-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BTdF/Y6WdLIT4xGb0k90mPnbuhnnvlmpqCFqDjmtSn1rQGWjiBblIMXVn+6GBdCz nQgbPkEm7vzpekxUgxtz5Q== 0000950144-02-003674.txt : 20020416 0000950144-02-003674.hdr.sgml : 20020416 ACCESSION NUMBER: 0000950144-02-003674 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020409 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INSURANCE MANAGEMENT SOLUTIONS GROUP INC CENTRAL INDEX KEY: 0001063167 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 593422536 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-25273 FILM NUMBER: 02606186 BUSINESS ADDRESS: STREET 1: 360 CENTRAL AVENUE CITY: ST PETERSBURG STATE: FL ZIP: 33701 BUSINESS PHONE: 7278032040 MAIL ADDRESS: STREET 1: 360 CENTRAL AVENUE CITY: ST PETERSBURG STATE: FL ZIP: 33701 10-K/A 1 g75105ae10-ka.txt INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- FORM 10-K/A (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 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 (I.R.S. Employer incorporation or organization) Identification Number) 360 CENTRAL AVENUE 33701 ST. PETERSBURG, FLORIDA (Zip Code) (Address of registrant's principal executive offices) (727) 803-2040 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: TITLE OF EACH CLASS COMMON STOCK, $.01 PAR VALUE INDICATE BY CHECK MARK WHETHER THIS REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ] INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X] As of March 18, 2002, there were outstanding 12,276,063 shares of Common Stock. The aggregate market value of the Common Stock held by non-affiliates of the registrant as of March 18, 2002 was $12.6 million. INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. FORM 10-K ANNUAL REPORT TABLE OF CONTENTS
Page ---- PART I ITEM 1. BUSINESS ......................................................................1 ITEM 2. PROPERTIES ...................................................................15 ITEM 3. LEGAL PROCEEDINGS ............................................................15 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ..........................17 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS......................................................................17 ITEM 6. SELECTED FINANCIAL DATA ......................................................18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS .......................................................20 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................30 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ..................................30 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ........................................................30 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT ...............................31 ITEM 11. EXECUTIVE COMPENSATION .......................................................33 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ...............43 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ...............................45 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K ..............55
The statements contained in this report on Form 10-K 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 ability to retain material customers; (ii) the Company's intentions involving possible strategic alternatives; (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 information services and management personnel; (vii) the impact of competition from new and existing competitors; (viii) changes in the business and/or financial condition of the Company's clients; (ix) the ability of Bankers Insurance Group, Inc. ("BIG") to repay outstanding indebtedness to the Company and the sufficiency of the collateral securing such indebtedness; (x) potential increases in the Company's costs; (xi) the declaration and payment of dividends; (xii) the potential for unfavorable interpretation of existing government regulations or new government legislation; (xiii) the impact of general economic conditions on the demand for the Company's -i- services; (xiv) the ability to develop new technological solutions for current and prospective customers; (xv) the ability to establish positive name recognition in the market place; (xvi) changes in existing service agreements; (xvii) the ability to obtain new customers and retain existing customers; (xviii) the ability to obtain third-party information technology outsourcing services on a timely basis and at reasonable costs; (xix) the outcome of certain litigation involving the Company; (xx) the outcome of certain administrative proceedings involving the Company's principal customer; (xxi) trends affecting the insurance industry; and (xxii) 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 Items 1 through 3 and 7 of this report. 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- EXPLANATORY NOTE This Form 10-K/A is being filed solely to include Exhibits 10.5, 10.11, 10.12, 10.42 and 10.71 through 10.76, all of which were omitted from the original Form 10-K filing submitted on April 1, 2002, and to amend Item 14 to reflect the filing of the foregoing exhibits. PART I ITEM 1. BUSINESS GENERAL Insurance Management Solutions Group, Inc. (collectively with its subsidiaries, the "Company"), through its wholly-owned subsidiaries, Insurance Management Solutions, Inc. ("IMS") and Colonial Claims Corporation ("Colonial Claims"), provides comprehensive policy and claims outsourcing services to the property and casualty ("P&C") insurance industry, with an emphasis on providing these services to the flood insurance market. The Company's outsourcing services, which are offered on either a bundled or "a la carte" basis, include policy administration, claims administration and information technology services. During 2000 and 2001, the Company processed approximately 847,000 and 926,000 insurance policies, respectively, including approximately 515,000 and 567,000 flood insurance policies, respectively, making it a significant provider of flood insurance outsourcing services. The Company currently provides flood outsourcing services to approved write-your-own carriers including its affiliate, Bankers Insurance Group, Inc. (together with its subsidiaries, "BIG"), Farmers Insurance Group, Mobile USA Insurance Company, Inc. and AAA Auto Club South Insurance Company, as well as to insurance companies that offer flood insurance utilizing BIG as their private label servicing carrier, such as Armed Forces Insurance Corporation and AMICA Mutual Insurance Company. In conjunction with BIG, the Company is able to offer insurance companies the ability to create a turnkey private label flood insurance product. The Company is a 65.2% owned subsidiary of BIG, a holding company chartered in Florida in 1976. BIG provides multiple lines of P&C insurance, most notably flood, homeowners and automobile insurance, to individuals and businesses throughout the United States. BIG's premiums totaled $351 million in 2001, an increase of 8.7% from premiums of $323 million in 2000. BIG is also the Company's principal customer, accounting for approximately 60.2% of the Company's total revenues and 82.6% of the Company's outsourcing revenues in 2000 and approximately 49.1% of the Company's total revenues and 67.9% of the Company's outsourcing revenues in 2001. Effective January 7, 1999, the Company acquired Colonial Claims Corporation (formerly Colonial Catastrophe Claims Corporation) ("Colonial Claims"), a Florida corporation. Colonial Claims contracts with P&C insurance carriers to handle property and casualty claims on their behalf. Colonial Claims has assembled a large network of independent claims adjusters who respond to individually-reported loss assignments from Colonial Claims and are compensated based upon a set claims fee schedule. Colonial Claims reviews and approves claims settlements, assures consistency and quality of settlement practices, and transmits claims information to the insurance carriers. The insurers, in turn, approve and remit claims payments to the insureds. During 2000 and 2001, Colonial Claims accounted for approximately $3.5 million and $11.3 million, respectively, of the Company's outsourcing revenues. On December 28, 2001, the Company sold all of the issued and outstanding capital stock of Geotrac of America, Inc., a wholly-owned subsidiary of the Company ("Geotrac"). See "Business--Geotrac Sale." Prior to the consummation of such transaction, the Company, through its Geotrac subsidiary, provided flood zone determinations to financial institutions, mortgage lenders and insurance companies. During 2000 and 2001, Geotrac processed approximately 1.3 million and 2.5 million flood zone determinations, for over 1,880 and 2,316 customers, respectively. -1- OVERVIEW OF THE FEDERAL FLOOD INSURANCE PROGRAM AND FLOOD INSURANCE MARKET The U.S. flood insurance market is regulated by the Federal Emergency Management Agency ("FEMA"), which launched the National Flood Insurance Program (the "Flood Program") in 1968. FEMA created the Flood Program to provide federally-backed flood insurance to residents in designated flood plain communities, on the condition that such communities comply with the Flood Program's flood plain management requirements. The Flood Program, as it exists today, is administered by the Federal Insurance Administration ("FIA"). The Flood Program was launched in 1968, and in 1983, FIA opened the flood insurance market to private insurance companies by establishing the National Flood Insurance Write Your Own ("WYO") program. The WYO program permits private insurance companies who meet FEMA requirements to sell flood insurance underwritten by the federal government and subject to federal regulation. In 1994, Congress passed the National Flood Insurance Reform Act of 1994 (the "1994 Reform Act"). The 1994 Reform Act clarified and strengthened the obligations of mortgage lenders to oversee and ensure the purchase of flood insurance by borrowers who obtain federally-insured residential mortgage loans on properties located in federally designated high-risk flood zones. Under the 1994 Reform Act, mortgage lenders must notify borrowers when flood insurance is required, require flood insurance as a condition to making certain loans, and place flood insurance premiums in escrow when other payments are escrowed. Lenders who fail to comply with the 1994 Reform Act are subject to substantial monetary penalties. From 1995 through 2000, the U.S. flood insurance market has grown from $1.1 billion to $1.7 billion in total annual flood premiums, representing annual growth rates of 8.5%, 15.0%, 15.1%, 4.2% and (0.1)%, respectively, and a compound annual growth rate of 8.4%. From 1995 through 2001, the dollar amount of annual flood premiums administered by the Company has grown from $80 million in 1995 to $244 million in 2001, representing annual growth rates of 27.6%, 29.5%, 19.6%, 18.3%, 15.4% and 12.9%, respectively, and a compound annual growth rate of 25.0%. Currently, almost 19,000 communities participate in the Flood Program, and approximately 100 insurance companies are registered to offer WYO flood insurance. OUTSOURCING IN THE P&C INDUSTRY The P&C industry provides financial protection for individuals, businesses and others against losses of property or losses by third parties for which the insured is liable. P&C insurers underwrite policies that cover various types of risk, which can generally be divided into personal lines of insurance covering individuals and commercial lines of insurance covering businesses. Personal lines are comprised primarily of automobile and homeowners insurance. Commercial lines cover a wide range of commercial risks that affect businesses. According to A.M. Best, premium revenues in the P&C industry have increased by an average of 2.2% annually since 1995. The P&C industry is highly competitive, with insurance companies competing primarily on the basis of price, consumer satisfaction and the ability to pay claims. According to A.M. Best, as of December 31, 1999 (the latest period for which the Company has information), there were approximately 3,300 P&C insurance companies in the United States. These companies generated approximately $287 billion in annual P&C premium revenues in 1999, of which more than one-half related to personal lines automobile, homeowners and flood insurance business, the core markets serviced by the Company. The Company believes there are a significant number of P&C insurance companies for which outsourcing is a viable alternative to maintaining in-house processing capabilities. -2- Over the past decade, many P&C insurance companies have begun using third-party vendors to provide certain policy and claims administration services that were traditionally performed in-house. This outsourcing of services allows insurers to focus on their core competencies, reduce costs and eliminate capital expenditures for the development, installation, operation and maintenance of information management and automation systems. The Company believes that insurance companies may further increase their levels of outsourcing as they determine that policy and claims administration and regulatory compliance are complicated and too costly to perform efficiently in-house. Although it has had only limited success to date, the Company believes it may have additional opportunities to market its outsourcing services in the future for the following reasons: Consolidation and Drive for Cost Efficiencies. Providers of outsourcing services are able to consolidate large volumes of business into automated and effective processing systems, thereby creating significant cost efficiencies. The Company believes insurance companies typically outsource administrative services because outsourcing providers can provide better quality services at a lower cost. Technological Challenges and Complexities. The investment in the specialized technical knowledge required to develop, install and operate information systems necessary for P&C insurers to remain competitive is often cost prohibitive, particularly for smaller companies and new entrants to the market. Insurance companies can take advantage of the economies of technology created by an outsource provider's investment in information systems. Development of Internet-Based Solutions. The Company believes that, in order to compete effectively, P&C companies will need to aggressively pursue Internet solutions for their business either directly to consumers or through their insurance agency (direct or independent) distribution channel. According to The Conning Commentary, a principal need of independent insurance agents is an effective electronic interface with insurance carriers. Until recently, most insurance company web sites provided information content only; however, the current trend is toward quoting, rating and issuing policies via the Internet. The Company believes that there are a substantial number of P&C companies that have targeted the Internet as their primary initiative in terms of providing a mechanism for their producers to quote, rate and issue insurance policies, and that many of these companies may need to outsource the development of an Internet insurance transaction solution. Changing Distribution Channels. The Company believes that the demand for outsourcing services may increase as banks, credit unions and other financial service companies continue to enter the P&C market. These entrants were generally precluded from selling insurance until the U.S. Supreme Court decision in Barnett Bank v. Nelson in 1996. Following this decision, and despite continuing restrictions and pressure from state regulators, a number of banks and other financial institutions have entered the P&C market, often forming joint ventures and other alliances with certain insurers to sell P&C insurance. The Company believes this trend may continue. Many new entrants lack the technology, expertise or desire to perform policy and claims processing in-house and may seek to outsource these functions to third-party vendors. Regulatory Reporting Requirements. State insurance regulators closely regulate the product offerings, claims processes and premium rate structures of insurance companies. To comply with such regulations, companies must file annual and other reports relating to their financial condition. Third-party vendors with effective policy and claims administration systems can facilitate compliance with many regulatory requirements by automating statutory reporting and other compliance tasks. -3- OPERATING STRATEGIES The Company's current principal operating strategies are as follows: Service Existing Outsourcing Customers. The Company intends to continue to focus on providing high quality, cost effective services to its existing outsourcing customer base. In instances where opportunities exist, the Company may seek to cross-market additional outsourcing services to certain of these existing customers. E-Solutions Focus. Management believes that the Company's solution of connecting legacy systems with Internet browser-based functionality is an attractive alternative to P&C companies attempting to develop a solution using their own resources. In 2000, the Company completed and fully integrated its Internet solution for its flood and homeowners products. Maximize Economies of Scale. The Company currently services over 900,000 insurance policies annually. As a result, it has developed a large number of efficiencies in many aspects of its operations, from the receipt of policy applications to billings and collections. By deploying internally developed applications software, rating disks for applications input, lockbox and cash office processing, automated voice response, computerized forms and automated policy assembly, the Company has attained expense efficiencies that management believes are characteristic of insurers processing substantially greater policy volumes. Generate Recurring Revenues/Sales and Marketing. The Company seeks to generate recurring revenues by entering into contractual relationships (typically three to five years) with its outsourcing customers and by offering services that are structured to generate revenues based on events that occur frequently in the normal course of a customer's business, such as claims, mortgage applications and insurance policy renewals. Current sales and marketing efforts are undertaken by senior management. It should be noted that during 2001, the Company eliminated its internal outsourcing sales force, thereby reducing its overall sales and marketing expenses. Focus on Expense Reductions. In 2001, the Company made significant reductions in its workforce. In light of anticipated reductions in the amount of services required by BIG, the Company's principal customer, the Company expects to continue to focus on reducing its costs, including possible additional staffing reductions. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Future Trends". SERVICES The Company's outsourcing services include policy administration, claims administration and information technology services. The Company works with each customer in an effort to ensure a seamless integration of the customer's in-house and outsourced activities. Policy administration describes the range of services the Company offers customers that are considering outsourcing their policy administration functions. When policy administration is outsourced, the customer retains all financial risk and works with the Company to set underwriting and rating guidelines. The Company typically receives a percentage of premiums for performing policy administration services. The Company's policy administration menu includes the following services: policy processing and related data entry; policy issuance and acceptance; premium management and distribution; accounting, billing and collections; customer service phone center for policyholders and agents; and data collection, statutory reporting and regulatory compliance. Claim administration describes the range of services the Company offers in connection with the management of insurance claims. In reviewing a claim, the Company performs a thorough claim analysis and, if warranted, prepares a check for payment of the claim. The Company has a special investigative unit that assists in detecting and deterring fraud in the claim review process. The Company also offers a fully automated, stand-alone catastrophe claims operation and is typically compensated for claims administration services on either a percentage of earned premiums or claims-paid basis. The Company's claim administration menu includes the -4- following services: toll-free claim reporting; initial coverage confirmation services; loss investigation and determination; review and appraisal of claims; special investigation services, including fraud detection; adjustment of claims and vendor management; litigation management; and settlement and payment of claims. Because the Company is affiliated with and provides comprehensive outsourcing services to BIG, an approved WYO carrier under the Flood Program, it emphasizes to prospective customers its ability to provide third-party administration outsourcing for flood insurance. The Company offers its flood outsourcing services, including software and processing functions, policy administration, claim administration and statistical reporting, on either a bundled or "a la carte" basis. New market entrants and certain other insurers may prefer to purchase unbundled services, allowing them to retain in-house control over specific aspects of their businesses. The Company makes available virtually any combination of outsourcing services required by the customer. The Company also offers flood outsourcing services to insurance companies that seek to provide flood insurance, but do not want to become certified WYO carriers. In this case, the services are provided in conjunction with a proprietary flood product. An insurance company can establish a private label insurance product written through BIG whereby the customer's name and logo appear on the policy documents, while BIG acts as the servicing carrier. The Company also intends to continue to market its outsourcing services to banks, credit unions and other financial institutions as they become involved in the sale of insurance. The Company also offers a range of information technology services to assist customers in operating, maintaining and enhancing information systems. The Company integrates the customer's system platform with the Company's processing platform, including the installation of all necessary hardware components, depending on the customer's needs. This integration allows the customer to administer its policies and claims internally by using the Company's systems and software. The Company typically receives a percentage of premiums as compensation, subject to a minimum fee. The Company's information technology services include the following: information management via integrated, secure computer systems; document imaging; Internet rating and underwriting services; monetary systems services, including payment processing; automated printing, packaging and distribution of documents; generation of agent commission statements and production reports; security administration and access control; software application enhancement and maintenance; problem resolution and reporting; and data backup and disaster recovery functions. Beginning June 1, 2001, the Company sought to provide these services primarily through third-party vendors, including BIG. As a result, the Company terminated 68 employees, comprising substantially its entire Information Technology department. All of these employees were, in turn, hired by BIG. Subsequently, the Company rehired 31 employees effective October 1, 2001 to once again provide its information technology services directly rather than through third-party vendors. See "Item 13. Certain Relationships and Related Transactions." CUSTOMER SUPPORT AND INSTALLATION The Company's outsourcing services are provided from three separate customer service centers in St. Petersburg, Florida, two for policy and claims administration and one for catastrophic claims administration. The policy administration center has approximately 160 employees, most of whom are trained customer service representatives. Customer service representatives are responsible for the timely handling and resolution of incoming phone calls related to underwriting, rating, billing, policy status and other policy administration matters. While most calls come from -5- insurance agents, the phone center also handles calls from mortgage companies, policyholders and insureds. The claim administration customer service center is responsible primarily for handling calls from claimants and insureds reporting property losses. The center also handles calls from agents and others related to coverage of existing claims. The center has approximately 140 employees, approximately half of whom are licensed claims representatives responsible for the adjustment of claims. Incoming calls are taken by customer service representatives, who are trained to handle all types of insurance claims. Unlike many other claims administration centers, the Company's service center is able to immediately assign each claim to a licensed adjuster for processing. The claim administration switchboard is open weekdays from 7:30 a.m. to 9:00 p.m. (Eastern Time), and customer service representatives and licensed adjusters are available 24 hours a day, seven days a week, to handle emergency claims. The Company's Colonial Claims subsidiary operates in its own location and has a staff of approximately 10 employees. SALES AND MARKETING The Company seeks to market its outsourcing capabilities by leveraging its existing expertise in flood insurance administration and by targeting prospective customers, such as insurers with high expense ratios or limited expertise in certain P&C lines. The Company's sales and marketing efforts are overseen by its President, who works principally in concert with its reinsurance brokers and reinsurer strategic partners to market its outsourcing services. The Company also advertises in various trade publications and participates in industry conventions and trade shows to enhance the penetration of its flood and non-flood markets. In an effort to reduce expenses, the Company eliminated its four-person marketing and sales division in February 2001. INFORMATION SYSTEMS The Company utilizes fully integrated, real-time processing systems at its St. Petersburg, Florida facilities to provide many of its outsourcing services. These systems, which run on an IBM AS/400 platform coupled with a relational database, enable the Company to provide on-line ratings and underwriting information, issue required insurance forms to policyholders and agents, and produce renewal and non-renewal notices. The processing systems interface with a disbursement system, which enables the Company to generate checks automatically. A separate IBM AS/400 is used to develop, enhance and test new and existing systems. In the event of a power failure, the AS/400 site is supported by a fully-functional backup system that provides additional processing time of one hour under full load. Insurance policies and related documents are scanned to optical disks, and are retrievable at most LAN workstations. The Company also has an optical jukebox that can store approximately 10 million documents. The Company's data center has controls to ensure security and a disaster recovery plan, which is tested regularly. The Company is capable of developing modifications or enhancements to its licensed software to meet its outsourcing customers' particular needs. Business analysts from the Company work with each customer to ensure that the Company understands the customer's system requirements. Once the system requirements have been documented, the Company dedicates a team of systems analysts and/or contracts with a third-party provider to develop the appropriate modifications or enhancements to its software system. -6- CUSTOMERS The Company currently provides outsourcing services to over 30 customers. The Company's largest customer, BIG, accounted for approximately 66%, 60% and 49% of the Company's total revenues and 80%, 83%, and 68% of the Company's outsourcing revenues in 1999, 2000 and 2001 respectively. Consequently, any material decrease in the outsourcing business from BIG would have a material adverse effect on the Company's business, financial condition and results of operations. See "Risk Factors--Reliance on Key Customer." The Company provides outsourcing services to other WYO carriers, including Farmers Insurance Group, AAA Auto Club South Insurance Company and Mobile USA Insurance Company, Inc. The Company also provides outsourcing services to various insurance companies, such as Armed Forces Insurance Corporation and AMICA Mutual Insurance Company, that utilize BIG as their servicing carrier. COMPETITION The Company competes principally in two markets: (1) the market for flood insurance outsourcing services and (2) the market for other P&C insurance outsourcing services. The markets for these services are highly competitive. The market for flood insurance outsourcing services is dominated by the Company and several principal competitors, including Fiserv, Inc. and Electronic Data Systems, Inc. Over the past year, the number of competitors in the market has been reduced due to several consolidating acquisitions by certain principal competitors. The Company competes for these outsourcing customers largely on the basis of price, customer service and responsiveness. The market for other P&C insurance outsourcing services is fragmented. In the policy administration services segment of this market, principal competitors include Policy Management Services Corporation and Trumbull Services Corporation. In this segment of the market, the Company competes for customers largely on the basis of customer services, performance and price. The claim administration services segment of the P&C outsourcing market also is highly fragmented, with competition from a large number of claims administration companies of varying size, as well as independent contractors. Competition in this segment of the outsourcing market is principally price driven. Competitors include Lindsey Morden Claim Services, Inc., Crawford & Company, Inc. and GAB Robbins, Inc. The Company believes, however, that its most significant competition for P&C insurance outsourcing services comes from policy and claims administration performed in-house by insurance companies. Insurers that fulfill some or all of their policy and claims administration needs in-house typically have made a significant investment in their information processing systems and may be less likely to utilize the Company's services. Certain of the Company's competitors in each of its markets have longer operating histories and significantly greater financial, technical, marketing and other resources than the Company, including name recognition with current and potential customers. As a result, these competitors may devote more resources to the development, promotion and sale of their services or products than the Company and respond more quickly to emerging technologies and changes in customer requirements. There can be no assurance that the Company will be able to compete successfully against current and future competitors, or that competitive pressure faced by the Company will not have a material adverse effect on its business, financial condition and results of operations. -7- EMPLOYEES As of March 15, 2002 the Company had 406 full-time and 29 part-time employees, consisting of 351 in customer service and support, 31 in technical support, and 53 in management, administration and finance. None of the Company's employees are subject to a collective bargaining agreement, and the Company considers its relations with its employees generally to be good. The Company's workforce has decreased by approximately 180 net employees from the prior year. The majority of this decrease relates to the sale of Geotrac, which employed approximately 140 employees. Additionally, during 2001, the Company eliminated an additional 53 jobs. The reductions, which involved primarily sales and marketing, information technology, and claims administration positions, occurred principally in areas where management believed processes could be combined to reduce overall expenses. GEOTRAC SALE On December 28, 2001 the Company consummated the transactions contemplated by a stock purchase agreement (as amended, the "Stock Purchase Agreement"), dated as of September 20, 2001, by and among the Company, Geotrac of America, Inc., Geotrac Holdings, Inc., Daniel J. White, the Daniel J. White Trust, the Sandra A. White Trust, and, solely for purposes of a non-competition covenant, BIG. The shareholders of the Company approved the Stock Purchase Agreement and the transactions contemplated thereby in accordance with Florida law at a Special Meeting of Shareholders held on December 26, 2001. Pursuant to the Stock Purchase Agreement, Geotrac Holdings, Inc., a Delaware corporation formed by Daniel J. White and his spouse, Sandra A. White, purchased all the issued and outstanding capital stock (the "Shares") of Geotrac of America, Inc., a wholly-owned subsidiary of the Company ("Geotrac"). Prior to the consummation of the transactions contemplated by the Stock Purchase Agreement, Mr. White served as a director of the Company and President, Chief Executive Officer and a director of Geotrac. Mr. White resigned as a director of the Company effective as of the consummation of the sale of the Shares. The purchase price paid for the Shares was $19,000,000 in cash, plus 524,198 shares of Common Stock of the Company beneficially owned by Daniel J. White and Sandra A. White. Pursuant to the Stock Purchase Agreement, certain of the parties also entered into additional agreements as of the closing of such sale, including a Flood Zone Determination Service Agreement pursuant to which Geotrac will provide the Company with flood zone determination services for up to ten years at pricing management of the Company currently considers to be favorable. RECENT DEVELOPMENTS On January 30, 2002, the Board of Directors of the Company appointed a Special Committee, consisting of the Company's five independent directors, to evaluate possible strategic alternatives for the Company. The Special Committee is chaired by John S. McMullen. The alternatives that the Special Committee may consider include but are not limited to: the possible sale of the Company, the possible sale of certain assets of the Company, a possible debt or equity financing, and/or a possible going-private transaction. The Special Committee has retained an independent legal advisor and an independent financial advisor to assist the Special Committee in considering and reviewing such alternatives. -8- No assurances can be given, however, as to whether any of such alternatives will be recommended or undertaken or, if so, upon what terms and conditions. Effective February 1, 2002, Robert G. Menke resigned as a director of IMSG to pursue personal interests. As a result of Mr. Menke's resignation, the Company's Board of Directors presently consists of eight (8) members. On August 14, 2001, the Company entered into a Credit and Security Agreement (together with the related loan documentation, the "Credit Agreement") with BIG, 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"). The principal purpose of the Line of Credit is to assist BIG with certain short-term working capital needs. Pursuant to the Credit Agreement, all unpaid principal and interest became due and payable in full on February 28, 2002. As of such date, BIG owed the Company an aggregate of approximately $5.0 million under the Line of Credit. On March 14, 2002, the Company and BIG amended the Credit Agreement to extend the Line of Credit until May 31, 2002. This amendment to the Credit Agreement was approved unanimously by the Audit Committee of the Board of Directors of the Company at a special meeting held on March 8, 2002. In making this determination, the Audit Committee considered, among other things, (i) the Company's continued dependence on BIG as the Company's principal customer, (ii) the Special Committee's ongoing consideration of various strategic alternatives as described above, and (iii) the financial condition of BIG and the current status of the collateral securing the Line of Credit. Pursuant to the Credit Agreement, as amended, if all amounts owed the Company by BIG under the Line of Credit are not paid on or before June 10, 2002, BIG will be in default of its obligations under the terms of the Credit Agreement. The Company has been advised by BIG that it is considering various methods of satisfying its obligations under the Line of Credit, including the possible sale of certain of its assets. No assurances can be given, however, that payment in full of all amounts due and owing under the Line of Credit will be received on or before June 10, 2002. If payment in full is not received from BIG on or before such date, the Audit Committee of the Board of Directors of the Company will determine the appropriate course of action after considering all factors it deems relevant or appropriate. RISK FACTORS The Company's financial condition and results of operations may be impacted by a number of factors, including, but not limited to the following risk factors, any of which could cause actual results to materially differ from historical or anticipated future results. RELIANCE ON KEY CUSTOMER. The Company derives a substantial portion of its revenues from outsourcing services provided to its principal shareholder, BIG. For the years ended December 31, 1999, 2000 and 2001, revenues from services provided to BIG accounted for approximately 66%, 60% and 49% of the Company's total revenues (including discontinued operations), respectively, and approximately 80%, 83% and 68%, respectively, of the Company's revenues from outsourcing services (for continuing operations). As a result of the sale of the Company's Geotrac subsidiary in late December 2001, the importance of BIG as a source of ongoing revenue will become even greater. Thus, the Company's future financial condition and results of operations will depend to a significant extent upon the commercial success of BIG and its continued willingness to utilize the Company's services. Over the past year, BIG has experienced several changes in its business and operations, certain of which are expected to reduce the need for the Company's services for the foreseeable future. In November 2001, BIG ceased writing further workers compensation insurance altogether. Although the Company will continue to provide services in connection with the run-off of this business, such run-off business is not expected to generate material revenues for the Company in 2002. In addition, effective February 2002, BIG sold its Florida wind-inclusive homeowners policies to an unaffiliated third party, and the Company is no longer servicing these policies. While BIG has informed the Company that it will continue to write wind-exclusive homeowners policies, revenues from the processing of homeowners business on behalf of BIG is expected to be reduced significantly for the foreseeable future. The Company anticipates making further staffing and other related expense reductions in response to the foregoing changes in BIG's business. Nevertheless, if the Company is unable to replace these revenues or reduce its expenses accordingly, the loss or material decrease in business from BIG could have a material adverse effect on the Company's business, financial condition and results of operations. Also, if BIG were to exit or sell off any additional lines of business, this could have a material adverse effect on the Company's business, financial condition and results of operations. -9- Likewise, any further significant downturn in the business of BIG or its commitment to utilize the Company's services could have a material adverse effect on the Company's business, financial condition and results of operations. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." DEPENDENCE ON ECONOMIC AND OTHER FACTORS; FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company's business is dependent upon various factors, such as general economic conditions and weather patterns, that are beyond its control. For example, natural disasters such as hurricanes, tornadoes, and floods, all of which are unpredictable, directly impact the demand for the Company's outsourcing services. Fluctuations in weather patterns, general economic conditions and various other factors will likely produce fluctuations in the Company's quarterly earnings and operating results. CLASS ACTION LITIGATION. 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's proceeding under Case No. 8:00-CV-2013-T-26MAP. The plaintiff's 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 March 26, 2001, the Company, BIG and the five inside director defendants filed a motion to dismiss the plaintiffs' complaint for, among other things, failure to allege material misstatements and/or omissions in the roadshow presentations, registration statement and/or prospectus relating to the IPO. On July 11, 2001, U.S. District Judge Richard A. Lazzara denied all of the defendants' motions to dismiss the complaint. The case has been set for trial during the trial term commencing May 5, 2003, and active discovery is proceeding. Management of the Company believes the material allegations of the 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. -10- REGULATORY MATTERS. 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 charged 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 notified BIC, BLIC and BSIC that the Insurance Commissioner intended 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. Effective February 6, 2002, BIC, BLIC and BSIC entered into a Consent Order with the DOI pursuant to which the DOI's administrative action against BIC, BLIC and BSIC was dismissed. Also pursuant to this Consent Order, such entities were ordered to pay penalties totaling $1 million (consisting of a fine of $700,000 and reimbursement of attorneys' fees of $300,000), Robert M. Menke was prohibited from acting as chairman or an officer of any of such entities for a period of three years, another executive officer of each of these entities was removed from such positions, and certain other compliance-related requirements were imposed. BIG has advised the Company that the terms of the Consent Order should not have a material adverse effect on the business and/or operations of BIG, but no assurances can be given in this regard. On November 19, 1999, the United States, on behalf of the Federal Emergency Management Agency ("FEMA"), filed a civil action against BIC in the United States 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 stayed pending arbitration following a decision by the United States Court of Appeals for the Fourth Circuit in favor of BIC on its motion to stay the litigation pending arbitration. The government has not appealed the Fourth Circuit Court of Appeal ruling requiring arbitration and the case is stayed pending arbitration. By letter dated January 30, 2002, FEMA notified Bankers that it intends to move forward with arbitration and set forth proposed procedures. BIC has further 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 has advised the Company that an adverse judgment in this action should not have a material adverse affect on the business and/or operations of BIC, although no assurances can be given in this regard. 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 either unable to reach agreement in these matters or resolve their disagreement in arbitration, the United States could amend its complaint against BIC to add -11- additional claims under the False Claims Act and/or various common law and equitable theories relating to such matters. In the event such continuing investigation or any consequence thereof materially adversely affects the business or operations of BIC, it could result in the loss of or material decrease in the Company's business from BIC, which would have a material adverse effect on the Company's business, financial condition and results of operations. The Company is involved in various other legal proceedings arising in the ordinary course of business. Management believes that the ultimate resolution of these other proceedings 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. GOVERNMENT REGULATION. As a provider of policy and claims processing to the flood insurance industry, the Company is subject to extensive and continuously changing guidelines of the Federal Insurance Administration. No assurance can be given with respect to the extent to which the Company may become subject to regulation in the future, the ability of the Company to comply with any such regulation, the cost of compliance or an abrupt change in the overall concept or delivery of the flood insurance product on behalf of the federal government. Moreover, if the federal government were to curtail the current federal flood program, it could have a material adverse effect on the Company's business, financial condition and results of operations. The P&C insurance industry is subject to extensive regulation by state governments. Because the Company markets and sells its services to P&C insurers, certain aspects of the Company's business are affected by such regulation. The Company must continuously update its software to reflect changes in regulations. In addition, changes in regulations that adversely affect the Company's existing and potential customers could have a material adverse effect on the Company's business, financial condition and results of operations. Although the Company's services are not directly subject to insurance regulations in the states where the Company currently provides such services, the Company's outsourcing services may be subject to insurance regulations in states where the Company may do business in the future. Such regulations could require the Company to obtain a license as a managing general agent or third-party administrator. Failure to perform in accordance with state regulations could result in the loss of significant insurance clients. No assurance can be given with respect to the extent to which the Company may become subject to regulation in the future, the ability of the Company to comply with any such regulation, or the cost of compliance. CONTROL BY PRINCIPAL SHAREHOLDER; CONFLICTS OF INTEREST. BIG currently owns approximately 65.2% of the outstanding shares of the Company's Common Stock. As a result, BIG is able to elect the Company's directors and determine the outcome of other matters requiring shareholder approval. BIG's ultimate parent, Bankers International Financial Corporation, Ltd., is wholly owned by a discretionary charitable trust. David K. Meehan, the Company's Chairman of the Board, and Robert M. Menke, a director of the Company, presently serve on the board of directors of a corporation that possesses discretionary power with respect to this trust to (i) direct the trustee to appoint the trust fund to another trust for the benefits of one or more of the beneficiaries of the trust and (ii) remove the trustee and appoint one or more new trustees. BIG's ownership of shares of Common Stock may discourage or prevent unsolicited mergers, acquisitions, tender offers, proxy contests or changes of incumbent management, even when shareholders other than BIG may consider a transaction or event to be in their best interests. Accordingly, holders of Common Stock may be deprived of an opportunity to sell their shares at a premium over the trading price of the shares. -12- Certain officers and directors of the Company, including David K. Meehan, the Company's Chairman of the Board, also serve as officers and directors of BIG. Mr. Meehan serves as Vice Chairman of the Board of Directors of BIG and Robert M. Menke serves as a Director of BIG. In addition, as described below, the Company continues to have a variety of contractual relationships with BIG. As the interests of the Company and BIG may differ, Messrs. Meehan and Menke may face certain conflicts of interest. The Company's relationship with BIG is governed by various agreements. None of the foregoing agreements resulted from arm's-length negotiations. Nevertheless, the Audit Committee of the Board of Directors has approved each of such agreements, and management of the Company believes that the transactions provided for therein are on terms no less favorable than those that could be obtained on an arm's-length basis from independent third parties. DEPENDENCE ON SENIOR MANAGEMENT. The success of the Company is largely dependent upon the efforts, direction and guidance of its senior management and, in particular, David M. Howard, the Company's President and Chief Executive Officer. The Company's success depends in part on its ability to attract and retain qualified managers, and on the ability of its executive officers and key employees to manage its operations successfully. The loss of any of the Company's senior management or key personnel, or the inability to attract and retain key management personnel in the future, could have a material adverse effect on the Company's business, financial condition and results of operations. LIMITED OPERATING HISTORY IN THIRD-PARTY OUTSOURCING. As BIG's outsourcing provider, the Company has become a significant provider of flood insurance outsourcing services, however, to date it has not derived significant revenue from unaffiliated third-party outsourcing customers. A key element of the Company's strategy has been to leverage its experience and expertise in servicing BIG's flood, homeowners and automobile business to market its outsourcing capabilities in various P&C lines, including flood, homeowners and automobile insurance, to other insurance companies and financial institutions. To date, the Company has not been successful in implementing this strategy. In an effort to reduce expenses, the Company eliminated its four-person marketing and sales department in February 2001. EXISTENCE OF WELL-POSITIONED COMPETITORS. The Company competes principally in two markets: (1) the market for flood insurance outsourcing services and (2) the market for other P&C insurance outsourcing services. The markets for these services are highly competitive. The market for flood insurance outsourcing services is dominated by the Company and several principal competitors, including Fiserv, Inc. and Electronic Data Systems, Inc. Over the past year, the number of competitors in the market has been reduced due to several consolidating acquisitions by certain principal competitors. The Company competes for these outsourcing customers largely on the basis of price, customer service and responsiveness. The market for other P&C insurance outsourcing services is fragmented. In the policy administration services segment of this market, principal competitors include Policy Management Services Corporation and Trumbull Services Corporation. In this segment of the market, the Company competes for customers largely on the basis of customer services, performance and price. The claim administration services segment of the P&C outsourcing market also is highly fragmented, with competition from a large number of claims administration companies of varying size, as well as independent contractors. Competition in this segment of the outsourcing market is principally price driven. Competitors include Lindsey Morden Claim Services, Inc., Crawford & Company, Inc. and GAB Robbins, Inc. -13- The Company believes, however, that its most significant competition for P&C insurance outsourcing services comes from policy and claims administration performed in-house by insurance companies. Insurers that fulfill some or all of their policy and claims administration needs in-house typically have made a significant investment in their information processing systems and may be less likely to utilize the Company's services. Certain of the Company's competitors in each of its markets have longer operating histories and significantly greater financial, technical, marketing and other resources than the Company, including name recognition with current and potential customers. As a result, these competitors may devote more resources to the development, promotion and sale of their services or products than the Company and respond more quickly to emerging technologies and changes in customer requirements. There can be no assurance that the Company will be able to compete successfully against current and future competitors, or that competitive pressure faced by the Company will not have a material adverse effect on its business, financial condition and results of operations. POTENTIAL LIABILITY TO CLIENTS. Many of the Company's contractual engagements involved projects that are critical to the operations of its clients' business and provide benefits that may be difficult to quantify. Any failure in a client's system could result in a claim for substantial damages against the Company, regardless of the Company's responsibility for such failure. Although the Company may attempt to limit contractually its liability for damages arising from negligent acts, errors, mistakes or omissions in rendering its services, there can be no assurance that the limitations of liability, if any, set forth in its service contracts will be enforceable in all instances or would otherwise protect the Company from liability for damages. Although the Company maintains general liability insurance coverage, including coverage for errors or omissions, there can be no assurance that such coverage will continue to be available on reasonable terms or in sufficient amounts to cover one or more large claims, or that the insurer will not disclaim coverage as to any future claim. The successful assertion of one or more large claims against the Company that exceed available insurance coverage, or changes in the Company's insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on the Company's business, financial condition and results of operations. DEPENDENCE ON TREND TOWARD OUTSOURCING. The Company's business and growth depend in large part on the insurance industry's trend toward outsourcing administration and information technology services. There can be no assurance that this trend will continue, as organizations may elect to perform such services in-house. A significant change in the direction of this trend could have a material adverse effect on the Company's business, financial condition and results of operations. VOLATILITY OF STOCK PRICE; IMPACT OF DE-LISTING. The Company believes that various factors such as general economic conditions and changes or volatility in the financial markets, changing market conditions, and quarterly or annual variations in the Company's financial results, some of which are unrelated to the Company's performance, could cause the market price of the Common Stock to fluctuate substantially. Effective the close of business on February 21, 2001, the Company's Common Stock was de-listed from trading on the Nasdaq National Market due to the Company's inability to remain in compliance with certain maintenance standards required for continued listing on the Nasdaq National Market. Since that time, the Common Stock has been eligible to trade on the OTC Bulletin Board. The Common Stock does not now, and may never, meet the requirements for re-listing on the Nasdaq National Market. The Company's inability to list its Common Stock on the -14- Nasdaq National Market substantially reduces the liquidity of, and market for, the Common Stock. ITEM 2. PROPERTIES The following table sets forth certain information with respect to the principal facilities used in the Company's operations:
SQUARE LOCATION FEET FUNCTIONS LEASE EXPIRATION - --------------------------- ------ -------------------------- ---------------- St. Petersburg, Florida (1) 44,030 Corporate Headquarters and December, 2003 Outsourcing Services St. Petersburg, Florida (1) 4,650 Information Technology April, 2002 (2) St. Petersburg, Florida 12,740 Outsourcing Services August, 2005 (2) St. Petersburg, Florida 35,500 Outsourcing Services February, 2005 (2) Dunedin, Florida 5,200 Outsourcing Services February, 2007
- -------------- (1) Each of these facilities is leased from BIG. (2) The Company has the option to renew each of these leases for an additional period. The Company believes that its existing facilities and additional or alternate space available to it are adequate to meet its requirements for the foreseeable future. ITEM 3. 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's proceeding under Case No. 8:00-CV-2013-T-26MAP. The plaintiff's 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 March 26, 2001, the Company, BIG and the five inside director defendants filed a motion to dismiss the plaintiffs' complaint for, among other things, failure to allege material misstatements and/or omissions in the roadshow presentations, registration statement and/or prospectus relating to the IPO. On July 11, 2001, U.S. District Judge Richard A. Lazzara denied all of the defendants' motions to dismiss the complaint. -15- The case has been set for trial during the trial term commencing May 5, 2003, and active discovery is proceeding. Management of the Company believes the material allegations of the 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 charged 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 notified BIC, BLIC and BSIC that the Insurance Commissioner intended 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. Effective February 6, 2002, BIC, BLIC and BSIC entered into a Consent Order with the DOI pursuant to which the DOI's administrative action against BIC, BLIC and BSIC was dismissed. Also pursuant to this Consent Order, such entities were ordered to pay penalties totaling $1 million (consisting of a fine of $700,000 and reimbursement of attorneys' fees of $300,000), Robert M. Menke was prohibited from acting as chairman or an officer of any of such entities for a period of three (3) years, another executive officer of each of these entities was removed from such positions, and certain other compliance-related requirements were imposed. BIG has advised the Company that the terms of the Consent Order should not have a material adverse effect on the business and/or operations of BIG, but no assurances can be given in this regard. On November 19, 1999, the United States, on behalf of the Federal Emergency Management Agency ("FEMA"), filed a civil action against BIC in the United States 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 stayed pending arbitration following a decision by the United States Court of Appeals for the Fourth Circuit in favor of BIC on its motion to stay the litigation pending arbitration. The government has not appealed the Fourth Circuit Court of Appeal ruling requiring arbitration and the case is stayed pending arbitration. By letter dated January 30, 2002, FEMA notified Bankers that it intends to move forward with arbitration and set forth proposed procedures. BIC has further 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 has advised the Company that an adverse judgment in this action should -16- 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 either unable to reach agreement in these matters or resolve their disagreement in arbitration, the United States could amend its complaint against BIC to add additional claims under the False Claims Act and/or various common law and equitable theories relating to such matters. In the event such continuing investigation or any consequence thereof materially adversely affects the business or operations of BIC, it could result in the loss of or material decrease in the Company's business from BIC, which would have a material adverse effect on the Company's business, financial condition and results of operations. The Company is involved in various other legal proceedings arising in the ordinary course of business. Management believes that the ultimate resolution of these other proceedings 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At a Special Meeting of Shareholders held on December 26, 2001, one matter was submitted to a vote of shareholders. At such meeting, the Company's shareholders approved the sale by the Company of all the issued and outstanding shares of capital stock of its then wholly-owned subsidiary, Geotrac, pursuant to the Stock Purchase Agreement. See "Item 1. Business - Geotrac Sale." The following table sets forth certain information with respect to the vote on such matter:
SHARES VOTED SHARES VOTED FOR AGAINST ABSTENTIONS BROKER NON-VOTES ---------------- -------------------- ----------- ---------------- 10,621,544 46,250 0 0
PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS In February 1999, the Company completed an initial public offering of its Common Stock. Until February 21, 2001, the Company's Common Stock was traded on the Nasdaq National Market under the symbol "INMG." Effective the close of business on February 21, 2001, the Company's Common Stock was de-listed from trading on the Nasdaq National Market due to the Company's inability to remain in compliance with certain maintenance standards required for continued listing on the Nasdaq National Market. Since that time, the Common Stock has been eligible to trade on the OTC Bulletin Board. The OTC Bulletin Board is operated by the National Association of Securities Dealers, Inc. as a forum for electronic trading and quotation. -17- The following table sets forth: (i) the high and low closing sales prices per share as reported by the Nasdaq National Stock Market for the Common Stock for the periods indicated through February 21, 2001; and (ii) the high and low bid prices per share as reported by the OTC Bulletin Board for periods after February 26, 2001. The over-the-counter market quotations reflect inter-dealer prices, without retail markup, markdown or commission and may not necessarily represent actual transactions.
(i) HIGH LOW ------ ------ YEAR ENDED DECEMBER 31, 2000 First quarter ended March 31, 2000 ............. $ 3.75 $ 2.00 Second quarter ended June 30, 2000 ............. 2.75 1.13 Third quarter ended September 30, 2000 ......... 1.94 1.16 Fourth quarter ended December 31, 2000 ......... 1.28 .41 YEAR ENDED DECEMBER 31, 2001 January 1, 2001 through February 21, 2001 ...... .94 .56 February 22, 2001 through March 31, 2001 ....... .78 .31 Second quarter ended June 30, 2001 ............. 1.44 .38 Third quarter ended September 30, 2001 ......... 2.37 1.35 Fourth quarter ended December 31, 2001 ......... 3.20 2.00
(ii) HIGH LOW ------ ------ YEAR ENDED DECEMBER 31, 2001 January 1, 2001 through February 21, 2001 $ .94 $ .56 February 26, 2001 through March 31, 2001 ....... .44 .32 Second quarter ended June 30, 2001 ............. 1.40 .37 Third quarter ended September 30, 2001 ......... 2.35 1.15 Fourth quarter ended December 31, 2001 ......... 3.25 2.01
As of March 18, 2002, there were 47 record holders of the Company's Common Stock. The Company did not pay any dividends in either 2000 or 2001. The Company currently does not anticipate paying any dividends in the foreseeable future, although no assurances can be given in this regard. ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements of the Company and Notes thereto and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." The following selected consolidated financial data of the Company as of and for the years ended December 31, 1997, 1998, 1999, 2000 and 2001 has been derived from the Company's audited consolidated financial statements. The results of operations presented below are not necessarily indicative of the results of operations that may be achieved in the future. -18-
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------------- 1997 1998 1999 2000 2001 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Statement of Operations Data: Revenues Outsourcing services .................. $ 30,974 $ 39,571 $ 52,805 $ 46,855 $ 57,114 -------- -------- -------- -------- -------- Total revenues .................. 30,974 39,571 52,805 46,855 57,114 Expenses Cost of outsourcing services .......... 23,027 28,154 38,939 37,695 41,903 Selling, general and administrative .................... 2,257 3,428 6,601 7,439 6,945 Management services from Parent 2,004 3,156 2,165 1,861 1,327 Deferred compensation (non-recurring item) .............. -- 728 -- -- -- Depreciation and amortization ......... 394 2,237 3,230 3,024 2,973 -------- -------- -------- -------- -------- Total expenses .................. 27,682 37,703 50,935 50,019 53,148 -------- -------- -------- -------- -------- Operating income/(loss) .................. 3,292 1,868 1,870 (3,164) 3,966 Interest income .......................... -- 332 342 307 282 Interest expense (1) ..................... (300) (1,268) (255) (61) (6) -------- -------- -------- -------- -------- Income/(loss) before income taxes and discontinued operations ........... 2,992 932 1,957 (2,918) 4,242 Provision/(benefit) for income taxes ..... 1,215 501 832 (731) 1,376 -------- -------- -------- -------- -------- Income/(loss) before discontinued operations ........... 1,777 431 1,125 (2,187) 2,866 Income from operations of discontinued operations, net ...... 1,633 3,422 2,070 1,678 2,413 of income tax (Loss) on disposal of discontinued operations, net ...... -- -- -- -- (2,826) of income tax -------- -------- -------- -------- -------- Net income/(loss) ........................ $ 3,410 $ 3,853 $ 3,195 $ (509) $ 2,453 ======== ======== ======== ======== ======== Net income/(loss) per common share $ .34 $ .38 $ .26 $ (.04) $ 0.19 ======== ======== ======== ======== ======== Weighted average common shares outstanding (2) ................... 10,000 10,264 12,448 12,794 12,795 ======== ======== ======== ======== ======== Dividends declared on common stock (3) ............................... $ 3,500 $ 1,100 $ -- $ -- $ -- ======== ======== ======== ======== ========
DECEMBER 31, ---------------------------------------------------------------------------- 1997 1998 1999 2000 2001 -------- -------- -------- -------- -------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital/(deficiency) ............. $ (1,486) $ (9,129) $ 2,805 $ 3,293 $ 25,008 Total assets ............................. $ 12,728 $ 31,580 $ 37,462 $ 39,581 $ 40,999 Long-term debt, less current portion ..... $ 1,938 $ 1,428 $ 185 -- -- Notes payable-affiliates, less current portion ................... -- $ 4,028 -- -- -- Total shareholders' equity ............ $ 170 $ 8,689 $ 32,885 $ 33,113 $ 34,410
(1) Dividends declared on Preferred Stock for the years ended December 31, 1997 and 1998 were $229,315 and $189,370, respectively, and are included in interest expense. (2) In February 1999, the Company completed an initial public offering ("IPO") of 3,350,000 shares of Common Stock at a price of $11.00 per share. Of the 3,350,000 shares sold in the -19- IPO, 1,350,000 were sold by Venture Capital Corporation, a Cayman Islands company, and the remaining 2,000,000 shares were sold by the Company. The offering generated net proceeds to the Company of $19,164,000, after deducting offering expenses of approximately $1,296,000 paid by the Company. (3) In December 1997 and June 1998, the Company paid dividends of $3.5 million and $1.1 million, respectively, to BIG. The Company currently anticipates that all of its earnings will be retained for operating purposes and does not anticipate declaring or paying any cash dividends in the foreseeable future. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto, as well as the risk factors highlighted above in "Item 1. Business - Risk Factors". OVERVIEW Insurance Management Solutions Group, Inc. (together with its subsidiaries, the "Company") is a holding company that was incorporated in the State of Florida in December 1996 by Bankers Insurance Group, Inc. (together with its subsidiaries, BIG), which contributed to the Company two of its wholly-owned operating subsidiaries, Insurance Management Solutions, Inc. ("IMS") and Bankers Hazard Determination Services, Inc. ("BHDS") that were previously formed in August 1991 and June 1988, respectively. In July 1997, the Company acquired a 49% interest in Geotrac, Inc. and in July 1998 acquired the remaining 51% interest. Geotrac was subsequently merged into BHDS with the surviving company being known as Geotrac of America, Inc ("Geotrac"). In January 1999, the Company acquired Colonial Claims. On December 28, 2001, the Company sold Geotrac in exchange for $19 million in cash, 524,198 shares of the Company's Common Stock, and certain other contractual considerations (see Item 1. Business - Geotrac Sale). -20- The Company provides outsourcing services to the property and casualty ("P&C") insurance industry with an emphasis on providing these services to the flood insurance market. The Company's outsourcing services include policy and claims administration (policy issuance, billing and collection functions, claims adjusting and processing) as well as information technology services. BIG is the Company's principal customer, accounting for approximately 60.2%, of the Company's total revenues (including discontinued operations) and 82.6% of the Company's outsourcing revenues from continuing operations in 2000 and approximately 47.6% of the Company's total revenues and 67.0% of the Company's outsourcing revenues in 2001. Big is a diversified group of P&C insurance companies with premium writings in all 50 states. BIG's principal lines of business include flood, homeowners and automobile insurance lines. From 1996 to 2001, BIG's total annual written premiums increased from $235 million to $351 million. Prior to 1997, the Company's outsourcing services principally related to information technology services provided to BIG on a cost reimbursement basis. In 1997, the Company entered into service arrangements with BIG to provide a broader menu of outsourcing services. These services primarily consisted of policy and claims administration (including policy issuance, billing and collection functions, claims adjusting and processing) and information technology services provided for BIG's flood and homeowners insurance lines of business. Revenues for these services were derived based on a percentage of direct written premiums for policy administration services and direct paid claims for claims administration services. The Company also provided claims administration services for BIG's other insurance lines, excluding flood and homeowners, on a cost reimbursement basis in 1997. Effective January 1, 1998, the Company entered into a written service agreement (collectively, the "Service Agreements") with each of BIC, BSIC and FCIC, all direct or indirect subsidiaries of BIG. These service agreements modified the existing arrangements to (i) expand the services provided by the Company to include policy administration for certain automobile lines of business, (ii) recognize claims outsourcing revenue based not on a cost reimbursement basis, but rather on a percentage of earned premiums and, with respect to certain types of claims, a percentage of incurred losses, and (iii) implement a change in fee structure from a percentage of incurred loss to a percentage of earned premiums with respect to homeowners claims services. These changes were negotiated in order to effect more uniform revenue recognition. To obtain BIG's agreement to such changes, the Company, in turn, agreed to the revised fee structure with respect to homeowners claims services. -21- On April 13, 2001, the Company entered into a Letter Agreement with BIG, BIC, BSIC, and FCIC (the "Letter Agreement"). Pursuant to the Letter Agreement, the Service Agreements were amended effective June 1, 2001 to, among other things, modify certain of the service fees payable thereunder and eliminate data and technical support services from the administrative services to be provided by the Company thereunder. If the 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 million on an actual basis, would have been approximately $30 million on a pro forma basis. See "Certain Relationships and Related Transactions - Letter Agreements". Effective as of October 1, 2001, the Company entered into a new service agreement with BIC, BSIC and FCIC (the "New Service Agreement"). The New Service Agreement replaced the Service Agreements, as amended by the Letter Agreement. See "Future Trends" below and "Item 13. Certain Relationships and Related Transactions-New Service Agreement". Outsourcing service revenues are principally derived from written and earned insurance premiums. Such premiums are affected by seasonal fluctuations in volume of new and renewal policies received. Outsourcing service revenues generated from the flood and homeowners lines of business increased in the late second quarter and peaked during the third quarter in conjunction with home sales. In the Company's experience, increased levels of flood insurance purchases occur in the Southeastern United States during the second and third quarters in anticipation of the onset of the hurricane season. Federal residential flood insurance rates are set by FEMA and are the same for all flood insurance carriers. Consequently, policyholder retention is typically dependent upon the quality of customer service being offered. Higher retention or renewal rates provide more consistent recurring revenues. Flood insurance carriers often utilize independent agents to sell their product. Competing flood insurance carriers offering more attractive commissions to such agents pose a significant risk for declines in business. During periods of peak demand for flood and homeowners insurance, the number of policies waiting to be issued increases. This backlog represents future service fee income to be earned, generally within one month. The cost of outsourcing services primarily includes wages and related benefits associated with personnel who perform policy and claims administration services, as well as postage and telephone charges, data processing and other direct costs associated with providing service to customers. Selling, general and administrative expenses include the wages and related benefits of sales and marketing, executive, finance and accounting personnel, as well as other general operating costs. In addition, wages and related benefits of the management staff of each processing department (i.e. Customer Service, Claims, and Information Services) are included in selling, general and administrative expenses. Management services from Parent were previously charged to the Company under an administration agreement with BIG for common costs that were incurred by BIG. These common costs included human resources, legal, corporate planning and communications, cash management, certain executive management and rent. On April 13, 2001, the Company and BIG entered into the Letter Agreement. Pursuant to the Letter Agreement, the administration agreement was terminated effective April 1, 2001. During the year ended December 31, 2001, the Company's outsourcing services business segment generated operating income of approximately $4.0 million. This operating income was primarily due to an increase in revenue from the impact of Tropical Storm Allison, which storm occurred in June 2001. In an effort to improve the operating results of its outsourcing services -22- business segment, the Company reduced its workforce by approximately 50 employees in February 2001. FUTURE TRENDS Effective October 1, 2001, the Company entered into the New Service Agreement with BIC, BSIC and FCIC. The New Service Agreement replaced the Service Agreements, as amended by the Letter Agreement. Pursuant to the New Service Agreement, the Company provides policy administration, claims administration and data processing services to such entities in connection with their flood, homeowners and automobile lines of business, and claims administration and data processing services for all such entities' other property and casualty lines of business. Under the New Service Agreement, each entity pays the Company as follows: (1) for its policy administration services a monthly fee based upon direct written premiums for the flood, homeowners and automobile insurance programs; (2) for its claims administration services a monthly fee based upon direct earned premiums for the property, casualty, automobile property, automobile casualty and flood insurance programs (in addition, a monthly fee based upon direct incurred losses is charged for flood claims administration and a reimbursement not to exceed 5% of direct incurred losses from a single event in excess of $2 million is charged to property claims); (3) for its data processing services, a monthly fee based upon direct written premiums for all insurance programs; and (4) for certain customer services such as mailroom, policy assembly, records management and cash office a monthly fee based upon direct written premiums (except, if provided in connection with their flood, homeowner and automobile insurance lines, where no such fees are imposed). The New Service Agreement is for an initial term of five years, subject to termination thereafter upon 90 days written notice. The New Service Agreement further provides for the renegotiation of rates in good faith after the first three years of the initial term. The New Service Agreement modified the existing arrangements under the Service Agreements by, among other things: (i) reducing the base fees charged for certain lines of business; (ii) providing for tiered pricing based on the volume of business processed electronically rather than manually; (iii) providing for the pass-through to BIG of flood loss adjustment expenses for outsourcing services; and (iv) providing for the pass-through to BIG of all postage expenses and third-party information services incurred by the Company in connection with its performance under the New Service Agreement. For financial statement purposes these expense pass-throughs are considered revenues. If the New Service Agreement had not been in effect, the Company's affiliated outsourcing service fee and pass-through revenue for the fourth quarter of 2001, which totaled approximately $5.9 and $1.1 million on an actual basis, would have been approximately $6.5 and $-0- million under the previous agreement on a pro forma basis. The Company believes that any anticipated reduction in affiliated outsourcing service fee revenues resulting from the implementation of such service fee changes under the New Service Agreement will be largely offset by the corresponding increase in revenues from the pass-through (reimbursement) of flood loss adjustment expenses, postage expenses and third-party information services, although no assurances can be given in this regard. Moreover, as of October 1, 2002, the Company will again become directly responsible for the payment of postage expenses under the terms of the New Service Agreement. If the New Service Agreement had not been in effect for the fourth quarter of 2001, such postage expenses, which totaled $475,000 and were passed through to BIG, would have been expenses borne by the Company. -23- Over the past year, BIG has experienced several changes in its business and operations, certain of which are expected to reduce the need for the Company's services for the foreseeable future. In November 2001, BIG ceased writing further workers compensation insurance altogether. Although the Company will continue to provide services in connection with the run-off of this business, such run-off business is not expected to generate material revenues for the Company in 2002. In addition, effective February 2002, BIG sold its Florida wind-inclusive homeowners policies to an unaffiliated third party, and the Company is no longer servicing these policies. While BIG has informed the Company that it will continue to write wind-exclusive homeowners policies, revenues from the processing of homeowners business on behalf of BIG is expected to be reduced significantly for the foreseeable future. If BIG were to exit or sell off any additional lines of business, this could have a material adverse effect on the Company's business, financial condition and results of operations. The Company anticipates making further staffing and other related expense reductions in response to the foregoing changes in BIG's business. Nevertheless, if the Company is unable to replace these revenues or reduce its expenses accordingly, the loss or material decrease in business from BIG could have a material adverse effect on the Company's business, financial condition and results of operations. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain selected operating results of the Company as a percentage of total revenues:
----------------------------------- YEAR ENDED DECEMBER 31, ----------------------------------- 1999 2000 2001 ----- ----- ----- REVENUES Outsourcing services ......................................... 100.0% 100.0% 100.0% ----- ----- ----- Total revenues ......................................... 100.0 100.0 100.0 ----- ----- ----- EXPENSES Cost of outsourcing services ................................. 73.7 80.5 73.4 Selling, general and administrative .......................... 12.6 15.8 12.2 Management services from Parent .............................. 4.1 4.0 2.3 Depreciation and amortization ................................ 6.1 6.5 5.2 ----- ----- ----- Total expenses ......................................... 96.5 106.8 93.1 ----- ----- ----- Operating income ................................................ 3.5 (6.8) 6.9 Interest income ................................................. 0.7 0.7 0.5 Interest expense ................................................ (0.5) (0.1) -- ----- ----- ----- Income before income taxes and discontinued operations .......... 3.7 (6.2) 7.4 Provision/(Benefit) for income taxes ............................ 1.6 (1.6) 2.4 ----- ----- ----- Income before discontinued operations ........................... 2.1 (4.6) 5.0 Income/(loss) from operations of discontinued operations ........ 3.9 3.6 4.2 Gain/(loss) on disposal of discontinued operations .............. -- -- (4.9) ----- ----- ----- Net income/(loss) ............................................... 6.0% (1.0)% 4.3% ===== ===== =====
COMPARISON OF THE YEARS-ENDED DECEMBER 31, 2001 AND 2000 CONTINUING OPERATIONS Outsourcing Services Revenues. Outsourcing services revenues increased 21.7% to $57.1 million in 2001 from $46.9 million 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 $12.0 million, including an increase of $2.2 million in Affiliated Revenue and an increase of $9.8 million in Unaffiliated Revenue (of which $7.8 million related to Colonial Claims, the Company's claims catastrophe subsidiary). Additionally, revenues from the Company's automobile line of business increased approximately $1.2 million in 2001 as compared to 2000 due principally to significant volume increases in new affiliated business from its non-standard automobile line. The foregoing increases were partially offset by a decrease in revenue from a third-party outsourcing customer for which the Company has only been processing run-off business since the beginning of 2001. -24- Cost of Outsourcing Services. Cost of outsourcing services increased 11.1% to $41.9 million in 2001 from $37.7 million in 2000. As a percentage of outsourcing services revenues, cost of outsourcing services decreased to 73.4% in 2001 from 80.4% in 2000. The increase in the dollar amount of cost of outsourcing services was primarily attributable to an increase in revenue from the Company's claims catastrophe subsidiary, which pays approximately 70% of each dollar of revenue received to the independent adjusters who adjust the claims on such subsidiary's behalf. The increase also resulted from the addition 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. The increase was partially offset by a decrease of $3.8 million in payroll costs due to two staff reductions completed in late 2000 and early 2001 and the reduction of the Company's information technology staff in June 2001, coupled with a decrease in contract labor/consulting costs of $779,000. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased 6.8% to $6.9 million in 2001 from $7.4 million in 2000. This decrease of $500,000 was primarily attributable to a decrease in payroll costs as a result of previously-noted staff reductions and the completion of certain severance payment obligations, partially offset by the continued assumption of certain administrative services that were previously provided to the Company by BIG under a management service agreement and a $200,000 provision recorded during the fourth quarter related to billing adjustments under the New Service Agreement and already paid to the Company by BIG. Management Services from Parent. Management services from Parent decreased 31.6% to $1.3 million in 2001 from $1.9 million 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 90.2% to $6,000 in 2001 from $61,000 in 2000. This decrease resulted primarily from the payment of substantially all of the Company's remaining outstanding debt obligations during 2000 and 2001. The nominal amount booked for the period relates to expenses for capital leases for information technology equipment; these leases expired during the fourth quarter of 2001. Provision/(Benefits) for Income Taxes. The Company's effective income tax/(benefit) rates were 32.4% and (25.1%) in 2001 and 2000, respectively. The effective tax/(benefit) rates reflect various non-deductible items, including goodwill recognized in connection with the acquisition of Colonial Claims in January 1999. For additional information on the reconciliation of the Company's effective income tax rate to the federal statutory income tax rate, see "Note 10 - - Income Taxes", in "the Notes to the Consolidated Financial Statements". DISCONTINUED OPERATIONS For selected financial information on discontinued operations, see "Note 3. - Discontinued Operations", in the "Notes to Consolidated Financial Statements". Income from discontinued operations, net of income tax, increased 41.2% to $2.4 million in 2001 from $1.7 million in 2000 and is comprised of the following: -25- Flood Zone Determination Services Revenue. Flood zone determination services revenue increased 28.1% to $21.9 million in 2001 from $17.1 million in 2000. The increase was primarily attributable to an increase in the number of flood zone determinations processed by Geotrac during 2001 as compared to 2000. The increase in the number of flood zone determinations processed was primarily due to a continued low mortgage interest rate market. These attractive interest rates resulted in a corresponding increase in mortgage refinancing activity and loan originations, which historically drive the demand for flood zone determinations. Cost of Flood Zone Determination Services. Cost of flood zone determination services increased 18.2% to $9.1 million in 2001 from $7.7 million in 2000. As a percentage of flood zone determination services revenues, cost of flood zone determination services decreased to 41.6% for 2001 from 45.0% in 2000. The increase in the dollar amount of cost of flood zone determination services was primarily attributable to corresponding increases in revenues related to flood zone determinations. The cost of flood zone determination services is exclusive of a fourth quarter of 2001 write-off of capitalized software of approximately $1.3 million. Principally during the fourth quarter of 2001, Geotrac's management, with Geotrac's Board approval, decided to abandon further development of many components of a new software system that had been in process since 1999. The decision was based on various factors including funding limitations, other available strategies, and technical difficulties. COMPARISON OF THE YEARS ENDED DECEMBER 31, 2000 AND 1999 CONTINUING OPERATIONS Outsourcing Services Revenues. Outsourcing services revenues decreased 11.2% to $46.9 million in 2000 from $52.8 million in 1999. The decrease was attributable in part to the fact that revenue generated under an affiliated technical support services arrangement decreased to $0 in 2000 from $1.3 million in 1999. The decrease in outsourcing services revenues also was attributable to the expiration as of December 31, 1999 of certain minimum service fee arrangements established effective April 1, 1999 with affiliated insurers to compensate the Company for maintaining an infrastructure to process certain lines of business of affiliated insurers that had not grown as rapidly as originally anticipated. If such minimum service fee requirements with respect to said lines of business had not been implemented as of April 1, 1999, aggregate affiliated outsourcing services revenues, which totaled $41.5 million in 1999, would have been $39.7 million in accordance with the terms of the affiliated service agreements as in effect prior to April 1, 1999. The decrease in outsourcing services revenues was also due to a decrease in the volume of flood and wind damage claims administered by the Company's outsourcing operations during the year 2000 as compared to 1999. During 2000, the Company recognized revenues of approximately $4.6 million primarily from the administration of property damage claims resulting from a tropical depression that caused extensive flooding, which storm occurred during the fourth quarter of 2000. In comparison, the Company recognized revenues totaling approximately $9.6 million during 1999 from the administration of property damage claims resulting from Hurricane Georges, which storm occurred in September 1998, and from Hurricanes Floyd and Irene, which storms occurred during the fourth quarter of 1999. Additionally, a decline in the volume of automobile premium processed on behalf of the Company's affiliated customers contributed to the decrease in outsourcing services revenues during 2000. These decreases in outsourcing services revenues were partially offset by (i) an increase in outsourcing services revenues generated under an automobile claims processing agreement, entered into April, 2000, with an unaffiliated customer, (ii) an increase in flood premium processed on behalf of the Company's unaffiliated customers, -26- and (iii) an increase in flood, homeowners and commercial premium processed on behalf of the Company's affiliated customers. Cost of Outsourcing Services. Cost of outsourcing services decreased 3.1% to $37.7 million in 2000 from $38.9 million in 1999. As a percentage of outsourcing services revenues, however, cost of outsourcing services increased to 80.4% in 2000 from 73.7% for the corresponding period in 1999 primarily as a result of the decrease in the dollar amount of outsourcing services revenues in 2000 as compared to 1999. The decrease in the dollar amount of cost of outsourcing services was primarily attributable to a decrease in revenue from the Company's claims catastrophe subsidiary, which pays approximately 70% of each dollar of revenue received to the independent adjusters who adjust the claims on such subsidiary's behalf. The decrease in the dollar amount of expenses from the Company's claims catastrophe subsidiary was partially offset by (i) increases in the Company's personnel costs due to staff additions and the use of contract programmers to develop and staff new unaffiliated programs and (ii) an increase in facilities costs due to the occupancy of the Company's new operating and call center facility. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 12.1% to $7.4 million in 2000 from $6.6 million in 1999. The increase in selling, general and administrative expenses was primarily attributable to (i) the continued assumption of certain administrative services, including human resource, agency accounting, cash management and legal services that were previously provided to the Company under the management service agreement with BIG, and (ii) the recognition of $338,000 in additional compensation expense (of which approximately $102,000 relates to 1999) resulting from the vesting of benefits payable to certain current and former officers and directors of the Company under the Amended and Completely Restated Phantom Stock Plan (the "BFC Plan") of Bankers Financial Corporation ("BFC"), the parent corporation of BIG, and the Amended and Restated Phantom Stock Plan (the "VCC Plan") of Venture Capital Corporation ("VCC"). The foregoing compensation charge is a non-recurring, non-cash item to the Company, as all such benefits under such plans were fully vested as of September 30, 2000 and constitute the respective obligations of BFC and VCC, not the Company. In addition, the offset to such compensation expense is an increase to additional paid-in capital, since the ultimate cash obligations under these plans are that of BFC and VCC, respectively, and not of the Company. Management Services from Parent. Management services from Parent decreased 13.6% to $1.9 million in 2000 from $2.2 million in 1999. This decrease was primarily related to the continued assumption by the Company of certain administrative services, including human resources, agency accounting, cash management and legal services, that were previously provided to the Company under the management service agreement with BIG. Such decrease was partially offset by both an increase in rent expense from BIG as a result of an annual rent escalation and an increase in the square footage being leased. Interest Expense. Interest expense decreased 76.1% to $61,000 in 2000 from $255,000 in 1999. This decrease was primarily related to the early repayment of most of the Company's debt obligations during 1999 from the net proceeds received by the Company from its initial public offering in February 1999. Provision for Income Taxes. The Company's effective income tax rates were 25.1% and 42.5% in 2000 and 1999, respectively. The decrease in the effective tax rate during 2000 reflects lower pretax income as well as various non-deductible items, including goodwill recognized in connection with the acquisition of Colonial Claims in January 1999. -27- DISCONTINUED OPERATIONS Income from Discontinued Operations, net of income tax, decreased 19.0% to $1.7 million in 2000 from $2.1 million in 1999, related to the following: Flood Zone Determination Services Revenues. Flood zone determination services revenues decreased 10.9% to $17.1 million in 2000 from $19.0 million in 1999. This decrease was primarily attributable to the termination of the Company's "life-of-loan" insurance policy, effective April 1, 1999, under which, prior to the termination of the policy, the Company was compensated for performing flood zone re-determinations for certain existing customers. Prior to the termination of the life-of-loan policy, the Company paid an insurance premium for every flood zone determination issued which required life-of-loan tracking. In exchange for the premium, the Company received a fixed amount for every flood zone determination that had to be reissued as a result of a change in the underlying flood zone classification of a property. Additionally, a decrease in the average selling price per flood zone determination, resulting from (i) increased pricing pressures and (ii) an increase in the number of automated flood zone determinations processed by the Company on behalf of other flood zone vendors at reduced rates, contributed to the decrease in flood zone determination services revenues during 2000. These decreases in flood zone determination services revenues were partially offset by an increase in number of flood zone determinations processed during 2000 as compared to 1999. Cost of Flood Zone Determination Services. Flood zone determination services decreased 4.9% to $7.7 million in 2000 from $8.1 million in 1999. As a percentage of Flood zone determination services revenues, cost of Flood zone determination services increased to 45.0% in 2000 from 42.2% in 1999. The increase resulted primarily from the decrease in the dollar amount of flood zone determination services revenues during 2000 as compared to 1999, partially offset by (i) various production workflow changes made during 1999 that enabled the Company to increase employee productivity and reduce operating expenses, primarily personnel related costs, and (ii) increased utilization of a flood zone determination vendor, located in India, which has been able to perform manual flood zone determinations at costs significantly below U.S. market rates. LIQUIDITY AND CAPITAL RESOURCES During 2001, the Company's principal sources of liquidity consisted of cash on-hand, cash flows from operations, and cash proceeds from the sale of the Company's Geotrac subsidiary in late December 2001. Prior to 2001, the Company funded its operations through cash generated from operations, receipt of service fees advanced from BIG and available borrowings under the Company's revolving line of credit (which line of credit was terminated by the bank in December 2000). Bank borrowings were used to finance fixed asset purchases. The Company received net cash proceeds of approximately $18.2 million as a result of the sale of its Geotrac subsidiary in late December 2001. Prior to the consummation of the sale of Geotrac, the Company was party to a Corporate Governance Agreement, dated July 31, 1998, with Geotrac and Daniel J. White ("Mr. White"), setting forth certain terms and conditions pertaining to the operation of Geotrac. Pursuant to this Corporate Governance Agreement, Mr. White could impede the Company's ability to access excess cash balances retained by its Geotrac subsidiary. 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, beginning June 1, 2001, up to $1.5 million per month as a prepayment of service fees due by BIG and its affiliates under the Service Agreements. 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. -28- 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"). 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, all unpaid principal and interest became due and payable in full on February 28, 2002. As of such date, BIG owed the Company an aggregate of approximately $5.0 million under the Line of Credit. On March 14, 2002, the Company and BIG amended the Credit Agreement (the "Amended Credit Agreement") to extend the Line of Credit until May 31, 2002. Pursuant to the Amended Credit Agreement, interest is payable monthly on amounts outstanding under the Line of Credit at an annual rate equal to the Prime Rate (4.75% at December 31, 2001) as defined in the Amended Credit Agreement, plus 1.5%. As of March 31, 2001, the aggregate principal amount outstanding under the Line of Credit was $5.0 million. 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 FCIC, a New York insurance company licensed in all fifty states. As of March 31, 2002, management of the Company believes the fair market value of the Flood Book exceeds the aggregate principal amount of the Line of Credit. The Company has been advised by BIG that it is considering various methods of satisfying its obligations under the Line of Credit, including the possible sale of certain of its assets. No assurances can be given, however, that payment in full of all amounts due and owing under the Line of Credit will be received on a timely basis. See "Item 13. Certain Relationships and Related Transactions-Secured Line of Credit". The Company believes that cash on-hand (including the net cash proceeds from the Geotrac sale) and cash flows from operations will be sufficient to support the Line of Credit and to satisfy the Company's currently anticipated working capital requirements for the foreseeable future. See "Recent Trends" above. -29- ITEM 7A. 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) is not material. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following financial statements of the Company and its independent certified public accountants' report are set forth on pages F-1 through F-45 of this report: Report of Independent Certified Public Accountants Consolidated Balance Sheets as of December 31, 2000 and 2001 Consolidated Statements of Income for the years ended December 31, 1999, 2000 and 2001 Consolidated Statement of Shareholders' Equity for the years ended December 31, 1999, 2000 and 2001 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 2000 and 2001 Notes to Consolidated Financial Statements Report of Independent Certified Public Accountants on Schedule I Schedule I -- Condensed Financial Information of Registrant Notes to Condensed Financial Information of Registrant ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. -30- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT The Company's Board of Directors consists of eight members divided into three classes, with the members of each class serving three-year terms expiring at the third annual meeting of shareholders. The following table sets forth information, as of March 18, 2002, regarding the directors and executive officers of the Company.
