remaining provision of this Agreement. 19. Controlling Agreement. To the extent that this Agreement conflicts with or is in any way incompatible with any other Loan Document concerning the Obligations, the Note shall control over any other Loan Document, and if the Note does not address an issue, then each other Loan Document shall control to the extent that it deals most specifically with an issue. Page 22 of 24 EJK CB ---- --- ICAT IMS 23 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day above first written. INTERNATIONAL CATASTROPHE INSURANCE MANAGERS, LLC By: -------------------------------- Title: ----------------------------- INSURANCE MANAGEMENT SOLUTIONS, INC. By: -------------------------------- Title: ----------------------------- Page 23 of 24 EJK CB ---- --- ICAT IMS 24 EXHIBIT A: DESCRIPTION OF COLLATERAL ------------------------------------ All of ICAT's assets, wherever located, whether now owned or hereafter acquired, including, without limitation, all tangible and intangible personal property of ICAT, including, without limitation, all of ICAT's: (a) inventory, accounts, accounts receivable, general intangibles, investments, investment property, deposit accounts, letter of credit rights, supporting obligations, documents, instruments and chattel paper, and all products and proceeds thereof, including insurance proceeds; (b) furniture, fixtures, equipment and machinery, including all parts, accessories, attachments, additions and replacements thereof, and all proceeds thereof, including insurance proceeds; (c) present and future rents, payments, issues, profits, income and proceeds from the sale or lease of personal property, and all accessories, attachments, additions and replacements thereof, and proceeds of all the foregoing, including insurance proceeds and all interest of ICAT in every lease, franchise, insurance policy, license or permit or other contractual right, whether written or verbal, covering all or any part of the foregoing, and all patents and trademark rights; (d) books, records, documents and ledgers pertaining to any or all of the foregoing, including, without limitation, all customer lists, credit files, computer records and all media upon which any of the foregoing may be stored or located; and (e) all proceeds and products of, and general intangibles related to, any and all of the foregoing collateral (including, without limitation, proceeds which constitute property and proceeds of any tort claims relating to any of the foregoing collateral). Page 24 of 24 EJK CB ---- --- ICAT IMS EX-27.1 3 g65484ex27-1.txt FINANCIAL DATA SCHEDULE
5 1 U.S. DOLLARS 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 1 5,207,466 0 3,951,618 (848,000) 0 13,089,539 17,984,685 (9,651,231) 40,105,295 6,539,417 0 0 0 128,002 32,777,000 40,105,295 0 46,853,280 0 47,655,531 0 0 52,831 (653,835) 99,483 0 0 0 0 (753,318) (.06) (.06)
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