10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(Mark One)
	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
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 incorporation or organization)	(I.R.S. Employer 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     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 August 6, 2001: 12,800,261

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
August 14, 2001 Credit and Security Agreement
August 14, 2001 Master Promissory Note
August 14, 2001 Flood Book Collateral Assignment
August 14, 2001 Stock Option Agreement

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, 2000 and June 30, 2001		1
		Consolidated Statements of Operations for the three months and six months ended June 30, 2000 and 2001		2
		Consolidated Statement of Shareholders’ Equity for the year ended December 31, 2000 and the six months ended June 30, 2001		3
		Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and 2001		4
		Notes to Consolidated Financial Statements		5
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		9
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk		14
PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings		15
	Item 5.	Other Information		15
	Item 6.	Exhibits and Reports on Form 8-K		16

     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 litigation and administrative proceedings involving the Company’s principal customer; (xiv) uncertainties regarding the market acceptance of the Company’s new services; (xv) the ability to establish positive name recognition in the market place; (xvi) the ability to develop new technological solutions for current and prospective customers; (xvii) changes in existing service agreements and arrangements; (xviii) the ability to obtain new customers and retain existing customers; (xix) the ability to obtain third-party information technology outsourcing services on a timely basis and at reasonable costs; and (xx) the ability to achieve expected expense reductions as a result of management initiatives. 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, 2000, as filed with the Securities Exchange Commission on April 17, 2001. 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

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

					December 31,		June 30,
					2000		2001
							(unaudited)
				ASSETS
CURRENT ASSETS
	Cash and cash equivalents				$	5,192,161	$	7,997,181
	Accounts receivable, net					3,789,288		4,985,602
	Due from affiliates					2,615,699		4,487,277
	Prepaid expenses and other assets					1,573,037		1,152,869
		Total current assets			$	13,170,185	$	18,622,929
PROPERTY AND EQUIPMENT, net						9,116,552		10,101,535
OTHER ASSETS
	Goodwill, net					15,352,001		14,899,170
	Customer contracts, net					916,667		816,667
	Deferred tax assets					682,081		528,381
	Capitalized software costs, net					1,044,846		820,325
	Other					483,216		194,538
			Total assets		$	40,765,548	$	45,983,545
				LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
	Current portion of long-term debt				$	219,857	$	60,809
	Accounts payable, trade					2,370,825		1,926,861
	Due to affiliates					—		44
	Employee related accrued expenses					1,693,823		1,622,540
	Other accrued expenses					2,008,201		2,403,403
	Income taxes payable					557,676		2,270,202
			Total current liabilities		$	6,850,382	$	8,283,859
DEFERRED REVENUE						802,578		857,095
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, 12,800,261 shares issued and outstanding at December 31, 2000 and June 30, 2001, respectively					128,002		128,002
	Additional paid-in capital					27,545,901		27,635,901
	Retained earnings					5,438,685		9,078,688
			Total shareholders’ equity		$	33,112,588	$	36,842,591
			Total liabilities and shareholders’ equity		$	40,765,548	$	45,983,545

The accompanying notes are an integral part of these consolidated statements.

1

INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

			Three Months Ended						Six Months Ended
			June 30,						June 30,
			2000			2001			2000			2001
			(unaudited)						(unaudited)
REVENUES
	Outsourcing services — affiliated		$	9,775,937		$	11,814,842		$	18,981,250		$	21,178,094
	Outsourcing services			1,535,680			3,717,556			3,064,994			4,937,090
	Flood zone determination services			4,441,124			5,532,798			8,164,053			9,826,966
	Flood zone determination services — affiliated			242,636			334,436			472,639			553,147
		Total revenues	$	15,995,377		$	21,399,632		$	30,682,936		$	36,495,297
EXPENSES
	Cost of outsourcing services			9,076,570			8,795,114			17,754,076			16,968,894
	Cost of flood zone determination services			2,002,329			2,526,301			3,860,858			4,560,695
	Selling, general and administrative			2,864,820			2,691,580			5,515,266			5,543,170
	Management services from Parent			475,511			317,961			979,048			688,517
	Depreciation and amortization			1,445,039			1,358,468			2,752,609			2,724,619
		Total expenses	$	15,864,269		$	15,689,424		$	30,861,857		$	30,485,895
OPERATING INCOME/(LOSS)			$	131,108		$	5,710,208			($178,921	)	$	6,009,402
OTHER INCOME/(EXPENSE):
	Interest income			63,106			58,462			130,156			120,034
	Interest expense			(24,989	)		(2,745	)		(42,410	)		(5,246	)
	Other			—			(31,387	)		—			(31,387	)
		Total other income/(expense)	$	38,117		$	24,330		$	87,746		$	83,401
INCOME/(LOSS) BEFORE PROVISION FOR INCOME TAXES				169,225			5,734,538			(91,175	)		6,092,803
PROVISION FOR INCOME TAXES				145,500			2,247,100			105,600			2,452,800
NET INCOME/(LOSS)			$	23,725		$	3,487,438			($196,775	)	$	3,640,003
NET INCOME/(LOSS) PER COMMON SHARE			$	0.00		$	0.27			($0.02	)	$	0.28
Weighted average common shares outstanding				12,800,261			12,800,261			12,787,575			12,800,261

The accompanying notes are an integral part of these consolidated statements.

2

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, 2000		$	126,787	$	26,810,282	$	5,948,051		$	32,885,120
	Issuance of Common Stock as partial consideration for the acquisition of Colonial Claims		1,215		298,785		—			300,000
	Initial public offering of Common Stock, net of offering costs		—		338,200		—			338,200
	Issuance of stock options to non-employees		—		98,634		—			98,634
	Net income/(loss)		—		—		(509,366	)		(509,366	)
Balance at December 31, 2000		$	128,002	$	27,545,901	$	5,438,685		$	33,112,588
	Compensation expenses related to stock Options issued to non-employees (unaudited)		—		90,000		—			90,000
	Net income/(loss) (unaudited)		—		—		3,640,003			3,640,003
Balance at June 30, 2001 (unaudited)		$	128,002	$	27,635,901	$	9,078,688		$	36,842,591

The accompanying notes are an integral part of this consolidated statement.

3

INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

					Six Months Ended June 30,
					2000			2001
					(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
		Net income/(loss)				($196,775	)	$	3,640,003
		Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
			Depreciation and amortization			2,752,609			2,724,619
			Loss on disposal of property and equipment			95,275			116,060
			Non-employee stock options			90,000			90,000
			Deferred income taxes, net			(84,541	)		153,700
			Changes in assets and liabilities:
				Accounts receivable		(277,432	)		(1,196,314	)
				Income taxes recoverable		—			—
				Prepaid expenses and other current assets		385,059			21,026
				Other assets		(401,316	)		229,660
				Accounts payable, trade		956,733			(443,964	)
				Employee related accrued expenses		(377,657	)		(71,283	)
				Other accrued expenses		(44,618	)		395,202
				Income taxes payable		(231,146	)		1,712,526
				Deferred revenue		(63,642	)		54,517
				Net cash provided by operating activities	$	2,602,549		$	7,425,752
CASH FLOWS FROM INVESTING ACTIVITIES:
		Purchases of property and equipment				(2,670,729	)		(2,996,544	)
		Collection of note receivable				—			406,394
				Net cash used in investing activities		($2,670,729	)		($2,590,150	)
CASH FLOWS FROM FINANCING ACTIVITIES:
		Net borrowings under line of credit				680,230			—
		Repayment of debt				(276,580	)		(159,048	)
		Net repayments to affiliates				(566,086	)		(1,871,534	)
				Net cash provided by/(used in) financing activities		($162,436	)		($2,030,582	)
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS						(230,616	)		2,805,020
CASH AND CASH EQUIVALENTS, beginning of period						4,702,861			5,192,161
CASH AND CASH EQUIVALENTS, end of period					$	4,472,245		$	7,997,181
SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES:
	Cash paid for interest				$	32,349		$	5,246
	Cash paid for income taxes				$	325,000		$	586,574

The accompanying notes are an integral part of these consolidated statements.

4

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, 2000, as filed with the Securities and Exchange Commission on April 17, 2001. The results of operations for the three months and six months ended June 30, 2001 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				Six Months Ended
		June 30,				June 30,
		2000		2001		2000			2001
Numerator:
	Net income/(loss)	$	23,725	$	3,487,438		($196,775	)	$	3,640,003
Denominator:
	Weighted average number of Common Shares used in basic EPS		12,800,261		12,800,261		12,787,575			12,800,261
	Diluted stock options		—		—		—			—
	Weighted average number of Common Shares and diluted potential Common Shares used in diluted EPS		12,800,261		12,800,261		12,787,575			12,800,261

     For the six months ended June 30, 2000 and 2001, options to purchase 852,750 and 551,000 shares, respectively, of Common Stock were outstanding during the periods but were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the Common Stock, and therefore, the effect would be antidilutive.

Reclassifications

     Certain prior year balances have been reclassified in order to conform to the current year’s presentation.

New Accounting Pronouncements

     On July 20, 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 141, Business Combinations, and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is effective for all business combinations completed after June 30, 2001. SFAS 142 is effective for the year beginning January 1, 2002; however certain provisions of that Statement apply to goodwill and other intangible assets acquired between July 1, 2001 and the effective date of SFAS 142. The Company has not yet analyzed the effect of these new standards; accordingly, the Company is unable at present to state what effect the adoption of these standards will have on the Company’s financial statements.

5

INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(UNAUDITED)

NOTE 2. RESTRICTED NET ASSETS AND RETAINED EARNINGS

     In conjunction with the Company’s acquisition of Geotrac, it entered into a Corporate Governance Agreement, dated July 31, 1998, with Geotrac of America, Inc. (“Geotrac”) and Daniel J. White (“Mr. White”), Geotrac’s president and then majority shareholder, setting forth certain terms and conditions pertaining to the operation of Geotrac. This agreement contains, among other things, a provision that restricts the Company’s ability to make distributions or transfer funds from Geotrac by means of intercompany loans, advances or dividends without the unanimous approval of Geotrac’s Board of Directors. It should be noted that the Geotrac Board of Directors, at its’ April 2, 2001 meeting, approved a declaration of dividends to IMSG, Inc. to be distributed quarterly beginning July 15, 2001 for the next 12 months, based upon Year 2000 earnings of Geotrac. In early August, Geotrac has authorized a dividend to be paid to IMSG, Inc. in the amount of $200,000, which will be paid during the Third Quarter, 2001. Mr. White is presently a director of Geotrac. Therefore, pursuant to the Corporate Governance Agreement, Mr. White may impede the Company’s ability to access excess cash balances retained by its Geotrac subsidiary, even if all of the other directors of Geotrac were to approve the distribution thereof to the Company. To date, the Company has been able to access Geotrac’s excess cash when necessary, primarily through the prepayment of outstanding intercompany indebtedness. No assurances can be given, however, that the Company will be able to obtain available cash from Geotrac. If the Company is unable to do so, it ultimately could have a material adverse effect on the Company’s business, financial condition and results of operations.

     As of June 30, 2001, the Company had total consolidated net assets of approximately $36.8 million, of which approximately $22.1 million represented the net assets of Geotrac. As of such date, the tangible net assets of Geotrac consisted primarily of cash of $2.4 million, other current assets of $4.4 million (including $1.4 million due from affiliates), and current liabilities of $3.4 million, including $1.1 million due to affiliates. As a result of the restrictions described in the preceding paragraph of this note, the Company’s consolidated retained earnings, which totaled $9.1 million as of June 30, 2001, are not completely available for dividend distribution. However, the Company did not pay any dividends during the year ended December 31, 2000 or the six months ended June 30, 2001. As such, all future earnings are expected to be retained for operating purposes.

NOTE 3. CONTINGENCIES

     On September 28, 2000, October 25, 2000 and October 30, 2000, three alleged shareholders of the Company filed three nearly identical lawsuits in the United States District Court for the Middle District of Florida, 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 lawsuits were consolidated on December 1, 2000, and the consolidated action is proceeding under Case No. 8:00-CV-2013-T-26MAP. The plaintiffs’ Consolidated Amended Class Action Complaint, filed February 7, 2001, names as defendants the following parties: the Company; Bankers Insurance Group, Inc., the Company’s principal shareholder and customer together with its subsidiaries (“BIG”); Venture Capital Corporation, a selling shareholder in the IPO; the five inside directors of the Company at the time of the IPO; and Raymond James & Associates, Inc. and Keefe, Bruyette & Woods, Inc., the underwriters for the IPO. The complaint alleges, 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 complaint alleges 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 own flood zone determination business and with its insurance outsourcing services business; (ii) actual and anticipated synergies between the Company’s flood zone determination and outsourcing services business lines; and (iii) the Company’s use of the IPO proceeds. The complaint seeks unspecified damages, including

6

NOTE 3. CONTINGENCIES (continued)

interest, and equitable relief, including a rescission remedy. On July 11, 2001, U.S. District Judge Richard A. Lazzara denied all of the defendants’ motions to dismiss the Amended Complaint.

     The defendants’ answers to the Amended Complaint currently are due in mid-August 2001. Discovery likely will commence in the near future, and various pre-trial deadlines and a trial date will be set. Management of the Company believes the material allegations of the Amended Complaint are without merit and intends to vigorously defend the lawsuit. No assurances can be given, however, with respect to the outcome of the litigation, and an adverse result could have a material adverse effect on the Company’s business, financial condition and results of operations.

     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 Association (“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 would not have a material adverse affect on the business and/or operations of BIC, although no assurances can be given in this regard.

     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 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.

7

INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(UNAUDITED)

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 June 30, 2000 - - (unaudited)
Operating revenues — affiliated	$	10,031,073		$	242,636		($255,136	)	$	10,018,573
Operating revenues — unaffiliated	$	1,535,680		$	4,441,124		—		$	5,976,804
Operating income/(loss)		($942,500	)	$	1,073,608		—		$	131,108
Identifiable assets	$	32,376,463		$	25,577,752		($17,879,596	)	$	40,074,619
Three months ended June 30, 2001 - - (unaudited)
Operating revenues — affiliated	$	12,151,878		$	334,436		($337,036	)	$	12,149,278
Operating revenues — unaffiliated	$	3,717,556		$	5,532,798		—		$	9,250,354
Operating income/(loss)	$	4,116,806		$	1,593,402		—		$	5,710,208
Identifiable assets	$	41,414,480		$	26,212,819		($21,643,754	)	$	45,983,545
Six months ended June 30, 2000 - - (unaudited)
Operating revenues — affiliated	$	19,478,889		$	472,639		($497,639	)	$	19,453,889
Operating revenues — unaffiliated	$	3,064,994		$	8,164,053		—		$	11,229,047
Operating income/(loss)		($1,757,424	)	$	1,578,503		—			($178,921	)
Identifiable assets	$	32,376,463		$	25,577,752		($17,879,596	)	$	40,074,619
Six months ended June 30, 2001 - - (unaudited)
Operating revenues — affiliated	$	21,733,841		$	553,147		($555,747	)	$	21,731,241
Operating revenues — unaffiliated	$	4,937,090		$	9,826,966		—		$	14,764,056
Operating income/(loss)	$	3,662,324		$	2,347,078		—		$	6,009,402
Identifiable assets	$	41,414,480		$	26,212,819		($21,643,754	)	$	45,983,545

NOTE 5. RELATED PARTY TRANSACTIONS

Secured Line of Credit with BIG

     On August 14, 2001, the Company entered into a Credit and Security Agreement with BIG (together with the related loan documentation, the “Credit Agreement”), pursuant to which the Company established a short-term, secured line of credit in favor of BIG in the amount of up to $5.0 million (the “Line of Credit”). As of the date of this Report, the aggregate principal amount outstanding under the Line of Credit is $5.0 million. The principal purpose of the Line of Credit is to assist BIG, the Company’s principal customer and shareholder, with certain short-term working capital needs.

     Pursuant to the Credit Agreement, interest is payable monthly on amounts outstanding under the Line of Credit at an annual rate equal to the Prime Rate (as defined in the Credit Agreement”), plus 1.5%. The Credit Agreement further provides that the Line of Credit will expire on February 28, 2002, unless repaid in full prior to such time or otherwise terminated pursuant to the terms of the Credit Agreement.

     The Line of Credit is secured by (i) a first lien security interest in all accounts and contract rights of Bankers Underwriters, Inc., a wholly-owned subsidiary of BIG (“BUI”), with insurance agents (including but not limited to general agents with respect to the sale of federal flood insurance) (collectively, the “Flood Book”), and (ii) an option (the “Option”) to purchase from BIG the outstanding capital stock, consisting of 10,898 shares (the “Option Shares”) of common stock, $318 par value per share, of First Community Insurance Company, a New York insurance company licensed in all fifty states (“FCIC”). BUI currently is a Florida general insurance agent for FCIC and BIC, a Florida insurance company licensed in approximately 30 states and a wholly-owned subsidiary of BIG. As of the date of this Report, management of the Company believes the fair market value of the Flood Book will exceeds the aggregate principal amount of the Line of Credit.

     With respect to the Option, the aggregate exercise price for the Option Shares is $108,980, or $10.00 per Option Share. The Option Shares are subject to certain outstanding liens relating to certain indebtedness of BIG having an aggregate outstanding balance, as of August 14, 2001, totaling approximately $11.8 million. The Option will become exercisable only at such time as (i) there shall be a default in the payment of any amounts due under the Credit Agreement for more than ten days after the date when they shall become due or (ii) there shall be any other default under the Credit Agreement if, after notice thereof, such default has not been cured within thirty days of such notice. In addition, any acquisition of the Option Shares by the Company pursuant to the Option would require the prior approval of the New York Department of Insurance. In the event the Option were to be exercised, no assurances can be given that such approval could be obtained.

     The foregoing description of the Line of Credit is qualified in its entirety by reference to the Credit and Security Agreement, Master Promissory Note, Collateral Assignment of Flood Book and Stock Option Agreement filed as Exhibits 10.1 through 10.4 to this Report.

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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 historical operating results of the Company as a percentage of total revenues:

			%
			Three Months Ended						Six Months Ended
			June 30,						June 30,
			2000			2001			2000			2001
Revenues
	Outsourcing services			70.7			72.6			71.9			71.6
	Flood zone determination services			29.3			27.4			28.1			28.4
		Total revenues		100.0			100.0			100.0			100.0
Expenses
	Cost of outsourcing services			56.8			41.2			57.8			46.4
	Cost of flood zone determination services			12.5			11.8			12.6			12.5
	Selling, general and administrative			17.9			12.6			18.0			15.2
	Management services from Parent			3.0			1.5			3.2			1.9
	Depreciation and amortization			9.0			6.3			9.0			7.5
		Total expenses		99.2			73.4			100.6			83.5
Operating income/(loss)				0.8			26.6			(0.6	)		16.5
Interest income				0.4			0.3			0.4			0.3
Interest expense				(0.2	)		—			(0.1	)		—
Other				—			(0.1	)		—			(0.1	)
Income/(loss) before provision for income taxes				1.0			26.8			(0.3	)		16.7
Provision for income taxes				0.9			10.5			0.3			6.7
Net income/(loss)				0.1			16.3			(0.6	)		10.0

Comparison of the Three Months Ended June 30, 2000 and 2001

     Overview. On April 13, 2001 the Company entered into the Letter Agreement with BIG. Pursuant to the Letter Agreement, the parties agreed to extend the term of each of the service agreements between the Company and BIG until December 1, 2002. To obtain BIG’s agreement to such extension, the Company, in turn, agreed to certain service fee modifications. Under the service agreements, as amended, BIG will pay the Company (1) a monthly fee based upon direct written premiums for policy administration services relating to its flood, homeowners and commercial lines of business and (2) a monthly fee based upon net claims (after deductibles) for claims administration services relating to its flood line of business. The service fees payable under the service agreements with respect to (a) policy administration services relating to the automobile line of business and (b) claim administration services relating to all lines of business other than flood, shall remain unchanged. If such amendments to the service agreements had been in effect for the fiscal year ended December 31, 2000, the Company’s affiliated outsourcing revenues, which totaled approximately $38.0 million on an actual basis, would have been approximately $30.0 million on a pro forma basis. The Company believes that any anticipated reduction in affiliated outsourcing revenues resulting from the implementation of such service fee changes will be largely offset by a corresponding reduction in operating costs as a result of, among other things, the elimination of data and technical support services from the administration services to be provided by the Company to BIG under the service agreements, although no assurances can be given in this regard.

     Outsourcing Services Revenues. Outsourcing services revenues increased $4.2 million, or 37.3%, to $15.5 million for the three months ended June 30, 2001 from $11.3 million for the corresponding period in 2000. The increase was primarily attributable to the impact of Tropical Storm Allison, which storm occurred during June, 2001. The increase in revenue related to processing for this storm was approximately $4.2 million, including an increase of $2.7 million in Affiliated Revenue, and an increase of $1.5 million in Unaffiliated Revenue.

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Comparison of the Three Months Ended June 30, 2000 and 2001 (continued)

     Flood Zone Determination Services Revenues. Flood zone determination services revenues increased $1.2 million, or 25.3%, to $5.9 million for the three months ended June 30, 2001 from $4.7 million for the corresponding period in 2000. This increase was primarily attributable to an increase in the number of flood zone determinations processed by the Company during the second quarter of 2001 as compared to the corresponding period in 2000. The increase in the number of flood zone determinations processed was primarily due to a decrease in mortgage interest rates and corresponding increase in mortgage refinancings and loan originations, which have historically driven the demand for flood zone determinations.

     Cost of Outsourcing Services. Cost of outsourcing services decreased $281,000, or 3.1%, to $8.8 million for the three months ended June 30, 2001 from $9.1 million for the corresponding period in 2000. As a percentage of outsourcing services revenues, cost of outsourcing services decreased to 56.6% for the three months ended June 30, 2001 from 80.2% for the same period in 2000. The decrease in the dollar amount of cost of outsourcing services was primarily attributable to a decrease in payroll costs due to two staff reductions completed in late 2000 and early 2001 and decreased contract labor/consulting costs due to lack of staffing needs and related support, coupled with a payroll expense reduction related to the Company’s information technology expenses. The IMSG, Inc. Information Technology staff was terminated and transferred to BIG effective June 1, 2001, as the Company is continuing to develop its’ long-term information technology strategy and needs. In addition, electronic equipment lease costs decreased $260,000 as a result of the expiration of certain equipment leases. These decreases were partially offset, by an increase in revenue, as a result of Tropical Storm Allison, from Colonial Claims Corporation (“Colonial Claims”), the Company’s claims catastrophe subsidiary. Approximately 70% of each dollar of revenue is paid to its independent adjusters who adjust claims on the Company’s behalf. Also, there was an increase from prior year for costs related to the conversion to a new document imaging system and the opening of a new document output center in late 2000 with related new costs for equipment and services.