TERM AS DIRECTOR NAME AGE POSITION EXPIRES - ---- --- -------- -------- David M. Howard 40 President, Chief Executive Officer and Director 2001* David K. Meehan 55 Chairman of the Board 2002 Anthony R. Marando 44 Chief Financial Officer and Secretary N/A Robert G. Gantley 46 Senior Vice President and Chief Operating Officer N/A Robert M. Menke 68 Director 2003 John A. Grant, Jr. 58 Director 2002 William D. Hussey 68 Director 2003 E. Ray Solomon 72 Director 2003 Alejandro M. Sanchez 43 Director 2001* John S. McMullen 58 Director 2001*
- ------------ *The Company did not hold an annual meeting of shareholders in 2001. Thus, each director whose term was to expire in 2001 will remain as a director until his successor is duly elected and qualified and will stand for reelection at the next annual meeting of shareholders of the Company. DAVID M. HOWARD has served as a Director of the Company since June 2000, as President of the Company since August 1999, and as Chief Executive Officer of the Company since January 2000. Prior to joining the Company, he spent eleven years with BIG. From October 31, 1998 until assuming his duties with the Company, Mr. Howard served as Senior Vice President of each of BIG's insurance subsidiaries, namely Bankers Insurance Company ("BIC"), Bankers Life Insurance Company ("BLIC"), Bankers Security Insurance Company ("BSIC") and First Community Insurance Company ("FCIC"). From October 1996 until assuming his duties with the Company, he also served as Senior Vice President of BIG and President of Bankers Insurance Services, Inc., a subsidiary of BIG. Mr. Howard served as President of Bankers Hazard Determination Services, Inc., the flood zone determination services subsidiary of the Company that was merged with Geotrac, from October 1995 to July 1998, and as Executive Vice President of Bankers Insurance Services, Inc. from December 1991 to October 1996. He also served as a director of Geotrac from July 1998 to December 2001. Prior to joining BIG, Mr. Howard spent several years as an officer in the United States military. He is active in industry organizations and is a member of the Council of Company Executive Officers. DAVID K. MEEHAN has served as the Chairman of the Board of Directors and as a Director of the Company since December 1996. He also served as President and Chief Executive Officer of the Company from December 1996 to August 1999 and January 2000, respectively. Mr. Meehan joined BIG in 1976 as Corporate Secretary. He was appointed President of BIG in 1979 and served in such capacity until February 1999. He is currently Vice Chairman of the Board of -31- BIG. Mr. Meehan is also Vice Chairman of various direct and indirect subsidiaries of BIG including BIC, BSIC, FCIC and BLIC. Mr. Meehan has served on the Board of Governors of each of the Florida Joint Underwriting Association, the Florida Property and Casualty Joint Underwriting Association and the Florida Residential Property and Casualty Joint Underwriting Association. Mr. Meehan is past Director/Vice Chairman of the Florida Insurance Council and past Chairman and President of the Florida Association of Domestic Insurance Companies. ANTHONY R. MARANDO has served as Chief Financial Officer of the Company since May 2001 and as Secretary of the Company since November 2001. Prior to joining the Company, Mr. Marando served as Chief Operating Officer of the e-Insurance Division of Selectica, Inc., a software development and e-commerce company, from August 2000 to March 2001. Mr. Marando also served as Director of U.S. Financial Reporting for Canada Life Assurance Company from May 1999 to May 2000 and, prior to that time, served in various financial and administrative capacities with MetLife, Inc. from 1986 to December 1998, most recently as Assistant Vice President in MetLife's Corporate Controller's Department. ROBERT G. GANTLEY has served as Chief Operating Officer and Senior Vice President of the Company since January 2000. Prior to that time, Mr. Gantley served as Vice President - Claims of Insurance Management Solutions, Inc. ("IMS"), the Company's principal outsourcing subsidiary, from August 1997 to January 2000. From August 1997 to June 1998, he also served as Vice President - Claims of the Company. Mr. Gantley joined BIG in October 1996 and served as Vice President - Claims of BIC until February 1999. Prior to joining BIG, he was Assistant Director of the Massachusetts State Lottery from 1993 to 1996 and spent over fifteen years with Allstate Insurance Group, most recently as a Territorial Claims Manager from 1989 to 1993. Mr. Gantley has almost twenty years experience in the insurance industry. ROBERT M. MENKE has served as a Director of the Company since December 1996. Mr. Menke founded BIG, a holding company chartered in Florida and the Company's principal shareholder, in 1976 and served as its Chairman of the Board from 1979 until December 2000. He was honored as "Insurance Man Of The Year" in 1986 by the Florida Association of Domestic Insurance Companies. Mr. Menke is also a member of the Florida Insurance Council. Mr. Menke was previously Chairman of the Board for BIG and Bankers International Financial Corporation, an indirect parent company of BIG. He also served as Chairman of the Board of each of BIC, BSIC, FCIC and BLIC until February 2002. Mr. Menke is a director of the Florida Windstorm Association and First Community Bank of America. JOHN A. GRANT, JR. has been a Director of the Company since December 1996. Since September 2001, Mr. Grant has served as Executive Vice President of Liquidmetal Technologies, a leading developer of products made from amorphous alloys. Mr. Grant was formerly a partner with the law firm of Harris, Barrett, Mann and Dew, retiring in 2000. Mr. Grant was managing partner of the Tampa office and specialized in business and real property law. From 1986 to 2000 he was a member of the Florida State Senate, where he served as Chairman of the Judiciary Committee and where he previously served as the Chairman of the Banking and Insurance, Commerce, Criminal Justice, Education, and Government Reform committees. Mr. Grant has been listed in Who's Who in America and served as an advisor in the United States Department of Education, during the Reagan administration. Mr. Grant has also served on the Advisory Board of the United States Small Business Administration. WILLIAM D. HUSSEY has served as a Director of the Company since December 1996. Mr. Hussey is a retired President and Chief Executive Officer of the Florida League of Financial Institutions and is a former advisor for the Florida Bankers Association. -32- E. RAY SOLOMON, Ph.D., CLU, has served as a Director of the Company since December 1996. Dr. Solomon is a retired Professor and the former Dean of the College of Business at Florida State University. ALEJANDRO M. SANCHEZ has served as a Director of the Company since July 1998. Mr. Sanchez is also Chief Executive Officer of the Florida Bankers Association and has served in such capacity since February 1998. From November 1993 to January 1998, he served as Vice President for Government Affairs of the Florida Bankers Association. He previously served as Senior Corporate Attorney for GTE Information Services in Tampa, Florida. Most recently, President George W. Bush nominated Mr. Sanchez to be a member of the Federal Retirement Thrift Investment Board. This appointment is pending U.S. Senate confirmation. JOHN S. MCMULLEN has served as a Director of the Company since January 2001. Mr. McMullen is a retired President and Chief Executive Officer of Florida Bank of Tampa (including its predecessor, First National Bank of Tampa (f/k/a Enterprise National Bank of Tampa)), having served in such capacity from 1992 until 1999. He also served as a director of Florida Banks, Inc., a publicly-traded bank holding company and the parent company of Florida Bank of Tampa, from August 1998 to March 1999. Prior to joining First National Bank of Tampa in 1992, Mr. McMullen spent 22 years with First Florida Bank, N.A. serving in various capacities, including Senior Vice President/Hillsborough Commercial Banking Group from 1990 to 1992 and Area Executive Vice President/Pinellas County from 1985 to 1990. Since October 2001, Mr. McMullen has served as Vice-Chairman of the Board of PowerCerv Corporation, a publicly-owned Tampa-based company. Mr. McMullen is also Treasurer and a Director of Merchants Association of Florida, Inc. Messrs. Robert M. Menke and David K. Meehan are also members of the respective Boards of Directors of various direct and indirect subsidiaries of BIG including BIC, BSIC, FCIC and BLIC, which are all wholly-owned direct or indirect subsidiaries of BIG. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE To the Company's knowledge, during the year ended December 31, 2001, the executive officers and directors of the Company and all persons who own more than ten percent (10%) of the Company's Common Stock filed with the Securities and Exchange Commission on a timely basis all required reports relating to transactions involving equity securities of the Company beneficially owned by them. The Company has relied on written representations of its executive officers and directors and copies of reports furnished to the Company in providing this information. ITEM 11. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth certain information concerning compensation paid to or earned by the Company's Chief Executive Officer and each of the Company's five other current or former executive officers for the years ended December 31, 2001, 2000 and 1999. -33-
Annual Compensation (1) ---------------------------------------------------------------------- Other Other Annual Compensation Name and Principal Position Year Salary Bonus Compensation (2) (3) --------------------------- ---- --------- -------- ---------------- ------------ David M. Howard ........................... 2001 $ 225,646 $ 70,765 -- $ 6,800 President and Chief Executive Officer (4) 2000 $ 229,678 -- -- $ 8,436 1999 $ 71,094 $ 50,000 -- $ 2,659 David K. Meehan ........................... 2001 $ 75,292 -- -- $ 3,570 Chairman of the Board (5) 2000 $ 75,292 -- -- $ 3,570 1999 $ 148,893 $ 32,000 -- $ 6,587 Christopher P. Breakiron .................. 2001 $ 154,483 -- -- $ 2,315 Chief Financial Officer, Secretary and 2000 $ 149,519 -- -- $ 5,942 Treasurer (6) 1999 $ 97,806 $ 15,000 -- $ 4,512 Anthony R. Marando ........................ 2001 $ 121,730 -- -- $ 1,579 Chief Financial Officer and Secretary (7) 2000 -- -- -- -- 1999 -- -- -- -- Robert G. Gantley ......................... 2001 $ 165,009 -- -- $ 6,093 Senior Vice President and Chief 2000 $ 149,424 -- -- $ 5,839 Operating Officer (8) 1999 -- -- -- -- Daniel J. White ........................... 2001 $ 148,356 $ 2,769 President and Chief Executive Officer of 2000 $ 150,000 -- -- $ 4,154 Geotrac (9) 1999 $ 150,000 -- -- $ 5,714
- ----------- (1) During the years ended December 31, 1999, 2000 and 2001, certain of the executive officers of the Company were also executive officers or employees of BIG, and, in certain instances, BIG paid a portion of their respective compensation. The amounts reflected in the table above were all paid to the respective executive officers by the Company. During the years ended December 31, 1999, 2000 and 2001, all of the executive officers of the Company spent substantially all of their time on the Company's business and were compensated solely by the Company, except that subsequent to August 19, 1999, Mr. Meehan spent 70% of his time on BIG's business and was paid $96,312, $151,847 and $151,847 by BIG for his service as an executive officer of BIG during the years ended December 31, 1999, 2000 and 2001, respectively. (2) Does not include the value of the perquisites provided to certain of the named executive officers, which in the aggregate did not exceed 10% of such officer's salary and bonus. Also excludes benefits, if any, accrued to Messrs. Howard, Meehan, and Gantley under the Executive Phantom Stock Plans of Bankers Financial Corporation, the parent of BIG, and Venture Capital Corporation. No officers or directors of the Company (with the exception of Robert M. Menke) are eligible to receive additional grants under such Phantom Stock Plans. (3) Reflects matching amounts paid by the Company under its 401(k) plan for the year indicated. (4) Mr. Howard became the President of the Company on August 19, 1999, and the amounts listed for 1999 include compensation only from such time. (5) Effective August 19, 1999, Mr. Meehan was succeeded by Mr. Howard as President of the Company. Prior to such time, Mr. Meehan's annual base salary pursuant to his Employment -34- Agreement was $258,000. Effective August 19, 1999 his annual base salary was reduced to $75,000 for his services as Chairman of the Board. (6) Mr. Breakiron became the Chief Financial Officer, Secretary and Treasurer of the Company on August 24, 1999. Prior to such time Mr. Breakiron served as Vice President and Controller. Accordingly, the amounts shown include all compensation received from the Company for the year ended December 31, 1999. Effective April 17, 2001, Mr. Breakiron resigned as Chief Financial Officer, Vice President, Secretary and Treasurer of the Company. On April 12, 2001, the Company and Mr. Breakiron entered into a Release and Separation Agreement and a Consulting Agreement pursuant to which, among other things, Mr. Breakiron served as a consultant to the Company through May 15, 2001. See "Executive Compensation--Employment Agreements." (7) Mr. Marando joined the Company effective April 1, 2001, and became the Chief Financial Officer of the Company effective May 7, 2001. On November 20, 2001, Mr. Marando was also appointed Corporate Secretary. The amounts listed for 2001 include compensation from April 1, 2001 through year end. (8) Mr. Gantley became the Chief Operating Officer of the Company on January 18, 2000. Prior to such time, Mr. Gantley served as Vice President of Claims. Accordingly, the amounts shown include all compensation received from the Company for the year ended December 31, 2000. (9) Upon the consummation of the sale of Geotrac on December 28, 2001, Mr. White ceased to be an executive officer of the Company. Accordingly, the amounts listed for 2001 include compensation only through such date. OPTION/SAR GRANTS IN PRIOR FISCAL YEAR No stock options or SARs were issued to any of the executive officers named in the Summary Compensation Table above during the year ended December 31, 2001. The following table sets forth information with respect to aggregate stock option exercises by the executive officers named in the Summary Compensation Table during 2001 and the year-end value of unexercised options held by such executive officers. AGGREGATED OPTION/SAR EXERCISES IN CURRENT FISCAL YEAR AND FY-END OPTIONS/SAR VALUE TABLE
VALUE OF UNEXERCISED NUMBER OF NUMBER OF UNEXERCISED IN-THE-MONEY SHARES VALUE OPTIONS/SARS AT FY-END (#) OPTIONS/SARS AT FY-END ($)* ACQUIRED ON REALIZED ------------------------------- ------------------------------ NAME EXERCISE ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------- ----------- -------- ----------- ------------- ----------- ------------- David M. Howard -- -- -- 60,000 -- -- David K. Meehan -- -- -- 25,000 -- -- Anthony R. Marando -- -- -- -- -- -- Robert S. Gantley -- -- -- 35,000 -- --
* The exercise prices per share of all options held by the named executive officers exceeded the closing bid price per share of Common Stock (as reported by the OTC Bulletin Board) as of December 31, 2001. -35- EMPLOYMENT AGREEMENTS Effective as of the completion of its initial public offering in February 1999, the Company entered into an employment agreement with Mr. Meehan pursuant to which he was originally paid an annual base salary of $258,000. Effective August 19, 1999, Mr. Meehan resigned as President of the Company and his annual base salary was reduced to $75,000 for his services as Chief Executive Officer and Chairman of the Board. (In January 2000, he also resigned as Chief Executive Officer of the Company.) The initial term of Mr. Meehan's employment agreement expired in February 2002, but the agreement is subject to automatic continuation until terminated by either party. Mr. Meehan's employment agreement further provides that, if terminated by the Company without cause (as defined therein), he shall be entitled to severance payments, payable in accordance with the Company's usual payroll practices, equal to his then current annual base salary. In the event Mr. Meehan secures employment during the twelve months following termination, then the Company shall be entitled to a credit against its obligation to make severance payments in the amount of 75% of the base salary paid to him by his new employer during the twelve-month period following termination by the Company. Mr. Meehan's employment agreement provides that he shall be provided benefits, such as health, life and disability insurance, on the same basis as the Company's other employees. In addition, to the extent authorized by the Board of Directors, Mr. Meehan also shall be entitled to participate in the Company's bonus, stock option and other plans, if any. Mr. Meehan's agreement further provides that, during the term of the agreement and for a period of two years thereafter, Mr. Meehan will not, directly or indirectly, compete with the Company by engaging in certain proscribed activities. Effective June 19, 1998, the Company entered into an employment agreement with Mr. Gantley pursuant to which he is currently paid an annual base salary of $150,000. The initial term of Mr. Gantley's employment agreement expired in June 2001, but the agreement is subject to automatic continuation until terminated by either party. Mr. Gantley's employment agreement further provides that, if he is terminated by the Company without cause (as defined therein), he shall be entitled to severance payments, payable in accordance with the Company's usual payroll practices, equal to his then current annual base salary. In the event Mr. Gantley secures employment during the twelve months following termination, then the Company shall be entitled to a credit against its obligation to make severance payments in the amount of 75% of the base salary paid to him by his new employer during the twelve-month period following termination by the Company. Mr. Gantley's employment agreement provides that he shall be provided benefits, such as health, life and disability insurance, on the same basis as the Company's other employees. In addition, to the extent authorized by the Board of Directors, Mr. Gantley also shall be entitled to participate in the Company's bonus, stock option and other plans, if any. Mr. Gantley's agreement further provides that, during the term of the agreement and for a period of two years thereafter, Mr. Gantley will not, directly or indirectly, compete with the Company by engaging in certain proscribed activities. Effective April 1, 2001, the Company entered into an employment agreement with Mr. Marando pursuant to which he was paid a salary at a rate of $171,080 annually. This employment agreement provided for a term of six months, commencing April 9, 2001. Effective as of October 1, 2001, the Company entered into a new employment agreement with Mr. Marando pursuant to which he is currently paid a salary at a rate of $171,080 annually. Mr. Marando's employment agreement provides for a term of three years. Mr. Marando's -36- employment agreement further provides that, if he is terminated by the Company without cause (as defined therein), he shall be entitled to severance payments, payable in accordance with the Company's usual payroll practices, equal to his then current salary for a period of twelve months. In the event Mr. Marando secures employment during the twelve months following termination, then the Company's obligation to make further severance payments will cease, except that Mr. Marando shall be entitled to receive a minimum of six months severance. Mr. Marando's employment agreement provides that he shall be provided benefits, such as health, life and disability insurance, on the same basis as other employees of the Company. In addition, to the extent authorized by the Board of Directors, Mr. Marando also shall be entitled to participate in the Company's bonus, stock option and other plans, if any. Mr. Marando's agreement further provides that, during the term of the agreement and for a period of two years immediately following termination of the agreement, Mr. Marando will not, directly or indirectly, compete with the Company by engaging in certain proscribed activities. On April 12, 2001, the Company entered into a Release and Separation Agreement with Mr. Breakiron, which provided for his resignation as Vice President, Chief Financial Officer, Secretary and Treasurer, effective April 17, 2001. The Release and Separation Agreement also provided for severance payments of up to $112,500 to be paid over a nine-month period commencing on May 16, 2001. Additionally, on April 12, 2001, the Company entered into a Consulting Agreement with Mr. Breakiron, pursuant to which he provided various consulting services to the Company from the date of his resignation through May 15, 2001. The Company paid Mr. Breakiron an aggregate of $11,538 for services provided under the Consulting Agreement. STOCK OPTION PLANS The Company currently maintains four stock option plans to attract, motivate and retain key employees and members of the Board of Directors who are not employees of the Company. LONG TERM INCENTIVE PLAN. The Company currently maintains a Long Term Incentive Plan (the "1999 Incentive Plan"). The 1999 Incentive Plan was created to attract, retain and motivate participating employees of the Company and its subsidiaries through awards of shares of Common Stock, options to purchase shares of Common Stock and stock appreciation rights ("SARs"). The 1999 Incentive Plan has been approved by the Company's Board of Directors and shareholders. Pursuant to the 1999 Incentive Plan, all employees of the Company as a group, including executive officers, have been granted options to purchase a total of 570,000 shares of Common Stock at a weighted average price of $9.18 per share. All of such options expire on the seventh anniversary of the date of grant. All such options shall become exercisable 60% after three years, 20% after four years and 20% after five years from the date of grant. The 1999 Incentive Plan is administered by the Compensation Committee of the Board of Directors. Effective as of October 2000, no further grants of any kind may be made under the 1999 Incentive Plan. 2000 STOCK INCENTIVE PLAN. In October 2000, the Company's Board of Directors adopted the 2000 Stock Incentive Plan (the "2000 Incentive Plan"), subject to shareholder approval. The 2000 Incentive Plan provides for the grant of incentive or nonqualified stock options, SARs, and other stock-based awards. No more than 1,000,000 shares of Common Stock, plus up to an additional 750,000 shares from the 1999 Incentive Plan that may become available as a result of canceled, forfeited or expired awards under such plan, may be issued under the 2000 Incentive Plan. Awards may be issued to employees of the Company and its subsidiaries, and consultants, advisors and others who perform services for the Company or a subsidiary thereof. All options -37- and SARs are to be issued at the greater of the fair market value or "Net Tangible Book Value Per Share" (as defined) and will expire on the tenth anniversary of the date of grant or such earlier date(s) as the Compensation Committee determines. As of December 31, 2001, there were no options outstanding under the 2000 Incentive Plan. The 2000 Incentive Plan is administered by the Compensation Committee of the Board of Directors. NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN. The Company also maintains a Non-Employee Directors' Stock Option Plan (the "1999 Director Plan") to secure for the Company and its shareholders the benefits of the incentive inherent in increased Common Stock ownership by the members of the Company's Board of Directors who are not employees of the Company. The 1999 Director Plan has been approved by the Company's Board of Directors and shareholders. The 1999 Director Plan provides for the grant of nonqualified stock options to purchase up to 7,200 shares of Common Stock in any three-year period to members of the Board of Directors who are not employees of the Company. A total of 200,000 shares of Common Stock may be issued pursuant to this plan. In February 1999, each non-employee director was granted options to purchase 6,000 shares of Common Stock at $11.00 per share. Non-employee directors receiving such options will become vested in options for the purchase of 800 shares of Common Stock after the adjournment of each annual meeting of shareholders of the Company, to the extent he or she has been granted options that have not yet vested, and provided that he or she is then a non-employee director of the Company. In addition, each non-employee director shall become vested in options for the purchase of 400 shares of Common Stock upon the adjournment of each regularly scheduled quarterly meeting of the Board of Directors (other than following the annual meeting of shareholders), to the extent he or she has been granted options that have not yet vested, and provided that he or she is then a non-employee director of the Company. Notwithstanding the foregoing, Robert M. Menke is not eligible to receive any option grants under the 1999 Director Plan. In addition, no further grants shall be made under the 1999 Director Plan. All options granted will have an exercise price equal to the fair market value of the Common Stock as of the date of grant, will become exercisable upon vesting, and will expire on the sixth anniversary of the date of grant. The 1999 Director Plan is a formula plan and accordingly is intended to be self-governing. To the extent questions of interpretation arise, they will be resolved by the Board of Directors. 2000 NON-EMPLOYEE DIRECTOR STOCK PLAN. In October 2000, the Company's Board of Directors adopted the 2000 Non-Employee Director Stock Plan (the "2000 Director Plan"), subject to shareholder approval. The 2000 Director Plan provides for the automatic grant of nonqualified stock options to purchase up to 5,000 shares of Common Stock for each non-employee director who is elected, re-elected or retained, commencing on the date of the Company's next annual meeting of shareholders, and continuing annually thereafter on the date of each succeeding annual meeting of shareholders. A total of 250,000 shares are reserved for issuance pursuant to this plan. The 2000 Director Plan also permits the Board of Directors to make additional discretionary grants of stock-based awards to the non-employee directors, provided that only 100,000 of the total reserved shares may be issued pursuant to discretionary awards. All options are to be issued at an exercise price per share equal to the greater of the Company's fair market value per share of Common Stock or "Net Tangible Book Value Per Share" (as defined). The annual option grants vest on the first anniversary following the date of grant, and expire on the tenth anniversary of the date of grant unless terminated earlier pursuant to the provision of the 2000 Director Plan. The discretionary grants will be subject to such terms and conditions as determined by the Board of Directors. As of December 31, 2001, there were no options outstanding under the 2000 Director Plan. The 2000 Director Plan is intended to be -38- self-governing with respect to the annual option grants. With respect to the discretionary grants, the 2000 Director Plan is administered by the Board of Directors. NON-QUALIFIED STOCK OPTION GRANTS. The Company's Board of Directors and shareholders also have adopted a Non-Qualified Stock Option Plan (the "Non-Qualified Plan"), pursuant to which non-qualified stock options to purchase 125,000 shares of Common Stock at a price per share of $11.00 were granted in conjunction with the February 1999 initial public offering to certain then executive officers of BIG, including options to purchase 25,000 shares each to Robert M. Menke, a director of the Company, Robert G. Menke, a former director of the Company, and David M. Howard, President, Chief Executive Officer and a director of the Company. (The options granted to Mr. Howard were voluntarily forfeited at the time Mr. Howard became President of the Company.) All of such options expire on February 10, 2006, the seventh anniversary of the date of grant. Options shall become exercisable 60% after three years, 20% after four years and 20% after five years. The Non-Qualified Plan is administered by the Compensation Committee of the Board of Directors of the Company. DIRECTOR COMPENSATION Directors who are executive officers of the Company receive no compensation for service as members of either the Board of Directors or committees thereof. Directors who are not executive officers of the Company receive a quarterly retainer of $3,750, $1,000 for each Board of Directors meeting attended and $150 ($200 in the case of a committee chairperson) for each committee meeting attended, plus reimbursement of reasonable expenses. The outside directors are also eligible to receive options to purchase Common Stock under the 2000 Director Plan. See "Executive Compensation - Stock Option Plans." COMMITTEES OF THE BOARD The Board of Directors has established committees whose responsibilities are summarized as follows: AUDIT COMMITTEE. The Audit Committee is comprised of Messrs. Solomon (Chairman), Hussey (Vice Chairman), Grant, Sanchez and McMullen and is responsible for reviewing the independence, qualifications and activities of the Company's independent certified public accountants and the Company's financial policies, control procedures and accounting staff. The Audit Committee recommends to the Board of Directors the appointment of the independent certified public accountants and reviews and approves the Company's financial statements. The Audit Committee is also responsible for the review of transactions between the Company and any Company officer, director or entity in which a Company officer or director has a material interest. COMPENSATION COMMITTEE. The Compensation Committee is comprised of Messrs. Solomon (Chairman), Hussey (Vice Chairman), Grant, Sanchez and McMullen and is responsible for establishing the compensation of the Company's directors, officers and other managerial personnel, including salaries, bonuses, termination arrangements, and other executive officer benefits. In addition, the Compensation Committee is responsible for the administration of the Company's 1999 Incentive Plan and 2000 Incentive Plan, including the recipients, amounts and terms of stock option grants thereunder, and the Company's Non-Qualified Stock Option Plan. EXECUTIVE COMMITTEE. The Executive Committee is comprised of Messrs. Meehan (Chairman), Howard (Vice Chairman), Menke, Grant, and McMullen. The Executive Committee, to the fullest extent allowed by the Florida Business Corporation Act (the "FBCA"), and subject to the powers and authority delegated to the Audit Committee, the Compensation -39- Committee and the Special Committee, has and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Company during intervals between meetings of the Board of Directors. Pursuant to the FBCA, the Executive Committee shall not have the authority to, among other things: approve actions requiring shareholder approval, such as the sale of all or substantially all of the Company's assets; fill vacancies on the Board of Directors or any committee thereof; adopt, repeal or amend the Company's Bylaws; or, subject to certain exceptions, reacquire or issue shares of the Company's capital stock. SPECIAL COMMITTEE. A Special Committee of the Board of Directors was appointed on January 30, 2002. The Special Committee is comprised of Messrs. McMullen (Chairman), Grant, Hussey, Sanchez and Solomon, the Company's five independent directors. The Special Committee was formed to evaluate possible strategic alternatives for the Company. The alternatives that the Special Committee may consider include but are not limited to: the possible sale of the Company, the possible sale of certain assets of the Company, a possible debt or equity financing, and/or a possible going-private transaction. The Special Committee has retained an independent legal advisor and an independent financial advisor to assist the Special Committee in considering and reviewing such alternatives. No assurances can be given, however, as to whether any of such alternatives will be recommended or undertaken or, if so, upon what terms and conditions. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company's Compensation Committee was established in connection with the Company's initial public offering in February 1999. The members of the Compensation Committee are Messrs. Solomon (Chairman), Hussey (Vice Chairman), Grant, and Sanchez. No member of the Compensation Committee is currently or was formerly an officer or an employee of the Company or its subsidiaries. During the year ended December 31, 2001, none of the executive officers of the Company served on the board of directors or compensation committee of any other entity, one of whose executive officers served either on the Board of Directors or on the Compensation Committee of the Company. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION INTRODUCTION Under the rules of the Commission, the Company is required to provide certain information concerning compensation provided to the Company's chief executive officer and its executive officers reported for the year ended December 31, 2001. The disclosure requirements for the executive officers include the use of tables and a report of the Committee responsible for compensation decisions for the named executive officers, explaining the rationale and considerations that led to those compensation decisions. The Compensation Committee of the Board of Directors was formed in connection with the Company's initial public offering in February 1999. Prior to such time, the Board of Directors was responsible for these decisions. COMPENSATION COMMITTEE ROLE The Compensation Committee of the Board of Directors is currently responsible for the Company's compensation program for its executive officers, including the named executive officers. The Compensation Committee is responsible for establishing the compensation of the Company's directors, officers and other managerial personnel, including salaries, bonuses, termination arrangements, and other executive officer benefits. The Compensation Committee is responsible for the administration of the Company's 1999 Incentive Plan and 2000 Incentive -40- Plan, including the recipients, amounts and terms of stock option grants thereunder, and the Non-Qualified Plan. Prior to the formation of the Compensation Committee in connection with the Company's initial public offering in February 1999, the entire Board of Directors performed most of these functions. COMPENSATION PHILOSOPHY The compensation philosophy for executive officers conforms generally to the compensation philosophy followed for all of the Company's employees. The Company's compensation is designed to maintain executive compensation programs and policies that enable the Company to attract and retain the services of highly qualified executives. In addition to base salaries, executive compensation programs and policies consisting of discretionary cash bonuses and periodic grants of stock options are designed to reward and provide incentives for individual contributions as well as overall Company performance. The Compensation Committee monitors the operation of the Company's executive compensation policies. Key elements of the Company's compensation program include base salary, discretionary annual cash bonuses and periodic grants of stock options. The Company's policies with respect to these elements, including the basis for the compensation awarded the Company's chief executive officer, are discussed below. While the elements of compensation described below are considered separately, the Compensation Committee takes into account the full compensation package offered by the Company to the individual, including healthcare and other insurance benefits. BASE SALARIES The Company has established competitive annual base salaries for all executive officers, including the named executive officers. Effective as of the initial public offering, the Company entered into employment agreements with each of its then executive officers. The only executive officers that currently have employment agreements are David K. Meehan, Anthony R. Marando and Robert G. Gantley. See "Executive Compensation--Employment Agreements." The annual base salaries for each of the Company's executive officers, including the Company's chief executive officer, reflect the subjective judgment of the Board of Directors based on the consideration of the executive officer's position and tenure with the Company, the Company's needs, and the executive officer's individual performance, achievements and contributions to the growth of the Company. Mr. Howard currently serves as Chief Executive Officer of the Company at an annual base salary of $225,638. The Board of Directors and Compensation Committee believe that this annual base salary is consistent with the salary range established for this position based on the factors noted above and Mr. Howard's prior experience and managerial expertise, his knowledge of the Company's operations and the industry in which it operates. ANNUAL BONUS The Company's executive officers are eligible for discretionary annual cash bonuses. In recognition of Mr. Howard's contributions to the Company, including his work related to the sale of Geotrac, a bonus of approximately $71,000 was paid to Mr. Howard for the year ended December 31, 2001. This bonus was paid in the form of the forgiveness of certain indebtedness owed the Company by Mr. Howard (grossed-up to reimburse Mr. Howard for associated income taxes). -41- STOCK OPTIONS Under the Company's 1999 and 2000 Incentive Plans, stock options may be granted to key employees, including executive officers of the Company. The 1999 and 2000 Incentive Plans are administered by the Compensation Committee in accordance with the requirements of Rule 16b-3. The Compensation Committee also administers the Company's Non-Qualified Plan. During the year ended December 31, 2001, no options were granted to Mr. Howard under either of these plans. SECTION 162(M) LIMITATIONS Under Section 162(m) of the Code, a tax deduction by corporate taxpayers, such as the Company, is limited with respect to the compensation of certain executive officers unless such compensation is based upon performance objectives meeting certain regulatory criteria or is otherwise excluded from the limitation. Based upon the Compensation Committee's commitment to link compensation with performance as described in this report, the Compensation Committee currently intends to qualify compensation paid to the Company's executive officers for deductibility by the Company under Section 162(m). COMPENSATION COMMITTEE E. RAY SOLOMON (CHAIRMAN) WILLIAM D. HUSSEY (VICE CHAIRMAN) JOHN A. GRANT, JR. JACK S. MCMULLEN ALEJANDRO M. SANCHEZ MARCH 27, 2002 The report of the Compensation Committee shall not be deemed incorporated by reference by any general statement incorporating by reference this annual report on Form 10-K into any filing under the Securities Act of 1933 or under the Securities Exchange Act of 1934 (together, the "Acts"), except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts. PERFORMANCE GRAPH The following line graph compares the Company's cumulative total shareholder return with the cumulative total shareholder return of the S&P 500 Index and the NASDAQ Computer and Data Processing Index since the Company's initial public offering in February 1999, assuming in each case an initial investment of $100 on February 11, 1999. The stock price performance shown below is not necessarily indicative of future price performance. -42- COMPARISON OF 34 MONTH CUMULATIVE TOTAL RETURN* AMONG INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. THE S&P 500 INDEX AND THE NASDAQ COMPUTER & DATA PROCESSING INDEX
Cumulative Total Return -------------------------------------------------------------------------------------------------- 2/11/1999 3/99 6/99 9/99 12/99 3/00 6/00 9/00 12/00 3/01 6/01 9/01 12/01 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. 100.00 81.82 77.27 27.27 22.73 21.31 15.91 12.50 7.39 4.16 11.36 21.55 23.18 S & P 500 100.00 100.77 107.87 101.14 116.19 118.85 115.69 114.57 105.61 93.09 98.53 84.07 93.06 NASDAQ COMPUTER & DATA PROCESSING 100.00 99.76 103.76 108.05 181.81 179.55 146.56 135.57 83.71 61.08 79.52 48.64 67.43
* $100 invested on 2/11/99 in stock or index - including reinvestment of dividends. Fiscal year ending December 31. The stock price performance graph shall not be deemed incorporated by reference by any general statement incorporating by reference this annual report on Form 10-K into any filing under the Acts, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under the Acts. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the beneficial ownership of Common Stock as of March 18, 2002, with respect to: (i) each of the Company's directors; (ii) each of the Company's executive officers named in the Summary Compensation Table above; (iii) all directors and executive officers of the Company as a group; and (iv) each person known by the Company to own beneficially more than 5% of the Common Stock. Except as otherwise indicated, each of the shareholders listed below has sole voting and investment power over the shares beneficially owned. -43-
SHARES BENEFICIALLY OWNED ------------------------ NAME SHARES PERCENT ---- --------- ------- Bankers Insurance Group, Inc.(1) .......................................... 8,349,884 65.2% Western International Insurance Company (2) ............................... 700,000 * David M. Howard ........................................................... 13,000 * David K. Meehan ........................................................... 2,200 * Anthony R. Marando ........................................................ -- * Robert S. Gantley (3) .................................................... 1,700 * Robert M. Menke (4) ....................................................... 162,200 * John A. Grant, Jr. (5) ................................................... 41,000 * William D. Hussey ........................................................ 3,000 * E. Ray Solomon ........................................................... 5,500 * Alejandro M. Sanchez ..................................................... 1,000 * John S. McMullen (6) ..................................................... 354,300 2.8% All directors and executive officers as a group (10 persons) (3)(5) ....... 587,500 4.6%
- ---------------- * Less than 1% (1) Includes 3,528,455 shares held by Bankers Insurance Corporation ("BIC") and 4,821,429 shares held by Bankers Security Insurance Company ("BSIC"). The business addresses of Bankers Insurance Group, Inc. ("BIG"), BIC and BSIC are all 360 Central Avenue, St. Petersburg, Florida 33701. BIG is an indirect subsidiary of Bankers International Financial Corporation, Ltd. ("BIFC"), a Cayman Islands corporation wholly owned by Bankers International Financial Corporation II Trust, a discretionary charitable trust. The sole trustee of this trust is Ansbacher (Cayman) Limited, a Cayman Island corporation unaffiliated with BIG, the Company or their respective officers or directors. Pursuant to the trust's declaration of trust, Independent Foundation for the Pursuit of Charitable Endeavors, Ltd., a not for profit Cayman Islands corporation ("IFPCE"), possesses the discretionary power to (i) direct the trustee to appoint the trust fund to another trust for the benefits of one or more of the beneficiaries of the trust and (ii) remove the trustee and appoint one or more new trustees outside the Cayman Islands. A majority vote of the directors of IFPCE is required to take either of these actions. The Articles of Association of IFPCE provide that the Board of Directors shall consist of seven members, three of whom shall be the top three executives of Bankers International Financial Corporation, a Florida corporation and subsidiary of BIFC, three of whom shall be Mr. Robert M. Menke and his lineal descendants, and one of whom shall be a director elected by a majority vote of the remaining six directors (or, if they cannot agree, appointed by a court of competent jurisdiction). Until his death or adjudication of incompetency, Robert M. Menke shall have five votes and all other directors shall have one vote, and Robert M. Menke's presence at a meeting shall be required for a quorum. As of March 18, 2002, the directors of IFPCE included David K. Meehan and Robert M. Menke. (2) Western International Insurance Company ("WIIC") is a wholly-owned subsidiary of Venture Capital Company ("VCC"). The business address of VCC and WIIC is Bank America Building, Fort Street, Georgetown, Grand Cayman, British West Indies. VCC is a Cayman Island corporation wholly owned by Venture II Trust, a discretionary charitable trust. The sole trustee of this trust is Cayman National Trust Company Limited, a Cayman bank unaffiliated with BIG, the Company or their respective officers or directors. Pursuant to the trust's declaration of trust, IFPCE possesses the same discretionary powers as described in note (1) above. -44- (3) Includes 700 shares held directly by Mr. Gantley and 1,000 shares held jointly with his spouse. (4) Excludes 3,528,455 shares held by BIC, 4,821,429 shares held by BSIC and 700,000 shares held by WIIC. See Notes (1) and (2) above. All shares are held by Robert M. Menke Trust U/A dated 5/17/95, a revocable trust pursuant to which Robert M. Menke is the sole trustee and lifetime beneficiary. (5) Includes 15,000 shares held directly by Mr. Grant and 26,000 shares held directly by his spouse. (6) Includes 154,300 shares held directly by Mr. McMullen, 110,000 shares held by Andros Associates, Inc., 45,000 shares held by the Kenneth S. McMullen Family Trust and 45,000 shares held by the Gertrude B. McMullen Family Trust. Mr. McMullen owns 99% of the outstanding equity securities of Andros Associates, Inc., is the sole trustee and sole beneficiary of the Kenneth S. McMullen Trust, and is the sole trustee and sole beneficiary of the Gertrude B. McMullen Trust. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ADMINISTRATION SERVICES AGREEMENT Effective as of January 1, 1998, the Company and BIG entered into an Administrative Services Agreement (the "Administration Agreement") pursuant to which BIG provided the Company with various administrative and support services, such as human resources and benefits administration, accounting, legal, cash management and investment services, requested by the Company from time to time and reasonably necessary in the conduct of its operations. Under the Administration Agreement, as originally in effect, the Company was charged for these services generally based upon a contractually agreed-upon quarterly fee of $396,250. Effective as of January 1, 1999, the Administration Agreement was amended to eliminate certain accounting and internal audit service functions and to reduce the quarterly fee payable by the Company to BIG (including one-fourth of the annual fee for legal services) to $258,750, subject to renegotiation by either party. In addition, the Company paid BIG, through the year ended December 31, 1999, an annual fee of $120,000 for routine legal services provided. Legal services provided with respect to non-routine matters are to be billed to the Company at negotiated prices. Effective January 1, 2000, the annual fee for routine legal services was reduced to $60,000 from $120,000. Effective April 1, 2000, the portion of the fee attributable to human resources and benefits administration services, excluding training services (approximately $393,000), was eliminated as the Company began to perform such services at such date. On December 31, 2000, the Administration Agreement was renewed by the Company for an additional one-year term. Pursuant to the Letter Agreement described below, the Administration Agreement was terminated effective April 1, 2001. See "Letter Agreements" below. SERVICE AGREEMENTS Effective as of January 1, 1998, the Company entered into a separate Service Agreement (each a "Service Agreement") with each of BIC, BSIC and FCIC, all direct or indirect subsidiaries of BIG, pursuant to which the Company provides policy administration, claims administration and data processing services to such entities in connection with their flood, -45- homeowners and automobile lines of business, and claims administration and data processing services for all such entities' other property and casualty lines of business. Under the Service Agreements, as originally in effect, each entity paid the Company as follows: (1) for its policy administration services a monthly fee based upon direct written premiums for the flood, homeowners and automobile insurance programs; (2) for its claims administration services a monthly fee based upon direct earned premiums for the property, casualty, automobile property, automobile casualty and flood insurance programs (in addition, a monthly fee based upon direct incurred losses is charged for flood claims administration and a reimbursement not to exceed 5% of direct incurred losses from a single event in excess of $2 million is charged to property claims); (3) for its data processing services, a monthly fee based upon direct written premiums for all insurance programs; and (4) for certain customer services such as mailroom, policy assembly, records management and cash office a monthly fee based upon direct written premiums (except, if provided in connection with their flood, homeowners and automobile insurance lines, where no such fees are imposed). The total service fees charged to BIC, BSIC and FCIC under these Service Agreements during the year ended December 31, 1998 totaled $36.1 million. Effective January 1, 1999, these Service Agreements were modified to provide for tiered pricing based on the volume of business processed, and to change the fee for data processing services, which was previously charged as a percentage of direct written premium, to a fixed monthly fee. The total service fees charged to BIC, BSIC and FCIC under these Service Agreements, as amended, during the years ended December 31, 1999 and 2000 totaled $41.5 million and $37.9 million, respectively. These modifications resulted in a reduction in the base fees charged for certain lines of business and increases in base fees charged for other lines of business to better reflect the services provided and competitive market rates for such services. The term of each Service Agreement was to expire on June 1, 2001, provided that it was thereafter to be automatically extended until terminated upon 90 days prior notice by either party. Effective April 1, 1999, the Company further amended its existing Service Agreements with affiliated insurers to provide for minimum aggregate quarterly service fee payments through December 31, 1999 with respect to certain lines of business, provided that certain key tasks are performed timely. If such minimum service fee requirements with respect to said lines of business under the agreements had not been implemented as of April 1, 1999, aggregate affiliated outsourcing services revenues, which totaled $41.5 million for the year ended December 31, 1999, would have been $39.7 million in accordance with the terms of the affiliated service agreements as in effect prior to April 1, 1999. Additionally, for the year ended December 31, 1999, the Company did not recognize approximately $500,000 of additional affiliated service fees under the minimum service fee arrangement, as the Company did not meet certain specified milestones on a timely basis. Such minimums were established to compensate the Company for maintaining an infrastructure to process certain lines of business of affiliated insurers that have not grown as rapidly as originally forecasted. Pursuant to the Letter Agreement described below, the Service Agreements were amended effective June 1, 2001 to, among other things, modify certain of the service fees payable -46- thereunder and eliminate data and technical support services from the administrative services to be provided by the Company thereunder. See "Letter Agreements" below. Effective as of October 1, 2001, the Company entered into the New Service Agreement with BIC, BSIC and FCIC, as described below. The New Service Agreement replaced the Service Agreements, as amended by the Letter Agreement. See "New Service Agreement" below. Effective December 1, 1998, the Company entered into a service agreement with BLIC, a subsidiary of BIG, pursuant to which the Company provided certain administrative services and allowed BLIC to make use of certain of the Company's property, equipment and facilities in connection with BLIC's day-to-day operations. Under this service agreement, as amended, BLIC agreed to pay the Company predetermined fees on a quarterly basis. The term of this service agreement with BLIC expired on June 1, 2001, and was not renewed or replaced. No services were provided and no fees were ever charged or paid under this service agreement. In addition, the Company administers an AYO Claims Agreement between BIG and Florida Windstorm Underwriting Association, which agreement BIG assigned to BIC on December 15, 1998. On October 17, 1999, the Company and BIG entered into an agreement designating the Company to be the administrator and perform the services of BIC under the AYO Claims Agreement. The Company processes and adjusts all claims made under the AYO Claims Agreement. The administrative fee (equal to a percentage of each loss paid) is allocated between BIC and the Company (such fees are paid directly to BIC and then disbursed to the Company). During the years ended December 31, 2000 and December 31, 2001, the Company received service fees of approximately $88,000 and $126,000, respectively, under this arrangement. Effective November 14, 2000, the Company entered into a separate Insurance Administration Services Agreement with BIG (the "WC Agreement") pursuant to which the Company provides policy administration, system hosting and support, and claims administration services to BIG and its affiliate BIC in connection with BIC's workers compensation line of business. Under the WC Agreement, the Company is paid for its services as follows: (1) for its policy administration, system hosting and support services, a monthly fee based upon direct written premiums for BIG's workers compensation program; and (2) for its claims administration services, a monthly fee based upon direct earned premiums relating to such program. For the period November 14, 2000 through December 31, 2000 and the year ended December 31, 2001, the total service fees charged to BIG under the WC Agreement were $26,650 and $1.23 million, respectively. As set forth under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Future Trends". BIG ceased writing workers compensation insurance in November 2001. Consequently, the Company does not expect to generate significant additional revenues under the WC Agreement during the year ending December 31, 2002. TECHNICAL SUPPORT SERVICES AGREEMENT In April, 1999, the Company entered into a Technical Support Services Agreement (the "Support Agreement") with BIG pursuant to which the Company provided BIG with certain system development services. Under the Support Agreement, such services were charged to BIG on a time and materials basis. Pursuant to the Letter Agreement described below, the Support Agreement was terminated effective April 1, 2001. The total service fees charged to BIG under the Support Agreement during the years ended December 31, 1999 and 2000 and the period January 1, 2001 through March 31, 2001 totaled $1.3 million, $0 and $0, respectively. The Support Agreement was to be replaced, effective June 1, 2001, with a new Technical Support Services Agreement, pursuant to which BIG would provide certain technical support services to the Company. A new Technical Support Services Agreement has not been, and is no longer expected to be, executed. BIG did not provide any technical support services to the Company after April 1, 2001 as contemplated thereby. See "Letter Agreements" and "New Service Agreement" below. -47- LETTER AGREEMENTS On April 13, 2001, the Company entered into a Letter Agreement with BIG, BIC, BSIC and FCIC (the "Letter Agreement") pursuant to which the various contractual arrangements between the Company and such affiliated entities were significantly altered as described below. With respect to the Administration Agreement, the Letter Agreement provided that the existing Administration Agreement was terminated effective as of April 1, 2001 and would be replaced, effective June 1, 2001, with a new Corporate Services Agreement, pursuant to which BIG would provide the Company with various corporate marketing (including graphic design and web-site development) and corporate training services requested by the Company from time to time at fixed hourly rates ranging from $40 to $100 per hour, depending on the service being provided. The Letter Agreement provided that the parties would negotiate in good faith to execute and deliver the Corporate Services Agreement incorporating these terms on or before June 1, 2001; provided, however, that in the event such agreement was not executed and delivered by that date, BIG would provide such services at the rates specified in the Letter Agreement. The Letter Agreement further provided that the Support Agreement was terminated effective April 1, 2001 and would be replaced, effective June 1, 2001, with a new technical support services agreement pursuant to which BIG would provide the Company with certain technical support, computer programming and systems analysis services at specified rates (except for software development services, which would be provided on a time and materials basis). With respect to the Service Agreements, the Letter Agreement provided that each of such agreements shall be amended, effective June 1, 2001, to (i) postpone the expiration date of the agreement from June 1, 2001 until December 1, 2002, (ii) modify the service fees payable thereunder with respect to policy and claim administration services to be provided in connection with certain lines of business, (iii) eliminate data and technical support services from the administrative services to be provided by the Company under the agreement, and (iv) assess a fixed monthly fee for usage of the Company's AS 400 computer system. With respect to the service fee modifications, under the Service Agreements, as amended, each entity 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) claims administration services relating to all lines of business other than flood, remained 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 million on an actual basis, would have been approximately $30 million on a pro forma basis. 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, beginning June 1, 2001, up to $1.5 million per month as a prepayment of service fees due by BIG and its affiliates under the Service Agreements. 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. -48- NEW SERVICE AGREEMENT Effective October 1, 2001, the Company entered into a new Insurance Administration Services Agreement with BIC, BSIC and FCIC (the "New Service Agreement"). The New Service Agreement replaced the Service Agreements, as amended by the Letter Agreement. Pursuant to the New Service Agreement, the Company provides policy administration, claims administration and data processing services to such entities in connection with their flood, homeowners and automobile lines of business, and claims administration and data processing services for all such entities' other property and casualty lines of business. Under the New Service Agreement, each entity pays the Company as follows: (1) for its policy administration services a monthly fee based upon direct written premiums for the flood, homeowners and automobile insurance programs; (2) for its claims administration services a monthly fee based upon direct earned premiums for the property, casualty, automobile property, automobile casualty and flood insurance programs (in addition, a monthly fee based upon direct incurred losses is charged for flood claims administration and a reimbursement not to exceed 5% of direct incurred losses from a single event in excess of $2 million is charged to property claims.); (3) for its data processing services, a monthly fee based upon direct written premiums for all insurance programs; and (4) for certain customer services such as mailroom, policy assembly, records management and cash office a monthly fee based upon direct written premiums (except, if provided in connection with their flood, homeowner and automobile insurance lines, where no such fees are imposed). The New Service Agreement is for an initial term of five years, subject to termination thereafter upon 90 days written notice. The New Service Agreement further provides for the renegotiation of rates in good faith after the first three years of the initial term. The New Service Agreement modified the existing arrangements under the Service Agreements by, among other things: (i) reducing the base fees charged for certain lines of business; (ii) providing for tiered pricing based on the volume of business processed electronically rather than manually; (iii) providing for the pass-through to BIG of flood loss adjustment expenses for outsourcing services; and (iv) providing for the pass-through to BIG of all postage expenses and third-party information services incurred by the Company in connection with its performance under the New Service Agreement. For financial statement purposes these expense pass-throughs are considered revenues. If the New Service Agreement had not been in effect, the Company's affiliated outsourcing service fee and pass-through revenue for the fourth quarter of 2001, which totaled approximately $5.9 and $1.1 million on an actual basis, would have been approximately $6.5 and $-0- million under the previous agreement on a pro forma basis. The Company believes that any anticipated reduction in affiliated outsourcing service fee revenues resulting from the implementation of such service fee changes under the New Service Agreement will be largely offset by the corresponding increase in revenues from the pass-through (reimbursement) of flood loss adjustment expenses, postage expenses and third-party information services, although no assurances can be given in this regard. Moreover, as of October 1, 2002, the Company will again become directly responsible for the payment of postage expenses under the terms of the New Service Agreement. If the New Service Agreement had not been in effect for the fourth quarter of 2001, such postage expenses, which totaled $475,000 and were passed through to BIG, would have been expenses borne by the Company. SECURED LINE OF CREDIT 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"). The principal purpose of the Line of Credit is to assist BIG, -49- the Company's principal customer and shareholder, with certain short-term working capital needs. Pursuant to the Credit Agreement, all unpaid principal and interest became due and payable in full on February 28, 2002. As of such date, BIG owed the Company an aggregate of approximately $5.0 million under the Line of Credit. On March 14, 2002, the Company and BIG amended the Credit Agreement (the "Amended Credit Agreement") to extend the Line of Credit until May 31, 2002. Pursuant to the Amended 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 Amended Credit Agreement), plus 1.5%. The Amended Credit Agreement further provides that the Line of Credit will expire on May 31, 2002, unless repaid in full prior to such time or otherwise terminated pursuant to the terms of the Amended Credit Agreement. As of the date of this Report, the aggregate principal amount outstanding under the Line of Credit is $5.0 million. 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 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 February 28, 2002, totaling approximately $10.8 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 Amended 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 Amended 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 was to be exercised, no assurances can be given that such approval could be obtained. PROPERTY LEASES The Company currently subleases from Bankers Financial Corporation approximately 44,032 square feet of office space in St. Petersburg, Florida at a monthly rate of approximately $56,000. The current term of this sublease expires on December 31, 2003. The Company and Bankers Financial Corporation entered into the sublease on December 31, 2001. The sublease agreement replaced a lease agreement between BIC and the Company for the same property, which was terminated effective as of December 31, 2001 in connection with a sale by BIC of the property covered by the lease and its simultaneous lease by Bankers Financial Corporation. The terms and conditions of the sublease agreement are substantially identical to those of the lease agreement which it replaced, as earlier amended. During the year ended December 31, 2001, the Company paid BIC approximately $917,800 under the terminated lease agreement. -50- The Company currently leases from BLIC approximately 4,600 square feet of office space in St. Petersburg, Florida at a monthly rate of approximately $5,100. The current term of this lease expires on April 14, 2002. This lease replaced, as of October 15, 2001, an existing lease between the Company and BLIC for the same office space. During the year ended December 31, 2001, the Company paid BLIC an aggregate of approximately $35,600 under the new lease and the lease which it replaced. SALES AND ASSIGNMENT AGREEMENT In May, 1998, the Company entered into a sales and assignment agreement with BIG and certain affiliated companies whereby certain assets were transferred and assigned to the Company, effective retroactively to April, 1998, for use in its business. The assets, including, but not limited to, telephone equipment, computer hardware and software, and service marks were transferred at their net book value as of the date of transfer. The Company paid consideration consisting of $325,075 in cash and entered into two promissory notes amounting to $2,802,175. The notes were repaid in full in February 2000 out of the net proceeds to the Company from its initial public offering. In addition, the Company assumed the existing leases with unaffiliated third parties relating to various computer equipment. SOFTWARE LICENSING AGREEMENT Effective January 1, 1998, the Company entered into a non-exclusive license agreement with BIG and BIC pursuant to which the Company licenses its primary operating systems from BIG and BIC in exchange for a nominal fee. The term of the license is perpetual. The license agreement provides that the Company shall be solely responsible for maintaining and upgrading the systems and shall have the authority to sell or license such systems to third parties. TAX INDEMNITY AGREEMENT As of July 31, 1998, BIG had sold a sufficient number of shares in the Company such that the Company will no longer file its tax return with Bankers International Financial Corporation ("BIFC") on a consolidated basis. Effective as of July 31, 1998, the Company and BIFC entered into a Tax Indemnity Agreement pursuant to which (i) BIFC agrees to indemnify the Company in the event the Company incurs a tax liability as a result of taxable income of BIFC or one of its subsidiaries, and (ii) the Company agrees to indemnify BIFC in the event BIFC incurs a tax liability as a result of taxable income of the Company or one of its subsidiaries. Each party also agrees to reimburse the other by certain tax credits arising on or before July 31, 1998. Under the Tax Indemnity Agreement, the parties terminated a previous tax allocation agreement that had been in effect since October 1, 1993. GEOTRAC TRANSACTIONS DJWW Corp., an Ohio corporation, was formed in June 1987 by Daniel J. White ("Mr. White"), the corporation's president and sole shareholder. In May 1991, the corporation changed its name to Geotrac, Inc. In August, 1994, Geotrac, Inc. sold substantially all of its assets to SMS Geotrac, Inc., a Delaware corporation ("SMS Geotrac"), for a purchase price of $1,000,000 in cash, plus a contingent payment based on net profits after taxes for the Fiscal year ended June 30, 1995. SMS Geotrac was a wholly-owned subsidiary of Strategic Holdings USA, Inc. ("Strategic"). During the year ended June 30, 1996 and on July 30, 1997, SMS Geotrac made payments of $932,222 and $1,700,000, respectively to Mr. White in satisfaction of the contingent payment obligations under the acquisition agreement. The amounts were recorded as an increase to goodwill and an additional capital contribution to SMS Geotrac. In connection with the sale of assets to SMS Geotrac, Mr. White became the president of SMS Geotrac and received a four- -51- year employment contract at a base salary of $100,000 per year. In September 1994, Geotrac, Inc. changed its name to YoSystems, Inc. During the year ended June 30, 1997, SMS Geotrac and Strategic agreed to treat all outstanding amounts owed to the parent, $1,611,140, as an additional capital contribution. In addition, Strategic contributed $500,000 to SMS Geotrac. During the one-month period ended July 31, 1997, SMS Geotrac advanced $797,000 to YoSystems, Inc. In July 1997, YoSystems acquired all of the issued and outstanding shares of capital stock of SMS Geotrac from Strategic for $15 million in cash. The purchase price was funded through an $8.75 million loan from Huntington National Bank to YoSystems ($8.25 million of which was used in the purchase) plus $6.75 million in cash paid by the Company in connection with its acquisition of a 49% interest in YoSystems, as described below. Thereafter, the Company assumed the loan from Huntington National Bank, which loan has since been repaid from proceeds received in the Company's initial public offering. Neither YoSystems nor Mr. White, its president and sole shareholder, had a preexisting right to acquire SMS Geotrac pursuant to the August, 1994 transaction. The purchase price of the SMS Geotrac stock was determined by arm's length negotiations. After the stock purchase transaction, SMS Geotrac merged into YoSystems, with YoSystems being the surviving entity and changing its name back to Geotrac, Inc. Concurrent with the acquisition of SMS Geotrac by YoSystems, the Company, through a subsidiary, Bankers Hazard Determination Services, Inc. ("BHDS"), purchased a 49% interest in YoSystems for $6.75 million in cash. At that time, the Company did not contemplate acquiring the remaining 51% of YoSystems, Inc. In connection with the Company's purchase of a 49% interest in YoSystems, BHDS issued 675,000 shares of non-cumulative 8% preferred stock to Heritage Hotel Holding Company ("Heritage"), a corporation owned by Richard M. Brubaker, the half brother of Robert M. Menke, a director of the Company. The preferred stock of BHDS issued to Heritage had a par value of $10 per share and was subject to redemption at the option of the board of directors of BHDS. The preferred stock could be redeemed at any time at a price equal to 108% of the original consideration paid for the stock by the shareholder plus the amount of the dividends declared and unpaid on the redemption date Heritage funded the preferred stock purchase by entering into a note agreement with a commercial bank for $6.75 million, with the preferred stock serving as collateral. On May 8, 1998, the Company purchased the outstanding preferred stock of BHDS in exchange for a note to Heritage in the principal amount of $6.75 million. The note was repaid in full in February, 2000 out of the net proceeds to the Company from its initial public offering. After May 8, 1998, the preferred stock of BHDS held by the Company was exchanged for 675,000 shares or 8.5% cumulative preferred stock of BHDS. The shares of non-cumulative 8% preferred stock were then retired. Dividends declared on the preferred stock for l997 and 1998 were $229,315 and $189,370, respectively. In July 1998, the Company acquired the remaining 51% equity interest in Geotrac, Inc. (formerly YoSystems) pursuant to the merger of Geotrac, Inc. with and into BHDS, with the surviving entity being known as "Geotrac of America, Inc." ("Geotrac"). The Company acquired the remaining 51% interest from Mr. White and his wife and certain minority shareholders in exchange for (i) 524,198 shares of Common Stock, (ii) a promissory note in the principal amount of $1,500,000 bearing interest at a rate of 8.5%, and (iii) cash in the amount of $728,069 (paid in December, 1998), for a total purchase price of $7,994,000. In addition, the Company assumed the loan in the original principal amount of $8,750,000 from Huntington National Bank made to YoSystems in July 1997. As described above, the loan from Huntington Bank was repaid from proceeds received in the Company's initial public offering. In connection with this transaction, Geotrac entered into an employment agreement with Mr. White pursuant to which Mr. White served as the President and Chief Executive Officer of Geotrac. In addition, -52- the Company entered into a Corporate Governance Agreement with Mr. White and Geotrac setting forth certain terms and conditions upon which Geotrac continued to operate following the merger. On December 28, 2001 the Company consummated the transactions contemplated by a stock purchase agreement (as amended, the "Stock Purchase Agreement"), dated as of September 20, 2001, by and among the Company, Geotrac, Geotrac Holdings, Inc., Mr. White, the Daniel J. White Trust, the Sandra A. White Trust, and, solely for purposes of a non-competition covenant, BIG. The shareholders of the Company approved the Stock Purchase Agreement and the transactions contemplated thereby in accordance with Florida law at a Special Meeting of Shareholders held on December 26, 2001. Pursuant to the Stock Purchase Agreement, Geotrac Holdings, Inc., a Delaware corporation formed by Mr. White and his spouse, Sandra A. White, purchased all the issued and outstanding capital stock (the "Shares") of Geotrac. Prior to the consummation of the transactions contemplated by the Stock Purchase Agreement, Mr. White served as a director of the Company and President, Chief Executive Officer and a director of Geotrac. Mr. White resigned as a director of the Company effective as of the consummation of the sale of the Shares. The purchase price paid for the Shares was $19 million in cash, plus 524,198 shares of Common Stock of the Company beneficially owned by Mr. White and his spouse. Pursuant to the Stock Purchase Agreement, certain of the parties also entered into additional agreements as of the closing of such sale, including a Flood Zone Determination Service Agreement pursuant to which Geotrac will provide the Company with flood zone determination services for up to ten years at pricing management of the Company currently considers to be favorable. Geotrac leased a 12,400 square-foot facility in Norwalk, Ohio from DanYo LLC, a limited liability company wholly owned by Mr. White and his spouse. This lease, which was renewed effective September 1, 1999, was for a term of five years, expiring on August 31, 2004, and provided for monthly rental payments of approximately $10,448, plus payment of utilities, real estate taxes and assessments, insurance, repairs and similar expenses. During the year ended December 31, 2000 and for the period from January 1, 2001 through December 27, 2001, Geotrac paid fees of $339,345 and $1.0 million, respectively, to SLK Software Services Private Limited ("SLK") for various consulting services. Mr. White had an equity interest of approximately 46% in SLK at December 28, 2001, the closing date of the date of Geotrac. Mr. White was neither a director nor an officer of SLK and did not have the ability to exercise control or make management decisions. At December 27, 2001 and December 31, 2000, Geotrac owed SLK $68,600 and $15,200, respectively. During the year ended December 31, 2000 and the period from January 1, 2001 through December 27, 2001, Geotrac paid $396,200 and $946,000 in flood zone determination costs and $611,200 and $439,000 in digitizing costs and other miscellaneous, respectively, to JDI Software Services Private Limited ("JDI"). On January 9, 2001, Mr. White purchased 100,550 shares of JDI, representing approximately a 48% ownership interest in JDI. Mr. White was neither a director nor an officer of JDI and did not have the ability to exercise control nor make management decisions. At December 27, 2001 and December 31, 2000, Geotrac owed JDI $62,000 and $85,300, respectively. Additionally, JDI owed Geotrac $100,000 at December 31, 2000 for the sale of Geotrac's National GIS Flood Coverage. PHANTOM STOCK PLANS During the year ended December 31, 2000, the Company recognized approximately $338,000 in compensation expense (of which approximately $145,000 relates to 1999) resulting from the vesting of benefits payable to certain current and former officers and directors of the Company under the Amended and Completely Restated Phantom Stock Plan (the "BFC Plan") of Bankers Financial Corporation ("BFC"), the parent corporation of BIG, and the Amended and -53- Restated Phantom Stock Plan (the "VCC Plan") of Venture Capital Corporation ("VCC"). The foregoing compensation charge is a non-recurring, non-cash item to the Company, as all such benefits under such plans were fully vested as of September 30, 2000 and constitute the respective obligations of BFC and VCC, not the Company. Effective September 30, 2000, the BFC and VCC Plans were amended to provide for, among other things, immediate vesting of benefits payable thereunder to certain current and former officers and directors of the Company. Accordingly, as of September 30, 2000, the total discounted and non-discounted benefits payable under these plans, which have accrued since February 11, 1999, the date of the Company's initial public offering (the "IPO Date"), totaled $327,000 and $894,000, respectively, for the BFC Plan and $12,000 and $43,000, respectively, for the VCC Plan. Benefits under each of such plans generally are payable in 120 equal installments beginning at age 60. Although resulting in a compensation expense (on a discounted basis) to the Company, all of such benefits under such plans were granted on or before the IPO Date and constitute the respective obligations of BFC and VCC, not the Company. The benefits described herein exclude amounts vested prior to the IPO Date and/or allocable to services provided to BIG or its affiliated entities (other than the Company or its subsidiaries) since the IPO Date. The aggregate amount (on a non-discounted basis) in benefits payable to each of the Company's current and former executive officers and directors of the Company under the BFC Plan and the VCC Plan, respectively, and which have accrued from the IPO Date through September 30, 2000, are as follows: David K. Meehan, $0 and $0; David M. Howard, $247,515 and $25,523; Robert G. Gantley, $217,583 and $0; Christopher P. Breakiron, $0 and $0; Daniel J. White, $0 and $0; Kathleen M. Batson, $43,348 and $6,160; John A. Grant, Jr., $154,100 and $9,210; William D. Hussey, $100,000 and $0; E. Ray Solomon, $100,000 and $0; and Alejandro M. Sanchez, $0 and $0. The foregoing benefits exclude amounts vested prior to the IPO Date and/or allocable to services provided to BIG or its affiliated entities (other than the Company or its subsidiaries) since the IPO Date. Except as set forth below, since the IPO Date, no officers or directors of the Company have been eligible to receive additional grants under such phantom stock plans or have been subject to future allocations of profits or losses with respect thereto. In addition, except as set forth below, all current officers and directors of the Company were fully vested, as of September 30, 2000, in all benefits under such plans. Notwithstanding the foregoing, Robert G. Menke, a director of the Company, and David K. Meehan, Chairman of the Board of the Company, will continue to be eligible to receive grants, vest in benefits received and share in profits and losses under such plans in their capacity as officers and directors of BIG and its affiliated entities. MISCELLANEOUS In February 1999, Western International Insurance Company, a wholly-owned subsidiary of VCC and presently a more than 5% shareholder of the Company, loaned $12.0 million to BIG in exchange for a subordinated note. This loan was funded by using a portion of the net proceeds received by VCC in the Company's initial public offering. BIG, in turn, used a portion of such loan proceeds to satisfy a note payable (including accrued interest) to the Company which totaled $5,322,455. The balance of the loan proceeds were intended to provide BIG with additional capital to repay other outstanding indebtedness and expand its operations. The Company, in turn, used the funds received from BIG, together with a portion of the net proceeds from its initial public offering, to satisfy $7,054,996 in accounts, income taxes and notes payable (including accrued interest) payable to BIG. -54- In 1998, BIG made a loan of $55,000 to David M. Howard. Interest on the loan was payable at a rate of 8.5% annually and the loan was to be repaid in equal bi-weekly installments with a balloon payment due on March 31, 2000. Subsequently, the note was extended indefinitely with Mr. Howard continuing to make bi-weekly payments. In early 2000, after Mr. Howard joined the Company as a director and executive officer, the loan was transferred to the Company. In December 2001, the Company paid Mr. Howard a bonus of approximately $71,000 in the form of the forgiveness of such indebtedness (grossed up to cover associated taxes). See "Item 11. Executive Compensation--Compensation Committee Report on Executive Compensation." The Audit Committee of the Board of Directors is responsible for reviewing all future transactions between the Company and any officer or director of the Company or any entity in which an officer of director has a material interest. Any such transactions must be on terms no less favorable than those that could be obtained on an arm's-length basis from independent third parties. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K List of documents filed as part of this report: (1) Financial Statements Insurance Management Solutions Group, Inc. Consolidated Financial Statements Report of Independent Certified Public Accountants Consolidated Balance Sheets as of December 31, 2000 and 2001 Consolidated Statements of Income for the years ended December 31, 1999, 2000 and 2001 Consolidated Statement of Shareholders' Equity for the years ended December 31, 1999, 2000 and 2001 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 2000 and 2001 Notes to Consolidated Financial Statements (2) Financial Statement Schedules Report of Independent Certified Public Accountants on Schedule 1 Schedule 1--Condensed Financial Information of Registrant Notes to Condensed Financial Information of Registrant. (3) Exhibits
EXHIBIT NUMBER EXHIBIT DESCRIPTION ------- ------------------- 3.1 Amended and Restated Articles of Incorporation of Insurance Management Solutions Group, Inc.* 3.2 Amended and Restated Bylaws of Insurance Management Solutions Group, Inc.*
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EXHIBIT NUMBER EXHIBIT DESCRIPTION ------- ------------------- 4.1 Specimen certificate for the Common Stock of Insurance Management Solutions Group, Inc.* 10.1 Employment Agreement, dated August 10, 1998, between David K. Meehan and Insurance Management Solutions Group, Inc.* 10.2 Insurance Management Solutions Group, Inc. Long Term Incentive Plan.* 10.3 Insurance Management Solutions Group, Inc. Non-Employee Directors' Stock Option Plan.* 10.4 Snell Arcade Building Lease, dated May 15, 1996, between Snell Arcade Limited Company and Bankers Insurance Group, Inc., as revised and assigned to Insurance Management Solutions Group, Inc., effective January 1, 1998.* 10.5 Lease Agreement for 10051 5th Street North, dated October 15, 2001, between Bankers Life Insurance Company and Insurance Management Solutions Group, Inc. 10.6 Bankers Financial Center Lease Agreement, dated January 1, 1997, between Bankers Insurance Company and Insurance Management Solutions Group, Inc.* 10.7 Administration Services Agreement, dated January 1, 1998, between Bankers Insurance Group, Inc. and Insurance Management Solutions Group, Inc., including Addendum to Administration Services Agreement, dated December 2, 1998 and effective January 1, 1998, and Addendum to Administration Services Agreement, effective January 1, 1999.* 10.8 Service Agreement, dated January 1, 1998, between Insurance Management Solutions, Inc. and Bankers Insurance Company, including Addendum dated April 1, 1998 and form of Addendum to Service Agreements effective January 1, 1999.* 10.9 Service Agreement dated January 1, 1998 between Insurance Management Solutions, Inc. and Bankers Security Insurance Company, including form of Addendum to Service Agreements effective January 1, 1999. * 10.10 Service Agreement dated January 1, 1998 between Insurance Management Solutions, Inc. and First Community Insurance Company, including form of Addendum to Service Agreements effective January 1, 1999. * 10.11 Insurance Administration Services Agreement, effective September 30, 2001, between Insurance Management Solutions, Inc. and each of Mobile USA Insurance Company and Philadelphia Indemnity Insurance Company.
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EXHIBIT NUMBER EXHIBIT DESCRIPTION ------- ------------------- 10.12 Insurance Administration Services Agreement, effective October 1, 2001, between Insurance Management Solutions, Inc. and Auto Club South Insurance Company. 10.13 Flood Insurance Program Services Agreement by and among Insurance Management Information Services, Inc., American Alternative Insurance Corporation, and Corporate Insurance Agency Services.* 10.14 Agreement and Plan of Merger, dated May 12, 1998, by and among Geotrac, Inc., Insurance Management Solutions, Inc., Daniel J. and Sandra White, Bankers Insurance Group, Inc. and Bankers Hazard Determination Services, Inc.* 10.15 Term Lease Master Agreement, dated August 6, 1996, between IBM Credit Corporation and Bankers Insurance Company, assigned by Bankers Insurance Company to Insurance Management Solutions, Inc., effective April 1, 1998, pursuant to Sales and Assignment Agreement, dated May 6, 1998.* 10.16 Sales and Assignment Agreement, dated May 6, 1998, by and between Insurance Management Solutions Group, Inc., Insurance Management Solutions, Inc., Bankers Insurance Group, Inc., Bankers Insurance Services, Inc., Bankers Life Insurance Company, Southern Rental & Leasing Corporation, Bankers Insurance Company and Insurance Management Information Services, Inc.* 10.17 Tax Indemnity Agreement dated July 31, 1998 between Bankers Insurance Group, Inc., Insurance Management Solutions Group, Inc. and Daniel J. and Sandra White.* 10.18 Flood Insurance Agreement, dated January 6, 1998, between First Community Insurance Company and Keystone Insurance Company.* 10.19 Marketing Agreement, dated November 14, 1997, between First Community Insurance Company and Nobel Insurance Company.* 10.20 Flood Insurance Agreement, dated February 11, 1998, between First Community Insurance Company and Horace Mann Insurance Company.* 10.21 Flood Insurance Agreement, dated February 17, 1995, between First Community Insurance Company and Armed Forces Insurance Exchange, as amended.* 10.22 Flood Insurance Agreement, dated November 17, 1995, between First Community Insurance Company and Amica Mutual Insurance Company, as amended.* 10.23 Non-Qualified Stock Option Plan.* 10.24 Funding Agreement, dated June 19, 1998, by and between Bankers Insurance Group, Inc. and Insurance Management Solutions Group, Inc.*
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EXHIBIT NUMBER EXHIBIT DESCRIPTION ------- ------------------- 10.25 Assignment of Registered Service Mark ("Floodwriter"), dated May 7, 1998, from Bankers Insurance Company to Insurance Management Solutions, Inc.* 10.26 Assignment of Registered Service Mark ("Undercurrents"), dated May 7, 1998, from Bankers Insurance Company to Insurance Management Solutions, Inc.* 10.27 Software License Agreement, effective January 1, 1998, between Insurance Management Solutions, Inc., Bankers Insurance Group, Inc. and Bankers Insurance Company.* 10.28 Tax Indemnity Agreement dated July 31, 1998 between Insurance Management Solutions Group, Inc., Insurance Management Solutions, Inc. and Geotrac of America, Inc., including Addendum dated July 31, 1998.* 10.29 Tax Allocation Agreement dated July 31, 1998 between Insurance Management Solutions Group, Inc., Insurance Management Solutions, Inc. and Geotrac of America, Inc., including Addendum dated July 31, 1998.* 10.30 Service Agreement dated December 1, 1998 between Insurance Management Solutions, Inc. and Bankers Life Insurance Company, including Addendum to Service Agreements dated December 11, 1998 and effective January 1, 1999* 10.31 AYO Claims Agreement between Florida Windstorm Underwriting Association and Bankers Insurance Group, Inc., dated February, 1998.* 10.32 Assignment of AYO Claims Agreement among Bankers Insurance Group, Inc., Bankers Insurance Company and Florida Windstorm Underwriting Association dated December 15, 1998.* 10.33 Software Transfer Agreement dated September 1, 1998 by and among Bankers Insurance Group, Inc., Bankers Insurance Company, Insurance Management Solutions, Inc., and First Community Insurance Company.* 10.34 Registration Rights Agreement dated January, 1999, between Insurance Management Solutions Group, Inc. and J. Douglas Branham and Felicia A. Rivas.* 10.35 Stock Purchase Agreement dated December 10, 1998 between Colonial Catastrophe Claims Corporation, J. Douglas Branham, Felicia A. Rivas, and Insurance Management Solutions Group, Inc., including Addenda thereto.* 10.36 Loan Agreement dated December 16, 1998 between Bankers Insurance Group, Inc. and Western International Insurance Company.* 10.37 Promissory Note of Bankers Insurance Group, Inc. in favor of Western International Insurance Company*
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EXHIBIT NUMBER EXHIBIT DESCRIPTION ------- ------------------- 10.38 Agreement for Satisfaction of Debt and Capitalization of Subsidiary dated December 16, 1998 between Venture Capital Corporation and Western International Insurance Company.* 10.39 Plan of Merger dated January 7, 1999 and effective January 15, 1999 between IMS Colonial, Inc. and Colonial Catastrophe Claims Corporation.* 10.40 Flood Insurance Services Agreement, dated January 14, 1999, by and between Insurance Management Solutions Group, Inc. and Farmers Services Corporation.* 10.41 Funding Agreement, dated February 16, 1999, by and between Bankers Insurance Group, Inc., Bankers Insurance Company, Venture Capital Corporation and Western International Insurance Company.** 10.42 Insurance Administration Services Agreement, dated October 17, 2001, by and between Insurance Management Solutions, Inc. and Middlesex Mutual Assurance Company. 10.43 Flood Insurance Services Agreement, effective January 13, 1999, by and between Insurance Management Solutions, Inc. and Island Insurance Companies, Ltd.** 10.44 Lease Agreement, dated February 1, 1999, by and between Colonial Real Estate of Dunedin, Inc. and Colonial Claims Corporation.** 10.45 Second Addendum to Service Agreements, effective as of April 1, 1999, by and between Insurance Management Solutions, Inc. and each of Bankers Insurance Company, First Community Insurance Company and Bankers Security Insurance Company.*** 10.46 Technical Support Services Agreement, dated April 1, 1999, by and between Insurance Management Solutions, Inc. and Bankers Insurance Group, Inc. and its subsidiaries.*** 10.47 Lease Agreement, dated September 27, 1999, by and between Koger Equity, Inc. and Insurance Management Solutions Group, Inc.**** 10.48 Insurance Administration Services Agreement, effective as of May 3, 2000, by and between Insurance Management Solutions, Inc. and Reliance Insurance Company.***** 10.49 Insurance Administration Services Agreement, effective as of June 30, 2000, by and between Insurance Management Solutions, Inc. and Instant Insurance Holding, Inc.***** 10.50 Development Services Agreement, effective as of June 30, 2000, by and between Insurance Management Solutions, Inc. and Instant Insurance Holding, Inc.***** 10.51 Insurance Administration Services Agreement (Interim), effective as of June 22, 2000, by and between Insurance Management Solutions, Inc. and Instant Insurance Holding, Inc.*****
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EXHIBIT NUMBER EXHIBIT DESCRIPTION ------- ------------------- 10.52 Insurance Administration Services Agreement Termination and Interim Services Addendum, effective as of August 1, 2000, by and between Insurance Management Solutions, Inc., International Catastrophe Insurance Managers, LLC and Clarendon National Insurance Company, including all schedules and exhibits thereto.****** 10.53 Insurance Management Solutions Group, Inc. 2000 Stock Incentive Plan******* 10.54 Insurance Management Solutions Group, Inc. 2000 Non-Employee Director Stock Plan******* 10.55 Employment Agreement, dated August 19, 1998, between Robert G. Gantley and Insurance Management Solutions, Inc.******* 10.56 Release and Separation Agreement, dated April 12, 2001, between Christopher P. Breakiron and Insurance Management Solutions Group, Inc.******* 10.57 Consulting Agreement, dated April 12, 2001, between Christopher P. Breakiron and Insurance Management Solutions Group, Inc.******* 10.58 Asset Purchase Agreement, including Indemnification Agreement, Bill of Sale and Assignment of Flood Monitoring Agreement, effective July 31, 2000, between IMS Direct, Inc. and Bankers Insurance Services, Inc.******* 10.59 Letter Agreement, dated April 13, 2001, by and between Insurance Management Solutions, Inc., Bankers Insurance Group, Inc., Bankers Insurance Company, First Community Insurance Company and Bankers Security Insurance Company.******* 10.60 Settlement Agreement, dated February 20, 2001, by and between Instant Insurance Holdings, Instant Auto Insurance Company and Insurance Management Solutions, Inc.******* 10.61 Commitment Letter to advance service fee payments, dated April 13, 2001, between Insurance Management Solutions, Inc. and Bankers Insurance Group, Inc.******* 10.62 Credit and Security Agreement, dated August 14, 2001, between Insurance Management Solutions Group, Inc. and Bankers Insurance Group, Inc.******** 10.63 Collateral Assignment of Flood Book, dated August 14, 2001, by Bankers Underwriters, Inc. ******** 10.64 Stock Option Agreement, dated August 14, 2001, between Bankers Insurance Group, Inc. and Insurance Management Solutions Group, Inc.******** 10.65 Employment Agreement, dated October 4, 2001 and effective October 1, 2001, between Insurance Management Solutions Group, Inc. and Anthony R. Marando.*********
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EXHIBIT NUMBER EXHIBIT DESCRIPTION ------- ------------------- 10.66 Stock Purchase Agreement, dated as of September 20, 2001 (the "Stock Purchase Agreement"), by and among Insurance Management Solutions Group, Inc., Geotrac of America, Inc., Geotrac Holdings, Inc., Daniel J. White, the Daniel J. White Trust, the Sandra A. White Trust and, solely for purposes of Section 7.2, Bankers Insurance Group, Inc. (including the Exhibits thereto).********** 10.67 Amendment to the Stock Purchase Agreement, dated December 28, 2001.********** 10.68 Master Promissory Note, dated August 14, 2001, by Bankers Insurance Group, Inc.*********** 10.69 Amendment No. 1 to Credit and Security Agreement, dated March 14, 2002, between Insurance Management Solutions Group, Inc. and Bankers Insurance Group, Inc.*********** 10.70 Amendment to Tax Allocation Agreement, dated September 20, 2001, between Insurance Management Solutions Group, Inc., Geotrac of America, Inc., IMS Direct, Inc. and Insurance Management Solutions, Inc. 10.71 Insurance Administration Services Agreement, effective October 1, 2001, by and between Insurance Management Solutions, Inc. and each of Bankers Insurance Company, Bankers Security Insurance Company and First Community Insurance Company. 10.72 Run Off Claim Administration Services Agreement, effective June 7, 2001, between Insurance Management Solutions, Inc. and each of Bankers Insurance Company and First Community Insurance Company. 10.73 Claims Administration Agreement, dated November 26, 2001, between International Catastrophe Insurance Managers, LLC, Insurance Management Solutions, Inc. and AXA RE America Insurance Company. 10.74 Insurance Administration Services Agreement, effective September 1, 2001, between Insurance Management Solutions, Inc. and Cooperativa de Seguros Multiples de Puerto Rico. 10.75 Runoff Claim Administration Services Agreement, effective January 1, 2001, between Insurance Management Solutions, Inc., Instant Insurance Holdings, Inc. and Instant Auto Insurance Company. 10.76 Insurance Administration Services Agreement, effective March 1, 2001, between Insurance Management Solutions, Inc. and Residence Mutual Insurance Company. 10.77 [intentionally omitted] 10.78 First Amendment of Lease, dated August 1, 2001, between Bankers Insurance Company and Insurance Management Solutions Group, Inc. 10.79 Termination of Lease Agreement, dated December 31, 2001, between Bankers Insurance Company and Insurance Management Solutions Group, Inc. 10.80 Sublease Agreement, dated December 31, 2001, between Bankers Financial Corporation and Insurance Management Solutions Group, Inc. 10.81 Appointment of Administrator, dated October 7, 2001, between Bankers Insurance Group, Inc. and Insurance Management Solutions, Inc. 21.1 List of subsidiaries of Insurance Management Solutions Group, Inc. --------------- * Previously filed as part of the Company's Form S-1 Registration Statement (Reg. No. 333-57747) originally filed on June 28, 1998, as amended, and incorporated by reference herein. ** Previously filed as part of the Company's Annual Report on Form 10-K for the year ended December 31, 1998, and incorporated by reference herein. *** Previously filed as part of the Company's Form 10-Q for the quarter ended June 30, 1999, and incorporated by reference herein. **** Previously filed as part of the Company's Form 10-K for the year ended December 31, 1999, and incorporated by reference herein. ***** Previously filed as part of the Company's Form 10-Q for the quarter ended June 30, 2000, and incorporated by reference herein. ****** Previously filed as part of the Company's Form 10-Q for the quarter ended September 30, 2000, and incorporated by reference herein ******* Previously filed as part of the Company's Annual Report on Form 10-K for the year ended December 31, 2000, and incorporated by reference herein. ******** Previously filed as part of the Company's Form 10-Q for the quarter ended June 30, 2001, and incorporated by reference herein. ********* Previously filed as part of the Company's Form 10-Q for the quarter ended September 30, 2001, and incorporated by reference herein. ********** Previously filed as part of the Company's Current Report on Form 8-K filed on January 14, 2002
Exhibits 10.1, 10.2, 10.3, 10.23, 10.53, 10.54, 10.55, 10.56, 10.57 and 10.65 represent management contracts and compensatory plans. (b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during the three months ended December 31, 2001. -61- INDEX TO FINANCIAL STATEMENTS
PAGE ---- INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Certified Public Accountants F2 Consolidated Balance Sheets as of December 31, 2000 and 2001 F3 Consolidated Statements of Operations for the years ended December 31, 1999, 2000 and 2001 F4 Consolidated Statement of Shareholders' Equity for the years ended December 31, 1999, 2000 and 2001 F5 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 2000 and 2001 F6 Notes to Consolidated Financial Statements F7 Report of Independent Certified Public Accountants on Schedule I F40 Schedule I - Condensed Financial Information of Registrant F41 Notes to Condensed Financial Information of Registrant F44
F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors of Insurance Management Solutions Group, Inc. We have audited the accompanying consolidated balance sheets of Insurance Management Solutions Group, Inc. and subsidiaries as of December 31, 2000 and 2001, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Insurance Management Solutions Group, Inc. and subsidiaries as of December 31, 2000 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. /s/ GRANT THORNTON LLP Tampa, Florida March 21, 2002 F-2 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------------------- 2000 2001 ---------- ----------- ASSETS CURRENT ASSETS Cash and cash equivalents................................... $2,391,103 $20,095,808 Accounts receivable, trade - affiliates .................... 2,615,699 4,716,172 Accounts receivable, trade - Geotrac........................ 1,079,353 -- Accounts receivable, trade - net ........................... 1,799,440 875,297 Prepaid expenses and other assets........................... 1,235,874 883,729 Note receivable - affiliate................................. -- 5,026,541 Note receivable............................................. 639,658 -- ---------- ----------- Total current assets................................... 9,761,127 31,597,547 PROPERTY AND EQUIPMENT, net.................................... 4,519,732 3,942,712 OTHER ASSETS Note receivable............................................. 559,271 -- Goodwill, net............................................... 2,382,786 2,250,409 Service contracts, net...................................... -- 2,189,090 Capitalized software costs, net............................. 1,044,846 564,793 Deferred tax assets......................................... 447,449 429,329 Other....................................................... 300,839 25,600 Net assets of discontinued operations....................... 20,564,751 -- ---------- ----------- Total assets.......................................... $39,580,801 $40,999,480 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable, trade - Geotrac........................... $1,017,163 $ -- Accounts payable, trade..................................... 1,895,219 1,272,921 Employee related accrued expenses........................... 1,326,349 1,546,078 Other accrued expenses...................................... 2,019,385 2,352,487 Capital lease payable....................................... 185,289 -- Income taxes payable........................................ 24,808 1,418,415 ---------- ----------- Total current liabilities............................. 6,468,213 6,589,901 COMMITMENTS AND CONTINGENCIES 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 and 12,276,063 shares issued and outstanding at December 31, 2000 and 2001, respectively... 128,002 122,760 Additional paid-in capital.................................. 27,545,901 26,394,438 Retained earnings........................................... 5,438,685 7,892,381 ---------- ----------- Total shareholders' equity............................ 33,112,588 34,409,579 ---------- ----------- Total liabilities and shareholders' equity............ $39,580,801 $40,999,480 =========== ===========
The accompanying notes are an integral part of these consolidated statements. F-3 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ------------------------------------------------ 1999 2000 2001 ------------ ------------ ------------ REVENUES Outsourcing services - affiliated ............ $ 42,102,818 $ 38,881,502 $ 38,799,105 Outsourcing services ......................... 10,702,732 7,973,652 18,315,309 ------------ ------------ ------------ Total revenues ......................... 52,805,550 46,855,154 57,114,414 ------------ ------------ ------------ EXPENSES Cost of outsourcing services ................. 38,939,215 37,695,043 41,902,799 Selling, general and administrative .......... 6,600,819 7,438,712 6,945,378 Management services from Parent .............. 2,165,250 1,860,760 1,327,553 Depreciation and amortization ................ 3,229,839 3,024,573 2,973,454 ------------ ------------ ------------ Total expenses ......................... 50,935,123 50,019,088 53,149,184 ------------ ------------ ------------ OPERATING INCOME/(LOSS) ......................... 1,870,427 (3,163,934) 3,965,230 ------------ ------------ ------------ OTHER INCOME/(EXPENSE): Interest income .............................. 342,074 306,906 282,601 Interest expense ............................. (255,393) (60,905) (5,736) ------------ ------------ ------------ Total other income/(expense) ........... 86,681 246,001 276,865 ------------ ------------ ------------ INCOME/(LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS . 1,957,108 (2,917,933) 4,242,095 PROVISION/(BENEFIT) FOR INCOME TAXES ............ 832,447 (730,988) 1,375,968 ------------ ------------ ------------ INCOME/(LOSS) FROM CONTINUING OPERATIONS BEFORE DISCONTINUED OPERATIONS ................................... 1,124,661 (2,186,945) 2,866,127 INCOME FROM OPERATIONS OF DISCONTINUED OPERATIONS, NET OF INCOME TAXES ................................. 2,070,399 1,677,580 2,413,338 GAIN/(LOSS) ON DISPOSAL OF DISCONTINUED OPERATIONS, NET OF INCOME TAXES ................................. -- -- (2,825,769) ------------ ------------ ------------ NET INCOME/(LOSS) ............................... $ 3,195,060 $ (509,365) $ 2,453,696 ============ ============ ============ Earnings/(loss) per Common Share: Income/(loss) from continuing operations ...... $ .09 $ (.17) $ .22 Income/(loss) from discontinued operations .... .17 .13 (.03) ------------ ------------ ------------ NET INCOME/(LOSS) PER COMMON SHARE .............. $ .26 $ (.04) $ .19 ------------ ------------ ------------ Weighted average common shares outstanding ...... 12,448,183 12,793,953 12,794,516 ============ ============ ============
The accompanying notes are an integral part of these consolidated statements. F-4 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Additional Common Paid-In Retained Stock Capital Earnings Total --------- ------------ ----------- ------------ Balance at December 31, 1998 .......................... $ 105,242 $ 5,830,930 $ 2,752,991 $ 8,689,163 Issuance of Common Stock as partial consideration for the acquisition of Colonial Claims ........................................... 1,545 1,698,455 -- 1,700,000 Initial public offering of Common Stock, net of offering costs ................................... 20,000 19,143,897 -- 19,163,897 Compensation expense related to stock options issued to non-employees .......................... -- 137,000 -- 137,000 Net income ......................................... -- -- 3,195,060 3,195,060 --------- ------------ ----------- ------------ Balance at December 31, 1999 .......................... 126,787 26,810,282 5,948,051 32,885,120 Issuance of Common Stock in connection with earn-out computation for Colonial Claims acquisition ...................................... 1,215 298,785 -- 300,000 Non-cash compensation expense related to phantom stock plans .............................. -- 338,200 -- 338,200 Compensation expense related to stock options issued to non-employees .......................... -- 98,634 -- 98,634 Net loss ........................................... -- -- (509,366) (509,366) --------- ------------ ----------- ------------ Balance at December 31, 2000 .......................... 128,002 27,545,901 5,438,685 33,112,588 Compensation expense related to stock options issued to non-employees .......................... -- 180,000 -- 180,000 Common stock reacquired/retired related to Geotrac sale ..................................... (5,242) (1,331,463) -- (1,336,705) Net income ......................................... -- -- 2,453,696 2,453,696 --------- ------------ ----------- ------------ Balance at December 31, 2001 .......................... $ 122,760 $ 26,394,438 $ 7,892,381 $ 34,409,579 ========= ============ =========== ============
The accompanying notes are an integral part of these consolidated statements. F-5 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31 -------------------------------------------------- 1999 2000 2001 ----------- ------------ ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Income/(loss) from continuing operations.................. $ 1,124,661 $ (2,186,945) $2,866,195 Adjustments to reconcile net income/(loss) to net cash provided by operating activities: Depreciation and amortization........................... 3,237,634 3,022,383 2,984,912 Provision for billing adjustments....................... -- -- 200,000 Loss on disposal of property and equipment.............. 165,307 174,674 19,334 Compensation expense related to non-employee stock options............................................... 137,000 98,634 180,000 Non-cash compensation expense related to phantom stock plans........................................... -- 338,200 -- Deferred income taxes, net.............................. (333,403) 208,612 18,120 Changes in assets and liabilities: Accounts receivable, trade............................ (45,572) (592,812) 924,143 Accounts receivable, trade - Geotrac.................. (18,525) (952,785) 1,079,353 Accounts receivable, trade - affiliate................ (2,350,404) 304,844 (2,300,473) Income taxes recoverable.............................. 427,698 536,300 -- Prepaid expenses and other current assets............. (318,852) 177,985 229,290 Other assets.......................................... (123,970) (587,071) (63,265) Accounts payable, trade............................... 344,406 915,231 (622,298) Accounts payable, trade - Geotrac..................... (2,106,700) 721,893 (1,017,163) Accounts payable, trade - affiliate................... (1,735,676) (12,833) -- Employee related accrued expenses..................... 517,592 (525,284) 219,729 Other accrued expenses (less transaction costs related to sale of Geotrac)......................... 1,262,259 994,983 (440,379) Income taxes payable (less tax items related to Geotrac and other).................................. (506,418) 424,854 (406,455) ----------- ------------ ---------- Net cash provided by/(used in) operating activities. (322,963) 3,060,863 3,871,043 ----------- ------------ ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment....................... (2,063,984) (3,004,083) (1,763,031) Payment of acquisition debt............................... (500,000) -- -- Issuance of notes receivable.............................. -- (500,000) -- Issuance of notes receivable - affiliated................. -- -- (5,026,541) Collection of notes receivable............................ 321,406 90,406 409,594 Dividend received from Geotrac............................ -- -- 200,000 Net proceeds from sale of Geotrac......................... -- -- 19,000,000 Collection of notes receivable from discontinued operations.............................................. 757,501 2,993,570 1,198,929 Acquisition of Colonial Claims, net of cash acquired...... (1,698,908) -- -- Payment of dividend to prior Colonial Claims shareholders............................................ (670,000) -- -- ----------- ------------ ---------- Net cash provided by/(used in) investing activities. (3,853,985) (420,107) 14,018,951 ----------- ------------ ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds received from initial public offering........ 19,163,897 -- -- Repayment of debt......................................... (2,366,855) (249,653) (185,289) Repayment of affiliated notes and accrued interest........ (13,208,420) -- -- ----------- ------------ ---------- Net cash (used in) financing activities............. 3,588,622 (249,653) (185,289) ----------- ------------ ---------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (588,326) 2,391,103 17,704,705 CASH AND CASH EQUIVALENTS, beginning of period............... 588,326 -- 2,391,103 ----------- ------------ ---------- CASH AND CASH EQUIVALENTS, end of period..................... $ -- $ 2,391,103 $20,095,808 =========== ============ ==========
The accompanying notes are an integral part of these consolidated statements. F-6 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS Insurance Management Solutions Group, Inc. ("IMSG/The Company") is a holding company that was incorporated in the State of Florida in December 1996 by its Parent, Bankers Insurance Group ("BIG" or the "Parent"). The Company has operated in two major business segments: providing outsourcing services to the property and casualty insurance industry with an emphasis on flood insurance; and providing flood zone determinations primarily to insurance companies and financial institutions. The Company's outsourcing services, which are provided by its wholly owned subsidiaries Insurance Management Solutions, Inc. (IMS) and Colonial Claims Corporation (Colonial), include for IMS - policy and claims administration (policy issuance, billing and collection function) and information technology services and for Colonial - claims adjusting and processing. The Company's flood zone determination services had been provided by Geotrac of America, Inc. (Geotrac), a wholly owned subsidiary until December 28, 2001, when it was sold. With the disposition of Geotrac, which is reported as discontinued operations herein, Colonial became a separate reportable segment for financial statement reporting purposes (see Note 14). The Company is substantially dependent on the business of its affiliated insurance companies under the common control of BIG as the Company derives a substantial portion of its revenue from outsourcing services provided to these affiliated companies and BIG. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Insurance Management Solutions Group, Inc. and its wholly owned subsidiaries and all significant intercompany accounts and transactions have been eliminated in consolidation. DISCONTINUED OPERATIONS Geotrac represents discontinued operations and, accordingly, the discontinued segment's net assets are presented separately at December 31, 2000. Likewise, the Geotrac results of operations are excluded from continuing operations for all years presented (see Note 3). F-7 USE OF ESTIMATES The preparation of the Company's financial statements conforms to generally accepted accounting principles in the United States of America and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At December 31, 1999, 2000 and 2001, cash equivalents consisted of overnight repurchase agreements. ACCOUNTS RECEIVABLE TRADE AND CONCENTRATION OF CREDIT RISK Accounts receivable, trade represents amounts due from insurance companies and financial institutions related to claims adjusting services performed. Credit is granted to customers based on management's assessment of their credit worthiness and customer deposits are required in certain instances. The allowance for doubtful accounts totaled approximately $88,000 and $57,000 as of December 31, 2000 and 2001, respectively. Net bad debt expense totaled $101,100, $167,965 and $7,273 during the years ended December 31, 1999, 2000, 2001 and respectively. At December 31, 2001 the Company established a $200,000 provision representing potential disputed billings with its affiliates under the service agreement, which has been effective since October 1, 2001 (see Note 12). PROPERTY AND EQUIPMENT Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are provided for using the straight-line method over the assets' estimated service lives. Accelerated methods are used for tax purposes. GOODWILL Goodwill associated with the acquisition of Colonial is amortized using the straight-line method over twenty years. The amortization period was determined based on various factors including the nature of the product or service provided, the Company's market position and historical and projected operating results. Accumulated amortization at December 31, 2000 and 2001 was $248,965 and $381,342, respectively. CAPITALIZED SOFTWARE COSTS In accordance with Statement of Position 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"), the Company capitalizes certain qualifying software development costs incurred during the application development stage. Amortization is recorded using the straight-line method over the service life of the software or F-8 the term of the customer contract to which the software relates, which ranges from one to five years. Accumulated amortization at December 31, 2000 and 2001 was $518,055 and $1,049,873, respectively. SERVICE CONTRACT In conjunction with the Geotrac sale (see Note 3), the Company obtained a favorable long-term service contract with Geotrac for flood zone determinations, which has been recorded at its estimated fair value of $2,189,090 at December 27, 2001. The contract will be amortized over the 10-year contract period using a method that approximates the projected annual requirements of flood zone determinations. IMPAIRMENT OF LONG-LIVED ASSETS The Company evaluates the recoverability of its long-lived assets (including goodwill) in accordance with Statement of Financial Accounting Standards No. 121, ("SFAS No. 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No. 121 requires long-lived assets to be reviewed for impairment whenever circumstances indicate that the carrying amount of an asset may not be recoverable. Factors considered include current operating results, trends, and anticipated undiscounted future cash flows. An impairment loss is recognized to the extent the sum of discounted (using the Company's incremental borrowing rate) estimated future cash flows (over a period of less than 20 years) expected to result from the use of the asset is less than the carrying value. No impairment exists for all periods presented (see Note 3 related to discontinued operations). OUTSOURCING SERVICES REVENUES Revenue generated from outsourcing services is recognized as earned when services are provided. See Note 12 for description of service agreements with affiliates. F-9 Effective October 1, 2001, under the New Service Agreement with BIG, pass-through expenses (postage, Allocated Loss Adjustment Expenses (expenses for outsourcing services including but not limited to, expenses related to outside counsel, outside adjusters, and field investigations) and third-party information services (expenses from companies that provide services including but not limited to, motor vehicle registration inquiries and credit score reporting)) are charged to BIG, on a cost reimbursement basis. Amounts reimbursed are recorded as revenues. INCOME TAXES The Company accounts for income taxes on the liability method, as provided by SFAS No. 109, "Accounting for Income Taxes." Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. An allowance is recognized when it is more likely than not that any or all of a deferred tax asset will not be realized. Deferred tax expense is the result of changes in deferred tax assets and liabilities. NET INCOME/(LOSS) PER COMMON SHARE Net income/(loss) per common share, which represents both basic and diluted earnings per share ("EPS") since no dilutive securities were outstanding for all periods presented, 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:
YEAR ENDED DECEMBER 31, ----------------------------------------------- Numerator 1999 2000 2001 ----------- ------------ ----------- Net income/(loss) ................................. $ 3,195,060 $ (509,365) $ 2,453,696 =========== ============ =========== Denominator: Weighted average number of Common Shares used in basic EPS ........................... 12,448,183 12,793,953 12,794,516 Diluted stock options ............................ -- -- -- ----------- ------------ ----------- Weighted average number of Common Shares and diluted potential Common Shares used in diluted EPS ............................. 12,448,183 12,793,953 12,794,516 =========== ============ ===========
As of December 31, 1999, 2000 and 2001, options to purchase 453,500, 594,000 and 543,750 shares, respectively, of Common Stock were outstanding but were not included in the computation of diluted earnings per share as the inclusion of such shares would have an anti-dilutive effect. F-10 STOCK BASED COMPENSATION The Company accounts for stock based compensation awards to its employees pursuant to Accounting Principles Board Opinion No. 25, "Accounting For Stock Issued to Employees", and its related interpretations which prescribe the use of the intrinsic value based method. However, the Company has adopted the disclosure requirements of SFAS No. 123, "Accounting for Stock Based Compensation." For awards for other-than employees, the Company accounts for stock based compensation awards pursuant to the fair value based method of SFAS No. 123. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of the Company's financial instruments, which include cash and cash equivalents, accounts receivable, due from affiliates, accounts payable, and due to affiliates approximate fair value due to the short maturity of those instruments. RECLASSIFICATION Exclusive of the separate presentation of continuing and discontinued operations, certain reclassifications have been made to the 2000 financial statements to conform to the December 31, 2001 presentation. Also see Note 15. RECENT 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. In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long Lived Assets. This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposal Of. The provisions of the statement are effective for financial statements issued for fiscal years beginning after December 15, 2001. The Company is evaluating the impact of the adoption of these standards and has not yet determined the effect of adoption on its financial position and results of operations. F-11 NOTE 3. DISCONTINUED OPERATIONS Effective December 28, 2001, with shareholder approval, the Company sold its wholly owned subsidiary, Geotrac, pursuant to a Stock Purchase Agreement dated September 30, 2001 to Geotrac Holdings, Inc. (Holdings). Holdings is a corporation formed by Geotrac's President and his spouse. The consideration included: $19,000,000 in cash and 524,198 shares of the Company's common stock (valued at $1,336,705 based on a quoted market price of the Company's common stock of $2.55 per share at December 27, 2001) beneficially held by Geotrac's President and his spouse. In addition, the Company entered a Flood Zone Determination Service Agreement with Geotrac for Geotrac to provide services for up to ten years, at a pricing arrangement that management of the Company believes is favorable. The Company valued the agreement at approximately $2,189,090 as supported by an independent third party investment banking firm's valuation. The sale of Geotrac resulted in a pre-tax loss of approximately $1,025,769. Because of the existence of non-deductible and unamortized goodwill of $5,306,108 at December 27, 2001, the Company recognized income taxes of approximately $1,800,000 on the sale, for a total loss on the disposal of $2,825,769. Prior to the sale of Geotrac in December 2001, a portion of the Company's retained earnings were not available for dividend distribution because of the effect of restrictions associated with Geotrac's Corporate Governance Agreement dated July 31, 1998. Geotrac's condensed statement of income follows:
Year Ended December 31, ------------------------------------------------- 1999 2000 2001 ------------ ------------ ----------- Flood zone determination services $ 18,540,543 $ 16,137,943 $20,679,050 Flood zone determination services - affiliated 620,320 929,004 1,159,415 ------------ ------------ ----------- Total revenues 19,160,863 17,066,947 21,838,465 ------------ ------------ ----------- Cost of flood zone determination services 8,102,234 7,664,052 9,092,967 Selling, general and administrative 4,382,005 3,775,622 4,439,399 Management services from Parent 90,560 24,264 52,871 Write-off of capitalized software costs -- -- 1,543,988 Depreciation and amortization 2,268,168 2,317,527 2,323,695 ------------ ------------ ----------- Total expenses 14,842,967 13,781,465 17,452,920 ------------ ------------ ----------- Operating Income 4,317,896 3,285,482 4,385,545 Other interest/(expense), net (546,384) (27,531) 27,136 Income taxes 1,701,113 1,580,371 1,999,343 ------------ ------------ ----------- Income from discontinued operations $ 2,070,399 $ 1,677,580 $ 2,413,338 ============ ============ ===========
Principally during the fourth quarter of 2001, Geotrac's management, with Geotrac's Board approval and outside consultants' advisement, decided to abandon further development of many components of a new software system that had been in-process since 1999. The decision was based on various factors including funding limitations, other available strategies, and technical difficulties. F-12 Geotrac's condensed balance sheet follows:
December 31, ------------- 2000 ----------- Cash and cash equivalents $ 2,801,058 Accounts receivable, trade - net 1,989,848 Accounts receivable, trade - affiliates 1,017,163 Prepaid expenses and other assets 337,163 ----------- Total current assets 6,145,232 Property and equipment, net 4,596,820 Goodwill, net 12,969,215 Customer contracts, net 916,667 Other assets 417,009 ----------- $25,044,943 =========== Current portion of long-term debt $ 674,226 Accounts payable, trade 475,606 Accounts payable, trade - affiliates 1,079,353 Other accrued expenses 458,069 Income taxes payable 532,868 ----------- Total current liabilities 3,220,122 Long-term debt, less current portion 559,271 Deferred revenue 700,799 Net assets of discontinued operations 20,564,751 ----------- $25,044,943 ===========
NOTE 4. ACQUISITION Effective January 7, 1999, the Company, through a wholly owned subsidiary, acquired all of the issued and outstanding capital stock of Colonial Catastrophe Claims Corporation, a Florida corporation ("Colonial Catastrophe"), in exchange for (i) 154,545 shares of Common Stock, (ii) cash in the amount of $500,000, (iii) a promissory note in the principal amount of $500,000, and (iv) an earn-out payment of $300,000, which was paid during February, 2000 in 121,518 shares of Common Stock, based upon achieving a target income before taxes of Colonial Claims for the year ended December 31, 1999. On January 15, 1999, Colonial Catastrophe was merged into the acquiring subsidiary and the name of the acquiring subsidiary was changed to "Colonial Claims Corporation" ("Colonial"). The acquisition was accounted for as a purchase in accordance with Accounting Principles Board Opinion No. 16 "Business Combinations". The results of operations of Colonial is included in the accompanying financial statements since the date of acquisition. The total cost of the acquisition, including the $300,000 earn-out payment made in February 2000, was $3.0 million, which exceeded the fair value of the acquired net assets by $2.6 million. Such excess is being amortized on a straight-line basis over twenty years. NOTE 5. PROPERTY AND EQUIPMENT
LIFE DECEMBER 31, ---- ------------------------------- (YEARS) 2000 2001 ------ ------------ ----------- Computer equipment and software 3-5 $ 8,529,637 $10,041,607 Office furniture and equipment 5 2,144,598 2,169,827 Leasehold improvements 5 794,621 828,773 ------------ ----------- 11,468,856 13,040,207 Less--accumulated depreciation and amortization (6,949,124) (9,097,495) ------------ ----------- Total $ 4,519,732 $ 3,942,712 ============ ===========
F-13 At December 31, 2001, property and equipment included $1,145,076 of assets ($960,948 of accumulated amortization) recorded under capital leases which became fully amortized in 2001. Depreciation and amortization expense was $2,862,089, $2,352,849 and $2,309,257 in 1999, 2000 and 2001, respectively. NOTE 6. OTHER ACCRUED EXPENSES
DECEMBER 31, -------------------------- 2000 2001 ---------- ---------- Adjuster expenses payable $ 281,697 $ 313,241 Customer contract advance in dispute 800,000 800,000 Operating lease rebate 228,595 147,914 Accrued professional fees 265,000 552,927 Taxes payable other than income 164,600 161,000 Other accrued expenses 279,493 377,405 ---------- ---------- $2,019,385 $2,352,487 ========== ==========
NOTE 7. NOTES RECEIVABLE 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"). BIG, the Company's principal customer and shareholder, requested the Line of Credit to assist with certain short-term working capital needs. As of the date of this Report, the aggregate principal amount outstanding under the Line of Credit is $5.0 million. 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 (4.75% at December 31, 2001)(as defined in the Credit Agreement"), plus 1.5%. The Credit Agreement further provides that the Line of Credit would expire on February 28, 2002 (see paragraph below), 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 F-14 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 February 28, 2002, totaling approximately $10.8 million (unaudited). 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 was 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. Pursuant to the Credit Agreement, all unpaid principal and interest became due and payable in full on February 28, 2002. As of such date, BIG owed the Company an aggregate of approximately $5 million under the Line of Credit. On March 14, 2002, the Company and BIG amended the Credit Agreement to extend the Line of Credit until May 31, 2002. This amendment to the Credit Agreement was approved unanimously by the Audit Committee of the Board of Directors of the Company at a special meeting held on March 8, 2002. In making this determination the Audit Committee considered, among other things, (i) the Company's continued dependence on BIG (including certain of its subsidiaries) as the Company's principal customer and, (ii) the financial condition of BIG and the current status of the collateral securing the Line of Credit. The Company has been advised by BIG that it is considering various methods of satisfying its obligations under the Line of Credit, including the possible sale of certain of its assets. No assurances can be given, however, that payment in full of all amounts due and owing under the Line of Credit will be received on or before June 10, 2002. If payment in full is not received from BIG on or before such date, the Audit Committee of the Board of Directors of the Company will determine the appropriate course of action after considering all factors it deems relevant or appropriate. The Company believes that cash on-hand (including the proceeds from the Geotrac sale), cash flows from operations, and cash advances under the Commitment Letter are sufficient to support the Line of Credit and to satisfy the Company's currently anticipated working capital requirements. 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. F-15 UNAFFILIATED CUSTOMER LOAN In August 2000, the Company loaned $500,000 to an unaffiliated customer in connection with the termination of the outsourcing services agreement between the Company and such unaffiliated customer and received in return a $500,000 promissory note from such entity. The note provides for monthly payments equal to the greater of (a) ten thousand dollars ($10,000), or (b) one and one-half percent (1 1/2%) of net written premium (as defined) issued by such customer on or after August 1, 2000. In accordance with the terms of the note, ninety-two and one-half percent (92 1/2%) of each monthly payment shall be applied to the reduction of the outstanding principal balance and seven and one-half percent (7 1/2%) shall be interest under the note. The note is collateralized by all of the borrower's assets. Full payment of the note was received on May 14, 2001. NOTE 8. CAPITAL LEASE The Company leased various computer related equipment under capital leases, which expired in 2001. The outstanding balance under the capital leases as of December 31, 2000 totaled $185,289. NOTE 9. SHAREHOLDERS' EQUITY INITIAL PUBLIC OFFERING In February 1999, the Company completed an initial public offering ("IPO") of 3,350,000 shares of Common Stock at a price of $11.00 per share. Of the 3,350,000 shares sold in the IPO, 1,350,000 were sold by the Selling Shareholder and the remaining 2,000,000 shares were sold by the Company. The offering generated net proceeds to the Company of $19,164,000, after deducting offering expenses of approximately $1,296,000 paid by the Company. Such offering expenses were charged to additional paid-in capital against proceeds from the IPO. PREFERRED STOCK The Company is authorized to issue 20,000,000 shares of Preferred Stock, $.01 par value per share. The Board of Directors has the authority, without any further vote or action by the Company's shareholders, to issue Preferred Stock in one or more series and to fix the number of shares, designations, relative rights (including voting rights), preferences, and limitations of those series to the full extent now or hereafter permitted by Florida law. The Company did not issue any Preferred Stock Shares in 2001 and has no current intention to issue shares of Preferred Stock, although it may determine to do so in the future. COMPENSATION EXPENSE During the year ended December 31, 2000, the Company recognized approximately $338,000 in additional compensation expense (of which approximately $145,000 relates to 1999), resulting from the vesting of benefits payable to certain current and former officers and directors of the Company under the Amended and Completely Restated Phantom Stock Plan (the "BFC Plan") of Bankers Financial Corporation ("BFC"), the parent corporation of BIG, and the Amended and F-16 Restated Phantom Stock Plan (the "VCC Plan") of Venture Capital Corporation ("VCC"). The foregoing compensation charge is a non-recurring, non-cash item to the Company, as all such benefits under such plans were fully vested as of September 30, 2000 and constitute the respective obligations of BFC and VCC, not the Company. In addition, the offset to such compensation expense is an increase to additional paid-in capital, since the ultimate obligations under these plans are that of BFC and VCC, respectively, and not of the Company. LONG TERM INCENTIVE PLANS The Long-Term Incentive Plan (the "1999 Incentive Plan"), approved by the Company's Board of Directors and shareholders, provides for the grant of incentive or nonqualified stock options to purchase up to 875,000 shares of Common Stock. All such options are granted at fair market value or above and expire on the tenth anniversary from the date of grant. Options shall become exercisable 60% after three years, 20% after four years and 20% after five years. As of December 31, 2001, options to purchase 419,750 shares are outstanding under the 1999 Incentive Plan. In October 2000, the Company's Board of Directors adopted the 2000 Stock Incentive Plan, subject to shareholder approval. The 2000 Stock Incentive Plan provides for the grant of incentive or nonqualified stock options, stock appreciation rights, and other stock based awards. No more than 1,000,000 shares of Common Stock, plus an additional 750,000 shares from the 1999 Incentive Plan that become available as a result of canceled, forfeited or expired awards under such plan may be issued under the 2000 Incentive Plan. All options are to be issued at the greater of the fair market value or "Net Tangible Book Value Per Share" (as defined) and expire on the tenth anniversary from the date of grant. As of December 31, 2001, there were no options outstanding under the 2000 Stock Incentive Plan. NON-EMPLOYEE DIRECTORS' STOCK OPTION PLANS The Non-Employee Directors' Stock Option Plan (the "1999 Non-Employee Director Plan"), approved by the Company's Board of Directors and shareholders, provides for the grant of nonqualified stock options to purchase up to 7,200 shares of Common Stock in any three-year period to members of the Board of Directors who are not employees of the Company. A total of 200,000 shares may be issued pursuant to this plan. Non-employee directors receiving such options will become vested in options for the purchase of 800 shares of Common Stock after the adjournment of each annual meeting of shareholders of the Company, to the extent he or she has been granted options that have not yet vested, and provided that he or she is then a non-employee director of the Company. In addition, each non-employee director shall become vested in options for the purchase of 400 shares of Common Stock upon the adjournment of each regularly scheduled quarterly meeting of the Board of Directors (other than following the annual meeting of shareholders), to the extent he or she has been granted options that have not yet vested, and provided that he or she is then a non-employee director of the Company. All options granted will have an exercise price equal to the fair market value of the Common Stock as of the date of grant, will become exercisable upon vesting, and will expire on the sixth anniversary of the date of grant. As of December 31, 2001, options to purchase 24,000 shares are outstanding under the 1999 Non-Employee Directors' Plan. F-17 In October 2000, the Company's Board of Directors adopted the 2000 Non-Employee Director Stock Plan, subject to shareholder approval. The 2000 Non-Employee Director Stock Plan provides for the automatic grant of nonqualified stock options to purchase up to 5,000 shares of Common Stock, commencing on the date of the Company's 2001 annual meeting of shareholders, and continuing annually thereafter on the date of each succeeding annual meeting of shareholders. A total of 250,000 options may be issued pursuant to this plan. All options are to be issued at the greater of the fair market value or "Net Tangible Book Value Per Share" (as defined), vest on the first anniversary following the date of grant, and expire on the tenth anniversary from the date of grant. As of December 31, 2001, there were no options outstanding under the 2000 Non-Employee Director Stock Plan. NON-QUALIFIED STOCK OPTION PLAN The Non-Qualified Stock Option Plan (the "Non-Qualified Plan"), approved by the Company's Board of Directors and shareholders, provides for the grant of non-qualified stock options to purchase up to 125,000 shares of Common Stock. Options to purchase 125,000 shares of Common Stock at fair market value were granted to certain executive officers of BIG. All of such options expire on the tenth anniversary from the date of grant and shall become exercisable 60% after three years, 20% after four years and 20% after five years. As of December 31, 2001, options to purchase 100,000 shares were outstanding under the Non-Qualified Plan. Under this plan, the Company will recognize aggregate compensation expense of approximately $600,000 of which $137,000, $98,634 and $180,000 was recognized during the years ended December 31, 1999, 2000 and 2001, respectively, and is included in "Selling, general and administrative" expenses in the accompanying consolidated statements of operations. The balance will be recognized ratably over the remainder of the vesting period. The following table summarizes option activity from December 31, 1999 through December 31, 2001:
Options Number of Weighted Available Options Average For Grant Outstanding Exercise Price --------- ----------- -------------- Balance at December 31, 1998 -- -- $ -- Options authorized 1,200,000 -- -- Options granted (794,500) 794,500 $ 10.76 Options cancelled 241,000 (241,000) $ 11.00 Options exercised -- -- -- ----------- -------- --------- Balance at December 31, 1999 646,500 553,500 $ 10.64 Options authorized 1,250,000 -- -- Options granted (297,750) 297,750 $ 7.70 Options cancelled 157,250 (157,250) $ 10.09 Options exercised -- -- -- ----------- -------- --------- Balance at December 31, 2000 1,756,000 694,000 $ 9.50 Options authorized -- -- -- Options granted -- -- -- Options cancelled 150,250 (150,250) $ 9.10 ----------- -------- --------- Balance at December 31, 2001 1,906,250 543,750 $ 9.61 =========== ======== =========
F-18 The range of exercise prices, shares, weighted average contractual life and exercise price for the options outstanding as of December 31, 2001 are presented below:
Weighted Weighted Range of Number Average Average Exercise Prices Of Shares Contractual Life Exercise Price --------------- --------- ---------------- -------------- $5.00 - $ 7.69 146,750 4.87 years $ 6.73 $9.00 - $11.00 397,000 4.39 years $10.67 ------- ---------- ------ $5.00 - $11.00 543,750 4.52 years $ 9.61 ======= ========== ======
As of December 31, 2001, there were 24,000 options that were exercisable at a weighted average exercise price of $11.00. The per-share weighted-average fair value of stock options granted during 2000 was $1.16 using the Black-Scholes option-pricing model with the following weighted-average assumptions: expected dividend yield of 0%; risk-free interest rate of 5.75%; expected volatility of 65%; and an expected life of 5 years. There were no stock options granted during 2001. PRO FORMA RESULTS The Company applies APB Opinion No. 25 in accounting for its Incentive Plan and Non-Employee Director Plan and, accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements. Had the company determined compensation cost based on SFAS No. 123, the Company's net income would have been as follows:
1999 2000 2001 ------------------------ --------------------- ----------------------- NET DILUTED NET DILUTED NET DILUTED INCOME EPS LOSS EPS INCOME EPS ---------- --------- ---------- ------- ---------- ------- As reported $3,195,060 $ .26 $(509,365) $(.04) $2,453,696 $ .19 Statement 123 compensation (net of tax) (617,500) (.05) $(441,000) $(.03) $ (305,699) $ (.02) Pro forma disclosure $2,577,560 $ .21 $(950,365) $(.07) $2,147,997 $ .17
NOTE 10. INCOME TAXES
Year Ended December 31, --------------------------------------------------- 1999 2000 2001 ----------- ----------- ----------- Current: Federal $ 995,750 $ (757,300) $ 1,163,580 State 170,100 (182,300) 194,268 ----------- ----------- ----------- 1,165,850 (939,600) 1,357,848 ----------- ----------- ----------- Deferred: Federal (284,803) 149,012 44,720 State (48,600) 59,600 (26,600) ----------- ----------- ----------- (333,403) 208,612 18,120 ----------- ----------- ----------- $ 832,447 $ (730,988) $ 1,375,968 =========== =========== ===========
F-19 Reconciliation of the federal statutory income tax rate of 34% to the effective income tax rate is as follows:
Year Ended December 31, --------------------------------------------- 1999 2000 2001 -------- ---------- ----------- Federal income taxes at statutory rates $665,417 $ (992,097) $ 1,442,314 State taxes, net of federal benefit 70,688 (81,559) 107,022 Non-deductible compensation expense related to stock plans -- 262,100 -- Non-deductible goodwill 42,963 48,979 48,318 Non-deductible meals and entertainment 45,975 30,939 24,525 Adjustments to prior year provision and allocations with discontinued operations -- -- (243,373) Other, net 7,404 650 (2,838) -------- ---------- ----------- $832,447 $ (730,988) $ 1,375,968 ======== ========== ===========
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for income tax reporting purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:
December 31, --------------------------- 2000 2001 --------- --------- Deferred tax assets: Vacation pay $ 189,900 $ 161,900 Depreciation and fixed asset bases differences 283,800 256,700 Allowance for doubtful accounts and other 33,200 96,829 Stock options expense -- 156,400 Other 32,700 -- Deferred tax liabilities Capitalized software development costs (92,200) (212,500) Other -- (30,000) --------- --------- Net deferred tax asset $ 447,400 $ 429,329 ========= =========
NOTE 11. COMMITMENTS AND CONTINGENCIES RISKS AND UNCERTAINTIES The Company derives a substantial portion of its revenues from outsourcing services provided to its principal shareholder, BIG. For the years ended December 31, 1999, 2000 and 2001, revenues from services provided to BIG accounted for approximately 66%, 60% and 49% of the Company's total revenues (including discontinued operations), respectively, and approximately 80%, 83% and 68%, respectively, of the Company's revenues from outsourcing services (for Continuing Operations). As a result of the sale of the Company's Geotrac subsidiary in late December 2001, the importance of BIG as a source of ongoing revenue will become even greater. Thus, the Company's future financial condition and results of operations will depend to a significant extent upon the commercial success of BIG and its continued willingness to utilize the Company's services. BIG has informed the Company that significant portions of its homeowner and worker's compensation business outsourcing will be diminished in 2002. Homeowner business processing will be administered by another company as part of an agreement that BIG negotiated for this business. BIG is exiting the worker's compensation business and, consequently, this business will be diminishing over the next 18 months. Any further significant downturn in the business of BIG or its commitment to utilize the Company's services could have a material adverse effect on the Company's business, financial condition and results of operations. F-20 The Company's business is dependent upon various factors, such as general economic conditions and weather patterns, that are beyond its control. For example, natural disasters such as hurricanes, tornadoes, and floods, all of which are unpredictable, directly impact the demand for the Company's outsourcing services. Fluctuations in weather patterns, general economic conditions and various other factors will likely produce fluctuations in the Company's quarterly earnings and operating results. OPERATING LEASES The Company leases property and equipment under operating leases, which expire at various dates through 2007. Future minimum rental payments under non-cancelable operating leases, exclusive of related party leases discussed in Note 12, having initial or remaining terms in excess of one year as of December 31, 2001 are as follows:
YEAR ENDED DECEMBER 31, AMOUNT ----------------------- ---------- 2002 $2,889,000 2003 2,596,000 2004 1,816,000 2005 718,000 2006 77,000 Thereafter 6,000 ---------- Total future minimum rental payments $8,102,000 ==========
Total rental expense, excluding amounts paid to BIG under the affiliated lease agreements, totaled $688,000, $1,710,807 and $3,344,501 for the years ended December 31, 1999, 2000 and 2001, respectively. 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's proceeding under Case No. 8:00-CV-2013-T-26MAP. The plaintiff's 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 F-21 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 March 26, 2001, the Company, BIG and the five inside director defendants filed a motion to dismiss the plaintiffs' Consolidated Amended Class Action Complaint for, among other things, failure to allege material misstatements and/or omissions in the roadshow presentations, registration statement and/or prospectus relating to the IPO. On July 11, 2001, U.S. District Judge Richard A. Lazzara denied all of the defendants' motions to dismiss the Amended Complaint. The case has been set for trial during the trial term commencing May 5, 2003, and active discovery is proceeding. 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 charged 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 notified BIC, BLIC and BSIC that the Insurance Commissioner intended 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. Effective February 6, 2002, BIC, BLIC and BSIC entered into a Consent Order with the DOI pursuant to which the DOI's administrative action against BIC, BLIC and BSIC was dismissed. Also pursuant to this Consent Order, such entities were ordered to pay a $1 million penalty (consisting of a fine of $700,000 and reimbursement of attorneys' fees of $300,000), Robert M. Menke was prohibited from acting as chairman or an officer of any of such entities for a period of three (3) years, another executive officer of each of these entities was removed from such positions, and certain other compliance-related requirements were imposed. BIG has advised the Company that the terms of the Consent Order should not have a material adverse effect on the business and/or operations of BIG, but no assurances can be given in this regard. On November 19, 1999, the United States, on behalf of the Federal Emergency Management Agency ("FEMA"), filed a civil action against BIC in the United States District Court for the F-22 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 stayed pending arbitration following a decision by the United States Court of Appeals for the Fourth Circuit in favor of BIC on its motion to stay the litigation pending arbitration. The government has not appealed the Fourth Circuit Court of Appeal ruling requiring arbitration and the case is stayed pending arbitration. By letter dated January 30, 2002, FEMA notified Bankers that it intends to move forward with arbitration and set forth proposed procedures. BIC has further 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 has advised the Company that an adverse judgment in this action should not have a material adverse affect on the business and/or operations of BIC, although no assurances can be given in this regard. 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 either unable to reach agreement in these matters or resolve their disagreement in arbitration, the United States could amend its complaint against BIC to add additional claims under the False Claims Act and/or various common law and equitable theories relating to such matters. In the event such continuing investigation or any consequence thereof materially adversely affects the business or operations of BIC, it could result in the loss of or material decrease in the Company's business from BIC, which would have a material adverse effect on the Company's business, financial condition and results of operations. The Company is involved in various other legal proceedings arising in the ordinary course of business. Management believes that the ultimate resolution of these other proceedings 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. EMPLOYMENT AGREEMENTS The Company has entered into employment agreements with certain members of its executive management team. The agreements provide for employment terms of three years and shall continue indefinitely until terminated by either party pursuant to the terms of the agreements. In the event an employment agreement is terminated by the Company without cause, the employee shall be entitled to earned, but unpaid benefits as well as a "Severance Payment" equal to the employee's then current annual base salary, subject to adjustment as defined. The agreements contain non-compete provisions, which prevent a terminated employee from soliciting customers, prospective customers or employees of the Company. In connection with the acquisition of Geotrac, Inc., the Company entered into an employment agreement with the president and chief executive officer of Geotrac, Inc. ("Geotrac's President"). This agreement provides for an initial term of four years and shall continue in effect thereafter F-23 until terminated by either party upon 90 days prior written notice. The agreement contains certain non-compete provisions, which prevent Geotrac's President from engaging in the flood zone compliance business within a specified area and soliciting or employing any Geotrac, Inc. employees. This agreement has been terminated effective with the sale of the Company's Geotrac subsidiary as of December 26, 2001. NOTE 12. RELATED PARTY TRANSACTIONS ADMINISTRATION SERVICES AGREEMENT Effective as of January 1, 1998, the Company and BIG entered into an Administrative Services Agreement (the "Administration Agreement") pursuant to which BIG provided the Company with various administrative and support services, such as human resources and benefits administration, accounting, legal, cash management and investment services, requested by the Company from time to time and reasonably necessary in the conduct of its operations. Under the Administration Agreement, as originally in effect, the Company was charged for these services generally based upon a contractually agreed-upon quarterly fee of $396,250. Effective as of January 1, 1999, the Administration Agreement was amended to eliminate certain accounting and internal audit service functions and to reduce the quarterly fee payable by the Company to BIG (including one-fourth of the annual fee for legal services) to $258,750, subject to renegotiation by either party. In addition, the Company paid BIG, through the year ended December 31, 1999, an annual fee of $120,000 for routine legal services provided. Legal services provided with respect to non-routine matters are to be billed to the Company at negotiated prices. Effective January 1, 2000, the annual fee for routine legal services was reduced to $60,000 from $120,000. Effective April 1, 2000, the portion of the fee attributable to human resources and benefits administration services, excluding training services (approximately $393,000), was eliminated as the Company began to perform such services at such date. On December 31, 2000, the Administration Agreement was renewed by the Company for an additional one-year term. Pursuant to the Letter Agreement described below, the Administration Agreement was terminated effective April 1, 2001 (see Letter Agreements). SERVICE AGREEMENTS Effective as of January 1, 1998, the Company entered into a separate Service Agreement (each a "Service Agreement") with each of BIC, BSIC and FCIC, all direct or indirect subsidiaries of BIG, pursuant to which the Company provides policy administration, claims administration and data processing services to such entities in connection with their flood, homeowners and automobile lines of business, and claims administration and data processing services for all such entities' other property and casualty lines of business. Under the Service Agreements, as originally in effect, each entity paid the Company as follows: (1) for its policy administration services a monthly fee based upon direct written premiums for the flood, homeowners and automobile insurance programs; (2) for its claims administration services a monthly fee based upon direct earned premiums for the property, casualty, automobile F-24 property, automobile casualty and flood insurance programs (in addition, a monthly fee based upon direct incurred losses is charged for flood claims administration and a reimbursement not to exceed 5% of direct incurred losses from a single event in excess of $2 million is charged to property claims); (3) for its data processing services, a monthly fee based upon direct written premiums for all insurance programs; and (4) for certain customer services such as mailroom, policy assembly, records management and cash office a monthly fee based upon direct written premiums (except, if provided in connection with their flood, homeowners and automobile insurance lines, where no such fees are imposed). The total service fees charged to BIC, BSIC and FCIC under these Service Agreements during the year ended December 31, 1998 totaled $36.1 million. Effective January 1, 1999, these Service Agreements were modified to provide for tiered pricing based on the volume of business processed, and to change the fee for data processing services, which was previously charged as a percentage of direct written premium, to a fixed monthly fee. The total service fees charged to BIC, BSIC and FCIC under these Service Agreements, as amended, during the years ended December 31, 1999 and 2000 totaled $41.5 million and $37.9 million, respectively. These modifications resulted in a reduction in the base fees charged for certain lines of business and increases in base fees charged for other lines of business to better reflect the services provided and competitive market rates for such services. The term of each Service Agreement was to expire on June 1, 2001, provided that it was thereafter to be automatically extended until terminated upon 90 days prior notice by either party. Effective April 1, 1999, the Company further amended its existing Service Agreements with affiliated insurers to provide for minimum aggregate quarterly service fee payments through December 31, 1999 with respect to certain lines of business, provided that certain key tasks are performed timely. If such minimum service fee requirements with respect to said lines of business under the agreements had not been implemented as of April 1, 1999, aggregate affiliated outsourcing services revenues, which totaled $41.5 million for the year ended December 31, 1999, would have been $39.7 million in accordance with the terms of the affiliated service agreements as in effect prior to April 1, 1999. Additionally, for the year ended December 31, 1999, the Company did not recognize approximately $500,000 of additional affiliated service fees under the minimum service fee arrangement, as the Company did not meet certain specified milestones on a timely basis. Such minimums were established to compensate the Company for maintaining an infrastructure to process certain lines of business of affiliated insurers that have not grown as rapidly as originally forecasted. In addition, under the Service Agreement with BIC, the Company administers an AYO Claims Agreement between BIG and Florida Windstorm Underwriting Association, which agreement BIG assigned to BIC on December 15, 1998. The Company processes and adjusts all claims made under the AYO Claims Agreement. The administrative fee (equal to a percentage of each loss paid) is allocated between BIC and the Company. Pursuant to the Letter Agreement described below, the Service Agreements were amended effective June 1, 2001 to, among other things, modify certain of the service fees payable thereunder and eliminate data and technical support services from the administrative services to F-25 be provided by the Company thereunder (see Letter Agreements). Effective as of October 1, 2001, the Company entered into the New Service Agreement with BIC, BSIC and FCIC, as described below. The New Service Agreement replaced the Service Agreements, as amended by the Letter Agreement (see New Service Agreement). Effective December 1, 1998, the Company entered into a service agreement with BLIC, a subsidiary of BIG, pursuant to which the Company provided certain administrative services and allowed BLIC to make use of certain of the Company's property, equipment and facilities in connection with BLIC's day-to-day operations. Under this service agreement, as amended, BLIC agreed to pay the Company predetermined fees on a quarterly basis. The term of this service agreement with BLIC expired on June 1, 2001, and was not renewed or replaced. No services were provided and no fees were ever charged or paid under this service agreement. Effective November 14, 2000, the Company entered into a separate Insurance Administration Services Agreement with BIG (the "WC Agreement") pursuant to which the Company provides policy administration, system hosting and support, and claims administration services to BIG and its affiliate BIC in connection with BIC's workers compensation line of business. Under the WC Agreement, the Company is paid for its services as follows: (1) for its policy administration, system hosting and support services, a monthly fee based upon direct written premiums for BIG's workers compensation program; and (2) for its claims administration services, a monthly fee based upon direct earned premiums relating to such program. For the period November 14, 2000 through December 31, 2000 and the year ended December 31, 2001, the total service fees charged to BIG under the WC Agreement were $26,650 and $1.23 million, respectively. BIG ceased writing workers compensation insurance in November 2001. Consequently, the Company does not expect to generate significant additional revenues under the WC Agreement during the year ending December 31, 2002. TECHNICAL SUPPORT SERVICES AGREEMENT In April, 1999, the Company entered into a Technical Support Services Agreement (the "Support Agreement") with BIG pursuant to which the Company provided BIG with certain system development services. Under the Support Agreement, such services were charged to BIG on a time and materials basis. Pursuant to the Letter Agreement described below, the Support Agreement was terminated effective April 1, 2001. The total service fees charged to BIG under the Support Agreement during the years ended December 31, 1999 and 2000 and the period January 1, 2001 through March 31, 2001 totaled $1.3 million, $0 and $0, respectively. The Support Agreement was to be replaced, effective June 1, 2001, with a new Technical Support Services Agreement, pursuant to which BIG would provide certain technical support services to the Company. A new Technical Support Services Agreement has not been, and is no longer expected to be, executed. The Letter Agreement was terminated effective as of October 1, 2001, and BIG did not provide any technical support services to the Company after April 1, 2001 as F-26 contemplated thereby. See "Certain Relationships and Related Transactions-- Letter Agreements" and "--New Service Agreement." LETTER AGREEMENTS On April 13, 2001, the Company entered into a Letter Agreement with BIG, BIC, BSIC and FCIC (the "Letter Agreement") pursuant to which the various contractual arrangements between the Company and such affiliated entities were significantly altered as described below. With respect to the Administration Agreement, the Letter Agreement provided that the existing Administration Agreement was terminated effective as of April 1, 2001 and would be replaced, effective June 1, 2001, with a new Corporate Services Agreement, pursuant to which BIG would provide the Company with various corporate marketing (including graphic design and web-site development) and corporate training services requested by the Company from time to time at fixed hourly rates ranging from $40 to $100 per hour, depending on the service being provided. The Letter Agreement provided that the parties would negotiate in good faith to execute and deliver the Corporate Services Agreement incorporating these terms on or before June 1, 2001; provided, however, that in the event such agreement was not executed and delivered by that date, BIG would provide such services at the rates specified in the Letter Agreement. The Letter Agreement further provided that the Support Agreement was terminated effective April 1, 2001 and would be replaced, effective June 1, 2001, with a new technical support services agreement pursuant to which BIG would provide the Company with certain technical support, computer programming and systems analysis services at specified rates (except for software development services, which would be provided on a time and materials basis). With respect to the Service Agreements, the Letter Agreement provided that each of such agreements shall be amended, effective June 1, 2001, to (i) postpone the expiration date of the agreement from June 1, 2001 until December 1, 2002, (ii) modify the service fees payable thereunder with respect to policy and claim administration services to be provided in connection with certain lines of business, (iii) eliminate data and technical support services from the administrative services to be provided by the Company under the agreement, and (iv) assess a fixed monthly fee for usage of the Company's AS 400 computer system. With respect to the service fee modifications, under the Service Agreements, as amended, each entity 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) claims administration services relating to all lines of business other than flood, remained 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 million on an actual basis, would have been approximately $30 million on a pro forma basis. F-27 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. 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. NEW SERVICE AGREEMENT Effective October 1, 2001, the Company entered into a new Insurance Administration Services Agreement with BIC, BSIC and FCIC (the "New Service Agreement"). The New Service Agreement replaced the Service Agreements, as amended by the Letter Agreement. Pursuant to the New Service Agreement, the Company provides policy administration, claims administration and data processing services to such entities in connection with their flood, homeowners and automobile lines of business, and claims administration and data processing services for all such entities' other property and casualty lines of business. Under the New Service Agreement, each entity pays the Company as follows: (1) for its policy administration services a monthly fee based upon direct written premiums for the flood, homeowners and automobile insurance programs; (2) for its claims administration services a monthly fee based upon direct earned premiums for the property, casualty, automobile property, automobile casualty and flood insurance programs (in addition, a monthly fee based upon direct incurred losses is charged for flood claims administration and a reimbursement not to exceed 5% of direct incurred losses from a single event in excess of $2 million is charged to property claims); (3) for its data processing services, a monthly fee based upon direct written premiums for all insurance programs; and (4) for certain customer services such as mailroom, policy assembly, records management and cash office a monthly fee based upon direct written premiums (except, if provided in connection with their flood, homeowner and automobile insurance lines, where no such fees are imposed). The New Service Agreement is for an initial term of five years, subject to termination thereafter upon 90 days written notice. The New Service Agreement further provides for the renegotiation of rates in good faith after the first three years of the initial term. The New Service Agreement modified the existing arrangements under the Service Agreements by, among other things: (i) reducing the base fees charged for certain lines of business; (ii) providing for tiered pricing based on the volume of business processed electronically rather than manually; (iii) providing for the pass-through to BIG of flood loss adjustment expenses for outsourcing services; and (iv) providing for the pass-through to BIG of all postage expenses and third-party information services incurred by the Company in connection with its performance under the New Service Agreement. For financial statement purposes these expense pass-throughs are considered revenues. If the New Service Agreement had not been in effect, the Company's affiliated outsourcing service fee and pass-through revenue for the fourth quarter of 2001, which totaled approximately $5.9 and $1.1 million on an actual basis, would have been F-28 approximately $6.5 and $-0- million under the previous agreement on a pro forma basis (unaudited). The Company believes that any anticipated reduction in affiliated outsourcing service fee revenues resulting from the implementation of such service fee changes under the New Service Agreement will be largely offset by the corresponding increase in revenues from the pass-through (reimbursement) of flood loss adjustment expenses, postage expenses and third-party information services, although no assurances can be given in this regard. Moreover, as of October 1, 2002, the Company will again become directly responsible for the payment of postage expenses under the terms of the New Service Agreement. If the New Service Agreement had not been in effect for the fourth quarter of 2001, such postage expenses, which totaled $475,000 and were passed through to BIG, would have been expenses borne by the Company. SECURED LINE OF CREDIT 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"). BIG, the Company's principal customer and shareholder, requested the Line of Credit to assist with certain short-term working capital needs. 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 (4.75% at December 31, 2001) as defined in the Credit Agreement, plus 1.5%. The Credit Agreement further provides that the Line of Credit would expire on February 28, 2002 (see paragraph below), 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 February 28, 2002, totaling approximately $10.8 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 F-29 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 was 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 referenced within the exhibit listing of this Report. Pursuant to the Credit Agreement, all unpaid principal and interest became due and payable in full on February 28, 2002. As of such date, BIG owed the Company an aggregate of approximately $5 million under the Line of Credit. On March 14, 2002, the Company and BIG amended the Credit Agreement to extend the Line of Credit until May 31, 2002. This amendment to the Credit Agreement was approved unanimously by the Audit Committee of the Board of Directors of the Company at a special meeting held on March 8, 2002. In making this determination the Audit Committee considered, among other things, (i) the Company's continued dependence on BIG (including certain of its subsidiaries) as the Company's principal customer and, (ii) the financial condition of BIG and the current status of the collateral securing the Line of Credit. The Company has been advised by BIG that it is considering various methods of satisfying its obligations under the Line of Credit, including the possible sale of certain of its assets. No assurances can be given, however, that payment in full of all amounts due and owing under the Line of Credit will be received on or before June 10, 2002. If payment in full is not received from BIG on or before such date, the Audit Committee of the Board of Directors of the Company will determine the appropriate course of action after considering all factors it deems relevant or appropriate. The Company believes that cash on-hand (including the proceeds from the Geotrac sale), cash flows from operations, and cash advances under the Commitment Letter are sufficient to support the Line of Credit and to satisfy the Company's currently anticipated working capital requirements. 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. PROPERTY LEASES The Company currently subleases from Bankers Financial Corporation approximately 44,032 square feet of office space in St. Petersburg, Florida at a monthly rate of approximately $56,000. The current term of this sublease expires on December 31, 2003. The Company and Bankers Financial Corporation entered into the sublease on December 31, 2001. The sublease agreement replaced a lease agreement between BIC and the Company for the same property, which was terminated effective as of December 31, 2001 in connection with a sale by BIC of the property covered by the lease and its simultaneous lease by Bankers Financial Corporation. The terms and conditions of the sublease agreement are identical to those of the lease agreement which it F-30 replaced, as earlier amended. During the year ended December 31, 2001, the Company paid BIC approximately $917,800 under the terminated lease agreement. The Company currently leases from BFIC approximately 4,600 square feet of office space in St. Petersburg, Florida at a monthly rate of approximately $5,100. The current term of this lease expires on April 14, 2002. This lease replaced, as of October 15, 2001, an existing lease between the Company and BLIC for the same office space. During the year ended December 31, 2001, the Company paid Bankers Life Insurance Company an aggregate of approximately $35,600 under the new lease and the lease which it replaced. SALES AND ASSIGNMENT AGREEMENT In May 1998, the Company entered into a sales and assignment agreement with BIG and certain affiliated companies whereby certain assets were transferred and assigned to the Company, effective retroactively to April, 1998, for use in its business. The assets, including, but not limited to, telephone equipment, computer hardware and software, and service marks were transferred at their net book value as of the date of transfer. The Company paid consideration consisting of $325,075 in cash and entered into two promissory notes amounting to $2,802,175. The notes were repaid in full in February 2000 out of the net proceeds to the Company from its initial public offering. In addition, the Company assumed the existing leases with unaffiliated third parties relating to various computer equipment. SOFTWARE LICENSING AGREEMENT Effective January 1, 1998, the Company entered into a non-exclusive license agreement with BIG and BIC pursuant to which the Company licenses its primary operating systems from BIG and BIC in exchange for a nominal fee. The term of the license is perpetual. The license agreement provides that the Company shall be solely responsible for maintaining and upgrading the systems and shall have the authority to sell or license such systems to third parties. F-31 GEOTRAC TRANSACTIONS DJWW Corp., an Ohio corporation, was formed in June 1987 by Daniel J. White ("Mr. White"), the corporation's president and sole shareholder. In May 1991, the corporation changed its name to Geotrac, Inc. In August, 1994, Geotrac, Inc. sold substantially all of its assets to SMS Geotrac, Inc., a Delaware corporation ("SMS Geotrac"), for a purchase price of $1,000,000 in cash, plus a contingent payment based on net profits after taxes for the Fiscal year ended June 30, 1995. SMS Geotrac was a wholly owned subsidiary of Strategic Holdings USA, Inc. ("Strategic"). During the year ended June 30, 1996 and on July 30, 1997, SMS Geotrac made payments of $932,222 and $1,700,000, respectively to Mr. White in satisfaction of the contingent payment obligations under the acquisition agreement. The amounts were recorded as an increase to goodwill and an additional capital contribution to SMS Geotrac. In connection with the sale of assets to SMS Geotrac, Mr. White became the president of SMS Geotrac and received a four-year employment contract at a base salary of $100,000 per year. In September 1994, Geotrac, Inc. changed its name to YoSystems, Inc. During the year ended June 30, 1997, SMS Geotrac and Strategic agreed to treat all outstanding amounts owed to the parent, $1,611,140, as an additional capital contribution. In addition, Strategic contributed $500,000 to SMS Geotrac. During the one-month period ended July 31, 1997, SMS Geotrac advanced $797,000 to YoSystems, Inc. In July 1997, YoSystems acquired all of the issued and outstanding shares of capital stock of SMS Geotrac from Strategic for $15,000,000 in cash. The purchase price was funded through an $8.75 million loan from Huntington National Bank to YoSystems ($8.25 million of which was used in the purchase) plus $6.75 million in cash paid by the Company in connection with its acquisition of a 49% interest in YoSystems, as described below. Thereafter, the Company assumed the loan from Huntington National Bank, which loan has since been repaid from proceeds received in the Company's initial public offering. Neither YoSystems nor Mr. White, its president and sole shareholder, had a preexisting right to acquire SMS Geotrac pursuant to the August, 1994 transaction. The purchase price of the SMS Geotrac stock was determined by arm's length negotiations. After the stock purchase transaction, SMS Geotrac merged into YoSystems, with YoSystems being the surviving entity and changing its name back to Geotrac, Inc. Concurrent with the acquisition of SMS Geotrac by YoSystems, the Company, through a subsidiary, Bankers Hazard Determination Services, Inc. ("BHDS"), purchased a 49% interest in YoSystems for $6,750,000 in cash. At that time, the Company did not contemplate acquiring the remaining 51% of YoSystems, Inc. In connection with the Company's purchase of a 49% interest in YoSystems, BHDS issued 675,000 shares of non-cumulative 8% preferred stock to Heritage Hotel Holding Company ("Heritage"), a corporation owned by Richard M. Brubaker, the half brother of Robert M. Menke, a director of the Company. The preferred stock of BHDS issued to Heritage had a par value of $10 per share and was subject to redemption at the option of the board of directors of BHDS. The preferred stock could be redeemed at any time at a price equal to 108% of the original consideration paid for the stock by the shareholder plus the amount of the dividends declared and unpaid on the redemption date Heritage funded the preferred stock purchase by entering into a note agreement with a commercial bank for $6,750,000, with the preferred stock serving as collateral. On May 8, 1998, the Company purchased the outstanding preferred stock of BHDS in exchange for a note to Heritage in the principal amount of $6,750,000. The note was repaid in full in February 2000 out of the net proceeds to the Company from its initial public F-32 offering. After May 8, 1998, the preferred stock of BHDS held by the Company was exchanged for 675,000 shares or 8.5% cumulative preferred stock of BHDS. The shares of non-cumulative 8% preferred stock were then retired. Dividends declared on the preferred stock for l997 and 1998 were $229,315 and $189,370, respectively. In July 1998, the Company acquired the remaining 51% equity interest in Geotrac, Inc. (formerly YoSystems) pursuant to the merger of Geotrac, Inc. with and into BHDS, with the surviving entity being known as "Geotrac of America, Inc." ("Geotrac"). The Company acquired the remaining 51% interest from Mr. White and his wife and certain minority shareholders in exchange for (i) 524,198 shares of Common Stock, (ii) a promissory note in the principal amount of $1,500,000 bearing interest at a rate of 8.5%, and (iii) cash in the amount of $728,069 (paid in December, 1998), for a total purchase price of $7,994,000. In addition, the Company assumed the loan in the original principal amount of $8,750,000 from Huntington National Bank made to YoSystems in July 1997. As described above, the loan from Huntington Bank was repaid from proceeds received in the Company's initial public offering. In connection with this transaction, Geotrac entered into an employment agreement with Mr. White pursuant to which Mr. White served as the President and Chief Executive Officer of Geotrac. In addition, the Company entered into a Corporate Governance Agreement with Mr. White and Geotrac setting forth certain terms and conditions upon which Geotrac continued to operate following the merger. On December 28, 2001 the Company consummated the transactions contemplated by a stock purchase agreement (as amended, the "Stock Purchase Agreement"), dated as of September 20, 2001, by and among the Company, Geotrac, Geotrac Holdings, Inc., Mr. White, the Daniel J. White Trust, the Sandra A. White Trust, and, solely for purposes of a non-competition covenant, BIG. The shareholders of the Company approved the Stock Purchase Agreement and the transactions contemplated thereby in accordance with Florida law at a Special Meeting of Shareholders held on December 26, 2001. Pursuant to the Stock Purchase Agreement, Geotrac Holdings, Inc., a Delaware corporation formed by Mr. White and his spouse, Sandra A. White, purchased all the issued and outstanding capital stock (the "Shares") of Geotrac. Prior to the consummation of the transactions contemplated by the Stock Purchase Agreement, Mr. White served as a director of the Company and President, Chief Executive Officer and a director of Geotrac. Mr. White resigned as a director of the Company effective as of the consummation of the sale of the Shares. The purchase price paid for the Shares was $19,000,000 in cash, plus 524,198 shares of Common Stock of the Company beneficially owned by Mr. White and his spouse. Pursuant to the Stock Purchase Agreement, certain of the parties also entered into additional agreements as of the closing of such sale, including a Flood Zone Determination Service Agreement pursuant to which Geotrac will provide the Company with flood zone determination services for up to ten years at pricing management of the Company currently considers to be favorable. Geotrac leased a 12,400 square-foot facility in Norwalk, Ohio from DanYo LLC, a limited liability company wholly owned by Mr. White and his spouse. This lease, which was renewed effective September 1, 1999, was for a term of five years, expiring on August 31, 2004, and F-33 provided for monthly rental payments of approximately $10,448, plus payment of utilities, real estate taxes and assessments, insurance, repairs and similar expenses. During the year ended December 31, 2000 and for the period from January 1, 2001 through December 27, 2001, Geotrac paid fees of $339,345 and $1.0 million, respectively, to SLK Software Services Private Limited ("SLK") for various consulting services and recruiting fees. Mr. White had an equity interest of approximately 46% in SLK at December 28, 2001, the closing date of the date of Geotrac. Mr. White was neither a director nor an officer of SLK and did not have the ability to exercise control or make management decisions. At December 27, 2001 and December 31, 2000, Geotrac owed SLK $68,600 and $15,200, respectively. During the year ended December 31, 2000 and the period from January 1, 2001 through December 27, 2001, Geotrac paid $396,200 and $946,000 in flood zone determination costs and $611,200 and $451,900 in digitizing costs and other miscellaneous costs, respectively, to JDI Software Services Private Limited ("JDI"). On January 9, 2001, Mr. White purchased 100,550 shares of JDI, representing approximately 48% ownership interest in JDI. Mr. White was neither a director nor an officer of JDI and did not have the ability to exercise control nor make management decisions. At December 27, 2001 and December 31, 2000, Geotrac owed JDI $62,000 and $85,300, respectively. Additionally, JDI owed Geotrac $100,000 at December 31, 2000 for the sale of Geotrac's National GIS Flood Coverage. PHANTOM STOCK PLANS During the year ended December 31, 2000, the Company recognized approximately $338,000 in compensation expense (of which approximately $145,000 relates to 1999) resulting from the vesting of benefits payable to certain current and former officers and directors of the Company under the Amended and Completely Restated Phantom Stock Plan (the "BFC Plan") of Bankers Financial Corporation ("BFC"), the parent corporation of BIG, and the Amended and Restated Phantom Stock Plan (the "VCC Plan") of Venture Capital Corporation ("VCC"). The foregoing compensation charge is a non-recurring, non-cash item to the Company, as all such benefits under such plans were fully vested as of September 30, 2000 and constitute the respective obligations of BFC and VCC, not the Company. Effective September 30, 2000, the BFC and VCC Plans were amended to provide for, among other things, immediate vesting of benefits payable there under to certain current and former officers and directors of the Company. Accordingly, as of September 30, 2000, the total discounted and non-discounted benefits payable under these plans, which have accrued since February 11, 1999, the date of the Company's initial public offering (the "IPO Date"), totaled $327,000 and $894,000, respectively, for the BFC Plan and $12,000 and $43,000, respectively, for the VCC Plan. Benefits under each of such plans generally are payable in 120 equal installments beginning at age 60. Although resulting in a compensation expense (on a discounted basis) to the Company, all of such benefits under such plans were granted on or before the IPO Date and constitute the respective obligations of BFC and VCC, not the Company. The benefits described herein exclude amounts vested prior to the IPO Date and/or allocable to services provided to BIG or its affiliated entities (other than the Company or its subsidiaries) since the IPO Date. The aggregate amount (on a non-discounted basis) in benefits payable to each of the Company's current and former executive officers and directors of the Company under the BFC Plan and the VCC Plan, respectively, and which have accrued from the IPO Date through September 30, 2000, are as follows: David K. Meehan, $0 and $0; David M. Howard, $247,515 and $25,523; F-34 Robert G. Gantley, $217,583 and $0; Christopher P. Breakiron, $0 and $0; Daniel J. White, $0 and $0; Kathleen M. Batson, $43,348 and $6,160; John A. Grant, Jr., $154,100 and $9,210; William D. Hussey, $100,000 and $0; E. Ray Solomon, $100,000 and $0; and Alejandro M. Sanchez, $0 and $0. The foregoing benefits exclude amounts vested prior to the IPO Date and/or allocable to services provided to BIG or its affiliated entities (other than the Company or its subsidiaries) since the IPO Date. Except as set forth below, since the IPO Date, no officers or directors of the Company have been eligible to receive additional grants under such phantom stock plans or have been subject to future allocations of profits or losses with respect thereto. In addition, except as set forth below, all current officers and directors of the Company were fully vested, as of September 30, 2000, in all benefits under such plans. Notwithstanding the foregoing, Robert G. Menke, a director of the Company, and David K. Meehan, Chairman of the Board of the Company, will continue to be eligible to receive grants, vest in benefits received and share in profits and losses under such plans in their capacity as officers and directors of BIG and its affiliated entities. MISCELLANEOUS In February 1999, Western International Insurance Company, a wholly owned subsidiary of VCC and presently a more than 5% shareholder of the Company, loaned $12.0 million to BIG in exchange for a subordinated note. This loan was funded by using a portion of the net proceeds received by VCC in the Company's initial public offering. BIG, in turn, used a portion of such loan proceeds to satisfy a note payable (including accrued interest) to the Company which totaled $5,322,455. The balance of the loan proceeds will provide BIG with additional capital to repay other outstanding indebtedness and expand its operations. The Company, in turn, used the funds received from BIG, together with a portion of the net proceeds from its initial public offering, to satisfy $7,054,996 in accounts, income taxes and notes payable (including accrued interest) payable to BIG. In 1998, BIG made a loan of $55,000 to David M. Howard. Interest on the loan was payable at a rate of 8.5% annually and the loan was to be repaid in equal bi-weekly installments with a balloon payment due on March 31, 2000. Subsequently, the note was extended indefinitely with Mr. Howard continuing to make bi-weekly payments. In early 2000, after Mr. Howard joined the Company as a director and executive officer, the loan was transferred to the Company. In December 2001, the Company paid Mr. Howard a bonus of approximately $71,000 in the form of the forgiveness of such indebtedness (grossed up to cover associated taxes). The Audit Committee of the Board of Directors is responsible for reviewing all future transactions between the Company and any officer or director of the Company or any entity in which an officer of director has a material interest. Any such transactions must be on terms no less favorable than those that could be obtained on an arm's-length basis from independent third parties. F-35 NOTE 13. EMPLOYEE BENEFITS PLANS The Company's employees participate in its Parent company's 401(k) plan, which covers substantially all employees. To participate in the plan, employees must be at least 18 years old and have completed 90 days of service. The Company makes matching contributions of up to 5% of each participant's deferral. The Company's expense related to this plan was approximately $620,893, $650,700, and $517,174 in 1999, 2000 and 2001, respectively. In addition, the Company's employees (except for employees of Geotrac) participate in self-insured medical and dental plans provided by the Parent. The medical program provides for specific excess loss reinsurance for individual claims greater than $60,000 for any one claimant and aggregate claims greater than $1 million. The Company accrues the estimated liabilities for the ultimate costs of both reported claims and incurred but not reported claims. NOTE 14. SEGMENT INFORMATION The Company primarily operates in two business segments within the United States; providing policy and claims administration services and claims adjusting services. Prior to 2000, Geotrac (now presented as discontinued operations) was reported as a separate segment and claims adjusting services provided by Colonial were combined with outsourcing in total, as it was not significant. No unaffiliated customer accounted for more than 10% of the Company's total revenues for the periods presented. The following table provides information about these reportable segments as required by SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information".
Outsourcing Outsourcing Intercompany Services - Services - Eliminations Consolidated Administration Claims Adjusting And Other Totals ------------ --------- ------------ ------------ 1999 Operating revenues-affiliated ..... $ 42,142,568 $ -- $ (39,750) $ 42,102,818 Operating revenues-unaffiliated ... 3,060,610 7,642,122 -- 10,702,732 Operating income .................. 1,065,981 804,446 -- 1,870,427 Interest expense .................. 248,708 6,685 -- 255,393 Depreciation and amortization ..... 3,104,862 124,977 -- 3,229,839 Identifiable assets ............... 35,992,432 4,907,893 (3,438,688) 37,461,637 2000 Operating revenues-affiliated ..... $ 38,904,502 $ -- $ (23,000) $ 38,881,502 Operating revenues-unaffiliated ... 4,449,930 3,523,722 -- 7,973,652 Operating income .................. (3,229,456) 65,522 -- (3,163,934) Interest expense .................. 60,905 -- -- 60,905 Depreciation and amortization ..... 2,868,189 156,384 -- 3,024,573 Identifiable assets ............... 39,807,467 5,740,491 (5,967,157) 39,580,801 2001 Operating revenues-affiliated ..... $ 38,806,105 $ -- $ (7,000) $ 38,799,105 Operating revenues-unaffiliated ... 6,992,575 11,322,734 -- 18,315,309 Operating income .................. 2,687,189 1,278,041 -- 3,965,230 Interest expense .................. 5,736 -- -- 5,736 Depreciation and amortization ..... 2,801,316 172,138 -- 2,973,454 Identifiable assets ............... 40,130,292 5,796,430 (4,927,242) 40,999,480
Outsourcing Services - Administration. Identifiable assets in 1999 and 2000 include net assets of discontinued operations of $18,887,175 and $20,564,751. F-36 NOTE 15. STATEMENTS OF CASH FLOWS CONTINUING OPERATIONS
YEAR ENDED DECEMBER 31, -------------------------------------------- 1999 2000 2001 ---------- -------- ---------- Cash paid for: Interest ................ $ 258,982 $ 60,904 $ 5,736 Income taxes ............ $1,198,000 $172,808 $3,504,886
A summary of the consideration for the sale of Geotrac follows: Consideration: Cash $19,000,000 Non-cash items 524,198 shares of the Company's common stock 1,336,705 Service contract 2,189,090 ----------- $22,525,795 ===========
The Company paid and/or accrued transaction costs of $773,451 that for financial statement presentation purposes was considered a component of the loss on disposal of discontinued operations. The current income taxes payable of $1,320,700 associated with the sale are a component of the loss also, though the payable is included in the Company's December 31, 2001 balance sheet. During 1999, the Company acquired Colonial. In conjunction with this acquisition, assets acquired and liabilities assumed were as follows:
YEAR ENDED DECEMBER 31, 1999 ---------- Common stock ..................................... $1,700,000 Common stock payable ............................. 300,000 Promissory note .................................. 500,000 Short-term obligation ............................ 500,000 ---------- $3,000,000 ========== Fair value of assets acquired .................... $1,846,555 Liabilities assumed .............................. 1,478,306 ---------- Net assets ....................................... 368,249 Goodwill ......................................... 2,631,751 ---------- $3,000,000 ==========
The statement of cash flows for 1999 and 2000 has been reclassified to present changes in accounts receivable, trade and accounts payable, trade associated with affiliates and Geotrac as operating activities instead of financing activities. F-37 DISCONTINUED OPERATIONS Supplemental Disclosure of Cash Flow Information
Year Ended December 31, --------------------------------------------------- 1999 2000 2001 ----------- ----------- ----------- Operating activities: Net cash provided by $ 9,585,451 $ 3,615,914 $ 7,176,511 Investing activities: Net cash used by (1,103,945) (2,845,608) (3,655,098) Financing activities: Net cash used by (4,736,635) (2,994,660) (1,011,708) ----------- ----------- ----------- Net increase/(decrease) in cash 3,744,871 (2,224,354) 2,509,705 Cash at beginning of period 1,280,541 5,025,412 2,801,058 ----------- ----------- ----------- Cash at end of period before sale $ 5,025,412 $ 2,801,058 $ 5,310,763 =========== =========== ===========
F-38 NOTE 16. SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Following is a summary of the quarterly results of operations for the quarterly periods in 2000 and 2001:
QUARTER ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 ------------ ------------ ------------ ------------ 2000 Total revenues $ 10,966,881 $ 11,556,502 $ 11,701,426 $ 12,630,345 Operating income/(loss) (814,921) (942,501) (1,791,038) 384,526 Income/(loss) before discontinued operations (472,999) (577,541) (1,277,086) 140,681 Income from discontinued operations 252,497 601,269 720,543 103,271 Net income/(loss) (220,502) 23,728 (556,543) 243,952 Net income/(loss) per common share (0.02) -- (0.04) 0.02 2001 Total revenues $ 10,801,497 $ 15,866,834 $ 19,879,637 $ 10,566,446 Operating income/(loss) (454,482) 4,116,806 2,020,067 (1,717,161) Income/(loss) before discontinued operations (276,561) 2,573,321 1,584,767 (1,015,400) Income from discontinued operations 429,126 914,117 196,217 873,878 Loss on disposal of discontinued operations -- -- -- (2,825,769) Net income/(loss) 152,565 3,487,438 1,780,984 (2,967,291) Net income/(loss) per common share 0.01 0.27 0.14 (0.23)
F-39 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE I To the Board of Directors of Insurance Management Solutions Group, Inc. In connection with our audit of the consolidated financial statements of Insurance Management Solutions Group, Inc. and Subsidiaries referred to in our report dated March 21, 2002, which is included in this Annual Report on form 10-K for the year ended December 31, 2001, we have also audited Schedule I for each of the two years in the period ended December 31, 2000. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein. /s/ GRANT THORNTON LLP Tampa, Florida March 21, 2002 F-40 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. (PARENT COMPANY) SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEET DECEMBER 31, 2000 ASSETS Current Assets: Cash and cash equivalents $ 2,922,342 Due from affiliates 8,686,359 Note and interest receivable - affiliate 1,198,930 ----------- Total current assets 12,807,631 Investment in subsidiaries 23,700,395 ----------- Total assets $36,508,026 =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Due to affiliates $ 3,379,762 Other current liabilities 15,676 ----------- Total current liabilities 3,395,438 Shareholders' Equity 33,112,588 ----------- Total liabilities and shareholders' equity $36,508,026 ===========
The "Notes to Consolidated Financial Statements of Insurance Management Solutions Group, Inc. and Subsidiaries" are an integral part of these statements. See accompanying "Notes to Condensed Financial Information of Registrant". F-41 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. (PARENT COMPANY) SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF OPERATIONS
Year Ended December 31, ------------------------------- 1999 2000 ----------- ----------- Interest Income: Affiliates $ 115,540 $ 262,825 Non-affiliates 173,617 35,364 ----------- ----------- Total interest income 289,157 298,189 Expenses: Selling, general and administrative 172,687 507,367 Interest expense - affiliates 100,156 -- Other expenses, net 23,651 59,644 ----------- ----------- Total expenses 296,494 567,011 ----------- ----------- Loss from continuing operations before income taxes, equity in earnings/(losses) of subsidiaries, and discontinued operations (7,337) (268,822) Income Tax Benefit/(Provision) 4,704 (67,200) ----------- ----------- Loss from continuing operations before equity in earnings/(losses) of subsidiaries and discontinued operations (2,633) (336,022) Equity in earnings/(losses) of subsidiaries 1,127,294 (2,044,713) Income from discontinued operations 2,070,399 1,871,369 ----------- ----------- Net income/(loss) $ 3,195,060 $ (509,366) =========== ===========
The "Notes to Consolidated Financial Statements of Insurance Management Solutions Group, Inc. and Subsidiaries" are an integral part of these statements. See accompanying "Notes to Condensed Financial Information of Registrant". F-42 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. (PARENT COMPANY) SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF CASH FLOWS
Year Ended December 31, --------------------------------- 1999 2000 ------------ ----------- Cash Flows from Operating Activities: Net income/(loss) $ 3,195,060 $ (509,366) Adjustments to reconcile net income/(loss) to net cash provided by operating activities: Equity in (earnings)/losses of subsidiaries (1,127,294) 2,044,713 Income from discontinued operations (2,070,399) (1,871,369) Compensation expense related to non-employee stock options 137,000 98,634 Non-cash compensation expense related to phantom stock plans -- 338,200 Changes in assets and liabilities: Other current assets 32,969 41,468 Other assets (52,101) 51,600 Other current liabilities 28 15,647 ------------ ----------- Net cash provided by operating activities 115,263 209,527 Cash Flows from Investing Activities: Preferred stock dividend received from subsidiary 66,020 -- ------------ ----------- Net cash provided by/(used in) investing activities 66,020 -- Cash Flows from Financing Activities: Net proceeds received from initial public offering 19,163,897 -- Repayment of debt (5,128,234) -- Issuance of intercompany debt (4,500,000) -- Repayment of intercompany debt 307,501 2,993,569 Net advances to/(from) affiliates (10,439,639) (978,668) ------------ ----------- Net cash provided by/(used in) financing activities (596,475) 2,014,901 Increase (decrease) in Cash and Cash Equivalents (415,192) 2,224,428 Cash and Cash Equivalents, beginning of period 1,113,106 697,914 ------------ ----------- Cash and Cash Equivalents, end of period $ 697,914 $ 2,922,342 ============ ===========
The "Notes to Consolidated Financial Statements of Insurance Management Solutions Group, Inc. and Subsidiaries" are an integral part of these statements. See accompanying "Notes to Condensed Financial Information of Registrant". F-43 INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. (PARENT COMPANY) NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT NOTE 1 - BASIS OF PRESENTATION Pursuant to the rules and regulations of the Securities and Exchange Commission, the Condensed Financial Statements of the Registrant do not include all of the information and notes normally included with financial statements prepared in accordance with generally accepted accounting principles. It is, therefore, suggested that these Condensed Financial Statements be read in conjunction with the Consolidated Financial Statements and Notes thereto include in the Registrant's Annual Report as referenced in Form 10-K, Part II, Item 8. The 1999 and 2000 financial information has been modified to reflect discontinued operations. The 2001 financial statements have been omitted, as the restricted net asset condition requiring these financial statements under the Securities and Exchange Commission rules has been eliminated with the December 28, 2001 sale of the Company's subsidiary, Geotrac of America, Inc. NOTE 2 - RESTRICTED NET ASSETS AND RETAINED EARNINGS See Note 3 to the Consolidated Financial Statements of the Company. NOTE 3 - DISPOSITION AND DISCONTINUED OPERATIONS See Note 3 to the Consolidated Financial Statements of the Company. F-44 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized. INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. By: /s/ DAVID M. HOWARD -------------------------- David M. Howard President and Chief Executive Officer April 9, 2002 Pursuant to the requirements of the Securities and Exchange Act of 1934, this amended report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on April 9, 2002.
Signature Title - --------- ----- * Chairman of the Board and Director - -------------------------------------- David K. Meehan /s/ DAVID M. HOWARD President, Chief Executive Officer and Director - -------------------------------------- (Principal Executive Officer) David M. Howard * Chief Financial Officer and Secretary - -------------------------------------- (Principal Financial and Accounting Officer) Anthony R. Marando * Director - -------------------------------------- William D. Hussey * Director - -------------------------------------- Robert M. Menke * Director - -------------------------------------- John A. Grant, Jr. * Director - -------------------------------------- E. Ray Solomon * Director - -------------------------------------- Alejandro M. Sanchez * Director - -------------------------------------- John S. McMullen *By: /s/ DAVID M. HOWARD ---------------------------------- David M. Howard Attorney-in-Fact
62 EXHIBIT INDEX -------------
EXHIBIT NUMBER EXHIBIT DESCRIPTION ------- ------------------- 3.1 Amended and Restated Articles of Incorporation of Insurance Management Solutions Group, Inc.* 3.2 Amended and Restated Bylaws of Insurance Management Solutions Group, Inc.* 4.1 Specimen certificate for the Common Stock of Insurance Management Solutions Group, Inc.* 10.1 Employment Agreement, dated August 10, 1998, between David K. Meehan and Insurance Management Solutions Group, Inc.* 10.2 Insurance Management Solutions Group, Inc. Long Term Incentive Plan.* 10.3 Insurance Management Solutions Group, Inc. Non-Employee Directors' Stock Option Plan.* 10.4 Snell Arcade Building Lease, dated May 15, 1996, between Snell Arcade Limited Company and Bankers Insurance Group, Inc., as revised and assigned to Insurance Management Solutions Group, Inc., effective January 1, 1998.* 10.5 Lease Agreement for 10051 5th Street North, dated October 15, 2001, between Bankers Life Insurance Company and Insurance Management Solutions Group, Inc. 10.6 Bankers Financial Center Lease Agreement, dated January 1, 1997, between Bankers Insurance Company and Insurance Management Solutions Group, Inc.* 10.7 Administration Services Agreement, dated January 1, 1998, between Bankers Insurance Group, Inc. and Insurance Management Solutions Group, Inc., including Addendum to Administration Services Agreement, dated December 2, 1998 and effective January 1, 1998, and Addendum to Administration Services Agreement, effective January 1, 1999.* 10.8 Service Agreement, dated January 1, 1998, between Insurance Management Solutions, Inc. and Bankers Insurance Company, including Addendum dated April 1, 1998 and form of Addendum to Service Agreements effective January 1, 1999.* 10.9 Service Agreement dated January 1, 1998 between Insurance Management Solutions, Inc. and Bankers Security Insurance Company, including form of Addendum to Service Agreements effective January 1, 1999. * 10.10 Service Agreement dated January 1, 1998 between Insurance Management Solutions, Inc. and First Community Insurance Company, including form of Addendum to Service Agreements effective January 1, 1999. * 10.11 Insurance Administration Services Agreement, effective September 30, 2001, between Insurance Management Solutions, Inc. and each of Mobile USA Insurance Company and Philadelphia Indemnity Insurance Company.
E-1
EXHIBIT NUMBER EXHIBIT DESCRIPTION ------- ------------------- 10.12 Insurance Administration Services Agreement, effective October 1, 2001, between Insurance Management Solutions, Inc. and Auto Club South Insurance Company. 10.13 Flood Insurance Program Services Agreement by and among Insurance Management Information Services, Inc., American Alternative Insurance Corporation, and Corporate Insurance Agency Services.* 10.14 Agreement and Plan of Merger, dated May 12, 1998, by and among Geotrac, Inc., Insurance Management Solutions, Inc., Daniel J. and Sandra White, Bankers Insurance Group, Inc. and Bankers Hazard Determination Services, Inc.* 10.15 Term Lease Master Agreement, dated August 6, 1996, between IBM Credit Corporation and Bankers Insurance Company, assigned by Bankers Insurance Company to Insurance Management Solutions, Inc., effective April 1, 1998, pursuant to Sales and Assignment Agreement, dated May 6, 1998.* 10.16 Sales and Assignment Agreement, dated May 6, 1998, by and between Insurance Management Solutions Group, Inc., Insurance Management Solutions, Inc., Bankers Insurance Group, Inc., Bankers Insurance Services, Inc., Bankers Life Insurance Company, Southern Rental & Leasing Corporation, Bankers Insurance Company and Insurance Management Information Services, Inc.* 10.17 Tax Indemnity Agreement dated July 31, 1998 between Bankers Insurance Group, Inc., Insurance Management Solutions Group, Inc. and Daniel J. and Sandra White.* 10.18 Flood Insurance Agreement, dated January 6, 1998, between First Community Insurance Company and Keystone Insurance Company.* 10.19 Marketing Agreement, dated November 14, 1997, between First Community Insurance Company and Nobel Insurance Company.* 10.20 Flood Insurance Agreement, dated February 11, 1998, between First Community Insurance Company and Horace Mann Insurance Company.* 10.21 Flood Insurance Agreement, dated February 17, 1995, between First Community Insurance Company and Armed Forces Insurance Exchange, as amended.* 10.22 Flood Insurance Agreement, dated November 17, 1995, between First Community Insurance Company and Amica Mutual Insurance Company, as amended.* 10.23 Non-Qualified Stock Option Plan.* 10.24 Funding Agreement, dated June 19, 1998, by and between Bankers Insurance Group, Inc. and Insurance Management Solutions Group, Inc.*
E-2
EXHIBIT NUMBER EXHIBIT DESCRIPTION ------- ------------------- 10.25 Assignment of Registered Service Mark ("Floodwriter"), dated May 7, 1998, from Bankers Insurance Company to Insurance Management Solutions, Inc.* 10.26 Assignment of Registered Service Mark ("Undercurrents"), dated May 7, 1998, from Bankers Insurance Company to Insurance Management Solutions, Inc.* 10.27 Software License Agreement, effective January 1, 1998, between Insurance Management Solutions, Inc., Bankers Insurance Group, Inc. and Bankers Insurance Company.* 10.28 Tax Indemnity Agreement dated July 31, 1998 between Insurance Management Solutions Group, Inc., Insurance Management Solutions, Inc. and Geotrac of America, Inc., including Addendum dated July 31, 1998.* 10.29 Tax Allocation Agreement dated July 31, 1998 between Insurance Management Solutions Group, Inc., Insurance Management Solutions, Inc. and Geotrac of America, Inc., including Addendum dated July 31, 1998.* 10.30 Service Agreement dated December 1, 1998 between Insurance Management Solutions, Inc. and Bankers Life Insurance Company, including Addendum to Service Agreements dated December 11, 1998 and effective January 1, 1999* 10.31 AYO Claims Agreement between Florida Windstorm Underwriting Association and Bankers Insurance Group, Inc., dated February, 1998.* 10.32 Assignment of AYO Claims Agreement among Bankers Insurance Group, Inc., Bankers Insurance Company and Florida Windstorm Underwriting Association dated December 15, 1998.* 10.33 Software Transfer Agreement dated September 1, 1998 by and among Bankers Insurance Group, Inc., Bankers Insurance Company, Insurance Management Solutions, Inc., and First Community Insurance Company.* 10.34 Registration Rights Agreement dated January, 1999, between Insurance Management Solutions Group, Inc. and J. Douglas Branham and Felicia A. Rivas.* 10.35 Stock Purchase Agreement dated December 10, 1998 between Colonial Catastrophe Claims Corporation, J. Douglas Branham, Felicia A. Rivas, and Insurance Management Solutions Group, Inc., including Addenda thereto.* 10.36 Loan Agreement dated December 16, 1998 between Bankers Insurance Group, Inc. and Western International Insurance Company.* 10.37 Promissory Note of Bankers Insurance Group, Inc. in favor of Western International Insurance Company*
E-3
EXHIBIT NUMBER EXHIBIT DESCRIPTION ------- ------------------- 10.38 Agreement for Satisfaction of Debt and Capitalization of Subsidiary dated December 16, 1998 between Venture Capital Corporation and Western International Insurance Company.* 10.39 Plan of Merger dated January 7, 1999 and effective January 15, 1999 between IMS Colonial, Inc. and Colonial Catastrophe Claims Corporation.* 10.40 Flood Insurance Services Agreement, dated January 14, 1999, by and between Insurance Management Solutions Group, Inc. and Farmers Services Corporation.* 10.41 Funding Agreement, dated February 16, 1999, by and between Bankers Insurance Group, Inc., Bankers Insurance Company, Venture Capital Corporation and Western International Insurance Company.* 10.42 Insurance Services Administration Agreement, dated October 17, 2001, by and between Insurance Management Solutions, Inc. and Middlesex Mutual Assurance Company. 10.43 Flood Insurance Services Agreement, effective January 13, 1999, by and between Insurance Management Solutions, Inc. and Island Insurance Companies, Ltd.* 10.44 Lease Agreement, dated February 1, 1999, by and between Colonial Real Estate of Dunedin, Inc. and Colonial Claims Corporation.* 10.45 Second Addendum to Service Agreements, effective as of April 1, 1999, by and between Insurance Management Solutions, Inc. and each of Bankers Insurance Company, First Community Insurance Company and Bankers Security Insurance Company.* 10.46 Technical Support Services Agreement, dated April 1, 1999, by and between Insurance Management Solutions, Inc. and Bankers Insurance Group, Inc. and its subsidiaries.* 10.47 Lease Agreement, dated September 27, 1999, by and between Koger Equity, Inc. and Insurance Management Solutions Group, Inc.* 10.48 Insurance Administration Services Agreement, effective as of May 3, 2000, by and between Insurance Management Solutions, Inc. and Reliance Insurance Company.* 10.49 Insurance Administration Services Agreement, effective as of June 30, 2000, by and between Insurance Management Solutions, Inc. and Instant Insurance Holding, Inc.* 10.50 Development Services Agreement, effective as of June 30, 2000, by and between Insurance Management Solutions, Inc. and Instant Insurance Holding, Inc.* 10.51 Insurance Administration Services Agreement (Interim), effective as of June 22, 2000, by and between Insurance Management Solutions, Inc. and Instant Insurance Holding, Inc.*
E-4
EXHIBIT NUMBER EXHIBIT DESCRIPTION ------- ------------------- 10.52 Insurance Administration Services Agreement Termination and Interim Services Addendum, effective as of August 1, 2000, by and between Insurance Management Solutions, Inc., International Catastrophe Insurance Managers, LLC and Clarendon National Insurance Company, including all schedules and exhibits thereto.* 10.53 Insurance Management Solutions Group, Inc. 2000 Stock Incentive Plan* 10.54 Insurance Management Solutions Group, Inc. 2000 Non-Employee Director Stock Plan* 10.55 Employment Agreement, dated August 19, 1998, between Robert G. Gantley and Insurance Management Solutions, Inc.* 10.56 Release and Separation Agreement, dated April 12, 2001, between Christopher P. Breakiron and Insurance Management Solutions Group, Inc.* 10.57 Consulting Agreement, dated April 12, 2001, between Christopher P. Breakiron and Insurance Management Solutions Group, Inc.* 10.58 Asset Purchase Agreement, including Indemnification Agreement, Bill of Sale and Assignment of Flood Monitoring Agreement, effective July 31, 2000, between IMS Direct, Inc. and Bankers Insurance Services, Inc.* 10.59 Letter Agreement, dated April 13, 2001, by and between Insurance Management Solutions, Inc., Bankers Insurance Group, Inc., Bankers Insurance Company, First Community Insurance Company and Bankers Security Insurance Company.* 10.60 Settlement Agreement, dated February 20, 2001, by and between Instant Insurance Holdings, Instant Auto Insurance Company and Insurance Management Solutions, Inc.* 10.61 Commitment Letter to advance service fee payments, dated April 13, 2001, between Insurance Management Solutions, Inc. and Bankers Insurance Group, Inc.* 10.62 Credit and Security Agreement, dated August 14, 2001, between Insurance Management Solutions Group, Inc. and Bankers Insurance Group, Inc.* 10.63 Collateral Assignment of Flood Book, dated August 14, 2001, by Bankers Underwriters, Inc. * 10.64 Stock Option Agreement, dated August 14, 2001, between Bankers Insurance Group, Inc. and Insurance Management Solutions Group, Inc.* 10.65 Employment Agreement, dated October 4, 2001 and effective October 1, 2001, between Insurance Management Solutions Group, Inc. and Anthony R. Marando.*
E-5
EXHIBIT NUMBER EXHIBIT DESCRIPTION ------- ------------------- 10.66 Stock Purchase Agreement, dated as of September 20, 2001 (the "Stock Purchase Agreement"), by and among Insurance Management Solutions Group, Inc., Geotrac of America, Inc., Geotrac Holdings, Inc., Daniel J. White, the Daniel J. White Trust, the Sandra A. White Trust and, solely for purposes of Section 7.2, Bankers Insurance Group, Inc. (including the Exhibits thereto).* 10.67 Amendment to the Stock Purchase Agreement, dated December 28, 2001.* 10.68 Master Promissory Note, dated August 14, 2001, by Bankers Insurance Group, Inc.* 10.69 Amendment No. 1 to Credit and Security Agreement, dated March 14, 2002, between Insurance Management Solutions Group, Inc. and Bankers Insurance Group, Inc.* 10.70 Amendment to Tax Allocation Agreement, dated September 20, 2001, between Insurance Management Solutions Group, Inc., Geotrac of America, Inc., IMS Direct, Inc. and Insurance Management Solutions, Inc. 10.71 Insurance Administration Services Agreement, effective October 1, 2001, by and between Insurance Management Solutions, Inc. and each of Bankers Insurance Company, Bankers Security Insurance Company and First Community Insurance Company. 10.72 Run Off Claim Administration Services Agreement, effective June 7, 2001, between Insurance Management Solutions, Inc. and each of Bankers Insurance Company and First Community Insurance Company. 10.73 Claims Administration Agreement, dated November 26, 2001, between International Catastrophe Insurance Managers, LLC, Insurance Management Solutions, Inc. and AXA RE America Insurance Company. 10.74 Insurance Administration Services Agreement, effective September 1, 2001, between Insurance Management Solutions, Inc. and Cooperativa de Seguros Multiples de Puerto Rico. 10.75 Runoff Claim Administration Services Agreement, effective January 1, 2001, between Insurance Management Solutions, Inc., Instant Insurance Holdings, Inc. and Instant Auto Insurance Company. 10.76 Insurance Administration Services Agreement, effective March 1, 2001, between Insurance Management Solutions, Inc. and Residence Mutual Insurance Company. 10.77 Development Services Agreement, effective May 1, 2001, between Insurance Management Solutions, Inc. and Portogo, Inc. 10.78 First Amendment of Lease, dated August 1, 2001, between Bankers Insurance Company and Insurance Management Solutions Group, Inc. 10.79 Termination of Lease Agreement, dated December 31, 2001, between Bankers Insurance Company and Insurance Management Solutions Group, Inc. 10.80 Sublease Agreement, dated December 31, 2001, between Bankers Financial Corporation and Insurance Management Solutions Group, Inc. 10.81 Appointment of Administrator, dated October 7, 2001, between Bankers Insurance Group, Inc. and Insurance Management Solutions, Inc. 21.1 List of subsidiaries of Insurance Management Solutions Group, Inc.
- ------------------ * Indicates document incorporated herein by reference. E-6 EX-10.5 3 g75105aex10-5.txt 10051 5TH ST N. OCTOBER 15, 2001 LEASE AGREEMENT Exhibit 10.5 LEASE AGREEMENT for 10051 5TH STREET NORTH BANKERS LIFE INSURANCE COMPANY (LANDLORD) AND INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. (TENANT) October 15, 2001 INDEX
Page No. 1. DEFINITIONS................................................................................................1 2. PREMISES...................................................................................................2 3. TERM.......................................................................................................3 4. RENT.......................................................................................................3 5. TENANT'S SHARE OF OPERATING COSTS..........................................................................3 6. SECURITY DEPOSIT...........................................................................................6 7. ADDITIONS AND ALTERATIONS..................................................................................6 8. PERMITTED USE..............................................................................................6 9. UTILITIES..................................................................................................7 10. INDEMNIFICATION; INSURANCE.................................................................................8 11. ASSIGNMENT OR SUBLETTING..................................................................................10 12. SIGNS; ADVERTISING........................................................................................10 13. MAINTENANCE OF INTERIOR OF PREMISES.......................................................................11 14. DAMAGE OR DESTRUCTION.....................................................................................11 15. DEFAULTS..................................................................................................11 16. REMEDIES..................................................................................................12 17. LANDLORD'S RIGHT OF ENTRY.................................................................................14 18. NOTICES...................................................................................................14 19. TAXES ON TENANT'S PERSONAL PROPERTY AND TAXES ASSESSED ON RENTALS.............................................................................14 20. COSTS OF COLLECTION.......................................................................................14 21. PRIOR AGREEMENTS..........................................................................................15 22. FLOOR PLANS...............................................................................................15 23. NO AUTOMATIC RENEWAL......................................................................................15 24. BUILDING STANDARDS MANUAL.................................................................................15 25. TERMS AND HEADING.........................................................................................15 26. CONDEMNATION..............................................................................................16 27. SUBORDINATION TO MORTGAGES................................................................................16 28. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS............................................................16 29. QUIET ENJOYMENT...........................................................................................17 30. PARKING SPACES............................................................................................17 31. SUBSTITUTION OF PREMISES..................................................................................17 32. LANDLORD'S RIGHT TO ALTER COMMON AREAS....................................................................17 33. EXCULPATION...............................................................................................17 34. SUCCESSORS AND ASSIGNS....................................................................................18 35. SECURITY AGREEMENT........................................................................................18 36. ATTORNEY'S FEES...........................................................................................18 37. MECHANICS LIEN............................................................................................18 38. RECORDATION...............................................................................................18 39. RADON GAS.................................................................................................18 40. REAL ESTATE BROKER........................................................................................19 EXHIBIT "A" ......................................................................................FLOOR PLAN EXHIBIT "B".....................................................................BUILDING RULES & REGULATIONS
LEASE AGREEMENT THIS LEASE, made as of the 15th day of October 2001, by and between BANKERS LIFE INSURANCE COMPANY, hereinafter called the "Landlord", and INSURANCE MANAGEMENT SOLUTIONS GROUP, INC., hereinafter referred to as the "Tenant"; WITNESSETH: For and in consideration of the rents, covenants, agreements and conditions hereinafter reserved, made and entered into on the part of the Tenant to be paid, performed, and observed, it is hereby stipulated, covenanted and agreed by and between the Landlord and the Tenant as follows: 1. DEFINITIONS As used in this Lease Agreement, the terms enumerated below as items 1.1 to 1.18 inclusive shall have only the meaning set forth in this section unless the same shall be expressly modified, limited or expanded elsewhere in the Lease Agreement, in which event, such modification, limitation and/or expansion shall supersede the applicable terms set forth below: 1.1 EXHIBITS: The following Exhibits attached to this lease are incorporated herein and made a part hereof: Exhibit A: Floor Plan of Premises Exhibit B: Building Standards Manual 1.2 BUILDING: Bankers Life Insurance Building 10051 5th Street North St. Petersburg, Florida 33703 Legal description: Lot 1, Block 1, Bankers Whiteway Replat as recorded in Plat Book 107, page 72, of the Public Records of Pinellas County, Florida. 1.3 PREMISES OR DEMISED PREMISES: As outlined on Exhibit A 1.4 TERM: Six (6) months 1.5 COMMENCEMENT DATE: The date Tenant or anyone claiming under or through Tenant first occupies the Premises for the conduct of business. "Occupancy", "occupy" or "occupies" as used in this Lease shall mean use of the Premises for any reason by Tenant or Tenant's agents, licensees, employees, directors, officers, partners, trustees, and invitees (collectively, "Tenant's Employee"). 1.6 TERMINATION DATE: Six (6) months after Commencement Date. 1.7 BASE RENT: The Base Rent payment schedule shall be $30,806.28 for the term, payable $5,134.38 per month. * Monthly payments shown above do not include applicable monthly Florida State Sales Tax, which tax Tenant shall pay to Landlord along with rent. 1 1.8 PREPAID RENT: Simultaneously with Tenant's execution of this Lease, Tenant shall pay to Landlord the sum of $5,493.79 representing prepayment of first month's Base Rent in the amount of $5,134.38, including applicable Florida State sales tax of $359.41. 1.9 RENTABLE AREA OF DEMISED PREMISES ("NET RENTABLE AREA"): The term Net Rentable Area shall mean 4,650 rentable square feet which Landlord and Tenant have mutually agreed is the Net Rentable Area of the Premises. Tenant acknowledges that the Net Rentable Area of the Premises includes the usable area, without deduction for columns or projections, multiplied by a load or connection factor to reflect a share of certain areas which may include lobbies, corridors, mechanical, utility, janitorial, boiler and service rooms and closets, restrooms and other public, common and service areas of the capital building. 1.10 TENANT'S PROPORTIONATE SHARE OF OPERATING COSTS ("PROPORTIONATE SHARE"): N/A 1.11 TENANT IMPROVEMENT ALLOWANCE: N/A 1.12 NUMBER OF PARKING SPACES THAT TENANT SHALL RENT: Not applicable/ parking provided on site. 1.13 SECURITY DEPOSIT: N/A 1.14 PERMITTED USE: The Premises may be used for general office use. 1.15 TENANT'S ADDRESS: Insurance Management Solutions Group, Inc. 360 Central Avenue, Suite 1600 St. Petersburg, FL 33701 1.16 LANDLORD'S ADDRESS: Bankers Life Insurance Company 10051 5th Street North St. Petersburg, FL 33703 1.17 GUARANTORS: N/A 1.18 BASE YEAR: 2001 as further defined below. 2. PREMISES: 2.1 The Landlord does hereby let, demise and lease the Premises to the Tenant, and the Tenant does hereby hire and take the Premises from the Landlord for the Term of this Lease. 2.2 Tenant acknowledges that this Lease is made subject to all existing liens, encumbrances, deeds of trust, reservations, restrictions and other matters of record and to zoning, building and fire ordinances and all governmental statutes, rules and regulations relating to the use or occupancy of the Premises, as same may hereafter be amended from time to time. 2 3. TERM 3.1 The Term of this Lease shall commence on the Commencement Date and shall terminate on the Termination Date, unless terminated sooner in accordance with the terms of this Lease. 3.2 If Landlord, through no fault of Tenant, cannot deliver possession of the Premises to Tenant on the Commencement Date, such delay shall not affect the validity of this Lease nor shall Landlord be liable to Tenant for any loss or damage resulting therefrom, but there shall be a proportionate reduction of rent covering the period between the Commencement Date and the time when Landlord delivers possession of the Premises to Tenant. No such delay shall operate to extend the Term. 4. RENT 4.1 Tenant agrees to pay to Landlord each year during the Term the Annual Rent for the Premises. The Annual Rent shall be paid in monthly installments equal to the Monthly Rent. The Monthly Rent shall be due and payable in advance, on or before the first day of each calendar month during the entire Term, commencing with the first full calendar month of the Term; provided that Tenant shall pay to the Landlord on the Commencement Date the prorated Monthly Rent attributable to the month in which the Commencement Date occurs if the Commencement Date is other than the first day of a month. Concurrently with the execution of this Lease, Tenant shall pay to Landlord the Prepaid Rent plus Florida State Sales Tax thereon and any other tax applicable to the Rent. 4.2 Tenant agrees to pay to Landlord as additional rent upon demand (but not more frequently than monthly) all charges for any services, goods or materials furnished by Landlord at Tenant's request which are not required to be furnished by Landlord under this Lease without separate charge or reimbursement. 4.3 Any rent for any fractional month shall be prorated based on a thirty (30) day month, and for any fractional year shall be prorated based on a three hundred sixty-five (365) day year. All rent payable by Tenant to Landlord under this Lease shall be paid to Landlord in lawful money of the United States of America at Landlord's office located in the Building, or to such other person or at such other place as Landlord may from time to time designate in writing. All rent shall be paid without prior demand, deduction, setoff or counterclaim. 4.4 A late payment penalty shall be added to any rent not received by Landlord within ten (10) days of the due date. Such penalty shall be equal to the interest that accrues on said amount from the date the payment was due until the date on which Landlord receives said payment, computed at the rate of eighteen percent (18%) per annum. 4.5 Tenant shall pay to Landlord concurrently with the payment of the Monthly Rent and other sums all Florida State Sales Tax and any other tax that is applicable to such payment. 5. TENANT'S SHARE OF OPERATING COSTS 5.1 In addition to Base Rent, Tenant shall pay Tenant's percentage share as specified in paragraph 5.2 (f) of the "Building Operating Costs" (as hereinafter defined), paid or incurred by Landlord in each year during the term in excess of the Building Operating Cost for the Base Year ("Operating Expenses Rent") which shall be the calendar year ending December 31, 2001, and which is projected to be $4.50 per square foot of Net Rentable Area. 3 (a) The term "Building Operating Costs" include: (i) All taxes, assessments, water and sewer charges and other similar governmental charges levied on or attributable to the Building, the Land, and the roads walks, plazas, landscaped areas, garages and parking areas, common areas, improvements, and facilities thereon (collectively, the "Property"), or its operation, including, but not limited to, general and special real property taxes and assessments levied or assessed against the Property, personal property taxes or assessments levied or assessed against the Property, and any tax measured by gross rentals received from the Property, together with any costs incurred by Landlord (including attorney's fees) in contesting any such taxes, assessments or charges; but excluding any net income, capital stock, estate or inheritance taxes imposed by the State or Federal Government or by any agency, branch or department thereof; provided that if at any time during the Term there shall be levied, assessed or imposed on Landlord or the Property by any governmental entity, any general or special, ad valorem or specific, excise, capital levy or other tax, assessment, levy or charge directly on the rent received under this Lease (except as separately paid to Landlord in accordance with Paragraph 4.6, above) or other leases affecting the Property and/or any license fee, excise or sales tax, assessment, levy or charge measured by or based, in whole or in part, upon such rents, and/or transfer, transaction, or similar tax, assessment, levy or charge based directly or indirectly upon the transaction represented by this Lease or other leases affecting the Property, and/or occupancy, use, per capita or other tax, assessment, levy or charge based directly or indirectly upon the use or occupancy of the Premises or the Property, then all such taxes, assessments, levies and charges shall be deemed to be included in the term "Building Operating Costs"; plus (ii) Operating costs of the Property consisting of any and all costs incurred by Landlord in repairing, maintaining, insuring, and operating the Property and all personal property of Landlord used on connection therewith, including (without limiting the generality of the foregoing) the following: all costs of repairs; all costs of utilities and public services (including but not limited to electricity, gas, light and light bulbs, heating and air conditioning, water, fuel, refuse, sewer, and telephone); all costs of supplies, materials; all insurance costs (including but not limited to public liability, extended coverage property damage and casualty, business interruption, loss of rents, flood, earthquake, workman's compensation, with companies and in amounts as determined by Landlord); licenses, permits, inspection fees; costs of striping and paving parking areas and driveways; painting; repair, maintenance and replacement of plumbing, roofing, elevator, HVAC, electrical and other systems; repair, maintenance and replacement (including reasonable reserves for depreciation and replacements) of all improvements, both structural and non-structural; any costs of services of independent contractors, security personnel, trash removal exterminator, landscaping, parking operations, and maintenance personnel and costs of compensation (including employment taxes and fringe benefits) of all persons who perform management, operation, maintenance, repair and overhaul of the Property and equipment thereon used in connection therewith, including, without limitation, full or part time building staff, janitors, foremen, window washers, security personnel and gardeners; any costs for contract maintenance of any or all of the above; and all legal, accounting and other professional expenses in connection with the operation of the Property. 4 (b) In the event any utilities or costs are separately metered with respect to the Premises, Tenant shall pay monthly to Landlord the amount of such separately metered utilities as reimbursement of these costs, and no amounts representing the cost of separately metered utilities furnished to Tenant shall be included in Building Operating Costs; provided, however, that Tenant shall nevertheless pay its Proportionate Share of all other utilities included under (a) hereinabove. If any other lessee of the Building so pays any such separately metered utility or other costs or pays separately stated personal property taxes, the amount so paid to Landlord shall be excluded from Building Operating Costs. 5.2 The Rent Adjustment shall be payable by Tenant to Landlord in accordance with the following: (a) From time to time during the Term, Landlord shall notify Tenant of Landlord's estimate of the Rent Adjustment for the twelve (12) succeeding calendar months. Upon receipt of such notice, Tenant shall pay to Landlord, during each of the succeeding twelve calendar months, one-twelfth (1/12) of the estimated Rent Adjustment. If at any time during a year Landlord determines that its estimate is incorrect by no less than 15%, Landlord may notify Tenant of the revision of such estimate and thereafter for the remainder of such twelve (12) months Tenant shall pay estimated Rent Adjustment based upon such revision. On or before March 15th of each calendar year, Landlord shall deliver to Tenant the actual statement of the amount of Building Operating Costs for the preceding calendar year as well as Tenant's actual Rent Adjustment based thereon. Any adjustments payable by Tenant, as shown on such final statement, or any reduction in amount previously paid by Tenant, shall be paid by, or reimbursed to Tenant, within fifteen (15) days from receipt of such statement. (b) Tenant shall have the right, at Tenant's expense, to perform by May 15 of any year an audit of the Building Operating Costs of the preceding calendar year as well as the calculations of Tenant's Proportionate Share thereof. Alternatively, Landlord may at its sole discretion provide Tenant with an audited statement of such expenses prepared by an independent Certified Public Accountant. (c) In the event that Tenant shall fail to object prior to May 15 to any amounts set forth in the Statement of Rent Adjustment delivered by Landlord, said statement shall be deemed binding, conclusive and final on Tenant and Landlord. (d) Notwithstanding anything to the contrary hereinabove, Landlord's failure to timely deliver said notice and statements to Tenant shall not constitute a waiver by Landlord nor a defense by Tenant toward payment of amounts required to be paid to Landlord after receipt of written notice of said amounts by Tenant. In the event Landlord delivers said statements after March 15, the May 15 objection date shall be extended by a like amount of time. (e) If this Lease shall commence on any day other than the first day of a month or terminate on a day other than the last day of a month, the amount of any Rent Adjustment payable by Tenant for the month in which this Lease commences or terminates shall be equitably prorated and shall be due and payable within thirty (30) days of such commencement or termination. 5 (f) Tenant's Percentage Share of the Operating Expenses is the proportion that the rentable square footage occupied by Tenant bears to the total rentable square footage of the Building as determined by the Landlord. Notwithstanding any provision of this paragraph to the contrary, if the Building is less than ninety-five percent (95%) leased and/or occupied during any calendar year, including the Base Year for the purposes of determining Base Year Operating Expenses, appropriate adjustments shall be made so that Operating Expense Rent shall be computed for such year as though 95% of the Building had been leased and occupied during such year. 6. SECURITY DEPOSIT Concurrently with the execution of this Lease, Tenant shall deposit with Landlord the Security Deposit, which shall be held by Landlord, without obligation for interest, as security for the full, faithful, and timely performance of Tenant's covenants and obligations under this Lease, it being expressly understood and agreed that the Deposit is not an advance rental deposit or a measure of Landlord's damages in case of Tenant's default. Upon the occurrence of any "Event of Default" (as herein defined) by Tenant, Landlord may, from time to time, without prejudice to any other remedy provided herein or provided by law, use the Security Deposit to the extent necessary to make good any arrears of sums payable by Tenant under this Lease, and to pay for any other damage, injury, expense or liability caused by such default; and Tenant shall pay to Landlord on demand the amount so applied in order to restore the Security Deposit to its original amount, and Tenant's failure to do so shall be a default under this Lease. Although the Security Deposit shall be deemed the property of Landlord, any remaining balance of the Security Deposit shall be returned by Landlord to Tenant at such time after termination of this Lease that all of Tenant's obligations under this Lease have been fulfilled. Landlord shall not be required to hold the Security Deposit in trust or to maintain the Security Deposit in any separate account. 7. ADDITIONS AND ALTERATIONS No changes, alterations, improvements, or additions to the Premises shall be made to or upon said Premises or any part thereof without the written consent of the Landlord being first had and obtained. All changes, alterations, additions and improvements made or placed in or upon the Premises by the Landlord or the Tenant, and which by operation of law would become a part of the real estate, shall immediately upon being made or placed thereon become the property of the Landlord and shall remain upon and be surrendered with the Premises as a part thereof, at the termination, by lapse of time or otherwise, of the Term herein granted. Any such changes, alterations, improvements, or additions shall be done in conformity with the "Building Standards Manual" furnished herewith as Exhibit "B", as well as with such other reasonable requirements as Landlord may impose upon the granting of its written consent. If Landlord requests Tenant to remove any additions or alterations in writing at the time Tenant requests Landlord's consent to such additions and alterations, then Tenant shall remove all or any part of any improvements made to the Premises upon expiration. 8. PERMITTED USE 8.1 The Premises shall be used only for the Permitted Use and for no other purpose. The Tenant, shall, at its own cost and expense, obtain any and all licenses and permits necessary for such use. The Tenant shall comply with all governmental laws, ordinances and regulations applicable from time to time to its use of the Premises, and shall promptly comply with all governmental orders and directives for the correction, prevention and abatement of nuisances in or upon, or connected with the Premises, all at the Tenant's sole expense. 6 8.2 The Tenant shall not do, suffer or permit anything to be done in, on or about the Premises or the Property, nor bring, nor keep anything therein which will in any way affect fire or other insurance upon the Building or any of its contents or which will in any way conflict with any law, ordinance, rule or regulation now or hereafter in force or effect relating to the occupancy and use of the Premises and said Property, or in any way obstruct or interfere with the rights of other lessees or users of the Property, or injure or annoy them, nor use, nor allow the Premises or the Building to be used for any improper, immoral, unlawful or objectionable purpose, cooking therein, and nothing shall be prepared, manufactured, or used in the Premises which might emit an odor into the corridors of the building. 8.3 The Tenant will not, without the written consent of the Landlord, use any apparatus, machinery, or equipment or device in, on or about the Premises which may cause any excessive noise or may set up any excessive vibration or excessive floor loads or which in any way would increase the normal amount of electricity agreed to be furnished or supplied under this Lease, or as specified in the Building Standards Manual, and further, the Tenant shall not connect with water any apparatus, machinery, equipment or devise without the prior written consent of the Landlord. The Tenant shall, at the Tenant's sole cost and expense, comply with all of the requirements of all municipal, state and federal authorities now or hereafter in force, pertaining to said Premises, and shall faithfully observe in the use of said Premises and Property all municipal ordinances and regulations and state and federal statutes and regulations now or hereafter in force and effect. 8.4 Any change in law or otherwise which may make Tenant's use of the Premises impracticable or impossible shall not affect Tenant's obligations under this Lease. 9. UTILITIES; JANITORIAL SERVICES Subject to Tenant's obligation to pay rent under this Lease and perform Tenant's other obligations, the Landlord agrees to furnish in connection with the Premises, the following: electricity (commensurate with the Landlord's electrical system and wiring in the building of which the Premises are a part, supplying approximately 110 volts) for lights and other usual and ordinary office purposes; replacement of ceiling light bulbs and tubes in the fixtures provided by the Landlord; heat and air conditioning, subject to government authority regulations from time to time in effect, during normal business hours (8 a.m. to 6 p.m., Monday through Friday, except holidays and from 8 a.m. to 1 p.m. on Saturdays); janitorial services as specified in the Building Standards Manual; and provide for use in common of the elevators, restrooms, and other like facilities of the Building. After hours HVAC shall be available at a cost of $25.00 per hour, per suite, subject to increases with changes in energy ratios. Tenant shall be required to provide 24 hour notice of its desire for after hours HVAC (two hour minimum); however, in the event Tenant is not able to provide such notice, Lessor will use its reasonable efforts to accommodate Tenant. All said costs shall be included in Building Operating Costs. Landlord reserves the right to establish special charges to be paid by Tenant for additional non-standard services provided. The Landlord shall not be liable for the failure to furnish any of the items or services herein mentioned when such failure is caused by or results from accidents or conditions or matters beyond the reasonable ability of the Landlord to control, or caused by or resulting from lack of utility services, breakdown of mechanical equipment, repairs, labor disturbances, or labor disputes of any character, whether resulting from or caused by acts of the Landlord or otherwise; nor shall the Landlord be liable under any circumstances for loss of or injury to property or persons, however occurring, through or in connection with or incidental to the furnishing of any of such items or services, nor shall any such failure relieve the Tenant from the duty to pay the full amount of rent and other sums of money herein provided to be paid by the Tenant, or constitute or be construed as a constructive or other eviction of the Tenant. 7 10. INDEMNIFICATION; INSURANCE 10.1 INDEMNITY. Tenant agrees to indemnify, defend and save harmless Landlord, Bankers Insurance Company any property manager(s) engaged by Landlord or Bankers Insurance Company and each of their affiliated companies, partners, shareholders, agents, directors, officers, and employees (collectively, "Indemnitees") from and against any and all liabilities, damages, claims, suits, injuries, costs (including court costs, attorneys' fees and costs of investigation, and actions of any kind arising or alleged to arise by reason of injury to or death of any person or damage to or loss of property occurring on, in, or about the Leased Premises or by reason of any other claim whatsoever of any person or party occasioned or alleged to be occasioned in whole or in part by any act or omission on the part of Tenant or any invitee, licensee, agent, employee, director, officer, contractor, subcontractor, or tenant of Tenant, or by any breach, violation, or nonperformance of any covenant of Tenant under this Lease (collectively "Liabilities") even if such Liabilities arise from or are attributed to the concurrent negligence of any Indemnitee. The only Liabilities with respect to which Tenant's obligation to indemnify the Indemnitees does not apply is with respect to Liabilities resulting from the sole gross negligence or willful misconduct of an Indemnitee. If any action or proceeding is brought by or against any Indemnitee in connection with any such Liabilities, Tenant shall defend such action or proceeding, at Tenant's expense, by or through attorneys reasonable satisfactory to Landlord. The provisions of this paragraph apply to all activities of Tenant with respect to the Leased Premises or Building, whether occurring before or after the Commencement Date of the Term and before or after the expiration or termination of this Lease. Tenant's obligations under this paragraph are not limited to the limits or coverage of insurance maintained or required to be maintained by Tenant under this Lease. 10.2 TENANT'S INSURANCE. Tenant shall, at its sole expense, maintain in effect at all times during the Term, insurance coverage with limits not less than those set forth below with insurers reasonably acceptable to Landlord and which are licensed to do business in the State of Florida, to wit:
Insurance Minimum Limits --------- -------------- A. Workers' Compensation Workers' Compensation Statutory Employer's Liability $500,000 This policy shall include a Waiver of Subrogation in favor of the Indemnitees. B. Commercial General Liability Bodily Injury/Property Damage 1,000,000 each occurrence, or equivalent, (Occurrence Basis) subject to a $1,000,000 aggregate