     Cost of Flood Zone Determination Services. Cost of flood zone determination services increased $524,000, or 26.2%, to $2.5 million for the three months ended June 30, 2001 from $2.0 million for the corresponding period in 2000. The increase in Cost of Flood Zone Determination Services was primarily attributable to corresponding increases in revenues related to Flood Zone Determinations, as noted in the aforementioned Flood Zone Determination Revenue note. As a percentage of flood zone determination services revenues however, cost of flood zone determination services increased to 43.1% for the three months ended June 30, 2001 from 42.8% for the corresponding period in 2000.

     Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $173,000, or 6.0%, to $2.7 million for the three months ended June 30, 2001 from $2.9 million for the corresponding period in 2000. This decrease was due primarily to a decrease in payroll cost as a result of various staff reductions in late 2000 and early 2001. In addition, selling, general, and administrative expenses for the quarter ended June 30, 2000 included certain severance payments made to former officers of the Company, and no such payments were made during the quarter ended June 30, 2001.

     Management Services from Parent. Management services from Parent decreased $158,000, or 33.1%, to $318,000 for the three months ended June 30, 2001 from $476,000 for the corresponding period in 2000. The decrease was primarily related to the assumption of certain administrative services, including human resources, agency accounting, cash management and legal services, that were previously provided to the Company by BIG under a management service agreement.

     Interest Expense. Interest expense decreased $22,000, or 89.0%, to $3,000 for the three months ended June 30, 2001 from $25,000 for the corresponding period in 2000. The decrease resulted primarily from the payment of substantially all of the Company’s outstanding debt obligations.

10

Comparison of the Three Months Ended June 30, 2000 and 2001 (continued)

     Provision for Income Taxes. The Company’s effective income tax/(benefit) rates were 39.2% and 86.0% the three months ended June 30, 2001 and 2000, respectively. The effective tax rates reflect various non-deductible items, including goodwill recognized in connection with the acquisitions of Geotrac in July, 1998 and Colonial Claims in January, 1999. For additional information on the reconciliations of the Company’s effective income tax rate to the federal statutory income tax rate, see Note 10 — Income Taxes, in Notes to the Consolidated Financial Statements for the year-ended December 31, 2000, as reported in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 17, 2001.

Comparison of the Six Months Ended June 30, 2000 and 2001

     Outsourcing Services Revenues. Outsourcing services revenues increased $4.1 million, or 18.5%, to $26.1 million for the six months ended June 30, 2001 from $22.0 million for the corresponding period in 2000. The increase was primarily attributable to the impact of Tropical Storm Allison, which storm occurred during June, 2001. The increase in revenue related to processing for this storm was approximately $4.1 million, including an increase of $1.6 million in Affiliated Revenue, and an increase of $1.6 million in Unaffiliated Revenue. The Company’s Colonial Claims subsidiary had a like revenue increase of $439,000. Additionally, from the Company’s automobile line of business, revenue increased approximately $1.1 million for the six months ended June 30, 2001 as compared to the corresponding period in 2000 due principally to significant volume increases in new business for Non-standard Auto. The foregoing increases were partially offset by a decrease in Instant Auto revenue as this business is terminating and processing will cease accordingly, soon.

     Flood Zone Determination Services Revenues. Flood zone determination services revenues increased $1.7 million, or 20.2%, to $10.4 million for the six months ended June 30, 2001 from $8.6 million for the corresponding period in 2000. The increase was primarily attributable to an increase in the number of flood zone determinations processed by Geotrac during the first six months of 2001 as compared to the corresponding period in 2000. The increase in the number of flood zone determinations processed was primarily due to a decrease in mortgage interest rates and a corresponding increase in mortgage refinancings and loan originations which have historically driven the demand for flood zone determinations.

     Cost of Outsourcing Services. Cost of outsourcing services decreased $785,000, or 4.4%, to $17.0 million for the six months ended June 30, 2001 from $17.8 million for the corresponding period in 2000. As a percentage of outsourcing services revenues, cost of outsourcing services decreased to 65.0% for the six months ended June 30, 2001 from 80.5% for the corresponding period in 2000. The decrease in the dollar amount of cost of outsourcing services was primarily attributable to a decrease of $1.6 million in payroll costs due to two staff reductions completed in late 2000 and early in 2001 and a decrease of $700,000 in contract labor/consulting costs, coupled with a payroll expense reduction related to the Company’s information technology expenses. The IMSG, Inc. information technology staff was terminated and transferred to BIG effective June 1, 2001, as the Company is continuing to develop its’ long-term information technology strategy and needs. In addition, electronic equipment lease costs decreased $320,000 as a result of the expiration of certain equipment leases. These decreases were partially offset by increases in Colonial Claims costs of $430,000 related to claims adjuster expenses necessitated due to the aforementioned Tropical Storm Allison, which storm occurred in June 2001. Lastly, part of the offset to the decreased expenses from prior year relate to the cost of a new document imaging system and the opening of a new document output center in late 2000, with related new costs for equipment and services.

     Cost of Flood Zone Determination Services. Cost of flood zone determination services increased $700,000, or 18.1%, to $4.6 million for the six months ended June 30, 2001 from $3.9 million for the corresponding period in 2000. As a percentage of flood zone determination services revenues, cost of flood zone determination services decreased to 43.9% for the six months ended June 30, 2001 from 44.7% for the corresponding period in 2000. The increase in Cost of Flood Zone Determination Services was primarily attributable to corresponding increases in revenues related to Flood Zone Determinations, as noted in the aforementioned Flood Zone Determination Revenue note.

11

Comparison of the Six Months Ended June 30, 2000 and 2001 (continued)

     Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $28,000, or 0.5%, to $5.54 million for the six months ended June 30, 2001 from $5.52 million for the corresponding period in 2000. This change was relatively flat from the prior period and was primarily attributable to the continued assumption of certain administrative services that were previously provided to the Company by BIG under a management service agreement, partially offset by a decrease in payroll costs as a result of previously-noted staff reductions and the completion of certain severance payment obligations.

     Management Services from Parent. Management services from Parent decreased $291,000, or 29.7%, to $689,000 for the six months ended June 30, 2001 from $979,000 for the corresponding period in 2000. The decrease was primarily related to the assumption of certain administrative services, including human resources, which were previously provided to the Company by BIG under a management service agreement.

     Interest Expense. Interest expense decreased $37,000, or 87.6%, to $5,000 for the six months ended June 30, 2001 from $42,000 for the corresponding period in 2000. The decrease resulted primarily from the payment of substantially all of the Company’s outstanding debt obligations. The nominal amount booked for the period relates to expenses for capital leases for information technology equipment, which leases will expire during the Fourth Quarter of 2001.

     Provision for Income Taxes. The Company’s effective income tax/(benefit) rates were 40.3% and (115.8%) the six months ended June 30, 2001 and 2000, respectively. The effective tax rates reflect various non-deductible items, including goodwill recognized in connection with the acquisitions of Geotrac in July, 1998 and Colonial Claims in January, 1999. For additional information on the reconciliations of the Company’s effective income tax rate to the federal statutory income tax rate, see Note 10 — Income Taxes, in Notes to the Consolidated Financial Statements for the year-ended December 31, 2000, as reported in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 17, 2001.

12

Liquidity and Capital Resources

     During the year ended December 31, 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, which line of credit was terminated in December, 2000, as described below.

     In June, 1999, the Company entered into a revolving line of credit agreement (“LOC”) with a financial institution (the “Bank”) that provided for borrowings of up to two times the Company’s rolling four quarter earnings before interest, taxes, depreciation and amortization (“EBITDA”), but in no event more than $12.0 million. In December, 2000, the Company received notification from the Bank that it would no longer honor any requests by the Company for advances under the LOC due to the fact that the Bank believed the Company had experienced a material adverse change in its financial condition. Although the Company attempted to seek a replacement facility, it has since largely ceased its efforts to secure a new LOC.

     In conjunction with the Company’s acquisition of Geotrac, it entered into a Corporate Governance Agreement, dated July 31, 1998, with Geotrac and Daniel J. White (“Mr. White”), Geotrac’s president and then majority shareholder, setting forth certain terms and conditions pertaining to the operation of Geotrac. The Corporate Governance Agreement provides, among other things, that for so long as Mr. White owns stock in the Company or Geotrac, or has an option to purchase stock in Geotrac, certain actions by Geotrac will require the unanimous approval of the Geotrac Board of Directors, including any merger or consolidation, the payment of management or similar fees to the Company or its subsidiaries and affiliates, the sale or issuance of Geotrac stock, and the sale of Geotrac assets outside the ordinary course of business to anyone other than an affiliate of Geotrac. In addition, unanimous board approval under the Corporate Governance Agreement is required in order to make cash distributions to the Company, whether by dividend or otherwise. It should be noted that the Geotrac Board of Directors, at its' April 2, 2001 meeting, approved a declaration of dividend to IMSG, Inc. to be distributed quarterly beginning July 15, 2001 for the next 12 months, based upon Year 2000 earnings of Geotrac. In early August, Geotrac has authorized a dividend to be paid to IMSG, Inc. in the amount of $200,000, which will be paid during the Third Quarter, 2001. Therefore, pursuant to the Corporate Governance Agreement, Mr. White may impede the Company’s ability to access excess cash balances retained by its Geotrac subsidiary, even if all of the other directors of Geotrac were to approve the distribution thereof to the Company. Mr. White is presently a director and shareholder of the Company. To date, the Company has been able to access Geotrac’s excess cash when necessary, primarily through the prepayment of outstanding intercompany indebtedness. No assurances can be given, however, that the Company will be able to obtain available cash from Geotrac. If the Company is unable to do so, it could have a material adverse effect on the Company’s business, financial condition and results of operations.

     On April 13, 2001, the Company entered into a Commitment Letter to advance service fee payments (the “Commitment Letter”) with BIG pursuant to which BIG has agreed to advance to the Company up to $1.5 million per month as a prepayment of service fees due by BIG and its affiliates under the service agreements with such companies. Such advances are available to the Company beginning June 1, 2001 continuing through December 1, 2002 and shall be payable upon demand by the Company. Any funds advanced by BIG to the Company under the Commitment Letter shall constitute a prepayment of, and shall be credited toward, the service fees charged to BIG by the Company during the month following such advance. The Company presently has no intention to request any such advances from BIG at this time, but no assurances can be given that the Company will not be required to do so in the future.

     Additionally, on August 14, 2001, the Company, entered into a credit arrangement with BIG pursuant to which the Company established a $5.0 million secured line of credit in favor of BIG (the “Line of Credit”), which Line of Credit will expire no later than February 28, 2002. BIG, the Company's principal customer and shareholder, requested the Line of Credit to assist with certain short-term working capital needs. The Company believes that cash on-hand, cash flows from operations, and cash advances under the Commitment Letter are, and will continue to be, sufficient to support the Line of Credit and to satisfy the Company's currently anticipated working capital requirements until the Line of Credit expires. Given the significance of BIG as the principal customer of the Company, management of the Company, including the Audit Committee of the Board of Directors, determined that it was in the best interests of the Company and its shareholders to extend the Line of Credit. For additional information regarding the Line of Credit, see “Item 5. Other Information” below.

     The Company believes that cash on-hand, cash flows from operations and cash advances available under the Commitment Letter will be sufficient to satisfy currently anticipated working capital and capital expenditure requirements for the next twelve months. Unanticipated rapid expansion, business or systems development, or potential acquisitions may cause the Company to require additional funds, however, which may not be available to the Company upon acceptable terms. The Company identifies and assesses, in the normal course of business, potential acquisitions of technologies or businesses that it believes strategically fit its business plan. The Company may enter into such transactions should opportunities present themselves in the future and should it be able to obtain the necessary financing upon acceptable terms, although no assurances can be made in this regard.

New Accounting Pronouncements

     On July 20, 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 141, Business Combinations, and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is effective for all business combinations completed after June 30, 2001. SFAS 142 is effective for the year beginning January 1, 2002; however certain provisions of that Statement apply to goodwill and other intangible assets acquired between July 1, 2001 and the effective date of SFAS 142. The Company has not yet analyzed the effect of these new standards; accordingly, the Company is unable at present to state what effect the adoption of these standards will have on the Company's financial statements.

13

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.

14

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 filed three nearly identical lawsuits in the United States District Court for the Middle District of Florida, 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 lawsuits were consolidated on December 1, 2000, and the consolidated action is proceeding under Case No. 8:00-CV-2013-T-26MAP. The plaintiffs’ Consolidated Amended Class Action Complaint, filed February 7, 2001, names as defendants the following parties: the Company; BIG; Venture Capital Corporation, a selling shareholder in the IPO; the five inside directors of the Company at the time of the IPO; and Raymond James & Associates, Inc. and Keefe, Bruyette & Woods, Inc., the underwriters for the IPO. The complaint alleges, 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 complaint alleges 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 own flood zone determination business and with its insurance outsourcing services business; (ii) actual and anticipated synergies between the Company’s flood zone determination and outsourcing services business lines; and (iii) the Company’s use of the IPO proceeds. The complaint seeks unspecified damages, including interest, and equitable relief, including a rescission remedy. On July 11, 2001, U.S. District Judge Richard A. Lazzara denied all of the defendants’ motions to dismiss the Amended Complaint. The defendants’ answers to the Amended Complaint currently are due in mid-August 2001. Discovery likely will commence in the near future, and various pre-trial deadlines and a trial date will be set. Management of the Company believes the material allegations of the Amended Complaint are without merit and intends to vigorously defend the lawsuit. No assurances can be given, however, with respect to the outcome of the litigation, and an adverse result could have a material adverse effect on the Company’s business, financial condition and results of operations.

     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, 2000.

Item 5. Other Information

     As previously reported, on April 13, 2001, the Company entered into a Letter Agreement (the “Letter Agreement”) with Bankers Insurance Group, Inc. (“BIG”) and Bankers Insurance Company (“BIC”), Bankers Security Insurance Company (“BSIC”) and First Community Insurance Company (“FCIC”), all direct or indirect subsidiaries of BIG, pursuant to which the various contractual arrangements between the Company and such affiliated entities have been significantly altered.

     With respect to the Administrative Services Agreement, effective as of January 1, 1998, between the Company and BIG (the “Administration Agreement”), the Letter Agreement provides that the existing Administration Agreement was terminated effective as of April 1, 2001 and will be replaced with a new Corporate Services Agreement (the “Corporate Services Agreement”). Pursuant to the Corporate Services Agreement, BIG will provide the Company with various corporate marketing and corporate training services requested by the Company from time to time at fixed hourly rates ranging from $40.00 to $100.00 per hour, depending on the services being provided. The Letter Agreement further provides that the parties will negotiate in good faith to execute and deliver the Corporate Services Agreement incorporating those terms on or before June 1, 2001; provided, however, that in the event such agreement is not executed and delivered by that date, BIG will provide such services at the rates specified in the Letter Agreement. As of the date of this report, the parties have not executed the Corporate Services Agreement and, thus BIG continues to provide the aforementioned services at the rates specified in the Letter Agreement. The Company currently anticipates that the Corporate Services Agreement will be executed prior to the end of 2001, but no assurances can be given in this regard.

     The Letter Agreement also provides that the Technical Support Agreement dated April 1, 1999, between the Company and BIG (the “Old Support Agreement”), was terminated effective April 1, 2001 and will be replaced with a New Technical Support Services Agreement (the “New Support Agreement”). Pursuant to the New Support Agreement, BIG will provide the Company with certain technical support, computer programming and systems analysis services at specified rates (except for software development services, which shall be provided on a time and materials basis). The Letter Agreement further provides that the parties will negotiate in good faith to execute and deliver the New Support Agreement incorporating these terms on or before June 1, 2001; provided, however, that in the event such agreement is not executed and delivered by that date, BIG will provide such services at the rates specified in the Letter Agreement until the earlier of (a) the execution and delivery of the New Support Agreement, or (b) December 1, 2002. As of the date of this report the parties have not executed the New Support Agreement and, thus, BIG continues to provide the aforementioned services at the rates specified in the Letter Agreement. The Company currently anticipates that the New Support Agreement will be executed prior to the end of 2001, but no assurances can be given in this regard.

     Finally, with respect to the separate Service Agreements, effective as of January 1, 1998, and as amended, between the Company and each of BIC, BSIC and FCIC (each a “Service Agreement” and collectively the “Service Agreements”), the Letter Agreement amended each of the Service Agreements, effective June 1, 2001, to, among other things, extend the term of each Service Agreements to December 1, 2001, modify certain of the service fees payable thereunder, and eliminate data and technical support services from the administrative services to be provided thereunder. The Letter Agreement further provides that the parties will act in good faith to execute and deliver, on or before June 1, 2001, a more definitive amendment (each an “Amendment” and collectively the “Amendments”) to each of the Service Agreements incorporating the terms set forth in the Letter Agreement; provided, however, that in the event such Amendments to the Service Agreements have not been executed and delivered by that date, the amendments to the Service Agreements set forth in the Letter Agreement shall continue in effect. As of the date of this report, the parties have not executed the Amendments and, thus, the amendments to the Service Agreements set forth in the Letter Agreement are still controlling. The Company currently anticipates that the Amendments will be executed prior to the end of 2001 and may contain, among other things, additional service fee modifications, although no assurances can be given in either regard.

     As a result of the various changes in the contractual arrangements between the Company and BIG, BIC, BSIC and FCIC set forth in the Letter Agreement, and as contemplated therein, effective June 1, 2001, the Company terminated 68 employees, comprising substantially its entire Information Technology department. All of these employees were, in turn, hired by BIG. The Company estimates that such staff reductions will reduce the Company's payroll costs of $4.1 million (on an annualized basis). The Company is currently considering rehiring additional IT personnel, as it continues to reassess its information technology needs. Thus, no assurances can be given that such payroll cost reductions will continue to be realized in the future.

     On August 14, 2001, the Company entered into a Credit and Security Agreement with BIG (together with the related loan documentation, the “Credit Agreement”), pursuant to which the Company established a short-term, accrued line of credit in favor of BIG in the amount of up to $5.0 million (the “Line of Credit”). As of the date of this Report, the aggregate principal amount outstanding under the Line of Credit is $5.0 million. The principal purpose of the Line of Credit is to assist BIG, the Company’s principal customer and shareholder, with certain short-term working capital needs.

     Pursuant to the Credit Agreement, interest is payable monthly on amounts outstanding under the Line of Credit at an annual rate equal to the Prime Rate (as defined in the Credit Agreement”), plus 1.5%. The Credit Agreement further provides that the Line of Credit will expire on February 28, 2002, unless repaid in full prior to such time or otherwise terminated pursuant to the terms of the Credit Agreement.

     The Line of Credit is secured by (i) a first lien security interest in all accounts and contract rights of Bankers Underwriters, Inc., a wholly-owned subsidiary of BIG (“BUI”), with insurance agents (including but not limited to general agents with respect to the sale of federal flood insurance) (collectively, the “Flood Book”), and (ii) an option (the “Option”) to purchase from BIG the outstanding capital stock, consisting of 10,898 shares (the “Option Shares”) of common stock, $318 par value per share, of First Community Insurance Company, a New York insurance company licensed in all fifty states (“FCIC”). BUI currently is a Florida general insurance agent for FCIC and BIC, a Florida insurance company licensed in approximately 30 states and a wholly-owned subsidiary of BIG. As of the date of this Report, management of the Company believes the fair market value of the Flood Book well exceeds the aggregate principal amount of the Line of Credit.

     With respect to the Option, the aggregate exercise price for the Option Shares is $108,980, or $10.00 per Option Share. The Option Shares are subject to certain outstanding liens relating to certain indebtedness of BIG having an aggregate outstanding balance, as of August 14, 2001, totaling approximately $11.8 million. The Option will become exercisable only at such time as (i) there shall be a default in the payment of any amounts due under the Credit Agreement for more than ten days after the data when they shall become due or (ii) there shall be any other default under the Credit Agreement if, after notice thereof, such default has not been cured within thirty days of such notice. In addition, any acquisition of the Option Shares by the Company pursuant to the Option would require the prior approval of the New York Department of Insurance. In the event the Option were to be exercised, no assurances can be given that such approval could be obtained.

     The foregoing description of the Line of Credit is qualified in its entirety by reference to the Credit and Security Agreement, Master Promissory Note, Collateral Assignment of Flood Book and Stock Option Agreement filed as Exhibits 10.1 through 10.4 to this Report.

15

Item 6. Exhibits and Reports on Form 8-K

     a) Exhibits

10.1	Credit and Security Agreement, dated August 14, 2001, between Insurance Management Solutions Group, Inc. and Bankers Insurance Group, Inc.
10.2	Master Promissory Note, dated August 14, 2001, by Bankers Insurance Group, Inc.
10.3	Collateral Assignment of Flood Book, dated August 14, 2001, by Bankers Underwriters, Inc.
10.4	Stock Option Agreement, dated August 14, 2001, between Bankers Insurance Group, Inc. and Insurance Management Solutions Group, Inc.

     b) Reports on Form 8-K

     The Company did not file any reports on Form 8-K during the three months ended June 30, 2001.

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.

			INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. (Registrant)
Date:	August 20, 2001	By:	–s– DAVID M. HOWARD
			David M. Howard President and Chief Executive Officer (Principal Executive Officer)
		By:	–s–ANTHONY R. MARANDO
			Anthony R. Marando
			Chief Financial Officer (Principal Financial and Accounting Officer)

17

EXHIBIT INDEX

EXHIBIT NUMBER	DESCRIPTION
10.1	Credit and Security Agreement, dated August 14, 2001, between Insurance Management Solutions Group, Inc. and Bankers Insurance Group, Inc.
10.2	Master Promissory Note, dated August 14, 2001, by Bankers Insurance Group, Inc.
10.3	Collateral Assignment of Flood Book, dated August 14, 2001, by Bankers Underwriters, Inc.
10.4	Stock Option Agreement, dated August 14, 2001, between Bankers Insurance Group, Inc. and Insurance Management Solutions Group, Inc.