This policy shall be on a form acceptable to Landlord, endorsed to include the Indemnitees as additional insured, contain cross-liability and severability of interest endorsements, state that this insurance is primary insurance as regards any other insurance carried by any Indemnitee, and shall include the following coverages: (1) Premises/Operations; (2) Independent Contractors; 8 (3) Broad Form Contractual Liability specifically in support of, but not limited to, the Indemnity sections of this Lease; and (4) Personal Injury Liability with employee and contractual exclusions removed. C. Comprehensive Automobile Liability Combined single limit for $500,000 of equivalent bodily injuries/property damage This policy shall be on a standard form written to cover all owned, hired and non-owned automobiles. This policy shall be endorsed to include the Indemnitees as additional insured, contain cross-liability and severability of interest endorsements, and state that this insurance is primary insurance as regards any other insurance carried by any Indemnitee. Evidence of these coverages represented by original Certificates of Insurance issued by the insurance carrier must be furnished to the Landlord prior to Tenant's occupation of the Premises as well as each year during the Term on the annual anniversary date of the Commencement Date. Certificates of Insurance shall specify the Landlord as an additional insured as provided for above, as well as the Waivers of Subrogation. Such Certificate of Insurance shall state that Landlord will be notified in writing thirty (30) days prior to cancellation, material change, or non-renewal of insurance. If Tenant does not procure insurance as required hereunder or if Tenant fails to provide original Certificates of Insurance as hereinabove provided, then Landlord may, upon advance written notice to Tenant, cause such insurance to be issued, and Tenant shall pay to Landlord the premium of such insurance within ten (10) days of Landlord's demand, plus interest at the highest lawful rate for a loan of like amount from the date of payment by Landlord until repaid by Tenant. For purposes of the foregoing, Tenant appoints Landlord as its attorney-in-fact with all necessary powers of attorney to effectuate such insurance on behalf of and in the name of Tenant. Upon the request of Landlord, Tenant shall provide Landlord with certified copies of any and all applicable insurance policies. 10.3 WAIVER OF LIABILITY. No Indemnitee will be liable in any manner to Tenant or any other party claiming by through or under Tenant for any injury to or death of persons unless caused by the sole negligence or willful misconduct of an Indemnitee. In no event will any Indemnitee be liable in any manner to Tenant or any other party as the result of the acts or omissions of Tenant, its invitees, licensees, agents, employees, directors, officers, contractors, subcontractors, or tenants of Tenant, or any other tenant of the Building. All personal property upon the Leased Premises is at the risk of Tenant only and no Indemnitees will be liable for any damage thereto or theft thereof, regardless of whether such property is entrusted to employees of the Building, or such loss or damage is occasioned by casualty, theft, or any other cause of whatsoever nature, even if due in whole or in part to the negligence of any Indemnitee. 10.4 WAIVER OF SUBROGATION. Notwithstanding anything herein to the contrary, no party will have any right or claim against any Indemnitee for any property damage (whether caused, in whole or in part, by negligence or the condition of the Leased Premises or the Building or any part thereof) by way of subrogation or assignment, Tenant hereby waiving and relinquishing any such right. To the extent Tenant chooses to insure its property, Tenant shall request its insurance carrier to endorse all applicable policies waiving the carrier's right of recovery under subrogation or otherwise in favor of any Indemnitee and provide Landlord with a certificate of insurance verifying this waiver. 9 Landlord hereby waives and relinquishes any right or claim against Tenant for damage to the Leased Premises or the Building by way of subrogation or assignment, to the extent covered by insurance proceeds. Landlord shall request its insurance carrier to endorse all applicable policies waiving the carrier's right of recovery under subrogation or otherwise in favor of Tenant and a certificate of insurance will be made available at the request of the Tenant. 11. ASSIGNMENT OR SUBLETTING 11.1 The Tenant shall not sell, assign, transfer, mortgage, hypothecate or otherwise encumber this Lease or the leasehold interest granted hereby, or any interest therein, or permit the use of the Premises or any part thereof by any person or persons other than the Tenant and Tenant's employees and business invitees, or sublet the Premises, or any part thereof, without the written consent of the Landlord in Landlord's sole discretion in each such case being first had and obtained; and notwithstanding any such assignment, mortgage, hypothecation, encumbrance or subletting, the Tenant shall at all times remain fully responsible and liable for the payment of the rent and other sums of money herein specified and for compliance with all of the obligations of the Tenant under the terms, provisions and covenants of the Lease. If Tenant is a corporation, unincorporated association, trust or general or limited partnership or limited liability company or partnership, the sale, assignment, transfer or hypothecation of any stock or other ownership interest of such entity which from time to time in the aggregate exceeds twenty-five percent (25%) of such interest shall be deemed an assignment subject to the provisions of this Paragraph 11.1. 11.2 If Tenant subleases or assigns any portion of the Premises and whether or not such sublease or assignment was consented to, and the rental exceeds the amount of rent due hereunder, Tenant shall pay to Landlord one-half (1/2) of all such excess rent as additional rent. In no event shall Tenant be permitted to sublease or assign any portion of the Premises at a rental amount less than the amount due under the terms of this Lease. 11.3 Any act described in Section 11.1 that is done without the consent of the Landlord shall be null and void and shall be an Event of Default. 11.4 Landlord shall have the right to sell, transfer or assign any of its rights and obligations under this Lease. 12. SIGNS; ADVERTISING The Tenant shall not place or maintain or permit to be placed or maintained any signs or advertising of any kind whatsoever on the exterior of the Building, or on any exterior windows in said Building, or elsewhere within the Premises so as to be visible from the exterior of said Building, or on the interior walls or partitions, including doorways, of the Premises, visible from the public hallways or other public areas of the Building except such numerals and lettering on doorways as may be approved and permitted by the Landlord (and the Landlord shall have the right to specify the size, design, content, materials to be used and locations upon the door of any such materials and letter); and the Tenant shall not place or maintain, nor permit the placing or maintaining, and shall promptly remove any that may be placed by Tenant, of any awnings or other structure or material or machinery or equipment of any kind whatsoever on the exterior or extending to the exterior of the Building, or on the outside (that is to say, the side not facing inward toward the interior of the Premises) of any interior wall or partition separating the Premises from other portions or areas of said Building. 10 13. MAINTENANCE OF INTERIOR OF PREMISES The Tenant shall take good care of the Premises and shall, at the Tenant's own cost and expenses, keep in good sanitary condition and repair and shall promptly make all repairs to the same to the satisfaction of the Landlord, except for usual and ordinary wear and tear by reasonable use and occupancy or fire or other casualty; and at the end or other expiration of the Term, shall deliver up the Premises in the same condition as received, ordinary wear and tear by ordinary use thereof, fire and other casualty only excepted. Landlord may, but shall not be obligated to, make any repairs that are not promptly made by Tenant and charge Tenant for the cost thereof as rent. Tenant waives all rights (whether statutory or otherwise) to make repairs at the expense of Landlord, to cure any alleged defaults by Landlord at the expense of Landlord, or to deduct the cost thereof from rent or other sums due Landlord hereunder. 14. DAMAGE OR DESTRUCTION If the Building is, without fault of the Tenant, damaged by fire or other peril to the extent that the entire Demised Premises are rendered untenantable and cannot be reasonably rendered in as good a condition as existed prior to the damage within one hundred eighty (180) days from the date of such damage, the Term of this lease may be terminated by the Landlord or the Tenant by giving written notice to the other party; but if such damage is not such as to permit a termination of the Term of this Lease as above provided, then if such damage is not caused by Tenant or Tenant's agents, employees, guests or invitees, a proportionate reduction shall be made in the rent herein reserved corresponding to the time during which and to the portions of the Premises of which the Tenant shall hereby be deprived of possession. The Tenant agrees that Landlord shall not be responsible or liable for any loss due to business interruption occasioned by such fire, casualty or other cause which renders the Premises untenantable nor shall Landlord be liable for any damage to Tenant's property or persons. Tenant may not terminate this Lease on account of any damage caused by Tenant or Tenant's agents, employees, guests or invitees. 15. DEFAULTS 15.1 Each and any of the following shall be deemed an "Event of Default" by Tenant and a material breach of the Lease: (a) Tenant's failure to pay the Monthly Rent or any other sum payable by Tenant hereunder as and when such payment is due and such failure shall continue for ten (10) days after written notice by Landlord to Tenant of such failure; (b) Tenant's failure to observe, keep or perform any of the other terms, covenants, agreements or conditions under this Lease, including, without limitation, the Building Standards Manual, that Tenant is obligated to observe or perform and said failure continues for a period of ten (10) days after written notice by Landlord; provided that if the nature of Tenant's default is such that it cannot be cured solely by the payment of money and that more than ten (10) days are reasonably required for its cure, then Tenant shall not be in default hereunder if it shall commence the correction of such default within said ten (10) day period and shall diligently prosecute the same to completion; (c) Tenant's vacation or abandonment of the Premises; (d) (i) Tenant's (or general partner of Tenant, if Tenant is a partnership) making an assignment for the benefit of creditors; or 11 (ii) A custodian, trustee, receiver or agent being appointed or taking possession of all or substantially all of property of Tenant (or a general partner of Tenant); or (iii) Tenant's failure to pay Tenant's debts as such debts become due; or (iv) Tenant's (or a general partner of Tenant) becoming "insolvent" as that term is defined in Section 101(26) of the "Revised Bankruptcy Act" (Title II of the United States Code; II U.S.C. &101 et seq.); or (v) Tenant's (or a general partner of Tenant (a) filing of a petition with the bankruptcy court under the Revised Bankruptcy Act, or (b) otherwise filing any petition or applying to any tribunal for appointment of a custodian, trustee or receiver of Tenant (or of a general partner of Tenant) or commencing any proceeding relating to Tenant (or a general partner of Tenant) under any bankruptcy or reorganization statute or under any arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction, whether now or hereafter in effect; or (vi) Any petition being filed against Tenant (or a general partner of Tenant) under the Revised Bankruptcy Act and either (A) the bankruptcy court orders relief against Tenant (or a general partner of Tenant) under the chapter of the Revised Bankruptcy Act under which the petition was filed, or (B) such petition is not dismissed by the bankruptcy court within sixty (60) days of the date of filing; or (vii) Any petition or application of the type described in subparagraph (v)(b), above, filed against Tenant (or a general partner of Tenant), or any proceeding of the type described in subparagraph (v)(b), above, is commenced, and either (a) Tenant (or a general partner of Tenant) by any act indicates its approval thereof, consent thereto, or acquiescence therein, or (b) an order is entered appointing any such custodian, trustee, receiver or agent, adjudicating Tenant (or a general partner of Tenant) bankrupt or insolvent, or approving such petition or application in any such proceeding, and any such order remains in effect for more than sixty (60) days; or (e) Any guarantor of this Lease defaulting under any guaranty of this Lease, or attempting to repudiate or revoke any such guaranty or any obligation under such guaranty; or the occurrence of any event described in Paragraph 15(d), above, with respect to any guarantor of this Lease (as if Paragraph 15(d) referred to such guarantor in place of "Tenant"); or (f) The liquidation, dissolution, failure to exist or disqualification of Tenant. 15.2 Landlord shall have the right, but not the obligation, to cure any of Tenant's defaults under this Lease, in which event Tenant shall forthwith reimburse Landlord all costs thereof, including any attorneys' fees, together with interest from the date expended until the date repaid at the rate of eighteen percent (18%) per annum. No exercise of this right shall be deemed to be an acceptance of such default or a waiver thereof. 16. REMEDIES 16.1 Upon the occurrence of an Event of Default hereunder, Landlord may at any time thereafter, without notice or demand except as stated hereafter and without limiting Landlord in the 12 exercise of any other right or remedy which Landlord may have by reason of such default or breach: (a) Enter upon and take possession of the Premises. In such event, Landlord shall have the right to remove all persons and property from the Premises and store such property in a public warehouse or elsewhere at the cost and risk of and for the account of Tenant, and all such persons shall quit and surrender possession of the Premises to Landlord. Tenant hereby waives all claims for damages which may be caused by the entry of Landlord and taking possession of the Premises or removing and storing the furniture and property and hereby agrees to indemnify and save Landlord harmless from any loss, costs, damages or liability occasioned thereby, and no such entry shall be considered or construed to be forcible entry or construed to be a termination of the Lease unless Landlord expressly elects to terminate this Lease. Should Landlord elect to enter, as hereby provided, or should Landlord take possession pursuant to legal proceedings or pursuant to any notice provided by law, Landlord may then or at any time thereafter terminate this Lease pursuant to Paragraph 16.1(c), below: (b) Tenant and each and every subtenant and assignee of Tenant shall remain and continue liable for the equivalent of the rent and other charges herein reserved and required by the Tenant to be paid and met until the expiration of this Lease and for any and all loss or damage, including all fees and expenses and attorneys' fees which the Landlord may sustain or incur by reason of any such event, and the Landlord may relet all or any part of the Premises at such price and upon such terms and for such duration of time as the Landlord may determine in the name of the Landlord or as agent of the Tenant, or otherwise, and receive the rent therefor and apply the same first to the payment of such expenses and fees as the Landlord may have incurred in entering, dispossessing and in letting, including among others all expenses of the Landlord reasonably incurred in putting the Premises in proper condition (including tenant improvements) and then to the payment of the rent and other charges reserved hereunder and the fulfillment of the Tenant's covenants hereunder, the Tenant and any subtenant of the Tenant and assignee of the Tenant shall remain liable for any deficiency. Acts of maintenance, efforts to relet the Premises, or the appointment of a receiver on Landlord's initiative to protect Landlord's interest under this Lease shall not constitute a termination of this Lease, unless and until Landlord expressly elects in writing to terminate this Lease; (c) Terminate this Lease and all rights of Tenant therein and recover from Tenant in an action of all of the damages suffered or to be suffered by Landlord, including the damages and costs described in subparagraph (b) above; and (d) Pursue any other remedy now or hereafter available to Landlord under the laws or judicial decisions of the State of Florida. The parties acknowledge that Pinellas County, Florida shall be the appropriate jurisdiction and venue for any legal proceedings. 16.2 Acceptance by the Landlord of any rent after the same has become due an payable shall not constitute a waiver by the Landlord of any rights which the Landlord may have under the terms of this Lease in the event of a default with respect to any other payment of rent. 16.3 The Landlord's rights and remedies under this Lease shall be cumulative, and shall not be exhausted by one exercise thereof, and shall not exclude any other rights and remedies 13 authorized, provided or permitted by law. No failure or omission on the part of the Landlord promptly to exercise or insist upon any of its rights hereunder shall operate as a waiver of any such rights; and no waiver on the part of the Landlord of any breach or default or lack of prompt or full and complete performance or compliance by the Tenant hereunder shall operate as a waiver of any subsequent breach or default or lack of prompt and full performance or compliance. 17. LANDLORD'S RIGHT OF ENTRY The Tenant agrees that the Landlord, or its officers, agents, servants, and employees, may enter said Premises at any hour to protect the same against the elements, or accidents, or to effect repairs or replacements, and at any reasonable hour for the purpose of examining the same, showing the same to prospective purchasers or tenants, or for any other reasonable purpose. 18. NOTICES Any bill, statement, notice or communication which the Landlord may desire or be required to give to the Tenant shall be deemed sufficiently given and rendered if, in writing, delivered to the Tenant personally, or sent by registered or certified mail addressed to the Tenant at the Building or left at the Premises addressed to the Tenant, and the time of the rendition of such bill, statement, or notice shall be deemed to be the time when the same is mailed to the Tenant, or delivered, or left at the Premises as herein provided. Any notice to Landlord shall be in writing, addressed to Landlord at Landlord's Address(or such different address as Landlord may notify Tenant) and shall be sent first class U.S. mail, postage prepaid, certified return receipt requested. 19. TAXES ON TENANT'S PERSONAL PROPERTY AND TAXES ASSESSED ON RENTALS 19.1 The Tenant shall pay promptly when due any and all taxes and assessments that may be levied or assessed against Tenant's personal property located in, on or about the Premises and will cause such personal property to be assessed directly to the Tenant. If for any reason said personal property cannot, or is not assessed separately and is included with the Landlord's real or personal property tax assessments, the Tenant will upon demand pay to the Landlord the amount of taxes levied or assessed against the personal property, using for such purpose the valuation and rate of tax placed thereon by the taxing authority, if the same can be determined and if not, using a reasonable valuation. 19.2 In addition to the rent hereinabove provided for, the Tenant shall pay to the Landlord, promptly as and when due, all sales, use or excise taxes, levied, assessed or payable on or on account of the Leasing or renting provided for hereunder, or on account for the rent payable hereunder. 20. COSTS OF COLLECTION The Tenant shall promptly pay to the Landlord all costs and expenses of enforcement of this Lease and of collection, including a reasonable attorney's fee, including on appeal, with respect to any part of said rent and other charges and sums of money herein reserved or required by the Tenant to be paid and met, which may be sustained or incurred by the Landlord after the date the same, or any thereof, becomes due; and the Tenant further agrees to pay all reasonable costs and expenses, including a reasonable attorney's fee including on appeal, which may be sustained or incurred by the Landlord in or about the enforcement or declaration of any of the rights or remedies of the Landlord or obligations of the Tenant, whether arising under this Lease or granted, permitted or imposed by law or otherwise. 14 21. PRIOR AGREEMENTS This agreement supersedes and revokes any and all prior written agreements between the parties relating to the Premises, and all oral agreements between the parties relating to the Premises are hereby merged into this Lease; and no amendment, modification or variation of the Lease or any terms or provisions of the Lease, shall be effectual, binding or valid unless and until the same is reduced to writing and signed by the party to be charged thereby. No notice, request or demand in this Lease provided for may be waived except by written waiver thereof signed by the party waiving the same. Submission of the Lease to or by Tenant shall not create any rights in favor of Tenant until this Lease has been executed by both Landlord and Tenant. 22. FLOOR PLANS Any floor plan or other plan, drawing or sketch which is attached to or made part of this Lease, such as Exhibit "A", is used solely for the purpose of a reasonable approximate identification and location of the demised Premises, and any markings, measurements, dimensions or notes of any kind contained therein shall be subordinate to any specific terms contained in this Lease. Attached to the construction plans for the tenant improvements shall be a specification sheet stating in detail the finishes to be used in the demised premises. Both Landlord and Tenant shall initial the construction plans and specifications indicating this approval of the terms contained therein. Construction of the tenant improvements by contract shall be the responsibility of the Landlord and any cost in excess of the Tenant Improvement Allowance shall be the Tenant's responsibility. If Tenant requests any Change Orders that create cost over and above the original scope of work then Tenant shall be responsible for that additional cost. Tenant has inspected the Premises and the Building and has verified the dimensions thereof to the satisfaction of the Tenant; and the Tenant has inspected and is familiar with the condition of the elevators, stairways, halls, air conditioning system and facilities; and sanitary facilities of the Building and the Tenant agrees to accept the Premises. 23. NO AUTOMATIC RENEWAL There shall be no extension or automatic renewal of the terms of this Lease unless otherwise agreed in writing by the parties hereto. Tenant shall have no right to hold over and, if Tenant does so with Landlord's consent, same shall be a tenancy from month-to-month terminable at will by either Landlord or Tenant upon ten (10) days' written notice. 24. BUILDING STANDARDS MANUAL By the execution of this Lease, the Tenant accepts and agrees to abide by, and to instruct the Tenant's employees to abide by all provisions of the "Building Standards Manual" and any modifications or additions made thereto from time to time during the term of this Lease. The initial set of these regulations is attached as the "Building Standards Manual" (Exhibit "B"). 25. TERMS AND HEADING As used herein the singular shall include the plural, the plural shall include the singular, and each gender shall include the other where the context shall so require. The headings in this Lease are not a part of this Lease and shall nave no effect upon the construction of interpretation of any part hereof. This Lease shall be governed by the laws of the State of Florida. 15 26. CONDEMNATION In the event the whole or any part of the Building of which the Premises are a part, other than a part not interfering with the maintenance or operation thereof shall be taken or condemned for any public or quasi-public use or purpose, the Landlord may, at its option, terminate this Lease from the time title to or right to possession shall vest in or be taken for such public or quasi-public use or purpose and the Landlord shall be entitled to any and all income, rent, awards or any interest therein whatsoever which may be paid or made in connection therewith. 27. SUBORDINATION TO MORTGAGES This Lease is hereby made expressly subject and subordinate at all times to any and all mortgages, deeds of trust, ground or underlying leases affecting the Premises which have been executed and delivered or which will hereafter be executed and delivered and any and all extensions and renewals thereof and substitutions therefore and to any and all advances made or to be made under or upon said mortgages, deeds of trust, ground or underlying leases. Tenant agrees to execute any instrument or instruments without modification or change, which the Landlord may deem necessary or desirable to effect the subordination of this Lease to any or such mortgages, deeds of trust, ground or underlying leases and in the event that the Tenant shall refuse, after reasonable notice, to execute such instrument or instruments which the Landlord may deem necessary or desirable to effect the subordination of the Lease to any or all such mortgages, deeds of trust, ground or underlying leases and in the event that the Tenant shall refuse, after reasonable notice, to execute such instrument or instruments, the Landlord may, in addition to any right or remedy accruing hereunder, terminate this Lease without incurring any liability whatsoever and the estate hereby granted is expressly limited accordingly. The Tenant hereby agrees to attorn to any future owner of the Lessor's interest in the Premises under this Lease, whether such occurs by reason of the dispossession of the Landlord or otherwise, and such shall not constitute a default by Tenant hereunder. 28. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS 28.1 Within fifteen (15) days after request of Landlord, Tenant shall deliver to Landlord a duly executed certificate stating the Termination Date, the Monthly Rent, the amount of any prepaid rent and security deposits, the fact that this Lease is in full force and effect, the fact that this Lease is unmodified (or if modified, the date of the modification), and the fact that Landlord is not in default (or if a default exists, the nature thereof). Failure to timely deliver same shall be conclusive evidence that the Termination Date and Monthly Rent are as set forth herein, no rent has been paid in advance, there is no security deposit, and that there are no modifications or Landlord's defaults. Such certificate will be relied on by Landlord, prospective lenders or prospective purchasers. 28.2 During the term of Lease and any extensions thereto, Tenant (and Tenant's Guarantor) shall produce current financial statements as requested by Landlord, any prospective purchaser or lender or any lender of record within thirty (30) days of written notification from Landlord. If Tenant (or Tenant's Guarantor) is a company which is required to make periodic reports to the Securities and Exchange Commission, a copy of Tenant's (or Tenant's Guarantor) most recent publicly disclosed financial statements shall be sufficient for purposes of this Lease. 16 29. QUIET ENJOYMENT Landlord agrees that Tenant, upon paying the Monthly Rent, all additional rent and all other sums and charges then due and upon performing the covenants and conditions of this Lease to be performed by the Tenant, may enjoy peaceful and quiet possession of the Premises during the Term of this Lease. 30. PARKING SPACES Tenant hereby agrees to lease from Landlord the number of parking spaces indicated in Paragraph 1 hereinabove in the attached parking garage for the Term of the Lease and any renewals thereof. The monthly rental shall commence at the per space rate therefore indicated in Paragraph 1 hereinabove and shall thereafter be adjusted to the rate generally charged by Landlord. 31. SUBSTITUTION OF PREMISES At any time hereafter, Landlord may substitute for the Premises other premises (herein referred to as the "New Premises") provided: (a) The New Premises shall be substantially similar to the Premises in area and use for Tenant's purposes and shall be located in the Building; (b) The rental for the New Premises shall be adjusted in accordance with Landlord's scheduled lease rates but shall not exceed the rental paid for the Premises; (c) If Tenant is already in occupancy of the Premises, then in addition: (i) Landlord shall pay the expense of Tenant for moving from the Premises to the New Premises and for improving the New Premises so that they are substantially similar to the Premises; and (ii) Landlord shall first give Tenant at least thirty (30) days notice before making such change. If Landlord shall exercise its right hereunder, the New Premises shall thereafter be deemed for the purposes of this Lease as the Premises. 32. LANDLORD'S RIGHT TO ALTER COMMON AREAS Without abatement or diminution in rent, Landlord reserves and shall have the right to change the street address and/or location of entrances, passageways, doors, doorways, corridors, elevators, stairs, toilets, or other common areas of the Building or the complex without liability to Tenant. 33. EXCULPATION Notwithstanding anything to the contrary set forth in this Lease, it is specifically understood and agreed by Tenant that there shall be absolutely no personal liability on the part of Landlord or on the part of the partners of Landlord with respect to any of the terms, covenants and conditions of this Lease, and Tenant shall look solely to the equity of Landlord in the Property for the satisfaction of each and every remedy of Tenant in the event of any breach by Landlord of any of the terms, covenants and conditions of this Lease to be performed by Landlord. This exculpation of personal liability is absolute and without any exception whatsoever, and is an inducement by Tenant for Landlord to enter into this Lease. 17 34. SUCCESSORS AND ASSIGNS Except as otherwise provided in this Lease, all of the covenants, conditions and provisions of this Lease shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns. 35. SECURITY AGREEMENT Tenant hereby grants to the Landlord a security interest under the uniform commercial code as adopted by the State of Florida in all the furniture and fixtures, goods and chattels of the Tenant now owned or hereafter acquired, which may be brought or put on The Premises, as security for the payment of any rent herein reserved, and agrees that such security interest as well as the Florida Statutory Landlord's lien for the payment of any rent may be enforced by distress, foreclosure or otherwise, at the option of the Landlord, and Tenant agrees that such lien is granted to the Landlord and vested in Landlord. 36. ATTORNEY'S FEES Tenant further agrees that in case of the failure of said Tenant to pay the rent herein reserved when the same shall become due, and it becomes necessary for the Landlord to collect said rent by suit or through an attorney, or should Landlord employ an attorney because of the breach of any of the terms, covenants or agreements contained in this lease, the Tenant will pay the Landlord a reasonable attorney's fee together with all costs and charges incurred by, through or in connection with such collection or in any other suit or action or appeal which may be brought in any Court because of a breach of any terms, covenants or agreements contained in this Lease. 37. MECHANICS LIEN The Tenant shall have no authority to incur, create or permit, and shall not incur, create, allow, permit or suffer, any lien for labor or materials or services to attach to the interest or estate of either the Landlord or the Tenant in the Demised Premises or in the building or other real estate of which the Demised Premises form a part; and neither the Tenant nor anyone claiming by, through or under the Tenant, shall have any right to file or place any labor or material lien of any kind or character whatsoever or any mechanics lien or other lien of any kind, upon the Demised Premises or the building or other real estate of which the Demised Premises form a part, so as to encumber or affect the title of the Landlord, and all persons contracting with the Tenant directly or indirectly, or with any person who in turn is contracting with the Tenant, for the erection, construction, installation, alteration or repair of the demised premises or any improvements therein or thereon, including fixtures and equipment, and all material-men, contractors, mechanics, laborers, architects, from the date of this instrument, they and each of them must look to the Tenant only to secure the payment of any bills or charges or claims for work done, or materials furnished, or services rendered or performed during the term hereby demised. 38. RECORDATION This Lease shall not be recorded. 39. RADON GAS: Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risk to persons who are exposed to it over time. Levels or radon that exceed Federal and State Guidelines have been found in buildings in Florida. Additional information may be obtained from your county public health unit. 18 40. REAL ESTATE BROKER: N/A IN WITNESS WHEREOF, the Landlord and Tenant have executed this Lease as of the day and year first above written. WITNESS: LANDLORD: s/s Steven Kurcan BANKERS LIFE INSURANCE COMPANY - ----------------------------- - ----------------------------- By: s/s Douglas B. Pierce ---------------------------------------- Signature Douglas B. Pierce ---------------------------------------- Printed Name Title: President & CEO ------------------------------------- Date: 10/10/01 -------------------------------------- WITNESS: TENANT: INSURANCE MANAGEMENT SOLUTIONS s/s Steven Kurcan GROUP, INC. - ----------------------------- By: s/s Robert G. Gantley ---------------------------------------- Signature Robert G. Gantley ---------------------------------------- Printed Name Title: Chief Operating Officer ------------------------------------- Date: 10/12/01 -------------------------------------- 19 EXHIBIT "A" BANKERS BUILDING - 10051 5TH STREET NORTH, ST. PETERSBURG, FLORIDA FLOOR PLAN OF PREMISES Insert floor plan here EXHIBIT "B" BUILDING STANDARD RULES AND REGULATIONS OPERATING HOURS Standard operating hours will be from 8:00 a.m. to 6:00 p.m. Monday through Friday and 8:00 a.m. to 1:00 p.m. Saturday. Closed Sunday and all legal holidays. For off-hour entry, security measures will be established. This may mean individual keying, card entry or watchman sign-in station. We realize that there is a trend toward two and three shift office operation. Should this occur, security will be established and the additional cost will be borne by the Tenant or Tenants involved. Appropriate identification will be required for any persons wishing to enter the building after normal operating hours. BUILDING DIRECTORIES Directories will be supplied by the Landlord to show the name and location of the Tenants only. One name will be displayed. Additional names must be approved the Landlord and paid for by the Tenant. FREIGHT AND LARGE ITEMS The freight elevator must be used to move items in or out of the building. This requires the Tenant to schedule or notify the building personnel of the need for the elevator so as to eliminate confusion. Every effort will be made to comply, but priorities and unforeseen conditions often make compliance difficult. Any damage done to the premises by the moving of the Tenant's items shall be repaired at the Tenant's expense. Removal from the Tenant's space of a large amount of cartons or debris requiring time of building personnel beyond standard cleaning time will be billed to Tenant. At times, items leaving the building will be checked by building personnel to ascertain ownership. TENANT IMPROVEMENTS All plans and specifications for Tenant fit-up, improvements and any future alterations shall be approved by Landlord. SIGNS AND DISPLAYS Each Tenant shall have a sign to identify the business. For offices, the sign must conform to a size and location established for the building. The design and color must be approved by the Landlord. Signs cannot be affixed to office entrance doors except in unusual conditions. For retail stores, signs must be compatible with the design of the storefront and the surrounding areas. Special attention must be given to color and lighting so as to maintain the design integrity of the building both inside and out. Signs used within the store and visible to the public must be of a style, material and character in keeping with the building. No paper signs can be used or fastened to the windows. No easels will be permitted in the lobby area in front of the store. All sign designs shall be approved by Landlord and the Landlord reserves the right to have any signs or displays removed that do not conform to the high standards of the building. OBSTRUCTION OF TRAFFIC AISLES AND CORRIDORS All Tenants, both office and retail, shall not place any item of furniture or equipment or sign or display or any other item in a corridor or aisle or lobby or any other space, that will impede access or clutter the area. We realize that at times it is necessary to place things outside of the demised premises in order to perform certain tasks. However, we expect that every effort will be made to remove these as fast as possible. If the items remain overlong, the Landlord reserves the right to remove them and will charge the Tenant for handling and storage. ADVERTISING, PROMOTIONS, ETC. The name of the building nor the picture of the building shall not be used for any type of promotion without consent of the Landlord. Also advertising, brochures, promotions, etc., in which large numbers of people will be arriving or the lobby will be used as a reception or staging area, must be approved by the Landlord. If additional building personnel are needed, a charge will be established for their services. DAMAGING OR DEFACING PREMISES The landlord desires to maintain the building in a first-class condition. Any surfaces such as window sills, walls, doors, window coverings, etc. damaged by the Tenant or visitors to the Tenant spaces will be repaired by the building and all costs will be billed to the Tenant. All damages will be repaired as soon as possible to maintain the building appearance. Tenant shall not do any painting, floor laying, cutting, drilling or other major work in his premises without the consent of the Landlord. Tenant shall not install any heavy articles such as a safe without expressed consent of the Landlord. Should it be necessary to reinforce the floor, etc. and it is possible, it will be done at Tenant's expense. WINDOWS, ETC. The Tenant shall not attach anything to the windows. Building standard window coverings will be used in all office windows. Should the Tenant install drapes, they shall be hung on the office side of the standard window coverings and must not be visible from the street. No obstruction shall be built or placed at the windows that would impede the work of the window washers. ELECTRONIC DEVICES We are in the age of electronics and the use of these devices will increase. It is imperative that all electronic items be controlled so as not to conflict with the operation of equipment to adjoining offices or throughout the building. The Landlord does not want to be a watchdog in these matters. However, should conflicts be brought to our attention and in an effort to maintain a happy, productive working climate, we will take the necessary action within our power. VENDING EQUIPMENT AND FOOD Vending or food service equipment will not be allowed in the office areas. Coffee makers, hot water makers and water coolers are the exceptions. NOISE OR ODORS No equipment or item or product will be allowed in the offices that makes noise or emits odors that are in annoyance to any other areas of the building. ANIMALS No animals are allowed in the building except for the guide dog of a blind person. CANVASSING OR SELLING No one, Tenant or otherwise, will be allowed to canvass, solicit or sell, going from office to office throughout the building. COMPLIANCE WITH LAWS Tenants shall comply with all laws, ordinances and regulations that fit his unique business and as they apply to the occupancy of the premises. The premises shall be used for the performance and the operation of his business only. HAZARDOUS MATERIALS The Tenant shall not use or allow into the building any volatile materials, flammable fluids or oils, explosives or other items such as chemicals that may be dangerous to people or property. KEYS...LOCKS The Tenant will be given up to five keys for his entrance door and any other special locked rooms as stated in the Lease. Additional keys will be at his expense. For those requesting entry during off building hours, special arrangements will be made for keys. All keys will be returned to the Landlord at termination of Lease. Tenant will not install additional locks on any doors or windows within the building nor change any locks. HEATING, VENTILATING AND AIR CONDITIONING STANDARDS 1. It is agreed that the following standard design criteria shall be used: 1.1 For cooling, the system shall be capable of maintaining inside space conditions of 78 degrees F. dry bulb and a 50% relative humidity with outside conditions of 91 degrees F. dry bulb and 77 degrees F. wet bulb. This design condition shall be based on an electrical load of 4 watts per square foot and an average occupancy of one person per 100 square feet of rentable area. 1.2 For heating, the system shall be capable of maintaining inside space conditions of 70 degrees F. Dry bulb with outside temperature of 49 degrees F. 2. All ductwork shall be thermally and acoustically insulated wherever required by good practice for this type of work, and shall be designed and installed in accordance with good engineering practice and/or American Society of Heating, Refrigeration and Air Conditioning Engineers recommendation. 3. Diffuser type and design, which shall be Anemostat or an approved equal and the manufacturer of same shall be subject to the approval of the Tenant's engineer. 4. Particular attention shall be given to the adequacy of return air methods. 5. Adequate smoke exhausts shall be provided for all conference and meeting rooms. Separate exhausts shall also be provided for all kitchen and toilet areas. All such exhausts shall be expelled to the outer air and shall not be recirculated. 6. Separate thermostatic temperature controls shall be provided for exterior zones, and for the interior zone, as designated on Tenant's final working drawings. 7. Replaceable filters shall be maintained and cleaned by the Landlord as required for satisfactory operation. 8. The Landlord shall provide a preventative maintenance program to insure efficient and continuous satisfactory operation of the air-conditioning system. 9. All zones serving spaces occupied by the Tenant shall have the thermostats that control those zones installed within the Tenant's space. EX-10.11 4 g75105aex10-11.txt 9/30/01 INSURANCE ADMINISTRATION AGREEMENT EXHIBIT 10.11 INSURANCE ADMINISTRATION SERVICES AGREEMENT THIS INSURANCE ADMINISTRATION SERVICES AGREEMENT ("Agreement") is effective as of the 30th day of September, 2001("Effective Date"), by and between INSURANCE MANAGEMENT SOLUTIONS, INC. ("IMS"), a corporation organized and existing under the laws of the State of Florida with its principal place of business located at 360 Central Avenue, St. Petersburg, Florida 33701, and each of MOBILE USA INSURANCE COMPANY AND PHILADELPHIA INDEMNITY INSURANCE COMPANY (herein collectively referred to as "Customer"), each having their principal place of business at 7785 66th Street North, Pinellas Park, FL 33780 and One Bala Plaza, Suite 100, Bala Cynwyd, PA 19004, respectively. WHEREAS, Customer wishes to engage the services of IMS to administer certain of the Customer's obligations for the lines of business ("Authorized Lines of Business") in the state(s) ("Authorized States") set forth in SCHEDULE A; WHEREAS, IMS wishes to provide such insurance administration services as set forth herein. NOW THEREFORE, IN CONSIDERATION OF the mutual covenants and agreements hereinafter set forth, the parties hereto do covenant and agree as follows: ARTICLE I. DEFINITIONS Unless the context clearly requires otherwise, the following terms when used in this Agreement shall have the meanings set forth below: A. "Affiliate" is any company which controls, is controlled by, or under common control with, a party, and "control" is defined as owning 50% or more of such entity. B. "Authorized Lines of Business" means the lines of business expressly set forth in SCHEDULE A of this Agreement. C. "Authorized States" means the states expressly set forth in SCHEDULE A of this Agreement. D. "Business Day" means any day other than a Saturday, Sunday or other day which is a bank holiday for Florida State banks or an IMS paid holiday (New Year's Day, Memorial Day, Independence Day, Thanksgiving Day, day after Thanksgiving, Christmas Eve (after 12 P.M. Eastern Standard Time) and Christmas Day). E. "Change of Control" means (a) a sale, transfer or pledge, or the issuance to a new shareholder, of fifty (50%) percent or more of the voting stock of a party hereto to any third party that is not an Affiliate of such party; or (b) a sale, transfer or pledge of a substantial portion of the material assets of a party, or any merger or consolidation of a party with another entity or entities. F. "Insurance Administration Services" means the services set forth in this Agreement and EXHIBIT I hereto in the Authorized States in accordance with the terms of the Agreement, and all applicable laws and regulations. G. "Insurance Program" means the Customer's insurance products within the Authorized Line(s) of Business to be offered within the Authorized States. H. "Technical Information" means and shall include (without limitation) computer programs, databases, designs, algorithms, processes, structures, data formats, business methods, know how, and research and development information. 1 ARTICLE II. TERM The term of the Agreement shall commence on the Effective Date and shall have a minimum operating term ("Minimum Operating Term") of Thirty Six (36) full calendar months following the Effective Date. However, the term of this Agreement shall automatically extend for an additional operating term ("Extended Operating Term") of twelve (12) calendar months at the end of the Minimum Operating Term, or at the end of any Extended Operating Term, unless terminated earlier pursuant to the termination provisions within Article VIII. ARTICLE III. RESPONSIBILITIES OF IMS A. IMS shall dedicate the human, equipment and computer resources commercially reasonably required to provide Customer with the Insurance Administration Services, during the term of this Agreement, for the Insurance Program within Authorized States specified in SCHEDULE A. B. IMS shall designate an employee ("Account Manager") of sufficient status and authority to act as liaison with Customer to facilitate IMS' performance of the Insurance Administration Services under this Agreement. The Account Manager shall provide written and/or oral communication of the status of administration of the Insurance Administration Services as agreed to by and between Account Manager and Customer. C. IMS shall, based on accepted industry standards and in accordance with generally accepted insurance and accounting practices as designated by the applicable regulatory bodies and the National Flood Insurance Program ("NFIP"), maintain complete and orderly records and policy and/or claims files as may be required as a result of IMS performing the Insurance Administration Services on behalf of Customer. These files shall be retained by IMS, in a format or media defined by IMS which shall be in compliance with applicable laws and regulations, for a minimum of four (4) years or the period specified by the applicable statutes regulating the preservation of records, unless the Customer requests that its records be returned to it at its expense at the expiration of the minimum four (4) year period; however, that IMS shall be entitled to retain copies thereof. ARTICLE IV. RESPONSIBILITIES OF CUSTOMER A. During the term of this Agreement, Customer shall provide to IMS, in a timely manner, any and all data, information and other items reasonably required to enable IMS to perform the Insurance Administration Services specified in EXHIBIT I of this Agreement. Customer represents and warrants to IMS that it owns and possesses all property rights to its corporate and subsidiary logos and hereby grants and warrants to IMS a limited, non-transferable, non-assignable, license to use Customer's corporate and subsidiary logos (and any other copyrighted or trademarked property of Customer that may be provided to IMS under this Agreement) while performing the Insurance Administration Services. Customer acknowledges and agrees that delays in delivery of required documentation, data and/or information by Customer will result in a similar delay in fulfilling Insurance Administration Services, and that such a delay in performing the Insurance Administration Services shall not be deemed a breach of the Agreement. B. CUSTOMER ACKNOWLEDGES AND AGREES THAT IMS ASSUMES NO INSURANCE RISK FOR THE BUSINESS PROCESSED UNDER THIS AGREEMENT. C. Customer shall designate manager level employee(s) of sufficient status and binding decision making authority to act as liaisons with IMS and to facilitate Customer's role as IMS performs the Insurance Administration Services specified in EXHIBIT I of this Agreement. 2 ARTICLE V. CUSTOMER ACCESS TO RECORDS / CONFIDENTIAL INFORMATION A. At Customer's expense, Customer will be permitted reasonable access (as set forth herein) to all records and information maintained by IMS on behalf of Customer (excluding, specifically, proprietary Technical Information) reasonably necessary to: (i) audit the completeness and accuracy of the Insurance Administration Services provided under this Agreement and reports produced for Customer pursuant to this Agreement; (ii) verify the accuracy and validity of all billings and charges to Customer under this Agreement; and (iii) verify IMS' overall compliance with the material terms of this Agreement and applicable laws and regulations. Access to IMS' records, for the foregoing purposes, will be provided during normal business hours upon ten (10) Business Days prior written notice to IMS by Customer for so long as IMS is required to maintain such records under this Agreement; except in the case of regulatory inquiry, in which case access will be granted on any Business Day with twenty four (24) hours of prior written notice to IMS. At Customer's expense, Customer will be permitted to copy those IMS records subject to audit in accordance with this Article. Upon reasonable written request by Customer, and at Customer's expense, IMS will promptly mail or fax to Customer supporting documentation concerning any specific transaction processed by IMS under the terms of this Agreement. IMS will provide reasonably adequate work space for Customer to conduct audits in accordance with this Article. Further, Customer or its representatives shall take precautions, when conducting audits under this Article, not to disrupt IMS' ongoing business activities. B. The recipient ("Recipient") of confidential data and/or information pursuant to this Agreement shall maintain the confidentiality of all data and/or information which is the property of the other party ("Disclosing Party"), whether originally supplied by the Disclosing Party, or whether generated by the Disclosing Party in the course of performing or facilitating the Insurance Administration Services under this Agreement and which is directly accessible to the Recipient or is in the possession of Recipient in the implementation, facilitation and/or performance of the Insurance Administration Services. During any term of this Agreement, Recipient may acquire, know, or have within its possession, information (including, but not limited to, Technical Information) and/or data of the Disclosing Party concerning commercial and trade affairs, rating and underwriting rules and guidelines, the identity of clients, the identity of insureds and beneficiaries, claims, benefits, rates and Agents, financial information, the Proprietary System (as defined at Article VII (A) herein), the Third Party Proprietary System (as defined in Article VII (B) herein) and business practices of the Disclosing Party ("Confidential Information"). Confidential Information which is provided in tangible form must be clearly marked "Confidential", "Proprietary" or the substantial equivalent thereof, or if orally disclosed must be clearly identified as "Confidential" or "Proprietary" at the time of the disclosure (except for IMS' Technical Information, the identity of Customer's clients, the identity of Customer's insureds and beneficiaries, claims, benefits, and Agents, which will be deemed "Confidential Information" under this Agreement, regardless of whether marked as such). Except as required by law, and in accordance with Gramm Leach Bliley Act, Recipient shall keep Disclosing Party's Confidential Information confidential and shall only use the Confidential Information in performing or facilitating the Insurance Administration Services under this Agreement. Recipient shall not disclose the Confidential Information without Disclosing Party's prior written permission except to Recipient's employees who require the information to perform or facilitate the Insurance Administration Services under this Agreement. Each party hereto, as a Recipient, warrants to the other that appropriate measures shall be taken by Recipient to safeguard the confidentiality of the Confidential Information, with a level of care at least equal to the level of care with which Recipient safeguards its own confidential or proprietary information. All employees, agents or representatives of Recipient and any third parties who are given access to the Confidential 3 Information shall be under written obligation to Recipient to maintain such information in confidence. IMS and Customer agree that any Recipient shall have no obligation with respect to any information or data which: a) is already rightfully known to Recipient through means other than Disclosing Party; or b) is or becomes publicly known through no wrongful act of Recipient; or c) is rightfully obtained by Recipient from a third-party without similar restriction and without breach of this Agreement; or d) is independently developed by Recipient without breach of this Agreement. Disclosing Party shall retain title to all Confidential Information (whether tangible or intangible) delivered thereby pursuant to this Agreement. Recipient shall not copy, reproduce or use any Confidential Information without written authorization of Disclosing Party, except as may be reasonably required to accomplish the Insurance Administration Services under this Agreement. Upon written request of Disclosing Party Recipient shall promptly return, or destroy with specific written permission of the Disclosing Party, all tangible copies containing Confidential Information, except those copies kept in the regular course of business, or that are required to be kept pursuant to any state or federal administrative, regulatory or statutory mandates. The obligations under this Paragraph (B) shall survive the termination of this Agreement. Notwithstanding the foregoing, this Article shall not prevent the disclosure of Confidential Information to the extent legally required by any court or regulatory entity having jurisdiction over the parties. For purposes of Article V (B), Recipient and Disclosing Party shall include within their meaning all respective subsidiaries, agents, or Affiliates of the Recipient and Disclosing Party. ARTICLE VI. EXPENSES AND FEES A. In consideration of IMS providing Insurance Administration Services described herein, Customer shall pay IMS, as applicable, miscellaneous fee ("Miscellaneous Fee"), servicing fee ("Service Fee") and claim administration fee ("Claim Administration Fee") for each Authorized Line of Business, as specified in SCHEDULE B. The performance by IMS of any service or function that is outside of the scope of the Insurance Administration Services shall require the payment by Customer of additional consideration (in addition to the Service Fees) as mutually agreed between IMS and Customer. B. Except for the Service Fee, which is based upon a percentage of the adjusted net written premium and the Claim Administration Fee, the Miscellaneous Fees specified in Section IV of SCHEDULE B hereto may be increased (up to a maximum of five percent (5%) per year from the prior year) effective as of each anniversary of the Effective Date by the percentage increase in the United States Consumer Price Index for all Urban Users (CPI-U) as reported by the United States Bureau of Labor Statistics for the most recently completed calendar year that IMS is performing services on behalf of the Customer. In the event that a vendor supplying a service or product to IMS, which service or product is used by IMS to provide the Insurance Administration Services to Customer, increases its rates charged to IMS, IMS may increase the Service Fees, Claim Administration Fees, and Miscellaneous Fees set forth in Schedule B to incorporate such increased costs and will provide Customer with documentation verifying the increase. C. Customer shall reimburse IMS for travel, living and out-of-pocket expenses incurred by IMS personnel in the performance of training relative to the Insurance Administration Services to be performed under this Agreement. 4 D. Customer agrees to pay any and all tariffs and taxes that are now or may become applicable to the Insurance Administration Services rendered hereunder, including, but not limited to, sales, use, and personal property taxes, or any other form of tax based on Insurance Administration Services performed, equipment used by IMS solely for Customer, and the communicating or storage of data used by IMS solely for Customer, but excluding taxes on the net income of IMS. E. Subject to the terms of this Agreement, all fees and expenses to be payable by Customer to IMS or any third party under this Agreement shall be paid within thirty (30) calendar days after Customer's receipt of IMS' monthly statement for all services provided to Customer under this Agreement. IMS will calculate the fees owed to IMS by Customer and will send a statement to Customer within two (2) weeks of the last day of the month for which fees are owed. Customer's failure to pay all fees and expenses when due shall be considered a material breach of this Agreement. Further, if Customer fails to pay any fees and expenses due IMS as herein provided, Customer shall pay to IMS in addition to all sums otherwise due, interest which shall accrue at 1.5% per month on such delinquency from the date the fees or expenses became past due. Failure or forbearance to exercise any of its rights and privileges hereunder shall not constitute the forfeiture or waiver of such rights and privileges on the part of IMS. F. Prior to renewal of this Agreement for any Extended Operating Term, IMS may modify SCHEDULE B in its discretion to reflect any increase in the cost of providing the Insurance Administration Services (including, but not limited to statutory, regulatory, or judicial changes that require IMS to incur additional cost or expenses in performing the Insurance Administration Services) or to remain competitive with the rates currently being charged within the industry for like services. Any modification of SCHEDULE B shall be proposed to Customer at least six (6) months prior to the expiration of any term of this Agreement. ARTICLE VII. LICENSE, TRADE SECRET AND PROPRIETARY RIGHTS A. IMS from time to time may use its own proprietary computer software products and account servicing methods and procedures ("Proprietary System"), which are identified, described or referenced in EXHIBIT I hereto, in the performance of the Insurance Administration Services. During any term of this Agreement, IMS grants a personal, non-transferable, non-assignable, non-exclusive license to Customer to use portions of the Proprietary System as necessary for IMS to perform the Insurance Administration Services under this Agreement. Further, no provision within this Agreement shall be interpreted as prohibiting IMS from selling or licensing its Proprietary System to any other customer or prospective customer of IMS. B. IMS, from time to time, may also use proprietary third party computer software products and third party account servicing methods and procedures ("Third Party Proprietary System"), which are identified, described or referenced in EXHIBIT I hereto in the performance of the Insurance Administration Services. No provision within this Agreement shall be interpreted as prohibiting IMS or the Third Party Proprietary System vendor from selling or licensing the Third Party Proprietary System, or modifications and enhancements to the Third Party Proprietary System, to any other customer or prospective customer of IMS, so long as Customer's Confidential Information is not disclosed. C. Other than the limited rights to use the Proprietary System and the Third Party Proprietary System, as provided in Article VII (A) and (B) above, this Agreement grants to Customer no right to possess or reproduce, download, reverse engineer, or obtain any other interest in, the Proprietary System or the Third Party Proprietary System, or their specifications in any tangible or intangible medium. Customer may not mortgage, hypothecate, sell, assign, pledge, lease, transfer, license, or sublicense the Proprietary System or the Third Party Proprietary System, nor allow any person, firm, entity or corporation to transmit, copy, reproduce, download, reverse engineer, or obtain any other interest in the Proprietary System or the Third Party Proprietary System, or their 5 specifications in whole or in part. In the event Customer shall come into possession of any source or object code associated with the Proprietary System or the Third Party Proprietary System, Customer shall immediately notify IMS and return the source or object code associated with Proprietary System or the Third Party Proprietary System in its possession and all copies of any kind thereof to IMS. D. Customer covenants and agrees not to disclose or otherwise make the Proprietary System or the Third Party Proprietary System available to any person other than employees, insurance sales agents ("Agents") or representatives of the Customer required to have access or use of the Proprietary System or the Third Party Proprietary System to facilitate IMS' or Customer's performance under this Agreement. Customer agrees to obligate each such employee, Agents, or representative to a level of care sufficient to protect the Proprietary System and the Third Party Proprietary System from unauthorized disclosure. E. The obligations of Customer under this Article shall survive termination of this Agreement, regardless of the reason for termination. ARTICLE VIII. TERMINATION A. Either party may terminate this Agreement after the twelve (12) month anniversary of the Effective Date, provided the terminating party gives the other party at least three (3) months prior written notice of such termination. B. This Agreement shall also terminate: a) at the election of the Customer, upon written notice to IMS, if IMS becomes insolvent, if it makes an assignment for the benefit of its creditors, if a petition for relief under the United States Bankruptcy Code is filed by or against it and it is not dismissed within thirty (30) days of being filed, or if a trustee, receiver or other custodian of its assets is appointed; b) at the election of IMS, upon written notice to Customer, if Customer becomes insolvent, if it makes an assignment for the benefit of its creditors, if a petition for relief under the United States Bankruptcy Code is filed by or against it and it is not dismissed within thirty (30) days of being filed, or if a trustee, receiver or other custodian of its assets is appointed (including, but not limited to, any proceeding pursuant to any state or federal action governing insurer insolvency); c) at the election of the Customer, if IMS materially breaches any provision of this Agreement and fails to cure such breach within sixty (60) days after written notice thereof is given to IMS by the Customer; d) at the election of IMS, if Customer materially breaches any provision of this Agreement and fails to cure such breach within sixty (60) days after written notice thereof is given to Customer by IMS (except for Customer's failure to pay any and all fees and expenses due under Article VI of this Agreement, in which case Customer must cure such breach within thirty (30) days after written notice thereof is given to Customer by IMS); e) at the election of IMS, upon written notice to Customer, in the event of a Change of Control of Customer unless (i) Customer has provided IMS not less than sixty (60) days advance written notice of the proposed Change of Control and (ii) IMS has agreed in writing to such Change of Control; f) at the election of Customer, upon written notice to IMS, in the event of a Change of Control of IMS unless (i) IMS has provided Customer not less than sixty (60) days advance written notice of the proposed Change of Control and (ii) Customer has agreed in writing to such Change of Control. 6 The initiation under this Agreement of any dispute resolution procedure shall not prevent a party from terminating this Agreement in accordance with this Article VIII. C. On expiration or termination of this Agreement, IMS shall return to Customer all of Customer's Confidential Information, either in electronic or hard copy form, in IMS' possession and delete any electronic copies thereof related to the Insurance Administration Services provided by IMS during the term of this Agreement; Customer shall do the same and cause Customer's agents and representatives (including, but not limited to, any third party given access to the Confidential Information) to do the same relative to IMS' Confidential Information. Customer shall pay IMS (in accordance with SCHEDULE B then in effect) any and all Service Fees, Claim Administration Fees, Miscellaneous Fees and third party fees due IMS for Insurance Administration Services performed pursuant to this Agreement. Further, if either Mobile USA Insurance Company or Philadelphia Indemnity Insurance Company is no longer approved by the FIA to act as a WYO Company under the WYO Flood Program, it shall pay IMS on a per transaction basis for each cancellation and endorsement that IMS processes on its behalf for the runoff flood insurance business. IMS and Customer shall cooperate in any transition period during the wind-up of Insurance Administration Services provided Customer under this Agreement. If Customer requires assistance in converting Customer's data to a new format, or requires assistance from IMS relative to Customer's transition to an alternative claim administration arrangement, then IMS shall provide such services at the then current rates charged by IMS for the services specified in Section IV of SCHEDULE B. This obligations under this Paragraph (C) shall survive any termination of this Agreement. ARTICLE IX. WARRANTIES AND COVENANTS IMS covenants that IMS will comply in all material respects with the law of the state or states covered by this Agreement and with the rules and regulations of all regulatory authorities having jurisdiction over IMS' activities, and shall, whenever necessary, maintain at its own expense all required licenses to transact business in such states. IMS warrants to Customer that (a) IMS owns or otherwise has the right to use the Proprietary System used to perform the Insurance Administration Services, and the rights to such Proprietary System granted hereunder will not knowingly infringe upon a third party's copyright or patent rights; (b) IMS is duly authorized to transact the business of servicing insurance companies; and (c) the express warranties provided here and elsewhere in this Agreement are IMS' only warranties and no other warranty, express or implied, including any warranty of merchantability, fitness or fitness for a particular purpose, will apply to the provision of Insurance Administration Services under this Agreement. ARTICLE X LIABILITY, LIMIT OF LIABILITY, INDEMNITIES AND REMEDIES A. The parties shall assume the following obligations and liabilities as specified below and subject to the limitations on liability set forth in Article X, (B) below: a) IMS shall indemnify, defend and hold harmless Customer, its officers, directors, employees and controlling persons from any liability, cost, loss, fine, penalty, claim, demand, damage or expense, including reasonable attorneys' fees, incurred solely and directly as a result of any material breach of IMS' obligations under this Agreement or the material breach of any representation or warranty made by IMS to Customer pursuant hereto; b) Customer shall indemnify, defend and hold harmless IMS, its officers, directors, employees and controlling persons from any liability, cost, loss, fine, penalty, claim, demand, damage or expense, including reasonable attorney's fees, incurred solely and directly as a result of (i) any material breach of Customer's obligations under this Agreement, or (ii) the material breach of any representation or warranty made by Customer to IMS pursuant hereto; 7 c) Customer agrees that in the event IMS is in violation of any code, statute or law(s) due to the acts or omissions of Customer, or the servants, employees, representatives, adjusters, or Agents of Customer, then Customer shall assume the responsibility and liability for such acts or omissions and shall indemnify and hold IMS harmless for any such liability; B. Except for: (i) fees and expenses payable to IMS under Article VI of this Agreement; (ii) acts of fraud, or willful misconduct; and (iii) violations of Article VII of this Agreement, each party's maximum liability ("Maximum Liability") to the other party for any cause whatsoever, during any one calendar year shall be limited to direct damages incurred by that party and shall not exceed the amount of compensation paid by the Customer under SCHEDULE B of this Agreement for the six (6) months immediately preceding the breach or cause of liability. Further, IMS shall not be liable for any lost profits, business goodwill, or other consequential, punitive, special or incidental damages incurred by Customer. C. If data is processed in error due directly to an error or defect in the Insurance Administration Services provided by IMS, then upon IMS receiving notice of such error or defect, IMS shall reprocess such data without charge to Customer. D. All parties agree to promptly give the others notice upon being notified or becoming aware of any and all allegations or claims, which could give rise to a claim under this Article. ARTICLE XI. GENERAL AGREEMENTS A. This Agreement and all matters arising hereunder shall be governed by and determined in accordance with the laws of the State of Florida without giving effect to any choice of law provisions. B. The parties shall not be liable or deemed to be in default hereunder for any delay or failure in performance under this Agreement or interruption of the Insurance Administration Services resulting, directly or indirectly, from acts of God (including but not limited to weather catastrophes such as floods, hurricanes, tornadoes, windstorms, ice storms, blizzards and hail storms), civil or military authority, labor disputes, shortages of suitable parts, materials, labor or transportation or any similar cause beyond the reasonable control of the parties. C. 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 Customer: Mobile USA/Philadelphia Indemnity Insurance Company 7785 66th Street North PO Box 8080 Pinellas Park, FL 33780 Fax Number: (727) 545-1274 Attention: Dan Eldridge, President As to IMS: Insurance Management Solutions, Inc. 360 Central Avenue, 16th Floor St. Petersburg, FL 33701 Fax Number: (727) 803-2076 Attention: David Howard, President 8 Notices sent by hand delivery shall be deemed effective on the date of actual hand delivery. Notices 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 fifth Business Day after being deposited into the post office. Notices sent by facsimile transmission shall be deemed to be effective on the day when sent if sent prior to 4:30 p.m. (the time being determined by the time zone of the recipient), otherwise they shall be deemed effective on the next Business Day. D. This Agreement, and the exhibits, schedules and appendices attached hereto, contain all of the prior oral and/or previously written agreements, representations, and arrangements between the parties hereto. There are no representations or warranties other than those set forth herein. No change or modification of this Agreement, including the exhibits, schedules and appendices hereto, shall be valid unless the same shall be in writing and signed by all of the parties hereto. All exhibits, schedules, appendices, addenda of any kind, or attachments to this Agreement shall be made a part of this Agreement and shall be subject to all terms and conditions of this Agreement. Articles V (B), VII, and VIII (C) shall survive any termination of this Agreement. E. 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. Article headings are intended for purposes of description only and shall not be used for purposes of interpretation of this Agreement. F. 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 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. G. If either party 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 attorneys' 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 attorneys' fees were incurred. H. Neither IMS nor Customer shall assign this Agreement or any of its rights hereunder without the prior written consent of the non-assigning party. I. The parties agree not to disclose the terms and conditions of this Agreement to any third party, except (i) as required in the normal conduct of Customer's business, or (ii) as required by law or regulation including, without limitation, any Federal securities law, or regulation. ARTICLE XII. DISPUTE RESOLUTION PROCEDURES A. The parties will attempt in good faith to promptly resolve any material dispute regarding this Agreement by negotiations between senior management ("Senior Management") of the parties. Senior Management of each party will meet within ten (10) calendar days of notice ("Notice of Dispute") by a party of the existence of a material dispute, at a mutually agreed time and place, to resolve the material dispute. Senior Management, who shall have the authority to settle the dispute, shall prepare and exchange memoranda stating the issues in the material dispute and their positions. If the material dispute is not resolved to the mutual satisfaction of the parties within seven (7) calendar days of the meeting of Senior Management, then the parties may attempt to resolve the controversy using mediation. 9 B. If the matter has not been resolved pursuant to the aforesaid mediation procedure within thirty (30) calendar days of the issuance of a party of a Notice of Dispute, or if either party will not participate in mediation, then either party may initiate arbitration upon fifteen (15) calendar days written notice to the other party. Notwithstanding the foregoing, all deadlines specified above may be extended upon mutual written agreement of the parties. C. Except for the right of either party to apply to a court of competent jurisdiction for review of the award of arbitration, for a temporary restraining order, preliminary injunction or other equitable relief to preserve the status quo, or disputes relating to breach of the confidentiality, non-disclosure or trade secret provisions of this Agreement, all claims, disputes, controversies and other matters relating to breach of this Agreement, and which cannot be resolved by the parties shall be settled by arbitration in accordance with this Agreement. D. Notice requesting arbitration ("Arbitration Notice"), or any other notice made in connection therewith, shall be made in writing by one party and sent by certified mail, return receipt requested, to the other party. The Arbitration Notice shall state in particular all issues to be resolved in the view of the complaining party, shall appoint the arbitrator selected by the complaining party and shall set a tentative date for the arbitration hearing, which date shall be no sooner than forty-five (45) calendar days and no later than ninety (90) calendar days from the date that the Arbitration Notice is mailed. Within twenty (20) calendar days of receipt of the complaining party's Arbitration Notice, the respondent shall notify the complaining party of the location for conducting arbitration and the name of its appointed arbitrator. When the two arbitrators have been appointed, they shall agree on a third independent arbitrator and shall appoint such person by written notice to the parties signed by both arbitrators within thirty (30) calendar days from the date of the appointment of the second arbitrator. If the two arbitrators fail to agree upon the appointment of an independent arbitrator at the end of thirty (30) calendar days following the appointment of the second arbitrator, then the independent arbitrator shall be appointed by the American Arbitration Association ("AAA"), or its successor, in accordance with its then prevailing commercial arbitration rules then in effect. The three (3) arbitrators shall constitute the arbitration board ("Board"). E. The members of the Board shall be active or retired (i) lawyers or professionals familiar with insurance and/or (ii) active or former officers or management employees of insurance and/or data processing firms and/or software development companies. The person selected by the two respective arbitrators appointed by the parties shall be the umpire or chief arbitrator and must be a licensed attorney. F. Arbitration shall be conducted in accordance with the Commercial Rules of the American Arbitration Association ("AAA") then in effect except as modified herein. G. The parties agree that all then current employees of each with material relevant information will be voluntarily produced, at the employer's expense, for all proper discovery and arbitration hearings. H. The cost of the arbitration relative to the arbitrators and the AAA ("Costs") shall be borne equally pending the arbitrators' award. Each party shall bear its own expenses for attorneys' fees. The prevailing party in any arbitration proceeding hereunder shall be entitled, in addition to such other relief as may be granted, to recover the portion of the Costs incurred by that party in connection with arbitration under the Agreement prior to the award. I. The parties agree that the Board shall be required to render its decision in writing within thirty (30) calendar days of the conclusion of the arbitration proceedings, unless such time shall be extended by mutual written agreement of the parties. 10 J. With respect to any matter brought before the Board, the Board shall make a decision having regard to the intentions of the parties, the terms of this Agreement, and custom and usage of the insurance and data processing industry. Such decisions shall be in writing and shall state the findings of fact and conclusions of law upon which the decision is based, provided that such decision may not (i) award consequential, punitive, special, incidental or exemplary damages, or (ii) include a suspension of this Agreement or any provisions hereof. The decision shall be based exclusively upon the evidence presented by the parties at a hearing in which evidence shall be allowed. Said decisions may be reviewable and vacated, modified or corrected, in whole or in part, by appropriate courts of competent jurisdiction for clear abuses of discretion or errors at law by the Board. If the decision is not vacated, modified, or corrected in whole or in part upon an appeal, such decision shall be final and binding upon all parties to the proceeding and may be entered by either party in any court having competent jurisdiction. (The remainder of this page is intentionally left blank.) 11 IN WITNESS WHEREOF, the parties hereto by their respective duly authorized representatives have executed this Agreement to be effective as of the 12th day of Sept., 2001. - ------------------------------------------------------------------------------- "IMS" INSURANCE MANAGEMENT SOLUTIONS, INC. - ------------------------------------------------------------------------------- By: s/s D.M. Howard ------------------------------------ As its: President/CEO -------------------------------- Date: September 12, 2001 ---------------------------------- - ------------------------------------------------------------------------------- "CUSTOMER" - ------------------------------------------------------------------------------- MOBILE USA INSURANCE COMPANY By: P. Daniel Eldridge ------------------------------------ As its: President, CEO -------------------------------- Date: September 12, 2001 ---------------------------------- - ------------------------------------------------------------------------------- PHILADELPHIA INDEMNITY INSURANCE COMPANY. By: P. Daniel Eldridge ------------------------------------ As its: President, CEO -------------------------------- Date: September 12, 2001 ---------------------------------- - ------------------------------------------------------------------------------- 12 SCHEDULES: SCHEDULE "A" - AUTHORIZED STATES AND INSURANCE PROGRAM SCHEDULE "B" - FEE SCHEDULE EXHIBITS: EXHIBIT 1 - WYO FLOOD INSURANCE SERVICES 13 SCHEDULE A AUTHORIZED STATES AND INSURANCE PROGRAM IMS shall provide Insurance Administration Services as described in EXHIBIT I for the following authorized line(s) of business ("Authorized Line of Business") in the following authorized state(s) ("Authorized States"): 1. AUTHORIZED LINE OF BUSINESS: WYO Flood Insurance ---------------------------------------------------------------------- ---------------------------------------------------------------------- ---------------------------------------------------------------------- 2. AUTHORIZED STATES: All states within the United States of America. ---------------------------------------------------------------------- 14 SCHEDULE B FEE SCHEDULE [*] Indicates that material has been omitted and confidential treatment has been requested therefor. All such omitted material has been filed separately with the SEC pursuant to Rule 24b-2. 15 EXHIBIT I INSURANCE ADMINISTRATION SERVICES (WYO FLOOD) WHEREAS, The Federal Emergency Management Agency ("FEMA") and the Federal Insurance Administration ("FIA") administer the National Flood Insurance Program ("NFIP") and Customer is an insurance company duly licensed to write flood insurance in the state or states to which this Agreement pertains and is approved by FIA to act as a Write Your Own Company ("WYO Company") under the Write Your Own Flood Insurance Program ("WYO Flood Program"), a program offered under the NFIP; and WHEREAS, Customer wishes to engage the services of IMS to administer certain of the Customer's obligations as a WYO Company in the state(s) ("Authorized States") set forth in SCHEDULE A. 1) DEFINITIONS. Capitalized terms not otherwise defined in the Agreement or in this Exhibit shall be construed as otherwise generally understood in the insurance and data processing industry. 2) POLICY ADMINISTRATION. IMS shall administer Customer's WYO Flood Program policies ("WYO Policies") performing the services listed hereunder in accordance with the NFIP, as amended, and all implementing regulations as well as Customer's Write Your-Own Arrangement ("Arrangement") with FEMA. The same standards by which Customer is bound shall be those by which IMS is bound to Customer. a) Underwriting. - Review WYO Policy application for completeness/contact Agent as applicable; - Create WYO Policy file; - Underwriting based on NFIP guidelines. b) Data Entry. (subject to the 120 Day Internet Access Milestones specified in Schedule B) - New WYO Policy business; - WYO Policy changes; - Mortgagee changes; - WYO Flood insurance Agent changes; - Endorsements; - Cancellations. c) WYO Policy Issuance. - WYO Policy for new business, renewals and endorsements where declaration page issuance is required; - WYO Policy Renewal processing; - WYO Policy automated rating; - WYO Policy print declarations and related WYO Policy forms. d) Billing & Collection. - Print invoices, reminders, cancellation notification, return WYO Policy premium disbursements; - Mortgage activity processing; - EFT processing; - Process cancellations for non-payment. e) Customer Service. - Provide a dedicated customer service support call center; - Respond to Customer's WYO Policyholder and WYO flood insurance sales Agent telephone inquires; 17 - Process requests for WYO Policy changes; - Respond to correspondence related to WYO Policy and WYO Policy claim administration services; - Track and respond to complaints related to WYO Policy and/or WYO Policy claim administration services; IMS customer service hours of operation 8:00 a.m. to 8:00 p.m. Eastern Standard Time ("EST"). f) Bureau Reporting. - Process and balance WYO Policy premium and WYO Policy loss data; - Edit and correct invalid data; - Prepare and mail Bureau transmittals; - To the best of IMS knowledge, provide on-going regulatory changes; - Maintain WYO Policy history files. g) Accounting Administration/Premium. - Posting, balancing, and control of WYO Policy premium receivable; - Accounting and payment of Customer's WYO flood insurance Agents WYO Policy commissions; - Issuance, control and accounting for disbursements for WYO Policy premium refunds, WYO Policy commissions. h) Financial Accounting. - Issuance, control and accounting for disbursements for general expenses; - Day-to-day management of short term cash; - Provide reasonable and customary financial management reports. i) Treasury. - Receive and post WYO Policy payments; - Issuance, control and accounting for disbursements of WYO Policy premium related expenses; - Bank reconciliation of WYO Policy premium disbursements; - OCR WYO Policy payment processing; - Mortgagee billing. j) Agency Administration. - Agent of record assignment and control; - 1099 reporting; - Maintain WYO flood insurance Agent files. k) Print & Distribution Services. - Automated document library; - Electronic document assembly; - Electronic document archival/retrieval; - Automated finishing/insertion facility; - Mail pre-sort facility; - Mailing WYO Policy, WYO Policy billings and WYO Policy renewals (including postage and supplies); - Document Imaging. l) System Administration. - Availability of Proprietary System to Customer and Customer's WYO Policy claim vendor; - Process daily, weekly, monthly, and annual cycles; - Internet processing capabilities subject to Internet use limitations specified in Schedule B. 3) CASH MANAGEMENT. 18 a) Banking Arrangement. IMS and Customer shall establish a banking arrangement that complies with the Arrangement and other WYO Flood program requirements, and which will provide for the establishment of an NFIP restricted account ("Restricted Account") with Customer as custodian, and a FEMA letter of credit ("Letter of Credit"), with additional accounts as needed to facilitate WYO Flood Program operations, all in conformity with FEMA/FIA guidelines. Customer shall grant specific IMS' employees check-signing authority on any Restricted Account and the authority to initiate appropriate drawdowns against Customer's Letter of Credit, in order for IMS to act on Customer's behalf in making disbursements for Customer liabilities established by the Arrangement, the WYO Flood Program, and this Agreement. All such authorizations shall be in writing and may be revoked, amended or modified at any time by Customer upon thirty (30) days advanced written notice to IMS. Notwithstanding the foregoing, IMS shall not draw down on Letter of Credit for an amount that exceeds $50,000.00 without prior approval from the Chief Financial Officer of Customer, which approval shall not be unreasonably withheld and shall be given within 24 hours of the request being made by IMS. b) Premium Remittance -IMS shall establish procedures, as determined by FIA, for a timely deposit and remittance of funds to the U.S. Treasury via authorized automatic clearinghouse mechanism. Gross premium collected by IMS, for WYO Flood program business written under this Agreement, shall be remitted to the FIA by IMS net of the established NFIP Expense Allowance. ("Allowance"), which Allowance expenses to be paid under the Allowance include Carrier's operating and administrative expenses. c) Financial Data - IMS shall maintain supporting documentation for all bank accounts over which it has authority. On a monthly basis, IMS shall prepare financial data, reflecting all debits and credits with respect to WYO Flood Program business administered under this Agreement, including agents' commissions and IMS' Service Fees paid. d) WYO Flood Program Reimbursements - Any WYO Flood Program reimbursements made pursuant to the Arrangement, including, but not limited to, those for the unallocated loss adjustments expenses, the allocated loss adjustments, and for approved special allocated loss adjustments expenses, shall be payable to IMS upon receipt by Customer. e) Marketing Goals - Customer shall maintain responsibility for any risk, or shall be entitled to any reward, that may be associated with achieving or failing to achieve any marketing goal set by the FIA or FEMA. 4) CLAIM ADMINISTRATION. IMS shall provide Claims administration in accordance with the Arrangement, the Financial Control Plan and the Agreement, which claim administration processing services are outlined below. Any litigation costs not reimbursed by FEMA would be the responsibility of the Customer. IMS may also rely on the information and direction contained in the WYO Flood Program Claims Manual, the FEMA Adjuster Manual, the Flood Insurance Agent's Manual, the Standard Flood Insurance Policy, the WYO Operational Overview, and/or other WYO Flood Program instructional material. a) Claim Management Facilitation. - Twenty-four (24) hour reporting capability, first notice of loss, coverage for verification and WYO Policy claim; - Investigation of WYO Policy claim; - Fast track unit; - Reinspection and audit; - Claims handling standards/best practices; - Claim check issuance; - Management reports; - WYO Policyholder satisfaction surveys; 19 - Special Investigation Unit ("SIU") services; - Salvage & subrogation claim processing; - Litigation support. b) Catastrophe Preparation and Response. - Preparedness by developing media reference guides and notices, adjuster workshops, and training manuals; provide storm tracking; reserve equipment and supplies; establish procedures; - Response in case of a catastrophic event by establishing and staffing satellite service centers; automating the distribution of claims to adjusters; internal examinations/external reinspections; - Recovery by providing management reports, audit/reinspection program, SIU and oversight operations. 5) ADJUSTING FIRM. IMS' Colonial Catastrophe Claims Service will be the authorized adjusting firm ("Adjusting Firm") for all claims adjusting work on behalf of Customer. However, Customer may designate a different Adjusting Firm with thirty (30) days written notice to IMS. 6) DISASTER RECOVERY PLAN. IMS shall perform its' full range Disaster Recovery Plan on an annual basis. Customer has the right to observe the Disaster Recovery Plan at its own expense, provided that it has requested in writing to participate within thirty (30) days of planned execution. 7) STATISTICAL REPORTING. IMS shall maintain Customer's data within IMS' policy, claims and general ledger systems. IMS shall prepare and submit to FIA, monthly financial and statistical reports, reconciliation reports, certifications, and statistical tapes on Customer's behalf, in accordance with WYO Flood Program Accounting Procedures and the Transaction Record Reporting and Processing Plan ("TRRP Plan"). 8) SPECIAL SERVICES. a) Audit - At Customer's expense and at IMS' premises, IMS shall conduct a biennial audit of any and all WYO Flood Program business written by Customer pursuant to this Agreement. IMS shall select an independent auditor and IMS shall present the expense estimate for the biennial audit to Customer. Within fifteen (15) days of receiving the estimate, Customer shall have the option of selecting their own independent auditor to conduct the audit or proceed with the independent auditor selected by IMS. b) Zone Determination Services - IMS shall provide flood zone determinations to the Customer (or Customer's agents) to assist in writing a WYO Policy to be placed with the Customer and administered by IMS. . c) Rating Software - From the Effective Date of this Agreement up to the one (1) year anniversary of the date that IMS provides internet access (which shall include deployment of the internet access into live production) to any of Customer's insurance sales agents for the Authorized Line of Business within the Authorized States, IMS will make available to Customer and/or Customer's insurance sales agents, rating software (which by definition is a Proprietary System) for the ability to provide quotations, prepare new business applications, endorsements and cancellation of the WYO Policy. d) Training - Upon Customer's request, IMS will provide six (6) training sessions per calendar year to Customer and/or Customer's Agents. Customer will provide the training facility. Additional requests for training will be charged at One Hundred and Twenty Five Dollars ($125) per day plus reasonable per diem and travel expenses incurred. e) Marketing Material. IMS will make available to Customer its marketing or promotional 20 materials, which IMS may customize and produce for Customer at Customer's expense. f) Agency Rollover Services. Within a reasonable time of Customer's request, IMS will provide rollover services to those Customer agents that wish to roll over 300 or more WYO Policies in their book of business to Customer. In the event that there are several Agents within a concentrated geographical area wishing to roll over 300 or more WYO Policies to Customer, IMS will provide rollover service to all Agents within that area at the same time. Due to the potential size of the project, IMS will need Customer to provide a full listing of Agents, location and size of business. IMS will create a schedule to perform this service. g) Additional Fees & Services. Additional services not specified in this Agreement may be provided by as mutually agreed upon in writing between the Customer and IMS in writing. 21 EX-10.12 5 g75105aex10-12.txt 10/01/01 INSURANCE ADMINISTRATION AGREEMENT EXHIBIT 10.12 INSURANCE ADMINISTRATION SERVICES AGREEMENT THIS INSURANCE ADMINISTRATION SERVICES AGREEMENT ("Agreement") is effective as of the 1st day of October, 2001 ("Effective Date"), by and between INSURANCE MANAGEMENT SOLUTIONS, INC. ("IMS"), a corporation organized and existing under the laws of the State of Florida with its principal place of business located at 360 Central Avenue, St. Petersburg, Florida 33701, and AUTO CLUB SOUTH INSURANCE COMPANY (herein referred to as "Customer") having their principal place of business at 1515 North Westshore Boulevard, Tampa, FL 33607. WHEREAS, Customer wishes to engage the services of IMS to administer certain of the Customer's obligations for the lines of business ("Authorized Lines of Business") in the state(s) ("Authorized States") set forth in SCHEDULE A; WHEREAS, IMS wishes to provide such insurance administration services as set forth herein. NOW THEREFORE, IN CONSIDERATION OF the mutual covenants and agreements hereinafter set forth, the parties hereto do covenant and agree as follows: ARTICLE I. DEFINITIONS Unless the context clearly requires otherwise, the following terms when used in this Agreement shall have the meanings set forth below: A. "Affiliate" is any company which controls, is controlled by, or under common control with, a party, and "control" is defined as owning 50% or more of such entity. B. "Authorized Lines of Business" means the lines of business expressly set forth in SCHEDULE A of this Agreement. C. "Authorized States" means the states expressly set forth in SCHEDULE A of this Agreement. D. "Business Day" means any day other than a Saturday, Sunday or other day which is a bank holiday for Florida State banks or an IMS paid holiday (New Year's Day, Memorial Day, Independence Day, Thanksgiving Day, day after Thanksgiving, Christmas Eve (after 12 P.M. Eastern Standard Time) and Christmas Day). E. "Change of Control" means (a) a sale, transfer or pledge, or the issuance to a new shareholder, of fifty (50%) percent or more of the voting stock of a party hereto to any third party that is not an Affiliate of such party; or (b) a sale, transfer or pledge of a substantial portion of the material assets of a party, or any merger or consolidation of a party with another entity or entities. F. "Insurance Administration Services" means the services set forth in this Agreement and EXHIBIT I hereto in the Authorized States in accordance with the terms of the Agreement, and all applicable laws and regulations. G. "Insurance Program" means the Customer's insurance products within the Authorized Line(s) of Business to be offered within the Authorized States. H. "Technical Information" means and shall include (without limitation) computer programs, databases, designs, algorithms, processes, structures, data formats, business methods, know how, and research and development information. 1 ARTICLE II. TERM The term of the Agreement shall commence on the Effective Date and shall have a minimum operating term ("Minimum Operating Term") of Twelve (12) full calendar months following the Effective Date. However, the term of this Agreement shall automatically extend for an additional operating term ("Extended Operating Term") of twelve (12) calendar months at the end of the Minimum Operating Term, or at the end of any Extended Operating Term, unless terminated earlier pursuant to the termination provisions within Article VIII. ARTICLE III. RESPONSIBILITIES OF IMS A. IMS shall dedicate the human, equipment and computer resources commercially reasonably required to provide Customer with the Insurance Administration Services, during the term of this Agreement, for the Insurance Program within Authorized States specified in SCHEDULE A. B. IMS shall designate an employee ("Account Manager") of sufficient status and authority to act as liaison with Customer to facilitate IMS' performance of the Insurance Administration Services under this Agreement. The Account Manager shall provide written and/or oral communication of the status of administration of the Insurance Administration Services as agreed to by and between Account Manager and Customer. C. IMS shall, based on accepted industry standards and in accordance with generally accepted insurance and accounting practices as designated by the applicable regulatory bodies and the National Flood Insurance Program ("NFIP"), maintain complete and orderly records and policy and/or claims files as may be required as a result of IMS performing the Insurance Administration Services on behalf of Customer. These files shall be retained by IMS, in a format or media defined by IMS which shall be in compliance with applicable laws and regulations, for the minimum period ("Minimum Period") specified by the applicable statutes regulating the preservation of records (including, but not limited to, NFIP standards regulating the preservation of records), unless the Customer requests that its records be returned to it at its expense at the expiration of the Minimum Period; however, that IMS shall be entitled to retain copies thereof. D. IMS shall maintain an errors and omission policy issued by an insurance carrier reasonably acceptable to Customer, with policy limits of no less than Ten Million Dollars ($10,000,000.00) and with a deductible no greater than Fifty Thousand Dollars ($50,000.00). ARTICLE IV. RESPONSIBILITIES OF CUSTOMER A. During the term of this Agreement, Customer shall provide to IMS, in a timely manner, any and all data, information and other items reasonably required to enable IMS to perform the Insurance Administration Services specified in EXHIBIT I of this Agreement. Customer represents and warrants to IMS that it owns and possesses all property rights to its corporate and subsidiary logos and hereby grants and warrants to IMS a limited, non-transferable, non-assignable, license to use Customer's corporate and subsidiary logos (and any other copyrighted or trademarked property of Customer that may be provided to IMS under this Agreement) while performing the Insurance Administration Services. Customer acknowledges and agrees that delays in delivery of required documentation, data and/or information by Customer will result in a similar delay in fulfilling Insurance Administration Services, and that such a delay in performing the Insurance Administration Services shall not be deemed a breach of the Agreement. B. CUSTOMER ACKNOWLEDGES AND AGREES THAT IMS ASSUMES NO INSURANCE RISK FOR THE BUSINESS PROCESSED UNDER THIS AGREEMENT. C. Customer shall designate manager level employee(s) of sufficient status and binding decision 2 making authority to act as liaisons with IMS and to facilitate Customer's role as IMS performs the Insurance Administration Services specified in EXHIBIT I of this Agreement. ARTICLE V. CUSTOMER ACCESS TO RECORDS / CONFIDENTIAL INFORMATION A. At Customer's expense, Customer will be permitted reasonable access (as set forth herein) to all records and information maintained by IMS on behalf of Customer (excluding, specifically, proprietary Technical Information) reasonably necessary to: (i) audit the completeness and accuracy of the Insurance Administration Services provided under this Agreement and reports produced for Customer pursuant to this Agreement; (ii) verify the accuracy and validity of all billings and charges to Customer under this Agreement; and (iii) verify IMS' overall compliance with the material terms of this Agreement and applicable laws and regulations. Access to IMS' records, for the foregoing purposes, will be provided during normal business hours upon ten (10) Business Days prior written notice to IMS by Customer for so long as IMS is required to maintain such records under this Agreement; except in the case of regulatory inquiry, in which case access will be granted on any Business Day with twenty four (24) hours of prior written notice to IMS. At Customer's expense, Customer will be permitted to copy those IMS records subject to audit in accordance with this Article. Upon reasonable written request by Customer, and at Customer's expense, IMS will promptly mail or fax to Customer supporting documentation concerning any specific transaction processed by IMS under the terms of this Agreement. IMS will provide reasonably adequate workspace for Customer to conduct audits in accordance with this Article. Further, Customer or its representatives shall take precautions, when conducting audits under this Article, not to disrupt IMS' ongoing business activities. B. The recipient ("Recipient") of confidential data and/or information pursuant to this Agreement shall maintain the confidentiality of all data and/or information which is the property of the other party ("Disclosing Party"), whether originally supplied by the Disclosing Party, or whether generated by the Disclosing Party in the course of performing or facilitating the Insurance Administration Services under this Agreement and which is directly accessible to the Recipient or is in the possession of Recipient in the implementation, facilitation and/or performance of the Insurance Administration Services. During any term of this Agreement, Recipient may acquire, know, or have within its possession, information (including, but not limited to, Technical Information) and/or data of the Disclosing Party concerning commercial and trade affairs, rating and underwriting rules and guidelines, the identity of clients, the identity of insureds and beneficiaries, claims, benefits, rates and Agents, financial information, the Proprietary System (as defined at Article VII (A) herein), the Third Party Proprietary System (as defined in Article VII (B) herein) and business practices of the Disclosing Party ("Confidential Information"). Confidential Information which is provided in tangible form must be clearly marked "Confidential", "Proprietary" or the substantial equivalent thereof, or if orally disclosed must be clearly identified as "Confidential" or "Proprietary" at the time of the disclosure (except for IMS' Technical Information, the identity of Customer's clients, the identity of Customer's insureds and beneficiaries, claims, benefits, and Agents, which will be deemed "Confidential Information" under this Agreement, regardless of whether marked as such). Except as required by law, Recipient shall keep Disclosing Party's Confidential Information confidential and shall only use the Confidential Information in performing or facilitating the Insurance Administration Services under this Agreement. Recipient shall not disclose the Confidential Information without Disclosing Party's prior written permission except to Recipient's employees who require the information to perform or facilitate the Insurance Administration Services under this Agreement. Each party hereto, as a Recipient, warrants to the other that appropriate measures shall be taken by Recipient to safeguard the confidentiality of the Confidential Information, with a level of care at 3 least equal to the level of care with which Recipient safeguards its own confidential or proprietary information. All employees, agents or representatives of Recipient and any third parties who are given access to the Confidential Information shall be under written obligation to Recipient to maintain such information in confidence. A form of the Written Obligation is hereby attached to as Exhibit II and by reference herein made a part of this Agreement. IMS and Customer agree that any Recipient shall have no obligation with respect to any information or data which: a) is already rightfully known to Recipient through means other than Disclosing Party; or b) is or becomes publicly known through no wrongful act of Recipient; or c) is rightfully obtained by Recipient from a third-party without similar restriction and without breach of this Agreement; or d) is independently developed by Recipient without breach of this Agreement. Disclosing Party shall retain title to all Confidential Information (whether tangible or intangible) delivered thereby pursuant to this Agreement. Recipient shall not copy, reproduce or use any Confidential Information without written authorization of Disclosing Party, except as may be reasonably required to accomplish the Insurance Administration Services under this Agreement. Upon written request of Disclosing Party Recipient shall promptly return, or destroy with specific written permission of the Disclosing Party, all tangible copies containing Confidential Information, except those copies kept in the regular course of business, or that are required to be kept pursuant to any state or federal administrative, regulatory or statutory mandates. The obligations under this Paragraph (B) shall survive the termination of this Agreement. Notwithstanding the foregoing, this Article shall not prevent the disclosure of Confidential Information to the extent legally required by any court or regulatory entity having jurisdiction over the parties. For purposes of Article V (B), Recipient and Disclosing Party shall include within their meaning all respective subsidiaries, agents, or Affiliates of the Recipient and Disclosing Party. ARTICLE VI. EXPENSES AND FEES A. In consideration of IMS providing Insurance Administration Services described herein, Customer shall pay IMS, as applicable, miscellaneous fee ("Miscellaneous Fee"), servicing fee ("Service Fee") and claim administration fee ("Claim Administration Fee") for each Authorized Line of Business, as specified in SCHEDULE B. The performance by IMS of any service or function that is outside of the scope of the Insurance Administration Services shall require the payment by Customer of additional consideration (in addition to the Service Fees) as mutually agreed between IMS and Customer. B. Except for the Service Fee, which is based upon a percentage of the adjusted net written premium and the Claim Administration Fee, the Miscellaneous Fees specified in Section IV of SCHEDULE B hereto may be increased (up to a maximum of five percent (5%) per year from the prior year) effective as of each anniversary of the Effective Date by the percentage increase in the United States Consumer Price Index for all Urban Users (CPI-U) as reported by the United States Bureau of Labor Statistics for the most recently completed calendar year that IMS is performing services on behalf of the Customer. In the event that a FIA required vendor supplying a service or product to IMS, which service or product is used by IMS to provide the Insurance Administration Services to Customer, increases its rates charged to IMS, IMS may increase the Service Fees, Claim Administration Fees, and Miscellaneous Fees set forth in Schedule B to incorporate such increased costs and will provide Customer with documentation verifying the increase. C. Customer shall reimburse IMS for travel, living and out-of-pocket expenses incurred by IMS 4 personnel in the performance of training relative to the Insurance Administration Services to be performed under this Agreement. D. Subject to the terms of this Agreement, all fees and expenses to be payable by Customer to IMS or any third party under this Agreement shall be paid within thirty (30) calendar days after Customer's receipt of IMS' monthly statement for all services provided to Customer under this Agreement. IMS will calculate the fees owed to IMS by Customer and will send a statement to Customer within two (2) weeks of the last day of the month for which fees are owed. Customer's failure to pay all fees and expenses when due shall be considered a material breach of this Agreement. Further, if Customer fails to pay any fees and expenses due IMS as herein provided, Customer shall pay to IMS in addition to all sums otherwise due, interest which shall accrue at 1.5% per month on such delinquency from the date the fees or expenses became past due. Failure or forbearance to exercise any of its rights and privileges hereunder shall not constitute the forfeiture or waiver of such rights and privileges on the part of IMS. E. Subject to the terms of this Agreement, all undisputed fees and expenses to be payable by IMS to Customer shall be paid within thirty (30) calendar days after IMS' receipt of Customer notice. IMS' failure to pay all fees and expenses when due shall be considered a material breach of this Agreement. Further, if IMS fails to pay any fees and expenses due Customer as herein provided, IMS shall pay to Customer in addition to all sums otherwise due, interest which shall accrue at 1.5% per month on such delinquency from the date the fees or expenses became past due. Failure or forbearance to exercise any of its rights and privileges hereunder shall not constitute the forfeiture or waiver of such rights and privileges on the part of Customer. F. Prior to renewal of this Agreement for any Extended Operating Term, IMS may modify SCHEDULE B in its discretion to reflect any increase in the cost of providing the Insurance Administration Services (including, but not limited to statutory, regulatory, or judicial changes that require IMS to incur additional cost or expenses in performing the Insurance Administration Services) or to remain competitive with the rates currently being charged within the industry for like services. Any modification of SCHEDULE B shall be proposed to Customer at least six (6) months prior to the expiration of any term of this Agreement. ARTICLE VII. LICENSE, TRADE SECRET AND PROPRIETARY RIGHTS A. IMS from time to time may use its own proprietary computer software products and account servicing methods and procedures ("Proprietary System"), which are identified, described or referenced in EXHIBIT I hereto, in the performance of the Insurance Administration Services. During any term of this Agreement, IMS grants a personal, non-transferable, non-assignable, non-exclusive license to Customer to use portions of the Proprietary System as necessary for IMS to perform the Insurance Administration Services under this Agreement. Further, no provision within this Agreement shall be interpreted as prohibiting IMS from selling or licensing its Proprietary System to any other customer or prospective customer of IMS. B. IMS, from time to time, may also use proprietary third party computer software products and third party account servicing methods and procedures ("Third Party Proprietary System"), which are identified, described or referenced in EXHIBIT I hereto in the performance of the Insurance Administration Services. No provision within this Agreement shall be interpreted as prohibiting IMS or the Third Party Proprietary System vendor from selling or licensing the Third Party Proprietary System, or modifications and enhancements to the Third Party Proprietary System, to any other customer or prospective customer of IMS, so long as Customer's Confidential Information is not disclosed. 5 C. Other than the limited rights to use the Proprietary System and the Third Party Proprietary System, as provided in Article VII (A) and (B) above, this Agreement grants to Customer no right to possess or reproduce, download, reverse engineer, or obtain any other interest in, the Proprietary System or the Third Party Proprietary System, or their specifications in any tangible or intangible medium. Customer may not mortgage, hypothecate, sell, assign, pledge, lease, transfer, license, or sublicense the Proprietary System or the Third Party Proprietary System, nor allow any person, firm, entity or corporation to transmit, copy, reproduce, download, reverse engineer, or obtain any other interest in the Proprietary System or the Third Party Proprietary System, or their specifications in whole or in part. In the event Customer shall come into possession of any source or object code associated with the Proprietary System or the Third Party Proprietary System, Customer shall immediately notify IMS and return the source or object code associated with Proprietary System or the Third Party Proprietary System in its possession and all copies of any kind thereof to IMS. D. Customer covenants and agrees not to disclose or otherwise make the Proprietary System or the Third Party Proprietary System available to any person other than employees, insurance sales agents ("Agents") or representatives of the Customer required to have access or use of the Proprietary System or the Third Party Proprietary System to facilitate IMS' or Customer's performance under this Agreement. Customer agrees to obligate each such employee, Agents, or representative to a level of care sufficient to protect the Proprietary System and the Third Party Proprietary System from unauthorized disclosure. E. The obligations of Customer under this Article shall survive termination of this Agreement, regardless of the reason for termination. ARTICLE VIII. TERMINATION A. Either party may terminate this Agreement at the end of the Minimum Operating Term or at the end of any Extended Operating Term, provided the terminating party gives the other party at least three(3) months prior written notice of such termination. B. This Agreement shall also terminate: a) at the election of the Customer, upon written notice to IMS, if IMS becomes insolvent, if it makes an assignment for the benefit of its creditors, if a petition for relief under the United States Bankruptcy Code is filed by or against it and it is not dismissed within thirty (30) days of being filed, or if a trustee, receiver or other custodian of its assets is appointed; b) at the election of IMS, upon written notice to Customer, if Customer becomes insolvent, if it makes an assignment for the benefit of its creditors, if a petition for relief under the United States Bankruptcy Code is filed by or against it and it is not dismissed within thirty (30) days of being filed, or if a trustee, receiver or other custodian of its assets is appointed (including, but not limited to, any proceeding pursuant to any state or federal action governing insurer insolvency); c) at the election of the Customer, if IMS materially breaches any provision of this Agreement and fails to cure such breach within sixty (60) days after written notice thereof is given to IMS by the Customer; d) at the election of IMS, if Customer materially breaches any provision of this Agreement and fails to cure such breach within sixty (60) days after written notice thereof is given to Customer by IMS (except for Customer's failure to pay any and all fees and expenses due under Article VI of this Agreement, in which case Customer must cure such breach within thirty (30) days after written notice thereof is given to Customer by IMS); 6 e) at the election of IMS, upon written notice to Customer, in the event of a Change of Control of Customer unless (i) Customer has provided IMS not less than sixty (60) days advance written notice of the proposed Change of Control and (ii) IMS has agreed in writing to such Change of Control. The initiation under this Agreement of any dispute resolution procedure shall not prevent a party from terminating this Agreement in accordance with this Article VIII. C. On expiration or termination of this Agreement, IMS shall return to Customer all of Customer's Confidential Information, either in electronic or hard copy form, in IMS' possession and delete any electronic copies thereof related to the Insurance Administration Services provided by IMS during the term of this Agreement; Customer shall do the same and cause Customer's agents and representatives (including, but not limited to, any third party given access to the Confidential Information) to do the same relative to IMS' Confidential Information. Customer shall pay IMS (in accordance with SCHEDULE B then in effect) any and all Service Fees, Claim Administration Fees, Miscellaneous Fees and third party fees due IMS for Insurance Administration Services performed pursuant to this Agreement. IMS and Customer shall cooperate in any transition period during the wind-up of Insurance Administration Services provided Customer under this Agreement. If Customer requires assistance in converting Customer's data to a new format, or requires assistance from IMS relative to Customer's transition to an alternative claim administration arrangement, then IMS shall provide such services at the then current rates charged by IMS for the services specified in Section IV of SCHEDULE B. This obligations under this Paragraph(C)shall survive any termination of this Agreement. ARTICLE IX. WARRANTIES AND COVENANTS IMS covenants that IMS will comply in all material respects with the law of the state or states covered by this Agreement and with the rules and regulations of all regulatory authorities having jurisdiction over IMS' activities, and shall, whenever necessary, maintain at its own expense all required licenses to transact business in such states. IMS warrants to Customer that (a) IMS owns or otherwise has the right to use the Proprietary System used to perform the Insurance Administration Services, and the rights to such Proprietary System granted hereunder will not knowingly infringe upon a third party's copyright or patent rights; (b) IMS is duly authorized to transact the business of servicing insurance companies; and (c) the express warranties provided here and elsewhere in this Agreement are IMS' only warranties and no other warranty, express or implied, including any warranty of merchantability, fitness or fitness for a particular purpose, will apply to the provision of Insurance Administration Services under this Agreement. ARTICLE X LIABILITY, LIMIT OF LIABILITY, INDEMNITIES AND REMEDIES A. The parties shall assume the following obligations and liabilities as specified below and subject to the limitations on liability set forth in Article X, (B) below: a) IMS shall indemnify, defend and hold harmless Customer, its officers, directors, employees and controlling persons from any liability, cost, loss, fine, penalty, claim, demand, damage or expense, including reasonable attorneys' fees, incurred directly as a result of any material breach of IMS' obligations under this Agreement or the material breach of any representation or warranty made by IMS to Customer pursuant hereto; b) Customer shall indemnify, defend and hold harmless IMS, its officers, directors, employees and controlling persons from any liability, cost, loss, fine, penalty, claim, demand, damage or expense, including reasonable attorney's fees, incurred directly as a result of (i) any material breach of Customer's obligations under this Agreement, or (ii) the material breach of any representation or warranty made by Customer to IMS pursuant hereto; 7 c) Customer agrees that in the event IMS is in violation of any code, statute or law(s) due to the acts or omissions of Customer, or the servants, employees, representatives, adjusters, or Agents of Customer, then Customer shall assume the responsibility and liability for such acts or omissions and shall indemnify and hold IMS harmless for any such liability; B. Except for: (i) fees and expenses payable to IMS under Article VI of this Agreement; (ii) acts of fraud, willful misconduct or gross negligence; and (iii) violations of Article VII of this Agreement, each party's maximum liability ("Maximum Liability") to the other party for any cause whatsoever, during any one calendar year shall be limited to direct damages incurred by that party and shall not exceed the greater of: (a) the amount of compensation paid by the Customer under SCHEDULE B of this Agreement for the six (6) months immediately preceding the breach or cause of liability, or (b) to the extent a liability is covered by IMS' error and omission policy, the limit of IMS' current error and omission policy. Further, IMS shall not be liable for any lost profits, business goodwill, or other consequential, punitive, special or incidental damages incurred by Customer. C. If data is processed in error due directly to an error or defect in the Insurance Administration Services provided by IMS, then upon IMS receiving notice of such error or defect, IMS shall reprocess such data without charge to Customer. D. All parties agree to promptly give the others notice upon being notified or becoming aware of any and all allegations or claims, which could give rise to a claim under this Article. ARTICLE XI. GENERAL AGREEMENTS A. This Agreement and all matters arising hereunder shall be governed by and determined in accordance with the laws of the State of Florida without giving effect to any choice of law provisions. B. The parties shall not be liable or deemed to be in default hereunder for any delay or failure in performance under this Agreement or interruption of the Insurance Administration Services resulting, directly or indirectly, from acts of God (including but not limited to weather catastrophes such as floods, hurricanes, tornadoes, windstorms, ice storms, blizzards and hail storms), civil or military authority, labor disputes, shortages of suitable parts, materials, labor or transportation or any similar cause beyond the reasonable control of the parties. C. 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 Customer: Auto Club South Insurance Company 1515 North Westshore Boulevard Tampa, Florida 33607 Fax Number: (813) -------------------------- Attention: President As to IMS: Insurance Management Solutions, Inc. 360 Central Avenue, 16th Floor St. Petersburg, FL 33701 Fax Number: (727) -------------------------- Attention: President 8 Notices sent by hand delivery shall be deemed effective on the date of actual hand delivery. Notices 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 fifth Business Day after being deposited into the post office. Notices sent by facsimile transmission shall be deemed to be effective on the day when sent if sent prior to 4:30 p.m. (the time being determined by the time zone of the recipient), otherwise they shall be deemed effective on the next Business Day. D. This Agreement, and the exhibits, schedules and appendices attached hereto, contain all of the prior oral and/or previously written agreements, representations, and arrangements between the parties hereto. There are no representations or warranties other than those set forth herein. No change or modification of this Agreement, including the exhibits, schedules and appendices hereto, shall be valid unless the same shall be in writing and signed by all of the parties hereto. All exhibits, schedules, appendices, addendum of any kind, or attachments to this Agreement shall be made a part of this Agreement and shall be subject to all terms and conditions of this Agreement. Articles V (B), VII, and VIII (C) shall survive any termination of this Agreement. E. 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. Article headings are intended for purposes of description only and shall not be used for purposes of interpretation of this Agreement. F. 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 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. G. If either party 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 attorneys' 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 attorneys' fees were incurred. H. Neither IMS nor Customer shall assign this Agreement or any of its rights hereunder without the prior written consent of the non-assigning party. I. The parties agree not to disclose the terms and conditions of this Agreement to any third party, except (i) as required in the normal conduct of Customer's business, or (ii) as required by law or regulation including, without limitation, any Federal securities law, or regulation. ARTICLE XII. DISPUTE RESOLUTION PROCEDURES A. The parties will attempt in good faith to promptly resolve any material dispute regarding this Agreement by negotiations between senior management ("Senior Management") of the parties. Senior Management of each party will meet within ten (10) calendar days of notice ("Notice of Dispute") by a party of the existence of a material dispute, at a mutually agreed time and place, to resolve the material dispute. Senior Management, who shall have the authority to settle the dispute, shall prepare and exchange memoranda stating the issues in the material dispute and their positions. If the material dispute is not resolved to the mutual satisfaction of the parties within seven (7) calendar days of the meeting of Senior Management, then the parties may attempt to resolve the controversy using mediation. 9 B. If the matter has not been resolved pursuant to the aforesaid mediation procedure within thirty (30) calendar days of the issuance of a party of a Notice of Dispute, or if either party will not participate in mediation, then either party may initiate arbitration upon fifteen (15) calendar days written notice to the other party. Notwithstanding the foregoing, all deadlines specified above may be extended upon mutual written agreement of the parties. C. Except for the right of either party to apply to a court of competent jurisdiction for review of the award of arbitration, for a temporary restraining order, preliminary injunction or other equitable relief to preserve the status quo, or disputes relating to breach of the confidentiality, non-disclosure or trade secret provisions of this Agreement, all claims, disputes, controversies and other matters relating to breach of this Agreement, and which cannot be resolved by the parties shall be settled by arbitration in accordance with this Agreement. D. Notice requesting arbitration ("Arbitration Notice"), or any other notice made in connection therewith, shall be made in writing by one party and sent by certified mail, return receipt requested, to the other party. The Arbitration Notice shall state in particular all issues to be resolved in the view of the complaining party, shall appoint the arbitrator selected by the complaining party and shall set a tentative date for the arbitration hearing, which date shall be no sooner than forty-five (45) calendar days and no later than ninety (90) calendar days from the date that the Arbitration Notice is mailed. Within twenty (20) calendar days of receipt of the complaining party's Arbitration Notice, the respondent shall notify the complaining party of the location for conducting arbitration and the name of its appointed arbitrator. When the two arbitrators have been appointed, they shall agree on a third independent arbitrator and shall appoint such person by written notice to the parties signed by both arbitrators within thirty (30) calendar days from the date of the appointment of the second arbitrator. If the two arbitrators fail to agree upon the appointment of an independent arbitrator at the end of thirty (30) calendar days following the appointment of the second arbitrator, then the independent arbitrator shall be appointed by the American Arbitration Association ("AAA"), or its successor, in accordance with its then prevailing commercial arbitration rules then in effect. The three (3) arbitrators shall constitute the arbitration board ("Board"). E. The members of the Board shall be active or retired (i) lawyers or professionals familiar with insurance and/or (ii) active or former officers or management employees of insurance and/or data processing firms and/or software development companies. The person selected by the two respective arbitrators appointed by the parties shall be the umpire or chief arbitrator and must be a licensed attorney. F. Arbitration shall be conducted in accordance with the Commercial Rules of the American Arbitration Association ("AAA") then in effect except as modified herein. G. The parties agree that all then current employees of each with material relevant information will be voluntarily produced, at the employer's expense, for all proper discovery and arbitration hearings. H. The cost of the arbitration relative to the arbitrators and the AAA ("Costs") shall be borne equally pending the arbitrators' award. Each party shall bear its own expenses for attorneys' fees. The prevailing party in any arbitration proceeding hereunder shall be entitled, in addition to such other relief as may be granted, to recover the portion of the Costs incurred by that party in connection with arbitration under the Agreement prior to the award. I. The parties agree that the Board shall be required to render its decision in writing within thirty (30) calendar days of the conclusion of the arbitration proceedings, unless such time shall be extended by mutual written agreement of the parties. 10 J. With respect to any matter brought before the Board, the Board shall make a decision having regard to the intentions of the parties, the terms of this Agreement, and custom and usage of the insurance and data processing industry. Such decisions shall be in writing and shall state the findings of fact and conclusions of law upon which the decision is based, provided that such decision may not (i) award consequential, punitive, special, incidental or exemplary damages, or (ii) include a suspension of this Agreement or any provisions hereof. The decision shall be based exclusively upon the evidence presented by the parties at a hearing in which evidence shall be allowed. Said decisions may be reviewable and vacated, modified or corrected, in whole or in part, by appropriate courts of competent jurisdiction for clear abuses of discretion or errors at law by the Board. If the decision is not vacated, modified, or corrected in whole or in part upon an appeal, such decision shall be final and binding upon all parties to the proceeding and may be entered by either party in any court having competent jurisdiction. (The remainder of this page is intentionally left blank.) 11 IN WITNESS WHEREOF, the parties hereto by their respective duly authorized representatives have executed this Agreement to be effective as of the 7th day of September, 2001. "IMS" INSURANCE MANAGEMENT SOLUTIONS, INC. By: s/s D.M. Howard ------------------------------------ As its: Pres/CEO -------------------------------- Date: 9/7/01 ---------------------------------- "CUSTOMER" AUTO CLUB SOUTH INSURANCE COMPANY By: s/s Larry Patrick ------------------------------------ As its: Vice President -------------------------------- Date: 9/7/01 ---------------------------------- 12 SCHEDULES: SCHEDULE "A" - AUTHORIZED STATES AND INSURANCE PROGRAM SCHEDULE "B" - FEE SCHEDULE
EXHIBITS: EXHIBIT I - WYO FLOOD INSURANCE SERVICES EXHIBIT II - FORM OF EMPLOYEE CONFIDENTIALITY AGREEMENT
13 SCHEDULE A AUTHORIZED STATES AND INSURANCE PROGRAM IMS shall provide Insurance Administration Services as described in EXHIBIT I for the following authorized line(s) of business ("Authorized Line of Business") in the following authorized state(s) ("Authorized States"): 1. AUTHORIZED LINE OF BUSINESS: WYO Flood Insurance 2. AUTHORIZED STATES: The State of Florida, Georgia and such other states as may be mutually agreed upon in writing by Customer and IMS. 14 SCHEDULE B FEE SCHEDULE [*] Indicates that material has been omitted and confidential treatment has been requested therefor. All such omitted material has been filed separately with the SEC pursuant to Rule 24b-2. 15 EXHIBIT I INSURANCE ADMINISTRATION SERVICES (WYO FLOOD) WHEREAS, The Federal Emergency Management Agency ("FEMA") and the Federal Insurance Administration ("FIA") administer the National Flood Insurance Program ("NFIP") and Customer is an insurance company duly licensed to write flood insurance in the state or states to which this Agreement pertains and is approved by FIA to act as a Write Your Own Company ("WYO Company") under the Write Your Own Flood Insurance Program ("WYO Flood Program"), a program offered under the NFIP; and WHEREAS, Customer wishes to engage the services of IMS to administer certain of the Customer's obligations as a WYO Company in the state(s) ("Authorized States") set forth in SCHEDULE A. A. DEFINITIONS. Capitalized terms not otherwise defined in the Agreement or in this Exhibit shall be construed as otherwise generally understood in the insurance and data processing industry. B. POLICY ADMINISTRATION. IMS shall administer Customer's WYO Flood Program policies ("WYO Policies") performing the services listed hereunder in accordance with the NFIP, as amended, and all implementing regulations as well as Customer's Write Your-Own Arrangement ("Arrangement") with FEMA. The same standards by which Customer is bound shall be those by which IMS is bound to Customer. a) Underwriting. - Review WYO Policy application for completeness/contact Agent as applicable; - Create WYO Policy file; - Underwriting based on NFIP guidelines. b) Data Entry. (subject to the 120 Day Internet Access Milestones specified in Schedule B) - New WYO Policy business; - WYO Policy changes; - Mortgagee changes; - WYO Flood insurance Agent changes; - Endorsements; - Cancellations. c) WYO Policy Issuance. - WYO Policy for new business, renewals and endorsements where declaration page issuance is required; - WYO Policy Renewal processing; - WYO Policy automated rating; - WYO Policy print declarations and related WYO Policy forms. d) Billing & Collection. - Print invoices, reminders, cancellation notification, return WYO Policy premium disbursements; - Mortgage activity processing; - EFT processing; - Process cancellations for non-payment. e) Customer Service. - Provide a dedicated customer service support call center; - Respond to Customer's WYO Policyholder and WYO flood insurance sales Agent telephone inquires; 17 - Process requests for WYO Policy changes; - Respond to correspondence related to WYO Policy and WYO Policy claim administration services; - Track and respond to complaints related to WYO Policy and/or WYO Policy claim administration services; IMS customer service hours of operation 8:00 a.m. to 8:00 p.m. Eastern Standard Time ("EST"). f) Bureau Reporting. - Process and balance WYO Policy premium and WYO Policy loss data; - Edit and correct invalid data; - Prepare and mail Bureau transmittals; - To the best of IMS knowledge, provide on-going regulatory changes; - Maintain WYO Policy history files. g) Accounting Administration/Premium. - Posting, balancing, and control of WYO Policy premium receivable; - Accounting and payment of Customer's WYO flood insurance Agents WYO Policy commissions; - Issuance, control and accounting for disbursements for WYO Policy premium refunds, WYO Policy commissions. h) Financial Accounting. - Issuance, control and accounting for disbursements for general expenses; - Day-to-day management of short term cash; - Provide reasonable and customary financial management reports. i) Treasury. - Receive and post WYO Policy payments; - Issuance, control and accounting for disbursements of WYO Policy premium related expenses; - Bank reconciliation of WYO Policy premium disbursements; - OCR WYO Policy payment processing; - Mortgagee billing. j) Agency Administration. - Agent of record assignment and control; - 1099 reporting; - Maintain WYO flood insurance Agent files. k) Print & Distribution Services. - Automated document library; - Electronic document assembly; - Electronic document archival/retrieval; - Automated finishing/insertion facility; - Mail pre-sort facility; - Mailing WYO Policy, WYO Policy billings and WYO Policy renewals (including postage and supplies); - Document Imaging; - Mailing of GLB notices. l) System Administration. - Availability of Proprietary System to Customer and Customer's WYO Policy claim vendor; - Process daily, weekly, monthly, and annual cycles; - Internet processing capabilities subject to Internet use limitations specified in Schedule B. 18 C. CASH MANAGEMENT. a) Banking Arrangement. IMS and Customer shall establish a banking arrangement that complies with the Arrangement and other WYO Flood program requirements, and which will provide for the establishment of an NFIP restricted account ("Restricted Account") with Customer as custodian, and a FEMA letter of credit ("Letter of Credit"), with additional accounts as needed to facilitate WYO Flood Program operations, all in conformity with FEMA/FIA guidelines. Customer shall grant specific IMS' employees check-signing authority on any Restricted Account and the authority to initiate appropriate drawdowns against Customer's Letter of Credit, in order for IMS to act on Customer's behalf in making disbursements for Customer liabilities established by the Arrangement, the WYO Flood Program, and this Agreement. All such authorizations shall be in writing and may be revoked, amended or modified at any time by Customer upon thirty (30) days advanced written notice to IMS. Notwithstanding the foregoing, IMS shall not draw down on Letter of Credit for an amount that exceeds $50,000.00 without prior approval of Customer, which approval shall not be unreasonably withheld and shall be given within 24 hours of the request being made by IMS. b) Premium Remittance -IMS shall establish procedures, as determined by FIA, for a timely deposit and remittance of funds to the U.S. Treasury via authorized automatic clearinghouse mechanism. Gross premium collected by IMS, for WYO Flood program business written under this Agreement, shall be remitted to the FIA by IMS net of the established NFIP Expense Allowance. ("Allowance") , which Allowance expenses to be paid under the Allowance include Carrier's operating and administrative expenses. c) Financial Data - IMS shall maintain supporting documentation for all bank accounts over which it has authority. On a monthly basis, IMS shall prepare financial data, reflecting all debits and credits with respect to WYO Flood Program business administered under this Agreement, including agents' commissions and IMS' Service Fees paid. d) WYO Flood Program Reimbursements - Any WYO Flood Program reimbursements made pursuant to the Arrangement, including, but not limited to, those for the unallocated loss adjustments expenses, the allocated loss adjustments, and for approved special allocated loss adjustments expenses, shall be payable to IMS upon receipt by Customer. e) Marketing Goals - Customer shall maintain responsibility for any risk, or shall be entitled to any reward, that may be associated with achieving or failing to achieve any marketing goal set by the FIA or FEMA. D. CLAIM ADMINISTRATION. IMS shall provide Claims administration in accordance with the Arrangement, the Financial Control Plan and the Agreement, which claim administration processing services are outlined below. Any litigation costs not reimbursed by FEMA would be the responsibility of the Customer. IMS may also rely on the information and direction contained in the WYO Flood Program Claims Manual, the FEMA Adjuster Manual, the Flood Insurance Agent's Manual, the Standard Flood Insurance Policy, the WYO Operational Overview, and/or other WYO Flood Program instructional material. a) Claim Management Facilitation. - Twenty-four (24) hour reporting capability, first notice of loss, coverage for verification and WYO Policy claim; - Investigation of WYO Policy claim; - Fast track unit; - Reinspection and audit; - Claims handling standards/best practices; - Claim check issuance; - Management reports; - WYO Policyholder satisfaction surveys; 19 - Special Investigation Unit ("SIU") services; - Salvage & subrogation claim processing; - Litigation support; - Any litigation cost not reimbursed by FEMA, subject to limitations of Article X of this Agreement b) Catastrophe Preparation and Response. - Preparedness by developing media reference guides and notices, adjuster workshops, and training manuals; provide storm tracking; reserve equipment and supplies; establish procedures; - Response in case of a catastrophic event by establishing and staffing satellite service centers; automating the distribution of claims to adjusters; internal examinations/external reinspections; - Recovery by providing management reports, audit/reinspection program, SIU and oversight operations. E. ADJUSTING FIRM. IMS' Colonial Catastrophe Claims Service will be the authorized adjusting firm ("Adjusting Firm") for all claims adjusting work on behalf of Customer. However, Customer may designate a different Adjusting Firm with thirty (30) days written notice to IMS. F. DISASTER RECOVERY PLAN. IMS shall perform its' full range Disaster Recovery Plan on an annual basis. Customer has the right to observe the Disaster Recovery Plan at its own expense, provided that it has requested in writing to participate within thirty (30) days of planned execution. G. STATISTICAL REPORTING. IMS shall maintain Customer's data within IMS' policy, claims and general ledger systems. IMS shall prepare and submit to FIA, monthly financial and statistical reports, reconciliation reports, certifications, and statistical tapes on Customer's behalf, in accordance with WYO Flood Program Accounting Procedures and the Transaction Record Reporting and Processing Plan ("TRRP Plan"). H. SPECIAL SERVICES. a) Audit - At Customer's expense and at IMS' premises, IMS shall conduct a biennial audit of any and all WYO Flood Program business written by Customer pursuant to this Agreement. IMS shall select an independent auditor and IMS shall present the expense estimate for the biennial audit to Customer. Within fifteen (15) days of receiving the estimate, Customer shall have the option of selecting their own independent auditor to conduct the audit or proceed with the independent auditor selected by IMS. b) Zone Determination Services - IMS shall provide flood zone determinations to the Customer (or Customer's agents) to assist in writing a WYO Policy to be placed with the Customer and administered by IMS. . c) Rating Software - From the Effective Date of this Agreement up to the one (1) year anniversary of the date that IMS provides internet access (which shall include deployment of the internet access into live production) to any of Customer's insurance sales agents for the Authorized Line of Business within the Authorized States, IMS will make available to Customer and/or Customer's insurance sales agents, rating software (which by definition is a Proprietary System) for the ability to provide quotations, prepare new business applications, endorsements and cancellation of the WYO Policy. d) Training - Upon Customer's request and excluding travel expenses, IMS will provide four (4) training sessions per calendar year to Customer and/or Customer's Agents. Customer will provide the training facility. Additional requests for training will be charged at One Hundred and Twenty Five Dollars ($125) per day plus reasonable per diem and travel expenses incurred. e) Marketing Material. IMS will make available to Customer its marketing or promotional materials, which IMS may customize and produce for Customer at Customer's expense. 20 f) Agency Rollover Services. Within a reasonable time of Customer's request, IMS will provide rollover services to those Customer agents that wish to roll over 500 or more WYO Policies in their book of business to Customer. In the event that there are several Agents within a concentrated geographical area wishing to roll over 500 or more WYO Policies to Customer, IMS will provide rollover service to all Agents within that area at the same time. Due to the potential size of the project, IMS will need Customer to provide a full listing of Agents, location and size of business. IMS will create a schedule to perform this service. g) Additional Fees & Services. Additional services not specified in this Agreement may be provided by as mutually agreed upon in writing between the Customer and IMS in writing. I. TIME STANDARDS. IMS shall use commercially reasonable efforts to adhere to certain time standards for performance, as may be outlined and amended from time to time within the FEMA/FIA Financial Assistance /Subsidy Arrangement. 21 EXHIBIT II EMPLOYEE CONFIDENTIALITY AGREEMENT In consideration of my continued employment by Insurance Management Solutions Group, Inc, its affiliates or subsidiaries (collectively, "IMSG"), I, ("Recipient"), hereby agree and specifically consent to, and shall comply with, the following: During Recipient's employment with IMSG, Recipient may acquire, know, or have within its possession, information (including, but not limited to, Technical Information) and/or data of IMSG or its outsourcing clients (collectively, "Disclosing Party") concerning, among other things, commercial and trade affairs, rating and underwriting rules and guidelines, the identity of clients, the identity of insureds and beneficiaries, claims, benefits, rates and agents, financial information and business practices of the Disclosing Party ("Confidential Information"). "Technical Information" means and shall include (without limitation) computer programs, databases, designs, algorithms, processes, structures, data formats, business methods, know how, and research and development information. Any information marked "Confidential", "Proprietary" or the substantial equivalent thereof, or if orally disclosed identified as "Confidential" or "Proprietary" at the time of the disclosure, shall be deemed "Confidential Information". Notwithstanding the foregoing, all IMS' (owned or licensed) Technical Information, the identity of Disclosing Party's insureds and beneficiaries, claim and agent information, shall be deemed "Confidential Information", regardless of whether marked or identified as such. Recipient recognizes and acknowledges that the Confidential Information, as it may exist from time to time, is a valuable, special and unique asset of the Disclosing Party. Recipient, during and after the term of his or her employment with IMSG, shall (a) maintain the confidentiality of all Confidential Information, whether originally supplied by the Disclosing Party, or whether generated by the Recipient in the course of the performance of his or her employment duties with IMSG and which is directly accessible to the Recipient or is in the possession of Recipient; (b) except as required by law, only use the Confidential Information as may be reasonably required to accomplish assignments on behalf of Disclosing Party in which the Recipient is, at any given time during the term of Recipient's tenure with IMSG, currently and actively engaged; (c) not copy, reproduce or use any Confidential Information without written authorization of IMSG (which authorization may be arbitrarily or unreasonably withheld), except as may be reasonably required to accomplish assignments on behalf of Disclosing Party in which the Recipient is, at any given time during the term of Recipient's tenure with IMSG, currently and actively engaged. Disclosing Party shall, at all times, retain title to all Confidential Information, whether tangible or intangible. In the event of a breach or threatened breach by Recipient of the provisions hereof, IMSG shall be entitled to an injunction restraining Recipient from disclosing, in whole or in part, the Confidential Information, or from rendering any services to any person, firm, corporation, association, or other entity to whom such Confidential Information has been disclosed or is threatened to be disclosed. Further, Recipient shall be required to return to IMSG all Confidential Information in the possession of Recipient immediately upon request by IMSG. Nothing herein shall be construed as prohibiting IMSG from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages from the Recipient. The existence of any claim or cause of action of Recipient against IMSG shall not constitute a defense to the enforcement by IMSG of this agreement. No failure by IMSG to exercise any right given hereunder shall be taken or construed as a waiver of its right to seek any remedies by reason of any past, present, or future breaches of this agreement on the part of Recipient. The obligations under this agreement shall survive the Recipient's termination from employment from IMSG. 22 ---------------------------------------- Signature / Recipient ---------------------------------------- Print Name / Recipient ---------------------------------------- Date 23 EX-10.42 6 g75105aex10-42.txt 10/17/01 INSURANCE ADMINISTRATION AGREEMENT EXHIBIT 10.42 INSURANCE ADMINISTRATION SERVICES AGREEMENT THIS INSURANCE ADMINISTRATION SERVICES AGREEMENT ("Agreement") is effective as of the ____ day of _________, ____ ("Effective Date"), by and between INSURANCE MANAGEMENT SOLUTIONS, INC. ("IMS"), a corporation organized and existing under the laws of the State of Florida with its principal place of business located at 360 Central Avenue, St. Petersburg, Florida 33701, and MIDDLESEX MUTUAL ASSURANCE COMPANY (herein referred to as "Customer") having their principal place of business at 213 Court Street, Middletown, CT 06457-0891. WHEREAS, Customer wishes to engage the services of IMS to administer certain of the Customer's obligations for the lines of business ("Authorized Lines of Business") in the state(s) ("Authorized States") set forth in SCHEDULE A; WHEREAS, IMS wishes to provide such insurance administration services as set forth herein. NOW THEREFORE, IN CONSIDERATION OF the mutual covenants and agreements hereinafter set forth, the parties hereto do covenant and agree as follows: ARTICLE I. DEFINITIONS Unless the context clearly requires otherwise, the following terms when used in this Agreement shall have the meanings set forth below: A. "Affiliate" is any company which controls, is controlled by, or under common control with, a party, and "control" is defined as owning 50% or more of such entity. B. "Authorized Lines of Business" means the lines of business expressly set forth in SCHEDULE A of this Agreement. C. "Authorized States" means the states expressly set forth in SCHEDULE A of this Agreement. D. "Business Day" means any day other than a Saturday, Sunday or other day which is a bank holiday for Florida State banks or an IMS paid holiday (New Year's Day, Memorial Day, Independence Day, Thanksgiving Day, day after Thanksgiving, Christmas Eve (after 12 P.M. Eastern Standard Time) and Christmas Day). E. "Change of Control" means (a) a sale, transfer or pledge, or the issuance to a new shareholder, of fifty (50%) percent or more of the voting stock of a party hereto to any third party that is not an Affiliate of such party; or (b) a sale, transfer or pledge of a substantial portion of the material assets of a party, or any merger or consolidation of a party with another entity or entities. F. "Insurance Administration Services" means the services set forth in this Agreement and EXHIBIT I hereto in the Authorized States in accordance with the terms of the Agreement, and all applicable laws and regulations. G. "Insurance Program" means the Customer's insurance products within the Authorized Line(s) of Business to be offered within the Authorized States. H. "Technical Information" means and shall include (without limitation) computer programs, databases, designs, algorithms, processes, structures, data formats, business methods, know how, and research and development information. 1 ARTICLE II. TERM The term of the Agreement shall commence on the Effective Date and shall have a minimum operating term ("Minimum Operating Term") of Thirty-six (36) full calendar months following the Effective Date. However, the term of this Agreement shall automatically extend for an additional operating term ("Extended Operating Term") of twelve (12) calendar months at the end of the Minimum Operating Term, or at the end of any Extended Operating Term, unless terminated earlier pursuant to the termination provisions within Article VIII. ARTICLE III. RESPONSIBILITIES OF IMS A. IMS shall dedicate the human, equipment and computer resources commercially reasonably required to provide Customer with the Insurance Administration Services, during the term of this Agreement, for the Insurance Program within Authorized States specified in SCHEDULE A. B. IMS shall designate an employee ("Account Manager") of sufficient status and authority to act as liaison with Customer to facilitate IMS' performance of the Insurance Administration Services under this Agreement. The Account Manager shall provide written and/or oral communication of the status of administration of the Insurance Administration Services as agreed to by and between Account Manager and Customer. C. IMS shall, based on accepted industry standards and in accordance with generally accepted insurance and accounting practices as designated by the applicable regulatory bodies and the National Flood Insurance Program ("NFIP"), maintain complete and orderly records and policy and/or claims files as may be required as a result of IMS performing the Insurance Administration Services on behalf of Customer. These files shall be retained by IMS, in a format or media defined by IMS which shall be in compliance with applicable laws and regulations, for a minimum of four (4) years or the period specified by the applicable statutes regulating the preservation of records, unless the Customer requests that its records be returned to it at its expense at the expiration of the minimum four (4) year period; however, that IMS shall be entitled to retain copies thereof. ARTICLE IV. RESPONSIBILITIES OF CUSTOMER A. During the term of this Agreement, Customer shall provide to IMS, in a timely manner, any and all data, information and other items reasonably required to enable IMS to perform the Insurance Administration Services specified in EXHIBIT I of this Agreement. Customer represents and warrants to IMS that it owns and possesses all property rights to its corporate and subsidiary logos and hereby grants and warrants to IMS a limited, non-transferable, non-assignable, license to use Customer's corporate and subsidiary logos (and any other copyrighted or trademarked property of Customer that may be provided to IMS under this Agreement) while performing the Insurance Administration Services. Customer acknowledges and agrees that delays in delivery of required documentation, data and/or information by Customer will result in a similar delay in fulfilling Insurance Administration Services, and that such a delay in performing the Insurance Administration Services shall not be deemed a breach of the Agreement. B. CUSTOMER ACKNOWLEDGES AND AGREES THAT IMS ASSUMES NO INSURANCE RISK FOR THE BUSINESS PROCESSED UNDER THIS AGREEMENT. C. Customer shall designate manager level employee(s) of sufficient status and binding decision making authority to act as liaisons with IMS and to facilitate Customer's role as IMS performs the Insurance Administration Services specified in EXHIBIT I of this Agreement. 2 ARTICLE V. CUSTOMER ACCESS TO RECORDS / CONFIDENTIAL INFORMATION A. At Customer's expense, Customer will be permitted reasonable access (as set forth herein) to all records and information maintained by IMS on behalf of Customer (excluding, specifically, proprietary Technical Information) reasonably necessary to: (i) audit the completeness and accuracy of the Insurance Administration Services provided under this Agreement and reports produced for Customer pursuant to this Agreement; (ii) verify the accuracy and validity of all billings and charges to Customer under this Agreement; and (iii) verify IMS' overall compliance with the material terms of this Agreement and applicable laws and regulations. Access to IMS' records, for the foregoing purposes, will be provided during normal business hours upon ten (10) Business Days prior written notice to IMS by Customer for so long as IMS is required to maintain such records under this Agreement; except in the case of regulatory inquiry, in which case access will be granted on any Business Day with twenty four (24) hours of prior written notice to IMS. At Customer's expense, Customer will be permitted to copy those IMS records subject to audit in accordance with this Article. Upon reasonable written request by Customer, and at Customer's expense, IMS will promptly mail or fax to Customer supporting documentation concerning any specific transaction processed by IMS under the terms of this Agreement. IMS will provide reasonably adequate workspace for Customer to conduct audits in accordance with this Article. Further, Customer or its representatives shall take precautions, when conducting audits under this Article, not to disrupt IMS' ongoing business activities. B. The recipient ("Recipient") of confidential data and/or information pursuant to this Agreement shall maintain the confidentiality of all data and/or information which is the property of the other party ("Disclosing Party"), whether originally supplied by the Disclosing Party, or whether generated by the Disclosing Party in the course of performing or facilitating the Insurance Administration Services under this Agreement and which is directly accessible to the Recipient or is in the possession of Recipient in the implementation, facilitation and/or performance of the Insurance Administration Services. During any term of this Agreement, Recipient may acquire, know, or have within its possession, information (including, but not limited to, Technical Information) and/or data of the Disclosing Party concerning commercial and trade affairs, rating and underwriting rules and guidelines, the identity of clients, the identity of insureds and beneficiaries, claims, benefits, rates and Agents, financial information, the Proprietary System (as defined at Article VII (A) herein), the Third Party Proprietary System (as defined in Article VII (B) herein) and business practices of the Disclosing Party ("Confidential Information"). Confidential Information which is provided in tangible form must be clearly marked "Confidential", "Proprietary" or the substantial equivalent thereof, or if orally disclosed must be clearly identified as "Confidential" or "Proprietary" at the time of the disclosure (except for IMS' Technical Information, the identity of Customer's clients, the identity of Customer's insureds and beneficiaries, claims, benefits, and Agents, which will be deemed "Confidential Information" under this Agreement, regardless of whether marked as such). Except as required by law, Recipient shall keep Disclosing Party's Confidential Information confidential and shall only use the Confidential Information in performing or facilitating the Insurance Administration Services under this Agreement. Recipient shall not disclose the Confidential Information without Disclosing Party's prior written permission except to Recipient's employees who require the information to perform or facilitate the Insurance Administration Services under this Agreement. Each party hereto, as a Recipient, warrants to the other that appropriate measures shall be taken by Recipient to safeguard the confidentiality of the Confidential Information, with a level of care at least equal to the level of care with which Recipient safeguards its own confidential or proprietary information. All employees, agents or representatives of Recipient and any third parties who are given access to the Confidential Information shall be under written obligation to Recipient to maintain such information in confidence. 3 IMS and Customer agree that any Recipient shall have no obligation with respect to any information or data which: a) is already rightfully known to Recipient through means other than Disclosing Party; or b) is or becomes publicly known through no wrongful act of Recipient; or c) is rightfully obtained by Recipient from a third-party without similar restriction and without breach of this Agreement; or d) is independently developed by Recipient without breach of this Agreement. Disclosing Party shall retain title to all Confidential Information (whether tangible or intangible) delivered thereby pursuant to this Agreement. Recipient shall not copy, reproduce or use any Confidential Information without written authorization of Disclosing Party, except as may be reasonably required to accomplish the Insurance Administration Services under this Agreement. Upon written request of Disclosing Party Recipient shall promptly return, or destroy with specific written permission of the Disclosing Party, all tangible copies containing Confidential Information, except those copies kept in the regular course of business, or that are required to be kept pursuant to any state or federal administrative, regulatory or statutory mandates. The obligations under this Paragraph (B) shall survive the termination of this Agreement. Notwithstanding the foregoing, this Article shall not prevent the disclosure of Confidential Information to the extent legally required by any court or regulatory entity having jurisdiction over the parties. For purposes of Article V (B), Recipient and Disclosing Party shall include within their meaning all respective subsidiaries, agents, or Affiliates of the Recipient and Disclosing Party. ARTICLE VI. EXPENSES AND FEES A. In consideration of IMS providing Insurance Administration Services described herein, Customer shall pay IMS, as applicable, miscellaneous fee ("Miscellaneous Fee"), servicing fee ("Service Fee") and claim administration fee ("Claim Administration Fee") for each Authorized Line of Business, as specified in SCHEDULE B. The performance by IMS of any service or function that is outside of the scope of the Insurance Administration Services shall require the payment by Customer of additional consideration (in addition to the Service Fees) as mutually agreed between IMS and Customer. B. Except for the Service Fee, which is based upon a percentage of the adjusted net written premium and the Claim Administration Fee, the Miscellaneous Fees specified in Section IV of SCHEDULE B hereto may be increased (up to a maximum of five percent (5%) per year from the prior year) effective as of each anniversary of the Effective Date by the percentage increase in the United States Consumer Price Index for all Urban Users (CPI-U) as reported by the United States Bureau of Labor Statistics for the most recently completed calendar year that IMS is performing services on behalf of the Customer. In the event that a vendor supplying a service or product to IMS, which service or product is used by IMS to provide the Insurance Administration Services to Customer, increases its rates charged to IMS, IMS may increase the Service Fees, Claim Administration Fees, and Miscellaneous Fees set forth in Schedule B to incorporate such increased costs and will provide Customer with documentation verifying the increase. C. Customer shall reimburse IMS for travel, living and out-of-pocket expenses incurred by IMS personnel in the performance of training relative to the Insurance Administration Services to be performed under this Agreement. D. Customer agrees to pay any and all tariffs and taxes that are now or may become applicable to the 4 Insurance Administration Services rendered hereunder, including, but not limited to, sales, use, and personal property taxes, or any other form of tax based on Insurance Administration Services performed, equipment used by IMS solely for Customer, and the communicating or storage of data used by IMS solely for Customer, but excluding taxes on the net income of IMS. E. Subject to the terms of this Agreement, all fees and expenses to be payable by Customer to IMS or any third party under this Agreement shall be paid within thirty (30) calendar days after Customer's receipt of IMS' monthly statement for all services provided to Customer under this Agreement. IMS will calculate the fees owed to IMS by Customer and will send a statement to Customer within two (2) weeks of the last day of the month for which fees are owed. Customer's failure to pay all fees and expenses when due shall be considered a material breach of this Agreement. Further, if Customer fails to pay any fees and expenses due IMS as herein provided, Customer shall pay to IMS in addition to all sums otherwise due, interest which shall accrue at 1.5% per month on such delinquency from the date the fees or expenses became past due. Failure or forbearance to exercise any of its rights and privileges hereunder shall not constitute the forfeiture or waiver of such rights and privileges on the part of IMS. F. Prior to renewal of this Agreement for any Extended Operating Term, IMS may modify SCHEDULE B in its discretion to reflect any increase in the cost of providing the Insurance Administration Services (including, but not limited to statutory, regulatory, or judicial changes that require IMS to incur additional cost or expenses in performing the Insurance Administration Services) or to remain competitive with the rates currently being charged within the industry for like services. Any modification of SCHEDULE B shall be proposed to Customer at least twelve (12) months prior to the expiration of any term of this Agreement. ARTICLE VII. LICENSE, TRADE SECRET AND PROPRIETARY RIGHTS A. IMS from time to time may use its own proprietary computer software products and account servicing methods and procedures ("Proprietary System"), which are identified, described or referenced in EXHIBIT I hereto, in the performance of the Insurance Administration Services. During any term of this Agreement, IMS grants a personal, non-transferable, non-assignable, non-exclusive license to Customer to use portions of the Proprietary System as necessary for IMS to perform the Insurance Administration Services under this Agreement. Further, no provision within this Agreement shall be interpreted as prohibiting IMS from selling or licensing its Proprietary System to any other customer or prospective customer of IMS. B. IMS, from time to time, may also use proprietary third party computer software products and third party account servicing methods and procedures ("Third Party Proprietary System"), which are identified, described or referenced in EXHIBIT I hereto in the performance of the Insurance Administration Services. No provision within this Agreement shall be interpreted as prohibiting IMS or the Third Party Proprietary System vendor from selling or licensing the Third Party Proprietary System, or modifications and enhancements to the Third Party Proprietary System, to any other customer or prospective customer of IMS, so long as Customer's Confidential Information is not disclosed. C. Other than the limited rights to use the Proprietary System and the Third Party Proprietary System, as provided in Article VII (A) and (B) above, this Agreement grants to Customer no right to possess or reproduce, download, reverse engineer, or obtain any other interest in, the Proprietary System or the Third Party Proprietary System, or their specifications in any tangible or intangible medium. Customer may not mortgage, hypothecate, sell, assign, pledge, lease, transfer, license, or sublicense the Proprietary System or the Third Party Proprietary System, nor allow any person, firm, entity or corporation to transmit, copy, reproduce, download, reverse engineer, or obtain any other interest in the Proprietary System or the Third Party Proprietary System, or their specifications in whole or in part. In the event Customer shall come into possession of any source 5 or object code associated with the Proprietary System or the Third Party Proprietary System, Customer shall immediately notify IMS and return the source or object code associated with Proprietary System or the Third Party Proprietary System in its possession and all copies of any kind thereof to IMS. D. Customer covenants and agrees not to disclose or otherwise make the Proprietary System or the Third Party Proprietary System available to any person other than employees, insurance sales agents ("Agents") or representatives of the Customer required to have access or use of the Proprietary System or the Third Party Proprietary System to facilitate IMS' or Customer's performance under this Agreement. Customer agrees to obligate each such employee, Agents, or representative to a level of care sufficient to protect the Proprietary System and the Third Party Proprietary System from unauthorized disclosure. E. The obligations of Customer under this Article shall survive termination of this Agreement, regardless of the reason for termination. ARTICLE VIII. TERMINATION A. Either party may terminate this Agreement at the end of the Minimum Operating Term or at the end of any Extended Operating Term, provided the terminating party gives the other party at least three (3) months prior written notice of such termination. B. This Agreement shall also terminate: a) at the election of the Customer, upon written notice to IMS, if IMS becomes insolvent, if it makes an assignment for the benefit of its creditors, if a petition for relief under the United States Bankruptcy Code is filed by or against it and it is not dismissed within thirty (30) days of being filed, or if a trustee, receiver or other custodian of its assets is appointed; b) at the election of IMS, upon written notice to Customer, if Customer becomes insolvent, if it makes an assignment for the benefit of its creditors, if a petition for relief under the United States Bankruptcy Code is filed by or against it and it is not dismissed within thirty (30) days of being filed, or if a trustee, receiver or other custodian of its assets is appointed (including, but not limited to, any proceeding pursuant to any state or federal action governing insurer insolvency); c) at the election of the Customer, if IMS materially breaches any provision of this Agreement and fails to cure such breach within sixty (60) days after written notice thereof is given to IMS by the Customer; d) at the election of IMS, if Customer materially breaches any provision of this Agreement and fails to cure such breach within sixty (60) days after written notice thereof is given to Customer by IMS (except for Customer's failure to pay any and all fees and expenses due under Article VI of this Agreement, in which case Customer must cure such breach within thirty (30) days after written notice thereof is given to Customer by IMS); e) at the election of IMS, upon written notice to Customer, in the event of a Change of Control of Customer unless (i) Customer has provided IMS not less than sixty (60) days advance written notice of the proposed Change of Control and (ii) IMS has agreed in writing to such Change of Control. The initiation under this Agreement of any dispute resolution procedure shall not prevent a party from terminating this Agreement in accordance with this Article VIII. 6 C. On expiration or termination of this Agreement, IMS shall return to Customer all of Customer's Confidential Information, either in electronic or hard copy form, in IMS' possession and delete any electronic copies thereof related to the Insurance Administration Services provided by IMS during the term of this Agreement; Customer shall do the same and cause Customer's agents and representatives (including, but not limited to, any third party given access to the Confidential Information) to do the same relative to IMS' Confidential Information. Customer shall pay IMS (in accordance with SCHEDULE B then in effect) any and all Service Fees, Claim Administration Fees, Miscellaneous Fees and third party fees due IMS for Insurance Administration Services performed pursuant to this Agreement. IMS and Customer shall cooperate in any transition period during the wind-up of Insurance Administration Services provided Customer under this Agreement. If Customer requires assistance in converting Customer's data to a new format, or requires assistance from IMS relative to Customer's transition to an alternative claim administration arrangement, then IMS shall provide such services at the then current rates charged by IMS for the services specified in Section IV of SCHEDULE B. This obligations under this Paragraph (C) shall survive any termination of this Agreement. ARTICLE IX. WARRANTIES AND COVENANTS IMS covenants that IMS will comply in all material respects with the law of the state or states covered by this Agreement and with the rules and regulations of all regulatory authorities having jurisdiction over IMS' activities, and shall, whenever necessary, maintain at its own expense all required licenses to transact business in such states. IMS warrants to Customer that (a) IMS owns or otherwise has the right to use the Proprietary System used to perform the Insurance Administration Services, and the rights to such Proprietary System granted hereunder will not knowingly infringe upon a third party's copyright or patent rights; (b) IMS is duly authorized to transact the business of servicing insurance companies; and (c) the express warranties provided here and elsewhere in this Agreement are IMS' only warranties and no other warranty, express or implied, including any warranty of merchantability, fitness or fitness for a particular purpose, will apply to the provision of Insurance Administration Services under this Agreement. ARTICLE X LIABILITY, LIMIT OF LIABILITY, INDEMNITIES AND REMEDIES A. The parties shall assume the following obligations and liabilities as specified below and subject to the limitations on liability set forth in Article X, (B) below: a) IMS shall indemnify, defend and hold harmless Customer, its officers, directors, employees and controlling persons from any liability, cost, loss, fine, penalty, claim, demand, damage or expense, including reasonable attorneys' fees, incurred solely and directly as a result of any material breach of IMS' obligations under this Agreement or the material breach of any representation or warranty made by IMS to Customer pursuant hereto; b) Customer shall indemnify, defend and hold harmless IMS, its officers, directors, employees and controlling persons from any liability, cost, loss, fine, penalty, claim, demand, damage or expense, including reasonable attorney's fees, incurred solely and directly as a result of (i) any material breach of Customer's obligations under this Agreement, or (ii) the material breach of any representation or warranty made by Customer to IMS pursuant hereto; c) Customer agrees that in the event IMS is in violation of any code, statute or law(s) due to the acts or omissions of Customer, or the servants, employees, representatives, adjusters, or Agents of Customer, then Customer shall assume the responsibility and liability for such acts or omissions and shall indemnify and hold IMS harmless for any such liability; 7 B. Except for: (i) fees and expenses payable to IMS under Article VI of this Agreement; (ii) acts of fraud, or willful misconduct; and (iii) violations of Article VII of this Agreement, each party's maximum liability ("Maximum Liability") to the other party for any cause whatsoever, during any one calendar year shall be limited to direct damages incurred by that party and shall not exceed the amount of compensation paid by the Customer under SCHEDULE B of this Agreement for the six (6) months immediately preceding the breach or cause of liability. Further, IMS shall not be liable for any lost profits, business goodwill, or other consequential, punitive, special or incidental damages incurred by Customer. C. If data is processed in error due directly to an error or defect in the Insurance Administration Services provided by IMS, then upon IMS receiving notice of such error or defect, IMS shall reprocess such data without charge to Customer. D. All parties agree to promptly give the others notice upon being notified or becoming aware of any and all allegations or claims, which could give rise to a claim under this Article. ARTICLE XI. GENERAL AGREEMENTS A. This Agreement and all matters arising hereunder shall be governed by and determined in accordance with the laws of the State of Florida without giving effect to any choice of law provisions. B. The parties shall not be liable or deemed to be in default hereunder for any delay or failure in performance under this Agreement or interruption of the Insurance Administration Services resulting, directly or indirectly, from acts of God (including but not limited to weather catastrophes such as floods, hurricanes, tornadoes, windstorms, ice storms, blizzards and hail storms), civil or military authority, labor disputes, shortages of suitable parts, materials, labor or transportation or any similar cause beyond the reasonable control of the parties. C. 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 Customer: Middlesex Mutual Assurance Company 213 Court Street Middletown, CT 06457-0891 Fax Number: (860) 638-5093 Attention: Bill Sheridan, Senior Vice President As to IMS: Insurance Management Solutions, Inc. 360 Central Avenue, 16th Floor St. Petersburg, FL 33701 Fax Number: (727) 803-2076 Attention: David Howard, President Notices sent by hand delivery shall be deemed effective on the date of actual hand delivery. Notices 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 fifth Business Day after being deposited into the post office. Notices sent by facsimile transmission shall be deemed to be effective on the day when sent if sent prior to 4:30 p.m. (the time being determined by the time zone of the recipient), otherwise they shall be deemed effective on the next Business Day. 8 D. This Agreement, and the exhibits, schedules and appendices attached hereto, contain all of the prior oral and/or previously written agreements, representations, and arrangements between the parties hereto. There are no representations or warranties other than those set forth herein. No change or modification of this Agreement, including the exhibits, schedules and appendices hereto, shall be valid unless the same shall be in writing and signed by all of the parties hereto. All exhibits, schedules, appendices, addendum of any kind, or attachments to this Agreement shall be made a part of this Agreement and shall be subject to all terms and conditions of this Agreement. Articles V (B), VII, and VIII (C) shall survive any termination of this Agreement. E. 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. Article headings are intended for purposes of description only and shall not be used for purposes of interpretation of this Agreement. F. 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 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. G. If either party 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 attorneys' 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 attorneys' fees were incurred. H. Neither IMS nor Customer shall assign this Agreement or any of its rights hereunder without the prior written consent of the non-assigning party. I. The parties agree not to disclose the terms and conditions of this Agreement to any third party, except (i) as required in the normal conduct of Customer's business, or (ii) as required by law or regulation including, without limitation, any Federal securities law, or regulation. ARTICLE XII. DISPUTE RESOLUTION PROCEDURES A. The parties will attempt in good faith to promptly resolve any material dispute regarding this Agreement by negotiations between senior management ("Senior Management") of the parties. Senior Management of each party will meet within ten (10) calendar days of notice ("Notice of Dispute") by a party of the existence of a material dispute, at a mutually agreed time and place, to resolve the material dispute. Senior Management, who shall have the authority to settle the dispute, shall prepare and exchange memoranda stating the issues in the material dispute and their positions. If the material dispute is not resolved to the mutual satisfaction of the parties within seven (7) calendar days of the meeting of Senior Management, then the parties may attempt to resolve the controversy using mediation. B. If the matter has not been resolved pursuant to the aforesaid mediation procedure within thirty (30) calendar days of the issuance of a party of a Notice of Dispute, or if either party will not participate in mediation, then either party may initiate arbitration upon fifteen (15) calendar days written notice to the other party. Notwithstanding the foregoing, all deadlines specified above may be extended upon mutual written agreement of the parties. C. Except for the right of either party to apply to a court of competent jurisdiction for review of the 9 award of arbitration, for a temporary restraining order, preliminary injunction or other equitable relief to preserve the status quo, or disputes relating to breach of the confidentiality, non-disclosure or trade secret provisions of this Agreement, all claims, disputes, controversies and other matters relating to breach of this Agreement, and which cannot be resolved by the parties shall be settled by arbitration in accordance with this Agreement. D. Notice requesting arbitration ("Arbitration Notice"), or any other notice made in connection therewith, shall be made in writing by one party and sent by certified mail, return receipt requested, to the other party. The Arbitration Notice shall state in particular all issues to be resolved in the view of the complaining party, shall appoint the arbitrator selected by the complaining party and shall set a tentative date for the arbitration hearing, which date shall be no sooner than forty-five (45) calendar days and no later than ninety (90) calendar days from the date that the Arbitration Notice is mailed. Within twenty (20) calendar days of receipt of the complaining party's Arbitration Notice, the respondent shall notify the complaining party of the location for conducting arbitration and the name of its appointed arbitrator. When the two arbitrators have been appointed, they shall agree on a third independent arbitrator and shall appoint such person by written notice to the parties signed by both arbitrators within thirty (30) calendar days from the date of the appointment of the second arbitrator. If the two arbitrators fail to agree upon the appointment of an independent arbitrator at the end of thirty (30) calendar days following the appointment of the second arbitrator, then the independent arbitrator shall be appointed by the American Arbitration Association ("AAA"), or its successor, in accordance with its then prevailing commercial arbitration rules then in effect. The three (3) arbitrators shall constitute the arbitration board ("Board"). E. The members of the Board shall be active or retired (i) lawyers or professionals familiar with insurance and/or (ii) active or former officers or management employees of insurance and/or data processing firms and/or software development companies. The person selected by the two respective arbitrators appointed by the parties shall be the umpire or chief arbitrator and must be a licensed attorney. F. Arbitration shall be conducted in accordance with the Commercial Rules of the American Arbitration Association ("AAA") then in effect except as modified herein. G. The parties agree that all then current employees of each with material relevant information will be voluntarily produced, at the employer's expense, for all proper discovery and arbitration hearings. H. The cost of the arbitration relative to the arbitrators and the AAA ("Costs") shall be borne equally pending the arbitrators' award. Each party shall bear its own expenses for attorneys' fees. The prevailing party in any arbitration proceeding hereunder shall be entitled, in addition to such other relief as may be granted, to recover the portion of the Costs incurred by that party in connection with arbitration under the Agreement prior to the award. I. The parties agree that the Board shall be required to render its decision in writing within thirty (30) calendar days of the conclusion of the arbitration proceedings, unless such time shall be extended by mutual written agreement of the parties. J. With respect to any matter brought before the Board, the Board shall make a decision having regard to the intentions of the parties, the terms of this Agreement, and custom and usage of the insurance and data processing industry. Such decisions shall be in writing and shall state the findings of fact and conclusions of law upon which the decision is based, provided that such decision may not (i) award consequential, punitive, special, incidental or exemplary damages, or (ii) include a suspension of this Agreement or any provisions hereof. The decision shall be based exclusively upon the evidence presented by the parties at a hearing in which evidence shall be 10 allowed. Said decisions may be reviewable and vacated, modified or corrected, in whole or in part, by appropriate courts of competent jurisdiction for clear abuses of discretion or errors at law by the Board. If the decision is not vacated, modified, or corrected in whole or in part upon an appeal, such decision shall be final and binding upon all parties to the proceeding and may be entered by either party in any court having competent jurisdiction. (The remainder of this page is intentionally left blank.) 11 IN WITNESS WHEREOF, the parties hereto by their respective duly authorized representatives have executed this Agreement to be effective as of the ______ day of _________, 2001. "IMS" INSURANCE MANAGEMENT SOLUTIONS, INC. By: s/s D.M. Howard ------------------------------------ As its: Pres/CEO -------------------------------- Date: 10.17.01 ---------------------------------- "CUSTOMER" MIDDLESEX MUTUAL ASSURANCE COMPANY By: ------------------------------------ As its: Senior Vice President -------------------------------- Date: 9-7-01 ---------------------------------- 12 SCHEDULES: SCHEDULE "A" - AUTHORIZED STATES AND INSURANCE PROGRAM SCHEDULE "B" - FEE SCHEDULE
EXHIBITS: EXHIBIT 1 - WYO FLOOD INSURANCE SERVICES
13 SCHEDULE A AUTHORIZED STATES AND INSURANCE PROGRAM IMS shall provide Insurance Administration Services as described in EXHIBIT I for the following authorized line(s) of business ("Authorized Line of Business") in the following authorized state(s) ("Authorized States"): 1. AUTHORIZED LINE OF BUSINESS: WYO Flood Insurance 2. AUTHORIZED STATES: The State of Connecticut, Maine, New Hampshire, Vermont, New York and such other states as may be mutually agreed upon in writing by Customer and IMS. 14 SCHEDULE B FEE SCHEDULE [*] * Indicates that material has been omitted and confidential treatment has been requested therefor. All such omitted material has been filed separately with the SEC pursuant to Rule 24b-2. 15 EXHIBIT I INSURANCE ADMINISTRATION SERVICES (WYO FLOOD) WHEREAS, The Federal Emergency Management Agency ("FEMA") and the Federal Insurance Administration ("FIA") administer the National Flood Insurance Program ("NFIP") and Customer is an insurance company duly licensed to write flood insurance in the state or states to which this Agreement pertains and is approved by FIA to act as a Write Your Own Company ("WYO Company") under the Write Your Own Flood Insurance Program ("WYO Flood Program"), a program offered under the NFIP; and WHEREAS, Customer wishes to engage the services of IMS to administer certain of the Customer's obligations as a WYO Company in the state(s) ("Authorized States") set forth in SCHEDULE A. 1) DEFINITIONS. Capitalized terms not otherwise defined in the Agreement or in this Exhibit shall be construed as otherwise generally understood in the insurance and data processing industry. 2) POLICY ADMINISTRATION. IMS shall administer Customer's WYO Flood Program policies ("WYO Policies") performing the services listed hereunder in accordance with the NFIP, as amended, and all implementing regulations as well as Customer's Write Your-Own Arrangement ("Arrangement") with FEMA. The same standards by which Customer is bound shall be those by which IMS is bound to Customer. a) Underwriting. - Review WYO Policy application for completeness/contact Agent as applicable; - Create WYO Policy file; - Underwriting based on NFIP guidelines. b) Data Entry. (subject to the 120 Day Internet Access Milestones specified in Schedule B) - New WYO Policy business; - WYO Policy changes; - Mortgagee changes; - WYO Flood insurance Agent changes; - Endorsements; - Cancellations. c) WYO Policy Issuance. - WYO Policy for new business, renewals and endorsements where declaration page issuance is required; - WYO Policy Renewal processing; - WYO Policy automated rating; - WYO Policy print declarations and related WYO Policy forms. d) Billing & Collection. - Print invoices, reminders, cancellation notification, return WYO Policy premium disbursements; - Mortgage activity processing; - EFT processing; - Process cancellations for non-payment. e) Customer Service. - Provide a dedicated customer service support call center; - Respond to Customer's WYO Policyholder and WYO flood insurance sales Agent telephone inquires; 17 = Process requests for WYO Policy changes; - Respond to correspondence related to WYO Policy and WYO Policy claim administration services; - Track and respond to complaints related to WYO Policy and/or WYO Policy claim administration services; IMS customer service hours of operation 8:00 a.m. to 8:00 p.m. Eastern Standard Time ("EST"). f) Bureau Reporting. - Process and balance WYO Policy premium and WYO Policy loss data; - Edit and correct invalid data; - Prepare and mail Bureau transmittals; - To the best of IMS knowledge, provide on-going regulatory changes; - Maintain WYO Policy history files. g) Accounting Administration/Premium. - Posting, balancing, and control of WYO Policy premium receivable; - Accounting and payment of Customer's WYO flood insurance Agents WYO Policy commissions; - Issuance, control and accounting for disbursements for WYO Policy premium refunds, WYO Policy commissions. h) Financial Accounting. - Issuance, control and accounting for disbursements for general expenses; - Day-to-day management of short term cash; - Provide reasonable and customary financial management reports. i) Treasury. - Receive and post WYO Policy payments; - Issuance, control and accounting for disbursements of WYO Policy premium related expenses; - Bank reconciliation of WYO Policy premium disbursements; - OCR WYO Policy payment processing; o Mortgagee billing. j) Agency Administration. - Agent of record assignment and control; - 1099 reporting; - Maintain WYO flood insurance Agent files. k) Print & Distribution Services. - Automated document library; - Electronic document assembly; - Electronic document archival/retrieval; - Automated finishing/insertion facility; - Mail pre-sort facility; - Mailing WYO Policy, WYO Policy billings and WYO Policy renewals (including postage and supplies); - Document Imaging. l) System Administration. - Availability of Proprietary System to Customer and Customer's WYO Policy claim vendor; - Process daily, weekly, monthly, and annual cycles; - Internet processing capabilities subject to Internet use limitations specified in Schedule B. 18 3) CASH MANAGEMENT. a) Banking Arrangement. IMS and Customer shall establish a banking arrangement that complies with the Arrangement and other WYO Flood program requirements, and which will provide for the establishment of an NFIP restricted account ("Restricted Account") with Customer as custodian, and a FEMA letter of credit ("Letter of Credit"), with additional accounts as needed to facilitate WYO Flood Program operations, all in conformity with FEMA/FIA guidelines. Customer shall grant specific IMS' employees check-signing authority on any Restricted Account and the authority to initiate appropriate drawdowns against Customer's Letter of Credit, in order for IMS to act on Customer's behalf in making disbursements for Customer liabilities established by the Arrangement, the WYO Flood Program, and this Agreement. All such authorizations shall be in writing and may be revoked, amended or modified at any time by Customer upon thirty (30) days advanced written notice to IMS. Notwithstanding the foregoing, IMS shall not draw down on Letter of Credit for an amount that exceeds $50,000.00 without prior approval from the Chief Financial Officer of Customer, which approval shall not be unreasonably withheld and shall be given within 24 hours of the request being made by IMS. b) Premium Remittance -IMS shall establish procedures, as determined by FIA, for a timely deposit and remittance of funds to the U.S. Treasury via authorized automatic clearinghouse mechanism. Gross premium collected by IMS, for WYO Flood program business written under this Agreement, shall be remitted to the FIA by IMS net of the established NFIP Expense Allowance. ("Allowance") , which Allowance expenses to be paid under the Allowance include Carrier's operating and administrative expenses. c) Financial Data - IMS shall maintain supporting documentation for all bank accounts over which it has authority. On a monthly basis, IMS shall prepare financial data, reflecting all debits and credits with respect to WYO Flood Program business administered under this Agreement, including agents' commissions and IMS' Service Fees paid. d) WYO Flood Program Reimbursements - Any WYO Flood Program reimbursements made pursuant to the Arrangement, including, but not limited to, those for the unallocated loss adjustments expenses, the allocated loss adjustments, and for approved special allocated loss adjustments expenses, shall be payable to IMS upon receipt by Customer. e) Marketing Goals - Customer shall maintain responsibility for any risk, or shall be entitled to any reward, that may be associated with achieving or failing to achieve any marketing goal set by the FIA or FEMA. 4) CLAIM ADMINISTRATION. IMS shall provide Claims administration in accordance with the Arrangement, the Financial Control Plan and the Agreement, which claim administration processing services are outlined below. Any litigation costs not reimbursed by FEMA would be the responsibility of the Customer. IMS may also rely on the information and direction contained in the WYO Flood Program Claims Manual, the FEMA Adjuster Manual, the Flood Insurance Agent's Manual, the Standard Flood Insurance Policy, the WYO Operational Overview, and/or other WYO Flood Program instructional material. a) Claim Management Facilitation. - Twenty-four (24) hour reporting capability, first notice of loss, coverage for verification and WYO Policy claim; - Investigation of WYO Policy claim; - Fast track unit; - Reinspection and audit; - Claims handling standards/best practices; - Claim check issuance; 19 - Management reports; - WYO Policyholder satisfaction surveys; - Special Investigation Unit ("SIU") services; - Salvage & subrogation claim processing; - Litigation support. b) Catastrophe Preparation and Response. - Preparedness by developing media reference guides and notices, adjuster workshops, and training manuals; provide storm tracking; reserve equipment and supplies; establish procedures; - Response in case of a catastrophic event by establishing and staffing satellite service centers; automating the distribution of claims to adjusters; internal examinations/external reinspections; - Recovery by providing management reports, audit/reinspection program, SIU and oversight operations. 5) ADJUSTING FIRM. IMS' Colonial Catastrophe Claims Service will be the authorized adjusting firm ("Adjusting Firm") for all claims adjusting work on behalf of Customer. However, Customer may designate a different Adjusting Firm with thirty (30) days written notice to IMS. 6) DISASTER RECOVERY PLAN. IMS shall perform its' full range Disaster Recovery Plan on an annual basis. Customer has the right to observe the Disaster Recovery Plan at its own expense, provided that it has requested in writing to participate within thirty (30) days of planned execution. 7) STATISTICAL REPORTING. IMS shall maintain Customer's data within IMS' policy, claims and general ledger systems. IMS shall prepare and submit to FIA, monthly financial and statistical reports, reconciliation reports, certifications, and statistical tapes on Customer's behalf, in accordance with WYO Flood Program Accounting Procedures and the Transaction Record Reporting and Processing Plan ("TRRP Plan"). 8) SPECIAL SERVICES. a) Audit - At Customer's expense and at IMS' premises, IMS shall conduct a biennial audit of any and all WYO Flood Program business written by Customer pursuant to this Agreement. IMS shall select an independent auditor and IMS shall present the expense estimate for the biennial audit to Customer. Within fifteen (15) days of receiving the estimate, Customer shall have the option of selecting their own independent auditor to conduct the audit or proceed with the independent auditor selected by IMS. b) Zone Determination Services - IMS shall provide flood zone determinations to the Customer (or Customer's agents) to assist in writing a WYO Policy to be placed with the Customer and administered by IMS. . c) Rating Software - From the Effective Date of this Agreement up to the one (1) year anniversary of the date that IMS provides internet access (which shall include deployment of the internet access into live production) to any of Customer's insurance sales agents for the Authorized Line of Business within the Authorized States, IMS will make available to Customer and/or Customer's insurance sales agents, rating software (which by definition is a Proprietary System) for the ability to provide quotations, prepare new business applications, endorsements and cancellation of the WYO Policy. d) Training - Upon Customer's request and excluding travel expenses, IMS will provide four (4) training sessions per calendar year to Customer and/or Customer's Agents. Customer will provide the training facility. Additional requests for training will be charged at One Hundred and Twenty Five Dollars ($125) per day plus reasonable per 20 diem and travel expenses incurred. e) Marketing Material. IMS will make available to Customer its marketing or promotional materials, which IMS may customize and produce for Customer at Customer's expense. f) Agency Rollover Services. Within a reasonable time of Customer's request, IMS will provide rollover services to those Customer agents that wish to roll over 500 or more WYO Policies in their book of business to Customer. In the event that there are several Agents within a concentrated geographical area wishing to roll over 500 or more WYO Policies to Customer, IMS will provide rollover service to all Agents within that area at the same time. Due to the potential size of the project, IMS will need Customer to provide a full listing of Agents, location and size of business. IMS will create a schedule to perform this service. g) Additional Fees & Services. Additional services not specified in this Agreement may be provided by as mutually agreed upon in writing between the Customer and IMS in writing. 21 EX-10.70 7 g75105aex10-70.txt 9/20/01 GEOTRAC AMENDMENT TO TAX ALLOCATION AGRMNT EXHIBIT 10.70 AMENDMENT TO TAX ALLOCATION AGREEMENT AMENDMENT TO TAX ALLOCATION AGREEMENT ("Amendment"), dated as of September 20, 2001, between Insurance Management Solutions Group, Inc., a Florida corporation ("IMSG"), Geotrac of America, Inc., a Florida corporation ("Geotrac"), IMS Direct, Inc., a Florida corporation ("IMS Direct"), and Insurance Management Solutions, Inc., a Florida corporation ("IMSI"). W I T N E S S E T H WHEREAS, IMSG, Geotrac, IMS Direct and IMSI are parties to a Tax Allocation Agreement effective as of July 31, 1998 (the "Tax Sharing Agreement") pursuant to which the consolidated federal income tax liability of the Consolidated Group has been allocated among the parties based upon each company's separate assets and operations for each taxable year. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Tax Sharing Agreement; WHEREAS, the parties have followed a similar approach in allocating the consolidated Florida corporate income and franchise tax liability; WHEREAS, as of the date hereof, the parties to this Amendment are entering into a Stock Purchase Agreement relating to the sale of the outstanding capital stock of Geotrac; WHEREAS, in connection with the execution of the Stock Purchase Agreement, the parties desire to amend the terms of the Tax Sharing Agreement to provide for (a) the specific treatment of Geotrac's map database additions; (b) the termination of all rights, liabilities and obligations of Geotrac under the Tax Sharing Agreement immediately prior to the Closing as of the Closing Date (as such terms are defined in the Stock Purchase Agreement) and (c) certain other matters; and NOW, THEREFORE, in consideration of the mutual agreements of the parties hereinafter contained, it is hereby agreed as follows: 1. The parties agree that all tax liability under any consolidated federal income tax returns of which IMSG is the common parent and any state or local consolidated, combined or unitary income or franchise tax returns of which IMSG or any subsidiary (other than Geotrac) is the common parent required to be filed for periods ending prior to the period which includes the Closing Date shall continue to be allocated among the parties consistent with past practice and the Tax Sharing Agreement, subject to the modifications under this Amendment. 2. In computing the liability of Geotrac for its share of the consolidated federal income and State of Florida corporate income/franchise tax liability with respect to consolidated federal and State of Florida tax returns required to be filed for 2000 and subsequent periods ending prior to the period which includes the Closing Date, the costs of Geotrac's map database additions shall be treated as current year expenses in accordance with the method reflected in the monthly tax accruals supplied by IMSG to Geotrac prior to August 8, 2001 and used in Geotrac's interim financial statements prior to August 8, 2001. In the event that the amendments made by this Paragraph 2 result in Geotrac having paid amounts to IMSG which exceed the amounts due for any of these periods, IMSG shall timely reimburse Geotrac for such excess amounts on or prior to the Closing Date. 3. The parties further agree that, except for any reimbursement obligation of IMSG under the last sentence of Paragraph 2, all rights, liabilities and obligations of Geotrac under the Tax Sharing Agreement, as amended, shall terminate immediately prior to the Closing on the Closing Date. 2 4. The parties further agree that in the event that the Closing under the Stock Purchase Agreement does not occur for any reason, this Amendment shall cease to apply and be terminated as of the date that the Stock Purchase Agreement is terminated. 5. This Agreement shall be governed by the laws of the State of Florida without reference to the choice of law principles of such laws. This Agreement may be executed in one or more counterparts, each of which may be deemed an original and all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have duly executed this Amendment as of the day and year first above written. GEOTRAC OF AMERICA, INC. By: /s/ Paul Roth ------------------------------------------- Name: Paul Roth Title: Vice President INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. By: /s/ David M. Howard ------------------------------------------ Name: David M. Howard Title:President and Chief Executive Officer INSURANCE MANAGEMENT SOLUTIONS, INC. By: /s/ David M. Howard ------------------------------------------ Name: David M. Howard Title:President and Chief Executive Officer IMS DIRECT, INC. By: /s/ David M. Howard ------------------------------------------ Name: David M. Howard Title: President and Chief Executive Officer 3 EX-10.71 8 g75105aex10-71.txt 10/1/01 INSURANCE ADMINISTRATION AGREEMENT EXHIBIT 10.71 INSURANCE ADMINISTRATION SERVICES AGREEMENT ------------------------------------------ THIS INSURANCE ADMINISTRATION SERVICES AGREEMENT ("Agreement") is effective as of October 1, 2001 ("Effective Date"), by and between INSURANCE MANAGEMENT SOLUTIONS, INC. ("IMS"), a corporation organized and existing under the laws of the State of Florida with its principal place of business located at 801 94th Avenue North, St. Petersburg, Florida, and each of BANKERS INSURANCE COMPANY ("BIC"), BANKERS SECURITY INSURANCE COMPANY ("BSIC") and FIRST COMMUNITY INSURANCE COMPANY ("FCIC"), herein collectively referred to as "Customer", all having their principal place of business at 360 Central Avenue, Saint Petersburg, Florida 33701. WHEREAS, Customer wishes to engage the services of IMS to administer certain of the Customer's insurance administration obligations for certain lines of business in certain authorized states; WHEREAS, IMS wishes to provide such services as set forth herein. NOW THEREFORE, IN CONSIDERATION OF the mutual covenants and agreements hereinafter set forth, the parties hereto do covenant and agree as follows: ARTICLE I. DEFINITIONS Unless the context clearly requires otherwise, the following terms when used in this Agreement shall have the meanings set forth below: A. "Authorized Lines of Business" means the lines of business expressly set forth in SCHEDULE A of this Agreement. B. "Authorized States" means the states expressly set forth in SCHEDULE A of this Agreement. C. "Business Day" means any day other than a Saturday, Sunday or other day which is a bank holiday for Florida State banks or an IMS paid holiday (New Year's Day, Memorial Day, Independence Day, Thanksgiving Day, day after Thanksgiving, Christmas Eve (after 12 P.M. Eastern Standard Time) and Christmas Day). D. "Insurance Administration Services" means the services to be rendered pursuant to this Agreement and as more specifically set forth on EXHIBIT I and EXHIBIT II, attached hereto, in the Authorized States, and all applicable laws and regulations. E. "Insurance Program" means the Customer's insurance products within the Authorized Line(s) of Business to be offered within the Authorized States. F. "Technical Information" means and shall include (without limitation) computer programs, databases, designs, algorithms, processes, structures, data formats, business methods, know how, and research and development information. G. "Change of Control" means, with regards specifically to Schedule B Section V, (a) a sale, transfer or pledge, or the issuance of fifty (50%) percent or more of the voting stock of a party hereto to any third party that is not an Affiliate of such party; or (b) a sale, transfer or pledge of a substantial portion of the material assets of a party, or any merger or consolidation of a party with non-affiliated entity or entities. 1 ARTICLE II. TERM The initial term of the Agreement shall commence on the Effective Date and shall have a term of Sixty (60) calendar months following the Effective Date ("Initial Term"), unless terminated earlier pursuant to the other provisions within this Agreement. Following the Initial Term, this Agreement shall continue in full force and effect until terminated by either party, for any reason or no reason and upon ninety (90) days prior written notice (unless terminated earlier pursuant to the termination provisions within Article VIII). ARTICLE III. RESPONSIBILITIES OF IMS A. IMS shall dedicate the human, equipment and computer resources commercially reasonably required to provide Customer with the Insurance Administration Services, during the term of this Agreement, for the Insurance Program within the Authorized States. B. IMS' performance of the Insurance Administration Services for every Authorized Line of Business shall meet any service level standard ("Standard") described on that certain "Service Level Agreement" attached hereto as EXHIBIT III and by this reference made a part hereof (herein, the "Service Level Agreement"). During any given two (2) month rolling period, if IMS' performance of the Insurance Administration Services for any Authorized Line of Business fails to meet any Standard ("Non-Compliant Standard") set forth in the Service Level Agreement not as a result of events that are beyond IMS' reasonable control (subject to the provisions of Article XI (A) of this Agreement), IMS shall: (a) remedy such Non-Compliant Standard during the two (2) month rolling period following written notice ("Non-Compliance Notice") from Customer; or (b) submit a written plan ("Improvement Plan") to Customer, that shall be reasonably acceptable to Customer, that shall detail IMS' plan and time frame to remedy such Non-Compliant Standard. Should IMS fail to submit to Customer an Improvement Plan that is reasonably acceptable to Customer, or should IMS fail to remedy such Non-Compliant Standard during any two (2) month rolling period following the Non-Compliant Notice, then Customer may terminate this Agreement (subject to IMS' ability to dispute the proposed termination under the Dispute Resolution Procedures of Article XII) by providing at least thirty (30) days prior written notice to IMS ("Non-Compliance Termination Notice") of its intent to terminate this Agreement. Specifically, if Customer provides IMS with a Non-Compliance Termination Notice, then IMS shall have thirty (30) days from the day it receives the Non-Compliance Termination Notice to dispute the proposed termination of the Agreement via a written notice to Customer to dispute termination ("Termination Dispute Notice"). If IMS provides Customer with a Termination Dispute Notice then the termination shall be stayed, the parties shall submit to binding arbitration in accordance with Article XII with regards to the termination issue and the Agreement may only be terminated by a written decision of the Arbitration Board (as that term is defined in Article XII). C. IMS shall designate an employee ("Account Manager") of sufficient status and binding discretionary decision making authority to act as liaison with Customer to facilitate IMS' performance of the Insurance Administration Services under this Agreement. The Account Manager shall provide written and/or oral communication of the status of administration of the Insurance Administration Services as agreed to by and between Account Manager and Customer. D. IMS shall, based on accepted industry standards and in accordance with generally accepted insurance and accounting practices, as designated by the applicable regulatory bodies, maintain complete and orderly copies of all records and policy and/or claims files as may be required as a result of IMS performing the Insurance Administration Services on behalf of Customer. These copies shall be retained by IMS, in a format or media mutually defined by Customer and IMS which shall be in compliance with applicable laws and regulations. Upon termination of this Agreement all original records shall automatically be returned to Customer; however, IMS shall be entitled to retain copies thereof so long as (a) the retention of original records is necessary to remain in compliance with applicable regulatory or statutory rules and regulations and (b) IMS complies with and remains at all times in compliance with the confidentiality provisions of Article V hereof, which provisions shall survive termination of this Agreement. 2 E. IMS shall maintain an errors and omissions policy issued by an insurance carrier reasonably acceptable to Company, with policy limits of no less than the greater of (i) Ten Million ($10,000,000) Dollars or (ii) an amount sufficient to satisfy the financial responsibility requirements of the insurance codes of applicable states, and with a deductible no greater than Fifty Thousand ($50,000) Dollars. IMS agrees to maintain coverage in force thereunder by replacement or renewal of the policy or by the purchase of an extended claims reporting provision for a period of not less than one (1) year subsequent to the expiration date of this Agreement. The Company reserves the right to verify coverage at any time. F. IMS shall maintain all licenses and regulatory approvals necessary to conduct business contemplated by this Agreement. IMS shall be and remain in compliance with all laws and regulations which has any affect on any performance by IMS under this Agreement. ARTICLE IV. RESPONSIBILITIES OF CUSTOMER A. During the term of this Agreement, Customer shall provide to IMS, in a timely manner, any and all data, information and other items reasonably required to enable IMS to perform the Insurance Administration Services specified in EXHIBIT I and EXHIBIT II of this Agreement. Customer represents and warrants to IMS that it owns and possesses all property rights to its corporate and subsidiary logos and hereby grants and warrants to IMS a personal, non-exclusive, limited, non-transferable, non-assignable, and revocable license to use Customer's corporate and subsidiary logos (and any other copyrighted or trademarked property of Customer that may be provided to IMS under this Agreement) while performing and only in conjunction with business directly related to the Insurance Administration Services. Customer acknowledges and agrees that delays in delivery of required documentation, data and/or information by Customer may result in a similar delay in fulfilling Insurance Administration Services, and that such a delay in performing the Insurance Administration Services shall not be deemed a breach of the Agreement so long as such delay is proximately caused and rationally related to Customer's delay in delivering such information. B. CUSTOMER ACKNOWLEDGES AND AGREES THAT IMS ASSUMES NO INSURANCE COVERAGE RISK FOR THE BUSINESS PROCESSED UNDER THIS AGREEMENT, OTHER THAN THE OBLIGATIONS OF IMS THAT RELATE TO INDEMNIFICATION AND ERRORS AND OMISSIONS INSURANCE AS MAY BE SPECIFICALLY DESCRIBED IN THIS AGREEMENT. C. Customer shall designate manager level employee(s) of sufficient status and binding decision making authority to act as a liaison with IMS and to facilitate Customer's role as IMS performs the Insurance Administration Services specified in EXHIBIT I and EXHIBIT II of this Agreement. ARTICLE V. CUSTOMER ACCESS TO RECORDS/CONFIDENTIAL INFORMATION A. Customer will be permitted reasonable access to all records and information maintained by IMS on behalf of Customer (excluding, specifically, proprietary Technical Information). Except under circumstances where the applicable Proprietary System or Third Party Proprietary System is inoperative due to reasonable and necessary maintenance or an unforeseen emergency, Customer shall have online (computer) "view" access to the information contained in the Proprietary Systems, Third Party Proprietary Systems and documents (including Customer documents that are imaged by IMS) that relate to the Insurance Administration Services. Further, IMS shall also provide Customer with a daily feed of data that is related to the Insurance Administration Services. 3 Customer shall also have physical access to any of IMS' records and information maintained by IMS and relating to the Insurance Administration Services, on any Business Day during normal business hours and upon twenty four (24) hours prior written notice to IMS by Customer for so long as IMS is required to maintain such records under this Agreement; provided, however, in the event that Customer requires physical access to the records and information under circumstances that would reasonably be described as an emergency (including any regulatory inquiry which requires a response in less than Twenty Four (24) hours) Customer shall have access to records and information maintained by IMS and relating to the Insurance Administration Services on any Business Day within twelve (12) hours of providing written notice to IMS. At Customer's expense, Customer will be permitted to copy any of its records and/or information maintained by IMS and relating to the Insurance Administration Services during normal business hours on any Business Day; provided, however, that the copying of records and/or information shall be subject to the limitations and restrictions contained in this Agreement. Upon written request by Customer, and at Customer's expense, IMS will promptly mail or fax to Customer, or make available for pick up, supporting documentation concerning any specific transaction processed by IMS under the terms of this Agreement. IMS will provide reasonably adequate workspace for Customer to conduct a review and otherwise copy, in accordance with the terms of this Agreement, any of Customer's records and/or information. Further, Customer or its representatives shall take precautions, when conducting performing such review and/or copying not to disrupt IMS' ongoing business activities. B. The recipient ("Recipient") of confidential data and/or information pursuant to this Agreement shall maintain the confidentiality of all data and/or information which is the property of the other party ("Disclosing Party"), whether originally supplied by the Disclosing Party, or whether generated by the Disclosing Party in the course of performing under this Agreement and which is directly accessible to the Recipient or is in possession of Recipient in its implementation, facilitation and/or performance of this Agreement. During any term of this Agreement, Recipient may acquire, know, or have within its possession, information (including, but not limited to, Technical Information) and/or data of the Disclosing Party concerning commercial and trade affairs, rating and underwriting rules and guidelines, the identity of clients, the identity of insureds and beneficiaries, claims, benefits, rates and Agents, financial information, the Proprietary System (as defined at Article VII (A) herein), the Third Party Proprietary System (as defined in Article VII (B) herein) and business practices of the Disclosing Party ("Confidential Information"). Confidential Information which is provided in tangible form must be clearly marked "Confidential", "Proprietary" or the substantial equivalent thereof, or if orally disclosed must be clearly identified as "Confidential" or "Proprietary" at the time of the disclosure (except for IMS' Technical Information, the identity of Customer's clients, the identity of Customer's insureds and beneficiaries, claims, benefits, and Agents, which will be deemed "Confidential Information" under this Agreement, regardless of whether marked as such). Except as required by law, Recipient shall keep Disclosing Party's Confidential Information confidential and shall only use the Confidential Information in performing or facilitating the Insurance Administration Services under this Agreement. Recipient shall not disclose the Confidential Information without Disclosing Party's prior written permission except to Recipient's employees who require the information to perform or facilitate the Insurance Administration Services under this Agreement. Each party hereto, as a Recipient, warrants to the other that appropriate measures shall be taken by Recipient to safeguard the confidentiality of the Confidential Information, with a level of care at least equal to the level of care with which Recipient safeguards its own confidential or proprietary information. All employees, Agents or representatives of Recipient and any third parties who are given access to the Confidential Information shall be under obligation to Recipient to maintain such information in confidence. 4 IMS and Customer agree that any Recipient shall have no obligation with respect to any information or data which: a) is already rightfully known to Recipient through means other than Disclosing Party; or b) is or becomes publicly known through no wrongful act of Recipient; or c) is rightfully obtained by Recipient from a third-party without similar restriction and without breach of this Agreement; or d) is independently developed by Recipient without breach of this Agreement. Disclosing Party shall retain title to all Confidential Information (whether tangible or intangible) delivered thereby pursuant to this Agreement. Recipient shall not copy, reproduce or use any Confidential Information without written authorization of Disclosing Party, except as may be reasonably required to accomplish the Insurance Administration Services under this Agreement. Upon written request of Disclosing Party Recipient shall promptly return, or destroy with specific written permission of the Disclosing Party, all tangible copies containing Confidential Information, except those copies kept in the regular course of business, or that are required to be kept pursuant to any state or federal administrative, regulatory or statutory mandates. The obligations under this Article V (B) shall survive the termination of this Agreement. Notwithstanding the foregoing, this Article V shall not prevent the disclosure of Confidential Information to the extent legally required by any court or regulatory entity having jurisdiction over the parties. For purposes of this Article V (B), Recipient and Disclosing Party shall include within their meaning all Agents of the Recipient and Disclosing Party. ARTICLE VI. EXPENSES AND FEES A. In consideration of IMS providing Insurance Administration Services described herein, Customer shall pay IMS, as applicable, the fees (the "Fees") specified in the pricing schedule attached hereto as "SCHEDULE B" and by reference herein made a part of this Agreement. The Fees may include an "Electronic" rate, for policies issued via "Electronic" means, and a "Manual" rate, for policies issued using a "Manual" process. A policy shall only be considered an "Electronic" policy if the data input necessary to issue the initial policy was input without the manual intervention of IMS. The "Electronic" rate shall also apply to all renewals of the "Electronic" policy whether the renewal is issued via an automated renewal process or a manual renewal process. A policy shall be considered a "Manual" policy if the data input necessary to issue the initial policy was input with the manual intervention of IMS. The "Manual" rate shall also apply to all renewals of the "Manual" policy whether the renewal is issued via an automated renewal process or a manual renewal process. The performance by IMS of any service or function that is outside of the scope of the Insurance Administration Services ("Additional Services") shall require the payment by Customer of additional consideration as mutually agreed between IMS and Customer. IMS shall not perform any Additional Services unless Customer request such Additional Services in writing or, if the expense of such Additional Services are estimated to be less than One Hundred Dollars ($100.00), unless Customer request such Additional Services either in writing or verbally. B. Customer shall reimburse IMS for necessary travel, living and out-of-pocket expenses reasonably incurred by IMS personnel in the performance the Insurance Administration Services under this Agreement specifically provided that all such expenses exceeding One Thousand Dollars ($1,000.00) are approved by Customer in advance and in writing. C. Subject to the terms of this Agreement, and provided a billing statement was timely provided, all Fees and expenses to be payable by Customer to IMS or any third party under this Agreement shall be paid to IMS on or before the last Business Day of the month immediately following the month in which Fees are owed. Customer's failure to pay all Fees and expenses when due shall be considered a material breach of this Agreement. Further, if Customer fails to pay any Fees and expenses due IMS as herein provided, Customer shall pay to IMS in addition to all sums otherwise due, interest which shall accrue at 1.5% per month on such delinquency from the date the Fees or 5 expenses became past due. Failure or forbearance to exercise any of its rights and privileges hereunder shall not constitute the forfeiture or waiver of such rights and privileges on the part of IMS. IMS will calculate the Fees and expenses owed to IMS by Customer and will send a statement to Customer (containing detailed billing as to each Authorized Line of Business and all other related expenses) within two (2) weeks of the last day of the month for which Fees are owed, subject to Customer providing IMS with the necessary month end data that it will need to complete a detailed billing statement. If Customer fails to provide the necessary month end data that IMS will need to complete a detailed billing statement, then IMS may provide Customer with a reasonable estimate of Fees and expenses owed and Customer shall pay IMS in accordance with that estimate; with an adjustment for actual Fees and expenses made on the next month's billing statement. D. Six (6) months prior to the three (3) year anniversary of the Effective Date of this Agreement ("Demand Date"), either party may request that the Fees specified in SCHEDULE B be renegotiated. The party requesting that the Fees be renegotiated shall do so by written notice ("Demand Notice") to the other party and shall make such request on or before the Demand Date. If neither party makes a Demand Notice on or before the Demand Date, then SCHEDULE B shall remain in effect until the termination of the Initial Term. If a Demand Notice is made, the parties shall negotiate in good faith, which shall include the consideration of the following factors ("Re-negotiation Factors") when determining whether any change should be made to the Fees stated in SCHEDULE B: (i) whether the Fees are competitive with the rates currently being charged within the industry for like services; (ii) whether there has been any material increase or decrease in the number of policies being serviced or premium being processed under this Agreement; (iii) whether the quality of the Insurance Administration Services has diminished or improved since the Effective Date of this Agreement; (iv) whether IMS has consistently failed to meet or consistently met the Standards since Effective Date of this Agreement; (v) whether the Authorized Line of Business is being terminated or run off by Customer or is no longer being administered by IMS; and (vi) with regards specifically to WYO Flood, whether there has been in material increase or decrease in the Allowance or material change in the WYO Flood program (as both terms are defined in EXHIBIT II). NOTWITHSTANDING THE FOREGOING, THE PARTIES SHALL NOT BE UNDER ANY OBLIGATION TO REACH AN AGREEMENT ON RE-NEGOTIATED FEES, THEIR ONLY OBLIGATION SHALL BE TO NEGOTIATE IN GOOD FAITH. If the parties are unable to reach an agreement in their sole discretion with respects to the re-negotiation of Fees within ninety (90) days following the Demand Notice, then either party may terminate this Agreement by providing the other party ninety (90) days prior written notice. Until revised Fees are mutually agreed to in writing between the parties, Customer shall pay IMS, in accordance with SCHEDULE B then in effect. Any revised Fees mutually agreed to by the parties shall be reflected in a "Revised Schedule B" that shall be signed by both parties to this Agreement. E. The parties understand and agree that Fees specified in Section I of SCHEDULE B are based upon an aggregate policy in force ("PIF") count in excess of 388,570 policies for WYO Flood, in excess of 23,412 policies for Auto, in excess of 108,207 policies for Homeowners. If during any three (3) month rolling period Customer's moving average PIF count for (a) WYO Flood policies fall below 291,427 policies or rises above 485,713 policies, (b) Auto policies fall below 17,559 policies or rises above 29,265 policies, (c) Homeowners policies fall below 81,155 policies or rises above 135,259 policies, (individually, each shall be defined as a "PIF Material Variation") then either IMS or Customer may make a written request to the other party (the "PIF Material Variation Notice") to renegotiate Fees on Schedule B directly related to the Authorized Line of Business at any time after the PIF Material Variation for that Authorized Line of Business at any time after the PIF Material Variation for that Authorized Line of Business and during the term of this Agreement. 6 If PIF Material Variation Notice is made, the parties shall negotiate in good faith, which shall include the consideration of the Re-negotiation Factors when determining whether any change should be made to the Fees stated in SCHEDULE B. NOTWITHSTANDING THE FOREGOING, THE PARTIES SHALL NOT BE UNDER ANY OBLIGATION TO REACH AN AGREEMENT ON RE-NEGOTIATED FEES, THEIR ONLY OBLIGATION SHALL BE TO NEGOTIATE IN GOOD FAITH. If the parties are unable to reach an agreement in their sole discretion with respects to the re-negotiation of Fees within ninety (90) days following the PIF Material Variation Notice, then with regards to any PIF Material Variation arising from a certain Authorized Line of Business, the party making the PIF Material Variation Notice may eliminate that Authorized Line of Business from the Agreement; provided, however, such elimination of that Authorized Line of Business shall not effect the validity of any remaining portion of the Agreement which shall remain in full force and effect as if the Agreement had been executed with the eliminated portion thereof excluded. Until revised Fees are mutually agreed to in writing between the parties, or until any Authorized Line of Business is eliminated from the Agreement, Customer shall pay IMS in accordance with SCHEDULE B then in effect. Any revised Fees mutually agreed to by the parties shall be reflected in a "Revised Schedule B" that shall be signed by both parties to this Agreement. ARTICLE VII. LICENSE, TRADE SECRET AND PROPRIETARY RIGHTS A. IMS from time to time may use its own proprietary computer software products and account servicing methods and procedures ("Proprietary System"), which may be identified, described or referenced in EXHIBIT I and EXHIBIT II hereto, in the performance of the Insurance Administration Services. During any term of this Agreement, IMS grants a personal, non-transferable, non-assignable, non-exclusive license to Customer to use portions of the Proprietary System as necessary for IMS to perform the Insurance Administration Services under this Agreement. Further, no provision within this Agreement shall be interpreted as prohibiting IMS from selling or licensing its Proprietary System to any other customer or prospective customer of IMS; provided, however, Customer's license is not interrupted or diminished and so long as Customer's Confidential Information is not disclosed. B. IMS, from time to time, may also use proprietary third party computer software products and third party account servicing methods and procedures ("Third Party Proprietary System"), which may be identified, described or referenced in EXHIBIT I and EXHIBIT II in the performance of the Insurance Administration Services. No provision within this Agreement shall be interpreted as prohibiting IMS or the Third Party Proprietary System vendor from selling or licensing the Third Party Proprietary System, or modifications and enhancements to the Third Party Proprietary System, to any other customer or prospective customer of IMS, so long as Customer's Confidential Information is not disclosed. C. Other than the limited rights to use the Proprietary System and the Third Party Proprietary System (as provided in Article VII (A) and (B) above), this Agreement grants to Customer no right to possess or reproduce, download, reverse engineer, or obtain any other interest in, the Proprietary System or the Third Party Proprietary System, or their specifications in any tangible or intangible medium. Unless Customer already owns, has in its own right already individually licensed, or subsequently owns or licenses the Proprietary System or Third Party Proprietary System, Customer may not mortgage, hypothecate, sell, assign, pledge, lease, transfer, license, or sublicense the Proprietary System or the Third Party Proprietary System, nor allow any person, firm, entity or corporation to transmit, copy, reproduce, download, reverse engineer, or obtain any other interest in the Proprietary System or the Third Party Proprietary System, or their specifications in whole or in part (except in accordance with the terms of Customer's ownership interest in or license of the Proprietary System or Third Party Proprietary System). In the event Customer shall come into possession of any source or object code associated with the Proprietary System or the Third Party Proprietary System, that is not already owned or not already individually licensed or sub-licensed to Customer, Customer shall immediately notify IMS and return the source or object code associated with Proprietary System or the Third Party Proprietary System in its possession and all copies of any kind thereof to IMS. 7 D. Unless Customer already owns, has individually licensed, or subsequently owns or licenses the Proprietary System or Third Party Proprietary System, Customer covenants and agrees not to disclose or otherwise make the Proprietary System or the Third Party Proprietary System available to any person other than employees, insurance sales agents ("Agents") or representatives of the Customer required to have access or use of the Proprietary System or the Third Party Proprietary System to facilitate IMS' or Customer's performance under this Agreement. Customer agrees to obligate each such employee, Agents, or representative to a level of care sufficient to protect the Proprietary System and the Third Party Proprietary System from unauthorized disclosure. E. Notwithstanding anything to the foregoing, Customer shall in no way be prohibited from prospectively owning or licensing the Proprietary System or the Third Party Proprietary System so long as the owner of the Proprietary System or Third Party Proprietary System is willing to sell or license the system to Customer. The obligations of Customer under this Article VII shall survive termination of this Agreement, regardless of the reason for termination. ARTICLE VIII. TERMINATION A. Following the Initial Term, either party may terminate this Agreement, for any reason or for no reason, upon ninety (90) days prior written notice to the other party of its intent to terminate those Agreement either at the end of the Initial Term or any time thereafter. B. Notwithstanding the foregoing paragraph (A), this Agreement shall also terminate: 1) at the election of the Customer, upon written notice to IMS, if IMS becomes insolvent, if it makes an assignment for the benefit of its creditors, if a petition for relief under the United States Bankruptcy Code is filed by or against it and it is not dismissed within thirty (30) days of being filed, or if a trustee, receiver or other custodian of its assets is appointed; or 2) at the election of IMS, upon written notice to Customer, if Customer becomes insolvent, if it makes an assignment for the benefit of its creditors, if a petition for relief under the United States Bankruptcy Code is filed by or against it and it is not dismissed within thirty (30) days of being filed, or if a trustee, receiver or other custodian of its assets is appointed (including, but not limited to, any proceeding pursuant to any state or federal action governing insurer solvency); or 3) at the election of the Customer, if IMS materially breaches any provision of this Agreement and fails to cure such breach within thirty (30) days after written notice thereof is given to IMS by the Customer; or 4) at the election of IMS, if Customer materially breaches any provision of this Agreement and fails to cure such breach within thirty (30) days after written notice thereof is given to Customer by IMS; or The initiation under this Agreement of any dispute resolution procedure shall not prevent a party from terminating this Agreement in accordance with this Article VIII. C. On expiration or termination of this Agreement, IMS shall immediately return to Customer all open and closed claim files, and all of Customer's Confidential Information, in IMS' possession and related to the Insurance Administration Services provided by IMS during the term of this Agreement, time being of the essence. Customer shall do the same, relative to IMS' Confidential Information, and shall cause Customer's Agents and representatives (including, but not limited to, any third party given access to the Confidential Information) to do the same relative to IMS' Confidential Information. Customer shall pay IMS (in accordance with SCHEDULE B then in effect) for any and all Fees and third party fees due IMS for Insurance Administration Services performed pursuant to this Agreement. IMS AND CUSTOMER SHALL COOPERATE IN ANY TRANSITION PERIOD DURING THE WIND-UP OF INSURANCE ADMINISTRATION SERVICES PROVIDED CUSTOMER UNDER THIS 8 AGREEMENT; PROVIDED, HOWEVER, THAT UPON TERMINATION OF THIS AGREEMENT CUSTOMER SHALL BECOME SOLELY ACCOUNTABLE AND SHALL ASSUME ALL RESPONSIBILITY OF ANY PENDING CLAIM FILES PREVIOUSLY ADMINISTERED BY IMS UNDER THIS AGREEMENT EXCEPT FOR MATTERS OCCURRING BETWEEN THE EFFECTIVE DATE AND THE TERMINATION DATE OF THIS AGREEMENT RELATING TO WILLFUL MISCONDUCT OR GROSS NEGLIGENCE OF IMS (INCLUDING ITS OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS). If Customer requires assistance in converting Customer's data to a new format, or requires assistance from IMS relative to Customer's transition to an alternative insurance administration arrangement, then IMS shall provide such services at the then current rates charged by IMS for the services specified in SCHEDULE B; PROVIDED, HOWEVER, IN THE EVENT SUCH DATA IS NOT KEPT BY IMS IN A FORMAT PREVIOUSLY AGREED TO IN WRITING BY CUSTOMER AND IMS, THEN IMS SHALL CONVERT ALL SUCH DATA INTO A FORMAT REASONABLY ACCEPTABLE TO CUSTOMER AT IMS'S SOLE COST AND EXPENSE. This obligations under this Paragraph (C) shall survive any termination of this Agreement. ARTICLE IX. WARRANTIES AND COVENANTS BY IMS IMS covenants that IMS will comply in all respects with the law of the state or states covered by this Agreement and with the rules and regulations of all regulatory authorities having jurisdiction over IMS' activities, and shall, whenever necessary, maintain at its own expense all required licenses to transact business in such states. IMS warrants to Customer that (a) IMS owns or otherwise has the right to use the Proprietary System and the right to use the Third Party Proprietary System used to perform the Insurance Administration Services, and the rights to such Proprietary System granted hereunder will not knowingly infringe upon a third party's copyright or patent rights; (b) IMS is duly authorized to transact the business of servicing insurance companies; and (c) the express warranties provided here and elsewhere in this Agreement are IMS' only warranties and no other warranty, express or implied, including any warranty of merchantability, fitness or fitness for a particular purpose, will apply to the provision of Insurance Administration Services under this Agreement. ARTICLE X. LIABILITY, LIMIT OF LIABILITY, INDEMNITIES AND REMEDIES A. The parties shall assume the following obligations and liabilities as specified below and subject to the limitations on liability set forth in Article X, (B) below: 1) IMS shall indemnify, defend and hold harmless Customer, its officers, directors, employees and controlling persons from any liability, cost, loss, fine, penalty, claim, demand, damage or expense, including reasonable attorneys' fees, incurred directly as a result of any material breach of IMS' obligations under this Agreement or the materials breach of any representation or warranty made by IMS to Customer pursuant hereto; 2) Customer shall indemnify, defend and hold harmless IMS, its officers, directors, employees and controlling persons from any liability, cost, loss, fine, penalty, claim, demand, damage or expense, including reasonable attorney's fees, incurred directly as a result of any material breach of Customer's obligations under this Agreement or the material breach of any representation or warranty made by Customer to IMS pursuant hereto; B. There will be no limit of liability with regards to the following items: (i) liabilities resulting from Fees and expenses payable to IMS under Article VI of this Agreement; (ii) acts of fraud, gross negligence or willful misconduct; (iii) violations of Article VII of this Agreement; and (iv) liabilities that would fall under IMS' E&O insurance coverage. C. Except for those items identified under Paragraph (B) above, each party's maximum liability ("Maximum Liability") to the other party for any cause whatsoever, during any one calendar year shall be limited to damages incurred by that party and shall not exceed the aggregate amount of Fees paid by the Customer under Schedule B of this Agreement for the three (3) months immediately preceding the breach or cause of liability. 9 D. All parties agree to promptly give the others notice upon being notified or becoming aware of any and all allegations or claims, which could give rise to a claim under this Article. E. The obligations of the parties under this Article shall survive termination of this Agreement, regardless of the reason for termination. ARTICLE XI. GENERAL AGREEMENTS A. The parties shall not be liable or deemed to be in default hereunder for any delay or failure in performance under this Agreement, interruption of the Insurance Administration Services resulting, or failure to meet the Standards referenced in Article III, directly from unforeseeable, natural acts (including but not limited to weather catastrophes such as flood, hurricanes, tornadoes, windstorms, ice storms, blizzards and hail storms), civil or military authority, labor disputes or any similar cause beyond the reasonable control of the parties, so long as IMS follows a disaster recovery plan approved by Customer (which recovery plan must be presented to Customer for review on annual basis), and provided further that IMS makes every commercially reasonable effort to perform under this Agreement once such occurrence has ceased. B. 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: If to Customer to: 360 Central Avenue 17th Floor St. Petersburg, FL 33733 Attn: Robert G. Menke, President FAX (727) 823-6518 If to IMS to: 801 94th Avenue North St. Petersburg, FL ----------- Attn: David M. Howard, President FAX (727) 803-2076 Notices sent by hand delivery shall be deemed effective on the date of actual hand delivery. Notices 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 fifth Business Day after being deposited into the post office. Notices sent by facsimile transmission shall be deemed to be effective on the day when sent if sent prior to 4:30 p.m. (the time being determined by the time zone of the recipient), otherwise they shall be deemed effective on the next Business Day. C. This Agreement, and the exhibits, schedules and appendices attached hereto, contain all of the prior oral and/or previously written agreements, representations, and arrangements between the parties hereto with regards to the Insurance Administration Services. There are no representations or warranties other than those set forth herein. No change or modification of this Agreement, including the exhibits, schedules and appendices hereto, shall be valid unless the same shall be in writing and signed by all of the parties hereto. All exhibits, schedules, appendices, addendum of any kind, or attachments to this Agreement shall be made a part of this Agreement and shall be subject to all terms and conditions of this Agreement. D. 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. Article headings are 10 intended for purposes of description only and shall not be used for purposes of interpretation of this Agreement. E. 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 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. F. If either party should bring an action alleging breach of this Agreement or seeking to enforce, rescind, renounce, declare, void or terminate this Agreement or any provisions thereof (in compliance with the Dispute Resolution Procedures detailed in Section XII of this Agreement) the prevailing party shall be entitled to recover all of its legal expenses, including reasonable attorneys' 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 attorneys' fees were incurred. The venue for any action related to this Agreement shall be in Pinellas County, Florida. This Agreement and all matters arising hereunder shall be governed by and determined in accordance with the laws of the State of Florida without giving effect to any choice of law provisions. The obligations of the parties under this Paragraph F shall survive termination of this Agreement, regardless of the reason for termination. G. Neither IMS nor Customer shall assign this Agreement or any of its rights hereunder without the prior written consent of the non-assigning party. H. The parties agree not to disclose the terms and conditions of this Agreement to any third party, except (i) as required in the normal conduct of Customer's business, or (ii) as required by law or regulation including, without limitation, any Federal securities law, or regulation. I. This Agreement shall be for the benefit of, and shall be binding upon, the parties and their respective heirs, personal representatives, executors, legal representatives, successors and assigns. ARTICLE XII. DISPUTE RESOLUTION PROCEDURES A. The parties will attempt in good faith to promptly resolve any material dispute regarding this Agreement by negotiations between senior management ("Senior Management") of the parties. Senior Management of each party will meet within ten (10) calendar days of notice ("Notice of Dispute") by a party of the existence of a material dispute, at a mutually agreed time and place, to resolve the material dispute. At the meeting of Senior Management, to be attended by an individual from each party who shall have authority to settle the dispute, each party shall verbally state the issues in the material dispute and its position. If the material dispute is not resolved to the mutual satisfaction of the parties within seven (7) calendar days of the meeting of Senior Management, then the parties may attempt to resolve the controversy using mediation. B. If the matter has not been resolved pursuant to the aforesaid mediation procedure within thirty (30) calendar days of the issuance of a party of a Notice of Dispute, or if either party will not participate in mediation, then either party may initiate arbitration upon fifteen (15) calendar days written notice to the other party. Notwithstanding the foregoing, all deadlines specified above may be extended upon mutual written agreement of the parties. C. Except for the right of either party to apply to a court of competent jurisdiction for a temporary restraining order, preliminary injunction or other equitable relief to preserve the status quo, all claims, disputes, controversies and other matters relating to breach of this Agreement which cannot be resolved by the parties shall be settled by arbitration in accordance with this Agreement. D. Notice requesting arbitration ("Arbitration Notice"), or any other notice made in connection 11 therewith, shall be made in writing by one party and sent by certified mail, return receipt requested, to the other party. The Arbitration Notice shall state in particular all issues to be resolved in the view of the complaining party, shall appoint the arbitrator selected by the complaining party and shall set a tentative date for the arbitration hearing, which date shall be no sooner than forty-five (45) calendar days and no later than ninety (90) calendar days from the date that the Arbitration Notice is mailed. Within twenty (20) calendar days of receipt of the complaining party's Arbitration Notice, the respondent shall notify the complaining party of the name of its appointed arbitrator. When the two arbitrators have been appointed, they shall agree on a third independent arbitrator and shall appoint such person by written notice to the parties signed by both arbitrators within thirty (30) calendar days from the date of the appointment of the second arbitrator. If the two arbitrators fail to agree upon the appointment of an independent arbitrator at the end of thirty (30) calendar days following the appointment of the second arbitrator, then the independent arbitrator shall be appointed by the American Arbitration Association ("AAA"), or its successor, in accordance with its then prevailing commercial arbitration rules then in effect. The three (3) arbitrators shall constitute the arbitration board ("Arbitration Board"). The parties agree that the location for conducting the arbitration, regardless of the party bringing the complaint, will be in Pinellas County, Florida. E. The members of the Arbitration Board shall be active or retired (i) lawyers or professionals familiar with insurance and/or (ii) active or former officers or management employees of insurance and/or data processing firms and/or software development companies. The person selected by the two respective arbitrators appointed by the parties shall be the umpire or chief arbitrator and must be a licensed attorney. F. Arbitration shall be conducted in accordance with the Commercial Rules of the AAA then in effect except as modified herein. G. The parties agree that all then current employees of each with information relevant to the dispute between the parties will be voluntarily produced, at the employer's expense, for all proper discovery and arbitration hearings. H. The cost of the arbitration relative to the arbitrators and the AAA ("Costs") shall be borne equally pending the arbitrators' award. Each party shall bear its own expenses for attorneys' fees. The prevailing party in any arbitration proceeding hereunder shall be entitled, in addition to such other relief as may be granted, to recover the portion of the Costs incurred by that party in connection with arbitration under this Agreement prior to the award. I. The parties agree that the Arbitration Board shall be required to render its decision in writing within thirty (30) calendar days of the conclusion of the arbitration proceedings, unless such time shall be extended by mutual written agreement of the parties. J. With respect to any matter brought before the Arbitration Board, the Arbitration Board shall make a decision having regard to the intentions of the parties, the terms of this Agreement, and custom and usage of the insurance industry. Such decisions shall be in writing and shall state the findings of fact and conclusions of law upon which the decision is based, provided that such decision may not (i) award consequential, punitive, special, incidental or exemplary damages, or (ii) unless specifically requested by a party pursuant to the terms of this Agreement, otherwise terminate this Agreement or any provisions thereof. The decision shall be based exclusively upon the evidence presented by the parties at a hearing in which evidence shall be allowed and such decision shall be final and binding upon all parties to the proceeding and may be entered by either party in any court having competent jurisdiction. K. The obligations of the parties under this Section XII shall survive termination of this Agreement, regardless of the reason for termination. 12 ARTICLE XIII - CHANGE IN LAW; REGULATORY APPROVAL In the event of a change in any law, regulation, rule or governmental interpretation thereof by any governmental body having jurisdiction over the parties, or in the event of an order by any court having jurisdiction over the parties causes this Agreement or any provision hereof to be in non-compliance with any applicable law, rule, order or any other regulation, then this Agreement may be (a) modified to address such non-compliance by mutual agreement of the parties, or (b) so long as the modification to this Agreement to correct such non-compliance ("Required Modification") does not significantly and materially alter the economic terms of this Agreement, modified to address such non-compliance but only to the extent necessary to make the Agreement compliant, or (c) in the event Required Modification significantly and materially alters the economic terms of this Agreement and the parties can not mutually agree to a modification hereof, terminated by either party upon providing the other party with one hundred and eighty (180) days prior written notice. Provided, however, if (i) terminating this Agreement upon one hundred and eighty (180) days prior written notice would subject either party to material fine or other material penalty by law, (ii) the governmental or regulatory body mandates that the Agreement be terminated prior to the prescribed one hundred and eighty (180) day notice period, or (iii) failure to terminate this Agreement within thirty (30) days will significantly and materially impact the financial viability of Customer or IMS, then this Agreement may be terminated upon thirty (30) days prior written notice to the other party. To the extent required, this Agreement shall be subject to approval by governmental agencies having jurisdiction over Customer and Customer's business. ARTICLE XIV - CUSTOMER'S BUSINESS This Agreement shall not be deemed to require Customer to offer or otherwise participate in any particular business or lines of business or to provide any business within any particular jurisdiction, nor will Customer's relationship with IMS be deemed to be exclusive. Notwithstanding the foregoing, Customer shall notify IMS prior to negotiating any definitive documents with any party that is not a party to this Agreement ("Third Party") for the sale of any material portion of any Authorized Line of Business. During the Initial Term of this Agreement and as a condition to the sale of all or substantially all the WYO Flood, Homeowners or Auto Authorized Line of Business during any rolling twelve (12) month period, Customer shall require any Third Party or parties purchasing all or substantially all the WYO Flood, Homeowners or Auto Authorized Line of Business during any rolling twelve (12) month period to use IMS exclusively for any Insurance Administration Services provided for in this Agreement that are to be performed relative to the Authorized Line of Business. Notwithstanding the foregoing, if Customer terminates or runs off any Authorized Line of Business during any rolling twelve (12) month period, without selling all or substantially all of that Authorized Line of Business to any Third Party within that same rolling twelve (12) month period, Customer shall have no liability or obligation to IMS for procuring Insurance Administration Services from IMS for that terminated or run off Authorized Line of Business. For purposes of this Article, the term "substantially all" shall mean eighty percent (80%) or more of the aggregate amount of any Authorized Line of Business as measured from the first day of the applicable rolling twelve (12) month period. ARTICLE XV - APPROVAL BY RESPECTIVE BOARD OF DIRECTORS This Agreement, once signed by all parties hereto, shall be submitted to each party's respective Board of Directors ("Company Board"), or any Company Board committee ("Committee") that has authority to approve this Agreement, for approval. Such written Company Board or Committee approval must be obtained within thirty (30) days following the execution date of the last party to execute this Agreement. In the event that any party's respective Company Board or Committee has not approved this Agreement in writing (and delivered such approval to the other party) within such thirty (30) day period, then the other party may elect, at its sole option, to (a) extend such period in which to obtain Company Board or Committee approval or (b) terminate this Agreement by providing written notice to the other party hereto. 13 IN WITNESS WHEREOF, the parties hereto by their respective duly authorized representatives have executed this Agreement as of the date and year first set forth above. - ----------------------------------------------------------------------------- "IMS" INSURANCE MANAGEMENT SOLUTIONS, INC. - ----------------------------------------------------------------------------- By: /s/ D. M. Howard D. M. Howard -------------------------- As its: Pres/CEO Pres/CEO Date: 11/26/01 ----------------------- ------------ - ----------------------------------------------------------------------------- "CUSTOMER" - ----------------------------------------------------------------------------- BANKERS INSURANCE COMPANY By: /s/ Robert G. Menke Robert G. Menke -------------------------- As its: President President Date: 11/21/2001 ----------------------- ------------- BANKERS SECURITY INSURANCE COMPANY By: /s/ Robert G. Menke Robert G. Menke -------------------------- As its: President President Date: 11/21/2001 ----------------------- ------------- - ----------------------------------------------------------------------------- FIRST COMMUNITY INSURANCE COMPANY By: /s/ Robert G. Menke Robert G. Menke -------------------------- As its: President President Date: 11/21/2001 ----------------------- ------------- - ----------------------------------------------------------------------------- SCHEDULES: SCHEDULE "A" -- AUTHORIZED STATES AND INSURANCE PROGRAM SCHEDULE "B" -- PRICING SCHEDULE EXHIBITS: EXHIBIT I -- INSURANCE ADMINISTRATION SERVICES (AT RISK LINES) EXHIBIT II -- INSURANCE ADMINISTRATION SERVICES (WYO FLOOD) EXHIBIT III SERVICE LEVEL AGREEMENT 14 SCHEDULE A AUTHORIZED STATES AND INSURANCE PROGRAM So long as Customer is providing such lines of business, IMS shall provide Insurance Administration Services as described in EXHIBIT I and EXHIBIT II for the following authorized line(s) of business ("Authorized Line of Business") in the following state(s) ("Authorized States"): 1. AUTHORIZED LINE OF BUSINESS: WYO Flood Excess Flood Automobile Homeowners Commercial Contract Surety Tenant Bond. Workers Compensation is not an Authorized Line of Business under this Agreement. 2. AUTHORIZED STATES: With regards specifically to WYO Flood, Excess Flood, Auto and Homeowners: All states of the United States With regards specifically to Commercial: See Appendix A attached With regards specifically to Contract Surety: See Appendix A attached With regards specifically to Tenant Bond: See Appendix A attached 15 Product Descriptions by State Appendix A