18 EX-10.1 3 g70960ex10-1.txt AUGUST 14, 2001 CREDIT AND SECURITY AGREEMENT 1 EXHIBIT 10.1 CREDIT AND SECURITY AGREEMENT THIS CREDIT AND SECURITY AGREEMENT (herein, "Agreement") is made effective this 14_day of August, 2001 between INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. (herein, "Lender") and BANKERS INSURANCE GROUP, INC. (herein, "Borrower") (herein Lender and Borrower collectively, "Parties" or individually "Party"). RECITALS: WHEREAS, Lender is a corporation duly organized under the laws of the State of Florida.; and WHEREAS, Borrower is a corporation duly organized under the laws of the State of Florida; and WHEREAS, in order to provide Borrower with funds to advance to Bankers Underwriters, Inc., a wholly owned subsidiary of Borrower (herein, "BUI") as well as working capital for Borrower, Borrower wishes to borrow the aggregate sum of up to Five Million and 00/100 ($5,000,000.00) U.S. dollars from Lender and secured by the Collateral; and WHEREAS, Lender wishes to lend to Borrower an amount equal to the amount required for an advance to BUI as well as Borrower's working capital needs; and IN CONSIDERATION OF Lender's agreement to loan to Borrower the sum of up to Five Million and 00/100 ($5,000,000.00) U.S. dollars, all in accordance with the terms and conditions of this Agreement, as well as for other good and valuable consideration, the Parties hereto do covenant and agree as follows: SECTION 1. RECITALS. The statements contained in the recitals of fact set forth above (the "Recitals") are true and correct, and the Recitals by this reference are made a part of this Agreement. SECTION 2. EXHIBITS. The exhibits attached to this Agreement are by this reference made a part of this Agreement. SECTION 3. DEFINITIONS. For the purpose of this Agreement, the following terms shall have the following meanings: a) "Affiliate" shall mean any corporation, partnership, association, trust or Person which or who directly or indirectly controls or is controlled by, or is under common control with the Borrower. b) "BUI" shall mean Bankers Underwriters, Inc., a Florida corporation and wholly owned subsidiary of Borrower. c) "Collateral" shall refer collectively to the following being delivered as part of the Loan Documents (i) the 10,898 shares of the common capital stock of First Community Insurance Company, $318.00 par value being pledged by Borrower to Lender pursuant to the Stock Option Agreement, and (ii) 1 of 1 2 CREDIT AND SECURITY AGREEMENT (cont.) the Flood Book being assigned by Bankers Underwriters, Inc. to Lender pursuant to the Collateral Assignment of Flood Book. d) "Corporate Principal" shall mean any shareholder, director, or officer of Borrower. e) "Event Of Default" shall mean any of the events or conditions described in the subsequent paragraph hereof captioned, "Event Of Default" and "Events-Of-Default" shall refer collectively thereto. f) "Flood Book" shall have the definition assigned to such term in the Collateral Assignment of Flood Book. g) "Indebtedness" shall mean and include: (i) all obligations which in accordance with generally accepted accounting principles would be included in determining total liabilities as shown on the liability side of a balance sheet as of the date of which Indebtedness is to be determined, (ii) obligations secured by any deed of trust, pledge or lien, whether or not the Obligation secured thereby shall have been assumed; and (iii) guarantees, endorsements (other than endorsements for collection in the ordinary course of business) and other contingent obligations in respect of, or to purchase or otherwise acquire, Indebtedness of others. h) "Loan" shall mean the line of credit established pursuant to Section 4. hereof. i) "Loan Documents" shall mean each of the following documents all dated of even date herewith to establish the Loan - Promissory Note, Collateral Assignment of Flood Book, Absolute Assignment of Flood Book, Stock Option Agreement, Further Assurance and Compliance Agreement and the within Credit and Security Agreement. j) "Obligation" or Obligations" shall mean any and all Indebtedness, liabilities and obligations of Borrower whatsoever under the Loan Documents. k) "Permitted Encumbrances" shall mean the first lien security interests on the Collateral and which are disclosed in Exhibit A attached hereto. l) "Payment Date" shall have the definition assigned thereto in Section 4 c) hereof. m) "Person" shall mean and include any individual, partnership, corporation, trust, unincorporated organization or a government or any department or agency thereof. n) "Promissory Note" shall mean the Master Promissory Note required and described in Section 4 c). o) "Subsidiary" shall mean any corporation of which a majority, in vote or value, of every class of stock, at the time as of which any determination is being made, is owned by the Borrower either directly or through Subsidiaries. 2 of 2 3 CREDIT AND SECURITY AGREEMENT (cont.) SECTION 4. LOAN. a) Amount. Upon the execution of this Agreement and in compliance with its terms and conditions, Lender agrees to a loan to Borrower a maximum principal amount equal to Five Million and 00/100 ($5,000,000.00) U.S. dollars. b) Purpose. Funds received under the Promissory Note shall be used exclusively to advance funds to BUI as well as for various working capital requirements related to Borrower's ongoing operation. c) Promissory Note. Proceeds to Borrower under the Loan shall be evidenced by a master promissory note (herein, "Promissory Note") which shall be executed and delivered and which shall be of even date herewith, the stated principal amount of which shall be Five Million and 00/100 ($5,000,000.00) U.S. dollars and for which no more than a collective aggregate maximum principal amount outstanding of Five Million and 00/100 ($5,000,000.00) U.S. dollars may be advanced at any time, which Promissory Note shall bear interest from the date hereof at a per annum rate of the Prime Rate (as such term is defined in the Promissory Note) plus 1.5% until paid in full; provided, however, that in no event shall interest accrue at a rate in excess of the maximum rate allowed by law; and such Promissory Note shall contain the following payment provisions: Commencing on the first day of September 2001, all accrued and unpaid interest shall be due and payable on the first day of each calendar month of each and every year (herein, " Payment Date"); and all unpaid principal and interest shall be due and payable in full on or before February 28th, 2002 (herein, "Promissory Note"). d) Grant of Security Interest. BUI joins in the execution of this Agreement for the purpose of granting and does hereby grant to Lender a first lien security interest in and to the Flood Book as security for the repayment of all sums advanced on the Loan and for the performance by Borrower and BUI of all covenants and agreements under the Loan Documents in accordance with their following terms and conditions. SECTION 5. TERM OF AGREEMENT. This Agreement shall be effective upon the execution hereof and shall continue in full force and effect until February 28th, 2002 unless terminated as hereafter provided or upon satisfaction of the Promissory Note in full. SECTION 6. CONDITIONS PRECEDENT. Prior to the first advance by Lender to Borrower pursuant to this Agreement and as a condition precedent to any of Lender's other Obligations under this Agreement, Borrower shall execute and deliver to Lender or shall cause to be executed and delivered to Lender each of the following: a) Promissory Note. Promissory Note which shall include a Waiver of Jury Trial provision; b) The Loan Documents; c) Perfection. Such financing statement(s), security agreements, and other documents and instruments as Lender may reasonably require from time to time to perfect any and all security interests granted by Borrower to Lender pursuant to this Agreement or pursuant to any other security agreement(s) executed by Borrower to induce Lender to make the Loan herein described; 3 of 3 4 CREDIT AND SECURITY AGREEMENT (cont.) d) Resolutions. The good and sufficient Resolution of the Board of Directors of the Borrower authorizing Borrower to enter into the transaction contemplated by this Agreement; e) Opinion. The opinion of counsel for Borrower including but not limited to the following - (i) that Borrower is a corporation in good standing, duly qualified under the laws of the State of Florida, (ii) Borrower is authorized to enter into the Loan Documents, (iii) the transaction has been duly authorized by Borrower, and (iv) the Loan Documents have been duly authorized, executed and delivered by the Borrower, (v) the execution and delivery of the documents do not contravene nor are prohibited by the Charter, By-Laws or outstanding resolutions of Borrower or any agreements to which Borrower is a Party and (vi) such other matters reasonably requested; and f) Board Approval. Lenders Board of Directors and its Audit Committee shall have authorized Lender's management to enter into the transaction contemplated hereby. SECTION 7. AFFIRMATIVE COVENANTS. Borrower hereby covenants with Lender that for so long as any Obligations remain outstanding Borrower shall: a) Corporate Existence. Do or cause to be done all things necessary to keep in full force and effect its corporate existence and all rights, franchises, licenses, authorizations, permits and qualifications to carry on business in all jurisdictions where such qualifications may be necessary; b) Compliance with Law. Remain in compliance with all applicable laws of the jurisdictions within which Borrower conducts its business. c) Payment of Taxes. Pay all federal, state and local taxes as the same become due. d) Financial Statements. Deliver to Lender, specifically upon request by Lender, the following: (i) Unaudited Financials - Monthly. As soon as practicable, and in any event within fifteen (15) days after the end of each calendar month, furnish to Lender a monthly unaudited financial statement of Borrower, including balance sheets and income statements, for the calendar month just ended, and for the calendar year to date, certified by a duly authorized officer of Borrower; (ii) Unaudited Financials - Annual. As soon as practicable, and in any event within sixty (60) days after the end of each fiscal year, furnish to Lender, the unaudited financial statement for the Borrower, including balance sheets and income statements, prepared in accordance with generally accepted accounting principles and practices applied on a basis consistently maintained throughout the period involved and certified by an authorized officer of Borrower; and (iii) Data. Such financial statements, reports, certificates, lists of customers (showing names, addresses and amounts owing) and other data concerning Accounts, contracts, collections, inventory and other matters as Lender may from time to time request. e) Notice. Give prompt written notice to Lender upon becoming aware of the occurrence of any Event Of Default or event which, by passage of time or the giving of notice or both would constitute an Event Of Default; 4 of 4 5 CREDIT AND SECURITY AGREEMENT (cont.) f) Free Collateral. Except for Permitted Encumbrances, keep Collateral free from all liens, encumbrances and security interests and pay and discharge when due all taxes, levies and other charges upon it and upon the goods evidenced by any documents constituting Collateral and defend it against all claims of any kind; g) Access. Provide access to accounting and business records of Borrower which will include, but not be limited to, access and substantive dialogue with Borrower's accountants, attorneys, bank or other financial institution and any other party or parties with which the Borrower has had or may have any dealings. Said dialogue may encompass the affairs, finances and accounts of Borrower including but not limited to any matter or aspect pertaining to any and all business transactions that have taken place or that may be contemplated at some future date. Borrower shall hold harmless, indemnify, release and authorize any and all such parties that may care to express an opinion regarding the business of the Borrower and the transactions engaged therein; h) Financial Condition. Notify Lender immediately, but in any event within five (5) days after obtaining knowledge of any fact or facts which might materially and adversely affect the assets, business operations, properties, income or condition (financial or otherwise) of the Borrower or the Obligations or authority of Borrower to perform its Obligations under any Loan Document; i) Notify of Action or Suit. Notify Lender immediately, but in any event within five (5) days after obtaining knowledge that Borrower is a party, or may be threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative; j) Pay Debts - Indemnity. Pay when due (or within applicable grace periods) all Indebtedness due third Persons, except when the amount thereof is being contested in good faith by appropriate proceedings and with adequate reserves therefore set aside on the books of Borrower for the payment of such indebtedness. If Borrower shall default in the payment of any principal (or installment thereof) of, or interest on, any such Indebtedness, Lender shall have the right, in its sole discretion, to pay such interest or principal on behalf of Borrower; provided, however, Borrower shall indemnify Lender in full for any such amount; k) New Location. Notify Lender thirty (30) days in advance of any change in the jurisdiction of its organization, the location of any of its businesses or the establishment of any new, or the discontinuance of any existing, place of business; and l) Books of Account - Inspections. Maintain books of account in accordance with general accounting practices, and for purposes of determining Borrower's compliance with this Agreement. If no Event of Default exists or is continuing, Lender shall have the right, at Lender's expense, to inspect any of the corporate books and financial records at such reasonable times as Lender may request. If an Event of Default exists, Lender may, at the expense of the Borrower, inspect the corporate books and financial records at all such reasonable times and as often as may be requested by the Lender. SECTION 8. NEGATIVE COVENANTS. Borrower hereby covenants with Lender that for so long as any Obligations remain outstanding and unless Lender notifies Borrower in writing it dispenses with any one or more of the following requirements, Borrower will not: a) Character of Business. Engage in any business substantially apart from the services currently being provided by Borrower; 5 of 5 6 CREDIT AND SECURITY AGREEMENT (cont.) b) Mergers, Consolidations, Sales. Consolidate with or merge into any other Person or permit any other Person other than a Subsidiary to consolidate with, or merge into, the Borrower, or to sell, transfer or otherwise dispose of all, or substantially all, of its assets to any other Person; c) Business Practices. Materially alter or change the principal business in which Borrower is engaged or the manner in which Borrower conducts its business affairs; and d) Untrue Statements. Furnish Lender any certificate or other document that will contain any untrue statement of material fact or that will omit to state a material fact necessary to make it not misleading in the light of circumstances under which it was furnished. SECTION 9. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender that: a) Absence of Defaults. All agreements to which Borrower and Lender are parties are valid and binding agreements enforceable against Borrower in accordance with their terms, and no event has occurred and is continuing which constitutes an Event of Default by Borrower or a default by Borrower or any of its Affiliates under any such agreements; b) Ownership. Bankers Financial Corporation owns all of the issued and outstanding shares of common stock of Borrower and there are not now nor will there be during the term of this Agreement any other shareholders of Borrower nor will any one be granted nor has any one been granted any options or warrants to acquire any shares of Borrower; provided that there is first lien security interest on all of the issued and outstanding shares of Borrower to SouthTrust Bank N.A. as otherwise disclosed in Exhibit A attached; c) Proceeds. Proceeds under this Loan will be used exclusively to advance funds to BUI as well as for various working capital requirements related to Borrower's ongoing operation; d) Correct Financials. Any financial statements heretofore delivered to Lender are true and correct in all respects, have been prepared in accordance with generally accepted accounting practices and fairly represent the financial conditions of the Borrower as of the respective dates thereof. No material adverse change has occurred in the financial condition of the Borrower reflected in such financial statements since the respective dates thereof and no additional borrowings have been made by Borrower since the date thereof other than the borrowing contemplated hereby.; e) No Breach or Violation. The consummation of the transactions contemplated hereby or the performance by Borrower of any Obligation will not result in any breach of or constitute a default under any mortgage, deed of trust, lien, bank loan, or credit agreement, corporate charter, by-law, or other instrument to which Borrower is a party, or by which it is bound or affected; f) Corporate Existence - Good Standing. (i) Borrower is a corporation duly organized, validly existing, and in good standing under the laws of the State of Florida; (ii) Borrower has all lawful corporate power to own its properties and to engage in the business it now conducts, and Borrower is duly qualified and in good standing as a foreign corporation in the jurisdictions wherein the nature of the business transacted by it or property owned by it make such qualification necessary; 6 of 6 7 CREDIT AND SECURITY AGREEMENT (cont.) (iii) Borrower has not changed its name, been the surviving corporation in a merger, acquired any business, or changed its principal executive office since 1994; and g) Representations and Warranties Survive. All of the representations and warranties set forth in Section 9. hereof encaptioned, "Representations and Warranties" shall survive the execution and delivery of this Agreement and the other Loan Documents until all Obligations are satisfied in full and all outstanding amounts due under the Credit Line are paid in full. SECTION 10. FINANCING STATEMENTS. a) At Lender's discretion, Borrower will join with Lender in executing such financing statements (including amendments thereto and continuation statements thereof) in form satisfactory to Lender; pay or reimburse Lender for all costs and taxes of filing and recording the same in such public offices as Lender may designate; and take such other steps as Lender may direct, including the noticing of Lender's lien on the Collateral and on any certificates of title therefore all to perfect Lender's interest in the Collateral; and b) To the extent lawful, Borrower hereby appoints Lender with full power of substitution and revocation, as its Attorney-in-Fact (without requiring Lender to act as such) to execute any financing statement in the name of Borrower, and to perform all other acts that Lender deem appropriate to perfect and continue its security interest in, and to preserve, the Collateral. SECTION 11. EVENTS OF DEFAULT. The following occurrences shall constitute Events Of Default hereunder: a) Non-Payment. Borrower fails to pay when and as required to be paid herein, any principal or interest amount within 10 days after the same becomes due; b) Breach of Warranty. Any warranty, representation, or statement made or furnished to Lender by or on behalf of Borrower proves to have been false in any material respect on or as of the date when made or furnished or deemed made or furnished; c) Breach of Covenant. Any affirmative covenant or negative covenant is breached, violated or not complied with if such affirmative covenant or negative covenant continues to be breached, violated or not complied with after Lender has given notice thereof to Borrower and a 30 day opportunity to cure; d) Dissolution/Bankruptcy. Dissolution, termination of existence, insolvency (failure to pay its debts as they mature or the failure to maintain the fair market value of its assets in an amount greater than its liabilities on a consolidated basis for purposes herein, whichever shall first occur), a business failure, appointment of a receiver, assignment for the benefit of creditors or the commencement of any proceedings under any bankruptcy or insolvency law by or against Borrower or any guarantor or the making by either Borrower or any guarantor of any offer or settlement, exchange or composition to their respective unsecured creditors generally ; e) Attach Liens. The issuance or filing against Borrower of a tax lien or the issuance or filing of any attachment, injunction, execution or judgment which is not removed within fifteen (15) days after issuance of filing; 7 of 7 8 CREDIT AND SECURITY AGREEMENT (cont.) f) Waste. Lender shall, upon reasonable basis, at any time deem itself insecure or unsafe because of diminution, removal, or waste of Collateral; g) Third Party Debt. Borrower shall fail to pay any Indebtedness due any third persons and such failure shall continue beyond any applicable grace period, or Borrower shall suffer to exist any other event of default under any agreement binding the Borrower; h) Judgment. Borrower shall suffer final judgments for payment of any sums due to third parties and shall not discharge the same within a period of thirty (30) days (unless, pending further proceedings, execution has not been commenced, or if commenced has been effectively stayed) or a judgment creditor of Borrower shall obtain possession of any of the Collateral by any means, including, without limitation, levy, distraint, replevin, or self help; and i) Impairment of Security. Any condition or situation, which, in the sole determination of the Lender, upon reasonable basis, constitutes a danger of impairment of the security of the Loan, and such condition or situation is not remedied within two (2) business day's after receipt of written notice to the Borrower to remedy such condition or situation. SECTION 12. DEFAULT REMEDIES. a) Upon any Event Of Default: (i) Lender shall retain the right to terminate making any further advances of the Loan at any time thereafter, without notice, and until all Obligations are satisfied in full, such termination shall not affect the duties, covenants and liabilities of Borrower hereunder and all the terms, conditions and provisions hereof relating thereto shall continue to be fully operative until all transactions entered into and Obligations have been fully satisfied; (ii) All or any portion of Obligations due or to become due whether under this Agreement or otherwise, shall, at the option of Lender, without notice, demand, presentment or dishonor, all of which Borrower hereby waives, become at once due and payable, and Lender shall thereupon have all the rights and remedies of a secured party under the Uniform Commercial Code as adopted by the State of Florida; (iii) Lender may also, with or without proceeding with sale or foreclosure or demanding payment of a debt owing by Borrower to Lender, without notice, terminate further performance under this Agreement and may declare all outstanding amounts under the Loan Documents due and payable and proceed against the Collateral whether or not in the possession of Lender.; and (iv) To the extent either Borrower or any guarantor makes a payment or payments to Lender which payment or payments or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy act, state or federal law, common law or equitable cause, then, to the extent of such payment or repayment, the Obligation(s) or part thereof intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made. 8 of 8 9 CREDIT AND SECURITY AGREEMENT (cont.) b) Any failure or delay of Lender to exercise or enforce any rights, liens, powers or remedies hereunder or under any of the aforesaid agreements or other documents or security or Collateral shall not operate as a waiver of such liens, rights, powers and remedies, but all such liens, rights, powers and remedies shall continue in full force and effect until all loans and advances and all Obligations owing or to become owing from Borrower to Lender shall have been fully satisfied and all liens, rights, powers and remedies herein provided are cumulative and none is exclusive. c) Lender may exercise any right or remedy it has under the Promissory Note which rights and remedies thereunder are not limited hereby. SECTION 13. MISCELLANEOUS a) Further Assurances. From time to time, Borrower will execute and deliver to Lender such additional documents and will provide such additional information as Lender may reasonably require to carry out the terms of this Agreement and be informed of Borrower's status and affairs. b) Payment. The Borrower agrees that as long as the Loan Documents are in full force and effect, it will make all payments on each Payment Date, when due, by check duly mailed or delivered to Lender at the address indicated in the Notice section of this Agreement, or at such other place as Lender may designate to the Borrower in writing. c) Successors and Assigns. This Agreement shall bind and inure to the benefit of the respective successors and assigns of the parties hereto. d) Waiver by Lender. Lender shall have the right at all times to enforce the provisions of this Agreement and any other Loan Document executed pursuant hereto in accordance with the terms hereof and thereof, notwithstanding any conduct or custom on the part of Lender in refraining from so doing at any time. The failure of Lender at any time to enforce its rights under such provisions, in accordance with the same shall not be construed as having created a custom in any way or manner contrary to specific provisions of this Agreement or as having in any way or manner modified or waived the same. All rights and remedies of Lender are cumulative and concurrent and the exercise of one right or remedy shall not be deemed a waiver or release of any other right or remedy. e) Costs/Expenses. Pay all reasonable costs and expenses related to the transactions contemplated hereby including but not limited to, out-of-pocket expenses for payment of documentary stamp taxes, intangible taxes, recording and filing fees, surveys, title insurance premium, legal fees and expenses of counsel appointed by the Lender, any applicable sales tax together with any interest and penalties for the late payment thereof, all of which amounts shall be payable at the time of the execution of this Agreement or upon demand in the event they are hereafter incurred. f) Attorney's Fees. If either of the Parties hereto should bring a Court action alleging breach of this Agreement or seeking to enforce, rescind, renounce, declare void or terminate this Agreement or any provisions thereof, the prevailing party shall be entitled to recover all of its legal expenses, including reasonable attorney's fees and costs (including legal expenses for any appeals taken), and to have the same awarded as part of the judgment in the proceeding in which such legal expenses and attorney's fees were incurred. 9 of 9 10 g) Captions. The Agreement contains captions as to contents of the particular paragraphs. The captions set forth herein are inserted only for convenience and are in no way to be construed as part of this Agreement or as a limitation of the scope of the particular paragraph in which they are referred. h) Construction of Agreement. Words of a gender used in this Agreement shall be held to include any other gender, the words in a singular number held to include the plural, when the sentence so requires. i) Counterparts. This Agreement may be executed in several counterparts, each of which so executed shall be deemed to be an original, and said counterparts shall together constitute and be one and the same instrument. j) Entire Agreement. This Agreement contains all of the oral and/or previously written agreements, representations, and arrangements between the Parties hereto with respect to the subject matter of this Agreement, and all right which the respective Parties may have had under any written agreements and/or oral agreements with respect to the subject matter of this Agreement are hereby canceled and terminated, and all Parties agree that there are no representations or warranties other than those set forth herein. k) Invalidation. Should any part of this Agreement for any reason be declared invalid, such decision shall not effect the validity of any remaining portion, which remaining portion shall remain in full force and effect as if this Agreement had been executed with the invalid portion thereof eliminated. It is, therefore, declared the intention of the Parties hereto that each of them will have executed the remaining portion of this Agreement without including therein any such part, parts or portion which may, for any reason, be hereafter declared void. l) Modification. No change or modification of this Agreement shall be valid unless the same shall be in writing and signed by each of the Parties hereto. m) Notices. Any and all notices, designations, consents, offers, acceptances, or any other communication provided for herein shall be given in writing by hand delivery, by overnight carrier, by registered or certified mail or by facsimile transmission and shall be addressed as follows: As to Borrower: Bankers Insurance Group, Inc. 360 Central Avenue, 17th Floor St. Petersburg, Florida 33701 Att: G. Kristin Delano Telephone: (727) 823-4000 Telefax: (727) 803-4198 As to Lender: Insurance Management Solutions Group, Inc. 360 Central Avenue, 16th Floor St. Petersburg, Florida 33701 Att: David Howard, President Tel#: (877) 711-4674 Fax: (727) 803-2099 10 of 10 11 CREDIT AND SECURITY AGREEMENT (cont.) Notices sent by hand delivery shall be deemed effective on the date of hand delivery. Notices being sent by overnight carrier shall be deemed effective on the next business day after being placed into the hands of the overnight carrier. Notices sent by registered or certified mail shall be deemed effective on the third business day after being deposited into the post office. Notices sent by facsimile transmission shall be deemed to be effective on day when sent if sent prior to 5:00 p.m. (the time being determined by the time zone of the recipient) otherwise they shall be deemed effective on the next business day. n) Representation Acknowledged. The Parties acknowledge that each Party and its counsel have reviewed and revised this Agreement and that the normal rules of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any amendments or exhibits hereto. o) Applicable Law/ Venue. This Agreement shall be construed in accordance with and governed by the laws of the State of Florida, without regard to choice of law provisions. Further, the venue for any action brought to enforce any of the provisions hereof shall be in a state court of competent jurisdiction in Pinellas County, Florida and any action commenced in any other forum may be removed to a state court of competent jurisdiction in Pinellas County, Florida. 11 of 11 12 CREDIT AND SECURITY AGREEMENT (cont.) IN WITNESS WHEREOF, the Parties hereto have set their hands and seals, the day and year first above written. "Borrower" BANKERS INSURANCE GROUP, INC. By: s/s G. Kristin Delano -------------------------------- Name: G. Kristin Delano ------------------------------ Its: Secretary ------------------------------- "Lender" INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. By: s/s Richard G. Torra -------------------------------- Name: Richard Torra ------------------------------ Its: Corporate Secretary ------------------------------- JOINDER Bankers Underwriters, Inc. does hereby ratify and affirm the grant of a security interest in the Flood Book in Section 4 d) hereof. Executed this 14 day of August , 2001 ----- -------------------- ------ BANKERS UNDERWRITERS, INC. By: s/s G. Kristin Delano -------------------------------- Name: G. Kristin Delano ------------------------------ Its: Secretary ------------------------------- 12 of 12 13 CREDIT AND SECURITY AGREEMENT (cont.) EXHIBIT A PERMITTED ENCUMBRANCES Bankers Insurance Group - Western International Insurance Company - Bonded Builders Loan: $9,000,000.00 / Advanced $8,600,000.00 Current Balance: $8,426,940.65 Lender: Western International Insurance Company Borrower: Bankers Insurance Group, Inc. Re: Financing for Bonded Builders acquisition Issue Date April 16, 2000 Maturity Date: May 1, 2008 Collateral Stock Pledged: FCIC 3,023 shares owned by BIG BSIC 75,000 shares owned by BIG BHWA 1,000 shares owned by BIG SouthTrust - Bankers Insurance Group, Inc. Loan: $6,000,000.00 Current Balance: $3,372,305.40 Lender: SouthTrust Borrower: BIG Issue Date October 1, 1993 Amended December 20, 1997 Maturity Date: December 30, 2002 Stock Pledged: 2,008,667 shares of BIG stock owned by BFC 7,875 shares of FCIC shares owned by BIG BFC means Bankers Financial Corporation, a Florida corporation BIG means Bankers Insurance Group, Inc. BHWA means Bankers Home Warranty Association, a Florida corporation BSIC means Bankers Security Insurance Company, a Florida insurance company FCIC means First Community Insurance Company, a New York insurance company 13 of 13 EX-10.2 4 g70960ex10-2.txt AUGUST 14, 2001 MASTER PROMISSORY NOTE 1 EXHIBIT 10.2 MASTER PROMISSORY NOTE $5,000,000.00 August 14, 2001 FOR VALUE RECEIVED, the undersigned, BANKERS INSURANCE GROUP, INC., a Florida corporation (herein, "Debtor"), promises to pay to the order of INSURANCE MANAGEMENT SOLUTIONS GROUP, INC., a Florida corporation, together with any other holder hereof (herein, "Holder"), the principal sum of Five-Million and no/100 ($5,000,000.00) U.S. dollars, together with interest thereon from the date hereon at a rate of the "Prime Rate" (as hereinafter defined) plus 1.5% per annum, both principal and interest being payable at Holder's place of business, 360 Central Avenue, St. Petersburg, Florida 33701 or at such other places as Holder may designate from time to time, in the following manner: Commencing on the first day of September 2001, all accrued and unpaid interest shall be due and payable on the first day of each calendar month of each and every year (a "Payment Date"). All unpaid principal and interest shall be due and payable in full on February 28th, 2002. Credit and Security Agreement. Unless the context shall otherwise require, capitalized terms not defined herein shall have the meanings assigned thereto in the Credit and Security Agreement dated of even date herewith being executed and delivered by and between Debtor and Holder. Rate. For the purposes of this Note, the "Prime Rate" shall mean the base rate on corporate loans posted by at least 75% of the nation's 30 largest banks, as quoted in the "Money Rates" section of the Wall Street Journal, or if such rate is discontinued, then the Holder shall substitute an index, as determined by Holder, to be comparable, in its sole discretion. Proceeds. It is contemplated that all proceeds extended to Debtor under this Note shall be used exclusively for advances to Bankers Underwriters, Inc., a Florida corporation and wholly owned subsidiary of Debtor as well as for various working capital requirements related to Debtor's ongoing operation. Master Note. This Note is a master note, and it is contemplated that any amounts and liability incurred in the ongoing operation thereof on behalf of Debtor and as evidenced hereby will be advanced from time to time to the Debtor by Holder in installments, as requested by the Debtor and agreed to by Holder, under the Credit and Security Agreement of even date hereof between Debtor and Holder. Advances. It is further contemplated that any amounts advanced under this Note may be prepaid from time to time by the Debtor. Debtor may borrow, repay and reborrow hereunder at any time, up to a maximum aggregate amount outstanding at any one time equal to the principal amount of this Note, provided that Debtor is not in default under any provision of this Note, any other documents executed in connection with this Note, or any other note or other loan documents now or hereafter executed in connection with any other obligation of Debtor to Holder, and provided that the borrowings hereunder do not exceed any borrowing base or other limitation on borrowings by Debtor. By reason of such prepayments hereon there may be times when no indebtedness is owing hereunder, and notwithstanding any such occurrence, this Note shall remain valid and shall be in full force and effect as to each subsequent principal advance made hereunder. Each principal advance and each payment made pursuant to this Note shall be reflected by notations made by Holder on the grid attached hereto and Holder is 2 MASTER PROMISSORY NOTE (cont.) hereby authorized to record on such grid all such principal advances and payments. The aggregate unpaid amounts reflected by the notations made by Holder on the attached grid shall be deemed rebuttably presumptive evidence of the principal amount remaining outstanding and unpaid on this Note. No failure of Holder so to record any advance or payment shall limit or otherwise affect the obligation of the Debtor hereunder with respect to any advance, and no payment of principal by the Debtor shall be affected by the failure of Holder so to record the same. Advance Obligations. Nothing herein contained shall obligate or require Holder to make any advances hereunder and all advances shall be made at the option of Holder. Holder shall incur no liability for its refusal to advance funds based upon its determination that any conditions of further advances have not been met by Debtor. This Note shall be valid and enforceable as to the aggregate amount advanced at any time hereunder, whether or not the full-face amount hereof is advanced. Application