- ------------------------------------------------------------------------------------------------------------------------------------ COMPANY PRODUCT SUBLINE STATE PRODUCT DESCRIPTION SUBLINE DESCRIPTION POLICY PROCESSING SYSTEM - ------------------------------------------------------------------------------------------------------------------------------------ 3000 BBOP FL Business Owners Program Bankers On-Line/Monthend/Lawson - ------------------------------------------------------------------------------------------------------------------------------------ 3000 BOP FL Bankers On-Line/Monthend/Lawson - ------------------------------------------------------------------------------------------------------------------------------------ 3000 BOP SPEC FL Special Coding Tickets/Monthend - ------------------------------------------------------------------------------------------------------------------------------------ 3000 DFI DP01 FL IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 3000 DFI DP02 FL IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 3000 DFI DP03 FL IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 3000 DFIP DP01 FL Depopulation DPI - Form 01 IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 3000 DFIP DP02 FL DP02 IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 3000 DFIP DP03 FL DP03 IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 3000 DFSH DP01 FL Dwelling Fire Southern Heritage DP01 - Form IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 3000 DFSH DP02 FL DP02 - Form IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 3000 DFSH DP03 FL DP03 - Form IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 3000 FLD PREF FL IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 3000 FLD RGLR FL IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 3000 FLD RCBP FL IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 3000 FLD MPPP FL IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 3000 HO HO3 FL IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 3000 HO HO4 FL IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 3000 HO HO6 FL IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 3000 HO HO8 FL HO Form 8 IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 3000 HOP HO3 FL Depopulation - HO Form 3 IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 3000 HOP HO4 FL Depopulation - HO Form 4 IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 3000 HOP HO6 FL Depopulation - HO Form 6 IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 3000 HOP HO8 FL Depopulation - HO Form 8 IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 3000 HOSH HO3 FL Homeowners Southern Heritage IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 3000 HOSH HO4 FL IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 3000 HOSH HO6 FL IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------
AA-Annual Auto F+S-Fidelity + Surety IM-Inland Marine BU-Burglary FR-Fire + Allied Lines DP-Personal Lines BO-Business Owners GLA-General Liability MPA-Professional Liability GS-Glass 16 Product Descriptions by State Appendix A
- ------------------------------------------------------------------------------------------------------------------------------------ COMPANY PRODUCT SUBLINE STATE PRODUCT DESCRIPTION SUBLINE DESCRIPTION POLICY PROCESSING SYSTEM - ------------------------------------------------------------------------------------------------------------------------------------ 3000 HOSH HO8 FL IMSG Main On-Line/Monthend - ------------------------------------------------------------------------------------------------------------------------------------ 3000 NSAP PP FL IMSG Main On-Line/Monthend - ------------------------------------------------------------------------------------------------------------------------------------ 3000 WIND FL Wind Pool Coding Tickets/Monthend - ------------------------------------------------------------------------------------------------------------------------------------ 4000 BBND CO, MI, ND, NJ, PA, SD, TN Bail Bond/Month End/Lawson - ------------------------------------------------------------------------------------------------------------------------------------ 4000 CFIR SPEC AL, AR, FL, IN, MS, MO, TN Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 4000 CHTR SPEC AR, AZ, CA, FL, GA, IL, IN, Chartered Boat Program Special Coding Tickets/Month End KY, LA, ME, MO, MS, NC, NJ, NV, NY, OR, SC, TN, UT, VA, WA - ------------------------------------------------------------------------------------------------------------------------------------ 4000 CPP SPEC FL, GA Coding Tickets/Monthend - ------------------------------------------------------------------------------------------------------------------------------------ 4000 CPPI LA Credit Personal Property Insurance - ------------------------------------------------------------------------------------------------------------------------------------ 4000 EL FL, LA, OK Coding Tickets/Monthend - ------------------------------------------------------------------------------------------------------------------------------------ 4000 FLD PREF AL, AK, AR, AZ, CO, CA, CT, DC, DE, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, MS, MT, NC, ND, NE, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, VT, WA, WI, WV, WY IMSG Main On-Line/Monthend - ------------------------------------------------------------------------------------------------------------------------------------ 4000 FLD CNDO AK, AL, AR, AZ, CA, CO, CT, Condo DC, DE, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, MS, MT, NC, ND, NE, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, VT, WA, WI, WV, WY IMSG Main On-Line Month End - ------------------------------------------------------------------------------------------------------------------------------------
AA-Annual Auto F+S-Fidelity + Surety IM-Inland Marine BU-Burglary FR-Fire + Allied Lines DP-Personal Lines BO-Business Owners GLA-General Liability MPA-Professional Liability GS-Glass 17 Product Descriptions by State Appendix A
- ------------------------------------------------------------------------------------------------------------------------------------ COMPANY PRODUCT SUBLINE STATE PRODUCT DESCRIPTION SUBLINE DESCRIPTION POLICY PROCESSING SYSTEM - ------------------------------------------------------------------------------------------------------------------------------------ 4000 FLD MPPP AL, AK, AR, AZ, CA, CO, CT, Mortgage Portfolio DC, DE, FL, GA, HI, IA, ID, Protection Policies IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, MS, MT, NC, ND, NE, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, VT, WA, WI, WY IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 4000 FLD RGLR AL, AK, AR, AZ, CA, CO, CT, Regular DC, DE, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, MS, MT, NC, ND, NE, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, VT, WA, WI, WY IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 4000 FLD RCBP AL, AK, AR, AZ, CA, CO, CT, DC, DE, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, MS, MT, NC, ND, NE, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, VT, WA, WI, WY IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 4000 FLDX RGLR AL, AZ, CA, CT, DE, FL, GA, HI, IL, LA, MA, MD, MS, NC, NH, NJ, NV, NY, OH, OR, PA, RI, SC, TX, VA Coding Tickets/Monthend - ------------------------------------------------------------------------------------------------------------------------------------
AA-Annual Auto F+S-Fidelity + Surety IM-Inland Marine BU-Burglary FR-Fire + Allied Lines DP-Personal Lines BO-Business Owners GLA-General Liability MPA-Professional Liability GS-Glass 18 Product Descriptions by State Appendix A
- ------------------------------------------------------------------------------------------------------------------------------------ COMPANY PRODUCT SUBLINE STATE PRODUCT DESCRIPTION SUBLINE DESCRIPTION POLICY PROCESSING SYSTEM - ------------------------------------------------------------------------------------------------------------------------------------ 4000 GL SPEC FL, GA, IN, NH, NY, OH, SC, TN, TX Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 4000 GL GAP FL, GA Coding Tickets/Monthend - ------------------------------------------------------------------------------------------------------------------------------------ 4000 GL ETCH GA Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 4000 GL SCGD FL Security Guard Program Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 4000 GL AGI IL Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 4000 HO HO3 FL IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 4000 HO HO4 FL IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 4000 HO HO6 FL IMSG Main On-Line Month End - ------------------------------------------------------------------------------------------------------------------------------------ 4000 HO HO8 FL IMSG Main On-Line Month End - ------------------------------------------------------------------------------------------------------------------------------------ 4000 INLM SPEC AL, AR, AZ, FL, GA, IN, MO, MS, NC, NH, NJ, NY, PA, TN, TX Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 4000 LENS AL, AK, AR, AZ, CA, CO, CT, Lensurance DC, DE, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, MS, MT, NC, ND, NE, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, VT, WA, WI, WY - ------------------------------------------------------------------------------------------------------------------------------------ 4000 MCNT SPEC AR, AZ, CA, FL, GA, IL, IN, Marine Contractors Special KY, LA, ME, MO, MS, NC, NJ, Program NV, NY, OR, SC, TN, UT, VA, WA Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 4000 MOLL SPEC AR, AZ, CA, FL, GA, IL, IN, Marine Owners Legal Special KY, LA, ME, MO, MS, NC, NJ, Liability NV, NY, OR, SC, TN, UT, VA, WA Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------
AA-Annual Auto F+S-Fidelity + Surety IM-Inland Marine BU-Burglary FR-Fire + Allied Lines DP-Personal Lines BO-Business Owners GLA-General Liability MPA-Professional Liability GS-Glass 19 Product Descriptions by State Appendix A
- ------------------------------------------------------------------------------------------------------------------------------------ COMPANY PRODUCT SUBLINE STATE PRODUCT DESCRIPTION SUBLINE DESCRIPTION POLICY PROCESSING SYSTEM - ------------------------------------------------------------------------------------------------------------------------------------ 4000 NACA PP CA NSAP General Agent Private Passenger Tape/Month End Program California - ------------------------------------------------------------------------------------------------------------------------------------ 4000 NACA CA GA Program California Tape/Month End - Manual - ------------------------------------------------------------------------------------------------------------------------------------ 4000 NAGA PP CA, OR Tape/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 4000 NAGA OR General Agent Program Tape/Month End - manual - ------------------------------------------------------------------------------------------------------------------------------------ 4000 OAP FL, OH Occupational Accident Coding Tickets/Month End Program - ------------------------------------------------------------------------------------------------------------------------------------ 4000 OMNI FL, NY Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 4000 SAU SPEC FL, KY Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 4000 SMBT SPEC AR, AZ, CA, FL, GA, IL, IN, Small Boat Program Special KY, LA, ME, MO, MS, NC, NJ, NV, NY, OR, SC, TN, UT, VA, WA Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 4000 SRTY AL, AZ, CO, FL, GA, IA, ID, Surety/Fidelity Bonds IL, IN, KS, KY, MA, MD, MI, MN, MO, MS, MT, NC, ND, NE, NH, NJ, NV, NY, OH, OK, RI, SC, SD, TX, UT, VA, VT, WA, WI, WV, WY Access DB/Coding Tickets/ Month End - ------------------------------------------------------------------------------------------------------------------------------------ 4000 SRTY SPEC DC, FL, GA, IL, NC, NY, SC, Special VA Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 4000 TBND OPT3 DC, FL, GA, IL, NC, NY, SC, Tennant Bond Option 3 TN, VA, WA Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 4000 TBND OPT2 DC, FL, GA, IL, NC, NY, SC, Option 2 TN, VA, WA Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 4000 TBND OPT1 DC, FL, GA, IL, NC, NY, SC, Option 1 TN, VA, WA Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 4000 TOW SPEC AL, AR, FL, GA, IN, MO, MS, Tow Truck Program TN Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 4000 UMBR SPEC FL, TX Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 4000 WIND FL Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------
AA-Annual Auto F+S-Fidelity + Surety IM-Inland Marine BU-Burglary FR-Fire + Allied Lines DP-Personal Lines BO-Business Owners GLA-General Liability MPA-Professional Liability GS-Glass 20 Product Descriptions by State Appendix A
- ------------------------------------------------------------------------------------------------------------------------------------ COMPANY PRODUCT SUBLINE STATE PRODUCT DESCRIPTION SUBLINE DESCRIPTION POLICY PROCESSING SYSTEM - ------------------------------------------------------------------------------------------------------------------------------------ 4000 YAHT SPEC AR, AZ, CA, FL, GA, IL, IN, Yacht Program Special KY, LA, ME, MO, MS, NC, NJ, NV, NY, OR, SC, TN, UT, VA, WA Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 AECO FL Air Conditioning/ Coding Tickets/Month End Electrical Contractors - ------------------------------------------------------------------------------------------------------------------------------------ 5000 APD PP FL Auto Physical Damage Private Passenger IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 ASP PREF FL Auto Service Program AA Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 ASP NSTD FL B Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 ASP STD FL A Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 B&M FL Boiler & Machinery Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 BBND AL, AZ, CA, CT, DC, DE, FL, Bail Bonds GA, HI, IA, ID, IN, KS, LA, MD, MO, MS, MT, NC, NH, NM, NY, NV, OH, PA, RI, SC, SD, TN, TX, UT, VA, VT, WV, WY Bail Bond/Month End/Lawson - ------------------------------------------------------------------------------------------------------------------------------------ 5000 BOP FL, LA Business Owners Program Bankers On-Line/Month End/ Lawson (LA Coding Ticket) - ------------------------------------------------------------------------------------------------------------------------------------ 5000 BOP SPEC FL Special Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 BPAK FL Beauty Pak Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 BTA FN (Mexico) Border Trucking and Auto Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 CAPP PP FL Consumers Auto Coding Tickets/Month End Protection Program Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 CAU FL Commercial Auto Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 CAU FL JUA Commercial Auto Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 CAUP FL Combination Auto Policy Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 CELL FL Mobile Telephone Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 CFIR FL Commercial Fire Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 CFIR SPEC FL, AL, AR, MO, MS, TN Special Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------
AA-Annual Auto F+S-Fidelity + Surety IM-Inland Marine BU-Burglary FR-Fire + Allied Lines DP-Personal Lines BO-Business Owners GLA-General Liability MPA-Professional Liability GS-Glass 21 Product Descriptions by State Appendix A
- ------------------------------------------------------------------------------------------------------------------------------------ COMPANY PRODUCT SUBLINE STATE PRODUCT DESCRIPTION SUBLINE DESCRIPTION POLICY PROCESSING SYSTEM - ------------------------------------------------------------------------------------------------------------------------------------ 5000 CHTR SPEC AR, AZ, FL, GA, IL, IN, KY, Chartered Boat Program Special LA, MO, MS, NC, SC, TN, UT, VA, WA Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 CMNF FL, GA, KY, LA, MS, SC, TN Chattel Mortgage Coding Tickets/Month End Non-Filing - ------------------------------------------------------------------------------------------------------------------------------------ 5000 COMM FL Commercial Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 CPP FL Commercial Package Policy Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 CPP SPEC FL Special Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 CPPI FL, GA, ID, KY, LA, MS, NC, SC, TN - ------------------------------------------------------------------------------------------------------------------------------------ 5000 CRIM FL Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 DAYC FL DayCare - ------------------------------------------------------------------------------------------------------------------------------------ 5000 DFI(O) FL, SC Dwelling Fire IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 DFI(2) FL FPCJUA IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 DFI(3) DP03 FL FRPCJUA DP03 - Form IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 DFI(3) DP01 FL FRPCJUA DP01 - Form IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 DFI(3) DP02 FL FRPCJUA DP02 - Form IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 DFI DP01 FL, SC DP01 - Form IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 DFI DP02 FL, SC DP02 - Form IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 DFI DP03 FL, SC DP03 - Form IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 DHO FL Direct Response IMSG Main On-Line/Month End Homeowners - ------------------------------------------------------------------------------------------------------------------------------------ 5000 DMH AZ, FL Direct Response Mobile IMSG Main On-Line/Month End home - ------------------------------------------------------------------------------------------------------------------------------------ 5000 DRT FL Direct Response Renters IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 E&O FL Errors & Omission Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 EL AL, FL, LA Employers Liability Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 FARM FL Farm Protector Plan Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 FDTY FL Fidelity Bonds Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------
AA-Annual Auto F+S-Fidelity + Surety IM-Inland Marine BU-Burglary FR-Fire + Allied Lines DP-Personal Lines BO-Business Owners GLA-General Liability MPA-Professional Liability GS-Glass 22 Product Descriptions by State Appendix A
- ------------------------------------------------------------------------------------------------------------------------------------ COMPANY PRODUCT SUBLINE STATE PRODUCT DESCRIPTION SUBLINE DESCRIPTION POLICY PROCESSING SYSTEM - ------------------------------------------------------------------------------------------------------------------------------------ 5000 FLD PREF AL, AK, AR, AZ, CA, DC, DE, Flood Preferred Risk FL, GA, IA, IL, IN, KY, LA, MD, MO, MS, MT, NC, NM, NV, OH, PA, SC, SD, TN, TX, VA, WI IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 FLD CNDO AL, AZ, AR, CA, DC, DE, FL, GA, IL, IA, IN, KY, LA, MD, MS, MO, MT, NC, NM, NV, OH, PA, SC, SD, TN, TX, VA IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 FLD MPPP AL, AK, AZ, AR, CA, DC, DE, FL, GA, IA, IL, IN, KY, LA, MD, MO, MS, MT, NC, NM, NV, OH, PA, SC, SD, TN, TX, VA, WI IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 FLD RGLR AL, AK, AZ, AR, CA, DC, FL, GA, IA, IN, KY, MT, MD, NC, SD, WI IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 FLD RCBP AK, AL, AR, AZ, CA, DC, DE, Residential Condo FL, GA, IA, IL, IN, KY, LA, Building Assn MD, MO, MS, MT, NC, NM, NV, OH, PA, SC, SD, TN, TX, VA, WI IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 FLDX RGLR AL, AZ, CA, DC, DE, FL, GA, Excess Flood Regular IA, IL, LA, MD, MS, NV, PA, SC, TX, VA Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 FREA FL E&O Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 FWUA FL Florida Windstorm ?? Underwriting Assn. - ------------------------------------------------------------------------------------------------------------------------------------ 5000 FWUA HO FL Homeowners ?? - ------------------------------------------------------------------------------------------------------------------------------------ 5000 FWUA GB FL General Building ?? - ------------------------------------------------------------------------------------------------------------------------------------
AA-Annual Auto F+S-Fidelity + Surety IM-Inland Marine BU-Burglary FR-Fire + Allied Lines DP-Personal Lines BO-Business Owners GLA-General Liability MPA-Professional Liability GS-Glass 23 Product Descriptions by State Appendix A
- ------------------------------------------------------------------------------------------------------------------------------------ COMPANY PRODUCT SUBLINE STATE PRODUCT DESCRIPTION SUBLINE DESCRIPTION POLICY PROCESSING SYSTEM - ------------------------------------------------------------------------------------------------------------------------------------ 5000 GARA SPEC FL Garage Special Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 GL AL, FL, GA, IN, LA, MI, MS, General Liability NC, OK, SD, TX Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 GL SPEC AL, FL, GA, IL, KY, LA, MS, Special NC, PA, TN, TX Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 GL APPR FL Real Estate Appraisers Professional Liab. Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 GL GAP FL, GA, LA Guarantee Auto Protection Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 GL ETCH GA ETCH Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 GL MGI GA Manufacturer's Guardian Inc. Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 GL AGI IL American Guardian Inc. Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 GL SCGD FL Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 GUNS FL, AZ, OH, TX Firearms Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 HO FL, SC Homeowners IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 HO(2) FL IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 HO(3) HO2 FL HO Form 2 IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 HO(3) HO3 FL HO Form 3 IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 HO(3) HO6 FL HO Form 6 IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 HO(3) HO4 FL HO Form 4 IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 HO(3) HO2M FL IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 HO(3) HO3M FL IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 HO HO3 FL, SC IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 HO HO4 FL, SC IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 HO HO6 FL, SC IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 HO HO8 FL, SC IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 INLM FL Inland Marine Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 INLM SPEC AL, AR, AZ, FL, GA, MO, MS, Special NJ, OH, TN, TX Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------
AA-Annual Auto F+S-Fidelity + Surety IM-Inland Marine BU-Burglary FR-Fire + Allied Lines DP-Personal Lines BO-Business Owners GLA-General Liability MPA-Professional Liability GS-Glass 24 Product Descriptions by State Appendix A
- ------------------------------------------------------------------------------------------------------------------------------------ COMPANY PRODUCT SUBLINE STATE PRODUCT DESCRIPTION SUBLINE DESCRIPTION POLICY PROCESSING SYSTEM - ------------------------------------------------------------------------------------------------------------------------------------ 5000 ISF FL Installment Sales Floater - ------------------------------------------------------------------------------------------------------------------------------------ 5000 MCNT SCEC AR, AZ, FL, GA, IL, IN, KY, Marine Contractors Special LA, MO, MS, NC, SC, TN, UT, Program VA, WA Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 MCWR FL Motorcycle Warranty Guaranty Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 MCY FL Motorcycle Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 MH FL Mobile home Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 MH HO2 FL FRPCJUA - HO2 Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 MH HO3 FL FRPCJUA - HO3 Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 MH DP01 FL FRPCJUA - DFI Mobile home Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 MH HO4 FL FRPCJUA - HO4 Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 MMAI FL Medical Malpractice Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 MOLL SPEC AR, AZ, FL, GA, IL, IN, KY, Marine Owners Legal Special LA, MO, MS, NC, SC, TN, UT, Liability VA, WA Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 NAGA PP WA General Agent Program Private Passenger Tape/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 NAGA WA Tape/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 NSAP PP FL, LA Private Passenger Auto Private Passenger Program IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 NSAP SEL FL, LA, SC Select IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 NSCA FL Business Auto Manual (old program) Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 NSCA NCA FL Business Auto Automated Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 NSCA SCA FL Non-Standard Commercial Auto Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 OCM FL Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 OMNI FL, IN Marine Industries Omnibus Insurance Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 PDPI PP FL PIP & Property Damage Private Passenger IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 PIP PP FL Personal Injury Private Passenger Protection IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 PIP FL FJUA-Personal Injury Protection IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 PLSC FL Personal Lines Supplemental Coverage IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------
AA-Annual Auto F+S-Fidelity + Surety IM-Inland Marine BU-Burglary FR-Fire + Allied Lines DP-Personal Lines BO-Business Owners GLA-General Liability MPA-Professional Liability GS-Glass 25 Product Descriptions by State Appendix A
- ------------------------------------------------------------------------------------------------------------------------------------ COMPANY PRODUCT SUBLINE STATE PRODUCT DESCRIPTION SUBLINE DESCRIPTION POLICY PROCESSING SYSTEM - ------------------------------------------------------------------------------------------------------------------------------------ 5000 QSMP FL Quik Rate Special Multi-Peril IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 RAIL AL, AK, AR, AZ, CA, CO, CT, Railroad DC, DE, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MD, MI, MN, MO, MS, MT, NC, ND, NE, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, VT, WA, WI, WV, WY Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 SAU FL Standard Auto Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 SAU SPEC FL Standard Auto Special Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 SAU(1) PP AL, AK, AR, AZ, CA, CO, CT, FJUA Private Passenger DC, DE, FL, GA, IA, ID, IL, IN, KS, KY, LA, ME, MI, MN, MO, MS, MT, NC, ND, NE, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VT, VA, WA, WI, WV, WY - ------------------------------------------------------------------------------------------------------------------------------------ 5000 SAU SPEC KY Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 SAU TRUK AL, AR, FL, GA, MS, NC, SC, Commercial Auto Truck TN Program Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 SAU(6) PP SC SC Associated Auto Insurers Plan - ------------------------------------------------------------------------------------------------------------------------------------ 5000 SMBT SPEC AR, AZ, FL, GA, IL, IN, KY, Small Boat Program Special LA, MO, MS, NC, SC, TN, UT, VA, WA Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 SCAU FL Special Commercial Auto Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 SRTY AL, AR, DC, DE, FL, GA, IA, Surety Bonds IL, KS, KY, LA, MD, MO, MS, MT, NC, NM, NV, OH, OK, PA, SC, SD, TX, VA Access DB/Coding Tickets/ Month End - ------------------------------------------------------------------------------------------------------------------------------------
AA-Annual Auto F+S-Fidelity + Surety IM-Inland Marine BU-Burglary FR-Fire + Allied Lines DP-Personal Lines BO-Business Owners GLA-General Liability MPA-Professional Liability GS-Glass 26 Product Descriptions by State Appendix A
- ------------------------------------------------------------------------------------------------------------------------------------ COMPANY PRODUCT SUBLINE STATE PRODUCT DESCRIPTION SUBLINE DESCRIPTION POLICY PROCESSING SYSTEM - ------------------------------------------------------------------------------------------------------------------------------------ 5000 SRTY EAST AL, FL, GA, NC, SC East Access DB/Coding Tickets/ Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 SRTY WEST AR, GA, OK, TX West Access DB/Coding Tickets/ Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 SRTY SPEC DC, FL, GA, IL, NC, SC, VA Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 SRTY ORI FL Orion Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 TBND OPT1 FL, GA, IL, NC, SC, TN, VA, WA Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 TBND OPT2 FL, GA, IL, NC, SC, TN, VA, WA Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 TBND OPT3 FL, GA, IL, NC, SC, TN, VA, WA Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 TTI SPEC FL Temporary Travel Insurance Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 UMBR FL Umbrella Policy Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 UMBR SPEC AL, FL, GA, KY, IL, MS, PA, Special TN, TX Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 VECT FL, GA, LA Vector Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 VECT GL FL, GA, LA General Liability Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 VECT CPP FL, GA, LA, TX Commercial Package Policy Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 VEGA GL CA Vector General Liability Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 WIND FL Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 YAT SPEC AL, CT, DC, FL, GA, LA, MS, Yacht Program NC, SC, TX, VA Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5000 YAHT SPEC AR, AZ, FL, GA, IL, IN, KY, Yacht Program Special LA, MO, MS, NC, SC, TN, UT, VA, WA Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5010 NSAP PP TX IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5010 NSAP SEL TX IMSG Main On-Line/Month End - ------------------------------------------------------------------------------------------------------------------------------------ 5010 NSCA SCA TX Coding Tickets/Month End - ------------------------------------------------------------------------------------------------------------------------------------
AA-Annual Auto F+S-Fidelity + Surety IM-Inland Marine BU-Burglary FR-Fire + Allied Lines DP-Personal Lines BO-Business Owners GLA-General Liability MPA-Professional Liability GS-Glass 27 SCHEDULE B PRICING SCHEDULE [*] * Indicates that material has been omitted and confidential treatment has been requested therefor. All such omitted material has been filed separately with the SEC pursuant to Rule 24b-2. 28 EXHIBIT I INSURANCE ADMINISTRATION SERVICES (AT RISK LINES) 1) DEFINITIONS. Capitalized terms not otherwise defined in the Agreement or in this Exhibit shall be construed as otherwise generally understood in the insurance and data processing industry. 2) POLICY ADMINISTRATION. IMS shall administer Customer's at risk policies ("At Risk Policies") performing the services listed hereunder in accordance with the applicable rules and regulations. The term "At Risk Policies" includes the Auto and Homeowner Authorized Line of Business but shall specifically exclude all of Customer's Commercial, X-Flood, Contract Surety, Tenant Bond policies and any Customer line of business administered by a General Agent as of the Effective Date of the Agreement. a) Underwriting. - Review At Risk Policy application for completeness/contact Agent as applicable; - Create At Risk Policy file; - Underwriting based on Customer underwriting guidelines. b) Data Entry. - New At Risk Policy business; - At Risk Policy changes; - Debtor changes (as applicable); - At Risk Policy insurance Agent changes; - Endorsements; - Cancellations. c) At Risk Policy Issuance. - At Risk Policy for new business, renewals and endorsements where declaration page issuance is required; - At Risk Policy Renewal processing; - At Risk Policy print declarations and related At Risk Policy forms. d) Billing & Collection. - Print invoices, reminders, cancellation notification, return At Risk Policy premium disbursement; - Mortgage activity processing (as applicable); - Process cancellations for non-payment. e) Customer Service. - Provide a dedicated customer service support call center; - Respond to Customer's At Risk Policyholder and insurance sales Agent telephone inquiries; - Process requests for At Risk Policy changes; - Respond to correspondence related to At Risk Policy and At Risk Policy claim administration services; - Track and respond to complaints related to At Risk Policy and/or At Risk Policy claim administration services; IMS customer service hours of operation 8:00 a.m. to 8:00 p.m. Eastern Standard Time ("EST") every Business Day except where noted. f) Accounting Administration/Premium. - Posting, balancing, and control of At Risk Policy premium receivable; 31 g) Treasury. - Receive and post At Risk Policy payments; - Issuance, control and accounting for disbursements of At Risk Policy premium related expenses; - OCR AT Risk Policy payment processing; - Mortgagee billing (as applicable). h) Print & Distribution Services. - Automated document library; - Electronic document assembly; - Electronic document archival/retrieval; - Automated finishing/insertion facility; - Mail pre-sort facility; - Mailing At Risk Policy, At Risk Policy billings and At Risk Policy renewals (including all or part of the postage expense as provided in Schedule B, Section V, Paragraph (2)); - Document Imaging. i) System Administration. - Availability of Proprietary System to Customer and Customer's At Risk Policy claim vendor; - Process daily, weekly, monthly, and annual cycles; - Internet processing capabilities. 3) CLAIM ADMINISTRATION. IMS shall provide the following claim administration services: a) Claim Management Facilitation. - Twenty-four (24) hour reporting capability, first notice of loss, coverage verification and At Risk Policy claim; - Investigation, evaluation and settlement of At Risk Policy claim; - Reinspection and audit; - Claims handling standards/best practices; - Claim check issuance; - Management reports; - At Risk Policyholder satisfaction surveys; - Special Investigation Unit ("SIU") services; - Salvage & subrogation claim processing; - Litigation support. b) Catastrophe Preparation and Response. - Preparedness by developing media reference guides and notices, adjuster workshops, and training manuals; provide storm tracking; reserve equipment and supplies; establish procedures; - Response in case of a catastrophic event by establishing and staffing satellite service centers; automating the distribution of claims to adjusters; internal examinations/external reinspections; - Recovery by providing management reports, audit/reinspection program, SIU and oversight operations. 4) ADJUSTING FIRM. IMS' Colonial Catastrophe Claims Service will be the authorized adjusting firm ("Adjusting Firm") for all claims catastrophe adjusting work on behalf of Customer. However, IMS may designate a different Adjusting Firm with written notice to Customer. 5) DISASTER RECOVERY PLAN. IMS shall perform its' full range Disaster Recovery Plan on an annual basis. Customer has the right to observe the Disaster Recovery Plan at its own expense, provided that it has requested in writing to participate within thirty (30) days of planned execution. 6) SPECIAL SERVICES. ADDITIONAL FEES & SERVICES. ADDITIONAL SERVICES NOT SPECIFIED IN THIS AGREEMENT MAY BE PROVIDED BY AS MUTUALLY AGREED UPON IN WRITING BETWEEN THE CUSTOMER AND IMS IN WRITING. 32 EXHIBIT II ---------- INSURANCE ADMINISTRATION SERVICES (WYO FLOOD) --------------------------------------------- WHEREAS, The Federal Emergency Management Agency ("FEMA") and the Federal Insurance Administration ("FIA") administer the National Flood Insurance Program ("NFIP") and Customer is an insurance company duly licensed to write flood insurance in the state or states to which this Agreement pertains and is approved by FIA to act as a Write Your Own Company ("WYO Company") under the Write Your Own Flood Insurance Program ("WYO Flood Program"), a program offered under the NFIP; and WHEREAS, Customer wishes to engage the services of IMS to administer certain of the Customer's obligations as a WYO Company in the state(s) ("Authorized States") set forth in SCHEDULE A. 1) DEFINITIONS. Capitalized terms not otherwise defined in the Agreement or in this Exhibit shall be construed as otherwise generally understood in the insurance and data processing industry. 2) POLICY ADMINISTRATION. IMS shall administer Customer's WYO Flood Program policies ("WYO Policies") performing the services listed hereunder in accordance with the NFIP, as amended, and all implementing regulations as well as Customer's Write Your-Own Arrangement ("Arrangement") with FEMA. The same standards by which Customer is bound shall be those by which IMS is bound to Customer. a) Underwriting. - Review WYO Policy application for completeness/contact Agent as applicable; - Create WYO Policy file; - Underwriting based on NFIP guidelines. b) Data Entry. - New WYO Policy business; - WYO Policy changes; - Mortgagee changes; - WYO Flood insurance Agent changes; - Endorsements; - Cancellations. c) WYO Policy Issuance. - WYO Policy for new business, renewals and endorsements where declaration page issuance is required; - WYO Policy Renewal processing; - WYO Policy automated rating; - WYO Policy print declarations and related WYO Policy forms. d) Billing & Collection. - Print invoices, reminders, cancellation notification, return WYO Policy premium disbursements; - Mortgage activity processing; - EFT processing; - Process cancellations for non-payment. e) Customer Service. - Provide a dedicated customer service support call center; - Respond to Customer's WYO Policyholder and WYO flood insurance sales Agent telephone inquires; - Process requests for WYO Policy changes; - Respond to correspondence related to WYO Policy and WYO Policy claim administration services; 33 - Track and respond to complaints related to WYO Policy and/or WYO Policy claim administration services; IMS customer service hours of operation 8:00 a.m. to 8:00 p.m. Eastern Standard Time ("EST") every business day except where noted. f) Bureau Reporting. - Process and balance WYO Policy premium and WYO Policy loss data; - Edit and correct invalid data; - Prepare and mail Bureau transmittals; - To the best of IMS knowledge, provide on-going regulatory changes; - Maintain WYO Policy history files. g) Accounting Administration/Premium. - Posting, balancing, and control of WYO Policy premium receivable; - Issuance, control and accounting for disbursements for WYO Policy premium refunds. h) Financial Accounting. - Issuance, control and accounting for disbursements for general expenses; - Day-to-day management of short term cash; - Provide reasonable and customary financial management reports. i) Treasury. - Receive and post WYO Policy payments; - Issuance, control and accounting for disbursements of WYO Policy premium related expenses; - Bank reconciliation of WYO Policy premium disbursements; - OCR WYO Policy payment processing; - Mortgagee billing. j) Print & Distribution Services. - Automated document library; - Electronic document assembly; - Electronic document archival/retrieval; - Automated finishing/insertion facility; - Mail pre-sort facility; - Mailing WYO Policy, WYO Policy billings and WYO Policy renewals (including all or part of the postage expense as provided in Schedule B, Section V, Paragraph (2)); - Document Imaging. k) System Administration. - Availability of Proprietary System to Customer and Customer's WYO Policy claim vendor; - Process daily, weekly, monthly, and annual cycles; - Internet processing capabilities. 3) CASH MANAGEMENT. a) Banking Arrangement. IMS and Customer shall establish a banking arrangement that complies with the Arrangement and other WYO Flood program requirements, and which will provide for the establishment of an NFIP restricted account ("Restricted Account") with Customer as custodian, and a FEMA letter of credit ("Letter of Credit"), with additional accounts as needed to facilitate WYO Flood Program operations, all in conformity with FEMA/FIA guidelines. Customer shall grant specific IMS' employees check-signing authority on any Restricted Account and the authority to initiate appropriate drawdowns against Customer's Letter of Credit, in order for IMS to act on Customer's behalf in making disbursements for Customer liabilities established by the Arrangement, the WYO Flood Program, and this Agreement. All such authorizations shall be in writing and may be revoked, amended or modified at any time by Customer upon thirty (30) days advanced written notice to IMS. Notwithstanding the foregoing, IMS shall not draw down on Letter of Credit for an amount that exceeds $50,000.00 without prior approval from the Chief Financial Officer of Customer, which approval shall not be unreasonably withheld and shall be given within 24 hours of the request being made by IMS. 34 b) Premium Remittance - IMS shall establish procedures, as determined by FIA, for a timely deposit and remittance of funds to the U.S. Treasury via authorized automatic clearinghouse mechanism. Gross premium collected by IMS, for WYO Flood program business written under this Agreement, shall be remitted to the FIA by IMS net of the established NFIP Expense Allowance. ("Allowance"), which Allowance expenses to be paid under the Allowance include Carrier's operating and administrative expenses. c) Financial Data - IMS shall maintain supporting documentation for all bank accounts over which it has authority. On a monthly basis, IMS shall prepare financial data, reflecting all debits and credits with respect to WYO Flood Program business administered under this Agreement, including IMS' Service Fees paid. d) WYO Flood Program Reimbursements - Any WYO Flood Program reimbursements made pursuant to the Arrangement, including, but not limited to, those for the unallocated loss adjustments expenses, the allocated loss adjustments, and for approved special allocated loss adjustments expenses, shall be payable to IMS upon receipt by Customer. e) Marketing Goals - Customer shall maintain responsibility for any risk, or shall be entitled to any reward, that may be associated with achieving or failing to achieve any marketing goal set by the FIA or FEMA. 4) CLAIM ADMINISTRATION. IMS shall provide Claims administration in accordance with the Arrangement, the Financial Control Plan and the Agreement, which claim administration processing services are outlined below. Any litigation costs not reimbursed by FEMA would be the responsibility of the Customer. IMS may also rely on the information and direction contained in the WYO Flood Program Claims Manual, the FEMA Adjuster Manual, the Flood Insurance Agent's Manual, the Standard Flood Insurance Policy, the WYO Operational Overview, and/or other WYO Flood Program instructional material. a) Claim Management Facilitation. - Twenty-four (24) hour reporting capability, first notice of loss, coverage verification and WYO Policy claim; - Investigation of WYO Policy claim; - Fast track unit; - Reinspection and audit; - Claims handling standards/best practices; - Claim check issuance; - Management reports; - WYO Policyholder satisfaction surveys; - Special Investigation Unit ("SIU") services; - Salvage & subrogation claim processing; - Litigation support. b) Catastrophe Preparation and Response. - Preparedness by developing media reference guides and notices, adjuster workshops, and training manuals; provide storm tracking; reserve equipment and supplies; establish procedures; - Response in case of a catastrophic event by establishing and staffing satellite service centers; automating the distribution of claims to adjusters; internal examinations/external reinspections; - Recovery by providing management reports, audit/reinspection program, SIU and oversight operations. 5) ADJUSTING FIRM. IMS' Colonial Catastrophe Claims Service will be the authorized adjusting firm ("Adjusting Firm") for all claims adjusting work on behalf of Customer. However, IMS may designate a different Adjusting Firm with days written notice to Customer. 35 6) DISASTER RECOVERY PLAN. IMS shall perform its' full range Disaster Recovery Plan on an annual basis. Customer has the right to observe the Disaster Recovery Plan at its own expense, provided that it has requested in writing to participate within thirty (30) days of planned execution. 7) STATISTICAL REPORTING. IMS shall maintain Customer's data within IMS' policy claims and general ledger systems. IMS shall prepare and submit to FIA, monthly financial and statistical reports, reconciliation reports, certifications, and statistical tapes on Customer's behalf, in accordance with WYO Flood Program Accounting Procedures and the Transaction Record Reporting and Processing Plan ("TRRP Plan"). 8) SPECIAL SERVICES. a) Audit - At Customer's expense and at IMS' premises, IMS shall conduct a biennial audit of any and all WYO Flood Program business written by Customer pursuant to this Agreement. IMS shall select an independent auditor and IMS shall present the expense estimate for the biennial audit to Customer. Within fifteen (15) days of receiving the estimate, Customer shall have the option of selecting their own independent auditor to conduct the audit or proceed with the independent auditor selected by IMS. b) Zone Determination Services - IMS shall provide flood zone determinations to the Customer (or Customer's Agents) to assist in writing a WYO Policy to be placed with the Customer and administered by IMS. c) Training - Upon Customer's request, IMS will provide six (6) training sessions per calendar year to Customer and/or Customer's Agents. Customer will provide the training facility. Additional requests for training will be charged at One Hundred and Twenty Five Dollars ($125) per day plus reasonable per diem and travel expensed incurred. d) Marketing Material. IMS will make available to Customer its marketing or promotional materials, which IMS may customize and produce for Customer at Customer's expense. e) Additional Fees & Services. Additional services not specified in this Agreement may be provided by as mutually agreed upon in writing between the Customer and IMS in writing. 36 SERVICE LEVEL AGREEMENT PROCEDURES: - - Data received by IMS after 2:00 P.M. Eastern Standard Time ("EST") will be considered "received" on the following Business Day (as defined in the Agreement). - - A policy is considered issued when the declaration page and attachments are generated in the Proprietary System (as defined in the Agreement) and mailed out. - - Customer's "Business Hours" are 8:30 A.M. Eastern Standard Time to 8:00 P.M. Eastern Standard Time. - "Service Standard Levels" (as outlined below) will be validated using the IMS received date stamped on the request. POLICY ADMINISTRATION SERVICE STANDARD LEVELS: Automobile Policies 1. All new business transactions will be issued within seven Business Days of receipt by IMS, provided all information is complete and correct, with an overall business time service average not to exceed twelve (12) Business Days. 2. All renewal transactions will be issued within six (6) Business Days of receipt by IMS, provided all information is complete and correct, with an overall business time service average not to exceed nine (9) Business Days. 3. All money endorsements will be issued within six (6) Business Days of receipt by IMS, provided all information is complete and correct, with an overall business time service average not to exceed nine (9) Business Days. 4. All cancellations received will be processed within three (3) Business Days of receipt by IMS, provided all information is complete and correct, with an overall business time service average not to exceed six (6) Business Days. 5. All non-money endorsements will be issued within six (6) Business Days of receipt by IMS, provided all information is complete and correct, with an overall business time service average not to exceed nine (9) Business Days. 6. All return mail will be re-mailed and issued within fifteen (15) Business Days of receipt by IMS, provided all information is complete and correct. 7. IMS will make contact on all correspondence within seven (7) Business Days of receipt. 8. IMS will make contact on all incomplete or incorrect transactions within seven (7) Business Days of receipt. Flood Policies 1. All new business transactions will be issued within seven (7) Business Days of receipt by IMS, provided all information is complete and correct, with an overall business time service average not to exceed twelve (12) Business Days. 2. All renewal transactions will be issued within five (5) Business Days of receipt by IMS, provided all information is complete and correct, with an overall business time service average not to exceed ten (10) Business Days. 3. All money endorsements will be issued within seven (7) Business Days of receipt by IMS, provided all information is complete and correct, with an overall business time service average not to exceed twelve (12) Business Days. 4. All cancellations received will be processed within seven (7) Business Days of receipt by IMS, provided all information is complete and correct, with an overall business time service average not to exceed twelve (12) Business Days. 5. All non-money endorsements will be issued within seven (7) Business Days of receipt by IMS, provided all information is complete and correct, with an overall business time service average not to exceed twelve (12) Business Days. 6. All return mail will be re-mailed and issued within fifteen (15) Business Days of receipt by IMS, provided all information is complete and correct. 7. IMS will make contact on all correspondence within seven (7) Business Days of receipt. 8. IMS will make contact on all incomplete or incorrect transactions within seven (7) Business Days of receipt. 1 Homeowners Policies 1. All new business transactions will be issued within seven (7) Business Days of receipt by IMS, provided all information is complete and correct, with an overall business time service average not to exceed twelve (12) Business Days. 2. All renewal transactions will be issued within six (6) Business Days of receipt by IMS, provided all information is complete and correct, with an overall business time service average not to exceed nine (9) Business Days. 3. All money endorsements will be issued within six (6) Business Days of receipt by IMS, provided all information is complete and correct, with an overall business time service average not to exceed nine (9) Business Days. 4. All cancellations received will be processed within three (3) Business Days of receipt by IMS, provided all information is complete and correct, with an overall business time service average not to exceed six (6) Business Days. 5. All non-money endorsements will be issued within six (6) Business Days of receipt by IMS, provided all information is complete and correct, with an overall business time service average not to exceed nine (9) Business Days. 6. All return mail will be re-mailed and issued within fifteen (15) Business Days of receipt by IMS, provided all information is complete and correct. 7. IMS will make contact on all correspondence within seven (7) Business Days of receipt. 8. IMS will make contact on all incomplete or incorrect transactions within seven (7) Business Days of receipt. CUSTOMER SERVICE - SERVICE LEVEL STANDARDS: 1. IMS will maintain without employing the practice of taking messages, no more than 5% phone call abandonment rate, based on the total number of customer calls received and not answered at or after a 60 second threshold, during Customer's Business Hours. 2. A customer service representative will answer 90% of customer service calls within 60 seconds, during Customer's Business Hours. A customer service representative will answer 98% of customer service calls within 90 seconds during Customer's Business Hours and customer service will use verbiage and material supplied by Customer. OPERATIONAL/SYSTEM PROCESSING GOALS: 1. Minimum Proprietary System availability of 98% during Customer's Business Hours. 2. Maintain an average Proprietary System workload less than 80% of Proprietary System capacity central processing unit (CPU), disc access storage device (DASD). 3. Output is generated within one (1) Business Day of print/mail date. 4. IMS will verify accurate output (match system data to filed forms) by means of random weekly quality checking at point of output in policy assembly. STATISTICAL REPORTING: IMS will be responsible for submitting the Flood statistical data to the NFIP based on the NFIP guidelines; provided, however, that Customer takes the necessary steps to ensure that the data is normalized, edited, quality-checked and mapped to corresponding bureau codes. CLAIMS: 1. IMS will adjust all claims based on federal, state and product guidelines. 2. Claims "Business Hours" are 8:00 A.M. Eastern Standard Time to 8:00 P.M. EST except during a catastrophe then it is 24/7. 3. IMS performance of claim services, on behalf of Customer and pursuant to the Agreement, shall be in substantial compliance with "Best Practices" Manual (policy and procedures manual), which shall be attached to and incorporated by reference into this Service Level Agreement. AUDITS: Customer reserves the right to conduct, at its expense, an annual underwriting and claims audit. Customer will provide IMS with a 30-day notice. REPORTS: IMS will provide to the Customer weekly reports detailing the Service Standard Levels. 2 EX-10.72 9 g75105aex10-72.txt 6/7/01 RUNOFF CLAIM ADMINISTRATION AGREEMENT EXHIBIT 10.72 RUN OFF CLAIM ADMINISTRATION SERVICES AGREEMENT THIS RUN OFF CLAIM ADMINISTRATION SERVICES AGREEMENT ("Agreement") is effective as of the 7th day of June, 2001 ("Effective Date"), by and between INSURANCE MANAGEMENT SOLUTIONS, INC. ("IMS"), a corporation organized and existing under the laws of the State of Florida with its principal place of business located at 360 Central Avenue, St. Petersburg, Florida 33701, and each of BANKERS INSURANCE COMPANY ("BIC") and FIRST COMMUNITY INSURANCE COMPANY ("FCIC"), herein collectively referred to as "Customer", having their principal place of business at 360 Central Avenue, Saint Petersburg, Florida 33701. WHEREAS, Customer wishes to engage the services of IMS to administer certain of the Customer's run off claim administration obligations for business ("Heartland Business") previously administered by Heartland Claim Services, Inc. and Heartland Insurance Marketing Group, Inc. pursuant to that certain Managing General Agency Agreement between each of BIC and FCIC dated July 1, 2000; WHEREAS, IMS wishes to provide such services as set forth herein. NOW THEREFORE, IN CONSIDERATION OF the mutual covenants and agreements hereinafter set forth, the parties hereto do covenant and agree as follows: ARTICLE I. DEFINITIONS Unless the context clearly requires otherwise, the following terms when used in this Agreement shall have the meanings set forth below: A. "Affiliate" is any company which controls, is controlled by, or under common control with, a party, and "control" is defined as owning 50% or more of such entity. B. "Authorized Lines of Business" means the lines of business expressly set forth in SCHEDULE A of this Agreement. C. "Authorized States" means the states expressly set forth in SCHEDULE A of this Agreement. D. "Business Day" means any day other than a Saturday, Sunday or other day which is a bank holiday for Florida State banks or an IMS paid holiday (New Year's Day, Memorial Day, Independence Day, Thanksgiving Day, day after Thanksgiving, Christmas Eve (after 12 P.M. Eastern Standard Time) and Christmas Day). E. "Change of Control" means (a) a sale, transfer or pledge, or the issuance to a new shareholder, of fifty (50%) percent or more of the voting stock of a party hereto to any third party that is not an Affiliate of such party; or (b) a sale, transfer or pledge of a substantial portion of the material assets of a party, or any merger or consolidation of a party with a non-affiliated entity or entities. F. "Run Off Claim Services" means the services to be rendered pursuant to this Agreement and as more specifically set forth on EXHIBIT I, attached hereto, in the Authorized States, and all applicable laws and regulations. G. "Insurance Program" means the Heartland Business within the Authorized Line(s) of Business to be offered within the Authorized States. H. "Technical Information" means and shall include (without limitation) computer programs, databases, designs, algorithms, processes, structures, data formats, business methods, know how, and research and development information. 1 ARTICLE II. TERM The initial term of the Agreement shall commence on the Effective Date and shall have a term of Eighteen (18) calendar months following the Effective Date ("Initial Term"), unless terminated earlier pursuant to the termination provisions within Article VIII or as otherwise provided herein. Following the Initial Term, this Agreement may be terminated by either party, for any reason or no reason, upon ninety (90) days prior written notice, unless terminated earlier pursuant to the termination provisions within Article VIII. Provided, however, either party may provide notice to the other not less than ninety (90) days prior to the end of the Initial Term stating that this Agreement will terminate at the end of the Initial Term. ARTICLE III. RESPONSIBILITIES OF IMS A. IMS shall dedicate the human, equipment and computer resources commercially reasonably required to provide Customer with the Run Off Claim Services, during the term of this Agreement, for the Insurance Program within the Authorized States. B. IMS shall designate an employee ("Account Manager") of sufficient status and binding discretionary, decision making authority to act as liaison with Customer to facilitate IMS' performance of the Run Off Claim Services under this Agreement. The Account Manager shall provide written and/or oral communication of the status of administration of the Run Off Claim Services as agreed to by and between Account Manager and Customer. C. IMS shall, based on accepted industry standards and in accordance with generally accepted insurance and accounting practices, as designated by the applicable regulatory bodies, maintain complete and orderly copies of all records and policy and/or claims files as may be required as a result of IMS performing the Run Off Claim Services on behalf of Customer. These copies shall be retained by IMS, in a format or media defined by IMS which shall be in compliance with applicable laws and regulations. Upon termination of this Agreement all original records shall automatically be returned to Customer at its expense; however, IMS shall be entitled to retain copies thereof so long as IMS complies with the confidentiality provisions of Article V hereof. D. IMS shall maintain an errors and omissions policy issued by an insurance carrier reasonably acceptable to Company, with policy limits of no less than the greater of (i) One Million ($1,000,000) Dollars or (ii) an amount sufficient to satisfy the financial responsibility requirements of the insurance codes of applicable states, and with a deductible no greater than Fifty Thousand ($50,000) Dollars. IMS agrees to maintain coverage in force thereunder by replacement or renewal of the policy or by the purchase of an extended claims reporting provision for a period of not less than one (1) year subsequent to the expiration date of this Agreement. The Company reserves the right to verify coverage at any time. E. IMS shall maintain all licenses and regulatory approvals necessary to conduct business contemplated by this Agreement. The IMS shall be and remain in compliance with all laws and regulations which has any affect on any performance by IMS under this Agreement. ARTICLE IV. RESPONSIBILITIES OF CUSTOMER A. During the term of this agreement, customer shall provide to IMS, in a timely manner, any and all data, information and other items reasonably required to enable IMS to perform the Run Off Claim Services specified in EXHIBIT I of this Agreement. Customer represents and warrants to IMS that it owns and possesses all property rights to its corporate and subsidiary logos and hereby grants and warrants to IMS a limited, non-transferable, non-assignable, license to use Customer's corporate and subsidiary logos (and any other copyrighted or trademarked property of Customer that may be provided to IMS under this Agreement) while performing and only in conjunction 2 with business directly related to the Run Off Claim Services. Customer acknowledges and agrees that delays in delivery of required documentation, data and/or information by Customer will result in a similar delay in fulfilling Run Off Claim Services, and that such a delay in performing the Run Off Claim Services shall not be deemed a breach of the Agreement. B. CUSTOMER ACKNOWLEDGES AND AGREES THAT IMS ASSUMES NO INSURANCE COVERAGE RISK FOR THE BUSINESS PROCESSED UNDER THIS AGREEMENT. C. Customer shall designate manager level employee(s) of sufficient status and binding decision making authority to act as a liaison with IMS and to facilitate Customer's role as IMS performs the Run Off Claim Services specified in EXHIBIT I of this Agreement. ARTICLE V. CUSTOMER ACCESS TO RECORDS/CONFIDENTIAL INFORMATION A. At Customer's expense, Customer will be permitted reasonable access (as set forth herein) to all records and information maintained by IMS on behalf of Customer (excluding, specifically, proprietary Technical Information) for any reason related to the Run Off Claim Administration Services. Access to IMS' records, for the foregoing purposes, will be provided on any Business Day during normal business hours upon twenty four (24) hours prior written notice to IMS by Customer for so long as IMS is required to maintain such records under this Agreement; except in the case of regulatory inquiry, in which case access will be granted on any Business Day with twelve (12) hours of prior written notice to IMS. At Customer's expense, Customer will be permitted to copy those IMS records subject to audit in accordance with this Article. Upon written request by Customer, and at Customer's expense, IMS will promptly mail or fax to Customer supporting documentation concerning any specific transaction processed by IMS under the terms of this Agreement. IMS will provide reasonably adequate workspace for Customer to conduct audits in accordance with this Article. Further, Customer or its representatives shall take precautions, when conducting audits under this Article, not to disrupt IMS' ongoing business activities. B. The recipient ("Recipient") of confidential data and/or information pursuant to this Agreement shall maintain the confidentiality of all data and/or information which is the property of the other party ("Disclosing Party"), whether originally supplied by the Disclosing Party, or whether generated by the Disclosing Party in the course of performing under this Agreement and which is directly accessible to the Recipient or is in possession of Recipient in its implementation, facilitation and/or performance of this Agreement. During any term of this Agreement, Recipient may acquire, know, or have within its possession, information (including, but not limited to, Technical Information) and/or data of the Disclosing Party concerning commercial and trade affairs, rating and underwriting rules and guidelines, the identity of clients, the identity of insureds and beneficiaries, claims, benefits, rates and Agents, financial information, the Proprietary System (as defined at Article VII (A) herein), the Third Party Proprietary System (as defined in Article VII (B) herein) and business practices of the Disclosing Party ("Confidential Information"). Confidential Information which is provided in tangible form must be clearly marked "Confidential", "Proprietary" or the substantial equivalent thereof, or if orally disclosed must be clearly identified as "Confidential" or "Proprietary" at the time of the disclosure (except for IMS' Technical Information, the identity of Customer's clients, the identity of Customer's insureds and beneficiaries, claims, benefits, and Agents, which will be deemed "Confidential Information" under this Agreement, regardless of whether marked as such). Except as required by law, Recipient shall keep Disclosing Party's Confidential Information confidential and shall only use the Confidential Information in performing or facilitating the Run Off Claim Services under this 3 Agreement. Recipient shall not disclose the Confidential Information without Disclosing Party's prior written permission except to Recipient's employees who require the information to perform or facilitate the Run Off Claim Services under this Agreement. Each party hereto, as a Recipient, warrants to the other that appropriate measures shall be taken by Recipient to safeguard the confidentiality of the Confidential Information, with a level of care at least equal to the level of care with which Recipient safeguards its own confidential or proprietary information. All employees, agents or representatives of Recipient and any third parties who are given access to the Confidential Information shall be under obligation to Recipient to maintain such information in confidence. IMS and Customer agree that any Recipient shall have no obligation with respect to any information or data which: a) is already rightfully known to Recipient through means other than Disclosing Party; or b) is or becomes publicly known through no wrongful act of Recipient; or c) is rightfully obtained by Recipient from a third-party without similar restriction and without breach of this Agreement; or d) is independently developed by Recipient without breach of this Agreement. Disclosing Party shall retain title to all Confidential Information (whether tangible or intangible) delivered thereby pursuant to this Agreement. Recipient shall not copy, reproduce or use any Confidential Information without written authorization of Disclosing Party, except as may be reasonably required to accomplish the Run Off Claim Services under this Agreement. Upon written request of Disclosing Party Recipient shall promptly return, or destroy with specific written permission of the Disclosing Party, all tangible copies containing Confidential Information, except those copies kept in the regular course of business, or that are required to be kept pursuant to any state or federal administrative, regulatory or statutory mandates. The obligations under this Article V (B) shall survive the termination of this Agreement. Notwithstanding the foregoing, this Article shall not prevent the disclosure of Confidential Information to the extent legally required by any court or regulatory entity having jurisdiction over the parties. For purposes of Article V (B), Recipient and Disclosing Party shall include within their meaning all agents of the Recipient and Disclosing Party. ARTICLE VI. EXPENSES AND FEES A. In consideration of IMS providing Run Off Claim Services described herein, Customer shall pay IMS, as applicable, the fees specified in the pricing schedule ("SCHEDULE B") attached hereto and by reference herein made a part of this Agreement (the "Fees"). The performance by IMS of any service or function that is outside of the scope of the Run Off Claim Services shall require the payment by Customer of additional consideration as mutually agreed between IMS and Customer. B. Customer shall reimburse IMS for necessary travel, living and out-of-pocket expenses reasonably incurred and approved in advance by Customer (except those travel, living and out of pocket expenses incurred prior to the execution of this Agreement and related to the Run Off Claim Services) by IMS personnel in the performance the Run Off Claim Services under this Agreement. C. Subject to the terms of this Agreement, all Fees and expenses to be payable by Customer to IMS or any third party under this Agreement shall be paid within thirty (30) calendar days after Customer's receipt of IMS' monthly statement for all services provided to Customer under this Agreement. IMS will calculate the fees owned to IMS by Customer and will send a statement to Customer within two (2) weeks of the last day of the month for which fees are owed. Customer's 4 failure to pay all fees and expenses when due shall be considered a material breach of this Agreement. Further, if Customer fails to pay any fees and expenses due IMS as herein provided, Customer shall pay to IMS in addition to all sums otherwise due, interest which shall accrue at 1.5% per month on such delinquency from the date the fees or expenses became past due. Failure or forbearance to exercise any of its rights and privileges hereunder shall not constitute the forfeiture or waiver of such rights and privileges on the part of IMS. D. Following the expiration of the Initial Term (and thereafter upon providing 180 days prior written notice), IMS may modify SCHEDULE B in its discretion to reflect any increase in the cost of providing the Run Off Claim Services (including, but not limited to statutory, regulatory, or judicial changes that require IMS to incur additional cost or expenses in performing the Run Off Claim Services) or to remain competitive with the rates currently being charged within the industry for like services. Any modification of SCHEDULE B shall be proposed to Customer at least six (6) months prior to the expiration of the Initial Term. ARTICLE VII. LICENSE, TRADE SECRET AND PROPRIETARY RIGHTS A. IMS from time to time may use its own proprietary computer software products and account servicing methods and procedures ("Proprietary System"), which are identified, described or referenced in EXHIBIT I hereto, in the performance of the Run Off Claim Services. During any term of this Agreement, IMS grants a personal, non-transferable, non-assignable, non-exclusive license to Customer to use portions of the Proprietary System as necessary for IMS to perform the Run Off Claim Services under this Agreement. Further, no provision within this Agreement shall be interpreted as prohibiting IMS from selling or licensing its Proprietary System to any other customer or prospective customer of IMS. B. IMS, from time to time, may also use proprietary third party computer software products and third party account servicing methods and procedures ("Third Party Proprietary System"), which are identified, described or referenced in EXHIBIT I hereto in the performance of the Run Off claim Services. No provision within this Agreement shall be interpreted as prohibiting IMS or the Third Party Proprietary System vendor from selling or licensing the Third Party Proprietary System, or modifications and enhancements to the Third Party Proprietary System, to any other customer or prospective customer of IMS, so long as Customer's Confidential Information is not disclosed. C. IMS, from time to time, may also use the Allenbrook system ("Allenbrook System"), which Customer presently has limited access to and which is identified, described or referenced in EXHIBIT I hereto in the performance of the Run Off Claim Services. During any term of this Agreement, and for so long as Customer has use of the Allenbrook System, Customer shall grant IMS access to use portions of the Allenbrook System as necessary for IMS to perform the Run Off Claim Services under this Agreement. However, if Customer no longer has access to the Allenbrook System, then IMS shall immediately discontinue use of the Allenbrook System and Customer's grant of access to the Allenbrook System shall immediately cease; provided, however, that IMS shall not be responsible for failing to perform Run Off Claims Services when such failure is a direct result of its lack of access to the Allenbrook System. D. Other than the limited rights to use the Proprietary System and the Third Party Proprietary System, as provided in Article VII(A) and (B) above, this Agreement grants to Customer no right to possess or reproduce, download, reverse engineer, or obtain any other interest in, the Proprietary System or the Third Party Proprietary System, or their specifications in any tangible or intangible medium. E. The obligations of Customer under this Article shall survive termination of this Agreement, regardless of the reason for termination. 5 ARTICLE VIII. TERMINATION A. Following the Initial Term, either party may terminate this Agreement, for any reason or for no reason, upon ninety (90) days prior written notice to the other party of its intent to terminate this Agreement. B. Notwithstanding the foregoing paragraph (A), this Agreement shall also terminate: a) at the election of the Customer, upon written notice to IMS, if IMS becomes insolvent, if it makes an assignment for the benefit of its creditors, if a petition for relief under the United States Bankruptcy Code is filed by or against it and it is not dismissed within thirty (30) days of being filed, or if a trustee, receiver or other custodian of its assets is appointed; or b) at the election of IMS, upon written notice to Customer, if Customer becomes insolvent, if it makes an assignment for the benefit of its creditors, if a petition for relief under the United States Bankruptcy Code is filed by or against it and it is not dismissed within thirty (30) days of being filed, or if a trustee, receiver or other custodian of its assets is appointed (including, but not limited to, any proceeding pursuant to any state or federal action governing insurer insolvency); or c) at the election of the Customer, if IMS materially breaches any provision of this Agreement and fails to cure such breach within thirty (30) days after written notice thereof is given to IMS by the Customer; or d) at the election of IMS, if Customer materially breaches any provision of this Agreement and fails to cure such breach within thirty (30) days after written notice thereof is given to Customer by IMS; or e) at the election of IMS, upon written notice to Customer, in the event of a Change of Control of Customer unless (i) Customer has provided IMS not less than thirty (30) days advance written notice of the proposed Change of Control and (ii) IMS has agreed in writing to such Change of Control; or f) at the election of Customer, upon written notice to IMS, in the event of a Change of Control of IMS unless (i) IMS has provided Customer not less than thirty (30) days advance written notice of the proposed Change of Control and (ii) Customer has agreed in writing to such Change of Control; or g) at the election of IMS, upon thirty (30) days written notice to Customer, in the event that IMS is longer given access (whether by Customer or by denial of legal access) to the Allenbrook System or in the event that Customer and IMS are unable to agree to a Revised FTE (as defined in Schedule B) for 2002 or any subsequent year. The initiation under this Agreement of any dispute resolution procedure shall not prevent a party from terminating this Agreement in accordance with this Article VIII. C. On expiration or termination of this Agreement, IMS shall return to Customer all open and closed claim files, and all of Customer's Confidential Information, in IMS' possession and related to the Run Off Claim Services provided by IMS during the term of this Agreement. Customer shall do the same, relative to IMS' Confidential Information, and shall cause Customer's agents and representatives (including, but not limited to, any third party given access to the Confidential Information) to do the same relative to IMS' Confidential Information. Customer shall pay IMS (in accordance with SCHEDULE B then in effect) any and all Claim Administration Fees, 6 Miscellaneous Fees and third party fees due IMS for Run Off Claim Services performed pursuant to this Agreement. IMS AND CUSTOMER SHALL COOPERATE IN ANY TRANSITION PERIOD DURING THE WIND-UP OF RUN OFF CLAIM SERVICES PROVIDED CUSTOMER UNDER THIS AGREEMENT; PROVIDED, HOWEVER, THAT UPON TERMINATION OF THIS AGREEMENT CUSTOMER SHALL BECOME SOLELY ACCOUNTABLE AND SHALL ASSUME ALL RESPONSIBILITY FOR ANY PENDING CLAIM FILES PREVIOUSLY ADMINISTERED BY IMS UNDER THIS AGREEMENT EXCEPT FOR MATTER OCCURRING BETWEEN THE EFFECTIVE DATE AND THE TERMINATION OF THIS AGREEMENT RELATING TO WILLFUL MISCONDUCT OR GROSS NEGLIGENCE OF IMS (INCLUDING ITS OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS). If Customer requires assistance in converting Customer's data to a new format, or requires assistance from IMS relative to Customer's transition to an alternative claim administration arrangement, then IMS shall provide such services at the then current rates charged by IMS for the services specified in Section II of SCHEDULE B. This obligations under this Paragraph (C) shall survive any termination of this Agreement. ARTICLE IX. WARRANTIES AND COVENANTS BY IMS IMS covenants that IMS will comply in all material respects with the law of the state or states covered by this Agreement and with the rules and regulations of all regulatory authorities having jurisdiction over IMS' activities, and shall, whenever necessary, maintain at its own expense all required licenses to transact business in such states. IMS warrants to Customer that (a) IMS owns or otherwise has the right to use the Proprietary System used to perform the Run Off Claim Services, and the rights to such Proprietary System granted hereunder will not knowingly infringe upon a third party's copyright or patent rights; (b) IMS is duly authorized to transact the business of servicing insurance companies; and (c) the express warranties provided here and elsewhere in this Agreement are IMS' only warranties and no other warranty, express or implied, including any warranty of merchantability, fitness or fitness for a particular purpose, will apply to the provision of Run Off Claim Services under this Agreement. ARTICLE X LIABILITY, LIMIT OF LIABILITY, INDEMNITIES AND REMEDIES A. The parties shall assume the following obligations and liabilities as specified below and subject to the limitations on liability set forth in Article X, (B) below: a) IMS shall indemnify, defend and hold harmless Customer, its officers, directors, employees and controlling persons from any liability, cost, loss, fine, penalty, claim, demand, damage or expense, including reasonable attorneys' fees, incurred directly as a result of any material breach of IMS' obligations under this Agreement or the material breach of any representation or warranty made by IMS to Customer pursuant hereto; b) Customer shall indemnify, defend and hold harmless IMS, its officers, directors, employees and controlling persons from any liability, cost, loss, fine, penalty, claim, demand, damage or expense, including reasonable attorney's fees, incurred directly as a result of any material breach of Customer's obligations under this Agreement or the material breach of any representation or warranty made by Customer to IMS pursuant hereto; c) Customer agrees that in the event IMS is in violation of any code, statute or law(s) due directly or indirectly to the acts or omissions of required actions of Heartland Insurance Marketing Group, Inc., Heartland Claim Services, Inc., then Customer shall assume the responsibility and liability for such acts or omissions and shall indemnify and hold IMS harmless for any such liability; d) Customer agrees to, and shall cause its affiliates, subsidiaries, agents and fronting companies, jointly and severally, to indemnify, defend and hold harmless IMS, its officers, directors, employees, agents, representatives, and controlled and controlling 7 persons (collectively "IMS Indemnitees") from and against any and all liabilities, losses, damages, demands, claims (including, but not limited to, claims for infringement on a party's proprietary rights), suits, actions, causes of action, proceedings, assessments, judgments, awards, penalties, settlements, fees, costs and/or expenses of any kind or nature whatsoever asserted against, resulting to, imposed upon or incurred by IMS or any of IMS' Affiliates, directly or indirectly, by reason of, arising out of, relating to or resulting from (i) any agreement, obligation or relationship, contractual or otherwise, that Customer has or ever had with either Heartland Insurance Marketing Group, Inc. or Heartland Claim Services, Inc., or any of its affiliates or subsidiaries; (ii) the performance of Run Off Claim Services on any claim file that was opened by someone other than IMS, or (iii) IMS use of the Allenbrook System. B. Except for: (i) fees and expenses payable to IMS under Article VI of this Agreement; (ii) acts of fraud, gross negligence or willful misconduct; and (iii) violations of Article VII of this Agreement; and (iv) Customer's indemnification of IMS under Article X(A)-(c) and (d) of this Agreement, each party's maximum liability ("Maximum Liability") to the other party for any cause whatsoever, during any one calendar year shall be limited to direct damages incurred by that party and shall not exceed the amount of compensation paid by the Customer under SCHEDULE B of this Agreement for the three (3) months immediately preceding the breach or cause of liability. Further, IMS shall not be liable for any lost profits, business goodwill, or other consequential, punitive, special or incidental damages incurred by Customer. C. All parties agree to promptly give the others notice upon being notified or becoming aware of any and all allegations or claims, which could give rise to a claim under this Article. D. The obligations of the parties under this Article shall survive termination of this Agreement, regardless of the reason for termination. ARTICLE XI. GENERAL AGREEMENTS A. The parties shall not be liable or deemed to be in default hereunder for any delay or failure in performance under this Agreement or interruption of the Run Off Claim Services resulting, directly or indirectly, from unforeseeable, natural acts (including but not limited to weather catastrophes such as floods, hurricanes, tornadoes, windstorms, ice storms, blizzards and hail storms), civil or military authority, labor disputes or any similar cause beyond the reasonable control of the parties. B. 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: 8 If to Customer to: 360 Central Avenue 17th Floor St. Petersburg, FL 33733 Attn: Robert G. Menke, President FAX (727) 823-6518 If to IMS to: 360 Central Avenue 16th Floor St. Petersburg, FL 33733 Attn: David M. Howard, President FAX (727) 803-2076 Notices sent by hand delivery shall be deemed effective on the date of actual hand delivery. Notices 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 fifth Business Day after being deposited into the post office. Notices sent by facsimile transmission shall be deemed to be effective on the day when sent if sent prior to 4:30 p.m. (the time being determined by the time zone of the recipient), otherwise they shall be deemed effective on the next Business Day. C. This Agreement, and the exhibits, schedules and appendices attached hereto, contain all of the prior oral and/or previously written agreements, representations, and arrangements between the parties hereto with regards to the Run Off Claim Services. There are no representations or warranties other than those set forth herein. No change or modification of this Agreement, including the exhibits, schedules and appendices hereto, shall be valid unless the same shall be in writing and signed by all of the parties hereto. All exhibits, schedules, appendices, addendum of any kind, or attachments to this Agreement shall be made a part of this Agreement and shall be subject to all terms and conditions of this Agreement. D. 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. Article headings are intended for purposes of description only and shall not be used for purposes of interpretation of this Agreement. E. 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 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. F. If either party should bring an action alleging breach of this Agreement or seeking to enforce, rescind, renounce, declare, void or terminate this Agreement or any provisions thereof (in compliance with the Dispute Resolution Procedures detailed in Section XII of this Agreement) the prevailing party shall be entitled to recover all of its legal expenses, including reasonable attorneys' 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 attorneys' fees were incurred. The venue for any action related to this Agreement shall be in Pinellas County, Florida. This Agreement and all matters arising hereunder shall be governed by and determined in accordance with the laws of the State of Florida without giving effect to any choice of law 9 provisions. The obligations of the parties under this Paragraph F shall survive termination of this Agreement, regardless of the reason for termination. G. Neither IMS nor Customer shall assign this Agreement or any of its rights hereunder without the prior written consent of the non-assigning party. For purposes of this Agreement, an assignment of this Agreement shall be equivalent to a Change of Control. H. The parties agree not to disclose the terms and conditions of this Agreement to any third party, except (i) as required in the normal conduct of Customer's business, or (ii) as required by law or regulation including, without limitation, any Federal securities law, or regulation. ARTICLE XII. DISPUTE RESOLUTION PROCEDURES A. The parties will attempt in good faith to promptly resolve any material dispute regarding this Agreement by negotiations between senior management ("Senior Management") of the parties. Senior Management of each party will meet within ten (10) calendar days of notice ("Notice of Dispute") by a party of the existence of a material dispute, at a mutually agreed time and place, to resolve the material dispute. At the meeting of Senior Management, to be attended by an individual from each party who shall have authority to settle the dispute, each party shall verbally state the issues in the material dispute and their positions. If the material dispute is not resolved to the mutual satisfaction of the parties within seven (7) calendar days of the meeting of Senior Management, then the parties may attempt to resolve the controversy using mediation. B. If the matter has not been resolved pursuant to the aforesaid mediation procedure within thirty (30) calendar days of the issuance of a party of a Notice of Dispute, or if either party will not participate in mediation, then either party may initiate arbitration upon fifteen (15) calendar days written notice to the other party. Notwithstanding the foregoing, all deadlines specified above may be extended upon mutual written agreement of the parties. C. Except for the right of either party to apply to a court of competent jurisdiction for a temporary restraining order, preliminary injunction or other equitable relief to preserve the status quo, all claims, disputes, controversies and other matters relating to breach of this Agreement which cannot be resolved by the parties shall be settled by arbitration in accordance with this Agreement. D. Notice requesting arbitration ("Arbitration Notice"), or any other notice made in connection therewith, shall be made in writing by one party and sent by certified mail, return receipt requested, to the other party. The Arbitration Notice shall state in particular all issues to be resolved in the view of the complaining party, shall appoint the arbitrator selected by the complaining party and shall set a tentative date for the arbitration hearing, which date shall be no sooner than forty-five (45) calendar days and no later than ninety (90) calendar days from the date that the Arbitration Notice is mailed. Within twenty (20) calendar days of receipt of the complaining party's Arbitration Notice, the respondent shall notify the complaining party of the name of its appointed arbitrator. When the two arbitrators have been appointed, they shall agree on a third independent arbitrator and shall appoint such person by written notice to the parties signed by both arbitrators within thirty (30) calendar days from the date of the appointment of the second arbitrator. If the two arbitrators fail to agree upon the appointment of an independent arbitrator at the end of thirty (30) calendar days following the appointment of the second arbitrator, then the independent arbitrator shall be appointed by the American Arbitration Association ("AAA"), or its successor, in accordance with its then prevailing commercial arbitration rules then in effect. The three (3) arbitrators shall constitute the arbitration board ("Board"). The parties agree that the location for conducting the arbitration, regardless of the party bringing the complaint, will be in Pinellas County, Florida. E. The members of the Board shall be active or retired (i) lawyers or professionals familiar with 10 insurance and/or (ii) active or former officers or management employees of insurance and/or data processing firms and/or software development companies. The person selected by the two respective arbitrators appointed by the parties shall be the umpire or chief arbitrator and must be a licensed attorney. F. Arbitration shall be conducted in accordance with the Commercial Rules of the AAA then in effect except as modified herein. G. The parties agree that all then current employees of each with information relevant to the dispute between the parties will be voluntarily produced, at the employer's expense, for all proper discovery and arbitration hearings. H. The cost of the arbitration relative to the arbitrators and the AAA ("Costs") shall be borne equally pending the arbitrators' award. Each party shall bear its own expenses for attorneys' fees. The prevailing party in any arbitration proceeding hereunder shall be entitled, in addition to such other relief as may be granted, to recover the portion of the Costs incurred by that party in connection with arbitration under this Agreement prior to the award. I. The parties agree that the Board shall be required to render its decision in writing within thirty (30) calendar days of the conclusion of the arbitration proceedings, unless such time shall be extended by mutual written agreement of the parties. J. With respect to any matter brought before the Board, the Board shall make a decision having regard to the intentions of the parties, the terms of this Agreement, and custom and usage of the insurance industry. Such decisions shall be in writing and shall state the findings of fact and conclusions of law upon which the decision is based, provided that such decision may not (i) award consequential, punitive, special, incidental or exemplary damages, or (ii) unless specifically requested by a party pursuant to the terms of this Agreement, otherwise terminate this Agreement or any provisions thereof. The decision shall be based exclusively upon the evidence presented by the parties at a hearing in which evidence shall be allowed and such decision shall be final and binding upon all parties to the proceeding and may be entered by either party in any court having competent jurisdiction. K. The obligations of the parties under this Section XII shall survive termination of this Agreement, regardless of the reason for termination. 11 IN WITNESS WHEREOF, the parties hereto by their respective duly authorized representatives have executed this Agreement as of the date and year first set forth above. - ------------------------------------------------------------------------------- "IMS" INSURANCE MANAGEMENT SOLUTIONS, INC. - ------------------------------------------------------------------------------- By: /s/ Robert G. Gantley Robert G. Gantley --- ------ -- ------- As its: COO COO ----------------- - ------------------------------------------------------------------------------- "CUSTOMER" - ------------------------------------------------------------------------------- BANKERS INSURANCE COMPANY By: /s/ Robert G. Menke Robert G. Menke --- ------ -- ------- As its: President President ----------------- - ------------------------------------------------------------------------------- FIRST COMMUNITY INSURANCE COMPANY By: /s/ Robert G. Menke Robert G. Menke --- ------ -- ------- As its: President President ---------------- - ------------------------------------------------------------------------------- SCHEDULES: SCHEDULE "A" - AUTHORIZED STATES AND INSURANCE PROGRAM SCHEDULE "B" - PRICING SCHEDULE EXHIBITS: EXHIBIT I - RUN OFF CLAIM SERVICES ----------------------------------------------------------- EXHIBIT II PROJECTION OF THE ESTIMATED COST MATRIX ----------------------------------------------------------- 12 SCHEDULE A -------- - AUTHORIZED STATES AND INSURANCE PROGRAM ---------- ------ --- --------- ------- IMS shall provide Run Off Claim Services as described in EXHIBIT I for the following authorized line(s) of business ("Authorized Line of Business") in the following authorized state(s)("Authorized States"): 1. AUTHORIZED LINE OF BUSINESS: Automobile and Homeowners. ---------------------------------------------------------- 2. AUTHORIZED STATES: The State of Texas. ---------------------------------------------------------- 13 SCHEDULE B ---------- PRICING SCHEDULE ---------------- [*] * Indicates that material has been omitted and confidential treatment has been requested therefor. All such omitted material has been filed separately with the SEC pursuant to Rule 24b-2. EXHIBIT 1 --------- RUN OFF CLAIM (ADMINISTRATION) SERVICES IMS will perform the following Run Off Claim Services on Customer's behalf, for the Insurance Program, in compliance with applicable law, and subject to periodic review and audit thereof by Customer throughout the term of this Agreement: I. Claim Adjusting and Program Management IMS will: A. Administer claims in accordance with the terms and conditions of Customer's Insurance Program policies, this Agreement, and applicable state insurance laws, rules, and regulations that pertain to claim handling. B. Provide appropriate staff to service Customer's Insurance Program claim business based upon claim volume. C. Conduct internal Insurance Program claim file audits and quarterly file reviews. D. Utilize IMS' claim handling best practices. E. Provide vendor management. II. Claim Adjusting Support IMS will: A. Utilize and manage external adjusters and appraisers, in field locations not staffed by IMS or Customer. Decisions as to when to use external adjusters and appraisers will be made by IMS and will be based on each individual Insurance Program claim file and the need for external investigation in order to document the facts. B. In field locations not staffed by IMS or Customer. Decisions as to when to use of external adjusters and appraisers will be made by IMS and will be based on each individual Insurance Program claim file and the need for external investigation in order to document the facts. C. Perform all services necessary to collect subrogation or salvage that may benefit Customer. D. Manage claim litigation through the use of external defense counsel and litigation management planning. E. Investigate insurance fraud indicators through the IMS' special investigation unit and conform with all filed and state specific fraud plans and any other statutory or regulatory requirements, where appropriate. F. Conduct and manage review of claim file medical records utilizing IMS' internal medical resource unit, where appropriate. III. Claim Service Center IMS will: A. Handle and process initial Insurance Program loss reports received by Customer or Customer's prior claim administration services vendor, only if the information submitted by Customer or Customer's prior claim administration services vendor is sufficient to enter a claim into the IMS claim system. Sufficient information required to set up a claim 16 on the AS 400 Claim System is insured name, policy number, address, telephone number, damaged property, and description of the accident. B. Provide claim adjusting core clerical support, which includes all mail processing, file control and industry reporting (e.g. index bureau, NICB, Fraud Bureau and provider of service) to the extent that Customer is a member, which includes routing, filing, sorting, photocopying claims files, delivering, printing, bar coding, faxing of claim material, mail indexing, mail matching, mail preparation, and sending mail. C. Maintain operating hours of 7:30 A.M. to 8:00 P.M. Eastern Standard Time (EST), Monday through Friday, excluding bank holidays for Florida State Banks or an IMS paid holiday (New Year's Day, Memorial Day, Independence Day, Thanksgiving Day, day after Thanksgiving, Christmas Eve (after 12:00 P.M. Eastern Standard Time) and Christmas Day). IMS will provide First Notice of Loss reporting services twenty-four (24) hours per day seven (7) days per week. IV. Claim System IMS will: A. Utilize an AS400 based claim system for Insurance Program claim documentation and processing. B. IMS will enter basic Insurance Program loss and financial information in the Allen Brook Proprietary System. C. Provide Customer with remote claim system access to the AS400 (view only) as reasonably requested by Customer subject to the fees described in Schedule B. Customer will: A. Provide IMS access to the Allen Brook Proprietary System for the purpose of allowing IMS to retrieve information and input data into the system. V. Catastrophe Claims IMS will: A. Adjust Customer's Insurance Program claims which result from a weather catastrophe. VI. Management Reporting IMS will: A. Provide Customer with standard monthly claim summary reports when reasonably requested by Customer. VII. Claim Account A. Customer will maintain a daily register of checks drawn on the Insurance Program claims account for each loss payment and expense. B. Any monies collected by IMS, under this Agreement, for salvage, subrogation, contribution or deductible reimbursement will be deposited by IMS in the Insurance Program claims account within one Business Day upon receipt by IMS thereof. 17 VIII. Accounting A. Customer will issue checks related to claim handling. B. IMS will provide no accounting services; including, but not limited to: - Annual statement support - Statistical reporting - Month-end processing - Month-end reporting 18 EX-10.73 10 g75105aex10-73.txt 11/26/01 CLAIMS ADMINISTRATION AGREEMENT EXHIBIT 10.73 CLAIMS ADMINISTRATION AGREEMENT between INTERNATIONAL CATASTROPHE INSURANCE MANAGERS, LLC. INSURANCE MANAGEMENT SOLUTIONS, INC. and AXA RE AMERICA INSURANCE COMPANY CLAIMS ADMINISTRATION AGREEMENT between INTERNATIONAL CATASTROPHE INSURANCE MANAGERS, LLC. (hereinafter called the "General Agent") INSURANCE MANAGEMENT SOLUTIONS, INC. (hereinafter called the "Administrator") and AXA RE AMERICA INSURANCE COMPANY (hereinafter called the "Company") made as of the 26th day of Nov, 2001_____ RECITALS A. The Company has entered into a general agency agreement dated as of ______ _, ______ (the "Agency Agreement") with the General Agent for the issuance and administration of insurance policies and renewals thereof in certain states (the "Policy" or "Policies"). B. The Administrator has substantial expertise in the administration of insurance claims and is duly qualified to administer and adjust claims arising under the Policies. C. The Company would like the General Agent to supervise the administration and adjustment of such claims by the Administrator, and the General Agent is willing to do so on behalf of the Company in accordance with the terms of this Agreement. D. The Company and the General Agent would like the Administrator to administer and adjust such claims, and the Administrator is willing to do so on behalf of the Company and the General Agent in accordance with the terms of this Agreement. E. The General Agent and the Administrator acknowledge and agree that the Company, being at risk and having ultimate responsibility for the Policies, shall at all times have ultimate discretion with respect to all matters pertaining to the Policies; further, that consistent with the intention of the parties to produce an operating profit for the Company, the General Agent and the Administrator shall perform their duties under this Agreement in an ethical, legal and professional manner. F. The Company desires to protect its rights and interests under the Claims Agreement by securing the assignment and assumption of obligations thereunder, and General Agent and Administrator are willing to provide such security to the Company in accordance with the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, it is agreed as follows: 1 ARTICLE I AUTHORITY AND SERVICES OF ADMINISTRATOR 1.1 Definitions. Unless the context clearly requires otherwise, the following terms when used in this Agreement shall have the meanings set forth below: A. "Business Day" means any day other than a Saturday, Sunday or other day which is a bank holiday for Florida State banks or a Company paid holiday (New Year's Day, Memorial Day, Independence Day, Thanksgiving Day, day after Thanksgiving, Christmas Eve (after 12 P.M. Eastern Standard Time) and Christmas Day). B. "Technical Information" means and shall include (without limitation) computer programs, databases, designs, algorithms, processes, structures, data formats, business methods, know how, and research and development information. 1.2 Authority. The Administrator shall administer and adjust all claims (hereinafter, "Claims") arising under the Policies (including claims arising out of Policies written for the Company's participation in mandatory underwriting facilities, including but not limited to, joint underwriting associations or assigned risk pools) in accordance with the terms and conditions of the Policies and as authorized by the Company and underwritten on the Company's behalf by International Catastrophe Insurance Managers, LLC. All Claims Services (as defined below) provided by the Administrator under this Agreement are to be within authority limits and guidelines set forth within this Agreement. However, the Company shall have the ultimate and final authority over decisions and policies including, without limitation, coverage available under its policies, and the payment or non-payment of Claims. 1.3 Company Consent. The Company hereby consents to the Administrator's assumption of the General Agent's obligations and liabilities to the extent set forth in this Agreement. 1.4 Services. The Administrator shall perform the following claims services (hereinafter, "Claim Services") in compliance with applicable law and pursuant to the Company's and the General Agent's written instructions, practices and procedures, subject to periodic review and audit thereof by the Company and/or the General Agent throughout the term or this Agreement: (a) Record, examine and promptly report each Claim to the Company and the General Agent, as well as any reserve established therefor by the Administrator. (b) Maintain a Claim file for each reported Claim (some of which may be maintained in electronic form) containing, among other things, a copy of the declarations page of the relevant Policy (which shall clearly identify the Policy and the insured) and an electronic activity log (detailing all documents and correspondence in said Claims file and actions taken by the Administrator and/or the claimant). (c) Perform reasonable and necessary administrative and clerical work in connection with reported claims, including, without limitation, the following: (i) Investigate all reported claims to the extent the Administrator deems reasonably necessary. (ii) Determine and evaluate any coverage issues in connection with the Claims and refer same to the Company and the General Agent or counsel with recommendations. (iii) In cases where coverage data has been supplied by the Company, establish appropriate reserves for all Claims within 10 days from the date the Claim is received by the Administrator, subject, however to the right of the Company, based on its practices and 2 procedures, to adjust the amounts of such reserves, on an aggregate claim basis, for all features or coverages arising out of a single loss occurrence. (iv) When authorized by the Company, deny coverage for those Claims which the Company reasonably determines should be denied. (v) Adjust, handle, or settle to a conclusion Claims in accordance with state law and the terms of the Policies. (vi) The Administrator is authorized to settle Claims up to $15,000 per Claim, or such different amounts per Claim as may be approved by the General Agent in writing; but in no event shall the Administrator's Claim settlement authority exceed $50,000 without the Company's prior written consent (sent via US mail, e-mail or fax). (vii) Adjust all Claims only through adjusters who are currently licensed (as necessary) as independent adjusters, or Company/General Agent and/or Administrator employee adjusters and appointed by the Company and the General Agent; provided, however, that the Administrator shall not subcontract any of their obligations hereunder (other than hiring local adjusters to investigate specific Claims) without obtaining the prior written consent of the Company and the General Agent and their respective prior approval of the terms of any proposed subcontract. The Administrator shall promptly provide the Company and the General Agent with such information as the Company and/or the General Agent may request in order to evaluate the prospective subcontractor. Any subcontractor must be currently licensed (as necessary) as an independent adjuster. The Company and/or the General Agent retain the right to select the authorized subcontractors All fees paid to any authorized subcontractor shall not exceed the usual and customary charges. (viii) Prepare information reasonably necessary or any salvage, subrogation or contribution action which in the General Agent's and/or the Administrator's judgment may inure to the benefit of the Company. (ix) When authorized by the Company, appoint independent counsel, as necessary to provide legal services as part of the investigation of Claims, and/or the determination of policy coverage applicable. Counsel shall be selected from a list approved by the Company and the General Agent. (x) Prepare checks, vouchers, compromise agreements, releases, and other documents reasonably necessary to pay Claims, close out Claims and pay authorized subcontractor fees and legal expense. (xi) Continuously review outstanding Claim reserves and recommend to the Company and the General Agent any changes to such reserves deemed necessary by the Administrator; and provide the Company and the General Agent with monthly reports showing all outstanding Claims then being administered by the Administrator, the activity being performed with regard thereto, and any changes to outstanding reserves as of the date reported, all as more specifically provided in Section 1.4 hereof. (xii) Record and report promptly to the Company and the General Agent each loss and allocated loss adjustment expense paid, utilizing mutually agreed upon Claim disbursement, checking and coding procedures. (xiii) Conduct and perform Claim reinspections and audits. (xiv) Conduct and perform customer satisfaction surveys on all closed Claims and report promptly to the Company and the General Agent the results of these surveys, on a monthly basis. 3 (xv) Perform special investigation services. (xvi) Report loss information to ISO Claim Search, or any other loss reporting service to which the Company subscribes. (xvii) Litigation and vendor management, in accordance with the other terms of this Agreement. (d) Periodically review the Claims handling procedure with the Company and the General Agent to identify any problems and to arrive at mutually agreeable corrective action. (e) Prepare and forward the Company's and the General Agent's respective required federal and state 1099 filings and prepare and distribute 1099 Forms to all applicable payees. (f) Report suspected fraud as required by any applicable statute or regulation in the state(s) where the Policies are issued. (g) Diligently pursue the Company's salvage, subrogation and contribution rights relating to any losses sustained under the Policies, and promptly report to the Company and the General Agent and account for any such salvage, subrogation and contribution collections. If a Policy contains other provisions, such as self-insured retention provision, require the Policyholder to furnish evidence of proper exhaustion of the self-insured retention. (h) Notify Company within 3 Business Days, and consult with the Company's and the General Agent's respective representatives (i.e., those individuals designated from time to time by the Company and the General Agent respectively), with respect to the following: (i) Any loss or claim resulting in a lawsuit being instituted against the General Agent, the Administrator and/or the Company. (ii) Any complaint, filed with, or any inquiry regarding same from, any insurance department or other regulatory authority relating to any loss or Claim which might result in regulatory action being taken against the Company, the General Agent or the Administrator; and in such case (1) the Administrator shall immediately forward to the Company and the General Agent a true copy of any written communication received from the regulatory authority, and (2) if a response affecting the Company, the General Agent or the Administrator is required, the Administrator shall, within five (5) Business Days after receipt of the inquiry, draft a response and submit it to the Company and the General Agent for approval before submitting same to the regulatory authority. The Administrator may respond directly to other complaints or inquiries arising in the normal course of business. (iii) Any loss or Claim which the Administrator reasonably determines is not covered by the Company's policy or involves a coverage dispute. (iv) Any loss or Claim which the Administrator anticipates will result in a loss payment (1) in excess of $15,000, and in such case the Administrator shall forward a copy of the complete Claim file to the Company and/or the General Agent at their respective request. All single Claim settlements in excess of $15,000 must be pre-approved in writing (via US mail, e-mail or fax) by the General Agent. (v) Any Claim (1) open for more than twelve (12) months, or (2) which involves extra contractual allegations, or (3) is in excess of policy limits. (vi) Any suspected fraud, or any allegation of "bad faith" in Claims handling against the General Agent, the Administrator or the Company. 4 (vii) In any of the foregoing cases, the Administrator shall forward a copy of the complete Claim file to the Company and/or the General Agent within three (3) Business Days, at their respective request. (i) Maintain in good standing all licenses, permits or authorizations necessary or appropriate for the Administrator (and any adjuster, investigator or appraiser employed by the Administrator) to perform Claim Services under this Agreement in compliance with all applicable laws, rules and regulations; and use only independent adjusters, investigators or appraisers who are duly licensed (as necessary) in the states where their Claim Services are performed. (j) Neither the Administrator nor anyone appointed by it shall have any right or authority (i) to alter, modify, or terminate any Policy, (ii) to waive any Policy provision, or (iii) to commit the Company and/or the General Agent to any Claim settlement with any of the Company's reinsurers without the prior written consent of the Company and the General Agent. (k) The Administrator shall establish and maintain Claim reporting coverage and verification procedures through which Claims may be reported to the Administrator twenty-four (24) hours a day, seven (7) days a week. Claims will be verified by Administrator within the next Business Day of being reported. (l) To support catastrophe operations the Administrator shall provide the Company and the General Agent, subject to their recommendations, with the following specialized services in addition to those set forth hereinabove: (i) Prior to and during catastrophic events the Administrator shall: (1) draft media communiques for release to appropriate parties, subject to the prior approval by the Company and the General Agent; (2) conduct adjuster workshops and develop training manuals; (3) provide storm tracking information and reserve equipment and supplies reasonably necessary to perform its obligations under this agreement; and (4) establish specific procedures that will provide direction to all personnel during a catastrophe. (ii) During and immediately following catastrophic events the Administrator shall determine resources reasonably required to provide Claim Services to Policyholders that have been affected by said catastrophic event. The Administrator shall: (1) follow a procedure for the assignment and distribution of adjusters; (2) establish internal Claims examinations; (3) establish and maintain satellite service centers in reasonably close proximity to the affected area, as may be necessary; and (4) provide management oversight of all special operations, as may be reasonably necessary. (iii) Following a catastrophic event, the Administrator shall assist in the Claim administration process by providing the Company and General Agent with management reports (as reasonably necessary) as well as audit and reinspection of Claims. (iv) Following a catastrophic event, assign Cat Supervisors/Coordinators who will perform the following duties: 1) Assign all Claims to licensed independent adjusters when appropriate; 2) maintain a diary system to ensure reserve reports are received timely from those adjusters; 3) ensure that the independent adjusters adhere to Claim reporting guidelines; 4) reassign files as necessary throughout the duration of a Catastrophe. (m) Company shall be notified immediately of all Claims that go to trial, whether or not such Claim is below the authority level. No verdict may be taken on any suit, regardless of offers or demands, without the prior approval of Company. No agreement which commits to binding arbitration, binding mediation or any non-jury trial format may be entered into without the prior approval of Company. 5 1.5 Claims Reports and Files. (a) In addition to the daily and weekly reports, and all other reports specifically required to be provided to Company or General Agent under this Agreement, The Administrator, at its sole cost and expense, shall provide Claims reports ("Claims Reports") to the Company and the General Agent, in an electronic format mutually agreeable to the Company, Administrator and the General Agent, within fifteen (15) days after the end of each calendar month. The Claims Reports shall include the following: (i) Claim information and statistical data (1) required by the Insurance Services Office, (2) necessary for the Company and/or the General Agent to prepare any reports required by the National Association of Insurance Commissioners, (3) reasonably necessary for the Company and/or the General Agent to monitor and evaluate the Claim Services provided by Administrator under this Agreement, and (4) necessary to enable the Company and/or the General Agent to comply with any state or rating agency reporting requirements now or hereafter in effect. All information required by the Company and/or the General Agent to monitor and the Claim Services provided by Administrator under this Agreement and to comply with the Company's and/or the General Agent's state or other Claim related reporting requirements, now or hereafter imposed on the Company and/or the General Agent shall be deemed to have been reasonably requested hereunder. Notwithstanding anything hereinabove to the contrary, the Administrator shall furnish all such reports to the Company and the General Agent at least 20 days prior to applicable filing deadlines; provided, however, that Company provides Administrator in writing with reasonably advance notice of the applicable filing deadlines. (ii) Loss runs showing paid Claims on a monthly, year-to-date, and inception-to-date basis, and outstanding reserves remaining at the end of each month, by state, and categorized as indemnity, allocated loss adjustment expense or unallocated loss adjustment expense. Loss adjustment expenses shall be categorized as allocated loss adjustment expenses ("ALAE") or unallocated loss adjustment expenses ("ULAE") based on the revised NAIC definitions of ALAE and ULAE to be used for reporting purposes effective January 1, I998. ALAE are comprised of defense, litigation and medical cost containment expenses, whether internal or external. ALAE include (but are not limited to) the following expenses: (i) surveillance; (ii) fixed amounts for medical cost containment; (iii) litigation management; (iv) loss adjustment expenses for participation in voluntary and involuntary market pools if reported by accident year; (v) fees or salaries for appraisers, private investigators, hearing representatives, reinspectors and fraud investigators, if working in defense of a Claim, and fees or salaries for rehabilitation nurses, if such cost is not included in losses; (vi) attorney fees incurred by reason of a duty to defend, even when other coverage does not exist; and (vii) the cost of engaging experts. ULAE are comprised of those loss adjustment expenses other than ALAE as defined above. ULAE include (but are not limited to) the following expenses: (i) fees of adjusters and settling agents; (ii) loss adjustment expenses for participation in voluntary and involuntary market pools if reported by calendar year; (iii) attorney fees incurred in the determination of coverage, including litigation between the insurer and the policyholder; and (iv) fees or salaries for appraisers, private investigators, hearing representatives, reinspectors and fraud investigators, if working in the capacity of an adjuster. Loss reports will also include Catastrophe code numbers and/or any other information required for the Company's and/or the General Agent's respective annual statement or by state regulatory agencies. (iii) The number (count) of open Claims, new Claims, Claims closed with payment and Claims closed without payment, each count being shown: - monthly and year-to-date, and - by line of business and by State. (iv) Claim Register. 6 (v) Check Register, including Outstanding Check Register. (vi) Reserve and payment transaction journal. (vii) Large loss listing, including cumulative paid and outstanding reserves monthly. (viii) Aggregate loss runs (on a paid and incurred basis) by Policy, to include: 1. New Claims Received End of Month 2. Reopened Claims End of Month 3. Claims Closed End of Month 4. Claims Pending End of Month 5. Paid (Indemnity) End of Month 6. Paid (ALAE) End of Month 7. Total Paid (Indemnity + ALAE) End of Month 8. Outstanding Reserve (Indemnity) End of Month 9. ITD - Total Paid (Indemnity) End of Month 10. ITD - Total Paid (ALAE) End of Month 11. ITD - Total Paid (Indemnity + ALAE) end of Month 12. ITD - Total Outstanding Reserve (Indemnity) End of Month The following reports shall also be included, provided Company and/or General Agent pay Administrator a programming set up fee for each report (that shall be based upon a time and materials rate): 1. Claims Pending End of Prior Month 2. Outstanding Reserve (Indemnity) End of Prior Month 3. Outstanding Reserve (ALAE) End of Prior Month 4. Total Outstanding Reserve (Indemnity + ALAE) End of Prior Month 5. Outstanding Reserve (ALAE) End of Month 6. Total Outstanding Reserve (Indemnity + ALAE) End of Month 7. Incurred (Indemnity) End of Month 8. Incurred (ALAE) End of Month 9. Incurred (Indemnity + ALAE) End of Month 10.ITD - Total Outstanding Reserve (ALAE) End of Month 11.ITD - Total Outstanding Reserve (Indemnity + ALAE) End of Month 12.ITD - Total Incurred (Indemnity) End of Month 13.ITD - Total Incurred (ALAE) End of Month 14.ITD - Total Incurred (Indemnity + ALAE) End of Month The Administrator shall deliver to the Company and the General Agent copies of its computer databases ("Computer Data") maintained in support of their Claims Reports. The Administrator shall deliver the Computer Data in a format (i) reasonably acceptable to the Company and the General Agent and/or any entity which requires the data from the Company and/or the General Agent and (ii) readable on the Company's and the General Agent's and/or such entity's computer system, and which complies with the current file layout specifications and/or any subsequent applicable file layout provided by the Company and/or the General Agent. If the Computer Data requires conversion into a format that is readable on the Company's and the General Agent's and/or such entity's computer system (and which complies with the current file layout specifications and/or any subsequent applicable file layout provided by the Company and/or the General Agent), the Company and/or General Agent shall pay Administrator a format conversion fee that shall be based upon a time and materials rate. The Computer Data shall consist of all information contained in the Claims Reports including, with respect to each Claim, the Claim number, the Policy number, the name of the insured, the effective date and expiration date of the Policy, the type of loss by coverage, the date when the Claim was first reported to the Company and/or the General Agent, the 7 accident date, the reserve, any paid loss, any paid loss adjustment expenses, and any salvage, subrogation or contribution recovery. (d) Subject to the provisions of Section 5.4(a), closed files shall be retained and preserved by the Administrator for a period of six (6) years from the date of the last file activity or until the expiration of the applicable statute of limitations period, whichever is later (hereafter the "Retention Period"). At the end of the Retention Period, the Administrator shall, in writing, request instructions from the Company and the General Agent as to the disposition of each closed file. As authorized by the Company and the General Agent, in writing, the Administrator shall (i) destroy the closed file, (ii) return the closed file to the Company or the General Agent, at the expense of the Company or the General Agent, or (iii) store the file at the Company's or the General Agent's expense which shall not exceed the Administrator's prevailing fee. Notwithstanding the foregoing, the Administrator shall retain a file, and the Retention Period shall be deemed extended, until there is a final, binding determination of the Claim by settlement, judgment, or otherwise. (e) All Claims files and records regarding the administration of Claims pursuant to this Agreement (including the financial records relating to the Claim Disbursement Account (as hereinafter defined) and the payment of Claims and allocated loss adjustment expenses) may be audited, examined, and copied by the Company, the General Agent, or their representatives, or any state insurance department or other regulatory body that so requires, at its expense, upon 10 days prior notice (except in the case of regulatory inquiry, in which case access will be granted on any Business Day with twenty four (24) hours of prior written notice to Administrator) on any Business Day, during normal business hour and for so long as Administrator is required to maintain such files and records. Notwithstanding anything to the contrary contained in this Agreement, the Company and the General Agent shall have the right at any time, in their sole discretion, to assume control over a particular Claim; provided, however, that the Administrator shall have no liability for any action or inaction that occurs or fails to occur with respect to such Claim after either Company or General Agent assume control over the Claim. The foregoing right to audit, examine, inspect and copy shall survive the termination of this Agreement for so long as Administrator is required to maintain such files and records. (f) The Administrator shall not use the name, logo, service mark, or authorized signatures of the Company or the General Agent, or any of their affiliates, in any advertising or promotional material without the prior written consent of the Company and/or the General Agent. (g) Claims files are and shall remain the property of the Company and shall be returned to the Company upon termination of this Agreement. 1.6 Claims Claim Disbursement Account. For purposes of paying Claims and Claims related expenses, the Company shall establish a claims disbursement account ("Claim Disbursement Account"), as more fully described in Exhibit A , attached to this Agreement. Checks drawn on the Claim Disbursement Account by the Administrator, or its agents or employees, shall be signed and issued only in accordance with procedures agreed upon in advance by the Company, the General Agent and the Administrator. Except as provided below, checks drawn on the Claim Disbursement Account must be signed by two (2) authorized officers or employees of the Administrator, whose names and positions shall be promptly reported to the Company and the General Agent, and no check or checks in relation to any one Claim shall exceed the sum of $15,000 in the aggregate, or such different amounts as may be approved by the General Agent in writing. Checks drawn on the Claim Disbursement Account by Administrator for $1,000 or less require one facsimile signature for proper disbursement. Checks for amounts in excess of $1,000 but less than $10,000 require one facsimile signature and one original signature, or two original signatures. Checks for amounts in excess of $10,000 require two original signatures. The Administrator's check payment authority shall not exceed $50,000 without the Company's prior written consent (sent via US mail, e-mail, or fax); for purposes of this Paragraph, a written consent to pay shall be deemed a written consent to issue a check. Any monies collected by the Administrator for salvage, subrogation, contribution or deductible reimbursement shall be deposited in the Claim Disbursement Account immediately upon receipt thereof, and the Administrator shall maintain a register or other record of such collections and deposits. Such 8 register or other record shall contain, among other things, the date and amount of deposit, the date of receipt of funds, the Claim number, the payer and the purpose of the payment, and a copy shall be forwarded to the reconciled with the Claim Disbursement Account on a monthly basis. The costs of collection for salvage, subrogation or contribution shall be limited to necessary payments made to independent third parties and shall not include Company and the General Agent monthly. Such register or record, and the Claim Register, shall be any Administrator's Expenses referred to in Section 1 .7 hereof . 1.7 Administrator's Expenses. In the performance of the Claim Services, the Administrator shall be solely responsible for its own expenses including, without limitation, the following: (a) cost of personnel employed by the Administrator to render Claim Services under this Agreement including salaries, overtime, payroll taxes, employee benefits and temporary help expenses, (b) rent, utilities, telephone, furniture, fixtures, equipment and software, postage, advertising, license fees, occupational taxes, and (c) miscellaneous administrative expenses and other overhead expenses of the Administrator. 1.8 Special Investigation Units. The Company has established a fraud detection program known as a Special Investigation Unit (hereinafter called "SIU") in accordance with Company policy and state law and regulations governing SIUs. The Administrator shall promptly report to the Company and the General Agent's SIUs suspected fraudulent Claims in order to assure compliance with state and federal anti-fraud statutes and regulations, and to advise underwriting of undesirable risks, and to facilitate and maintain working relationships with law enforcement agencies, (to the extent that Company is a member) the National Insurance Crime Bureau ("NICB"), and the appropriate divisions within the applicable Insurance Department, and to enable the Company and the General Agent to maintain a database of information related to insurance fraud. 1.9 Independent Contractor. (a) Nothing contained in this Agreement shall be deemed to create the relationship of employer and employee, partners, or joint venturers between the Company and/or the General Agent and/or the Administrator, it being understood and agreed that the General Agent and the Administrator are each independent contractors of the Company, with all rights, duties and powers as such. (b) The General Agent and the Administrator shall not act as insurers, nor shall they be, ultimately financially responsible for payment or satisfaction of Claims or causes of action against any insureds. Company acknowledges and agrees that neither Administrator nor General Agent assumes no insurance risk for the business processed under the Agency Agreement or this Agreement. (c) The General Agent and the Administrator shall not give, or be required to give, any legal opinion, or provide any legal representation, to any insured or to the Company, such opinions and representations to be provided only by duly licensed outside counsel employed for that purpose by the General Agent and/or the Administrator. (d) The Administrator and the General Agent agree that for purposes of interpreting the provisions of this Agreement they shall be deemed to be the Company's agents and they shall fully perform all of their respective obligations hereunder to the full extent required of an agent under the law. 1.10 Warranties. The General Agent and the Administrator hereby represent that they are duly authorized and licensed, to the extent necessary, to conduct the business contemplated under this Agreement and they shall comply with all applicable state laws and regulations having jurisdiction over the parties and the Policies, and shall, whenever necessary, maintain, at their respective expense, all required licenses to conduct such business. 1.11 Proprietary System. (a) Administrator may from time to time may use its own proprietary computer software products and account servicing methods and procedures ("Proprietary System") in the performance of the Claim Services. During any term of this Agreement, Administrator grants a personal, non-transferable, non- 9 assignable, non-exclusive license to General Agent and Company to use portions of the Proprietary System as necessary for Administrator to perform the Claim Services under this Agreement. Further, no provision within this Agreement shall be interpreted as prohibiting Administrator from selling or licensing its Proprietary System to any other customer or prospective customer of Administrator. (b) Administrator from time to time, may also use proprietary third party computer software products and third party account servicing methods and procedures ("Third Party Proprietary System") in the performance of the Claim Services. No provision within this Agreement shall be interpreted as prohibiting Administrator or the Third Party Proprietary System vendor from selling or licensing the Third Party Proprietary System, or modifications and enhancements to the Third Party Proprietary System, to any other customer or prospective customer of Administrator, so long as Company's and/or General Agent's confidential information is not disclosed. (c) In addition, unless the Agreement is terminated for cause by the Administrator, the Administrator shall provide the Company and the General Agent (without charge to the Company and without cost to the Administrator) with a non-transferable, non-assignable, non-exclusive limited licenses to use the Computer Data and the portions of the Proprietary System (used by the Administrator in connection with the run off of the Claims under this Agreement) for the specific purpose of running of the Claims. The Administrator shall deliver the Proprietary System, as well as all necessary manuals, to the Company and the General Agent immediately upon delivery of the Computer Data to the Company and the General Agent. The Company and the General Agent acknowledge and agree that their use of the Computer Data and Proprietary System shall be limited to the administration and run-off of the Claims under this Agreement, and the furnishing of the Computer Data and Proprietary System to the Company and the General Agent by the Administrator shall not be construed to convey title to same, or any part thereof, to the Company and/or the General Agent, and shall not be construed as conferring upon the Company and/or the General Agent administering and running-off the Claims hereunder). The Company and the General Agent further agree that (i) they shall not copy any part of the Computer Data or Proprietary System, or the source or object code, except any right to sell, lease, transfer or dispose of all or any portion of the Computer Data or Proprietary System (except that same may be used by the Company and/or the General Agent's designee, if any, for the purpose of as may be reasonably required to and run-off the Claims hereunder), (ii) promptly upon completion of the administration and run-off of such business they shall return to the Administrator the Computer Data, the Proprietary System, the source and object code, and any other documents proprietary to the Administrator which were delivered to the Company and/or the General Agent pursuant to this Paragraph. (d) Other than the limited rights to use the Proprietary System and the Third Party Proprietary System, as provided above, this Agreement grants to Company and/or General Agent no right to possess or reproduce, download, reverse engineer, or obtain any other interest in, the Proprietary System or the Third Party Proprietary System, or their specifications in any tangible or intangible medium. Neither Company nor General Agent may not mortgage, hypothecate, sell, assign, pledge, lease, transfer, license, or sublicense the Proprietary System or the Third Party Proprietary System, nor allow any person, firm, entity or corporation to transmit, copy, reproduce, download, reverse engineer, or obtain any other interest in the Proprietary System or the Third Party Proprietary System, or their specifications in whole or in part. In the event Company and/or General Agent shall come into possession of any source or object code associated with the Proprietary System or the Third Party Proprietary System, Company and/or General Agent shall immediately notify Administrator and return the source or object code associated with Proprietary System or the Third Party Proprietary System in its possession and all copies of any kind thereof to Administrator. (e) Company and General Agent covenant and agree not to disclose or otherwise make the Proprietary System or the Third Party Proprietary System available to any person other than employees, insurance sales agents ("Agents") or representatives of the Company and General Agent required to have access or use of the Proprietary System or the Third Party Proprietary System to facilitate Administrator's. Company's and/or General Agent's performance under this Agreement. Company and General Agent agree to obligate each such employee, Agents, or representative to a level of care sufficient to protect the Proprietary System and the Third Party Proprietary System from unauthorized disclosure. 10 (f) The obligations of Company, General Agent and Administrator under this Section 1.11 shall survive termination of this Agreement, regardless of the reason for termination. ARTICLE 2 COMPENSATION OF ADMINISTRATOR 2.1 Compensation. For all Claim Services to be rendered by the Administrator during the term of this Agreement, the Company shall pay the Administrator the fees set forth on Schedule 2 annexed hereto and made a part hereof. Payment of such fees shall be made in monthly installments. Company's failure to pay all fees and expenses when due shall be considered a material breach of this Agreement. Further, if Company fails to pay any fees and expenses due Administrator as herein provided, Company shall pay to Administrator in addition to all sums otherwise due, interest which shall accrue at 1.5% per month on such delinquency from the date the fees or expenses became past due. Failure or forbearance to exercise any of its rights and privileges hereunder shall not constitute the forfeiture or waiver of such rights and privileges on the part of Administrator. 2.2 Unearned Fees. The Compensation paid to the Administrator hereunder shall be paid subject to the Administrator's continuing obligation to refund to the Company any payment of compensation not yet earned ("Unearned Fees"). To secure the Company's rights to recover Unearned Fees the Company shall have either of the following options: (a) To require the Administrator to obtain, at its sole cost and expense, a payment bond naming the Company as obligee. The bond shall indemnify the Company from and against any and all unrecovered fees, losses, costs or expenses the Company may suffer as a result of the Administrator's failing to refund to the Company any and all Unearned Fees within the time specified in this Agreement. The Company in its reasonable discretion will determine the amount of the bond and the acceptability of the surety. (b) If the Company elects in lieu of the bond provided for in Section 2.2(a), or if the Administrator fails to obtain such bond after being required to do so by the Company, the Company may (without prejudice to any other rights it may have) withhold from the Administrator any compensation due hereunder, or any portion thereof which is then unearned or which would constitute a prepayment. In addition, the Company shall withhold from Administrator any and all sums otherwise payable as compensation, an amount equal to any Unearned Fees paid prior to the execution hereof. The amount to be so withheld shall be determined by the Company in its reasonable discretion. 2.3 Allocated Loss Adjustment Expenses. The Administrator shall pay on behalf of Company and out of the Company's Claim Disbursement Account, all loss adjustment expenses (ALAE and ULAE) associated with a particular Claim as well as legal Fees and associated legal costs, expert fees and costs, engineers fees and costs, surveillance fees and incidental fees for necessary reports, such as fire marshal and police reports. ARTICLE 3 DUTIES OF COMPANY & GENERAL AGENT 3.1 Standards. The Company and the General Agent shall provide the Administrator with, and the Administrator shall comply with, such reasonable standards, guidelines, policies and procedures which the Company and the General Agent may reasonably establish from time to time regarding Claims administration under the Policies. The Company and the General Agent shall cooperate with the Administrator to the extent reasonably necessary to enable the Administrator to adequately perform Claims Services under this Agreement, including, without limitation, responding promptly to the Administrator's requests for relevant information, promptly meeting as needed with the Administrator or persons designated by the Administrator, promptly making decisions on Claims matters as required by this Agreement, and promptly remitting funds to the Claim Disbursement Account as required by this Agreement. Company shall also provide to Administrator, in a timely manner, any and all data, information 11 and other items reasonably required to enable Administrator to perform the Claim Services. Administrator acknowledges and agrees that delays in delivery of required documentation, data and/or information by Administrator will result in a similar delay in fulfilling Claim Services, and that such a delay in performing the Claim Services shall not be deemed a breach of the Agreement. 3.2 Loss Coverage. The Company and the General Agent shall have the obligation to provide timely and complete loss coverage in accordance with the terms of the Policies. The Company will make prompt determinations as to coverage where requested to do so by the Administrator. Where the Company makes a determination as to coverage, any liability, loss, cost or expense relating to such coverage shall be borne solely by the Company. 3.3 Administrator's Taxes. The Company and the General Agent shall not be responsible for any income tax (or any interest or penalty thereon) imposed upon the Administrator. 3.4 Administrator's Logo(s). The Company and the General Agent may not use the name, logo or service mark of the Administrator or any of its affiliates in any advertising or promotional material without the prior written consent of the Administrator. 3.5 Authorities. To the extent Administrator is obligated under this Agreement to report Claim statistics and information to ISO Claim Search, NICB and any other reporting bureaus, Company shall become a member of such bureau and shall supply Administrator the necessary passwords/software to accomplish any such reporting obligations. ARTICLE 4 INDEMNITY 4.1 Administrator's Indemnification. The Administrator agrees to indemnify and hold the Company and the General Agent, their subsidiaries, successors and assigns, and the shareholders, directors, officers, agents and employees of any of them (collectively, the "Company & General Agent Indemnitees"), harmless against and in respect of any and all Claims, demands, actions, proceedings, liability, losses, damages, judgments, costs and expenses, including, without limitation, attorneys' fees, disbursements and court costs, made or instituted against or incurred by the Company & General Agent Indemnitees, or any of them, and which arise, directly or indirectly, out of any or all of the following: (a) any failure of the Administrator, or its employees, representatives, independent adjusters or approved subcontractors to perform its obligations under this Agreement (b) any expenses or costs incurred by the Company and/or the General Agent in performing the duties of the Administrator, in curing any defect in the performance of the Administrator, and/or in hiring one or more persons or entities to replace the Administrator by reason of the Administrator's failure to properly perform its duties hereunder; (c) any checks, overdrafts or other charges to, on, or related in any way, to the Claim Disbursement Account, provided, however, that no such check, overdraft or other charge was issued or incurred by Administrator as a result of any dishonest or other tortious act or omission by Administrator or any of its officers, directors, employees or agents. (d) any conversion or misappropriation by the Administrator of the funds entrusted to or put under the Administrator's control; and (e) any loss incurred by the Company & General Agent Indemnitees in excess of policy limits as well as any extra-contractual obligations, including but not limited to punitive, exemplary, compensatory or consequential damages suffered by the Company & General Agent Indemnitees arising out of or resulting from alleged or actual bad faith or negligence of the Administrator or its employees representatives, in discharging its obligations hereunder or to the insured. 12 4.2 Company's & General Agent's Indemnification. The Company and the General Agent agree to indemnify and hold the Administrator, its subsidiaries, successors and assigns, and the shareholders, directors, officers and employees of any of them (collectively, the "Administrator's Indemnitees"), harmless against and in respect of any and all claims, demands, actions, proceedings, liability, losses, damages (except consequential damages), judgments, costs and expenses, including, without limitation, attorney s fees, disbursements and court costs, made or instituted against or incurred by the Administrator Indemnitees, or any of them, and which arise, directly or indirectly, out of any failure of the Company and/or the General Agent or their employees or representatives, to perform its obligations under this Agreement. 4.3 Limit of Liability. Except for: (i) fees and expenses payable to Administrator under Article II of this Agreement; (ii) acts of fraud, or willful misconduct; and (iii) violations of Section 1.11 and Section 8.14 of this Agreement, (iv) any conversion or misappropriation by the Administrator of the funds entrusted to or put under the Administrator's control, each party's maximum liability ("Maximum Liability") to the other party for any cause whatsoever, during any one calendar year shall be limited to direct damages incurred by that party and shall not exceed the amount of compensation paid by the Company or General Agent to the for the six (6) months immediately preceding the breach or cause of liability. Further, Administrator shall not be liable for any lost profits, business goodwill, or other consequential, punitive, special or incidental damages incurred by Company or General Agent. 4.4 Survival of Indemnifications. The indemnifications set forth herein shall survive any termination of this Agreement. 4.5 Insurance. Throughout the term of this Agreement, the Administrator and any of its sub-contractors shall maintain errors and omissions insurance with a policy limit of at least $1,000,000 and a deductible no greater than $50,000, under a current paid up policy issued by an insurer reasonably acceptable to the Company and the General Agent. A current certificate of insurance shall be attached to this executed Agreement and a copy of the policy shall be furnished to the Company and/or the General Agent on demand. ARTICLE 5 TERM AND TERMINATION 5.1 Term. The term of this Agreement shall commence as of the date of this Agreement and shall continue until all Claims arising under the Policies have been closed, unless sooner terminated as hereinafter provided in this Article. 5.2 Voluntary Termination. The initial term of this Agreement shall be a twelve (12) month period commencing as of the effective date of this Agreement. This Agreement shall automatically extend for additional twelve (12) month terms unless this Agreement is terminated as hereinafter set forth. (a) This Agreement may be terminated, without cause, (i) by the General Agent, and subject to Company's approval, upon one hundred twenty (120) days prior written notice; and (ii) by the Administrator, upon six (6) months prior written notice, provided such notice is effective no earlier than twelve (12) months after the effective date of this Agreement. (b) Notwithstanding the foregoing, the Company may terminate the General Agent's and Administrator's authority to administer and adjust Claims on the Company's behalf on no less than six (6) months prior written notice, which notice shall be effective no earlier than one (1) year after the effective date of this Agreement. 5.3 Termination for Cause. This Agreement shall also terminate: (a) at the election of the Company and/or the General Agent, upon notice to the Administrator, if 13 the Administrator becomes insolvent, if it makes an assignment for the benefit of its creditors, if a petition for relief under the Bankruptcy Code is filed by or against it (that is no dismissed within 30 days of being filed), or if a trustee, receiver or other custodian of its assets is appointed; or (b) at the election of the Company and/or the General Agent, upon notice to the Administrator, in the event of a Change of Control (as defined in Section 8.3), unless (i) the Administrator has provided the appropriate notice as described in Section 8.3 and (ii) the Company and the Administrator agree in writing to such Change of Control; or (c) at the election of the Company and/or the General Agent, upon notice to the Administrator, if any public authority cancels, declines to renew, or suspends, any license or certificate of authority of the Administrator which is necessary to the legal performance of its obligations under this Agreement; or (d) at the election of the Company and/or the General Agent, upon notice to the Administrator, in the event of any material change in the Company's and/or the General Agent's obligations under the Policies, or in their respective business prospects, caused by (i) a change in law or insurance regulations or (ii) any suspension, prohibition or cease and desist order or decree issued by any public authority having jurisdiction; or (e) at the election of the Company, upon notice to the General Agent and the Administrator, in the event of the cancellation of, or an adverse change in the terms, conditions or coverage of, the Company's reinsurance agreements with its reinsurers with respect to the Policies; or (f) upon the filing by or against the Company or the General Agent of a petition for relief under the Bankruptcy Code (that is not dismissed within 30 days of being filed), or the issuance of an order of liquidation or rehabilitation or similar action against the Company or the General Agent by any public authority having jurisdiction; or (g) at the election of the Company and/or the General Agent, upon notice to the Administrator, if the Administrator commits any of the following acts or omissions: fraud, gross negligence, or willful misconduct (which includes, but is not limited to, willful violation of the Administrator's contractual obligations or willful violation of any applicable law, rule or regulation governing or relating to the Administrator's performance of Claim Services hereunder); or (h) at the election of the Company and/or the General Agent, if the Administrator breaches any provision of this Agreement and fails to cure such breach within thirty (30) days after notice thereof is given to the Administrator by the Company and/or the General Agent. For purposes of this subsection (h), routine differences in accounting methods of the parties which involve minor amounts, and do not involve recoveries collected and knowingly withheld by the Administrator, shall not constitute a failure to account and remit funds to the Company or the General Agent provided all items not in dispute are paid in accordance with the procedures set forth in this Agreement. (i) at the election of the Administrator, upon notice to the Company and the General Agent, in the event of a Change of Control (as defined in Section 8.3) by either Company or General Agent, unless (i) the Administrator has provided the appropriate notice as described in Section 8.3 and (ii) the Company, General Agent and the Administrator agree in writing to such Change of Control; (j) at the election of the Administrator, upon notice to the Company and/or the General Agent, if the Company and/or General Agent commit any of the following acts or omissions: fraud, gross negligence, or willful misconduct; or (k) at the election of the Administrator, if the Company and/or the General Agent breaches any provision of this Agreement and fails to cure such breach within thirty (30) days after notice thereof is given to the Company and/or the General Agent. 14 5.4 Procedures Upon Termination by Company or General Agent. Upon the termination of this Agreement by the Company and/or the General Agent, the Company and the General Agent shall have either of the following options: (a) To assume control of such open and/or closed Claim files as the Company and the General Agent shall elect, in which case, the Administrator shall (at Company's expense) promptly transfer such Claim files to such location as the Company and the General Agent shall direct. The Administrator shall cooperate fully with the Company and the General Agent to effect an orderly transfer of Claim files to the Company and/or the General Agent, or their respective representatives, so that the Company's and the General Agent's liability for Claims or allocated loss adjustment expenses is not increased; or (b) To require the Administrator to continue to administer to a conclusion all such open Claims. The Claim Disbursement Account shall continue to be maintained by the Company and the General Agent with respect to such Claims. 5.5 Procedures Upon Termination by Company or General Agent. Upon the termination of this Agreement by the Administrator under Section 5.3 for "cause", the Company and /or the General Agent shall assume control of all open and/or closed Claim files, in which case, the Administrator shall (at Company's expense) promptly transfer such Claim files to such location as the Company and the General Agent shall direct. The Administrator shall cooperate fully with the Company and the General Agent to effect an orderly transfer of Claim files to the Company and/or the General Agent, or their respective representatives, so that the Company's and the General Agent's liability for Claims or allocated loss adjustment expenses is not INCREASED; provided, however, that upon termination of this Agreement Company shall become solely accountable and shall assume all responsibility for any pending claim files previously administered by Administrator under this Agreement. 5.6 Adjustment of Pre-Payment upon Termination and Indemnification. (a) In the event of termination of this Agreement under Article 5, the Company shall pay the Administrator for its Claim Services rendered on a pro-rata basis. The Administrator shall return to the Company any Unearned Fees, within thirty (30) days after demand therefor by the Company. (b) In the event of any termination of this Agreement by Company or General Agent (and not by Administrator) for "cause" under Section 5.3, if the Company and/or the General Agent take back any open Claim files from the Administrator and/or assigns the administration of such Claim files to any third party, the Administrator shall indemnify the Company & General Agent Indemnitees to the full extent set forth in Section 4.1 for all reasonable costs and expenses (other than loss payments under the Policies) related to the administration of such Claims. 5.7 Suspension of the Administrator's Authority. The Company and/or the General Agent may suspend the Administrator's authority hereunder to administer and adjust Claims during the pendency of any dispute regarding termination of this Agreement. 5.8 No Consequential Damages. Neither party, nor any of its employees or representatives shall have or assert any claim against the other party, their respective subsidiaries, successors and assigns, or the shareholders, directors, officers, agents or employees of any of them, for loss of business, loss of profits, or damage to goodwill or reputation, as a result of the termination of this Agreement in accordance with this Article 5. 15 ARTICLE 6 ARBITRATION 6.1 Disputes to be Arbitrated. Except as provided in Section 6.8, any dispute arising out of or relating to this Agreement or the enforcement hereof shall be determined by a board of arbitration meeting in New York City, New York unless otherwise agreed. Either party (hereinafter called the "Claimant") may commence an arbitration by serving a written demand for arbitration upon the other party (hereinafter called the "Respondent"). 6.2 Board of Arbitration. The board of arbitration shall be composed of two arbitrators and an umpire. Each member of the board of arbitration shall be active or retired officials of insurance or insurance management companies (other than the parties or their affiliates), or underwriters at Lloyd's, London and shall be impartial and disinterested in the outcome of the arbitration. Each party shall appoint its arbitrator, and the two arbitrators shall choose an impartial umpire. The Claimant shall name its arbitrator in the demand for arbitration. If the Respondent fails to appoint its arbitrator and to notify Claimant of such appointment within twenty (20) days after receipt of the demand for arbitration, the Claimant may also appoint the second arbitrator within ten (10) days after the expiration of said twenty (20) day period. If the two arbitrators fail to agree upon the appointment of an umpire at the end of twenty (20) days following the appointment of the second arbitrator, then the umpire shall be appointed by the American Arbitration Association (or its successor) in accordance with its then prevailing commercial arbitration rules. 6.3 Statements. The Claimant shall submit to the arbitrators, the umpire and the Respondent its initial statement of claim within twenty (20) days after the appointment of the umpire. The Respondent shall submit its statement to the arbitrators, the umpire and the Claimant within twenty (20) days after receipt of the Claimant's statement. The Claimant may submit a reply statement within ten (10) days after receipt of Respondent's statement. No other written statements shall be submitted by either party unless requested to do so by the entire board of arbitration. If either party fails to submit its statement within the time required, it shall be deemed to have waived its right to submit same. 6.4 Hearing. Any hearing shall commence within thirty (30) days after submission of Claimant's reply statement, or after submission of Respondent's statement if Claimant does not submit a reply statement, or after submission of Claimant's statement if Respondent does not submit a reply statement, and shall be held at a time and place determined by the board of arbitration. The board of arbitration shall make its decision with regard to the custom, practice and usage of the insurance and reinsurance business. The hearing shall be conducted in accordance with the commercial arbitration rules of the American Arbitration and evidence in the form of testimony may be taken and cross examination and rebuttal may be allowed. The board of arbitration shall have the right to award injunctive and other equitable relief where appropriate, but shall have no right to award punitive damages. 6.5 Award. The board of arbitration shall make its award in writing within forty-five (45) days following the termination of the hearing (or any continued hearing) unless the parties consent to an extension. The majority decision of the board of arbitration shall be final and binding on all parties to the proceeding. Judgment may be entered on the award in any court having jurisdiction thereof. 6.6 Costs. Each party shall bear the expense of its own arbitrator and shall jointly and equally bear the expense of the umpire. The other costs of the arbitration proceeding shall be allocated by the board of arbitration. In the event of subsequent actions or proceedings to enforce any rights hereunder including, without limitation, any proceeding to enter judgment on the award, the prevailing party shall be entitled to recover court costs and its reasonable attorney s fees. 16 6.7 Service. Any demand for arbitration or other statement or notice provided for herein shall be served in the manner provided in Article 7. 6.8 Option to Bring Plenary Action. The Company may, in lieu of arbitration, elect to institute a plenary action against the Administrator in cases where the Company seeks to recover trust funds (as such term is defined in Section 9.3) or seeks injunctive or other equitable relief. 6.9 Law; Jurisdiction. The laws of the State of New York shall govern the interpretation and application of this Agreement and the enforcement of any arbitration award. Any suit, action or proceeding by or against either party to this Agreement, including any proceeding to compel arbitration, to confirm the arbitration award, or to enforce any remedy available to either party, shall be brought in the Supreme Court of the State of New York, County of New York, or in the United States District Court for the Southern District of New York, and each of the parties submits and consents to the non-exclusive jurisdiction of either of such courts for the purpose of any such suit, action or proceeding. Process in any such suit, action or proceeding may be served by registered or certified mail addressed to the party at its last known address. ARTICLE 7 NOTICES Any notice or other communication hereunder shall be in writing and shall be deemed fully made or given (a) when hand delivered, (b) on the Business Day after it is delivered to a recognized overnight courier service for overnight delivery to a party at the address of such party stated below (or to such changed address as such party may have fixed by notice), or (c) three (3) Business Days after it is mailed postage prepaid, by registered or certified mail, return receipt requested, addressed to the address of such party stated below (or to such changed address as such party may have fixed by notice): To the General Agent: International Catastrophe Insurance Managers, LLC 2995 Wilderness Place, Suite I NE Boulder, Colorado 80301 Att: Edmund J. Kelly, President and Chief Operating Officer To the Administrator: Insurance Management Solutions, Inc. 360 Central Avenue St. Petersburg, Florida 33701 Att: David Howard, President To the Company: AXA Re America Insurance Company 17 State Street New York, New York 10006 Att: John J. Bado, Assistant Vice President ARTICLE 8 MISCELLANEOUS 8.1 Assignment. No party to this Agreement shall assign or otherwise transfer this Agreement or any rights hereunder without the prior written consent of all of the parties to this Agreement. 17 8.2 Trust Funds and Conversion. In any proceeding brought by the Company to recover funds due hereunder to the Company or insureds under the Policies (hereinafter called "trust funds"), the Administrator shall be obligated to account on its own records for such trust funds and to pay the Company all sums for which it cannot account. The Company shall be entitled to bring any and all proceedings available at law or equity to recover such funds, including without limitation claims for breach of contract, conversion and/or an accounting. In any such proceeding it shall be conclusively presumed that the Administrator is a fiduciary of the Company and the General Agent, is liable to the Company and the General Agent for trust funds which have not been timely accounted for, and the Administrator waives the right to trial by jury and any claim that the forum or situs for arbitration or other proceedings contemplated or arising hereunder is inconvenient. The Administrator shall retain the right to bring any separate proceeding it deems appropriate to recover on any claims the Administrator may have as a creditor of the Company and/or the General Agent, or otherwise, but the pendency of any such proceeding shall not delay, hinder or defeat the Company's right to promptly recover any trust funds then due or to levy upon any judgment therefor. 8.3 Change of Control. The Administrator shall notify the Company and the General Agent in writing at least thirty (30) days in advance of any of the following occurrences, each of which shall be deemed a "Change of Control" of the Administrator: (a) A sale, transfer or pledge, or the issuance to a new shareholder, of forty (40%) percent or more of the voting stock of the Administrator; or (b) A sale, transfer or pledge or a substantial portion of the material assets of the Administrator, or any merger or consolidation of the Administrator with another entity or entities; or (c) A change in any principal officer (CEO, COO, CFO, President) of the Administrator; or (d) An assignment or transfer of this Agreement or any rights hereunder by the Administrator. 8.4 No Third Party Benefits. This Agreement is for the sole and exclusive benefit of the parties and their successors and permitted assigns, and no third party is intended to or shall have any rights hereunder. 8.5 No Waiver. The failure of any party to insist upon strict compliance with any provision of this Agreement or to exercise any right or remedy hereunder, shall not constitute a waiver by such party of the provision or estop such party from thereafter demanding full and complete compliance therewith, or prevent such party from exercising such right or remedy in the future. 8.6 Entire Agreement. This Agreement, including the Schedules hereto, sets forth the entire understanding of the parties with respect to the transactions contemplated hereby, and merges and supersedes all prior discussions, agreements, promises, representations, warranties and arrangements of every kind and nature between the parties as to the subject matter hereof, and neither party shall be bound by any condition, warranty or representation provided for in this Agreement or as may be set forth in a subsequent writing signed by the party which is to be bound thereby. This Agreement may not be terminated, modified, amended or supplemented, nor may any provision hereof be waived, except by a writing signed by the party to be bound thereby. 8.7 Severability. If any provision of this Agreement shall be held invalid or unenforceable, such impediment shall attach only to such provision and shall not in any manner render invalid or unenforceable any other provision of this Agreement. 8.8 Headings. The headings used in this Agreement or any Schedules hereto are inserted for convenience of reference only and shall not in any way affect the meaning or interpretation of this Agreement. 8.9 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall be deemed one and the same instrument. 18 8.10 Schedules. The Schedules referred to in this Agreement are an integral part hereof and are deemed incorporated herein. 8.11 Further Assurances. The parties shall execute and deliver such other documents or instruments and take such other action as may reasonably be required to more effectively implement the provisions and intent of this Agreement. 8.12 Benefit of Parties. This Agreement shall bind and benefit the successors and permitted assigns of the parties. 8.13 Survival. All of the terms, covenants, agreements, obligations, conditions representations and warranties set forth herein and in any writing or document delivered pursuant hereto, shall survive the term of this agreement, or an earlier termination of this agreement, and shall continue in full force and effect so long as any liability or obligation hereunder is outstanding or unpaid; and the termination or cancellation of any Policy shall not discharge the obligations of the parties respecting claims, whether or not reported, incurred under the Policy on or before the effective date of termination or cancellation. 8.14 Confidentiality. The recipient ("Recipient") of confidential data and/or information pursuant to this Agreement shall maintain the confidentiality of all data and/or information which is the property of the other party ("Disclosing Party"), whether originally supplied by the Disclosing Party, or whether generated by the Disclosing Party in the course of performing or facilitating the Insurance Administration Services under this Agreement and which is directly accessible to the Recipient or is in the possession of Recipient in the implementation, facilitation and/or performance of the Insurance Administration Services. During any term of this Agreement, Recipient may acquire, know, or have within its possession, information (including, but not limited to, Technical Information) and/or data of the Disclosing Party concerning commercial and trade affairs, rating and underwriting rules and guidelines, the identity of clients, the identity of insureds and beneficiaries, claims, benefits, rates and Agents, financial information, the Proprietary System, the Third Party Proprietary System and business practices of the Disclosing Party ("Confidential Information"). Confidential Information which is provided in tangible form must be clearly marked "Confidential", "Proprietary" or the substantial equivalent thereof, or if orally disclosed must be clearly identified as "Confidential" or "Proprietary" at the time of the disclosure (except for Company's Technical Information, the identity of Company's or General Agent's clients, the identity of Company's or General Agent's insureds and beneficiaries, claims, benefits, and Agents, which will be deemed "Confidential Information" under this Agreement, regardless of whether marked as such). Except as required by law, Recipient shall keep Disclosing Party's Confidential Information confidential and shall only use the Confidential Information in performing or facilitating the Claim Services under this Agreement. Recipient shall not disclose the Confidential Information without Disclosing Party's prior written permission except to Recipient's employees who require the information to perform or facilitate the Claim Services under this Agreement. Each party hereto, as a Recipient, warrants to the other that appropriate measures shall be taken by Recipient to safeguard the confidentiality of the Confidential Information, with a level of care at least equal to the level of care with which Recipient safeguards its own confidential or proprietary information. All employees, agents or representatives of Recipient and any third parties who are given access to the Confidential Information shall be under written obligation to Recipient to maintain such information in confidence. Administrator, General Agent and Company agree that any Recipient shall have no obligation with respect to any information or data which: a) is already rightfully known to Recipient through means other than Disclosing Party; or b) is or becomes publicly known through no wrongful act of Recipient; or c) is rightfully obtained by Recipient from a third-party without similar restriction and without breach of this Agreement; or d) is independently developed by Recipient without breach of this Agreement. Disclosing Party shall retain title to all Confidential Information (whether tangible or intangible) delivered thereby pursuant to this Agreement. Recipient shall not copy, reproduce or use any Confidential Information without written authorization of Disclosing Party, except as may be reasonably required to accomplish the Claim Services under this Agreement. Upon written request of Disclosing Party Recipient 19 shall promptly return, or destroy with specific written permission of the Disclosing Party, all tangible copies containing Confidential Information, except those copies kept in the regular course of business, or that are required to be kept pursuant to any state or federal administrative, regulatory or statutory mandates. The obligations under this Paragraph shall survive the termination of this Agreement. Notwithstanding the foregoing, this Article shall not prevent the disclosure of Confidential Information to the extent legally required by any court or regulatory entity having jurisdiction over the parties. For purposes of Paragraph, Recipient and Disclosing Party shall include within their meaning all respective subsidiaries, agents, or Affiliates of the Recipient and Disclosing Party. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers as of the day and year first above written. Attest: INTERNATIONAL CATASTROPHE INSURANCE MANAGERS, LLC. /s/ John Gartling By: /s/ Edmund J. Kelly - ------------------------------- ------------------------------- John Gartling Name: Edmund J. Kelly Title: President & COO Attest: INSURANCE MANAGEMENT SOLUTIONS, INC. /s/ Gail Basile By: /s/ R.G. Gantley --------------- ----------------------------- Gail Basile Name: Robert G. Gantley Title: COO Attest: AXA RE AMERICA INSURANCE COMPANY /s/ Joscelin Burrer By: /s/ John J. Bado ------------------- ------------------------------ Joscelin Burrer Name: John J. Bado Title: Asst. Vice President 20 EXHIBIT A To Claims Administration Agreement Dated As of, 2001 Between Administrator, General Agent and Company (The "Agreement") A. The Company shall establish a regular bank checking account with The Chase Manhattan Bank (the "Bank") entitled, Claim Disbursement Account (the Claim Disbursement Account") to be administered by the Administrator. The parties agree to establish the foregoing accounts within approximately 30 days of - the date hereof and to execute and deliver to the respective banks such depository resolutions, signature cards and other documents as may be requested of them in order to establish such accounts in accordance with the provisions of this Exhibit. The Claim Disbursement Account shall bear the employer identification number of the Company. The Claim Disbursement Account shall be used solely by Administrator to make payments of Claims or to pay Loss Expenses or to receive recoveries in accordance with the terms of this Exhibit and the Agreement. Checks drawn on the Claim Disbursement Account by Administrator for $1,000 or less require one facsimile signature for proper disbursement. Checks for amounts in excess of $1,000 but less than $10,000 require one facsimile signature and one original signature, or two original signatures. Checks for amounts in excess of $10,000 require two original signatures. All signatories must be Administrator employees. B. The Company has a separate bank account in its own name with The Chase Manhattan Bank, which bank is a member of the New York Clearing House Association (the "Funding Account"). The Company authorizes its bank to transfer monies from the Funding Account to the Claim Disbursement Account by direct debit. The amount of any such daily direct debit shall not exceed the total of items presented for payment to the Bank on account of Claims and Allocated Loss Expenses on the preceding Business Day on a "cleared basis." C. Administrator shall notify Company before making any payment in excess of the settlement authority as described in Exhibit A or $15,000 whichever is less. D. Unless otherwise agreed to by the parties, the Claim Disbursement Account and the Funding Account shall be maintained in accordance with the foregoing for so long as Administrator shall be obligated to render the Claim Services with respect to any Claim under the Agreement. E. The Administrator, as directed by the Company, shall immediately deposit all salvage, subrogation and other recoveries generated from Claims subject to this Agreement, into the Deposit Account facility to be added to the Claims disbursement account. All such recovery funds are for the sole benefit of the Company. F. Monthly Claim Disbursement Account Reconciliations - Administrator shall be contractually required to: 1. Prepare/forward (to Company for Company Funded Accounts), within 30 days of the Claim Disbursement Account reconciliation package which includes the following elements: a. Bank Statements b. Check Register c. Outstanding Check Listing d. Deposits Detail 1. ACH's 2. Recoveries 3. Returns of Overpayments, etc, described in detail. e. Disbursement Detail 1. Issued Checks (Check Register, per b. above). 2. Bi-Weekly Check Disbursement Register via e-mail or fax to include the following: a. Check number b. Amount of check c. Date of disbursement 21 d. Effective date of policy/contract e. Payee f. Date of loss g. Policy/Contract number h. Line of Business i. Property or Casualty sub lines j. State - Location of Risk 3. Other Disbursements described in detail 4. Stop Payments f. Reconciliation of monthly net disbursements to consecutive months change in net reported paid losses per Loss Run g. Reconciliation of Account Balance per Bank versus Book. G. Periodic Audits will be performed by the Company at its expense to ensure compliance with these controls. H. At such time as Administrator is no longer obligated to provide the Basic Services with respect to any Claim under this Agreement, Administrator agrees to close the Claim Disbursement Account. Any recoveries received after the Claim Disbursement Account has been closed shall be forwarded immediately to the Company 22 EXHIBIT B COMPENSATION OF ADMINISTRATOR I. Definitions Catastrophic property claims ("CAT Property Claims") shall mean all property Claims, within a specific geographical area, time and place, as declared by PCS, arising out of one event with projected losses exceeding $25,000,000. II. Outside Adjusting Fees A. Other than claims paid without payment ("CWOP") or an erroneous assignment, the claim fee for CAT Property Claims shall be based upon the amount of the paid claim as set forth in SCHEDULE A below. B. Other than CWOP, CAT Property Claims or an erroneous assignment, the claim fee for property claims ("Non-CAT Property Claims") shall be based upon the amount of the paid claim as set forth in SCHEDULE B below. C. The outside examining claim fee for CWOP, for both CAT Property Claims and Non-CAT Property Claims, shall be $125.00 per CWOP. Additionally, for erroneous assignments for both CAT and Non-CAT property claims, Company shall pay Administrator $44.00 per assignment. III. Inside Examining Fees A. Company shall pay Administrator two and sixty five hundredths percent (2.65%) multiplied times an amount equal to losses paid in connection with CAT Property Claims and Non-Cat Property Claims during any given month. The Administrator's fee shall be deposited to the Claim Account (as defined in the Agreement) on a monthly basis. B. The inside examining claim fee for CWOP, for both CAT Property Claims and Non-CAT Property Claims, shall be $125.00 per CWOP. Claim Fees shall be payable to the Administrator within thirty (30) days after the month in which the applicable Claim file is closed. The Administrator shall pay on behalf of Company and out of the Company's Claim Disbursement Account, all loss adjustment expenses (as more fully defined in this Agreement, and including Allocated Loss Adjustment Expenses) associated with a particular Claim as well as legal Fees and associated legal costs, expert fees and costs, engineers fees and costs, surveillance fees and incidental fees for necessary reports, such as fire marshal and police reports. The Administrator shall reinspect no less than fifteen (15%) percent of the closed Claims each calendar quarter in the first four (4) quarters of this Agreement, and no less than ten (10%) percent thereafter, for quality control purposes. All reinspections shall be conducted by adjusters approved by the Company and the General Agent, which approval shall not be unreasonably withheld. IV. Additional Services All services performed by the Administrator on the Company's and/or the General Agent's behalf, which are outside the scope of the Claim Services to be performed under this Agreement, shall be compensated on a time and expense basis, calculated at the rate of $85 dollars per hour. All travel and incidental expenses, as authorized by the Company, and incurred by the General Agent's Claim representatives traveling to the Administrator's offices and/or to a catastrophe site will be reimbursed by the Administrator. 23 PROPERTY CLAIMS HANDLING FEE SCHEDULE A AND B SCHEDULE A [*] SCHEDULE B [*] * Indicates that material has been omitted and confidential treatment has been requested therefor. All such omitted material has been filed separately with the SEC pursuant to Rule 24b-2. 24 EXHIBIT C CLAIM INFORMATION REPORT AND FILE LAYOUT SPECIFICATIONS 1. In general accordance with all the other terms and conditions of this Agreement, the Administrator shall provide the Company and/or General Agent with reports and data identified to be reasonably necessary for: ISO Statistical Plan reporting, State data calls, financial reporting, catastrophe management, business analysis, risk analysis, and for compliance with Federal, State and Local laws and regulations. 2. The data is to be supplied in an electronic format mutually acceptable to the Company and Administrator. The data will contain at least all the minimum data elements that the Company advises are reasonably necessary for its business report needs. The electronic data shall be sent to the Company and/or the general Agent no later than the 15th day of the month, following the closing of the prior reporting month. 25 EX-10.74 11 g75105aex10-74.txt 9/1/01 INSURANCE ADMINISTRATION AGREEMENT EXHIBIT 10.74 INSURANCE ADMINISTRATION SERVICES AGREEMENT THIS ADMINISTRATION SERVICES AGREEMENT ("Agreement") is effective as of the 1st day of September, 2001 ("Effective Date"), by and between INSURANCE MANAGEMENT SOLUTIONS, INC. ("IMS"), a corporation organized and existing under the laws of the State of Florida with its principal place of business located at 360 Central Avenue, St. Petersburg, Florida 33701, and COOPERATIVA DE SEGUROS MULTIPLES DE PUERTO RICO (herein referred to as "Customer") having their principal place of business at 38 Nevarez Street, Corner of Americo Miranda, Rio Piedras, Puerto Rico 00927-4608. WHEREAS, Customer wishes to engage the services of IMS to administer certain of the Customer's obligations for the lines of business ("Authorized Lines of Business") in the state(s) ("Authorized States") set forth in SCHEDULE A; WHEREAS, IMS wishes to provide such insurance administration services as set forth herein. NOW THEREFORE, IN CONSIDERATION OF the mutual covenants and agreements hereinafter set forth, the parties hereto do covenant and agree as follows: ARTICLE I. DEFINITIONS Unless the context clearly requires otherwise, the following terms when used in this Agreement shall have the meanings set forth below: A. "Affiliate" is any company which controls, is controlled by, or under common control with, a party, and "control" is defined as owning 50% or more of such entity. B. "Authorized Lines of Business" means the lines of business expressly set forth in SCHEDULE A of this Agreement. C. "Authorized States" means the states expressly set forth in SCHEDULE A of this Agreement. D. "Business Day" means any day other than a Saturday, Sunday or other day which is a bank holiday for Florida State banks or an IMS paid holiday (New Year's Day, Memorial Day, Independence Day, Thanksgiving Day, day after Thanksgiving, Christmas Eve (after 12 P.M. Eastern Standard Time) and Christmas Day). E. "Change of Control" means (a) a sale, transfer or pledge, or the issuance to a new shareholder, of fifty (50%) percent or more of the voting stock of a party hereto to any third party that is not an Affiliate of such party; or (b) a sale, transfer or pledge of a substantial portion of the material assets of a party, or any merger or consolidation of a party with another entity or entities. F. "Insurance Administration Services" means the services set forth in this Agreement and EXHIBIT I hereto in the Authorized States in accordance with the terms of the Agreement, and all applicable laws and regulations. G. "Insurance Program" means the Customer's insurance products within the Authorized Line(s) of Business to be offered within the Authorized States. H. "Technical Information" means and shall include (without limitation) computer programs, databases, designs, algorithms, processes, structures, data formats, business methods, know how, and research and development information. ARTICLE II. TERM 1 The term of the Agreement shall commence on the Effective Date and shall have a minimum operating term ("Minimum Operating Term") of Twenty-Four (24) full calendar months following the Effective Date. However, the term of this Agreement shall automatically extend for an additional operating term ("Extended Operating Term") of twelve (12) calendar months at the end of the Minimum Operating Term, or at the end of any Extended Operating Term, unless terminated earlier pursuant to the termination provisions within Article VIII. ARTICLE III. RESPONSIBILITIES OF IMS A. IMS shall dedicate the human, equipment and computer resources commercially reasonably required to provide Customer with the Insurance Administration Services, during the term of this Agreement, for the Insurance Program within Authorized States specified in SCHEDULE A. B. IMS shall designate an employee ("Account Manager") of sufficient status and authority to act as liaison with Customer to facilitate IMS' performance of the Insurance Administration Services under this Agreement. The Account Manager shall provide written and/or oral communication of the status of administration of the Insurance Administration Services as agreed to by and between Account Manager and Customer. C. IMS shall, based on accepted industry standards and in accordance with generally accepted insurance and accounting practices, as designated by the applicable regulatory bodies, maintain complete and orderly records and policy and/or claims files as may be required as a result of IMS performing the Insurance Administration Services on behalf of Customer. These files shall be retained by IMS, in a format or media defined by IMS which shall be in compliance with applicable laws and regulations, for a minimum of four (4) years or the period specified by the applicable statutes regulating the preservation of records, unless the Customer requests that its records be returned to it at its expense at the expiration of the minimum four (4) year period; however, that IMS shall be entitled to retain copies thereof. ARTICLE IV. RESPONSIBILITIES OF CUSTOMER A. During the term of this Agreement, Customer shall provide to IMS, in a timely manner, any and all data, information and other items reasonably required to enable IMS to perform the Insurance Administration Services specified in EXHIBIT I of this Agreement. Customer represents and warrants to IMS that it owns and possesses all property rights to its corporate and subsidiary logos and hereby grants and warrants to IMS a limited, non-transferable, non-assignable, license to use Customer's corporate and subsidiary logos (and any other copyrighted or trademarked property of Customer that may be provided to IMS under this Agreement) while performing the Insurance Administration Services. Customer acknowledges and agrees that delays in delivery of required documentation, data and/or information by Customer will result in a similar delay in fulfilling Insurance Administration Services, and that such a delay in performing the Insurance Administration Services shall not be deemed a breach of the Agreement. B. CUSTOMER ACKNOWLEDGES AND AGREES THAT IMS ASSUMES NO INSURANCE RISK FOR THE BUSINESS PROCESSED UNDER THIS AGREEMENT. C. Customer shall designate manager level employee(s) of sufficient status and binding decision making authority to act as liaisons with IMS and to facilitate Customer's role as IMS performs the Insurance Administration Services specified in EXHIBIT I of this Agreement. ARTICLE V. CUSTOMER ACCESS TO RECORDS/CONFIDENTIAL INFORMATION A. At Customer's expense, Customer will be permitted reasonable access (subject to the limitations 2 set forth in Exhibit I) to all records and information maintained by IMS on behalf of Customer (excluding, specifically, proprietary Technical Information) reasonably necessary to: (i) audit the completeness and accuracy of the Insurance Administration Services provided under this Agreement and reports produced for Customer pursuant to this Agreement; (ii) verify the accuracy and validity of all billings and charges to Customer under this Agreement; and (iii) verify IMS' overall compliance with the material terms of this Agreement and applicable laws and regulations. Access to IMS' records, for the foregoing purposes, will be provided during normal business hours upon ten (10) Business Days prior written notice to IMS by Customer for so long as IMS is required to maintain such records under this Agreement; except in the case of regulatory inquiry, in which case access will be granted on any Business Day with twenty four (24) hours of prior written notice to IMS. At Customer's expense, Customer will be permitted to copy those IMS records subject to audit in accordance with this Article. Upon reasonable written request by Customer, and at Customer's expense, IMS will promptly mail or fax to Customer supporting documentation concerning any specific transaction processed by IMS under the terms of this Agreement. IMS will provide reasonably adequate workspace for Customer to conduct audits in accordance with this Article. Further, Customer or its representatives shall take precautions, when conducting audits under this Article, not to disrupt IMS' ongoing business activities. B. The recipient ("Recipient") of confidential data and/or information pursuant to this Agreement shall maintain the confidentiality of all data and/or information which is the property of the other party ("Disclosing Party"), whether originally supplied by the Disclosing Party, or whether generated by the Disclosing Party in the course of performing or facilitating the Insurance Administration Services under this Agreement and which is directly accessible to the Recipient or is in the possession of Recipient in the implementation, facilitation and/or performance of the Insurance Administration Services. During any term of this Agreement, Recipient may acquire, know, or have within its possession, information (including, but not limited to, Technical Information) and/or data of the Disclosing Party concerning commercial and trade affairs, rating and underwriting rules and guidelines, the identity of clients, the identity of insureds and beneficiaries, claims, benefits, rates and Agents, financial information, the Proprietary System (as defined at Article VII (A) herein), the Third Party Proprietary System (as defined in Article VII (B) herein) and business practices of the Disclosing Party ("Confidential Information"). Confidential Information which is provided in tangible form must be clearly marked "Confidential", "Proprietary" or the substantial equivalent thereof, or if orally disclosed must be clearly identified as "Confidential" or "Proprietary" at the time of the disclosure (except for IMS' Technical Information, the identity of Customer's clients, the identity of Customer's insureds and beneficiaries, claims, benefits, and Agents, which will be deemed "Confidential Information" under this Agreement, regardless of whether marked as such). Except as required by law, Recipient shall keep Disclosing Party's Confidential Information confidential and shall only use the Confidential Information in performing or facilitating the Insurance Administration Services under this Agreement. Recipient shall not disclose the Confidential Information without Disclosing Party's prior written permission except to Recipient's employees who require the information to perform or facilitate the Insurance Administration Services under this Agreement. Each party hereto, as a Recipient, warrants to the other that appropriate measures shall be taken by Recipient to safeguard the confidentiality of the Confidential Information, with a level of care at least equal to the level of care with which Recipient safeguards its own confidential or proprietary information. All employees, agents or representatives of Recipient and any third parties who are given access to the Confidential Information shall be under written obligation to Recipient to maintain such information in confidence. IMS and Customer agree that any Recipient shall have no obligation with respect to any information or data which: 3 a) is already rightfully known to Recipient through means other than Disclosing Party; or b) is or becomes publicly known through no wrongful act of Recipient; or c) is rightfully obtained by Recipient from a third-party without similar restriction and without breach of this Agreement; or d) is independently developed by Recipient without breach of this Agreement. Disclosing Party shall retain title to all Confidential Information (whether tangible or intangible) delivered thereby pursuant to this Agreement. Recipient shall not copy, reproduce or use any Confidential Information without written authorization of Disclosing Party, except as may be reasonably required to accomplish the Insurance Administration Services under this Agreement. Upon written request of Disclosing Party Recipient shall promptly return, or destroy with specific written permission of the Disclosing Party, all tangible copies containing Confidential Information, except those copies kept in the regular course of business, or that are required to be kept pursuant to any state or federal administrative, regulatory or statutory mandates. The obligations under this Paragraph (B) shall survive the termination of this Agreement. Notwithstanding the foregoing, this Article shall not prevent the disclosure of Confidential Information to the extent legally required by any court or regulatory entity having jurisdiction over the parties. For purposes of Article V (B), Recipient and Disclosing Party shall include within their meaning all respective subsidiaries, agents, or Affiliates of the Recipient and Disclosing Party. ARTICLE VI. EXPENSES AND FEES A. In consideration of IMS providing Insurance Administration Services described herein, Customer shall pay IMS, as applicable, the servicing fee ("Service Fee"), miscellaneous fee ("Miscellaneous Fee") and claim administration fee ("Claim Administration Fee") for each Authorized Line of Business, as specified in SCHEDULE B. The performance by IMS of any service or function that is outside of the scope of the Insurance Administration Services shall require the payment by Customer of additional consideration (in addition to the Service Fee) as mutually agreed between IMS and Customer. B. Except for the Service Fee and the Claim Administration Fee, the Miscellaneous Fees specified in SCHEDULE B hereto (if any) may be increased (up to a maximum of five percent (5%) per year from the prior year) effective as of each anniversary of the Effective Date by the percentage increase in the United States Consumer Price Index for all Urban Users (CPI-U) as reported by the United States Bureau of Labor Statistics for the most recently completed calendar year that IMS is performing services on behalf of the Customer. C. Customer shall reimburse IMS for travel, living and out-of-pocket expenses incurred by IMS personnel in the performance of training relative to the Insurance Administration Services to be performed under this Agreement. D. Customer agrees to pay any and all tariffs and taxes that are now or may become applicable to the Insurance Administration Services rendered hereunder, including, but not limited to, sales, use, and personal property taxes, or any other form of tax based on Insurance Administration Services performed, equipment used by IMS solely for Customer, and the communicating or storage of data used by IMS solely for Customer, but excluding taxes on the net income of IMS. E. Subject to the terms of this Agreement, all fees and expenses to be payable by Customer to IMS or any third party under this Agreement shall be paid within thirty (30) calendar days after Customer's receipt of IMS' monthly statement for all services provided to Customer under this Agreement. IMS will calculate the fees owed to IMS by Customer and will send a statement to 4 Customer within two (2) weeks of the last day of the month for which fees are owed. Customer's failure to pay all fees and expenses when due shall be considered a material breach of this Agreement. Further, if Customer fails to pay any fees and expenses due IMS as herein provided, Customer shall pay to IMS in addition to all sums otherwise due, interest which shall accrue at 1.5% per month on such delinquency from the date the fees or expenses became past due. Failure or forbearance to exercise any of its rights and privileges hereunder shall not constitute the forfeiture or waiver of such rights and privileges on the part of IMS. F. Prior to renewal of this Agreement for any Extended Operating Term, IMS may modify SCHEDULE B in its discretion to reflect any increase in the cost of providing the Insurance Administration Services (including, but not limited to statutory, regulatory, or judicial changes that require IMS to incur additional cost or expenses in performing the Insurance Administration Services) or to remain competitive with the rates currently being charged within the industry for like services. Any modification of SCHEDULE B shall be proposed to Customer at least six (6) months prior to the expiration of any term of this Agreement. ARTICLE VII. LICENSE, TRADE SECRET AND PROPRIETARY RIGHTS A. IMS from time to time may use its own proprietary computer software products and account servicing methods and procedures ("Proprietary System"), which are identified, described or referenced in EXHIBIT I hereto, in the performance of the Insurance Administration Services. During any term of this Agreement, IMS grants a personal, non-transferable, non-assignable, non-exclusive license to Customer to use portions of the Proprietary System as necessary for IMS to perform the Insurance Administration Services under this Agreement. Further, no provision within this Agreement shall be interpreted as prohibiting IMS from selling or licensing its Proprietary System to any other customer or prospective customer of IMS. B. IMS, from time to time, may also use proprietary third party computer software products and third party account servicing methods and procedures ("Third Party Proprietary System"), which are identified, described or referenced in EXHIBIT I hereto in the performance of the Insurance Administration Services. No provision within this Agreement shall be interpreted as prohibiting IMS or the Third Party Proprietary System vendor from selling or licensing the Third Party Proprietary System, or modifications and enhancements to the Third Party Proprietary System, to any other customer or prospective customer of IMS, so long as Customer's Confidential Information is not disclosed. C. Other than the limited rights to use the Proprietary System and the Third Party Proprietary System, as provided in Article VII (A) and (B) above, this Agreement grants to Customer no right to possess or reproduce, download, reverse engineer, or obtain any other interest in, the Proprietary System or the Third Party Proprietary System, or their specifications in any tangible or intangible medium. Customer may not mortgage, hypothecate, sell, assign, pledge, lease, transfer, license, or sublicense the Proprietary System or the Third Party Proprietary System, nor allow any person, firm, entity or corporation to transmit, copy, reproduce, download, reverse engineer, or obtain any other interest in the Proprietary System or the Third Party Proprietary System, or their specifications in whole or in part. In the event Customer shall come into possession of any source or object code associated with the Proprietary System or the Third Party Proprietary System, Customer shall immediately notify IMS and return the source or object code associated with Proprietary System or the Third Party Proprietary System in its possession and all copies of any kind thereof to IMS. D. Customer covenants and agrees not to disclose or otherwise make the Proprietary System or the Third Party Proprietary System available to any person other than employees, insurance sales agents ("Agents") or representatives of the Customer required to have access or use of the Proprietary System or the Third Party Proprietary System to facilitate IMS' or Customer's performance under this Agreement. Customer agrees to obligate each such employee, Agents, or 5 representative to a level of care sufficient to protect the Proprietary System and the Third Party Proprietary System from unauthorized disclosure. E. The obligations of Customer under this Article shall survive termination of this Agreement, regardless of the reason for termination. ARTICLE VIII. TERMINATION A. Either party may terminate this Agreement at the end of the Minimum Operating Term or at the end of any Extended Operating Term, provided the terminating party gives the other party at least three (3) months prior written notice of such termination. B. This Agreement shall also terminate: a) at the election of the Customer, upon written notice to IMS, if IMS becomes insolvent, if it makes an assignment for the benefit of its creditors, if a petition for relief under the United States Bankruptcy Code is filed by or against it and it is not dismissed within thirty (30) days of being filed, or if a trustee, receiver or other custodian of its assets is appointed; b) at the election of IMS, upon written notice to Customer, if Customer becomes insolvent, if it makes an assignment for the benefit of its creditors, if a petition for relief under the United States Bankruptcy Code is filed by or against it and it is not dismissed within thirty (30) days of being filed, or if a trustee, receiver or other custodian of its assets is appointed (including, but not limited to, any proceeding pursuant to any state or federal action governing insurer insolvency); c) at the election of the Customer, if IMS materially breaches any provision of this Agreement and fails to cure such breach within sixty (60) days after written notice thereof is given to IMS by the Customer; d) at the election of IMS, if Customer materially breaches any provision of this Agreement and fails to cure such breach within sixty (60)) days after written notice thereof is given to Customer by IMS (except for Customer's failure to pay any and all fees and expenses due under Article VI of this Agreement, in which case Customer must cure such breach within thirty (30) days after written notice thereof is given to Customer by IMS); e) at the election of IMS, upon written notice to Customer, in the event of a Change of Control of Customer unless (i) Customer has provided IMS not less than sixty (60) days advance written notice of the proposed Change of Control and (ii) IMS has agreed in writing to such Change of Control. The initiation under this Agreement of any dispute resolution procedure shall not prevent a party from terminating this Agreement in accordance with this Article VIII. C. On expiration or termination of this Agreement, IMS shall return to Customer all of Customer's Confidential Information, either in electronic or hard copy form, in IMS' possession and delete any electronic copies thereof related to the Insurance Administration Services provided by IMS during the term of this Agreement; Customer shall do the same and cause Customer's agents and representatives (including, but not limited to, any third party given access to the Confidential Information) to do the same relative to IMS' Confidential Information. Customer shall pay IMS (in accordance with SCHEDULE B then in effect) any and all Service Fees, Claim Administration Fees, Miscellaneous Fees and third party fees due IMS for Insurance Administration Services performed pursuant to this Agreement. IMS and Customer shall cooperate in any transition period during the wind-up of Insurance Administration Services provided Customer under this Agreement. If Customer requires assistance in converting Customer's data to a new format, or 6 requires assistance from IMS relative to Customer's transition to an alternative claim administration agreement, then IMS shall provide such services at the then current rates charged by IMS for the services specified in Section IV of SCHEDULE B. This obligations under this Paragraph (C) shall survive any termination of this Agreement. ARTICLE IX. WARRANTIES AND COVENANTS IMS covenants that IMS will comply in all material respects with the law of the state or states covered by this Agreement and with the rules and regulations of all regulatory authorities having jurisdiction over IMS' activities, and shall, whenever necessary, maintain at its own expense all required licenses to transact business in such states. IMS warrants to Customer that (a) IMS owns or otherwise has the right to use the Proprietary System used to perform the Insurance Administration Services, and the rights to such Proprietary System granted hereunder will not knowingly infringe upon a third party's copyright or patent rights; (b) IMS is duly authorized to transact the business of servicing insurance companies; and (c) the express warranties provided here and elsewhere in this Agreement are IMS' only warranties and no other warranty, express or implied, including any warranty of merchantability, fitness or fitness for a particular purpose, will apply to the provision of Insurance Administration Services under this Agreement. ARTICLE X. LIABILITY, LIMIT OF LIABILITY, INDEMNITIES AND REMEDIES A. The parties shall assume the following obligations and liabilities as specified below and subject to the limitations on liability set forth in Article X, (B) below: a) IMS shall indemnify, defend and hold harmless Customer, its officers, directors, employees and controlling persons from any liability, cost, loss, fine, penalty, claim, demand, damage or expense, including reasonable attorneys' fees, incurred solely and directly as a result of any material breach of IMS' obligations under this Agreement or the material breach of any representation or warranty made by IMS to Customer pursuant hereto; b) Customer shall indemnify, defend and hold harmless IMS, its officers, directors, employees and controlling persons for any liability, cost, loss, fine, penalty, claim, demand, damage or expense, including reasonable attorney's fees, incurred solely and directly as a result of (i) any material breach of Customer's obligations under this Agreement, or (ii) the material breach of any representation or warranty made by Customer to IMS pursuant hereto; c) Customer agrees that in the event IMS is in violation of any code, statute or law(s) due to the acts or omissions of Customer, or the servants, employees, representatives, adjusters, or Agents of Customer, then Customer shall assume the responsibility and liability for such acts or omissions and shall indemnify and hold IMS harmless for any such liability; d) Customer agrees that in the event IMS is in violation of any code, statute or law(s) while acting pursuant to the direction or at the request of the Customer, or the servants, employees, representatives, adjusters, or Agents of Customer, then Customer shall assume the responsibility and liability for such acts or omissions and shall indemnify and hold IMS harmless for any such liability; B. Except for: (i) fees and expenses payable to IMS under Article VI of this Agreement, (ii) acts of fraud, or willful misconduct; and (iii) violations of Article VII of this Agreement, each party's maximum liability ("Maximum Liability") to the other party for any cause whatsoever, during any one calendar year shall be limited to direct damages incurred by that party and shall not exceed the amount of compensation paid by the Customer under SCHEDULE B of this Agreement for the six (6) 7 months immediately preceding the breach or cause of liability. Further, IMS shall not be liable for any lost profits, business goodwill, or other consequential, punitive, special or incidental damages incurred by Customer. C. If data is processed in error due directly to an error of defect in the Insurance Administration Services provided by IMS, then upon IMS receiving notice of such error or defect, IMS shall reprocess such data without charge to Customer. D. All parties agree to promptly give the others notice upon being notified or becoming aware of any and all allegations or claims, which could give rise to a claim under this Article. ARTICLE XI. GENERAL AGREEMENTS A. This Agreement and all matters arising hereunder shall be governed by and determined in accordance with the laws of the State of Florida without giving affect to any choice of law provisions. B. The parties shall not be liable or deemed to be in default hereunder for any delay or failure in performance under this Agreement or interruption of the Insurance Administration Services resulting, directly or indirectly, from acts of God (including but not limited to weather catastrophes such as floods, hurricanes, tornadoes, windstorms, ice storms, blizzards and hail storms), civil or military authority, labor disputes, shortages of suitable parts, materials, labor or transportation or any similar cause beyond the reasonable control of the parties. C. 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 Customer: Cooperativa de Seguros Multiples de Puerto Rico 38 Nevarez Street, Corner of Americo Miranda Rio Piedras, Puerto Rico 00927-4608 Fax Number: (787) 759-9961 Attention: Jose M. Martinez, Vice President of Operations As to IMS: Insurance Management Solutions, Inc. 360 Central Avenue, 16th Floor St. Petersburg, FL 33701 Fax Number: (727) 803-2076 Attention: David Howard, President Notices sent by hand delivery shall be deemed effective on the date of actual hand delivery. Notices 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 fifth Business Day after being deposited into the post office. Notices sent by facsimile transmission shall be deemed to be effective on the day when sent if sent prior to 4:30 p.m. (the time being determined by the time zone of the recipient), otherwise they shall be deemed effective on the next Business Day. D. This Agreement, and the exhibits, schedules and appendices attached hereto, contain all of the prior oral and/or previously written agreements, representations, and arrangements between the parties hereto. There are no representations or warranties other than those set forth herein. No change or modification of this Agreement, including the exhibits, schedules and appendices hereto, shall be valid unless the same shall be in writing and signed by all of the parties hereto. All exhibits, schedules, appendices, addendum of any kind, or attachments to this Agreement shall be 8 made a part of this Agreement and shall be subject to all terms and conditions of this Agreement. E. 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. Article headings are intended for purposes of description only and shall not be used for purposes of interpretation of this Agreement. F. 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 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. G. If either party 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 attorneys' 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 attorneys' fees were incurred. H. Neither IMS nor Customer shall assign this Agreement or any of its rights hereunder without the prior written consent of the non-assigning party. I. The parties agree not to disclose the terms and conditions of this Agreement to any third party, except (i) as required in the normal conduct of Customer's business, or (ii) as required by law or regulation including, without limitation, any Federal securities law, or regulation. ARTICLE XII. DISPUTE RESOLUTION PROCEDURES A. The parties will attempt in good faith to promptly resolve any material dispute regarding this Agreement by negotiations between senior management ("Senior Management") of the parties. Senior Management of each party will meet within ten (10) calendar days of notice ("Notice of Dispute") by a party of the existence of a material dispute, at a mutually agreed time and place, to resolve the material dispute. Senior Management, who shall have the authority to settle the dispute, shall prepare and exchange memoranda stating the issues in the material dispute and their positions. If the material dispute is not resolved to the mutual satisfaction of the parties within seven (7) calendar days of the meeting of Senior Management, then the parties may attempt to resolve the controversy using mediation. B. If the matter has not been resolved pursuant to the aforesaid mediation procedure within thirty (30) calendar days of the issuance of a party of a Notice of Dispute, or if either party will not participate in mediation, then either party may initiate arbitration upon fifteen (15) calendar days written notice to the other party. Notwithstanding the foregoing, all deadlines specified above may be extended upon mutual written agreement of the parties. C. Except for the right of either party to apply to a court of competent jurisdiction for review of the award of arbitration, for a temporary restraining order, preliminary injunction or other equitable relief to preserve the status quo, or disputes relating to breach of the confidentiality, non-disclosure or trade secret provisions of this Agreement, all claims, disputes, controversies and other matters relating to breach of this Agreement, and which cannot be resolved by the parties shall be settled by arbitration in accordance with this Agreement. D. Notice requesting arbitration ("Arbitration Notice"), or any other notice made in connection therewith, shall be made in writing by one party and sent by certified mail, return receipt requested, 9 to the other party. The Arbitration Notice shall state in particular all issues to be resolved in the view of the complaining party, shall appoint the arbitrator selected by the complaining party and shall set a tentative date for the arbitration hearing, which date shall be no sooner than forty-five (45) calendar days and no later than ninety (90) calendar days from the date that the Arbitration Notice is mailed. Within twenty (20) calendar days of receipt of the complaining party's Arbitration Notice, the respondent shall notify the complaining party of the location for conducting arbitration and the name of its appointed arbitrator. When the two arbitrators have been appointed, they shall agree on a third independent arbitrator and shall appoint such person by written notice to the parties signed by both arbitrators within thirty (30) calendar days from the date of the appointment of the second arbitrator. If the two arbitrators fail to agree upon the appointment of an independent arbitrator at the end of thirty (30) calendar days following the appointment of the second arbitrator, then the independent arbitrator shall be appointed by the American Arbitration Association ("AAA"), or its successor, in accordance with its then prevailing commercial arbitration rules then in effect. The three (3) arbitrators shall constitute the arbitration board ("Board"). E. The members of the Board shall be active or retired (i) lawyers or professionals familiar with insurance and/or (ii) active or former officers or management employees of insurance and/or data processing firms and/or software development companies. The person selected by the two respective arbitrators appointed by the parties shall be the umpire or chief arbitrator and must be a licensed attorney. F. Arbitration shall be conducted in accordance with the Commercial Rules of the American Arbitration Associations ("AAA") then in effect except as modified herein. G. The parties agree that all then current employees of each with material relevant information will be voluntarily produced, at the employer's expense, for all proper discovery and arbitration hearings. H. The cost of the arbitration relative to the arbitrator and the AAA ("Costs") shall be borne equally pending the arbitrators' award. Each party shall bear its own expenses for attorneys' fees. The prevailing party in any arbitration proceeding hereunder shall be entitled, in addition to such other relief as may be granted, to recover the portion of the Costs incurred by that party in connection with arbitration under the Agreement prior to the award. I. The parties agree that the Board shall be required to render its decision in writing within thirty (30) calendar days of the conclusion of the arbitration proceedings, unless such time shall be extended by mutual written agreement of the parties. J. With respect to any matter brought before the Board, the Board shall make a decision having regard to the intentions of the parties, the terms of this Agreement, and custom and usage of the insurance and data processing industry. Such decisions shall be in writing and shall state the findings of fact and conclusions of law upon which the decision is based, provided that such decision may not (i) award consequential, punitive, special, incidental or exemplary damages, or (ii) include a suspension of this Agreement or any provisions hereof. The decision shall be based exclusively upon the evidence presented by the parties at a hearing in which evidence shall be allowed. Said decisions may be reviewable and vacated, modified or corrected, in whole or in part, by appropriate courts of competent jurisdiction for clear abuses of discretion or errors at law by the Board. If the decision is not vacated, modified, or corrected in whole or in part upon an appeal, such decision shall be final and binding upon all parties to the proceeding and may be entered by either party in any court having competent jurisdiction. (The remainder of this page is intentionally left blank.) 10 SCHEDULES: SCHEDULE "A"- AUTHORIZED STATES AND INSURANCE PROGRAM SCHEDULE "B"- FEE SCHEDULE EXHIBITS: EXHIBIT 1- SPECIAL INVESTIGATION UNIT SERVICES 12 SCHEDULE A ---------- AUTHORIZED STATES AND INSURANCE PROGRAM --------------------------------------- IMS shall provide Insurance Administration Services as described in EXHIBIT I for the following authorized line(s) of business ("Authorized Line of Business") in the following authorized state(s) ("Authorized States"): 1. AUTHORIZED LINE OF BUSINESS: Private Passenger Auto, Private Passenger Auto Physical Damage, and Homeowners Multiperil. 2. AUTHORIZED STATES: The State of Florida and such other states as may be mutually agreed upon in writing by Customer and IMS. 13 SCHEDULE B FEE SCHEDULE [*] * Indicates that material has been omitted and confidential treatment has been requested therefor. All such omitted material has been filed separately with the SEC pursuant to Rule 24b-2. 14 EXHIBIT I --------- SPECIAL INVESTIGATION UNIT SERVICES ----------------------------------- Where indications of insurance fraud or misrepresentation are present, Customer's claim shall be referred to IMS' Special Investigation Unit ("SIU"). Fraud indicators will be based on those provided by the National Insurance Crime Bureau ("NICB") and others deemed appropriate by Customer and IMS. All referrals will be made from Customer's primary adjuster by way of facsimile, telephone, e-mail or written notice to IMS' SIU. Upon receipt of a claim referral to SIU, an SIU claim associate will be assigned to the referral and the claim file will be assigned to an experienced licensed claims adjuster (listed as a SIU designate with the Florida Department of Insurance Division of Insurance Fraud) to conduct the appropriate SIU investigation. The IMS adjuster will make 24-hour contact with Customer's primary claim handler providing an initial SIU analysis and investigation plan. The SIU associate will then begin the SIU investigation. All SIU referrals will be indexed and a public records background check will be completed with 48 hours of claim file referral to IMS. Any official incident report (police, fire, etc.) will be ordered within this time if the primary adjuster for Customer has not already done so. When deemed necessary by IMS, recorded statements/written statements of the claimant will be requested within 72 hours of the initial claim referral. Additional statements may be obtained during the course of the investigation as warranted by IMS. When deemed reasonably necessary by either IMS or Customer, a scene investigation will be completed (the same will apply to neighborhood/witness canvass). Photographs will be obtained when it is felt that they will reasonably benefit the investigation. When IMS feels an "examination under oath" (EUO) would enhance the investigation; a recommendation would be made to Customer to move forward with the scheduling of the EUO. IMS and Customer agree that the law firm of Carlton, Fields, P.A. shall be utilized for any necessary EUO. Customer shall designate IMS' SIU associates to be authorized representatives to Customer with ISO for access to ISO ClaimSearch on behalf of Customer. Appropriate notification to the applicable law enforcement agency or agencies, including the Florida Department of Insurance Division of Insurance Fraud, will be made at a point in the investigation where, in IMS reasonable discretion, findings warrant such referral. During the term of the Agreement and at no additional cost to Customer, IMS will provide "fraud awareness" training to Customer's primary adjusting staff. This training can be provided at a time or location mutually agreed upon by Customer and IMS. In accordance with the Agreement, all of Customer's claims files shall be subject to audit at the reasonable discretion of Customer, not to exceed one (1) audit per calendar quarter. This audit may be conducted independently by Customer or in concert with IMS. Additional audits may take place at time and under conditions mutually agreed upon by the parties, however, cost for additional audits will be borne solely by Customer. At the conclusion of any SIU investigation, IMS will make final claims handling recommendation to Customer. The recommendation will be forwarded to Customer's primary claim adjuster in writing. 15 IN WITNESS WHEREOF, the parties hereto by their respective duly authorized representatives have executed this Agreement to be effective as of the 1st day of September, 2001. - -------------------------------------------------------------------------------- "IMS" INSURANCE MANAGEMENT SOLUTIONS, INC. - -------------------------------------------------------------------------------- By: /s/ David M. Howard ------------------------- As its: Pres/CEO --------------------- Date: 7/17/01 ----------------------- - -------------------------------------------------------------------------------- "CUSTOMER" COOPERATIVA DE SEGUROS MULTIPLES DE PUERTO RICO By: Jose M. Martinez ------------------------- As its: Vice President of Operations --------------------- Date: 7/13/01 ----------------------- - -------------------------------------------------------------------------------- 12 EX-10.75 12 g75105aex10-75.txt 1/1/01 RUNOFF CLAIM ADMINISTRATION AGREEMENT EXHIBIT 10.75 RUNOFF CLAIM ADMINISTRATION SERVICES AGREEMENT ______________________________________________ THIS RUNOFF CLAIM ADMINISTRATION SERVICES AGREEMENT ("Agreement") is made and effective as of the 1st day of January, 2001 ("Effective Date"), by and between INSURANCE MANAGEMENT SOLUTIONS, INC. ("IMS"), a corporation organized and existing under the laws of the State of Florida with its principal place of business located at 360 Central Avenue, St. Petersburg, Florida 33701, and INSTANT INSURANCE HOLDINGS, INC. ("Instant"), a corporation organized and existing under the laws of the State of Delaware with its principal place of business located at 8113 Ridgepoint Drive, Suite 214, Irving Texas, 75063, and its designated or wholly owned subsidiaries, collectively, INSTANT AUTO INSURANCE COMPANY ("Instant Auto"), a corporation organized and existing under the laws of the State of Missouri with its principal place of business located at 8113 Ridgepoint Drive, Suite 214, Irving, Texas 75063. Where used in this Agreement, the term "Customer" shall include within its meaning both Instant and Instant Auto. WHEREAS, Customer wishes to engage the services of IMS to administer certain of the Customer's runoff claim administration obligations for the lines of business ("Authorized Lines of Business") in the state(s) ("Authorized States") set forth in SCHEDULE A; and WHEREAS, IMS wishes to provide such runoff claim administration services as set forth herein. NOW THEREFORE, IN CONSIDERATION OF the mutual covenants and agreements hereinafter set forth, and intending to be legally bound hereby, the parties hereto do covenant and agree as follows: ARTICLE I. DEFINITIONS Unless the context clearly requires otherwise, the following terms when used in this Agreement shall have the meanings set forth below: A. "Affiliate" is any company which controls, is controlled by, or under common control with a party, and "control" is defined as owning 50% or more of such entity. B. "Authorized Lines of Business" means the lines of business expressly set forth in SCHEDULE A of this Agreement. C. "Authorized States" means the states expressly set forth in SCHEDULE A of this Agreement. D. For purposes of legal notice only, "Business Day" means any day other than a Saturday, Sunday or other day which is a bank holiday or an IMS paid holiday (specifically, the following days shall be considered a "bank holiday" or an "IMS paid holiday": New Year's Day, Memorial Day, Independence Day, Thanksgiving Day, day after Thanksgiving, Christmas Eve (after 12 P.M. Eastern Standard Time) and Christmas Day). E. "Distribution Partner(s)" means the Customer's business partners which are authorized by Customer to transact business on Customer's behalf. 1 F. "Insurance Administration Services" means the runoff claim administration services set forth in this Agreement and EXHIBIT I hereto in the Authorized States in accordance with the terms of the Agreement, and all applicable laws and regulations. G. "Insurance Program" means the Customer's insurance products within the Authorized Lines of Business offered within the Authorized States. H. "Technical Information" means and shall include (without limitation) computer programs, databases, designs, algorithms, processes, structures, data formats, business methods, know how, and research and development information. I. "Change of Control" means (a) a sale, transfer or pledge, or the issuance to a new shareholder, of fifty (50%) percent or more of the voting stock of a party hereto to any third party that is not an affiliate of such party; or (b) a sale, transfer or pledge of a substantial portion of the material assets of a party, or any merger or consolidation of a party with another entity or entities. Both parties agree as respects this paragraph, that a change of control includes the above definitions when the sale or purchase is transacted with a company included within the portfolio of Customer's investment group or a distribution partner(s) of Customer. ARTICLE II. TERM The term of the Agreement shall commence on the Effective Date and shall terminate in accordance with Article VIII. ARTICLE III. RESPONSIBILITIES OF IMS A. IMS shall perform the Insurance Administration Services described in EXHIBIT I. B. IMS shall, based on accepted industry standards and in accordance with generally accepted insurance and accounting practices as designated by the appropriate state regulatory bodies, maintain complete and orderly records and policy and/or claims files as may be required as a result of IMS performing the Insurance Administration Services on behalf of Customer. These files shall be retained by IMS, in a format or media defined by IMS which shall be in compliance with applicable laws and regulations, for a minimum of five (5) years or the period specified by the applicable state and/or federal statutes regulating the preservation of records, whichever is longer, unless the Customer requests that its records be returned to it at its expense; provided, however, that IMS shall be entitled to retain copies thereof. It is specifically agreed and understood between the parties that all records referred to in this paragraph constitute sole and exclusive property of Customer, and shall be treated as such by IMS pursuant to the "Client Confidentiality" Section of IMS' Associate Manual. C. IMS and Customer acknowledge and agree that Customer bears all risk and has ultimate responsibility for the policies, and that Customer shall at all times have ultimate decision-making discretion with regard to all matters pertaining to the Insurance Program policies. Customer acknowledges and agrees that any handling instructions or direction from Customer to IMS shall be within the bounds of any and all applicable laws and regulations pertaining to the handling of such policies. ARTICLE IV. RESPONSIBILITIES OF CUSTOMER 2 A. During the term of this Agreement, Customer shall by mutual agreement with IMS provide to IMS, in a timely manner, any and all data, information and other items required to enable IMS to perform the Insurance Administration Services specified in EXHIBIT I of this Agreement. Customer shall also provide IMS with Customer's banking institution account information relating to the services being provided by IMS under this Agreement and corporate and subsidiary logos (if applicable). Customer represents and warrants to IMS that it owns and possesses all property rights to its corporate and subsidiary logos and hereby grants and warrants to IMS a limited, non-transferable, non-assignable, license to use Customer's corporate and subsidiary logos (and any other copyrighted or trademarked property of Customer that may be provided to IMS under this Agreement) while performing the Insurance Administration Services on behalf of Customer. Customer acknowledges and agrees that delays in delivery of required documentation, data and/or information by Customer will result in a similar delay in fulfilling Insurance Administration Services, and that such a delay in performing the Insurance Administration Services shall not be deemed a breach of the Agreement. B. CUSTOMER ACKNOWLEDGES AND AGREES THAT IMS ASSUMES NO INSURANCE RISK FOR THE BUSINESS PROCESSED UNDER THIS AGREEMENT. C. Customer shall designate manager level employees of sufficient status and binding decision making authority to act as liaisons with IMS and to facilitate Customer's role as IMS performs the Insurance Administration Services enumerated in EXHIBIT I of this Agreement. ARTICLE V. CUSTOMER ACCESS TO RECORDS/CONFIDENTIAL INFORMATION A. At Customer's expense, Customer will be permitted access (as set forth herein) to all IMS and Customer records and information (excluding, specifically, IMS' proprietary technical design information) reasonably necessary to: (i) audit the completeness and accuracy of the Insurance Administration Services provided under this Agreement and reports produced for Customer pursuant to this Agreement; (ii) verify the accuracy and validity of all billings and charges to Customer under this Agreement, including any travel and living expenses; and (iii) verify IMS' overall compliance with the terms of this Agreement and applicable laws and regulations. IMS will maintain a log of all system issues which affect IMS' ability to perform the terms of this Agreement. Customer will bear the cost of access to the above records, including the costs of travel, personnel, computer hardware and software, and data line charges. Notwithstanding the foregoing, IMS shall reimburse Customer for all reasonable audit expenses incurred by Customer in performing an audit under this Article if Customer's audit verifies that the total billings and charges to Customer under the Agreement were overstated by more than 10%. Access to the above records, for the foregoing purposes, will be provided during normal business hours upon five (5) Business Days prior written notice to IMS by Customer for so long as IMS is required to maintain such records under this Agreement; except in case of regulatory inquiry, in which case access will be granted within twenty four (24) hours of written notice to IMS. At Customer's expense, Customer will be permitted to copy (using a copy service of Customer's choice) those IMS records subject to audit in accordance with this Article. Upon five (5) days written request by Customer, and at Customer's expense (based on IMS' actual expense), IMS will promptly mail or fax to Customer supporting documentation concerning any specific transaction processed by IMS under the terms of this Agreement. 3 IMS will provide adequate workspace as mutually agreed upon between Customer and IMS for Customer to conduct audits in accordance with this Article. Further, Customer or its representatives shall take reasonable precautions, when conducting audits under this Article, not to materially disrupt IMS' ongoing business activities. IMS shall provide Customer with workspace, resources (both physical and human) and amenities necessary to enable Customer to conduct the audit. Any additional costs incurred by IMS in providing the human resources and amenities pursuant to this paragraph shall be borne by Customer. B. The recipient ("Recipient") of confidential data and/or information pursuant to this Agreement shall maintain the confidentiality of all data and/or information which is the property of the other party ("Disclosing Party"), whether originally supplied by the Disclosing Party, or whether generated by the Disclosing Party in the course of performing or facilitating the Insurance Administration Services under this Agreement and which is directly accessible to the Recipient or is in the possession of Recipient in the implementation, facilitation and/or performance of the Insurance Administration Services. During the term of this Agreement, Recipient may acquire, know, or have within its possession, information (including, but not limited to, Technical Information) and/or data of the Disclosing Party concerning commercial and trade affairs, rating and underwriting rules and guidelines, the identity of clients, the identity of insureds and beneficiaries, claims, benefits, rates and agents, financial information, Proprietary System (as defined at Article VII (A) herein), and business practices of the Disclosing Party ("Confidential Information"). Confidential Information which is provided in tangible form must be clearly marked "Confidential", "Proprietary" or the substantial equivalent thereof, or if orally disclosed must be clearly identified as "Confidential" or "Proprietary" at the time of the disclosure (except for IMS' Technical Information, Customer's underwriting rules and guidelines, the identity of Customer's clients, the identity of Customer's insureds and beneficiaries, claims, benefits, rates and agents, and, the following documents provided by Customer to IMS prior to the Effective Date of this Agreement: all Flex Bill documentation (including Customer's policy packs, presentation, matrices, billing guides, 'The eCoverage Report', discount flow charts, network diagrams, call reason code documentation, initial data mapping with Amis, sample hierarchy reports, initial web flow, point of sale specifications, and initial tiered rating spreadsheet) which will be deemed "Confidential Information" under this Agreement, regardless of whether marked as such). Except as required by law, Recipient shall keep Disclosing Party's Confidential Information confidential and shall only use the Confidential Information in performing or facilitating the Insurance Administration Services under this Agreement. Recipient shall not disclose the Confidential Information without Disclosing Party's prior written permission except to Recipient's employees who require the information to perform or facilitate the Insurance Administration Services under this Agreement. Each party hereto, as a Recipient, warrants to the other that appropriate measures shall be taken by Recipient to safeguard the confidentiality of the Confidential Information, with a level of care at least equal to the level of care with which Recipient safeguards its own confidential or proprietary information. All employees, agents or representatives of Recipient and any third parties who are given access to the Confidential Information shall be under written obligation to Recipient to maintain such information in confidence. IMS and Customer agree that Recipient shall have no obligation with respect to any information or data which: a) is already rightfully known to Recipient through means other than Disclosing Party; or b) is or becomes publicly known through no wrongful act of Recipient; or 4 c) is rightfully obtained by Recipient from a third-party without similar restriction and without breach of this Agreement; or d) is independently developed by Recipient without breach of this Agreement. Disclosing Party shall retain title to all Confidential Information (whether tangible or intangible) delivered thereby pursuant to this Agreement. Recipient shall not copy, reproduce or use any Confidential Information without written authorization of Disclosing Party, except as may be required to accomplish the Insurance Administration Services under this Agreement. Recipient shall promptly return or destroy, on written request of Disclosing Party, all tangible copies containing Confidential Information, except those copies kept in the regular course of business, or that are required to be kept pursuant to any state or federal administrative, regulatory or statutory mandates. C. For purposes of this Article V, Recipient and Disclosing Party shall include within their meaning all respective subsidiaries, distribution partners, agents, representatives, affiliates or fronting companies of the Recipient and Disclosing Party. D. The obligations of Customer and IMS under this Article V shall continue and remain in effect after termination of this Agreement. This Article shall not prevent the disclosure of Confidential Information to the extent legally required by any court or regulatory entity having jurisdiction over the parties. ARTICLE VI. EXPENSES AND FEES A. In consideration of IMS providing Insurance Administration Services as described herein, Customer shall pay IMS fees and expenses as specified in SCHEDULE B. However, in the event that a vendor supplying a service or product to IMS, which service or product is used by IMS to provide the Insurance Administration Services to Customer, increases its rates charged to IMS, or there is an increase in a statutory, regulatory or judicial cost, IMS may increase the Service Fee and Miscellaneous Fees set forth herein by no more than the amount of such increased costs and will provide Customer with documentation verifying the increase. B. Customer shall pay for services including but not limited to third party information service fees and data communication line charges, for which Customer shall pay directly. C. Customer shall reimburse IMS for actual travel, living and out-of-pocket expenses incurred by IMS personnel, provided such expenses are approved in writing by Customer. Customer shall not pay IMS for IMS' travel time. D. Customer agrees to pay any and all tariffs and taxes that are now or may become applicable to the Insurance Administration Services rendered hereunder, including, but not limited to, sales, use, and personal property taxes, or any other form of tax based on Insurance Administration Services performed, equipment used by IMS solely for Customer, and the communicating of storage of data used by IMS solely for Customer, but excluding taxes on the net income of IMS. E. Subject to the terms of this Agreement, all fees and expenses to be payable by Customer to IMS or any third party (such as sub-contractors IMS may hire on behalf of or at the direction of Customer) under this Agreement shall be paid within thirty (30) calendar days after Customer's receipt of IMS' monthly statement for the Insurance Administration Services, miscellaneous services or third-party services provided to Customer under this Agreement. IMS will calculate 5 fees owed to IMS by Customer and will send a statement to Customer within two (2) weeks of the last day of the month for which fees are owed. If Customer disputes any amount listed on a monthly statement, then Customer shall timely pay any undisputed amount and the parties will exercise best efforts to resolve any issue as to a disputed amount within five (5) Business Days of Customer's receipt of the monthly statement. Customer's failure to pay all fees and expenses when due shall be considered a material breach of this Agreement. IMS shall notify Customer of any such breach within thirty (30) days of the breach. F. If costs arise during the term of this Agreement that were not anticipated by the parties at the time this Agreement was executed, then payment of such costs will be resolved as follows: (a) if the work or reason giving rise to the unanticipated cost is only for Customer's benefit, then Customer will pay such costs, or (b) IMS will pay such costs. Such resolution for unanticipated costs or costs or fees in dispute will be by mutual agreement between IMS and Customer. Any such unresolved dispute will be subject to the terms of Article XI. ARTICLE VII. LICENSE, TRADE SECRET AND PROPRIETARY RIGHTS A. IMS from time to time may use its own proprietary computer software products and account servicing methods and procedures ("Proprietary System"), which may be identified, described or referenced in EXHIBIT I hereto. During any term of this Agreement, IMS grants a personal, non-transferable, non-assignable, non-exclusive license with the restrictions set forth below to Customer and its appointed insurance sales agents, representatives, or distribution partners to use portions of the Proprietary System as necessary for IMS to perform the Insurance Administration Services to be performed by IMS under this Agreement. B. Other than the limited rights to use the Proprietary System, this Agreement grants to Customer no right to possess or reproduce, the Proprietary System or its specifications in any tangible or intangible medium. Customer may not mortgage, hypothecate, sell, assign, pledge, lease, transfer, license, sublicense, reverse engineer, modify, make derivative works of, or obtain any other interest in the Proprietary System, nor allow any person, firm, entity or corporation to transmit, copy, reproduce, download, reverse engineer, modify, make derivative works of, or obtain any other interest in the Proprietary System or its specifications in whole or in part. Customer shall not permit third parties to benefit from the use or functionality of the Proprietary system via time-sharing, service bureau, facilities management, or other similar arrangement. In the event Customer shall come into possession of any source or object code associated with the Proprietary System, Customer shall immediately notify IMS and return the source or object code associated with Proprietary System in its possession and all copies of any kind thereof to IMS. C. Customer covenants and agrees not to disclose or otherwise make the Proprietary System available to any person other than employees, distribution partners, insurance sales agents or representatives of the Customer required to have access or use of the Proprietary System to facilitate IMS' or Customer's performance under this Agreement. Customer agrees to obligate each such employee, appointed insurance sales agent, distribution partner or representative to a level of care sufficient to protect the Proprietary System from unauthorized disclosure or reverse engineering. D. IMS will notify Customer in writing at least five (5) days prior to the implementation of any and all modifications IMS proposes to make to the IMS Proprietary System that may affect Customer's business and IMS' performance the Insurance Administration Services under this Agreement 6 E. The obligations of the parties under this Article shall continue and remain in effect after this Agreement is terminated for any reason. ARTICLE VIII. TERMINATION A. This Agreement shall terminate: a) at the election of either party, with or without cause, by giving the other party at least thirty (30) days prior written notice of such termination; b) at the election of IMS upon fifteen (15) days written notice if Customer fails to pay any and all fees and expenses due under Article VI of this Agreement; c) at the election of the Customer, upon written notice to IMS, if IMS becomes insolvent, if it makes an assignment for the benefit of its creditors, if a petition for relief under the Bankruptcy Act is filed by or against it and it is not dismissed within thirty (30) days of being filed, or if a trustee, receiver or other custodian of its assets is appointed; d) at the election of IMS, upon written notice to Customer, if Customer becomes insolvent, if it makes an assignment for the benefit of its creditors, if a petition for relief under the Bankruptcy Act is filed by or against it and it is not dismissed within thirty (30) days of being filed, or if a trustee, receiver or other custodian of its assets is appointed; including, but not limited to, any proceeding pursuant to any state or federal action governing insurer insolvency; e) at the election of the Customer, if IMS materially breaches any provision of this Agreement and fails to cure such breach within thirty (30) days after written notice thereof is given to IMS by the Customer; f) at the election of IMS, if Customer materially breaches any provision of this Agreement and fails to cure such breach within thirty (30) days after written notice thereof is given to Customer by IMS; g) at the election of the Customer, upon written notice to IMS, in the event of a Change of Control of IMS, unless IMS has provided Customer not less than thirty (30) days advance written notice of the proposed Change of Control; and h) at the election of IMS, upon written notice to Customer, in the event of a Change of Control of Customer unless Customer has provided IMS not less than thirty (30) days advance written notice of the proposed Change of Control. C. The initiation under this Agreement of any dispute resolution procedure shall not prevent a party from terminating this Agreement in accordance with this Article. D. On expiration or termination of this Agreement, for any reason, IMS shall return to Customer all of Customer's information including its policy forms, manuals, instructional memos, procedural memos, reports, and any and all other customer information requested either in electronic or hard copy form, in IMS' possession and delete any electronic copies thereof related to the Insurance Administration Services provided by IMS during the term of this Agreement; and Customer shall 7 immediately accept possession of all of its claim files and shall immediately assume all responsibility and obligation for the performance of the Insurance Administration Services. Customer shall do the same and cause Customer's agents to do the same relative to the return of IMS' information. Customer shall pay IMS (in accordance with Schedule B then in effect) any and all Service Fees, Miscellaneous Fees and third party fees due IMS for Insurance Administration Services performed prior to the termination date of this Agreement. IMS and Customer shall cooperate in any transition period during the wind-up of Insurance Administration Services provided Customer under this Agreement. If Customer requires assistance in converting Customer's data to a new format, or requires assistance from IMS relative to Customer's transition to an alternative arrangement, then IMS shall provide such services at the then current rates charged by IMS for the services specified in Schedule B (except in the case where IMS is finally adjudicated by a court or Arbitration Board as being in material breach of this Agreement (and such breach is not timely cured) and Customer terminates this Agreement for such material breach, then IMS will provide such data conversion services at IMS' sole expense). This provision shall survive any termination of this Agreement. ARTICLE IX. A. The parties shall assume the following obligations and liabilities as specified below and subject to the limitations on liability set forth in paragraph B below: (a) IMS shall indemnify, defend and hold harmless Customer, its officers, directors, employees and controlling persons from any liability, cost, loss, fine, penalty, claim, demand, damage or expense, including reasonable attorneys' fees, incurred solely and directly as a result of any material breach of IMS' obligations under this Agreement or the material breach of any representation or warranty made by IMS to Customer pursuant hereto; (b) Customer shall indemnify, defend and hold harmless IMS, its officers, directors, employees and controlling persons from any liability, cost, loss, fine, penalty, claim, demand, damage or expense, including reasonable attorneys' fees, incurred solely and directly as a result of any material breach of Customer's obligations under this Agreement or the material breach of any representation or warranty made by Customer to IMS pursuant hereto; (c) Customer agrees to, and shall cause its affiliates, subsidiaries, agents and fronting companies, jointly and severally, to indemnify, defend and hold harmless IMS, its officers, directors, employees, agents, representatives, and controlled and controlling persons (collectively "IMS Indemnitees") from and against any and all liabilities, losses, damages, demands, claims, suits, actions, causes of action, proceedings, assessments, judgments, awards, penalties, settlements, fees, costs and/or expenses of any kind or nature whatsoever asserted against, resulting to, imposed upon or incurred by IMS or any of IMS' Affiliates, directly or indirectly, by reason of, arising out of, relating to or resulting from any agreement, obligation or relationship, contractual or otherwise, that Customer has or ever had with INSpire Insurance Solutions, Inc., or any of its affiliates or subsidiaries. B. Except for: (i) Service Fee and other amounts owed to IMS by Customer in consideration of IMS providing the Insurance Administration Services, miscellaneous services or third party services hereunder; (ii) acts of fraud, or willful misconduct; and (iii) violations of Article IV, VII and V 8 (B) of this Agreement, each party's maximum liability ("Maximum Liability") to the other party for any cause whatsoever, during any one calendar year (including, but not limited to, amounts payable to either party by the other for regulatory fines, settlements and penalties) shall be limited to direct damages incurred by that party. In no event shall IMS' or Customer's liability for breach of this Agreement or any of its provisions exceed the amount of compensation paid by Customer under Schedule B of this Agreement for the three months immediately preceding the breach. Neither party shall be liable for any lost profits, business goodwill, or other consequential, punitive, special or incidental damages incurred by the other. C. Notwithstanding the foregoing, if claim was paid by IMS that should not have been paid by IMS, as a result of a data processing error that was due to an error or defect in the Insurance Administration Services provided by IMS, then IMS shall assume liability for any such error and the liability shall not be subject to the provision of Article X (B). D. In the event of any IMS Proprietary System error or omission which materially affects IMS' ability to perform the Insurance Administration Services under this Agreement, IMS will correct same at no cost to Customer. E. All parties agree to promptly give the others notice upon being notified or becoming aware of any and all allegations or claims, which could give rise to a claim under this Article. ARTICLE X. GENERAL AGREEMENT A. This Agreement and all matters arising hereunder shall be governed by and determined in accordance with the laws of the State of Texas without giving effect to any choice of law provisions. B. The parties shall not be liable or deemed to be in default hereunder for any delay or failure in performance under this Agreement or interruption of the Insurance Administration Services resulting, directly or indirectly, from acts of God (including but not limited to weather catastrophes such as floods, hurricanes, tornadoes, windstorms, ice storms, blizzards and hail storms), civil or military authority, labor disputes, shortages of suitable parts, materials, labor or transportation or any similar cause beyond the reasonable control of the parties. IMS acknowledges that it has a detailed emergency recovery plan for interruption of the Insurance Administration Services and has contracted with an emergency "Hot Site". IMS shall follow its recovery plan that is designed to re-establish the Insurance Administration Services following a disaster causing an interruption thereof. IMS acknowledges that Customer is a Production Customer. Customer acknowledges that the Hot Site is only a temporary bridge and that there may be a diminution in the performance levels of the Insurance Administration Services until the main data center capabilities are re-established. IMS will maintain and update its recovery plan and will conduct annual testing of its recovery plan. C. Customer and IMS agree that, during the term of this Agreement and for a period of six (6) months following the termination of this Agreement, neither party will directly or indirectly induce any employee of the other to terminate his or her employment with the other party, nor will either party, without prior written consent of the other, offer employment to any employee of the other party or to former employees of the other party during the six (6) month period immediately following such employee's termination. This paragraph shall survive termination 9 of this Agreement. The provisions of this paragraph apply to each party's respective subsidiaries, agents, affiliates and other related entities. D. 