of Payments. Each payment on the indebtedness evidenced hereby will first reduce charges related to this Note owed by the Debtor that are neither principal nor interest. The remainder of each such payment will be applied first to the interest then accrued on said principal sum remaining unpaid, and then to the reduction of such unpaid principal. Any partial prepayments of principal will be applied to installments due in the inverse order of their maturity and no such partial prepayment of principal will have the effect of postponing, satisfying, reducing, or otherwise affecting any scheduled installment before the principal of and interest on this Note is, and all other charges due hereunder are, paid in full. Principal and interest shall be payable in lawful money of the United States of America. Prepayment. The Holders hereof shall not incur any penalty upon the prepayment of all or any part of the indebtedness evidenced hereby. Interest Calculation. Interest shall be calculated on all amounts advanced based on the actual number of days said amounts are outstanding. Interest shall be computed on the basis of a year of actual number of days per year [i.e. three-hundred-sixty-five (365) days] and charged for the actual number of days in the payment period. Maximum Rate. Debtor shall have no obligation to pay interest or payments in the nature of interest in excess of the maximum rate of interest allowed to be contracted for by law, as changed from time to time, applicable to this Note (herein, "Maximum Rate"). Any interest in excess of the Maximum Rate paid by Debtor (herein, "Excess Sum") shall be credited as a payment of principal, or, if Debtor so requests in writing, returned to Debtor, or, if the indebtedness and other obligations evidenced by this Note have been paid in full, returned to Debtor together with interest at the same rate as was paid by Debtor during such period. Any Excess Sum credited to principal shall be credited as of the date paid to Holder. Holder may, without such action constituting a breach of any obligations to Debtor, seek judicial determination of the applicable rate of interest, and its obligation to pay or credit any proposed Excess Sum to Debtor. Collateral. The obligations under this Note are secured by and subject to the terms and conditions of the Credit and Security Agreement and various other loan documents of even date hereof executed by and between Debtor and Holder, respectively. Past Due. Time is of the essence hereunder. If any payment of principal or interest hereby required is overdue for more than ten (10) days, the Holder of this Note may, at its option, and without notice, declare the entire balance of principal then remaining unpaid to be immediately due and payable, and any 2 of 2 3 MASTER PROMISSORY NOTE (cont.) failure to exercise said option shall not constitute a waiver of the right to exercise the same at any other time. Further, Holder of this Note may, at its option, and without notice, adjust the interest due on the aggregate principal amount remaining due and unpaid, together with accrued interest, upward, to the rate of eighteen (18.0%) per centum per annum, or the Maximum Rate of interest permitted by law, whichever rate shall be the lesser, which rate of interest, as adjusted upward, shall be paid on all sums due hereunder until the said sums have been paid in full, regardless of any payments made by the maker hereof, and accepted by the Holder, after said option has been exercised. Upon default in making any payment hereby required, Debtor promises to pay all costs and expenses, including reasonable attorney's fees (including the cost of any appeals), of not less than ten (10.0%) percent, incurred in collecting this Note by legal proceedings or through an attorney. Remedies. The remedies of Holder herein and in the Credit and Security Agreement shall be cumulative and concurrent, and may be pursued singularly, successively, or together, at the sole discretion of Holder, and may be exercised as often as occasion therefor shall arise. No action or omission of Holder, including specifically any failure to exercise or forbearance in the exercise of any remedy, shall be deemed to be a waiver or release of the same, such waiver or release to be effected only through a written document executed by Holder and then only to the extent specifically recited therein. A waiver or release with reference to any one event shall not be construed as continuing or as constituting a course of dealing, nor shall it be construed as a bar to, or as a waiver or release of, any subsequent remedy as to a subsequent event. Set-Off. In addition to all liens upon, and rights of set-off against, any monies, securities, or other property of any of the Debtor given to Holder by law, Holder shall have a lien upon and a right of set-off against all monies, securities and other property of any of the Debtor now or hereafter in the possession of, or on deposit with, Holder, whether held in a general or special account or deposit, for safekeeping, in trust or otherwise, and every such lien and right of set-off as may be exercised without demand upon or notice to any Debtor, and the Holder shall have no liability with respect to any of Debtor's checks or other items which may be returned or other funds transfers which may not be made due to insufficient funds thereafter. Exercise/Modification. Neither any failure nor any delay on the part of Holder in exercising any right, power, or privilege under this Note shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise or the exercise of any other right, power, or privilege. No modification, amendment, or waiver of any provisions of this Note shall be effective unless in writing and signed by a duly authorized officer of Holder, and then the same shall be effective only in the specific instance and for the purpose for which given. No notice to, or demand on, any Debtor in any case shall entitle any Debtor to any other or further notice or demand in the same, similar, or other circumstances. Severability. Any provision of this Note which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. Waiver. Debtor and any other person liable for the payment hereof respectively, hereby expressly waive any valuation and appraisal, presentment, demand for payment, notice of dishonor, protest, notice of nonpayment or protest, all other forms of notice whatsoever, and diligence in collection. 3 of 3 4 MASTER PROMISSORY NOTE (cont.) No Waiver. Acceptance of payments marked "payment in full" or "in satisfaction" or words to similar effect shall not affect the duty of Debtor to pay all obligations due hereunder, and shall not affect the right of Holder to pursue all remedies available to it hereunder or under any other agreement between the Debtor hereof and the Holder, including but not limited to the Credit and Security Agreement and Stock Option Agreement each dated of even date herewith. Jury Trial. DEBTORS AND ANY OTHER PERSON LIABLE FOR PAYMENT HEREOF, BY EXECUTING THIS NOTE OR ANY OTHER DOCUMENT CREATING SUCH LIABILITY, WAIVE THEIR RIGHTS TO A TRIAL BY JURY IN ANY ACTION, WHETHER ARISING IN CONTRACT OR TORT, BY STATUTE OR OTHERWISE, IN ANY WAY RELATED TO THIS NOTE. THIS PROVISION IS A MATERIAL INDUCEMENT FOR HOLDER'S EXTENDING CREDIT TO DEBTORS AND NO WAIVER OR LIMITATION OF HOLDER'S RIGHTS UNDER THIS PARAGRAPH SHALL BE EFFECTIVE UNLESS IN WRITING AND MANUALLY SIGNED ON HOLDER'S BEHALF. Jury Trial Consideration. Debtor acknowledge that the above paragraph has been expressly bargained for by Holder as part of the loan evidenced hereby and that, but for Debtor's agreement and the agreement of any other person liable for payment hereof thereto, Holder would not have extended the loan for the term and with the interest rate provided herein. Binding. The provisions of this Note shall be binding upon the heirs, successors, and assigns of Debtor, except that Debtor may not assign or transfer its obligation hereunder without the written consent of Holder, and shall inure to the benefit of Holder, its successors, and assigns. Governing Law. This Note is to be governed by and construed under the laws of, the State of Florida, without regard to choice of law provisions as amended, except as modified by the laws and regulations of the United States of America. Venue. Debtor hereby consents and submits to the jurisdiction of the courts of the State of Florida, and, notwithstanding his, her, their, or its place of residence or organization or the place of execution of this Note, any litigation relating hereto, whether arising in contract or tort, by statute or otherwise, shall be brought in (and, if brought elsewhere, may be transferred to) a State court of competent jurisdiction in Pinellas County, Florida. Paragraph Headings; Gender and Number. The headings inserted at the beginning of each paragraph are for convenience of reference only and shall not limit or otherwise affect or be used in the construction of any of the terms or provisions hereof. The plural shall include the singular and the singular, the plural, wherever the context so admits. The masculine shall include the feminine and the neuter; the feminine, the masculine and the neuter; and the neuter, the masculine and the feminine. 4 of 4 5 MASTER PROMISSORY NOTE (cont.) IN WITNESS WHEREOF, Debtor has caused this Note to be signed, sealed and delivered in its name on the day and year first above written. DEBTOR: Bankers Insurance Group, Inc. s/s G. Kristin Delano ---------------------------------------- By: G. Kristin Delano ------------------------------- As Its: Secretary ------------------------------- 5 of 5 EX-10.3 5 g70960ex10-3.txt AUGUST 14, 2001 FLOOD BOOK COLLATERAL ASSIGNMENT 1 EXHIBIT 10.3 COLLATERAL ASSIGNMENT OF FLOOD BOOK THIS COLLATERAL ASSIGNMENT is executed as of this 14 day August, 2001, by Bankers Underwriters, Inc., a Florida corporation with its principal place of business located in St. Petersburg, Florida (herein, "Pledgor"). R E C I T A L S: 1. Insurance Management Solutions Group, Inc., a Florida corporation with its principal place of business located in St. Petersburg, Florida, (herein, "Lender") has established a line of credit (herein, "Credit Line") in favor of Bankers Insurance Group, Inc., a Florida corporation (herein, "Borrower"), in the amount of Five million ($5,000,000.00) dollars evidenced by Borrower's Master Promissory Note (herein, "Note") of even date herewith and in like principal amount. 2. In connection with the establishment of the Credit Line, Borrower and Pledgor have executed and delivered the following documents, all dated of even date herewith (herein together with the within document shall be called, "Loan Documents") - Note, Credit and Security Agreement, Absolute Assignment of Flood Book (herein, "Absolute Assignment"), Further Assurances and Compliance Agreement and Stock Option Agreement. 3. Borrower, as the immediate parent of Pledgor, has agreed to advance up to the entire amount of the proceeds of the Credit Line to Pledgor. 4. Pledgor, as a Florida general insurance agent for Bankers Insurance Company and First Community Insurance Company is the owner of the Flood Book. For purposes hereof the Flood Book shall mean all of Pledgor's right, title and interest in and to all of the following, whether now owned or hereafter acquired, together with all replacements therefor and proceeds (including but without limitation, insurance policies) thereof: Accounts and contract rights, as those terms are defined by the Uniform Commercial Code as adopted by the State of Florida, with insurance agents, including but not limited to general agents with respect to the sale of federal flood insurance 5. Lender has, as a condition precedent to establishing such line of credit, required the execution of this Assignment. NOW, THEREFORE, in consideration of the aforesaid Credit Line as well as for other good and valuable consideration, Pledgor hereby grants to Lender a first lien security interest in and to the Flood Book to Lender as security for the repayment of all sums advanced on the Credit Line and for the performance by Borrower and Pledgor of all covenants and agreements under the Loan Documents in accordance with the following terms and conditions. Unless the context shall otherwise require, capitalized terms used and not defined herein shall have the meanings assigned thereto in the Credit and Security Agreement dated of even date herewith between Lender and Borrower (herein, "Credit Agreement"). 2 1. POWER OF ATTORNEY. Pledgor irrevocably nominates, constitutes and appoints Lender its true and lawful attorney in fact, with full power of substitution and revocation for it, in its name, place and stead and either in the name of Lender or in the name of Pledgor to assign any agency agreements between Pledgor and agents responsible for the production of federal flood insurance policies as well as any other instruments, agreements or certificates necessary or appropriate to give full force an effect to such assignment which assignment may be to Lender, to First Community Insurance Company or to such other party as Lender may, in the exercise of its absolute discretion select whether pursuant to the delivery of the Absolute Assignment or otherwise, but Lender shall not be under any duty to exercise any such authority or power or in any way be responsible for the collection of any sums owing under the Flood Book. All rights, powers and authority of said attorney-in-fact to exercise any and all rights and powers herein granted shall commence and be in full force and effect as of the date of this Agreement and such rights, powers and authority shall remain in full force and effect thereafter until the obligations of Borrower and Pledgor under the Loan Documents have been satisfied in full However, Lender shall not deliver the Absolute Assignment or otherwise exercise its rights under this Power of Attorney until there is an occurrence of an Event of Default hereunder. The power set forth herein is a power coupled with an interest. 2. AFFIRMATIVE COVENANTS. Pledgor hereby covenants with Lender that until the obligations of Borrower and Pledgor under the Loan Documents have been satisfied in full and for so long as any amount remains outstanding under the Credit Line, Pledgor will keep the Flood Book free from all liens, encumbrances and security interests and pay and discharge when due all taxes, levies and other charges upon them and defend them against all claims of any kind. 3. REPRESENTATIONS AND WARRANTIES. Pledgor represents and warrants to Lender that it is the lawful owner and holder of the Flood Book described above, that: (a) Pledgor has good right to sell, transfer and assign the same as aforesaid. (b) There are no actions, suits or proceedings pending or, to the knowledge of Pledgor, threatened against or affecting it whether civil, criminal, administrative or investigative, and it is not in default with respect to any judgment, decision, order, writ, injunction, decree or demand of any court or governmental authority; (c) The consummation of the transactions hereby contemplated in performance of this Agreement or of any of the Loan Documents will not result in any breach of or constitute a default under any mortgage, deed of trust, lien, bank loan or credit agreement, corporate charter, by-law or other instrument to which Pledgor is a party, or by which it is bound or affected; (d) Pledgor is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida; Pledgor has all corporate powers to own its properties and to engage in the business it conducts, and is duly qualified and in good standing as a foreign corporation in the jurisdictions wherein the nature of the business transacted by it or property owned by it make such qualification necessary; 3 (e) All of the representations and warranties set forth in this paragraph 3 shall survive the execution and delivery of this Agreement and the other Loan Documents until obligations of Borrower and Pledgor under the Loan Documents have been satisfied in full and all outstanding amounts due under the Credit Line are paid in full. 4. EVENTS OF DEFAULT. The phrase Event of Default shall have the definition assigned to such phrase under the Credit Agreement, and any Event of Default under the Credit Agreement shall constitute an Event of Default hereunder. 5. DEFAULT REMEDIES. Upon any Event of Default, all or any portion of amounts due or to become due from Borrower to Lender under the Note, shall, at the option of Lender, without demand, presentment or dishonor all of which Pledgor hereby waives, become at once due and payable, and Lender shall thereupon have all the rights and remedies of a secured party under the Uniform Commercial Code as adopted by the State of Florida. The failure or delay of Lender to exercise or enforce any rights, liens, powers or remedies hereunder or under any of the aforesaid agreements or other documents of security or Collateral shall not operate as a waiver of such liens, rights, powers and remedies, but all such liens, rights, powers and remedies shall continue in full force and effect until all loans and advances under the Credit Line shall have been fully satisfied. 6. TERMINATION OF AGREEMENT. This Agreement shall terminate upon the satisfaction in full of all obligations of Borrower and Pledgor under the Loan Documents, including but not limited to payment in full of all amounts outstanding under the Loan Documents. 7. MODIFICATION. No change or modification of this Agreement shall be valid unless the same shall be in writing and signed by all of the parties hereto. 8. CAPTIONS. The paragraph captions as to contents of the particular paragraphs herein are inserted only for convenience and are in no way to be construed as part of this Agreement or as a limitation of the scope of the particular paragraph in which they are referred. 9. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which so executed shall deem to be an original and said counterpart shall, together constitute and be one and the same instrument. 10. CONSTRUCTION OF AGREEMENT. Words of a gender used in this Agreement shall be held to include any other gender, the words in a singular number held to include the plural, when the sentence so requires. 11. INVALIDATION. Should any part of this Agreement for any reason be declared invalid, such decision shall not effect the validity of any remaining portion, which remaining portion shall remain in force and effect as if the Agreement had been executed with the invalid portion thereof eliminated. It is, therefore, declared the intention of the parties hereto that each of them will have executed the remaining portion of this Agreement without including therein any such part, parts or portion which may, for any reason, be hereafter declared void. 12. ATTORNEY'S FEES. Subject to reasonable construction and sound business practices, if Borrower, Pledgor or Lender should bring a Court action alleging breach of this Agreement or seeking to enforce, rescind, renounce, declare, void or terminate this Agreement or 4 any provisions thereof, the prevailing party shall be entitled to recover all of its legal expenses, including reasonable attorney's fees and costs (including legal expenses for any appeals taken), and to have the same awarded as part of the judgment in the proceeding in which such legal expenses and attorney's fees were incurred. 13. APPLICABLE LAW/VENUE. This Agreement shall be construed in accordance with and governed by the laws of the State of Florida, without regard to choice of law provisions. Further, the venue for any action brought to enforce any of the provisions hereof shall be in a state court of competent jurisdiction in Pinellas County, Florida and any action commenced in any other forum may be removed to a state court of competent jurisdiction in Pinellas County, Florida. IN WITNESS WHEREOF, Borrower has set its hand and seal the day and year first above written. Signed sealed and delivered Bankers Insurance Group, Inc. In the presence of: a Florida corporation s/s Lisa M. Powell By: G. Kristin Delano - ------------------------------------ -------------------------- Signature As its: Secretary s/s Harold David Holland - ------------------------------------ Name legibly printed, typewritten or stamped Signed sealed and delivered Bankers Underwriters, Inc. In the presence of: a Florida corporation s/s Lisa M. Powell By: Richard Torra - ------------------------------------ -------------------------- Signature As its: Corporate Secretary s/s Harold David Holland - -------------------------------------------- Name legibly printed, typewritten or stamped EX-10.4 6 g70960ex10-4.txt AUGUST 14, 2001 STOCK OPTION AGREEMENT 1 EXHIBIT 10.4 STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT, made and entered into this 14 day of August, 2001, between Bankers Insurance Group, Inc., a Florida corporation (hereinafter "Optionor") and Insurance Management Solutions Group, Inc., a Florida corporation (hereinafter "Optionee"). R E C I T A L S 1. Definitions. For purposes of this Agreement the terms listed below, wherever capitalized, shall be given the following definitions: 1.1. "Affiliate" shall mean any Person who controls, is controlled by or is under common control with another Person. 1.2. "Credit Line" shall mean the line of credit being established by Optionee in favor of Optionor in the amount of five million ($5,000,000) dollars and evidenced by Optionor's Master Promissory Note (herein, "Note") of even date herewith and in like principal amount. 1.3. "DOI" shall mean the New York Department of Insurance. 1.4. "FCIC" shall mean First Community Insurance Company, a New York domestic insurance company with its principal place of business located in St. Petersburg, Florida and a wholly owned subsidiary of Optionor. 1.5. "Loan Documents" shall mean the Note, Credit and Security Agreement, Collateral Assignment of Flood Book, Absolute Assignment of Flood Book, Further Assurances and Compliance Agreement and the within Stock Option Agreement all executed of even date herewith and which were executed and delivered to create the Credit Line. 1.6. "Note" shall mean the Master Promissory Note dated of even date herewith to evidence Optionor's obligations under the Credit Line. 1.7. "Option" shall mean the option to purchase the Option Stock granted by OPTIONOR to OPTIONEE hereunder. 1 2 1.8. "Optionee" shall mean Insurance Management Solutions Group, Inc., a Florida corporation. 1.9. "Optionor" shall mean Bankers Insurance Group, Inc., a Florida corporation. 1.10. "Option Stock" shall mean the 10,898 shares of the common capital stock, $318 par value of FCIC as to which OPTIONEE is granted a purchase option hereunder. 1.11. "Person" shall mean any individual, corporation, partnership, association, joint-stock company, trust, un-incorporated organization, joint venture, court or government or political subdivision or agency thereof. 1.12. "Permitted Encumbrances" shall mean the liens on the Option Stock described in Exhibit A which is attached hereto and by reference made a part hereof. 1.13. "Transaction" shall mean the purchase and sale of the Option Stock hereunder and subsequent to the exercise of the Option. 2. This Stock Option Agreement was required by Optionee as a condition of the establishment of the Credit Line. NOW THEREFORE, FOR AND IN CONSIDERATION of the establishment of the Credit Line as well as for other good and valuable consideration, it is hereby covenanted and agreed among the parties hereto as follows: 1. GRANT OF OPTION 1.1. OPTIONOR hereby grants and conveys unto OPTIONEE or its assigns an irrevocable and exclusive option to purchase the Option Stock upon all the terms and conditions hereinafter set forth. 1.2. The term of this option to purchase shall commence on the day and year first above set forth and shall initially extend through and be irrevocable until all principal and accrued interest due under the Credit Line is paid in full and all obligations of Optionor under the Credit and Security Agreement have been satisfied in full. 1.3. This option shall only be exercisable on or after such time as (i) there shall be a default in payment of any sums due under the Note for more than 10 days after the date when they shall become due or (ii) there shall be any 2 3 other default under the Loan Documents if after notice thereof, such default has not been cured within thirty days of such notice. 1.4. Subject to the restrictions set forth in paragraph 1.3 hereof, OPTIONEE shall have the right to exercise the Option hereinabove granted at any time within the term of this Option by OPTIONEE giving written notice of such exercise delivered in person or mailed to OPTIONOR. Upon the giving of such notice of the exercise, this instrument shall thereupon constitute a firm and binding contract of purchase and sale between OPTIONEE and OPTIONOR at the price and upon the terms and conditions set forth in this Agreement. 2. PURCHASE PRICE 2.1. The purchase price for said Option Stock shall be the sum of Ten ($10.00) per share or One Hundred Eight Thousand Nine Hundred Eighty ($108,980) dollars. 2.2. The said purchase price of said Option Stock shall be paid in cash at the Closing. 3. REPRESENTATIONS AND WARRANTIES. 3.1. OPTIONOR represents and warrants to OPTIONEE that: 3.1.1. OPTIONOR is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida. OPTIONOR has the corporate power and is duly licensed or qualified to the extent required by applicable law to carry on its business as now being conducted and to own, hold and operate its properties and assets. 3.1.2. The total authorized capital stock of the FCIC consists of 10,898 shares of common stock, par value $318.00 per share. Of this amount 10,898 shares have been issued and are outstanding. Except for the rights of OPTIONEE with respect to the Option Stock provided for herein and except for the Permitted Encumbrances, OPTIONOR has no stock appreciation rights options, warrants, rights, agreements, understandings or commitments of any kind entitling any person or persons to purchase, subscribe for or otherwise acquire, or relating to the voting rights, of any of OPTIONOR's common capital stock. 3.1.3. The execution, delivery and performance of this Agreement by the OPTIONOR, and the consummation of the transactions contemplated by this Agreement, will not constitute a breach, violation or default, create a lien, or give rise to any right of 3 4 termination, cancellation, prepayment or acceleration, under the certificate of incorporation or by-laws of the OPTIONOR, or under any law, rule or regulation or any judgment, decree, order, governmental permit or license, or any note, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which OPTIONOR is a party or by which it may be bound or affected. 3.1.4. Optionor is the legal owner and holder of the Option Stock.COVENANTS OF OPTIONOR 4. COVENANTS OF OPTIONOR 4.1. From and after the date of the execution of this Agreement and throughout the term hereof: 4.1.1. OPTIONOR agrees that it shall not, without the consent of OPTIONEE permit FCIC to: 4.1.1.1. Reorganize its capital structure; 4.1.1.2. Merge or consolidate with any other corporation or sell any of its assets except in the ordinary course of business; or 4.1.1.3. Issue any additional shares of stock. 4.1.2. OPTIONEE shall have the right to examine the books and records of OPTIONOR and FCIC from time to time and receive copies of all accounting reports and tax returns prepared for, or on behalf of, FCIC subject to any DOI policies governing dissemination of examination reports to unaffiliated parties. 4.1.3. As soon as practicable, and in any event within twenty (20) days after the end of each calendar month, furnish to OPTIONEE a monthly unaudited financial statement of OPTIONOR and FCIC and each of its subsidiaries, including balance sheets and income statements, for the calendar month just ended, and for the calendar year to date; and 4.1.4. As soon as practicable, and in any event within 180 days after the end of each fiscal year, furnish to OPTIONEE the annual audit report of OPTIONOR and FCIC and each of its subsidiaries, certified without material qualification by independent certified public accountants selected by OPTIONOR and acceptable to OPTIONEE, prepared in accordance with generally accepted accounting principles and practices applied on a basis consistently maintained throughout the period involved, together with relevant 4 5 financial statements of Borrower for the twelve (12)-month period just ended. 5. CLOSING. 5.1. After delivery of the notice of intent to exercise the option pursuant to Section 1.4 hereof, and prior to the closing hereunder, OPTIONEE shall file with the DOI its completed application for approval of the Transaction, and OPTIONEE and OPTIONOR shall each use its good faith efforts to promptly obtain the written consent or approval of each person whose consent or approval is required to consummate the purchase and sale of the Option Stock, including all required DOI approvals. 5.2. OPTIONEE and OPTIONOR shall consummate and close the sale contemplated by this Agreement on or before the fifteenth calendar day following the date of the receipt by OPTIONEE of all required approvals from the DOI for the consummation of the Transaction. The closing shall occur at such time, date and location in St. Petersburg, Florida as is mutually agreed upon by OPTIONEE and OPTIONOR. 5.3. At closing hereunder, said Option Stock shall be conveyed free and clear of all liens and encumbrances other than the Permitted Encumbrances. Optionor has delivered to Optionee, simultaneously upon the execution hereof, stock powers and letters of instruction to the lenders holding first lien security interests in the Option Stock and otherwise disclosed in Exhibit A. Such powers and letters are to be held by Optionee and not used or delivered until the exercise of, and closing under, this Option. 5.4. Optionor shall make, execute and deliver such additional instruments as Optionee may reasonably request to convey the Optionor's interest in the Option Stock. 5.5. Optionor irrevocably nominates, constitutes and appoints Optionee its true and lawful attorney in fact, with full power of substitution and revocation for it, in its name, place and stead and either in the name of Optionee or in the name of Optionor to make, execute and deliver such stock powers, and other instruments or agreements as may be necessary or appropriate to close on the purchase of the Option Stock in accordance with the terms of this Agreement and to transfer the title to such stock from the name of the Optionor to the name of the Optionee or its assigns. All rights, powers and authority of said attorney-in-fact to exercise any and all rights and powers herein granted shall commence and be in full force and effect as of the date of this Agreement and such rights, powers and authority shall remain in full force and effect thereafter until the termination of this Agreement. However, Optionee shall not deliver the Absolute Assignment or otherwise exercise its rights under this Power of Attorney until there is an occurrence of an Event of Default hereunder. The power set forth herein is a power coupled with an interest. 5 6 6. BOARD APPROVAL 6.1. This Agreement shall not be effective to bind the parties unless and until the Credit Line and the Loan Documents have been approved by the Optionee's Board of Directors and Audit Committee. 7. MISCELLANEOUS. 7.1. Attorney's Fees. If either of the parties hereto should bring a Court action alleging breach of this Agreement or seeking to enforce, rescind, renounce, declare void or terminate this Agreement or any provisions thereof, the prevailing party shall be entitled to recover all of its legal expenses, including reasonable attorney's fees and costs (including legal expenses for any appeals taken), and to have the same awarded as part of the judgment in the proceeding in which such legal expenses and attorney's fees were incurred. 7.2. Benefits. This Agreement shall be freely assignable and shall be binding upon the parties, their heirs, legal representatives, successors and assigns. 7.3. Captions. The paragraph captions as to contents of the particular paragraphs herein are inserted only for convenience and are in no way to be construed as part of this Agreement or as a limitation of the scope of the particular paragraph in which they are referred. 7.4. Construction of Agreement. Words of a gender used in this Agreement shall be held to include any other gender, the words in a singular number held to include the plural, when the sentence so requires. 7.5. Counterparts. This Agreement may be executed in several counterparts, each of which so executed shall be deemed to be an original, and said counterparts shall together constitute and be one and the same instrument. 7.6. Entire Agreement. This Agreement contains all of the oral and/or previously written agreements, representations, and arrangements between the parties hereto with respect to the subject matter hereof, and all right which the respective parties may have had with respect to the subject matter hereof under any written agreements and/or oral agreements are hereby canceled and terminated, and all parties agree that there are no representations or warranties other than those set forth herein. 7.7. Invalidation. Should any part of this Agreement for any reason be declared invalid, such decision shall not effect the validity of any remaining portion, which remaining portion shall remain in full force and 6 7 effect as if this Agreement had been executed with the invalid portion thereof eliminated. It is, therefore, declared the intention of the parties hereto that each of them will have executed the remaining portion of this Agreement without including therein any such part, parts or portion which may, for any reason, be hereafter declared void. 7.8. Modification. No change or modification of this Agreement shall be valid unless the same shall be in writing and signed by each of the parties hereto. 7.9. Applicable Law/Venue. This Agreement shall be construed in accordance with and governed by the laws of the State of Florida, without regard to choice of law provisions. Further, the venue for any action brought to enforce any of the provisions hereof shall be in a state court of competent jurisdiction in Pinellas County, Florida and any action commenced in any other forum may be removed to a state court of competent jurisdiction in Pinellas County, Florida. 7.10. Venue. The venue for any action brought to enforce the terms and conditions of this Agreement shall be any court of competent jurisdiction located in Pinellas County, Florida. IN WITNESS WHEREOF, the parties have set their hands and seals hereunto and have caused this Agreement to be executed in their names the day and year first above written. WITNESSES: Bankers Insurance Group, Inc. s/s Lisa M. Powell ------------------ s/s Harold David Holland BY: s/s G. Kristin Delano ------------------------ -------------------------------------- As Its: Secretary ---------------------------------- WITNESSES: Insurance Management Solutions Group, Inc. s/s Harold David Holland ------------------------ s/s Lisa Powell BY: Richard G. Torra --------------- ------------------------------------- As Its: Corporate Secretary ---------------------------------- Exhibits: A Permitted Encumbrances 7 8 EXHIBIT A PERMITTED ENCUMBRANCES Bankers Insurance Group - Western International Insurance Company - Bonded Builders Loan: $9,000,000.00 / Advanced $8,600,000.00 Current Balance: $8,426,940.65 Lender: Western International Insurance Company Borrower: Bankers Insurance Group, Inc. Re: Financing for Bonded Builders acquisition Issue Date April 16, 2000 Maturity Date: May 1, 2008 Collateral Stock Pledged: FCIC 3,023 shares owned by BIG BSIC 75,000 shares owned by BIG BHWA 1,000 shares owned by BIG SouthTrust - Bankers Insurance Group, Inc. Loan: $6,000,000.00 Current Balance: $3,372,305.40 Lender: SouthTrust Borrower: BIG Issue Date October 1, 1993 Amended December 20, 1997 Maturity Date: December 30, 2002 Stock Pledged: 2,008,667 shares of BIG stock owned by BFC 7,875 shares of FCIC shares owned by BIG BFC means Bankers Financial Corporation, a Florida corporation BIG means Bankers Insurance Group, Inc. BHWA means Bankers Home Warranty Association, a Florida corporation BSIC means Bankers Security Insurance Company, a Florida insurance company FCIC mean First Community Insurance Company, a New York insurance company 8 GRAPHIC 7 g70960xbox.gif GRAPHIC begin 644 g70960xbox.gif M1TE&.#EA#``,`/?^``````$!`0("`@,#`P0$!`4%!08&!@<'!P@("`D)"0H* M"@L+"PP,#`T-#0X.#@\/#Q`0$!$1$1(2$A,3$Q04%!45%186%A<7%Q@8&!D9 M&1H:&AL;&QP<'!T='1X>'A\?'R`@("$A(2(B(B,C(R0D)"4E)28F)B7IZ>GM[>WQ\?'U]?7Y^?G]_?X"`@(&!@8*" M@H.#@X2$A(6%A8:&AH>'AXB(B(F)B8J*BHN+BXR,C(V-C8Z.CH^/CY"0D)&1 MD9*2DI.3DY24E)65E9:6EI>7EYB8F)F9F9J:FIN;FYRGI^?GZ"@ MH*&AH:*BHJ.CHZ2DI*6EI::FIJ>GIZBHJ*FIJ:JJJJNKJZRLK*VMK:ZNKJ^O MK["PL+&QL;*RLK.SL[2TM+6UM;:VMK>WM[BXN+FYN;JZNKN[N[R\O+V]O;Z^ MOK^_O\#`P,'!P<+"PL/#P\3$Q,7%Q<;&QL?'Q\C(R,G)RWM_?W^#@X.'AX>+BXN/CX^3DY.7EY>;FYN?GY^CHZ.GIZ>KJZNOK MZ^SL[.WM[>[N[N_O[_#P\/'Q\?+R\O/S\_3T]/7U]?;V]O?W]_CX^/GY^?KZ M^OO[^_S\_/W]_?[^_O___R'Y!`$``/X`+``````,``P`!PA>`/]%8T:PH,%_ M&0`H7,@0(3UF_R)&C*8N`T)P"O1(1"4@F$6+UB@0^H=*P2V$*/]94\!$P$F4 J%B/^`1!%XL>('#-EC'BSY,F0(S]& GRAPHIC 8 g70960box.gif GRAPHIC begin 644 g70960box.gif M1TE&.#EA#``,`/?^``````$!`0("`@,#`P0$!`4%!08&!@<'!P@("`D)"0H* M"@L+"PP,#`T-#0X.#@\/#Q`0$!$1$1(2$A,3$Q04%!45%186%A<7%Q@8&!D9 M&1H:&AL;&QP<'!T='1X>'A\?'R`@("$A(2(B(B,C(R0D)"4E)28F)B7IZ>GM[>WQ\?'U]?7Y^?G]_?X"`@(&!@8*" M@H.#@X2$A(6%A8:&AH>'AXB(B(F)B8J*BHN+BXR,C(V-C8Z.CH^/CY"0D)&1 MD9*2DI.3DY24E)65E9:6EI>7EYB8F)F9F9J:FIN;FYRGI^?GZ"@ MH*&AH:*BHJ.CHZ2DI*6EI::FIJ>GIZBHJ*FIJ:JJJJNKJZRLK*VMK:ZNKJ^O MK["PL+&QL;*RLK.SL[2TM+6UM;:VMK>WM[BXN+FYN;JZNKN[N[R\O+V]O;Z^ MOK^_O\#`P,'!P<+"PL/#P\3$Q,7%Q<;&QL?'Q\C(R,G)RWM_?W^#@X.'AX>+BXN/CX^3DY.7EY>;FYN?GY^CHZ.GIZ>KJZNOK MZ^SL[.WM[>[N[N_O[_#P\/'Q\?+R\O/S\_3T]/7U]?;V]O?W]_CX^/GY^?KZ M^OO[^_S\_/W]_?[^_O___R'Y!`$``/X`+``````,``P`!P@Z`/\)'$APX)L? 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EX-10.1

   1
EXHIBIT 10.1

                          CREDIT AND SECURITY AGREEMENT

THIS CREDIT AND SECURITY AGREEMENT (herein, "Agreement") is made effective this
14_day of August, 2001 between INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
(herein, "Lender") and BANKERS INSURANCE GROUP, INC. (herein, "Borrower")
(herein Lender and Borrower collectively, "Parties" or individually "Party").

RECITALS:

WHEREAS, Lender is a corporation duly organized under the laws of the State of
Florida.; and

WHEREAS, Borrower is a corporation duly organized under the laws of the State of
Florida; and

WHEREAS, in order to provide Borrower with funds to advance to Bankers
Underwriters, Inc., a wholly owned subsidiary of Borrower (herein, "BUI") as
well as working capital for Borrower, Borrower wishes to borrow the aggregate
sum of up to Five Million and 00/100 ($5,000,000.00) U.S. dollars from Lender
and secured by the Collateral; and

WHEREAS, Lender wishes to lend to Borrower an amount equal to the amount
required for an advance to BUI as well as Borrower's working capital needs; and

         IN CONSIDERATION OF Lender's agreement to loan to Borrower the sum of
up to Five Million and 00/100 ($5,000,000.00) U.S. dollars, all in accordance
with the terms and conditions of this Agreement, as well as for other good and
valuable consideration, the Parties hereto do covenant and agree as follows:

SECTION 1. RECITALS.

         The statements contained in the recitals of fact set forth above (the
         "Recitals") are true and correct, and the Recitals by this reference
         are made a part of this Agreement.

SECTION 2. EXHIBITS.

         The exhibits attached to this Agreement are by this reference made a
         part of this Agreement.

SECTION 3. DEFINITIONS.

         For the purpose of this Agreement, the following terms shall have the
following meanings:

a)      "Affiliate" shall mean any corporation, partnership, association, trust
        or Person which or who directly or indirectly controls or is controlled
        by, or is under common control with the Borrower.

b)      "BUI" shall mean Bankers Underwriters, Inc., a Florida corporation and
        wholly owned subsidiary of Borrower.

c)      "Collateral" shall refer collectively to the following being delivered
        as part of the Loan Documents (i) the 10,898 shares of the common
        capital stock of First Community Insurance Company, $318.00 par value
        being pledged by Borrower to Lender pursuant to the Stock Option
        Agreement, and (ii)


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                     CREDIT AND SECURITY AGREEMENT (cont.)



        the Flood Book being assigned by Bankers Underwriters, Inc. to Lender
        pursuant to the Collateral Assignment of Flood Book.

d)      "Corporate Principal" shall mean any shareholder, director, or officer
        of Borrower.

e)      "Event Of Default" shall mean any of the events or conditions described
        in the subsequent paragraph hereof captioned, "Event Of Default" and
        "Events-Of-Default" shall refer collectively thereto.

f)      "Flood Book" shall have the definition assigned to such term in the
        Collateral Assignment of Flood Book.

g)      "Indebtedness" shall mean and include:

        (i) all obligations which in accordance with generally accepted
        accounting principles would be included in determining total
        liabilities as shown on the liability side of a balance sheet as of the
        date of which Indebtedness is to be determined,
        (ii) obligations secured by any deed of trust, pledge or lien, whether
        or not the Obligation secured thereby shall have been assumed; and
        (iii) guarantees, endorsements (other than endorsements for collection
        in the ordinary course of business) and other contingent obligations in
        respect of, or to purchase or otherwise acquire, Indebtedness of others.

h)      "Loan" shall mean the line of credit established pursuant to Section 4.
        hereof.

i)      "Loan Documents" shall mean each of the following documents all dated of
        even date herewith to establish the Loan - Promissory Note, Collateral
        Assignment of Flood Book, Absolute Assignment of Flood Book, Stock
        Option Agreement, Further Assurance and Compliance Agreement and the
        within Credit and Security Agreement.

j)      "Obligation" or Obligations" shall mean any and all Indebtedness,
        liabilities and obligations of Borrower whatsoever under the Loan
        Documents.

k)      "Permitted Encumbrances" shall mean the first lien security interests on
        the Collateral and which are disclosed in Exhibit A attached hereto.

l)      "Payment Date" shall have the definition assigned thereto in Section
        4 c) hereof.

m)      "Person" shall mean and include any individual, partnership,
        corporation, trust, unincorporated organization or a government or any
        department or agency thereof.

n)      "Promissory Note" shall mean the Master Promissory Note required and
        described in Section 4 c).

o)      "Subsidiary" shall mean any corporation of which a majority, in vote or
        value, of every class of stock, at the time as of which any
        determination is being made, is owned by the Borrower either directly or
        through Subsidiaries.


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   3
                     CREDIT AND SECURITY AGREEMENT (cont.)


SECTION 4. LOAN.

a)      Amount. Upon the execution of this Agreement and in compliance with its
        terms and conditions, Lender agrees to a loan to Borrower a maximum
        principal amount equal to Five Million and 00/100 ($5,000,000.00) U.S.
        dollars.

b)      Purpose. Funds received under the Promissory Note shall be used
        exclusively to advance funds to BUI as well as for various working
        capital requirements related to Borrower's ongoing operation.

c)      Promissory Note. Proceeds to Borrower under the Loan shall be evidenced
        by a master promissory note (herein, "Promissory Note") which shall be
        executed and delivered and which shall be of even date herewith, the
        stated principal amount of which shall be Five Million and 00/100
        ($5,000,000.00) U.S. dollars and for which no more than a collective
        aggregate maximum principal amount outstanding of Five Million and
        00/100 ($5,000,000.00) U.S. dollars may be advanced at any time, which
        Promissory Note shall bear interest from the date hereof at a per annum
        rate of the Prime Rate (as such term is defined in the Promissory Note)
        plus 1.5% until paid in full; provided, however, that in no event shall
        interest accrue at a rate in excess of the maximum rate allowed by law;
        and such Promissory Note shall contain the following payment provisions:

                  Commencing on the first day of September 2001, all accrued and
                  unpaid interest shall be due and payable on the first day of
                  each calendar month of each and every year (herein, " Payment
                  Date"); and all unpaid principal and interest shall be due and
                  payable in full on or before February 28th, 2002 (herein,
                  "Promissory Note").

d)      Grant of Security Interest. BUI joins in the execution of this Agreement
        for the purpose of granting and does hereby grant to Lender a first lien
        security interest in and to the Flood Book as security for the repayment
        of all sums advanced on the Loan and for the performance by Borrower and
        BUI of all covenants and agreements under the Loan Documents in
        accordance with their following terms and conditions.

SECTION 5. TERM OF AGREEMENT.

This Agreement shall be effective upon the execution hereof and shall continue
in full force and effect until February 28th, 2002 unless terminated as
hereafter provided or upon satisfaction of the Promissory Note in full.

SECTION 6. CONDITIONS PRECEDENT.

        Prior to the first advance by Lender to Borrower pursuant to this
        Agreement and as a condition precedent to any of Lender's other
        Obligations under this Agreement, Borrower shall execute and deliver to
        Lender or shall cause to be executed and delivered to Lender each of the
        following:

a)      Promissory Note. Promissory Note which shall include a Waiver of Jury
        Trial provision;

b)      The Loan Documents;

c)      Perfection. Such financing statement(s), security agreements, and other
        documents and instruments as Lender may reasonably require from time to
        time to perfect any and all security interests granted by Borrower to
        Lender pursuant to this Agreement or pursuant to any other security
        agreement(s) executed by Borrower to induce Lender to make the Loan
        herein described;


                                     3 of 3
   4
                     CREDIT AND SECURITY AGREEMENT (cont.)


d)      Resolutions. The good and sufficient Resolution of the Board of
        Directors of the Borrower authorizing Borrower to enter into the
        transaction contemplated by this Agreement;

e)      Opinion. The opinion of counsel for Borrower including but not limited
        to the following - (i) that Borrower is a corporation in good standing,
        duly qualified under the laws of the State of Florida, (ii) Borrower is
        authorized to enter into the Loan Documents, (iii) the transaction has
        been duly authorized by Borrower, and (iv) the Loan Documents have been
        duly authorized, executed and delivered by the Borrower, (v) the
        execution and delivery of the documents do not contravene nor are
        prohibited by the Charter, By-Laws or outstanding resolutions of
        Borrower or any agreements to which Borrower is a Party and (vi) such
        other matters reasonably requested; and

f)      Board Approval. Lenders Board of Directors and its Audit Committee shall
        have authorized Lender's management to enter into the transaction
        contemplated hereby.

SECTION 7. AFFIRMATIVE COVENANTS.

        Borrower hereby covenants with Lender that for so long as any
        Obligations remain outstanding Borrower shall:

a)      Corporate Existence. Do or cause to be done all things necessary to keep
        in full force and effect its corporate existence and all rights,
        franchises, licenses, authorizations, permits and qualifications to
        carry on business in all jurisdictions where such qualifications may be
        necessary;

b)      Compliance with Law. Remain in compliance with all applicable laws of
        the jurisdictions within which Borrower conducts its business.

c)      Payment of Taxes. Pay all federal, state and local taxes as the same
        become due.

d)      Financial Statements. Deliver to Lender, specifically upon request by
        Lender, the following:

                (i)     Unaudited Financials - Monthly. As soon as practicable,
                        and in any event within fifteen (15) days after the end
                        of each calendar month, furnish to Lender a monthly
                        unaudited financial statement of Borrower, including
                        balance sheets and income statements, for the calendar
                        month just ended, and for the calendar year to date,
                        certified by a duly authorized officer of Borrower;

                (ii)    Unaudited Financials - Annual. As soon as practicable,
                        and in any event within sixty (60) days after the end of
                        each fiscal year, furnish to Lender, the unaudited
                        financial statement for the Borrower, including balance
                        sheets and income statements, prepared in accordance
                        with generally accepted accounting principles and
                        practices applied on a basis consistently maintained
                        throughout the period involved and certified by an
                        authorized officer of Borrower; and

                (iii)   Data. Such financial statements, reports, certificates,
                        lists of customers (showing names, addresses and amounts
                        owing) and other data concerning Accounts, contracts,
                        collections, inventory and other matters as Lender may
                        from time to time request.

e)      Notice. Give prompt written notice to Lender upon becoming aware of the
        occurrence of any Event Of Default or event which, by passage of time or
        the giving of notice or both would constitute an Event Of Default;



                                     4 of 4
   5
                     CREDIT AND SECURITY AGREEMENT (cont.)


f)      Free Collateral. Except for Permitted Encumbrances, keep Collateral free
        from all liens, encumbrances and security interests and pay and
        discharge when due all taxes, levies and other charges upon it and upon
        the goods evidenced by any documents constituting Collateral and defend
        it against all claims of any kind;

g)      Access. Provide access to accounting and business records of Borrower
        which will include, but not be limited to, access and substantive
        dialogue with Borrower's accountants, attorneys, bank or other financial
        institution and any other party or parties with which the Borrower has
        had or may have any dealings. Said dialogue may encompass the affairs,
        finances and accounts of Borrower including but not limited to any
        matter or aspect pertaining to any and all business transactions that
        have taken place or that may be contemplated at some future date.
        Borrower shall hold harmless, indemnify, release and authorize any and
        all such parties that may care to express an opinion regarding the
        business of the Borrower and the transactions engaged therein;

h)      Financial Condition. Notify Lender immediately, but in any event within
        five (5) days after obtaining knowledge of any fact or facts which might
        materially and adversely affect the assets, business operations,
        properties, income or condition (financial or otherwise) of the Borrower
        or the Obligations or authority of Borrower to perform its Obligations
        under any Loan Document;

i)      Notify of Action or Suit. Notify Lender immediately, but in any event
        within five (5) days after obtaining knowledge that Borrower is a party,
        or may be threatened to be made a party, to any threatened, pending or
        completed action, suit or proceeding, whether civil, criminal,
        administrative or investigative;

j)      Pay Debts - Indemnity. Pay when due (or within applicable grace periods)
        all Indebtedness due third Persons, except when the amount thereof is
        being contested in good faith by appropriate proceedings and with
        adequate reserves therefore set aside on the books of Borrower for the
        payment of such indebtedness. If Borrower shall default in the payment
        of any principal (or installment thereof) of, or interest on, any such
        Indebtedness, Lender shall have the right, in its sole discretion, to
        pay such interest or principal on behalf of Borrower; provided, however,
        Borrower shall indemnify Lender in full for any such amount;

k)      New Location. Notify Lender thirty (30) days in advance of any change in
        the jurisdiction of its organization, the location of any of its
        businesses or the establishment of any new, or the discontinuance of any
        existing, place of business; and

l)      Books of Account - Inspections. Maintain books of account in accordance
        with general accounting practices, and for purposes of determining
        Borrower's compliance with this Agreement. If no Event of Default exists
        or is continuing, Lender shall have the right, at Lender's expense, to
        inspect any of the corporate books and financial records at such
        reasonable times as Lender may request. If an Event of Default exists,
        Lender may, at the expense of the Borrower, inspect the corporate books
        and financial records at all such reasonable times and as often as may
        be requested by the Lender.

SECTION 8. NEGATIVE COVENANTS.

        Borrower hereby covenants with Lender that for so long as any
        Obligations remain outstanding and unless Lender notifies Borrower in
        writing it dispenses with any one or more of the following requirements,
        Borrower will not:

a)      Character of Business. Engage in any business substantially apart from
        the services currently being provided by Borrower;


                                     5 of 5
   6
                     CREDIT AND SECURITY AGREEMENT (cont.)


b)      Mergers, Consolidations, Sales. Consolidate with or merge into any other
        Person or permit any other Person other than a Subsidiary to consolidate
        with, or merge into, the Borrower, or to sell, transfer or otherwise
        dispose of all, or substantially all, of its assets to any other Person;

c)      Business Practices. Materially alter or change the principal business in
        which Borrower is engaged or the manner in which Borrower conducts its
        business affairs; and

d)      Untrue Statements. Furnish Lender any certificate or other document that
        will contain any untrue statement of material fact or that will omit to
        state a material fact necessary to make it not misleading in the light
        of circumstances under which it was furnished.

SECTION 9. REPRESENTATIONS AND WARRANTIES.

        Borrower represents and warrants to Lender that:

a)      Absence of Defaults. All agreements to which Borrower and Lender are
        parties are valid and binding agreements enforceable against Borrower in
        accordance with their terms, and no event has occurred and is continuing
        which constitutes an Event of Default by Borrower or a default by
        Borrower or any of its Affiliates under any such agreements;

b)      Ownership. Bankers Financial Corporation owns all of the issued and
        outstanding shares of common stock of Borrower and there are not now nor
        will there be during the term of this Agreement any other shareholders
        of Borrower nor will any one be granted nor has any one been granted any
        options or warrants to acquire any shares of Borrower; provided that
        there is first lien security interest on all of the issued and
        outstanding shares of Borrower to SouthTrust Bank N.A. as otherwise
        disclosed in Exhibit A attached;

c)      Proceeds. Proceeds under this Loan will be used exclusively to advance
        funds to BUI as well as for various working capital requirements related
        to Borrower's ongoing operation;

d)      Correct Financials. Any financial statements heretofore delivered to
        Lender are true and correct in all respects, have been prepared in
        accordance with generally accepted accounting practices and fairly
        represent the financial conditions of the Borrower as of the respective
        dates thereof. No material adverse change has occurred in the financial
        condition of the Borrower reflected in such financial statements since
        the respective dates thereof and no additional borrowings have been made
        by Borrower since the date thereof other than the borrowing contemplated
        hereby.;

e)      No Breach or Violation. The consummation of the transactions
        contemplated hereby or the performance by Borrower of any Obligation
        will not result in any breach of or constitute a default under any
        mortgage, deed of trust, lien, bank loan, or credit agreement, corporate
        charter, by-law, or other instrument to which Borrower is a party, or by
        which it is bound or affected;

f)      Corporate Existence - Good Standing.

                (i)     Borrower is a corporation duly organized, validly
                        existing, and in good standing under the laws of the
                        State of Florida;

                (ii)    Borrower has all lawful corporate power to own its
                        properties and to engage in the business it now
                        conducts, and Borrower is duly qualified and in good
                        standing as a foreign corporation in the jurisdictions
                        wherein the nature of the business transacted by it or
                        property owned by it make such qualification necessary;



                                     6 of 6
   7
                     CREDIT AND SECURITY AGREEMENT (cont.)


                (iii)   Borrower has not changed its name, been the surviving
                        corporation in a merger, acquired any business, or
                        changed its principal executive office since 1994; and

g)      Representations and Warranties Survive. All of the representations and
        warranties set forth in Section 9. hereof encaptioned, "Representations
        and Warranties" shall survive the execution and delivery of this
        Agreement and the other Loan Documents until all Obligations are
        satisfied in full and all outstanding amounts due under the Credit Line
        are paid in full.

SECTION 10. FINANCING STATEMENTS.

a)      At Lender's discretion, Borrower will join with Lender in executing such
        financing statements (including amendments thereto and continuation
        statements thereof) in form satisfactory to Lender; pay or reimburse
        Lender for all costs and taxes of filing and recording the same in such
        public offices as Lender may designate; and take such other steps as
        Lender may direct, including the noticing of Lender's lien on the
        Collateral and on any certificates of title therefore all to perfect
        Lender's interest in the Collateral; and

b)      To the extent lawful, Borrower hereby appoints Lender with full power of
        substitution and revocation, as its Attorney-in-Fact (without requiring
        Lender to act as such) to execute any financing statement in the name of
        Borrower, and to perform all other acts that Lender deem appropriate to
        perfect and continue its security interest in, and to preserve, the
        Collateral.

SECTION 11. EVENTS OF DEFAULT.

        The following occurrences shall constitute Events Of Default hereunder:

a)      Non-Payment. Borrower fails to pay when and as required to be paid
        herein, any principal or interest amount within 10 days after the same
        becomes due;

b)      Breach of Warranty. Any warranty, representation, or statement made or
        furnished to Lender by or on behalf of Borrower proves to have been
        false in any material respect on or as of the date when made or
        furnished or deemed made or furnished;

c)      Breach of Covenant. Any affirmative covenant or negative covenant is
        breached, violated or not complied with if such affirmative covenant or
        negative covenant continues to be breached, violated or not complied
        with after Lender has given notice thereof to Borrower and a 30 day
        opportunity to cure;

d)      Dissolution/Bankruptcy. Dissolution, termination of existence,
        insolvency (failure to pay its debts as they mature or the failure to
        maintain the fair market value of its assets in an amount greater than
        its liabilities on a consolidated basis for purposes herein, whichever
        shall first occur), a business failure, appointment of a receiver,
        assignment for the benefit of creditors or the commencement of any
        proceedings under any bankruptcy or insolvency law by or against
        Borrower or any guarantor or the making by either Borrower or any
        guarantor of any offer or settlement, exchange or composition to their
        respective unsecured creditors generally ;

e)      Attach Liens. The issuance or filing against Borrower of a tax lien or
        the issuance or filing of any attachment, injunction, execution or
        judgment which is not removed within fifteen (15) days after issuance of
        filing;


                                     7 of 7
   8

                     CREDIT AND SECURITY AGREEMENT (cont.)


f)      Waste. Lender shall, upon reasonable basis, at any time deem itself
        insecure or unsafe because of diminution, removal, or waste of
        Collateral;

g)      Third Party Debt. Borrower shall fail to pay any Indebtedness due any
        third persons and such failure shall continue beyond any applicable
        grace period, or Borrower shall suffer to exist any other event of
        default under any agreement binding the Borrower;

h)      Judgment. Borrower shall suffer final judgments for payment of any sums
        due to third parties and shall not discharge the same within a period of
        thirty (30) days (unless, pending further proceedings, execution has not
        been commenced, or if commenced has been effectively stayed) or a
        judgment creditor of Borrower shall obtain possession of any of the
        Collateral by any means, including, without limitation, levy, distraint,
        replevin, or self help; and

i)      Impairment of Security. Any condition or situation, which, in the sole
        determination of the Lender, upon reasonable basis, constitutes a danger
        of impairment of the security of the Loan, and such condition or
        situation is not remedied within two (2) business day's after receipt of
        written notice to the Borrower to remedy such condition or situation.

SECTION 12. DEFAULT REMEDIES.

a)      Upon any Event Of Default:

                (i)     Lender shall retain the right to terminate making any
                        further advances of the Loan at any time thereafter,
                        without notice, and until all Obligations are satisfied
                        in full, such termination shall not affect the duties,
                        covenants and liabilities of Borrower hereunder and all
                        the terms, conditions and provisions hereof relating
                        thereto shall continue to be fully operative until all
                        transactions entered into and Obligations have been
                        fully satisfied;

                (ii)    All or any portion of Obligations due or to become due
                        whether under this Agreement or otherwise, shall, at the
                        option of Lender, without notice, demand, presentment or
                        dishonor, all of which Borrower hereby waives, become at
                        once due and payable, and Lender shall thereupon have
                        all the rights and remedies of a secured party under the
                        Uniform Commercial Code as adopted by the State of
                        Florida;

                (iii)   Lender may also, with or without proceeding with sale or
                        foreclosure or demanding payment of a debt owing by
                        Borrower to Lender, without notice, terminate further
                        performance under this Agreement and may declare all
                        outstanding amounts under the Loan Documents due and
                        payable and proceed against the Collateral whether or
                        not in the possession of Lender.; and

                (iv)    To the extent either Borrower or any guarantor makes a
                        payment or payments to Lender which payment or payments
                        or any part thereof are subsequently invalidated,
                        declared to be fraudulent or preferential, set aside or
                        required to be repaid to a trustee, receiver or any
                        other party under any bankruptcy act, state or federal
                        law, common law or equitable cause, then, to the extent
                        of such payment or repayment, the Obligation(s) or part
                        thereof intended to be satisfied shall be revived and
                        continued in full force and effect as if such payment
                        had not been made.


                                     8 of 8
   9
                     CREDIT AND SECURITY AGREEMENT (cont.)


b)      Any failure or delay of Lender to exercise or enforce any rights, liens,
        powers or remedies hereunder or under any of the aforesaid agreements or
        other documents or security or Collateral shall not operate as a waiver
        of such liens, rights, powers and remedies, but all such liens, rights,
        powers and remedies shall continue in full force and effect until all
        loans and advances and all Obligations owing or to become owing from
        Borrower to Lender shall have been fully satisfied and all liens,
        rights, powers and remedies herein provided are cumulative and none is
        exclusive.

c)      Lender may exercise any right or remedy it has under the Promissory Note
        which rights and remedies thereunder are not limited hereby.

SECTION 13. MISCELLANEOUS

a)      Further Assurances. From time to time, Borrower will execute and deliver
        to Lender such additional documents and will provide such additional
        information as Lender may reasonably require to carry out the terms of
        this Agreement and be informed of Borrower's status and affairs.

b)      Payment. The Borrower agrees that as long as the Loan Documents are in
        full force and effect, it will make all payments on each Payment Date,
        when due, by check duly mailed or delivered to Lender at the address
        indicated in the Notice section of this Agreement, or at such other
        place as Lender may designate to the Borrower in writing.

c)      Successors and Assigns. This Agreement shall bind and inure to the
        benefit of the respective successors and assigns of the parties hereto.

d)      Waiver by Lender. Lender shall have the right at all times to enforce
        the provisions of this Agreement and any other Loan Document executed
        pursuant hereto in accordance with the terms hereof and thereof,
        notwithstanding any conduct or custom on the part of Lender in
        refraining from so doing at any time. The failure of Lender at any time
        to enforce its rights under such provisions, in accordance with the same
        shall not be construed as having created a custom in any way or manner
        contrary to specific provisions of this Agreement or as having in any
        way or manner modified or waived the same. All rights and remedies of
        Lender are cumulative and concurrent and the exercise of one right or
        remedy shall not be deemed a waiver or release of any other right or
        remedy.

e)      Costs/Expenses. Pay all reasonable costs and expenses related to the
        transactions contemplated hereby including but not limited to,
        out-of-pocket expenses for payment of documentary stamp taxes,
        intangible taxes, recording and filing fees, surveys, title insurance
        premium, legal fees and expenses of counsel appointed by the Lender, any
        applicable sales tax together with any interest and penalties for the
        late payment thereof, all of which amounts shall be payable at the time
        of the execution of this Agreement or upon demand in the event they are
        hereafter incurred.

f)      Attorney's Fees. If either of the Parties hereto should bring a Court
        action alleging breach of this Agreement or seeking to enforce, rescind,
        renounce, declare void or terminate this Agreement or any provisions
        thereof, the prevailing party shall be entitled to recover all of its
        legal expenses, including reasonable attorney's fees and costs
        (including legal expenses for any appeals taken), and to have the same
        awarded as part of the judgment in the proceeding in which such legal
        expenses and attorney's fees were incurred.



                                     9 of 9
   10

g)      Captions. The Agreement contains captions as to contents of the
        particular paragraphs. The captions set forth herein are inserted only
        for convenience and are in no way to be construed as part of this
        Agreement or as a limitation of the scope of the particular paragraph in
        which they are referred.

h)      Construction of Agreement. Words of a gender used in this Agreement
        shall be held to include any other gender, the words in a singular
        number held to include the plural, when the sentence so requires.

i)      Counterparts. This Agreement may be executed in several counterparts,
        each of which so executed shall be deemed to be an original, and said
        counterparts shall together constitute and be one and the same
        instrument.

j)      Entire Agreement. This Agreement contains all of the oral and/or
        previously written agreements, representations, and arrangements between
        the Parties hereto with respect to the subject matter of this Agreement,
        and all right which the respective Parties may have had under any
        written agreements and/or oral agreements with respect to the subject
        matter of this Agreement are hereby canceled and terminated, and all
        Parties agree that there are no representations or warranties other than
        those set forth herein.

k)      Invalidation. Should any part of this Agreement for any reason be
        declared invalid, such decision shall not effect the validity of any
        remaining portion, which remaining portion shall remain in full force
        and effect as if this Agreement had been executed with the invalid
        portion thereof eliminated. It is, therefore, declared the intention of
        the Parties hereto that each of them will have executed the remaining
        portion of this Agreement without including therein any such part, parts
        or portion which may, for any reason, be hereafter declared void.

l)      Modification. No change or modification of this Agreement shall be valid
        unless the same shall be in writing and signed by each of the Parties
        hereto.

m)      Notices. Any and all notices, designations, consents, offers,
        acceptances, or any other communication provided for herein shall be
        given in writing by hand delivery, by overnight carrier, by registered
        or certified mail or by facsimile transmission and shall be addressed as
        follows:

               As to Borrower:    Bankers Insurance Group, Inc.
                                      360 Central Avenue, 17th Floor
                                      St. Petersburg, Florida 33701
                                      Att: G. Kristin Delano
                                      Telephone: (727) 823-4000
                                      Telefax: (727) 803-4198

               As to Lender:          Insurance Management Solutions Group, Inc.
                                      360 Central Avenue, 16th Floor
                                      St. Petersburg, Florida 33701
                                      Att: David Howard, President
                                      Tel#: (877) 711-4674
                                      Fax: (727) 803-2099


                                    10 of 10
   11
                     CREDIT AND SECURITY AGREEMENT (cont.)


        Notices sent by hand delivery shall be deemed effective on the date of
        hand delivery. Notices being sent by overnight carrier shall be deemed
        effective on the next business day after being placed into the hands of
        the overnight carrier. Notices sent by registered or certified mail
        shall be deemed effective on the third business day after being
        deposited into the post office. Notices sent by facsimile transmission
        shall be deemed to be effective on day when sent if sent prior to 5:00
        p.m. (the time being determined by the time zone of the recipient)
        otherwise they shall be deemed effective on the next business day.

n)      Representation Acknowledged. The Parties acknowledge that each Party and
        its counsel have reviewed and revised this Agreement and that the normal
        rules of construction to the effect that any ambiguities are to be
        resolved against the drafting party shall not be employed in the
        interpretation of this Agreement or any amendments or exhibits hereto.

o)      Applicable Law/ Venue. This Agreement shall be construed in accordance
        with and governed by the laws of the State of Florida, without regard to
        choice of law provisions. Further, the venue for any action brought to
        enforce any of the provisions hereof shall be in a state court of
        competent jurisdiction in Pinellas County, Florida and any action
        commenced in any other forum may be removed to a state court of
        competent jurisdiction in Pinellas County, Florida.






                                    11 of 11
   12

                     CREDIT AND SECURITY AGREEMENT (cont.)


IN WITNESS WHEREOF, the Parties hereto have set their hands and seals, the day
and year first above written.

"Borrower"
BANKERS INSURANCE GROUP, INC.

By:      s/s G. Kristin Delano
    --------------------------------

Name:    G. Kristin Delano
      ------------------------------
Its:     Secretary
     -------------------------------


"Lender"
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.

By:      s/s Richard G. Torra
    --------------------------------

Name:    Richard Torra
      ------------------------------
Its:     Corporate Secretary
     -------------------------------


                                     JOINDER

Bankers Underwriters, Inc. does hereby ratify and affirm the grant of a security
interest in the Flood Book in Section 4 d) hereof.

Executed this   14 day of  August              ,  2001
              -----        --------------------  ------

BANKERS UNDERWRITERS, INC.

By:      s/s G. Kristin Delano
    --------------------------------

Name:    G. Kristin Delano
      ------------------------------
Its:     Secretary
     -------------------------------




                                    12 of 12
   13

                     CREDIT AND SECURITY AGREEMENT (cont.)


EXHIBIT A
PERMITTED ENCUMBRANCES

Bankers Insurance Group - Western International Insurance Company -
Bonded Builders

                Loan:                $9,000,000.00 / Advanced $8,600,000.00
                Current Balance:     $8,426,940.65
                Lender:              Western International Insurance Company
                Borrower:            Bankers Insurance Group, Inc.
                Re:                  Financing for Bonded Builders acquisition
                Issue Date           April 16, 2000
                Maturity Date:       May 1, 2008
                Collateral
                Stock Pledged:       FCIC 3,023 shares owned by BIG
                                     BSIC 75,000 shares owned by BIG
                                     BHWA 1,000 shares owned by BIG

SouthTrust - Bankers Insurance Group, Inc.

                Loan:                $6,000,000.00
                Current Balance:     $3,372,305.40
                Lender:              SouthTrust
                Borrower:            BIG
                Issue Date           October 1, 1993
                Amended              December 20, 1997
                Maturity Date:       December 30, 2002
                                                  Stock Pledged:   2,008,667
                                     shares of BIG stock owned by BFC
                                                                   7,875 shares
                                     of FCIC shares owned by BIG


BFC means Bankers Financial Corporation, a Florida corporation
BIG means Bankers Insurance Group, Inc.
BHWA means Bankers Home Warranty Association, a Florida corporation
BSIC means Bankers Security Insurance Company, a Florida insurance company
FCIC means First Community Insurance Company, a New York insurance company




                                    13 of 13

EX-10.2

   1

EXHIBIT 10.2

                             MASTER PROMISSORY NOTE


$5,000,000.00                                                    August 14, 2001

         FOR VALUE RECEIVED, the undersigned, BANKERS INSURANCE GROUP, INC., a
Florida corporation (herein, "Debtor"), promises to pay to the order of
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC., a Florida corporation, together with
any other holder hereof (herein, "Holder"), the principal sum of Five-Million
and no/100 ($5,000,000.00) U.S. dollars, together with interest thereon from the
date hereon at a rate of the "Prime Rate" (as hereinafter defined) plus 1.5% per
annum, both principal and interest being payable at Holder's place of business,
360 Central Avenue, St. Petersburg, Florida 33701 or at such other places as
Holder may designate from time to time, in the following manner:

                Commencing on the first day of September 2001, all accrued and
                unpaid interest shall be due and payable on the first day of
                each calendar month of each and every year (a "Payment Date").
                All unpaid principal and interest shall be due and payable in
                full on February 28th, 2002.

Credit and Security Agreement. Unless the context shall otherwise require,
capitalized terms not defined herein shall have the meanings assigned thereto in
the Credit and Security Agreement dated of even date herewith being executed and
delivered by and between Debtor and Holder.

Rate. For the purposes of this Note, the "Prime Rate" shall mean the base rate
on corporate loans posted by at least 75% of the nation's 30 largest banks, as
quoted in the "Money Rates" section of the Wall Street Journal, or if such rate
is discontinued, then the Holder shall substitute an index, as determined by
Holder, to be comparable, in its sole discretion.

Proceeds. It is contemplated that all proceeds extended to Debtor under this
Note shall be used exclusively for advances to Bankers Underwriters, Inc., a
Florida corporation and wholly owned subsidiary of Debtor as well as for various
working capital requirements related to Debtor's ongoing operation.

Master Note. This Note is a master note, and it is contemplated that any amounts
and liability incurred in the ongoing operation thereof on behalf of Debtor and
as evidenced hereby will be advanced from time to time to the Debtor by Holder
in installments, as requested by the Debtor and agreed to by Holder, under the
Credit and Security Agreement of even date hereof between Debtor and Holder.

Advances. It is further contemplated that any amounts advanced under this Note
may be prepaid from time to time by the Debtor. Debtor may borrow, repay and
reborrow hereunder at any time, up to a maximum aggregate amount outstanding at
any one time equal to the principal amount of this Note, provided that Debtor is
not in default under any provision of this Note, any other documents executed in
connection with this Note, or any other note or other loan documents now or
hereafter executed in connection with any other obligation of Debtor to Holder,
and provided that the borrowings hereunder do not exceed any borrowing base or
other limitation on borrowings by Debtor. By reason of such prepayments hereon
there may be times when no indebtedness is owing hereunder, and notwithstanding
any such occurrence, this Note shall remain valid and shall be in full force and
effect as to each subsequent principal advance made hereunder. Each principal
advance and each payment made pursuant to this Note shall be reflected by
notations made by Holder on the grid attached hereto and Holder is




   2
                         MASTER PROMISSORY NOTE (cont.)


hereby authorized to record on such grid all such principal advances and
payments. The aggregate unpaid amounts reflected by the notations made by Holder
on the attached grid shall be deemed rebuttably presumptive evidence of the
principal amount remaining outstanding and unpaid on this Note. No failure of
Holder so to record any advance or payment shall limit or otherwise affect the
obligation of the Debtor hereunder with respect to any advance, and no payment
of principal by the Debtor shall be affected by the failure of Holder so to
record the same.

Advance Obligations. Nothing herein contained shall obligate or require Holder
to make any advances hereunder and all advances shall be made at the option of
Holder. Holder shall incur no liability for its refusal to advance funds based
upon its determination that any conditions of further advances have not been met
by Debtor. This Note shall be valid and enforceable as to the aggregate amount
advanced at any time hereunder, whether or not the full-face amount hereof is
advanced.

Application of Payments. Each payment on the indebtedness evidenced hereby will
first reduce charges related to this Note owed by the Debtor that are neither
principal nor interest. The remainder of each such payment will be applied first
to the interest then accrued on said principal sum remaining unpaid, and then to
the reduction of such unpaid principal. Any partial prepayments of principal
will be applied to installments due in the inverse order of their maturity and
no such partial prepayment of principal will have the effect of postponing,
satisfying, reducing, or otherwise affecting any scheduled installment before
the principal of and interest on this Note is, and all other charges due
hereunder are, paid in full. Principal and interest shall be payable in lawful
money of the United States of America.

Prepayment. The Holders hereof shall not incur any penalty upon the prepayment
of all or any part of the indebtedness evidenced hereby.

Interest Calculation. Interest shall be calculated on all amounts advanced based
on the actual number of days said amounts are outstanding. Interest shall be
computed on the basis of a year of actual number of days per year [i.e.
three-hundred-sixty-five (365) days] and charged for the actual number of days
in the payment period.

Maximum Rate. Debtor shall have no obligation to pay interest or payments in the
nature of interest in excess of the maximum rate of interest allowed to be
contracted for by law, as changed from time to time, applicable to this Note
(herein, "Maximum Rate"). Any interest in excess of the Maximum Rate paid by
Debtor (herein, "Excess Sum") shall be credited as a payment of principal, or,
if Debtor so requests in writing, returned to Debtor, or, if the indebtedness
and other obligations evidenced by this Note have been paid in full, returned to
Debtor together with interest at the same rate as was paid by Debtor during such
period. Any Excess Sum credited to principal shall be credited as of the date
paid to Holder. Holder may, without such action constituting a breach of any
obligations to Debtor, seek judicial determination of the applicable rate of
interest, and its obligation to pay or credit any proposed Excess Sum to Debtor.

Collateral. The obligations under this Note are secured by and subject to the
terms and conditions of the Credit and Security Agreement and various other loan
documents of even date hereof executed by and between Debtor and Holder,
respectively.

Past Due. Time is of the essence hereunder. If any payment of principal or
interest hereby required is overdue for more than ten (10) days, the Holder of
this Note may, at its option, and without notice, declare the entire balance of
principal then remaining unpaid to be immediately due and payable, and any


                                     2 of 2
   3
                         MASTER PROMISSORY NOTE (cont.)


failure to exercise said option shall not constitute a waiver of the right to
exercise the same at any other time. Further, Holder of this Note may, at its
option, and without notice, adjust the interest due on the aggregate principal
amount remaining due and unpaid, together with accrued interest, upward, to the
rate of eighteen (18.0%) per centum per annum, or the Maximum Rate of interest
permitted by law, whichever rate shall be the lesser, which rate of interest, as
adjusted upward, shall be paid on all sums due hereunder until the said sums
have been paid in full, regardless of any payments made by the maker hereof, and
accepted by the Holder, after said option has been exercised. Upon default in
making any payment hereby required, Debtor promises to pay all costs and
expenses, including reasonable attorney's fees (including the cost of any
appeals), of not less than ten (10.0%) percent, incurred in collecting this Note
by legal proceedings or through an attorney.

Remedies. The remedies of Holder herein and in the Credit and Security Agreement
shall be cumulative and concurrent, and may be pursued singularly, successively,
or together, at the sole discretion of Holder, and may be exercised as often as
occasion therefor shall arise. No action or omission of Holder, including
specifically any failure to exercise or forbearance in the exercise of any
remedy, shall be deemed to be a waiver or release of the same, such waiver or
release to be effected only through a written document executed by Holder and
then only to the extent specifically recited therein. A waiver or release with
reference to any one event shall not be construed as continuing or as
constituting a course of dealing, nor shall it be construed as a bar to, or as a
waiver or release of, any subsequent remedy as to a subsequent event.

Set-Off. In addition to all liens upon, and rights of set-off against, any
monies, securities, or other property of any of the Debtor given to Holder by
law, Holder shall have a lien upon and a right of set-off against all monies,
securities and other property of any of the Debtor now or hereafter in the
possession of, or on deposit with, Holder, whether held in a general or special
account or deposit, for safekeeping, in trust or otherwise, and every such lien
and right of set-off as may be exercised without demand upon or notice to any
Debtor, and the Holder shall have no liability with respect to any of Debtor's
checks or other items which may be returned or other funds transfers which may
not be made due to insufficient funds thereafter.

Exercise/Modification. Neither any failure nor any delay on the part of Holder
in exercising any right, power, or privilege under this Note shall operate as a
waiver thereof, nor shall a single or partial exercise thereof preclude any
other or further exercise or the exercise of any other right, power, or
privilege. No modification, amendment, or waiver of any provisions of this Note
shall be effective unless in writing and signed by a duly authorized officer of
Holder, and then the same shall be effective only in the specific instance and
for the purpose for which given. No notice to, or demand on, any Debtor in any
case shall entitle any Debtor to any other or further notice or demand in the
same, similar, or other circumstances.

Severability. Any provision of this Note which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.

Waiver. Debtor and any other person liable for the payment hereof respectively,
hereby expressly waive any valuation and appraisal, presentment, demand for
payment, notice of dishonor, protest, notice of nonpayment or protest, all other
forms of notice whatsoever, and diligence in collection.


                                     3 of 3

   4

                         MASTER PROMISSORY NOTE (cont.)


No Waiver. Acceptance of payments marked "payment in full" or "in satisfaction"
or words to similar effect shall not affect the duty of Debtor to pay all
obligations due hereunder, and shall not affect the right of Holder to pursue
all remedies available to it hereunder or under any other agreement between the
Debtor hereof and the Holder, including but not limited to the Credit and
Security Agreement and Stock Option Agreement each dated of even date herewith.

Jury Trial. DEBTORS AND ANY OTHER PERSON LIABLE FOR PAYMENT HEREOF, BY EXECUTING
THIS NOTE OR ANY OTHER DOCUMENT CREATING SUCH LIABILITY, WAIVE THEIR RIGHTS TO A
TRIAL BY JURY IN ANY ACTION, WHETHER ARISING IN CONTRACT OR TORT, BY STATUTE OR
OTHERWISE, IN ANY WAY RELATED TO THIS NOTE. THIS PROVISION IS A MATERIAL
INDUCEMENT FOR HOLDER'S EXTENDING CREDIT TO DEBTORS AND NO WAIVER OR LIMITATION
OF HOLDER'S RIGHTS UNDER THIS PARAGRAPH SHALL BE EFFECTIVE UNLESS IN WRITING AND
MANUALLY SIGNED ON HOLDER'S BEHALF.

Jury Trial Consideration. Debtor acknowledge that the above paragraph has been
expressly bargained for by Holder as part of the loan evidenced hereby and that,
but for Debtor's agreement and the agreement of any other person liable for
payment hereof thereto, Holder would not have extended the loan for the term and
with the interest rate provided herein.

Binding. The provisions of this Note shall be binding upon the heirs,
successors, and assigns of Debtor, except that Debtor may not assign or transfer
its obligation hereunder without the written consent of Holder, and shall inure
to the benefit of Holder, its successors, and assigns.

Governing Law. This Note is to be governed by and construed under the laws of,
the State of Florida, without regard to choice of law provisions as amended,
except as modified by the laws and regulations of the United States of America.

Venue. Debtor hereby consents and submits to the jurisdiction of the courts of
the State of Florida, and, notwithstanding his, her, their, or its place of
residence or organization or the place of execution of this Note, any litigation
relating hereto, whether arising in contract or tort, by statute or otherwise,
shall be brought in (and, if brought elsewhere, may be transferred to) a State
court of competent jurisdiction in Pinellas County, Florida.

Paragraph Headings; Gender and Number. The headings inserted at the beginning of
each paragraph are for convenience of reference only and shall not limit or
otherwise affect or be used in the construction of any of the terms or
provisions hereof. The plural shall include the singular and the singular, the
plural, wherever the context so admits. The masculine shall include the feminine
and the neuter; the feminine, the masculine and the neuter; and the neuter, the
masculine and the feminine.



                                     4 of 4

   5

                         MASTER PROMISSORY NOTE (cont.)


         IN WITNESS WHEREOF, Debtor has caused this Note to be signed, sealed
and delivered in its name on the day and year first above written.

                                        DEBTOR:
                                        Bankers Insurance Group, Inc.

                                                 s/s G. Kristin Delano
                                        ----------------------------------------

                                        By:               G. Kristin Delano
                                                 -------------------------------
                                        As Its:           Secretary
                                                 -------------------------------






                                     5 of 5

EX-10.3

   1
EXHIBIT 10.3

                       COLLATERAL ASSIGNMENT OF FLOOD BOOK

         THIS COLLATERAL ASSIGNMENT is executed as of this 14 day August, 2001,
by Bankers Underwriters, Inc., a Florida corporation with its principal place of
business located in St. Petersburg, Florida (herein, "Pledgor").


                                R E C I T A L S:

         1. Insurance Management Solutions Group, Inc., a Florida corporation
with its principal place of business located in St. Petersburg, Florida,
(herein, "Lender") has established a line of credit (herein, "Credit Line") in
favor of Bankers Insurance Group, Inc., a Florida corporation (herein,
"Borrower"), in the amount of Five million ($5,000,000.00) dollars evidenced by
Borrower's Master Promissory Note (herein, "Note") of even date herewith and in
like principal amount.

         2. In connection with the establishment of the Credit Line, Borrower
and Pledgor have executed and delivered the following documents, all dated of
even date herewith (herein together with the within document shall be called,
"Loan Documents") - Note, Credit and Security Agreement, Absolute Assignment of
Flood Book (herein, "Absolute Assignment"), Further Assurances and Compliance
Agreement and Stock Option Agreement.

         3. Borrower, as the immediate parent of Pledgor, has agreed to advance
up to the entire amount of the proceeds of the Credit Line to Pledgor.

         4. Pledgor, as a Florida general insurance agent for Bankers Insurance
Company and First Community Insurance Company is the owner of the Flood Book.
For purposes hereof the Flood Book shall mean all of Pledgor's right, title and
interest in and to all of the following, whether now owned or hereafter
acquired, together with all replacements therefor and proceeds (including but
without limitation, insurance policies) thereof:

                  Accounts and contract rights, as those terms are defined by
                  the Uniform Commercial Code as adopted by the State of
                  Florida, with insurance agents, including but not limited to
                  general agents with respect to the sale of federal flood
                  insurance

         5. Lender has, as a condition precedent to establishing such line of
credit, required the execution of this Assignment.

         NOW, THEREFORE, in consideration of the aforesaid Credit Line as well
as for other good and valuable consideration, Pledgor hereby grants to Lender a
first lien security interest in and to the Flood Book to Lender as security for
the repayment of all sums advanced on the Credit Line and for the performance by
Borrower and Pledgor of all covenants and agreements under the Loan Documents in
accordance with the following terms and conditions. Unless the context shall
otherwise require, capitalized terms used and not defined herein shall have the
meanings assigned thereto in the Credit and Security Agreement dated of even
date herewith between Lender and Borrower (herein, "Credit Agreement").


   2



         1. POWER OF ATTORNEY. Pledgor irrevocably nominates, constitutes and
appoints Lender its true and lawful attorney in fact, with full power of
substitution and revocation for it, in its name, place and stead and either in
the name of Lender or in the name of Pledgor to assign any agency agreements
between Pledgor and agents responsible for the production of federal flood
insurance policies as well as any other instruments, agreements or certificates
necessary or appropriate to give full force an effect to such assignment which
assignment may be to Lender, to First Community Insurance Company or to such
other party as Lender may, in the exercise of its absolute discretion select
whether pursuant to the delivery of the Absolute Assignment or otherwise, but
Lender shall not be under any duty to exercise any such authority or power or in
any way be responsible for the collection of any sums owing under the Flood
Book. All rights, powers and authority of said attorney-in-fact to exercise any
and all rights and powers herein granted shall commence and be in full force and
effect as of the date of this Agreement and such rights, powers and authority
shall remain in full force and effect thereafter until the obligations of
Borrower and Pledgor under the Loan Documents have been satisfied in full
However, Lender shall not deliver the Absolute Assignment or otherwise exercise
its rights under this Power of Attorney until there is an occurrence of an Event
of Default hereunder. The power set forth herein is a power coupled with an
interest.

         2. AFFIRMATIVE COVENANTS. Pledgor hereby covenants with Lender that
until the obligations of Borrower and Pledgor under the Loan Documents have been
satisfied in full and for so long as any amount remains outstanding under the
Credit Line, Pledgor will keep the Flood Book free from all liens, encumbrances
and security interests and pay and discharge when due all taxes, levies and
other charges upon them and defend them against all claims of any kind.

         3. REPRESENTATIONS AND WARRANTIES. Pledgor represents and warrants to
Lender that it is the lawful owner and holder of the Flood Book described above,
that:

                (a)     Pledgor has good right to sell, transfer and assign the
                        same as aforesaid.

                (b)     There are no actions, suits or proceedings pending or,
                        to the knowledge of Pledgor, threatened against or
                        affecting it whether civil, criminal, administrative or
                        investigative, and it is not in default with respect to
                        any judgment, decision, order, writ, injunction, decree
                        or demand of any court or governmental authority;

                (c)     The consummation of the transactions hereby contemplated
                        in performance of this Agreement or of any of the Loan
                        Documents will not result in any breach of or constitute
                        a default under any mortgage, deed of trust, lien, bank
                        loan or credit agreement, corporate charter, by-law or
                        other instrument to which Pledgor is a party, or by
                        which it is bound or affected;

                (d)     Pledgor is a corporation duly organized, validly
                        existing and in good standing under the laws of the
                        State of Florida; Pledgor has all corporate powers to
                        own its properties and to engage in the business it
                        conducts, and is duly qualified and in good standing as
                        a foreign corporation in the jurisdictions wherein the
                        nature of the business transacted by it or property
                        owned by it make such qualification necessary;



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                (e)     All of the representations and warranties set forth in
                        this paragraph 3 shall survive the execution and
                        delivery of this Agreement and the other Loan Documents
                        until obligations of Borrower and Pledgor under the Loan
                        Documents have been satisfied in full and all
                        outstanding amounts due under the Credit Line are paid
                        in full.

         4. EVENTS OF DEFAULT. The phrase Event of Default shall have the
definition assigned to such phrase under the Credit Agreement, and any Event of
Default under the Credit Agreement shall constitute an Event of Default
hereunder.

         5. DEFAULT REMEDIES. Upon any Event of Default, all or any portion of
amounts due or to become due from Borrower to Lender under the Note, shall, at
the option of Lender, without demand, presentment or dishonor all of which
Pledgor hereby waives, become at once due and payable, and Lender shall
thereupon have all the rights and remedies of a secured party under the Uniform
Commercial Code as adopted by the State of Florida. The failure or delay of
Lender to exercise or enforce any rights, liens, powers or remedies hereunder or
under any of the aforesaid agreements or other documents of security or
Collateral shall not operate as a waiver of such liens, rights, powers and
remedies, but all such liens, rights, powers and remedies shall continue in full
force and effect until all loans and advances under the Credit Line shall have
been fully satisfied.

         6. TERMINATION OF AGREEMENT. This Agreement shall terminate upon the
satisfaction in full of all obligations of Borrower and Pledgor under the Loan
Documents, including but not limited to payment in full of all amounts
outstanding under the Loan Documents.

         7. MODIFICATION. No change or modification of this Agreement shall be
valid unless the same shall be in writing and signed by all of the parties
hereto.

         8. CAPTIONS. The paragraph captions as to contents of the particular
paragraphs herein are inserted only for convenience and are in no way to be
construed as part of this Agreement or as a limitation of the scope of the
particular paragraph in which they are referred.

         9. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which so executed shall deem to be an original and said
counterpart shall, together constitute and be one and the same instrument.

         10. CONSTRUCTION OF AGREEMENT. Words of a gender used in this Agreement
shall be held to include any other gender, the words in a singular number held
to include the plural, when the sentence so requires.

         11. INVALIDATION. Should any part of this Agreement for any reason be
declared invalid, such decision shall not effect the validity of any remaining
portion, which remaining portion shall remain in force and effect as if the
Agreement had been executed with the invalid portion thereof eliminated. It is,
therefore, declared the intention of the parties hereto that each of them will
have executed the remaining portion of this Agreement without including therein
any such part, parts or portion which may, for any reason, be hereafter declared
void.

         12. ATTORNEY'S FEES. Subject to reasonable construction and sound
business practices, if Borrower, Pledgor or Lender should bring a Court action
alleging breach of this Agreement or seeking to enforce, rescind, renounce,
declare, void or terminate this Agreement or



   4

any provisions thereof, the prevailing party shall be entitled to recover all of
its legal expenses, including reasonable attorney's fees and costs (including
legal expenses for any appeals taken), and to have the same awarded as part of
the judgment in the proceeding in which such legal expenses and attorney's fees
were incurred.

         13. APPLICABLE LAW/VENUE. This Agreement shall be construed in
accordance with and governed by the laws of the State of Florida, without regard
to choice of law provisions. Further, the venue for any action brought to
enforce any of the provisions hereof shall be in a state court of competent
jurisdiction in Pinellas County, Florida and any action commenced in any other
forum may be removed to a state court of competent jurisdiction in Pinellas
County, Florida.

         IN WITNESS WHEREOF, Borrower has set its hand and seal the day and year
first above written.

Signed sealed and delivered                     Bankers Insurance Group, Inc.
In the presence of:                             a Florida corporation


s/s Lisa M. Powell                              By:      G. Kristin Delano
- ------------------------------------                --------------------------
Signature                                       As its:  Secretary

s/s Harold David Holland
- ------------------------------------
Name legibly printed, typewritten or stamped

Signed sealed and delivered                     Bankers Underwriters, Inc.
In the presence of:                             a Florida corporation


s/s Lisa M. Powell                              By:      Richard Torra
- ------------------------------------                --------------------------
Signature                                       As its:  Corporate Secretary

s/s Harold David Holland
- --------------------------------------------
Name legibly printed, typewritten or stamped

EX-10.4

   1
EXHIBIT 10.4

                             STOCK OPTION AGREEMENT


THIS STOCK OPTION AGREEMENT, made and entered into this 14 day of August, 2001,
between Bankers Insurance Group, Inc., a Florida corporation (hereinafter
"Optionor") and Insurance Management Solutions Group, Inc., a Florida
corporation (hereinafter "Optionee").





                                 R E C I T A L S




1.      Definitions. For purposes of this Agreement the terms listed below,
        wherever capitalized, shall be given the following definitions:

        1.1.    "Affiliate" shall mean any Person who controls, is controlled by
                or is under common control with another Person.

        1.2.    "Credit Line" shall mean the line of credit being established by
                Optionee in favor of Optionor in the amount of five million
                ($5,000,000) dollars and evidenced by Optionor's Master
                Promissory Note (herein, "Note") of even date herewith and in
                like principal amount.

        1.3.    "DOI" shall mean the New York Department of Insurance.

        1.4.    "FCIC" shall mean First Community Insurance Company, a New York
                domestic insurance company with its principal place of business
                located in St. Petersburg, Florida and a wholly owned subsidiary
                of Optionor.

        1.5.    "Loan Documents" shall mean the Note, Credit and Security
                Agreement, Collateral Assignment of Flood Book, Absolute
                Assignment of Flood Book, Further Assurances and Compliance
                Agreement and the within Stock Option Agreement all executed of
                even date herewith and which were executed and delivered to
                create the Credit Line.

        1.6.    "Note" shall mean the Master Promissory Note dated of even date
                herewith to evidence Optionor's obligations under the Credit
                Line.

        1.7.    "Option" shall mean the option to purchase the Option Stock
                granted by OPTIONOR to OPTIONEE hereunder.



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        1.8.    "Optionee" shall mean Insurance Management Solutions Group,
                Inc., a Florida corporation.

        1.9.    "Optionor" shall mean Bankers Insurance Group, Inc., a Florida
                corporation.

        1.10.   "Option Stock" shall mean the 10,898 shares of the common
                capital stock, $318 par value of FCIC as to which OPTIONEE is
                granted a purchase option hereunder.

        1.11.   "Person" shall mean any individual, corporation, partnership,
                association, joint-stock company, trust, un-incorporated
                organization, joint venture, court or government or political
                subdivision or agency thereof.

        1.12.   "Permitted Encumbrances" shall mean the liens on the Option
                Stock described in Exhibit A which is attached hereto and by
                reference made a part hereof.

        1.13.   "Transaction" shall mean the purchase and sale of the Option
                Stock hereunder and subsequent to the exercise of the Option.

2.      This Stock Option Agreement was required by Optionee as a condition of
        the establishment of the Credit Line.



NOW THEREFORE, FOR AND IN CONSIDERATION of the establishment of the Credit Line
as well as for other good and valuable consideration, it is hereby covenanted
and agreed among the parties hereto as follows:

                               1. GRANT OF OPTION

        1.1.    OPTIONOR hereby grants and conveys unto OPTIONEE or its assigns
                an irrevocable and exclusive option to purchase the Option Stock
                upon all the terms and conditions hereinafter set forth.

        1.2.    The term of this option to purchase shall commence on the day
                and year first above set forth and shall initially extend
                through and be irrevocable until all principal and accrued
                interest due under the Credit Line is paid in full and all
                obligations of Optionor under the Credit and Security Agreement
                have been satisfied in full.

        1.3.    This option shall only be exercisable on or after such time as
                (i) there shall be a default in payment of any sums due under
                the Note for more than 10 days after the date when they shall
                become due or (ii) there shall be any



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                other default under the Loan Documents if after notice thereof,
                such default has not been cured within thirty days of such
                notice.

        1.4.    Subject to the restrictions set forth in paragraph 1.3 hereof,
                OPTIONEE shall have the right to exercise the Option hereinabove
                granted at any time within the term of this Option by OPTIONEE
                giving written notice of such exercise delivered in person or
                mailed to OPTIONOR. Upon the giving of such notice of the
                exercise, this instrument shall thereupon constitute a firm and
                binding contract of purchase and sale between OPTIONEE and
                OPTIONOR at the price and upon the terms and conditions set
                forth in this Agreement.

                               2. PURCHASE PRICE

        2.1.    The purchase price for said Option Stock shall be the sum of Ten
                ($10.00) per share or One Hundred Eight Thousand Nine Hundred
                Eighty ($108,980) dollars.

        2.2.    The said purchase price of said Option Stock shall be paid in
                cash at the Closing.

                       3. REPRESENTATIONS AND WARRANTIES.

        3.1.    OPTIONOR represents and warrants to OPTIONEE that:

                3.1.1.  OPTIONOR is a corporation duly organized, validly
                        existing and in good standing under the laws of the
                        State of Florida. OPTIONOR has the corporate power and
                        is duly licensed or qualified to the extent required by
                        applicable law to carry on its business as now being
                        conducted and to own, hold and operate its properties
                        and assets.

                3.1.2.  The total authorized capital stock of the FCIC consists
                        of 10,898 shares of common stock, par value $318.00 per
                        share. Of this amount 10,898 shares have been issued and
                        are outstanding. Except for the rights of OPTIONEE with
                        respect to the Option Stock provided for herein and
                        except for the Permitted Encumbrances, OPTIONOR has no
                        stock appreciation rights options, warrants, rights,
                        agreements, understandings or commitments of any kind
                        entitling any person or persons to purchase, subscribe
                        for or otherwise acquire, or relating to the voting
                        rights, of any of OPTIONOR's common capital stock.

                3.1.3.  The execution, delivery and performance of this
                        Agreement by the OPTIONOR, and the consummation of the
                        transactions contemplated by this Agreement, will not
                        constitute a breach, violation or default, create a
                        lien, or give rise to any right of



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                        termination, cancellation, prepayment or acceleration,
                        under the certificate of incorporation or by-laws of the
                        OPTIONOR, or under any law, rule or regulation or any
                        judgment, decree, order, governmental permit or license,
                        or any note, mortgage, indenture, deed of trust,
                        license, lease, agreement or other instrument or
                        obligation to which OPTIONOR is a party or by which it
                        may be bound or affected.

                3.1.4.  Optionor is the legal owner and holder of the Option
                        Stock.COVENANTS OF OPTIONOR

                            4. COVENANTS OF OPTIONOR

        4.1.    From and after the date of the execution of this Agreement and
                throughout the term hereof:

                4.1.1.  OPTIONOR agrees that it shall not, without the consent
                        of OPTIONEE permit FCIC to:

                        4.1.1.1. Reorganize its capital structure;

                        4.1.1.2. Merge or consolidate with any other corporation
                                 or sell any of its assets except in the
                                 ordinary course of business; or

                        4.1.1.3. Issue any additional shares of stock.

                4.1.2.  OPTIONEE shall have the right to examine the books and
                        records of OPTIONOR and FCIC from time to time and
                        receive copies of all accounting reports and tax returns
                        prepared for, or on behalf of, FCIC subject to any DOI
                        policies governing dissemination of examination reports
                        to unaffiliated parties.

                4.1.3.  As soon as practicable, and in any event within twenty
                        (20) days after the end of each calendar month, furnish
                        to OPTIONEE a monthly unaudited financial statement of
                        OPTIONOR and FCIC and each of its subsidiaries,
                        including balance sheets and income statements, for the
                        calendar month just ended, and for the calendar year to
                        date; and

                4.1.4.  As soon as practicable, and in any event within 180 days
                        after the end of each fiscal year, furnish to OPTIONEE
                        the annual audit report of OPTIONOR and FCIC and each of
                        its subsidiaries, certified without material
                        qualification by independent certified public
                        accountants selected by OPTIONOR and acceptable to
                        OPTIONEE, prepared in accordance with generally accepted
                        accounting principles and practices applied on a basis
                        consistently maintained throughout the period involved,
                        together with relevant



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                        financial statements of Borrower for the twelve
                        (12)-month period just ended.

                                  5. CLOSING.

        5.1.    After delivery of the notice of intent to exercise the option
                pursuant to Section 1.4 hereof, and prior to the closing
                hereunder, OPTIONEE shall file with the DOI its completed
                application for approval of the Transaction, and OPTIONEE and
                OPTIONOR shall each use its good faith efforts to promptly
                obtain the written consent or approval of each person whose
                consent or approval is required to consummate the purchase and
                sale of the Option Stock, including all required DOI approvals.

        5.2.    OPTIONEE and OPTIONOR shall consummate and close the sale
                contemplated by this Agreement on or before the fifteenth
                calendar day following the date of the receipt by OPTIONEE of
                all required approvals from the DOI for the consummation of the
                Transaction. The closing shall occur at such time, date and
                location in St. Petersburg, Florida as is mutually agreed upon
                by OPTIONEE and OPTIONOR.

        5.3.    At closing hereunder, said Option Stock shall be conveyed free
                and clear of all liens and encumbrances other than the Permitted
                Encumbrances. Optionor has delivered to Optionee, simultaneously
                upon the execution hereof, stock powers and letters of
                instruction to the lenders holding first lien security interests
                in the Option Stock and otherwise disclosed in Exhibit A. Such
                powers and letters are to be held by Optionee and not used or
                delivered until the exercise of, and closing under, this Option.

        5.4.    Optionor shall make, execute and deliver such additional
                instruments as Optionee may reasonably request to convey the
                Optionor's interest in the Option Stock.

        5.5.    Optionor irrevocably nominates, constitutes and appoints
                Optionee its true and lawful attorney in fact, with full power
                of substitution and revocation for it, in its name, place and
                stead and either in the name of Optionee or in the name of
                Optionor to make, execute and deliver such stock powers, and
                other instruments or agreements as may be necessary or
                appropriate to close on the purchase of the Option Stock in
                accordance with the terms of this Agreement and to transfer the
                title to such stock from the name of the Optionor to the name of
                the Optionee or its assigns. All rights, powers and authority of
                said attorney-in-fact to exercise any and all rights and powers
                herein granted shall commence and be in full force and effect as
                of the date of this Agreement and such rights, powers and
                authority shall remain in full force and effect thereafter until
                the termination of this Agreement. However, Optionee shall not
                deliver the Absolute Assignment or otherwise exercise its rights
                under this Power of Attorney until there is an occurrence of an
                Event of Default hereunder. The power set forth herein is a
                power coupled with an interest.


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                               6. BOARD APPROVAL



        6.1.    This Agreement shall not be effective to bind the parties unless
                and until the Credit Line and the Loan Documents have been
                approved by the Optionee's Board of Directors and Audit
                Committee.

                               7. MISCELLANEOUS.

        7.1.    Attorney's Fees. If either of the parties hereto should bring a
                Court action alleging breach of this Agreement or seeking to
                enforce, rescind, renounce, declare void or terminate this
                Agreement or any provisions thereof, the prevailing party shall
                be entitled to recover all of its legal expenses, including
                reasonable attorney's fees and costs (including legal expenses
                for any appeals taken), and to have the same awarded as part of
                the judgment in the proceeding in which such legal expenses and
                attorney's fees were incurred.

        7.2.    Benefits. This Agreement shall be freely assignable and shall be
                binding upon the parties, their heirs, legal representatives,
                successors and assigns.

        7.3.    Captions. The paragraph captions as to contents of the
                particular paragraphs herein are inserted only for convenience
                and are in no way to be construed as part of this Agreement or
                as a limitation of the scope of the particular paragraph in
                which they are referred.

        7.4.    Construction of Agreement. Words of a gender used in this
                Agreement shall be held to include any other gender, the words
                in a singular number held to include the plural, when the
                sentence so requires.

        7.5.    Counterparts. This Agreement may be executed in several
                counterparts, each of which so executed shall be deemed to be an
                original, and said counterparts shall together constitute and be
                one and the same instrument.

        7.6.    Entire Agreement. This Agreement contains all of the oral and/or
                previously written agreements, representations, and arrangements
                between the parties hereto with respect to the subject matter
                hereof, and all right which the respective parties may have had
                with respect to the subject matter hereof under any written
                agreements and/or oral agreements are hereby canceled and
                terminated, and all parties agree that there are no
                representations or warranties other than those set forth herein.

        7.7.    Invalidation. Should any part of this Agreement for any reason
                be declared invalid, such decision shall not effect the validity
                of any remaining portion, which remaining portion shall remain
                in full force and



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                effect as if this Agreement had been executed with the invalid
                portion thereof eliminated. It is, therefore, declared the
                intention of the parties hereto that each of them will have
                executed the remaining portion of this Agreement without
                including therein any such part, parts or portion which may, for
                any reason, be hereafter declared void.

        7.8.    Modification. No change or modification of this Agreement shall
                be valid unless the same shall be in writing and signed by each
                of the parties hereto.

        7.9.    Applicable Law/Venue. This Agreement shall be construed in
                accordance with and governed by the laws of the State of
                Florida, without regard to choice of law provisions. Further,
                the venue for any action brought to enforce any of the
                provisions hereof shall be in a state court of competent
                jurisdiction in Pinellas County, Florida and any action
                commenced in any other forum may be removed to a state court of
                competent jurisdiction in Pinellas County, Florida.

        7.10.   Venue. The venue for any action brought to enforce the terms and
                conditions of this Agreement shall be any court of competent
                jurisdiction located in Pinellas County, Florida.


IN WITNESS WHEREOF, the parties have set their hands and seals hereunto and have
caused this Agreement to be executed in their names the day and year first above
written.

WITNESSES:                            Bankers Insurance Group, Inc.


  s/s Lisa M. Powell
  ------------------




  s/s Harold David Holland            BY:      s/s G. Kristin Delano
  ------------------------               --------------------------------------
                                      As Its:  Secretary
                                             ----------------------------------




WITNESSES:                            Insurance Management Solutions
                                      Group, Inc.

  s/s Harold David Holland
  ------------------------

  s/s Lisa Powell                     BY:      Richard G. Torra
  ---------------                         -------------------------------------
                                      As Its:  Corporate Secretary
                                             ----------------------------------




Exhibits: A        Permitted Encumbrances


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                                    EXHIBIT A

                             PERMITTED ENCUMBRANCES

Bankers Insurance Group - Western International Insurance Company -
Bonded Builders

                Loan:                $9,000,000.00 / Advanced $8,600,000.00
                Current Balance:     $8,426,940.65
                Lender:              Western International Insurance Company
                Borrower:            Bankers Insurance Group, Inc.
                Re:                  Financing for Bonded Builders acquisition
                Issue Date           April 16, 2000
                Maturity Date:       May 1, 2008
                Collateral
                Stock Pledged:       FCIC 3,023 shares owned by BIG
                                     BSIC 75,000 shares owned by BIG
                                     BHWA 1,000 shares owned by BIG

SouthTrust - Bankers Insurance Group, Inc.

                Loan:                $6,000,000.00
                Current Balance:     $3,372,305.40
                Lender:              SouthTrust
                Borrower:            BIG
                Issue Date           October 1, 1993
                Amended              December 20, 1997
                Maturity Date:       December 30, 2002
                Stock Pledged:       2,008,667 shares of BIG stock owned by BFC
                                     7,875 shares of FCIC shares owned by BIG


BFC means Bankers Financial Corporation, a Florida corporation
BIG means Bankers Insurance Group, Inc.
BHWA means Bankers Home Warranty Association, a Florida corporation
BSIC means Bankers Security Insurance Company, a Florida insurance company
FCIC mean First Community Insurance Company, a New York insurance company


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