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 Customer: Instant Insurance Holdings, Inc. 8113 Ridgepoint Drive, Suite 214 Irving, Texas 75063 Fax Number: 214-496-3633 Attention: President As to IMS: Insurance Management Solutions, Inc. 360 Central Avenue, 16th Floor St. Petersburg, FL 33701 Fax Number: (727) 823-6518 Attention: President Notices sent by hand delivery shall be deemed effective on the date of actual hand delivery. Notices 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 fifth Business Day after being deposited into the post office. Notices sent by facsimile transmission shall be deemed to be effective on the day when sent if sent prior to 4:30 p.m. (the time being determined by the time zone of the recipient), otherwise they shall be deemed effective on the next Business Day. E. This Agreement, and the exhibits, schedules and addenda attached hereto, supercedes all of the prior oral and/or previously written agreements, representations, and arrangements between the parties hereto. There are no representations or warranties other than those set forth herein. No change or modification of this Agreement, including the exhibits, schedules and addenda hereto, shall be valid unless the same shall be in writing and signed by all of the parties hereto. All schedules, addendum of any kind, or attachments to this Agreement shall be made a part of this Agreement and shall be subject to all terms and conditions of this Agreement. Articles V (B), VII, XI (C) shall survive any termination of this Agreement. F. 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. Article headings are intended for purposes of description only and shall not be used for purposes of interpretation of this Agreement. G. Should any part of this Agreement for any reason be declared invalid, such decision shall not affect the validity of any remaining portion, which remaining portion shall remain in full 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. H. If either party 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, 10 the prevailing party shall be entitled to recover all of its legal expenses, including reasonable attorneys' 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 attorneys' fees were incurred. I. Neither IMS nor Customer shall assign this Agreement or any of its rights hereunder without the prior written consent of the non-assigning party. J. The parties agree not to disclose the terms and conditions of this Agreement to any third party, except (i) as required in the normal conduct of Customer's business, or (ii) as required by law or regulation including, without limitation, any Federal securities law, or regulation. ARTICLE XI. DISPUTE RESOLUTION PROCEDURES A. The parties will attempt in good faith to promptly resolve any dispute arising under this Agreement by negotiations between senior management ("Senior Management") of the parties. Senior Management of each party will meet within ten (10) calendar days of notice ("Notice of Dispute") by a party of the existence of a dispute, at a mutually agreed time and place, to resolve the dispute. Senior Management, who shall have the authority to settle the dispute, shall prepare and exchange memoranda stating the issues in the material dispute and their positions. If the material dispute is not resolved to the mutual satisfaction of the parties within seven (7) calendar days of the meeting of Senior Management, then the parties may attempt to resolve the controversy using mediation. B. If the matter has not been resolved pursuant to the aforesaid mediation procedure within thirty (30) calendar days of the issuance of a party of a Notice of Dispute, or if either party will not participate in mediation, then either party may initiate arbitration upon fifteen (15) calendar days written notice to the other party. Notwithstanding the foregoing, all deadlines specified above may be extended upon mutual written agreement of the parties. C. Except for the right of either party to apply to a court of competent jurisdiction for review of the award of arbitration, for a temporary restraining order, preliminary injunction or other equitable relief to preserve the status quo, or disputes relating to breach of the confidentiality, non-disclosure or trade secret provisions of this Agreement, all claims, disputes, controversies and other matters relating to breach of this Agreement, and which cannot be resolved by the parties shall be settled by arbitration in accordance with this Agreement. D. Notice requesting arbitration ("Arbitration Notice"), or any other notice made in connection therewith, shall be made in writing by one party and sent by certified mail, return receipt requested, to the other party. The Arbitration Notice shall state in particular all issues to be resolved in the view of the complaining party, shall appoint the arbitrator selected by the complaining party and shall set a tentative date for the hearing, which date shall be no sooner than forty-five (45) calendar days and no later than ninety (90) calendar days from the date that the Arbitration Notice is mailed. Within twenty (20) calendar days of receipt of the complaining party's Arbitration Notice, the respondent shall notify the complaining party of the location for conducting arbitration and the name of its appointed arbitrator. When the two arbitrators have been appointed, they shall agree on a third independent arbitrator and shall appoint such person by written notice to the parties signed by both arbitrators within thirty (30) calendar days from the date of the appointment of the second arbitrator. If the two arbitrators fail to agree upon the appointment of an independent arbitrator at the end of thirty (30) calendar days following the 11 appointment of the second arbitrator, then the independent arbitrator shall be appointed by the American Arbitration Association ("AAA"), or its successor, in accordance with its then prevailing commercial arbitration rules then in effect. The three (3) arbitrators shall constitute the Arbitration Board ("Board"). E. The members of the Board shall be active or retired (i) lawyers or professionals familiar with insurance and/or (ii) active or former officers or management employees of insurance and/or data processing firms and/or software development companies. The person selected by the two respective arbitrators appointed by the parties shall be the umpire or chief arbitrator and must be a licensed attorney. F. Arbitration shall be conducted in accordance with the Commercial Rules of the American Arbitration Association ("AAA") then in effect except as modified herein. G. The parties agree that all then current employees of each with material relevant information will be voluntarily produced, at the employer's expense, for all proper discovery and arbitration hearings. H. The cost of the arbitration relative to the arbitrators and the AAA ("Costs") shall be borne equally pending the arbitrators' award. Each party shall bear its own expenses for attorneys' fees. The prevailing party in any arbitration proceeding hereunder shall be entitled, in addition to such other relief as may be granted, to recover the portion of the Costs incurred by that party in connection with arbitration under the Agreement prior to the award. I. The parties agree that the arbitrators shall be required to render their decision in writing within thirty (30) calendar days of the conclusion of the arbitration proceedings, unless such time shall be extended by mutual written agreement of the parties. J. With respect to any matter brought before the Board, the Board shall make a decision having regard to the intentions of the parties, the terms of this Agreement, and custom and usage of the insurance and data processing industry. Such decisions shall be in writing and shall state the findings of fact and conclusions of law upon which the decision is based, provided that such decision may not (i) award consequential, punitive, special, incidental or exemplary damages, or (ii) include a suspension of this Agreement or any provisions hereof. The decision shall be based exclusively upon the evidence presented by the parties at a hearing in which evidence shall be allowed. Said decisions may be reviewable and vacated, modified or corrected, in whole or in part, by appropriate courts of competent jurisdiction for clear abuses of discretion or errors at law by the Board. If the decision is not vacated, modified, or corrected in whole or in part upon an appeal, such decision shall be final and binding upon all parties to the proceeding and may be entered by either party in any court having competent jurisdiction. 12 IN WITNESS WHEREOF, the parties hereto by their respective duly authorized representatives have executed this Agreement to be effective as of the 1 day of January, 2001. "IMS": "Customer": INSURANCE MANAGEMENT SOLUTIONS, INC. INSTANT INSURANCE HOLDINGS, INC. By: /s/ D.M. Howard By: /s/ [Illegible signature] ---------------------------------- ------------------------------- As its: PRES/CEO As its: President/CEO ------------------------------ --------------------------- Date: 20 Feb 2001 Date: 2/22/01 -------------------------------- ----------------------------- 13 SCHEDULE A AUTHORIZED STATES and INSURANCE PROGRAM IMS shall provide Insurance Administration Services as described in EXHIBIT I for the following authorized line(s) of business ("Authorized Line of Business") in the following authorized state(s) ("Authorized States") for the following authorized companies ("Authorized Companies"): 1. AUTHORIZED LINE OF BUSINESS: PERSONAL AUTOMOBILE 2. AUTHORIZED STATES: COLORADO, ARIZONA, NEW MEXICO, INDIANA AND TEXAS 3. AUTHORIZED COMPANIES: INSTANT AUTO INSURANCE COMPANY 14 SCHEDULE B FEE SCHEDULE [*] Indicates that material has been omitted and confidential treatment has been requested therefor. All such omitted material has been filed separately with the SEC pursuant to Rule 24b-2. 15 Exhibit I CLAIM ADMINISTRATION SERVICES IMS will perform the following Claim Administration Services on Customer's behalf in compliance with applicable law, and subject to periodic review and audit thereof by Customer throughout the term of this Agreement: I. Claim Adjusting and Program Management IMS will: A. Administer claims in accordance with the terms and conditions of Customer's insurance policies, this Agreement, and applicable state insurance laws, rules, and regulations that pertain to claim handling. B. Provide appropriate staff to service Customer's business based upon expected claim volume. C. Conduct internal claim file audits and quarterly file reviews. D. Utilize IMS' claim handling best practices, and complete the IMS Claim Summary Sheet. E. Provide vendor management. II. Claim Adjusting Support IMS will: A. Utilize and manage external adjusters and appraisers, in field locations not staffed by IMS or customer. Decisions as to when to use external adjusters and appraisers will be made by IMS and will be based on each individual claim file and the need for external investigation in order to document the facts. B. Perform all services necessary to collect subrogation or salvage that may benefit Customer. C. Manage claim litigation through the use of external defense counsel and litigation management planning. D. Investigate insurance fraud indicators through the IMS Special Investigation Unit and conform with all filed and state specific fraud plans and any other statutory or regulatory requirements, as required by applicable law. E. Conduct and manage review of claim file medical records utilizing IMS' internal Medical Resource Unit on all applicable cases. F. Employ mechanized medical bill utilization review methods on a case-by-case basis. Customer requests the use of medical bill repricing based on International Classification of Diseases (ICD)-9 codes and Current Procedural Terminology (CPT) codes. ICD-9 Codes stands for International Classification of Diseases, 9th Revision. These codes appear on medical treatment bills and describe the diagnosis, symptoms, complaint, and condition or problem for which medical services are rendered. Current Procedural Terminology (CPT) Codes are used to report medical services and procedures performed by physicians. 16 Customer requests the use of CAPA-certified after-market parts, on a limited basis where form, fit and structural integrity has been validated. After-market parts will not be used for structural or safety-related components. Non-structural after-market parts, such as headlamps, batteries, or appearance items, will be used whenever and wherever applicable. Customer requests the application of betterment or depreciation to automobile estimates in all states. III. Claim Service Center IMS will: A. Handle and process initial loss reports received by Customer or Customer's prior vendor, only if the information submitted by Customer or Customer's prior vendor is sufficient to enter a claim into the IMS claim system. Sufficient information required to set up a claim on the AS 400 Claim System is insured name, policy number, address, telephone number, damaged property, and description of the accident. Sufficient information required to set up a claim on the AS 400 Claim System is insured name, policy number, address, telephone number, damaged property, and description of the accident. B. Provide claim adjusting core clerical support, which includes all mail processing, file control and industry reporting (e.g. index bureau, NICB, Fraud Bureau and provider of service), which includes routing, filing, sorting, photocopying claims files, delivering, printing, bar coding, faxing of claim material, mail indexing, mail matching, mail preparation, and sending mail. C. Maintain operating hours of 7:30 A.M. to 8:00 P.M. Eastern Standard Time (EST), Monday through Friday, excluding bank holidays for Florida State Banks or an IMS paid holiday (New Year's Day, Memorial Day, Independence Day, Thanksgiving Day, day after Thanksgiving, Christmas Eve (after 12:00 P.M. Eastern Standard Time) and Christmas Date). IMS will provide First Notice of Loss reporting services twenty-four (24) hours per day seven (7) days per week. IV. Claim System IMS will: A. Utilize an AS400 based claim system for claim documentation and processing. B. Provide Customer with remote claim system access to the AS400 (view only) as reasonably requested by Customer subject to the fees described in Schedule B. C. Provide Customer with sixty (60) days written notice of a proposed material change in or enhancement to the claim system in use on the Effective Date of this Agreement. Written notice to Customer will include details of the proposed material change or enhancement. V. Authority Levels IMS will establish claim reserves and make claim payments on behalf of Customer, for each coverage, up to the amounts specified in the table below ("Authority Table"). Where a claim reserve amount or claim payment amount will, in IMS' judgment, exceed the amounts listed in the Authority Table, IMS will request from Customer, in writing, an increase in the authority level amounts, and Customer will promptly respond, in writing, so that the claim reserve can be established or the claim payment made. 17 AUTHORITY TABLE*
Reserve Limit Payment Limit ---------------------------- ------------------------- Level Indemnity Expense Indemnity Expense - ------------------------ ---------- ----------- ----------- ---------- 1 (applies to Claim Adjuster Trainees) $5,000.00 $250.00 $2,500.00 $150.00 - ---------------------------------------------------------------------------------------------------- 2 (applies to Claim Adjusters) $10,000.00 $1,500.00 $7,500.00 $500.00 - ---------------------------------------------------------------------------------------------------- 3 (applies to Claim Adjusters) $25,000.00 $10,000.00 $15,000.00 $5,000.00 - ---------------------------------------------------------------------------------------------------- 4 (applies to Supervisors & Technical $50,000.00 $15,000.00 $35,000.00 $7,500.00 Advisors) - ----------------------------------------------------------------------------------------------------
*Customer may modify the authority levels listed in the Authority Table upon 30 days written notice to IMS. Any such modification may result in a change to the fees described in Schedule B. VI. Catastrophe Claims IMS will: A. Adjust Customer's claims which result from a weather catastrophe. B. Deploy catastrophe claim adjusters to a catastrophe-affected area where a single event results in 50 or more physical damage claims within a 20-mile radius. VII. Management Reporting IMS will: A. Provide Customer with monthly claim summary reports, the contents of which will be mutually agreed to in writing by Customer and IMS. B. Provide Customer with monthly productivity and severity detail and summary reports, the contents of which will be mutually agreed to by Customer and IMS in writing. C. Provide Customer with monthly subrogation and collection reports. D. Monthly reports will be provided to Customer on or before the third business day after the close of the month. Weekly reports will be provided to Customer on or before Tuesday of the following week. VIII. Claim Account A. IMS will maintain a daily register of checks drawn on the Claims Account for each loss payment and expense. IMS will also maintain a daily register, which register shall include, for each claim or claimant, the claim number, feature code, policy number, loss date, name of the payee, date and check number of the disbursement, and the amount and purpose of the payment. B. Any monies collected by IMS for salvage, subrogation, contribution or deductible reimbursement will be deposited by IMS in the Claims Account within one business day upon receipt by IMS thereof. IX. Accounting 18 A. IMS will issue checks related to claim handling, and provide one monthly bank account reconciliation, which includes balancing the check records back to the bank statement. B. IMS will provide no other accounting services, such as: - Annual statement support - Statistical reporting - Month-end processing - Month-end reporting 19 EX-10.76 13 g75105aex10-76.txt 3/1/01 INSURANCE ADMINISTRATION AGREEMENT EXHIBIT 10.76 INSURANCE ADMINISTRATION SERVICES AGREEMENT THIS INSURANCE ADMINISTRATION SERVICES AGREEMENT ("Agreement") is effective as of the 1st day of March, 2001 ("Effective Date"), by and between INSURANCE MANAGEMENT SOLUTIONS, INC. ("IMS"), a corporation organized and existing under the laws of the State of Florida with its principal place of business located at 360 Central Avenue, St. Petersburg, Florida 33701, and RESIDENCE MUTUAL INSURANCE COMPANY (herein referred to as "Customer") having their principal place of business at 525 Broadway, Santa Monica, California 90401. WHEREAS, Customer wishes to engage the services of IMS to administer certain of the Customer's obligations for the lines of business ("Authorized Lines of Business") in the state(s) ("Authorized States") set forth in SCHEDULE A; WHEREAS, IMS wishes to provide such insurance administration services as set forth herein. NOW THEREFORE, IN CONSIDERATION OF the mutual covenants and agreements hereinafter set forth, the parties hereto do covenant and agree as follows: ARTICLE I. DEFINITIONS Unless the context clearly requires otherwise, the following terms when used in this Agreement shall have the meanings set forth below: A. "Affiliate" is any company which controls, is controlled by, or under common control with, a party, and "control" is defined as owning 50% or more of such entity. B. "Authorized Lines of Business" means the lines of business expressly set forth in SCHEDULE A of this Agreement. C. "Authorized States" means the states expressly set forth in SCHEDULE A of this Agreement. D. "Business Day" means any day other than a Saturday, Sunday or other day which is a bank holiday for Florida State banks or an IMS paid holiday (New Year's Day, Memorial Day, Independence Day, Thanksgiving Day, day after Thanksgiving, Christmas Eve (after 12 P.M. Eastern Standard Time) and Christmas Day). E. "Change of Control" means (a) a sale, transfer or pledge, or the issuance to a new shareholder, of fifty (50%) percent or more of the voting stock of a party hereto to any third party that is not an Affiliate of such party; or (b) a sale, transfer or pledge of a substantial portion of the material assets of a party, or any merger or consolidation of a party with another entity or entities. F. "Insurance Administration Services" means the services set forth in this Agreement and EXHIBIT I hereto in the Authorized States in accordance with the terms of the Agreement, and all applicable laws and regulations. G. "Insurance Program" means the Customer's insurance products within the Authorized Line(s) of Business to be offered within the Authorized States. H. "Technical Information" means and shall include (without limitation) computer programs, databases, designs, algorithms, processes, structures, data formats, business methods, know how, and research and development information. ARTICLE II. TERM The term of the Agreement shall commence on the Effective Date and shall have a minimum operating term ("Minimum Operating Term") of Twenty-four (24) full calendar months following the Effective Date. However, the term of this Agreement shall automatically extend for an additional operating term ("Extended Operating Term") of twelve (12) calendar months at the end of the Minimum Operating Term, or at the end of any Extended Operating Term, unless terminated earlier pursuant to the termination provisions within Article VIII. ARTICLE III. RESPONSIBILITIES OF IMS A. IMS shall dedicate the human, equipment and computer resources commercially reasonably required to provide Customer with the Insurance Administration Services, during the term of this Agreement, for the Insurance Program within Authorized States specified in SCHEDULE A. B. IMS shall designate an employee ("Account Manager") of sufficient status and authority to act as liaison with Customer to facilitate IMS' performance of the Insurance Administration Services under this Agreement. The Account Manager shall provide written and/or oral communication of the status of administration of the Insurance Administration Services as agreed to by and between Account Manager and Customer. C. IMS shall, based on accepted industry standards and in accordance with generally accepted insurance and accounting practices as designated by the applicable regulatory bodies and the National Flood Insurance Program ("NFIP"), maintain complete and orderly records and policy and/or claims files as may be required as a result of IMS performing the Insurance Administration Services on behalf of Customer. These files shall be retained by IMS, in a format or media defined by IMS which shall be in compliance with applicable laws and regulations, for a minimum of four (4) years or the period specified by the applicable statutes regulating the preservation of records, unless the Customer requests that its records be returned to it at its expense at the expiration of the minimum four (4) year period; however, that IMS shall be entitled to retain copies thereof. ARTICLE IV. RESPONSIBILITIES OF CUSTOMER A. During the term of this Agreement, Customer shall provide to IMS, in a timely manner, any and all data, information and other items reasonably required to enable IMS to perform the Insurance Administration Services specified in EXHIBIT I of this Agreement. Customer represents and warrants to IMS that it owns and possesses all property rights to its corporate and subsidiary logos and hereby grants and warrants to IMS a limited, non-transferable, non-assignable, license to use Customer's corporate and subsidiary logos (and any other copyrighted or trademarked property of Customer that may be provided to IMS under this Agreement) while performing the Insurance Administration Services. Customer acknowledges and agrees that delays in delivery of required documentation, data and/or information by Customer will result in a similar delay in fulfilling Insurance Administration Services, and that such a delay in performing the Insurance Administration Services shall not be deemed a breach of the Agreement. B. CUSTOMER ACKNOWLEDGES AND AGREES THAT IMS ASSUMES NO INSURANCE RISK FOR THE BUSINESS PROCESSED UNDER THIS AGREEMENT. C. Customer shall designate manager level employee(s) of sufficient status and binding decision making authority to act as liaisons with IMS and to facilitate Customer's role as IMS performs the Insurance Administration Services specified in EXHIBIT I of this Agreement. ARTICLE V. CUSTOMER ACCESS TO RECORDS / CONFIDENTIAL INFORMATION A. At Customer's expense, Customer will be permitted reasonable access (as set forth herein) to all records and information maintained by IMS on behalf of Customer (excluding, specifically, proprietary Technical Information) reasonably necessary to: (i) audit the completeness and accuracy of the Insurance Administration Services provided under this Agreement and reports produced for Customer pursuant to this Agreement; (ii) verify the accuracy and validity of all billings and charges to Customer under this Agreement; and (iii) verify IMS' overall compliance with the material terms of this Agreement and applicable laws and regulations. Access to IMS' records, for the foregoing purposes, will be provided during normal business hours upon ten (10) Business Days prior written notice to IMS by Customer for so long as IMS is required to maintain such records under this Agreement; except in the case of regulatory inquiry, in which case access will be granted on any Business Day with twenty four (24) hours of prior written notice to IMS. At Customer's expense, Customer will be permitted to copy those IMS records subject to audit in accordance with this Article. Upon reasonable written request by Customer, and at Customer's expense, IMS will promptly mail or fax to Customer supporting documentation concerning any specific transaction processed by IMS under the terms of this Agreement. IMS will provide reasonably adequate workspace for Customer to conduct audits in accordance with this Article. Further, Customer or its representatives shall take precautions, when conducting audits under this Article, not to disrupt IMS' ongoing business activities. B. The recipient ("Recipient") of confidential data and/or information pursuant to this Agreement shall maintain the confidentiality of all data and/or information which is the property of the other party ("Disclosing Party"), whether originally supplied by the Disclosing Party, or whether generated by the Disclosing Party in the course of performing or facilitating the Insurance Administration Services under this Agreement and which is directly accessible to the Recipient or is in the possession of Recipient in the implementation, facilitation and/or performance of the Insurance Administration Services. During any term of this Agreement, Recipient may acquire, know, or have within its possession, information (including, but not limited to, Technical Information) and/or data of the Disclosing Party concerning commercial and trade affairs, rating and underwriting rules and guidelines, the identity of clients, the identity of insureds and beneficiaries, claims, benefits, rates and Agents, financial information, the Proprietary System (as defined at Article VII (A) herein), the Third Party Proprietary System (as defined in Article VII (B) herein) and business practices of the Disclosing Party ("Confidential Information"). Confidential Information which is provided in tangible form must be clearly marked "Confidential", "Proprietary" or the substantial equivalent thereof, or if orally disclosed must be clearly identified as "Confidential" or "Proprietary" at the time of the disclosure (except for IMS' Technical Information, the identity of Customer's clients, the identity of Customer's insureds and beneficiaries, claims, benefits, and Agents, which will be deemed "Confidential Information" under this Agreement, regardless of whether marked as such). Except as required by law, Recipient shall keep Disclosing Party's Confidential Information confidential and shall only use the Confidential Information in performing or facilitating the Insurance Administration Services under this Agreement. Recipient shall not disclose the Confidential Information without Disclosing Party's prior written permission except to Recipient's employees who require the information to perform or facilitate the Insurance Administration Services under this Agreement. Each party hereto, as a Recipient, warrants to the other that appropriate measures shall be taken by Recipient to safeguard the confidentiality of the Confidential Information, with a level of care at least equal to the level of care with which Recipient safeguards its own confidential or proprietary information. All employees, agents or representatives of Recipient and any third parties who are given access to the Confidential Information shall be under written obligation to Recipient to maintain such information in confidence. IMS and Customer agree that any Recipient shall have no obligation with respect to any information or data which: a) is already rightfully known to Recipient through means other than Disclosing Party; or b) is or becomes publicly known through no wrongful act of Recipient; or c) is rightfully obtained by Recipient from a third-party without similar restriction and without breach of this Agreement; or d) is independently developed by Recipient without breach of this Agreement. Disclosing Party shall retain title to all Confidential Information (whether tangible or intangible) delivered thereby pursuant to this Agreement. Recipient shall not copy, reproduce or use any Confidential Information without written authorization of Disclosing Party, except as may be reasonably required to accomplish the Insurance Administration Services under this Agreement. Upon written request of Disclosing Party Recipient shall promptly return, or destroy with specific written permission of the Disclosing Party, all tangible copies containing Confidential Information, except those copies kept in the regular course of business, or that are required to be kept pursuant to any state or federal administrative, regulatory or statutory mandates. The obligations under this Paragraph (B) shall survive the termination of this Agreement. Notwithstanding the foregoing, this Article shall not prevent the disclosure of Confidential Information to the extent legally required by any court or regulatory entity having jurisdiction over the parties. For purposes of Article V (B), Recipient and Disclosing Party shall include within their meaning all respective subsidiaries, agents, or Affiliates of the Recipient and Disclosing Party. ARTICLE VI. EXPENSES AND FEES A. In consideration of IMS providing Insurance Administration Services described herein, Customer shall pay IMS, as applicable, an implementation fee ("Implementation Fee"), miscellaneous fee ("Miscellaneous Fee"), servicing fee ("Service Fee") and claim administration fee ("Claim Administration Fee") for each Authorized Line of Business, as specified in SCHEDULE B. The performance by IMS of any service or function that is outside of the scope of the Insurance Administration Services shall require the payment by Customer of additional consideration (in addition to the Service Fees) as mutually agreed between IMS and Customer. B. Except for the Service Fee, which is based upon a percentage of the adjusted net written premium and the Claim Administration Fee, the Miscellaneous Fees specified in Section IV of SCHEDULE B hereto may be increased (up to a maximum of five percent (5%) per year from the prior year) effective as of each anniversary of the Effective Date by the percentage increase in the United States Consumer Price Index for all Urban Users (CPI-U) as reported by the United States Bureau of Labor Statistics for the most recently completed calendar year that IMS is performing services on behalf of the Customer. In the event that a vendor supplying a service or product to IMS, which service or product is used by IMS to provide the Insurance Administration Services to Customer, increases its rates charged to IMS, IMS may increase the Service Fees, Claim Administration Fees, and Miscellaneous Fees set forth in Schedule B to incorporate such increased costs and will provide Customer with documentation verifying the increase. C. Customer shall reimburse IMS for travel, living and out-of-pocket expenses incurred by IMS personnel in the performance of training relative to the Insurance Administration Services to be performed under this Agreement. D. Customer agrees to pay any and all tariffs and taxes that are now or may become applicable to the Insurance Administration Services rendered hereunder, including, but not limited to, sales, use, and personal property taxes, or any other form of tax based on Insurance Administration Services performed, equipment used by IMS solely for Customer, and the communicating or storage of data used by IMS solely for Customer, but excluding taxes on the net income of IMS. E. Subject to the terms of this Agreement, all fees and expenses to be payable by Customer to IMS or any third party under this Agreement shall be paid within thirty (30) calendar days after Customer's receipt of IMS' monthly statement for all services provided to Customer under this Agreement. IMS will calculate the fees owed to IMS by Customer and will send a statement to Customer within two (2) weeks of the last day of the month for which fees are owed. Customer's failure to pay all fees and expenses when due shall be considered a material breach of this Agreement. Further, if Customer fails to pay any fees and expenses due IMS as herein provided, Customer shall pay to IMS in addition to all sums otherwise due, interest which shall accrue at 1.5% per month on such delinquency from the date the fees or expenses became past due. Failure or forbearance to exercise any of its rights and privileges hereunder shall not constitute the forfeiture or waiver of such rights and privileges on the part of IMS. F. Prior to renewal of this Agreement for any Extended Operating Term, IMS may modify SCHEDULE B in its discretion to reflect any increase in the cost of providing the Insurance Administration Services (including, but not limited to statutory, regulatory, or judicial changes that require IMS to incur additional cost or expenses in performing the Insurance Administration Services) or to remain competitive with the rates currently being charged within the industry for like services. Any modification of SCHEDULE B shall be proposed to Customer at least six (6) months prior to the expiration of any term of this Agreement. ARTICLE VII. LICENSE, TRADE SECRET AND PROPRIETARY RIGHTS A. IMS from time to time may use its own proprietary computer software products and account servicing methods and procedures ("Proprietary System"), which are identified, described or referenced in EXHIBIT I hereto, in the performance of the Insurance Administration Services. During any term of this Agreement, IMS grants a personal, non-transferable, non-assignable, non-exclusive license to Customer to use portions of the Proprietary System as necessary for IMS to perform the Insurance Administration Services under this Agreement. Further, no provision within this Agreement shall be interpreted as prohibiting IMS from selling or licensing its Proprietary System to any other customer or prospective customer of IMS. B. IMS, from time to time, may also use proprietary third party computer software products and third party account servicing methods and procedures ("Third Party Proprietary System"), which are identified, described or referenced in EXHIBIT I hereto in the performance of the Insurance Administration Services. No provision within this Agreement shall be interpreted as prohibiting IMS or the Third Party Proprietary System vendor from selling or licensing the Third Party Proprietary System, or modifications and enhancements to the Third Party Proprietary System, to any other customer or prospective customer of IMS, so long as Customer's Confidential Information is not disclosed. C. Other than the limited rights to use the Proprietary System and the Third Party Proprietary System, as provided in Article VII (A) and (B) above, this Agreement grants to Customer no right to possess or reproduce, download, reverse engineer, or obtain any other interest in, the Proprietary System or the Third Party Proprietary System, or their specifications in any tangible or intangible medium. Customer may not mortgage, hypothecate, sell, assign, pledge, lease, transfer, license, or sublicense the Proprietary System or the Third Party Proprietary System, nor allow any person, firm, entity or corporation to transmit, copy, reproduce, download, reverse engineer, or obtain any other interest in the Proprietary System or the Third Party Proprietary System, or their specifications in whole or in part. In the event Customer shall come into possession of any source or object code associated with the Proprietary System or the Third Party Proprietary System, Customer shall immediately notify IMS and return the source or object code associated with Proprietary System or the Third Party Proprietary System in its possession and all copies of any kind thereof to IMS. D. Customer covenants and agrees not to close or otherwise make the Proprietary System or the Third Party Proprietary System available to any person other than employees, insurance sales agent ("Agents") or representatives of the Customer required to have access or use of the Proprietary System or the Third Party Proprietary System to facilitate IMS' or Customer's performance under this Agreement. Customer agrees to obligate each such employee, Agents, or representative to a level of care sufficient to protect the Proprietary System and the Third Party Proprietary System from unauthorized disclosure. E. The obligations of Customer under this Article shall survive termination of this Agreement, regardless of the reason for termination. ARTICLE VIII. TERMINATION A. Either party may terminate this Agreement at the end of the Minimum Operating Term or at the end of any Extended Operating Term, provided the terminating party gives the other party at least three (3) months prior written notice of such termination. B. This Agreement shall also terminate: a) at the election of the Customer, upon written notice to IMS, if IMS becomes insolvent, if it makes an assignment for the benefit of its creditors, if a petition for relief under the United States Bankruptcy Code is filed by or against it and it is not dismissed within thirty (30) days of being filed, or if a trustee, receiver or other custodian of its assets is appointed; b) at the election of IMS, upon written notice to Customer, if Customer becomes insolvent, if it makes an assignment for the benefit of its creditors, if a petition for relief under the United States Bankruptcy Code is filed by or against it and it is not dismissed within thirty (30) days of being filed, or if a trustee, receiver or other custodian of its assets is appointed (including, but not limited to, any proceeding pursuant to any state or federal action governing insurer insolvency); c) at the election of the Customer, if IMS materially breaches any provision of this Agreement and fails to cure such breach within sixty (60) days after written notice thereof is given to IMS by the Customer; d) at the election of IMS, if Customer materially breaches any provision of tis Agreement and fails to cure such breach within sixty (60) days after written notice thereof is given to Customer by IMS (except for Customer's failure to pay any and all fees and expenses due under Article VI of this Agreement, in which case Customer must cure such breach within thirty (30) days after written notice thereof is given to Customer by IMS); e) at the election of IMS, upon written notice to Customer, in the event of a Change of Control of Customer unless (i) Customer has provided IMS not less than sixty (60) days advance written notice of the proposed Change of Control and (ii) IMS has agreed in writing to such Change of Control. The initiation under this Agreement of any dispute resolution procedure shall not prevent a party from terminating this Agreement in accordance with this Article VIII. C. On expiration or termination of this Agreement, IMS shall return to Customer all of Customer's Confidential Information, either in electronic or hard copy form, in IMS' possession and delete any electronic copies thereof related to the Insurance Administration Services provided by IMS during the term of this Agreement; Customer shall do the same and cause Customer's agents and representatives (including, but not limited to, any third party given access to the Confidential Information) to do the same relative to IMS' Confidential Information. Customer shall pay IMS (in accordance with SCHEDULE B then in effect) any and all Service Fees, Claim Administration Fees, Miscellaneous Fees and third party fees due IMS for Insurance Administration Services performed pursuant to this Agreement. IMS and Customer shall cooperate in any transition period during the wind-up of Insurance Administration Services provided Customer under this Agreement. If Customer requires assistance in converting Customer's data to a new format, or requires assistance from IMS relative to Customer's transition to an alternative claim administration arrangement, then IMS shall provide such services at the then current rates charged by IMS for the services specified in Section IV of SCHEDULE B. This obligations under this Paragraph (C) shall survive any termination of this Agreement. ARTICLE IX. WARRANTIES AND COVENANTS IMS covenants that IMS will comply in all material respects with the law of the state or states covered by this Agreement and with the rules and regulations of all regulatory authorities having jurisdiction over IMS' activities, and shall, whenever necessary, maintain at its own expense all required licenses to transact business in such states. IMS warrants to Customer that (a) IMS owns or otherwise has the right to use the Proprietary System used to perform the Insurance Administration Services, and the rights to such Proprietary System granted hereunder will not knowingly infringe upon a third party's copyright or patent rights; (b) IMS is duly authorized to transact the business of servicing insurance companies; and (c) the express warranties provided here and elsewhere in this Agreement are IMS' only warranties and no other warranty, express or implied, including any warranty or merchantability, fitness or fitness for a particular purpose, will apply to the provision of Insurance Administration Services under this Agreement. ARTICLE X. LIABILITY, LIMIT OF LIABILITY, INDEMNITIES AND REMEDIES A. The parties shall assume the following obligations and liabilities as specified below and subject to the limitations on liability set forth in Article X, (C) below: a) IMS shall indemnify, defend and hold harmless Customer, its officers, directors, employees and controlling persons from any liability, cost, loss, fine, penalty, claim, demand, damage or expense, including reasonable attorneys' fees, incurred solely and directly as a result of any material breach of IMS' obligations under this Agreement or the material breach of any representation or warranty made by IMS to Customer pursuant hereto: b) Customer shall indemnify, defend and hold harmless IMS, its officers, directors, employees and controlling persons from any liability, cost, loss, fine, penalty, claim, demand, damage or expense, including reasonable attorney's fees, incurred solely and directly as a result of (i) any material breach of Customer's obligations under this Agreement, or (ii) the material breach of any representation or warranty made by Customer to IMS pursuant hereto; c) Customer agrees that in the event IMS is in violation of any code, statute or law(s) due to the acts or omissions of Customer, or the servants, employees, representatives, adjusters, or Agents of Customer, then Customer shall assume the responsibility and liability for such acts or omissions and shall indemnify and hold IMS harmless for any such liability; B. Except for: (i) fees and expenses payable to IMS under Article VI of this Agreement; (ii) acts of fraud, or willful misconduct; (iii) violations of Article VII of this Agreement, and (iv) Customer's indemnification under Section D of this Article, each party's maximum liability ("Maximum Liability") to the other party for any cause whatsoever, during any one calendar year shall be limited to direct damages incurred by that party and shall not exceed the amount of compensation paid by the Customer under SCHEDULE B of this Agreement for the six (6) months immediately preceding the breach or cause of liability. Further, IMS shall not be liable for any lost profits, business goodwill, or other consequential, punitive, special or incidental damages incurred by Customer. C. If data is processed in error due directly to an error or defect in the Insurance Administration Services provided by IMS, then upon IMS receiving notice of such error or defect, IMS shall reprocess such data without charge to customer. D. Customer shall indemnify, defend and hold harmless IMS, its officers, directors, employees and controlling persons from any liability, cost, loss, fine, penalty, claim, demand, damage or expense, including reasonable attorney's fees, incurred solely and directly as a result of any actions taken, or any representations or decisions made with regard to claim handling which occurred on the Customer's behalf prior to the Effective Date of this Agreement. E. All parties agree to promptly give the others notice upon being notified or becoming aware of any and all allegations or claims, which could give rise to a claim under this Article. ARTICLE XI. GENERAL AGREEMENTS A. This Agreement and all matters arising hereunder shall be governed by and determined in accordance with the laws of the State of Florida without giving effect to any choice of law provisions. B. The parties shall not be liable or deemed to be in default hereunder for any delay or failure in performance under this Agreement or interruption of the Insurance Administration Services resulting, directly or indirectly, from acts of God (including but not limited to weather catastrophes such as floods, hurricanes, tornadoes, windstorms, ice storms, blizzards and hail storms), civil or military authority, labor disputes, shortages of suitable parts, materials, labor or transportation or any similar cause beyond the reasonable control of the parties. C. 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 Customer: Residence Mutual Insurance Company 525 Broadway Santa Monica, California 90401 Fax Number: (310) 395-8693 Attention: Principal Coordinator - NFIP As to IMS: Insurance Management Solutions, Inc. 360 Central Avenue, 16th Floor St. Petersburg, FL 33701 Fax Number: (727) 803-4093 Attention: President Notices sent by hand delivery shall be deemed effective on the date of actual hand delivery. Notices 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 fifth Business Day after being deposited into the post office. Notices sent by facsimile transmission shall be deemed to be effective on the day when sent if sent prior to 4:30 p.m. (the time being determined by the time zone of the recipient), otherwise they shall be deemed effective on the next Business Day. D. This Agreement, and the exhibits, schedules and appendices attached hereto, contain all of the prior oral and/or previously written agreements, representations, and arrangements between the parties hereto. There are no representations or warranties other than those set forth herein. No change or modification of this Agreement, including the exhibits, schedules and appendices hereto, shall be valid unless the same shall be in writing and signed by all of the parties hereto. All exhibits, schedules, appendices, addendum of any kind, or attachments to this Agreement shall be made a part of this Agreement and shall be subject to all terms and conditions of this Agreement. Articles V (B), VII, and VIII(c) shall survive any termination of this Agreement. E. 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. Article headings are intended for purposes of description only and shall not be used for purposes of interpretation of this Agreement. F. 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 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. G. If either party 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 attorneys' 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 attorneys' fees were incurred. H. Neither IMS nor Customer shall assign this Agreement or any of its rights hereunder without the prior written consent of the non-assigning party. I. The parties agree not to disclose the terms and conditions of this Agreement to any third party, except (i) as required in the normal conduct of Customer's business, or (ii) as required by law or regulation including, without limitation, any Federal securities law, or regulation. ARTICLE XII. DISPUTE RESOLUTION PROCEDURES A. The parties will attempt in good faith to promptly resolve any material dispute regarding this Agreement by negotiations between senior management ("Senior Management") of the parties. Senior Management of each party will meet within ten (10) calendar days of notice ("Notice of Dispute") by a party of the existence of a material dispute, at a mutually agreed time and place, to resolve the material dispute. Senior Management, who shall have the authority to settle the dispute, shall prepare and exchange memoranda stating the issues in the material dispute and their positions. If the material dispute is not resolved to the mutual satisfaction of the parties within seven (7) calendar days of the meeting of Senior Management, then the parties may attempt to resolve the controversy using mediation. B. If the matter has not been resolved pursuant to the aforesaid mediation procedure within thirty (30) calendar days of the issuance of a party of a Notice of Dispute, or if either party will not participate in mediation, then either party may initiate arbitration upon fifteen (15) calendar days written notice to the other party. Notwithstanding the foregoing, all deadlines specified above may be extended upon mutual written agreement of the parties. C. Except for the right of either party to apply to a court of competent jurisdiction for review of the award of arbitration, for a temporary restraining order, preliminary injunction or other equitable relief to preserve the status quo, or disputes relating to breach of the confidentiality, non-disclosure or trade secret provisions of this Agreement, all claims, disputes, controversies and other matters relating to breach of this Agreement, and which cannot be resolved by the parties shall be settled by arbitration in accordance with this Agreement. D. Notice requesting arbitration ("Arbitration Notice"), or any other notice made in connection therewith, shall be made in writing by one party and sent by certified mail, return receipt requested, to the other party. The Arbitration Notice shall state in particular all issues to be resolved in the view of the complaining party, shall appoint the arbitrator selected by the complaining party and shall set a tentative date for the arbitration hearing, which date shall be no sooner than forty-five (45) calendar days and no later than ninety (90) calendar days from the date that the Arbitration Notice is mailed. Within twenty (20) calendar days of receipt of the complaining party's Arbitration Notice, the respondent shall notify the complaining party of the location for conducting arbitration and the name of its appointed arbitrator. When the two arbitrators have been appointed, they shall agree on a third independent arbitrator and shall appoint such person by written notice to the parties signed by both arbitrators within thirty (30) calendar days from the date of the appointment of the second arbitrator. If the two arbitrators fail to agree upon the appointment of an independent arbitrator at the end of thirty (30) calendar days following the appointment of the second arbitrator, then the independent arbitrator shall be appointed by the American Arbitration Association ("AAA"), or its successor, in accordance with its then prevailing commercial arbitration rules then in effect. The three (3) arbitrators shall constitute the arbitration board ("Board"). E. The members of the Board shall be active or retired (i) lawyers or professionals familiar with insurance and/or (ii) active or former officers or management employees of insurance and/or data processing firms and/or software development companies. The person selected by the two respective arbitrators appointed by the parties shall be the umpire or chief arbitrator and must be a licensed attorney. F. Arbitration shall be conducted in accordance with the Commercial Rules of the American Arbitration Association ("AAA") then in effect except as modified herein. G. The parties agree that all then current employees of each with material relevant information will be voluntarily produced, at the employer's expense, for all proper discovery and arbitration hearings. H. The cost of the arbitration relative to the arbitrators and the AAA ("Costs") shall be borne equally pending the arbitrators' award. Each party shall bear its own expenses for attorneys' fees. The prevailing party in any arbitration proceeding hereunder shall be entitled, in addition to such other relief as may be granted, to recover the portion of the Costs incurred by that party in connection with arbitration under the Agreement prior to the award. I. The parties agree that the Board shall be required to render its decision in writing within thirty (30) calendar days of the conclusion of the arbitration proceedings, unless such time shall be extended by mutual written agreement of the parties. J. With respect to any matter brought before the Board, the Board shall make a decision having regard to the intentions of the parties, the terms of this Agreement, and custom and usage of the insurance and data processing industry. Such decisions shall be in writing and shall state the findings of fact and conclusions of law upon which the decision is based, provided that such decision may not (i) award consequential, punitive, special, incidental or exemplary damages, or (ii) include a suspension of this Agreement or any provisions hereof. The decision shall be based exclusively upon the evidence presented by the parties at a hearing in which evidence shall be allowed. Said decisions may be reviewable and vacated, modified or corrected, in whole or in part, by appropriate courts of competent jurisdiction for clear abuses of discretion or errors at law by the Board. If the decision is not vacated, modified, or corrected in whole or in part upon an appeal, such decision shall be final and binding upon all parties to the proceeding and may be entered by either party in any court having competent jurisdiction. (The remainder of this page is intentionally left blank.) IN WITNESS WHEREOF, the parties hereto by their respective duly authorized representatives have executed this Agreement to be effective as of the 1st day of March, 2001. "IMS" INSURANCE MANAGEMENT SOLUTIONS, INC. By: /s/ D.M. Howard ------------------------- As its: Pres/CEO --------------------- Date: 2/12/01 ----------------------- "CUSTOMER" "RESIDENCE MUTUAL INSURANCE COMPANY" By: /s/ [ILLEGIBLE] ------------------------- As its: Sr. V.P. & Secretary --------------------- Date: 2/7/01 ----------------------- SCHEDULES: SCHEDULE "A" - AUTHORIZED STATES AND INSURANCE PROGRAM SCHEDULE "B" - FEE SCHEDULE EXHIBITS: EXHIBIT 1 - WYO FLOOD INSURANCE SERVICES SCHEDULE A AUTHORIZED STATES AND INSURANCE PROGRAM IMS shall provide Insurance Administration Services as described in EXHIBIT I for the following authorized line(s) of business ("Authorized Line of Business") in the following authorized state(s) ("Authorized States"): 1. AUTHORIZED LINE OF BUSINESS: WYO Flood Insurance -------------------------------------------------------------------------- -------------------------------------------------------------------------- -------------------------------------------------------------------------- 2. AUTHORIZED STATES: RESIDENCE MUTUAL: CA, CO, NV SCHEDULE B FEE SCHEDULE [*] * Indicates that material has been omitted and confidential treatment has been requested therefor. All such omitted material has been filed separately with the SEC pursuant to Rule 24b-2. EXHIBIT I --------- INSURANCE ADMINISTRATION SERVICES (WYO FLOOD) --------------------------------------------- WHEREAS, The Federal Emergency Management Agency ("FEMA") and the Federal Insurance Administration ("FIA") administer the National Flood Insurance Program ("NFIP") and Customer is an insurance company duly licensed to write flood insurance in the state or states to which this Agreement pertains and is approved by FIA to act as a Write Your Own Company ("WYO Company") under the Write Your Own Flood Insurance Program ("WYO Flood Program"), a program offered under the NFIP; and WHEREAS, Customer wishes to engage the services of IMS to administer certain of the Customer's obligations as a WYO Company in the state(s) ("Authorized States") set forth in SCHEDULE A. 1) DEFINITIONS. Capitalized terms not otherwise defined in the Agreement or in this Exhibit shall be construed as otherwise generally understood in the insurance and data processing industry. 2) POLICY ADMINISTRATION. IMS shall administer Customer's WYO Flood Program policies ("WYO Policies") performing the services listed hereunder in accordance with the NFIP, as amended, and all implementing regulations as well as Customer's Write Your-Own Arrangement ("Arrangement") with FEMA. The same standards by which Customer is bound shall be those by which IMS is bound to Customer. a) Underwriting. - Review WYO Policy application for completeness/contact Agent as applicable; - Create WYO Policy file; - Underwriting based on NFIP guidelines. b) Data Entry. (subject to the Internet Use Milestones specified in Schedule B) - New WYO Policy business; - WYO Policy changes; - Mortgagee changes; - WYO Flood insurance Agent changes; - Endorsements; - Cancellations. c) WYO Policy Issuance. - WYO Policy for new business, renewals and endorsements where declaration page issuance is required; - WYO Policy Renewal processing; - WYO Policy automated rating; - WYO Policy print declarations and related WYO Policy forms. d) Billing & Collection. - Print invoices, reminders, cancellation notification, return WYO Policy premium disbursements; - Mortgage activity processing; - EFT processing; - Process cancellations for non-payment. e) Customer Service. - Provide a dedicated customer service support call center; - Respond to Customer's WYO Policyholder and WYO flood insurance sales Agent telephone inquires; - Process requests for WYO Policy changes; - Respond to correspondence related to WYO Policy and WYO Policy claim administration services; - Track and respond to complaints related to WYO Policy and/or WYO Policy claim administration services; IMS customer service hours of operation 8:00 a.m. to 8:00 p.m. Eastern Standard Time ("EST"). f) Bureau Reporting. - Process and balance WYO Policy premium and WYO Policy loss data; - Edit and correct invalid data; - Prepare and mail Bureau transmittals; - To the best of IMS knowledge, provide on-going regulatory changes; - Maintain WYO Policy history files. g) Accounting Administration/Premium. - Posting, balancing, and control of WYO Policy premium receivable; - Accounting and payment of Customer's WYO flood insurance Agents WYO Policy commissions; - Issuance, control and accounting for disbursements for WYO Policy premium refunds, WYO Policy commissions. g) Financial Accounting. - Issuance, control and accounting for disbursements for general expenses; - Day-to-day management of short term cash; - Provide reasonable and customary financial management reports. h) Treasury. - Receive and post WYO Policy payments; - Issuance, control and accounting for disbursements of WYO Policy premium related expenses; - Bank reconciliation of WYO Policy premium disbursements; - OCR WYO Policy payment processing; - Mortgagee billing. i) Agency Administration. - Agent of record assignment and control; - 1099 reporting; - Maintain WYO flood insurance Agent files. j) Print & Distribution Services. - Automated document library; - Electronic document assembly; - Electronic document archival/retrieval; - Automated finishing/insertion facility; - Mail pre-sort facility; - Mailing WYO Policy, WYO Policy billings and WYO Policy renewals (including postage and supplies); - Document Imaging. k) System Administration. - Availability of Proprietary System to Customer and Customer's WYO Policy claim vendor; - Process daily, weekly, monthly, and annual cycles; - Internet processing capabilities subject to Internet use limitations specified in Schedule B. - 3) CASH MANAGEMENT. a) Banking Arrangement. IMS and Customer shall establish a banking arrangement that complies with the Arrangement and other WYO Flood program requirements, and which will provide for the establishment of an NFIP restricted account ("Restricted Account") with Customer as custodian, and a FEMA letter of credit ("Letter of Credit"), with additional accounts as needed to facilitate WYO Flood Program operations, all in conformity with FEMA/FIA guidelines. Customer shall grant specific IMS' employees check-signing authority on any Restricted Account and the authority to initiate appropriate drawdowns against Customer's Letter of Credit, in order for IMS to act on Customer's behalf in making disbursements for Customer liabilities established by the Arrangement, the WYO Flood Program, and this Agreement. All such authorizations shall be in writing and may be revoked, amended or modified at any time by Customer upon thirty (30) days advanced written notice to IMS. Notwithstanding the foregoing, IMS shall not draw down on Letter of Credit for an amount that exceeds $50,000.00 without prior approval from the Chief Financial Officer of Customer, which approval shall not be unreasonably withheld and shall be given within 24 hours of the request being made by IMS. b) Premium Remittance - IMS shall establish procedures, as determined by FIA, for a timely deposit and remittance of funds to the U.S. Treasury via authorized automatic clearinghouse mechanism. Gross premium collected by IMS, for WYO Flood program business written under this Agreement, shall be remitted to the FIA by IMS net of the established NFIP Expense Allowance. ("Allowance"), which Allowance expenses to be paid under the Allowance include Carrier's operating and administrative expenses. c) Financial Data - IMS shall maintain supporting documentation for all bank accounts over which it has authority. On a monthly basis, IMS shall prepare financial data, reflecting all debits and credits with respect to WYO Flood Program business administered under this Agreement, including agents' commissions and IMS' Service Fees paid. d) WYO Flood Program Reimbursements - Any WYO Flood Program reimbursements made pursuant to the Arrangement, including, but not limited to, those for the unallocated loss adjustments expenses, the allocated loss adjustments, and for approved special allocated loss adjustments expenses, shall be payable to IMS upon receipt by Customer. e) Marketing Goals - Customer shall maintain responsibility for any risk, or shall be entitled to any reward, that may be associated with achieving or failing to achieve any marketing goal set by the FIA or FEMA. 4) CLAIM ADMINISTRATION. IMS shall provide Claims administration in accordance with the Arrangement, the Financial Control Plan and the Agreement, which claim administration processing services are outlined below. Any litigation costs not reimbursed by FEMA would be the responsibility of the Customer. IMS may also rely on the information and direction contained in the WYO Flood Program Claims Manual, the FEMA Adjuster Manual, the Flood Insurance Agent's Manual, the Standard Flood Insurance Policy, the WYO Operational Overview, and/or other WYO Flood Program instructional material. a) Claim Management Facilitation. - - Twenty-four (24) hour reporting capability, first notice of loss, coverage for verification and WYO Policy claim; - - Investigation of WYO Policy claim; - - Fast track unit; - - Reinspection and audit; - - Claims handling standards/best practices; - - Claim check issuance; - - Management reports; - - WYO Policyholder satisfaction surveys; - - Special Investigation Unit ("SIU") services; - - Salvage & subrogation claim processing; - - Litigation support. b) Catastrophe Preparation and Response. - - Preparedness by developing media reference guides and notices, adjuster workshops, and training manuals; provide storm tracking; reserve equipment and supplies; establish procedures; - - Response in case of a catastrophic event by establishing and staffing satellite service centers; automating the distribution of claims to adjusters; internal examinations/external reinspections; - - Recovery by providing management reports, audit/reinspection program, SIU and oversight operations. 5) ADJUSTING FIRM. IMS' Colonial Catastrophe Claims Service will be the authorized adjusting firm ("Adjusting Firm") for all claims adjusting work on behalf of Customer. However, Customer may designate a different Adjusting Firm with thirty (30) days written notice to IMS. 6) DISASTER RECOVERY PLAN. IMS shall perform its' full range Disaster Recovery Plan on an annual basis. Customer has the right to observe the Disaster Recovery Plan at its own expense, provided that it has requested in writing to participate within thirty (30) days of planned execution. 6) STATISTICAL REPORTING. IMS shall maintain Customer's data within IMS' policy, claims and general ledger systems. IMS shall prepare and submit to FIA, monthly financial and statistical reports, reconciliation reports, certifications, and statistical tapes on Customer's behalf, in accordance with WYO Flood Program Accounting Procedures and the Transaction Record Reporting and Processing Plan ("TRRP Plan"). 7) SPECIAL SERVICES. a) Audit -- At Customer's expense and at IMS' premises, IMS shall conduct a biennial audit of any and all WYO Flood Program business written by Customer pursuant to this Agreement. IMS shall select and independent auditor and Customer shall accept the appointment of the proposed independent auditor if the estimate of the audit does not exceed $2,500. If the estimated audit expense of the IMS selected independent auditor is above $2,500 then IMS shall present the estimate to Customer and Customer shall have the option of selecting their own independent auditor to conduct the audit or proceed with the independent auditor selected by IMS. b) Zone Determination Services -- IMS shall provide flood zone determinations to the Customer (or Customer's agents) to assist in writing a WYO Policy to be placed with the Customer and administered by IMS. c) Rating Software -- IMS will also make available to Customer and/or Customer's Agents, Proprietary Systems (specifically rating software) rating software for the ability to provide quotations, prepare new business applications, endorsements and cancellation of the WYO Policy. d) Training -- Upon Customer's request and excluding travel expenses, IMS will provide one training to Customer and/or Customer's Agents. Customer will provide the training facility. Additional requests for training will be charged at One Hundred and Twenty Five Dollars ($125) per day plus reasonable per diem and travel expenses incurred. e) Marketing Material. IMS will make available to Customer its marketing or promotional materials, which IMS may customize and produce for Customer at Customer's expense. f) Agency Rollover Services. Within a reasonable time of Customer's request, IMS will provide rollover services to those Customer agents that wish to roll over 500 or more WYO Policies in their book of business to Customer. In the event that there are several Agents within a concentrated geographical area wishing to roll over 500 or more WYO Policies to Customer, IMS will provide rollover service to all Agents within that area at the same time. Due to the potential size of the project, IMS will need Customer to provide a full listing of Agents, location and size of business. IMS will create a schedule to perform this service. g) Additional Fees & Services. Additional services not specified in this Agreement may be provided by as mutually agreed upon in writing between the Customer and IMS in writing. 8) INTERNET SERVICES IMS will facilitate a process whereby Agents may gain Internet access to IMS' website. The access will allow the Agents to acquire a zone determination, quote, issue, endorse and cancel a Policy. In order for an Agent to utilize the this Internet process, the Agent and Customer must be willing to provide an electronic transfer of funds (EFT) to IMS. Processing business through the Internet shall be subject to the Internet Use Milestones specified in SCHEDULE B. EX-10.78 14 g75105aex10-78.txt 8/1/01 BANKERS INSURANCE CO. 1ST AMENDED LEASE EXHIBIT 10.78 FIRST AMENDMENT OF LEASE ------------------------ This First Amendment of Lease ("Amendment") dated this 1st day of August 2001, by and between BANKERS INSURANCE COMPANY ("Landlord") and INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. ("Tenant") R E C I T A L S - - - - - - - - A. Landlord and Tenant entered into a certain Lease Agreement dated January 1, 1997 and executed and effective as of January 1, 1998 (the "Lease"), which Lease is scheduled to expire on December 31, 2001, relating to the lease of 82,566 rentable square feet more or less ("Original Premises") in the building commonly known as the Bankers Financial Center, 360 Central Avenue, St. Petersburg, Florida 33701 ("Building"). B. Landlord and Tenant desire to modify the Lease to extend the Term, provide for a reduction in leased space and otherwise modify certain terms of the Lease as hereinafter set forth. A G R E E M E N T S - - - - - - - - - - NOW, THEREFORE, Landlord and Tenant agree as follows: 1. TERM. Paragraph 1.4 of the Lease is hereby deleted in its entirety and replaced with the following: The Lease shall be renewed and the Term extended for a period of twenty-nine (29) months beginning on August 1, 2001 (the "Extended Term"). All terms and conditions of the Lease in effect as of June 27, 2001 shall remain in effect during the Extended Term, except as hereinafter provided. 2. COMMENCEMENT DATE. Paragraph 1.5 of the Lease is hereby deleted in its entirety and replaced with the following: Commencement Date: August 1, 2001. 3. TERMINATION DATE. Paragraph 1.6 of the Lease is hereby deleted in its entirety and replaced with the following: Termination Date: December 31, 2003. The Tenant has the option to cancel this Lease prior to the Termination Date provided the Tenant gives the Landlord one hundred twenty (120) days prior written notice. In the event the Tenant cancels the Lease before the Termination Date, the Tenant agrees to pay to the Landlord a payment equal to the unamortized cost of carpeting and painting the 5th Floor. 4. BASE RENT. Paragraph 1.7 of the Lease is hereby deleted in its entirety and replaced with the following: Base Rent: $13.75 per square foot, $605,440.00 per annum, $50,453.33 per month plus applicable tax. In addition to the Base Rent, IMSG will pay an additional sum in the amount of $5,449.58 per month plus applicable tax for the use of the computer room and support areas. This specific monthly charge for computer room and support area usage will be recalculated on a quarterly basis beginning on November 1, 2001. 5. RENTABLE AREA OF DEMISED PREMISES (NET RENTABLE AREA). Paragraph 1.9 of the Lease is hereby deleted in its entirety and replaced with the following: Rentable Area of Demised Premises ("Net Rentable Area"): 44,032 square feet more or less. 6. TENANT IMPROVEMENT ALLOWANCE. Paragraph 1.11 of the Lease is hereby deleted in its entirety and replaced with the following: Landlord agrees to carpet and paint the 5th Floor. 7. EXPENSE STOP. Paragraph 1.19 of the Lease is hereby deleted in its entirety and replaced with the following: Building operating costs for calendar year ending December 31, 2001. 8. TENANT'S PROPORTIONATE SHARE OF OPERATING COSTS ("PROPORTIONATE SHARE"). Paragraph 1.10 of the Lease is hereby deleted in its entirety and replaced with the following: Tenant's Proportionate Share of Operating Costs ("Proportionate Share"), seventeen percent (17%). 9. NUMBER OF PARKING SPACES WHICH TENANT SHALL RENT. Paragraph 1.12 of the Lease is hereby deleted in its entirety and replaced with the following: Number of Parking Spaces which Tenant shall rent: 74 in the adjacent parking garage, 45 covered and 29 uncovered. Additional spaces in the garage will be made available on an as-available month-to-month basis in the event IMSG would like to lease additional parking spaces. In addition, the Tenant shall lease approximately 100 parking spaces in the surface lot located at 3rd Avenue South and 3rd Street South, depending upon availability. 10. MONTHLY RENTAL FOR PARKING SPACES. Paragraph 1.13 of the Lease is hereby deleted in its entirety and replaced with the following: Monthly Rental for parking spaces: $50.00 per month plus taxes for each covered space, $40.00 per month for each uncovered space plus taxes for each parking space in the adjacent parking garage; and $25.00 per month per space plus taxes, for each space in the surface parking lot (rates subject to change to reflect the rates generally charged by the Landlord). 11. TERM. Paragraph 3.2 and 3.3 of the Lease are hereby deleted in their entirety. 12. RENT. Paragraph 4.5 of the Lease is hereby deleted in its entirety and replaced with the following. The Monthly Rent shall be adjusted, upward only, beginning August 1, 2002 and annually thereafter by the greater of thirty-five cents ($.35), per square foot or by the same percentage that the "Index" (as hereinafter defined) most recently published prior to such anniversary date had increased over the Index on the date of this Lease. For purposes of this Paragraph 4.5, the "Index" means the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W); U.S. City Average (1967=100) as published by the United States Department of Labor, Bureau of Labor Statistics; provided that, in the event the Index shall not be published or shall be discontinued, the most nearly comparable index shall be substituted therefor by Landlord. 13. TENANT'S SHARE OF OPERATING COSTS. Paragraph 5 is amended to read: 5. TENANT'S SHARE OF OPERATING COSTS. 5.1 In addition to Base Rent, Tenant shall pay Tenant's percentage share as specified in paragraph 5.2(f) of the "Building Operating Costs" (as hereinafter defined), paid or incurred by Landlord in such year in excess of the Building Page 2 Operating Cost for the Base Year ("Operating Expenses Rent") which shall be the calendar year ending December 31, 2000, which was $7.29 per square foot of Net Rentable Area The term "Building Operating Costs" includes: (a) All taxes, assessments, water and sewer charges and other similar governmental charges levied on or attributable to the Building, the land, and the roads, walks, plazas, landscaped areas, garages and parking areas, common areas, improvements, and facilities thereon (collectively, the "Property"), or its operation, including, but not limited to, general and special real property taxes and assessments levied or assessed against the Property, personal property taxes or assessments levied or assessed against the Property, and any tax measured by gross rentals received from the Property, together with any reasonable costs incurred by Landlord (including attorney's fees) in contesting any such taxes, assessments or charges; but excluding any net income, capital stock, estate or inheritance taxes imposed by the State or Federal Government or by any agency, branch or department thereof; provided that if at any time during the Term there shall be levied, assessed or imposed on Landlord or the Property by any governmental entity, any general or special, ad valorem or specific, excise, capital levy or other tax, assessment, levy or charge directly on the rent received under this Lease (except as separately paid to Landlord in accordance with Paragraph 4.6 above) or other lease affecting the Property and/or any license fee, excise or sales tax, assessment, levy or charge measured by or based, in whole or in part, upon such rents, and/or transfer, transaction, or similar tax, assessment, levy or charge based directly or indirectly upon the transaction represented by this Lease or other leases affecting the Property, and/or occupancy, use, per capital or other tax, assessment, levy or charge based directly or indirectly upon the use or occupancy of the Premises or the Property, then all such taxes, assessments, levies and charges shall be deemed to be included in the term "Building Operating Costs"; plus (b) Operating costs of the Property consisting of any and all reasonable costs incurred by Landlord in repairing, maintaining, insuring, and operating the Property and all personal property of Landlord used in connection therewith, including (without limiting the generality of the foregoing) the following: all light bulbs, heating and air conditioning, water, fuel, refuse, sewer, and telephone); all costs of supplies, materials; all insurance costs (including but not limited to public liability, extended coverage property damage and casualty, business interruption, loss of rents, flood, earthquake, workmen's compensation, with companies and in amounts as determined by Landlord); licenses, permits, inspection fees; costs of striping and paving-parking areas and driveways; painting; repair, Page 3 maintenance and replacement of plumbing, roofing, elevator, HVAC, electrical and other systems; repair, maintenance and replacement (including reasonable reserves for depreciation and replacements) of all improvements, both structural and non-structural; any costs of services of independent contractors, security personnel, trash removal, exterminator, landscaping, parking operations, and maintenance personnel and costs of compensation (including employment taxes and fringe benefits) of all persons who perform management, operation, maintenance, repair and overhaul of the Property and equipment thereon used in connection therewith, including, without limitation, full or part-time building staff, janitors, foremen, window washers, security personnel and gardeners; any costs for contract maintenance of any or all of the above; and all legal, accounting and other professional expenses in connection with the operation of the Property. 5.1 The Rent Adjustment shall be payable by Tenant to Landlord in accordance with the following: (a) Landlord shall notify Tenant of Landlord's estimate of the Rent Adjustment for the twelve (12) succeeding calendar months as soon as reasonably practical. Upon receipt of such notice, Tenant shall pay to Landlord, during each of the succeeding twelve calendar months, one-twelfth (1/12) of the estimated Rent Adjustment. If at any time during a year Landlord determines that its estimate is incorrect by no less than 15%, Landlord may notify Tenant of the revision of such estimate and thereafter for the remainder of such twelve (12) months Tenant shall pay estimated Rent Adjustment based upon such revision. On or before March 15 of each calendar year, Landlord shall deliver to Tenant the actual statement of the amount of Building Operating Costs for the preceding calendar year as well as Tenant's actual Rent Adjustment based thereon. Any adjustments payable by Tenant, as shown on such final statement, or any reduction in amount previously paid by Tenant, shall be paid by, or reimbursed to, Tenant, within fifteen (15) days from receipt of such statement. (b) In the event the current year Building Operating Costs exceed the Building Operating Costs for the prior year by ten percent (10%), Tenant shall have the right, at Tenant's expense, to perform by June 30 of any year an audit of the Building Operating Costs of the preceding calendar year as well as the calculations of Tenant's Proportionate Share thereof. Landlord shall, on Tenant's written request, provide to Tenant copies of and make available to Tenant for inspection at Landlord's offices and at Tenant's option for audit, Landlord's invoices, bills and cancelled checks pertaining to Building Operating Costs for the Building. If Landlord fails to deliver a statement of the amounts owing by Tenant for Building Operating Costs for any calendar year within six (6) months following the Page 4 end of such year, Landlord shall be deemed to have waived collection of such amounts for that year. (c) In the event that Tenant shall fail to object prior to June 30 any amounts set forth in the Statement of Rent Adjustment delivered by Landlord, said statement shall be deemed binding, conclusive and final on all parties. (d) Notwithstanding anything to the contrary hereinabove, Landlord's failure to timely deliver said notice and statements to Tenant shall not constitute a waiver by Landlord nor a defense by Tenant toward payment of amounts required to be paid to Landlord after receipt of written notice of said amounts by Tenant. In the event Landlord delivers said statement after March 15, the June 30 objection date shall be extended by a like amount of time. (e) If this Lease shall commence on any day other than the first day of a month or terminate on a day other than the last day of a month, the amount of any Rent Adjustment payable by Tenant for the month in which this Lease commences or terminates shall be equitably prorated and shall be due and payable within thirty (30) days of such commencement or termination. (f) Tenant's Proportionate Share of the Operating Expenses is the proportion that the rentable square footage occupied by Tenant bears to the total rentable square footage of the Building as set forth in Section 1.1 of the Lease. Notwithstanding any provision of this paragraph to the contrary, if the Building is less than ninety-five percent (95%) leased and/or occupied during any calendar year, including the Base Year for the purposes of determining Base Year Operating Expenses, appropriate adjustments shall be so that Operating Expense Rent shall be computed for such year as though 95% of the Building had been leased and occupied during such year. 14. The Landlord and Tenant agree to share conference rooms and the Boardroom on the 16th and 17th floors of the Bankers Financial Center based upon availability; scheduling to be handled by Landlord and/or Tenant based on locus of control. 15. Except as set forth herein, the Lease as herein amended remains in full force and effect in accordance with its terms and provisions; and Landlord and Tenant do hereby ratify, adopt, and confirm its terms and provisions, and its terms and provisions shall remain in full force and effect. 16. The Lease as herein amended is intended by the parties as the final expression of their agreement and as a complete and exclusive statement of the terms thereof, all negotiations, considerations and representations between the parties having been incorporated herein or therein. No course of prior dealings between the parties, their Page 5 officers, employees, agents, or affiliates shall be deemed relevant or admissible to supplement, explain or vary any of the terms and provisions of the Lease as herein amended. No representations, understandings or agreements have been made or relied upon in the making of this First Amendment other than set forth herein. 17. Landlord and Tenant agree that should any provision in this First Amendment disagree with or conflict with any provisions in the Lease as herein amended, the provisions in this First Amendment will control. 18. Capitalized terms used in this First Amendment unless otherwise defined in this First Amendment shall have the respective meanings ascribed to them in the Lease. 19. Tenant agrees to contribute $1,537.50 per month towards the cost of the Looper service, a transportation system operated in downtown St. Petersburg by the City of St Petersburg. IN WITNESS WHEREOF, the Landlord and Tenant have executed this First Amendment of Lease as of the day and year first above written. WITNESSES AS TO LANDLORD: LANDLORD BANKERS INSURANCE COMPANY /s/ [illegible] - ------------------------- By: /s/ [illegible] -------------------------- - ------------------------- Name: /s/ [illegible] -------------------------- Its: Vice President -------------------------- Date: 8-23-01 -------------------------- WITNESSES AS TO TENANT: TENANT INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. /s/ Gail Basile - ----------------------- By: /s/ Robert G. Gantley Gail Basile -------------------------- - ----------------------- Name: /s/ Robert G. Gantley -------------------------- Its: Chief Operating Officer -------------------------- Date: 8/21/01 -------------------------- Page 6 Diagram of: BANKERS FINANCIAL CENTER 2nd FLOOR Diagram of: BANKERS FINANCIAL CENTER 5th FLOOR Diagram of: BANKERS FINANCIAL CENTER 6th FLOOR Diagram of: BANKERS FINANCIAL CENTER 16th FLOOR Diagram of: BANKERS FINANCIAL CENTER 17th FLOOR EX-10.79 15 g75105aex10-79.txt 12/31/01 BANKERS INSURANCE CO. LEASE TERMINATION EXHIBIT 10.79 TERMINATION OF LEASE AGREEMENT THIS TERMINATION OF LEASE AGREEMENT is executed this 31st day of December, 2001 by and between Bankers Insurance Company, a Florida insurance company ("BIC") and Insurance Management Solutions Group, Inc., a Florida corporation ("IMSG"). R E C I T A L S - - - - - - - - 1. There is that certain Bankers Financial Center Lease Agreement made by and between BIC as "Landlord" dated January 7, 1997 and executed and effective as of January 1, 1998 and amended pursuant to the First Amendment of Lease dated August 1, 2001. The Lease as amended shall be herein called the, "Lease". 2. BIC has, substantially simultaneously with the execution hereof executed and delivered a Purchase and Sale Agreement ("Purchase and Sale Agreement") by and between BIC as "Seller" and Osprey S.P. Properties LLC, a Florida limited liability company as "Buyer". 3. Simultaneously with the execution and delivery of hereof Bankers Financial Corporation, a Florida corporation and IMSG have entered into a Sublease Agreement ("Sublease Agreement") on terms identical to the terms of the Lease. 4. The Purchase and Sale Agreement requires the execution and delivery of this Termination Agreement. NOW, THEREFORE, IN CONSIDERATION OF the closing under the Purchase and Sales Agreement, in further consideration of the execution and delivery of the Sublease Agreement, as well as for other good and valuable consideration the Lease is hereby terminated such termination to effective at the effective time of the closing under the Purchase and Sale Agreement. IN WITNESS WHERE OF the parties hereto have set their hands and seals as of the day and year first above set forth. Bankers Insurance Company, a Florida insurance company By: /s/ Edwin C. Hussemann ---------------------------------- SIGNATURE Edwin C. Hussemann, Treasurer As Its: ------------------------------ (CORPORATE SEAL) EX-10.80 16 g75105aex10-80.txt 12/31/01 BANKERS FINANCIAL SUBLEASE AGREEMENT EXHIBIT 10.80 SUBLEASE AGREEMENT THIS SUBLEASE AGREEMENT is executed as of this 31st day of December, 2001 by and between Bankers Financial Corporation, a Florida corporation ("Sub-Lessor") and Insurance Management Solutions Group, Inc., a Florida corporation ("Sub-Lessee"). R E C I T A L S - - - - - - - - 1. There is that certain Bankers Financial Center Lease Agreement made by and between BIC as "Landlord" dated January 7, 1997 and executed and effective as of January 1, 1998 and amended pursuant to the First Amendment of Lease dated August 1, 2001. The Lease as amended shall be herein called the, "Lease". 2. BIC has, substantially simultaneously with the execution hereof executed and delivered a Purchase and Sale Agreement ("Purchase and Sale Agreement") by and between BIC as "Seller" and Osprey S. P. Properties LLC, a Florida limited liability company as "Buyer". 3. Simultaneously with the execution and delivery of hereof Bankers Financial Corporation, a Florida corporation and IMSG have entered into a Termination of Lease Agreement ("Termination Agreement") terminating the Lease Agreement. 4. The parties wish to enter into this Sublease Agreement the purpose of which is to reestablish the Lease as a sublease between Sub-Lessor and Sub-Lessee but otherwise on all of the terms and conditions identical to the Lease Agreement as terminated. NOW, THEREFORE, IN CONSIDERATION OF the mutual covenants and agreements hereinafter set forth, as well for other good and valuable consideration, the parties hereto do covenant and agree as follows: 1. A copy of the Lease is attached hereto as Exhibit A and by reference made a part hereof. The definitions set forth in the Lease, as all other terms of the Lease shall apply hereto. 2. Sub-Lessor does hereby and with these presents lease the Premises to Sub-Lessee for the remainder of the term of the Lease as it existed immediately prior to the effective time of the Termination Agreement all in accordance with the terms and conditions of the Lease as attached provided that this is a sublease and not a lease and, as such, is subject to the Lease Agreement ("Primary Lease") being executed and delivered by Sub-Lessor pursuant to the terms of the Purchase and Sale Agreement a copy of which is attached hereto as Exhibit B and by reference made a part hereof. In interpreting the Lease as included herein, Landlord shall mean "Sub-Lessor" and Tenant shall continue to mean "Sub-Lessee". 3. This Sublease shall be effective as of the time of the closing between the Buyer and the Seller under the Purchase and Sale Agreement. IN WITNESS WHEREOF the parties hereto have set their hands and seals as of the day and year first above set forth. Bankers Financial Corporation, a Florida insurance company By: /s/ Edwin C. Hussemann ----------------------------------- SIGNATURE Edwin C. Hussemann, Treasurer As Its: ------------------------------- (CORPORATE SEAL) Insurance Management Solutions Group, Inc., a Florida corporation By: /s/ [illegible] ----------------------------------- SIGNATURE NAME LEGIBLY PRINTED TYPEWRITTEN OR STAMPED As Its: Chief Operating Officer ------------------------------- (CORPORATE SEAL) Exhibits: A - Copy of Lease B - Copy of Primary Lease Insurance Management Solutions Group, Inc., a Florida corporation By: /s/ [illegible] --------------------------------- SIGNATURE NAME LEGIBLY PRINTED TYPEWRITTEN OR STAMPED As Its: Chief Operating Officer ----------------------------- (CORPORATE SEAL) FIRST AMENDMENT OF LEASE ------------------------ This First Amendment of Lease ("Amendment") dated this 1st day of August 2001, by and between BANKERS INSURANCE COMPANY ("Landlord") and INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. ("Tenant") R E C I T A L S --------------- A. Landlord and Tenant entered into a certain Lease Agreement dated January 1, 1997 and executed and effective as of January 1, 1998 (the "Lease"), which Lease is scheduled to expire on December 31, 2001, relating to the lease of 82,566 rentable square feet more or less ("Original Premises") in the building commonly known as the Bankers Financial Center, 360 Central Avenue, St. Petersburg, Florida 33701 ("Building"). B. Landlord and Tenant desire to modify the Lease to extend the Term, provide for a reduction in leased space and otherwise modify certain terms of the Lease as hereinafter set forth. A G R E E M E N T S ------------------- NOW, THEREFORE, Landlord and Tenant agree as follows: 1. TERM. Paragraph 1.4 of the Lease is hereby deleted in its entirety and replaced with the following: The Lease shall be renewed and the Term extended for a period of twenty-nine (29) months beginning on August 1, 2001 (the "Extended Term"). All terms and conditions of the Lease in effect as of June 27, 2001 shall remain in effect during the Extended Term, except as hereinafter provided. 2. COMMENCEMENT DATE. Paragraph 1.5 of the Lease is hereby deleted in its entirety and replaced with the following: Commencement Date: August 1, 2001. 3. TERMINATION DATE. Paragraph 1.6 of the Lease is hereby deleted in its entirety and replaced with the following: Termination Date: December 31, 2003. The Tenant has the option to cancel this Lease prior to the Termination Date provided the Tenant gives the Landlord one hundred twenty (120) days prior written notice. In the event the Tenant cancels the Lease before the Termination Date, the Tenant agrees to pay to the Landlord a payment equal to the unamortized cost of carpeting and painting the 5th Floor. 4. BASE RENT. Paragraph 1.7 of the Lease is hereby deleted in its entirety and replaced with the following: Base Rent: $13.75 per square foot, $605,440.00 per annum, $50,453.33 per month plus applicable tax. In addition to the Base Rent, IMSG will pay an additional sum in the amount of $5,449.58 per month plus applicable tax for the use of the computer room and support areas. This specific monthly charge for computer room and support area usage will be recalculated on a quarterly basis beginning on November 1, 2001. 5. RENTABLE AREA OF DEMISED PREMISES (NET RENTABLE AREA). Paragraph 1.9 of the Lease is hereby deleted in its entirety and replaced with the following: Rentable Area of Demised Premises ("Net Rentable Area"): 44,032 square feet more or less. 6. TENANT IMPROVEMENT ALLOWANCE. Paragraph 1.11 of the Lease is hereby deleted in its entirety and replaced with the following: Landlord agrees to carpet and paint the 5th Floor. 7. EXPENSE STOP. Paragraph 1.19 of the Lease is hereby deleted in its entirety and replaced with the following: Building operating costs for calendar year ending December 31, 2001. 8. TENANT'S PROPORTIONATE SHARE OF OPERATING COSTS ("PROPORTIONATE SHARE"). Paragraph 1.10 of the Lease is hereby deleted in its entirety and replaced with the following: Tenant's Proportionate Share of Operating Costs ("Proportionate Share"), seventeen percent (17%). 9. NUMBER OF PARKING SPACES WHICH TENANT SHALL RENT. Paragraph 1.12 of the Lease is hereby deleted in its entirety and replaced with the following: Number of Parking Spaces which Tenant shall rent: 74 in the adjacent parking garage, 45 covered and 29 uncovered. Additional spaces in the garage will be made available on an as-available month-to-month basis in the event IMSG would like to lease additional parking spaces. In addition, the Tenant shall lease approximately 100 parking spaces in the surface lot located at 3rd Avenue South and 3rd Street South, depending upon availability. 10. MONTHLY RENTAL FOR PARKING SPACES. Paragraph 1.13 of the Lease is hereby deleted in its entirety and replaced with the following: Monthly Rental for parking spaces: $50.00 per month plus taxes for each covered space, $40.00 per month for each uncovered space plus taxes for each parking space in the adjacent parking garage; and $25.00 per month per space plus taxes, for each space in the surface parking lot (rates subject to change to reflect the rates generally charged by the Landlord). 11. TERM. Paragraphs 3.2 and 3.3 of the Lease are hereby deleted in their entirety. 12. Rent. Paragraph 4.5 of the Lease is hereby deleted in its entirety and replaced with the following: The Monthly Rent shall be adjusted, upward only, beginning August 1, 2002 and annually thereafter by the greater of thirty-five cents ($.35), per square foot or by the same percentage that the "Index" (as hereinafter defined) most recently published prior to such anniversary date had increased over the Index on the date of this Lease. For purposes of this Paragraph 4.5, the "Index" means the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W); U.S. City Average (1967=100) as published by the United States Department of Labor, Bureau of Labor Statistics; provided that, in the event the Index shall not be published or shall be discontinued, the most nearly comparable index shall be substituted therefor by Landlord. 13. TENANT'S SHARE OF OPERATING COSTS. Paragraph 5 is amended to read: 5. TENANT'S SHARE OF OPERATING COSTS. 5.1 In addition to Base Rent, Tenant shall pay Tenant's percentage share as specified in paragraph 5.2(f) of the "Building Operating Costs" (as hereinafter defined), paid or incurred by Landlord in such year in excess of the Building Page 2 Operating Cost for the Base Year ("Operating Expenses Rent") which shall be the calendar year ending December 31, 2000, which was $7.29 per square foot of Net Rentable Area. The term "Building Operating Costs" includes: (a) All taxes, assessments, water and sewer charges and other similar governmental charges levied on or attributable to the Building, the land, and the roads, walks, plazas, landscaped areas, garages and parking areas, common areas, improvements, and facilities thereon (collectively, the "Property"), or its operation, including, but not limited to, general and special real property taxes and assessments levied or assessed against the Property, personal property taxes or assessments levied or assessed against the Property, and any tax measured by gross rentals received from the Property, together with any reasonable costs incurred by Landlord (including attorney's fees) in contesting any such taxes, assessments or charges; but excluding any net income, capital stock, estate or inheritance taxes imposed by the State or Federal Government or by any agency, branch or department thereof; provided that if at any time during the Term there shall be levied, assessed or imposed on Landlord or the Property by any governmental entity, any general or special, ad valorem or specific, excise, capital levy or other tax, assessment, levy or charge directly on the rent received under this Lease (except as separately paid to Landlord in accordance with Paragraph 4.6 above) or other lease affecting the Property and/or any license fee, excise or sales tax, assessment, levy or charge measured by or based, in whole or in part, upon such rents, and/or transfer, transaction, or similar tax, assessment, levy or charge based directly or indirectly upon the transaction represented by this Lease or other leases affecting the Property, and/or occupancy, use, per capital or other tax, assessment, levy or charge based directly or indirectly upon the use or occupancy of the Premises or the Property, then all such taxes, assessments, levies and charges shall be deemed to be included in the term "Building Operating Costs"; plus (b) Operating costs of the Property consisting of any and all reasonable costs incurred by Landlord in repairing, maintaining, insuring, and operating the Property and all personal property of Landlord used in connection therewith, including (without limiting the generality of the foregoing) the following: all light bulbs, heating and air conditioning, water, fuel, refuse, sewer, and telephone); all costs of supplies, materials; all insurance costs (including but not limited to public liability, extended coverage property damage and casualty, business interruption, loss of rents, flood, earthquake, workmen's compensation, with companies and in amounts as determined by Landlord); licenses, permits, inspection fees; costs of striping and paving parking areas and driveways; painting; repair, Page 3 maintenance and replacement of plumbing, roofing, elevator, HVAC, electrical and other systems; repair, maintenance and replacement (including reasonable reserves for depreciation and replacements) of all improvements, both structural and non-structural; any costs of services of independent contractors, security personnel, trash removal, exterminator, landscaping, parking operations, and maintenance personnel and costs of compensation (including employment taxes and fringe benefits) of all persons who perform management, operation, maintenance, repair and overhaul of the Property and equipment thereon used in connection therewith, including, without limitation, full or part-time building staff, janitors, foremen, window washers, security personnel and gardeners; any costs for contract maintenance of any or all of the above; and all legal, accounting and other professional expenses in connection with the operation of the Property. 5.1 The Rent Adjustment shall be payable by Tenant to Landlord in accordance with the following: (a) Landlord shall notify Tenant of the Landlord's estimate of the Rent Adjustment for the twelve (12) succeeding calendar months as soon as reasonably practical. Upon receipt of such notice, Tenant shall pay to Landlord, during each of the succeeding twelve calendar months, one-twelfth (1/12) of the estimated Rent Adjustment. If at any time during a year Landlord determines that its estimate is incorrect by no less than 15%, Landlord may notify Tenant of the revision of such estimate and thereafter for the remainder of such twelve (12) months Tenant shall pay estimated Rent Adjustment based upon such revision. On or before March 15 of each calendar year, Landlord shall deliver to Tenant the actual statement of the amount of Building Operating Costs for the preceding calendar year as well as Tenant's actual Rent Adjustment based thereon. Any adjustments payable by Tenant, as shown on such final statement, or any reduction in amount previously paid by Tenant, shall be paid by, or reimbursed to, Tenant, within fifteen (15) days from receipt of such statement. (b) In the event the current year Building Operating Costs exceed the Building Operating Costs for the prior year by ten percent (10%), Tenant shall have the right at Tenant's expense, to perform by June 30 of any year an audit of the Building Operating Costs of the preceding calendar year as well as the calculations of Tenant's Proportionate Share thereof. Landlord shall, on Tenant's written request, provide to Tenant copies of and make available to Tenant for inspection at Landlord's offices and at Tenant's option for audit, Landlord's invoices, bills and cancelled checks pertaining to Building Operating Costs for the Building. If Landlord fails to deliver a statement of the amounts owing by Tenant for Building Operating Costs for any calendar year within six (6) months following the Page 4 end of such year, Landlord shall be deemed to have waived collection of such amounts for that year. (c) In the event that Tenant shall fail to object prior to June 30 any amounts set forth in the Statement of Rent Adjustment delivered by Landlord, said statement shall be deemed binding, conclusive and final on all parties. (d) Notwithstanding anything to the contrary hereinabove, Landlord's failure to timely deliver said notice and statements to Tenant shall not constitute a waiver by Landlord nor a defense by Tenant toward payment of amounts required to be paid to Landlord after receipt of written notice of said amounts by Tenant. In the event Landlord delivers said statement after March 15, the June 30 objection date shall be extended by a like amount of time. (e) If this Lease shall commence on any day other than the first day of a month or terminate on a day other than the last day of a month, the amount of any Rent Adjustment payable by Tenant for the month in which this Lease commences or terminates shall be equitably prorated and shall be due and payable within thirty (30) days of such commencement or termination. (f) Tenant's Proportionate Share of the Operating Expenses is the proportion that the rentable square footage occupied by Tenant bears to the total rentable square footage of the Building as set forth in Section 1.1 of the Lease. Notwithstanding any provision of this paragraph to the contrary, if the Building is less than ninety-five percent (95%) leased and/or occupied during any calendar year, including the Base Year for the purposes determining Base Year Operating Expenses, appropriate adjustments shall be so that Operating Expense Rent shall be computed for such year as though 95% of the Building had been leased and occupied during such year. 14. The Landlord and Tenant agree to share conference rooms and the Boardroom on the 16th and 17th flood of the Bankers Financial Center based upon availability; scheduling to be handled by Landlord and/or Tenant based on locus of control. 15. Except as set forth herein, the Lease as herein amended remains in full force and effect in accordance with its terms and provisions; and Landlord and Tenant do hereby ratify, adopt, and confirm its terms and provisions, and its terms and provisions shall remain in full force and effect. 16. The Lease as herein amended is intended by the parties as the final expression of their agreement and as a complete and exclusive statement of the terms thereof, all negotiations, considerations and representations between the parties having been incorporated herein or therein. No course of prior dealings between the parties, their Page 5 officers, employees, agents, or affiliates shall be deemed relevant or admissible to supplement, explain or vary any of the terms and provisions of the Lease as herein amended. No representations, understandings, or agreements have been made or relied upon in the making of this First Amendment other than set forth therein. 17. Landlord and Tenant agree that should any provision in this First Amendment disagree with or conflict with any provisions in the Lease as herein amended, the provisions in this First Amendment will control. 18. Capitalized terms used in this First Amendment unless otherwise defined in this First Amendment shall have the respective meanings ascribed to them in the Lease. 19. Tenant agrees to contribute $1,537.50 per month towards the cost of the Looper service, a transportation system operated in downtown St. Petersburg by the City of St. Petersburg. IN WITNESS WHEREOF, the Landlord and Tenant have executed this First Amendment of Lease as of the day and year first above written. WITNESSES AS TO LANDLORD: LANDLORD BANKERS INSURANCE COMPANY [Signature Illegible] ________________________ By: /s/Robert G. Southey ____________________ ________________________ Name: Robert G. Southey ____________________ Its: Vice President ____________________ Date: 8-23-01 ____________________ WITNESSES AS TO TENANT: TENANT INSURANCE MANAGEMENT SOLUTIONS /s/ Gail Basile GROUP, INC. ________________________ By: /s/Robert G. Gantley ________________________ ______________________ Name: Robert G. Gantley ______________________ Its: Chief Operating Officer ______________________ Date: 8-21-01 ______________________ Page 6 Diagram of: BANKERS FINANCIAL CENTER 2nd FLOOR Diagram of: BANKERS FINANCIAL CENTER 5th FLOOR Diagram of: BANKERS FINANCIAL CENTER 6th FLOOR Diagram of: BANKERS FINANCIAL CENTER 16th FLOOR Diagram of: BANKERS FINANCIAL CENTER 17th FLOOR Bankers Financial Center Lease Agreement BANKERS INSURANCE COMPANY, LANDLORD INSURANCE MANAGEMENT SOLUTIONS GROUP, INC., TENANT INDEX Page No. 1. DEFINITIONS......................................................1 2. PREMISES.........................................................3 3. TERM.............................................................3 4. RENT.............................................................3 5. TENANT'S SHARE OF OPERATING COSTS................................4 6. SECURITY DEPOSIT.................................................4 7. ADDITIONS AND ALTERATIONS........................................5 8. PERMITTED USE....................................................5 9. UTILITIES........................................................6 10. INDEMNIFICATION; INSURANCE.......................................6 11. ASSIGNMENT OR SUBLETTING.........................................9 12. SIGNS; ADVERTISING...............................................9 13. MAINTENANCE OF INTERIOR OF PREMISES..............................10 14. DAMAGE OR DESTRUCTION............................................10 15. DEFAULTS.........................................................11 16. REMEDIES.........................................................12 17. LANDLORD'S RIGHT OF ENTRY........................................14 18. NOTICES..........................................................14 19. TAXES ON TENANT'S PERSONAL PROPERTY AND TAXES ASSESSED ON RENTALS...............................14 20. COSTS OF COLLECTION..............................................14 21. PRIOR AGREEMENTS.................................................15 22. FLOOR PLANS......................................................15 23. NO AUTOMATIC RENEWAL.............................................15 24. BUILDING STANDARDS MANUAL........................................16 25. TERMS AND HEADING................................................16 26. CONDEMNATION.....................................................16 27. SUBORDINATION TO MORTGAGES.......................................16 28. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS...................17 29. QUIET ENJOYMENT..................................................17 30. PARKING SPACES...................................................17 31. SUBSTITUTION OF PREMISES.........................................18 32. LANDLORD'S RIGHT TO ALTER COMMON AREAS...........................18 33. EXCULPATION......................................................18 34. SUCCESSORS AND ASSIGNS...........................................18 35. SECURITY AGREEMENT...............................................19 36. MECHANICS LIEN...................................................19 37. RECORDATION......................................................19 38. RADON GAS........................................................19 39. REAL ESTATE BROKER...............................................20 EXHIBIT "A"...............................................FLOOR PLAN EXHIBIT "B"..............................BUILDING RULES & REGULATIONS BANKERS FINANCIAL CENTER LEASE AGREEMENT THIS LEASE, made as of the 1st day of January, 1997, by and between BANKERS INSURANCE COMPANY hereinafter called the "Landlord", and INSURANCE MANAGEMENT SOLUTIONS GROUP, INC., hereinafter referred to as the "Tenant"; WITNESSETH: For and in consideration of the rents, covenants, agreements and conditions hereinafter reserved, made and entered into on the part of the Tenant to be paid, performed, and observed, it is hereby stipulated, covenanted and agreed by and between the Landlord and the Tenant as follows: 1. DEFINITIONS As used in this Lease Agreement, the terms enumerated below as items 1.1 to 1.18 inclusive shall have only the meaning set forth in this section unless the same shall be expressly modified, limited or expanded elsewhere in the Lease Agreement, in which event, such modification, limitation and/or expansion shall supersede the applicable terms set forth below: 1.1 Exhibits: The following Exhibits attached to this lease are incorporated herein and made a part hereof: Exhibit A: Floor Plan of Premises Exhibit B: Building Standards Manual 1.2 Building: Bankers Financial Center 360 Central Avenue St. Petersburg, Florida 33701 Legal description: Lot 1, Block 1, Revised Map of St. Petersburg Block 31 Partial Replat, according to Plat Book 85, Page 15 of the Public Records of Pinellas County, Florida. 1.3 Premises or Demised Premises: As outlined on Exhibit A 1.4 Term: 2 years 1.5 Commencement Date: January 1, 1997. 1 1.6 Termination Date: December 31, 1999. 1.7 Base Rent: $12.00 per square foot. $990,792 per annum $82,566 per month. 1.8 Prepaid Rent: N/A 1.9 Rentable Area of Demised Premises ("Net Rentable Area"): 82,566 square ------------- feet, MOL ---------- 1.10 Tenant's Proportionate Share of Operating Costs ("Proportionate Share"): 34.08% ------ 1.11 Tenant Improvement Allowance: N/A 1.12 Number of Parking Spaces which Tenant shall rent: 137 in adjacent parking garage, 84 to be covered spaces and 35 uncovered. In addition, the Tenant shall lease approximately 235 parking spaces in the surface lot located at 3rd Avenue South and 3rd Street South, depending upon availability. 1.13 Monthly Rental for parking spaces: $40.00 per month for each covered space, $30.00 per month for each uncovered space plus taxes for each parking space in the adjacent parking garage, and $20.00 per month per space plus taxes for each space in the surface parking lot (rates subject to change to reflect the rates generally charged by the Landlord). 1.14 Security Deposit: N/A 1.15 Permitted Use: Office use 1.16 Tenant's Address: Insurance Management Solutions Group, Inc. ------------------------------------------ 360 Central Avenue ------------------ St. Petersburg, FL 33701 ------------------------ 1.17 Landlord's Address: Bankers Insurance Company ------------------------- 360 Central Avenue, Suite 100 ----------------------------- St. Petersburg, FL 33701 ------------------------ 1.18 Guarantor: N/A 1.19 Expense Stop: Building operating costs for calendar year ending December 31, 1997. 2 2. PREMISES 2.1 The Landlord does hereby let, demise and lease the Premises to the Tenant, and the Tenant does hereby hire and take the Premises from the Landlord for the Term of this Lease. 2.2 Tenant acknowledges that this Lease is made subject to all existing liens, encumbrances, deeds of trust, reservations, restrictions and other matters of record and to zoning, building and fire ordinances and all governmental statutes, rules and regulations relating to the use or occupancy of the Premises, as same may hereafter be amended from time to time. 3. TERM 3.1 The Term of this Lease shall commence on the Commencement Date and shall terminate on the Termination Date, unless terminated sooner in accordance with the terms of this Lease. The Tenant has an option to renew this Lease for one additional two (2) year period by providing the Landlord with notice to do so six (6) months prior to the termination date of this Lease. Tenant's right to exercise this option is based upon agreeing to pay rent at the time of the renewal equal to 90% of the then market rent for like space or at a rate as provided by paragraph 4.5 herein. 3.2 Notwithstanding the Commencement Date, the Term shall commence earlier than the Commencement Date if Tenant occupies the Premises prior to the stated Commencement Date. "Occupancy", "occupy" or "occupies" as used in this Lease shall mean use of the Premises for any reason by Tenant or Tenant's agents, licensees, employees, directors, officers, partners, trustees, and invitees (collectively, "Tenant's Employee"). 3.3 If Landlord, through no fault of Tenant, cannot deliver possession of the Premises to Tenant on the Commencement Date, such delay shall not affect the validity of this Lease nor shall Landlord be liable to Tenant for any loss or damage resulting therefrom, but there shall be a proportionate reduction of rent covering the period between the Commencement Date and the time when Landlord delivers possession of the Premises to Tenant. No such delay shall operate to extend the Term. 4. RENT 4.1 Tenant agrees to pay to Landlord each year during the Term (as the Term may be adjusted pursuant to Section 3.2 or 3.3) the Annual Rent for the Premises. Said Annual Rent shall be paid in monthly installments equal to the Monthly Rent. The Monthly Rent shall be due and payable in advance, on or before the first day of each calendar month during the entire Term, commencing with the first full calendar month of the Term; provided that Tenant shall pay to the Landlord on the Commencement Date the prorated 3 Monthly Rent attributable to the month in which the Commencement Date occurs if the Commencement Date is other than the first day of a month. Concurrently with the execution of this Lease, Tenant shall pay to Landlord the Prepaid Rent plus Florida State Sales Tax thereon and any other tax applicable to said Rent. 4.2 Tenant agrees to pay to Landlord as additional rent upon demand (but not more frequently than monthly) all charges for any services, goods or materials furnished by Landlord at Tenant's request which are not required to be furnished by Landlord under this Lease without separate charge or reimbursement. 4.3 Any rent for any fractional month shall be prorated based on a thirty (30) day month, and for any fractional year shall be prorated based on a three hundred sixty-five (365) day year. All rent payable by Tenant to Landlord under this Lease shall be paid to Landlord in lawful money of the United States of America at Landlord's office located in the Building, or to such other person or at such other place as Landlord may from time to time designate in writing. All rent shall be paid without prior demand, deduction, setoff or counterclaim. 4.4 A late payment penalty shall be added to any rent not received by Landlord within ten (10) days of the due date. Such penalty shall be equal to the interest that accrues on said amount from the date the payment was due until the date on which Landlord receives said payment, computed at the rate of eighteen percent (18%) per annum. 4.5 The Monthly Rent shall be adjusted, upward only, beginning on the first anniversary of the Commencement Date by the greater of $0.25 per square foot or by the same percentage that the "Index" (as hereinafter defined) most recently published prior to such anniversary date has increased over the Index on the date of this Lease. For purposes of this Paragraph 4.5, the "Index" means the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W); U.S. City Average (1967=100) as published by the United States Department of Labor, Bureau of Labor Statistics; provided that, in the event the Index shall not be published or shall be discontinued, the most nearly comparable index shall be substituted therefor by Landlord; however, such increase shall not exceed a total of $13.00 per square foot annually over the term of this Lease and the renewal option period exercised by the Tenant. 4.6 Tenant shall pay to Landlord concurrently with the payment of the Monthly Rent and other sums all Florida State Sales Tax and any other tax which is applicable to such payment. 5. TENANT'S SHARE OF OPERATING COSTS: N/A 6. SECURITY DEPOSIT: N/A 4 7. ADDITIONS AND ALTERATIONS No changes, alterations, improvements, or additions to the Premises shall be made to or upon said Premises or any part thereof without the written consent of the Landlord being first had and obtained. All changes, alterations, additions and improvements made or placed in or upon the Premises by the Landlord or the Tenant, and which by operation of law would become a part of the real estate, shall immediately upon being made or placed thereon become the property of the Landlord and shall remain upon and be surrendered with the Premises as a part thereof, at the termination, by lapse of time or otherwise, of the Term herein granted. Any such changes, alterations, improvements, or additions shall be done in conformity with the "Building Standards Manual" furnished herewith as Exhibit "B", as well as with such other reasonable requirements as Landlord may impose upon the granting of its written consent. At Landlord's request at or prior to termination of the Term, Tenant shall remove all or any part of any improvements made to the Premises. 8. PERMITTED USE 8.1 The Premises shall be used only for the Permitted Use and for no other purpose. The Tenant, shall, at its own cost and expense, obtain any and all licenses and permits necessary for such use. The Tenant shall comply with all governmental laws, ordinances and regulations applicable from time to time to its use of the Premises, and shall promptly comply with all governmental orders and directives for the correction, prevention and abatement of nuisances in or upon, or connected with the Premises, all at the Tenant's sole expense. 8.2 The Tenant shall not do, suffer or permit anything to be done in, on or about the Premises or the Property, nor bring, nor keep anything therein which will in any way affect fire or other insurance upon the Building or any of its contents or which will in any way conflict with any law, ordinance, rule or regulation now or hereafter in force or effect relating to the occupancy and use of the Premises and said Property, or in any way obstruct or interfere with the rights of other lessees or users of the Property, or injure or annoy them, nor use, nor allow the Premises or the Building to be used for any improper, immoral, unlawful or objectionable purpose, cooking therein, and nothing shall be prepared, manufactured, or used in the Premises which might emit an odor into the corridors of the building. 8.3 The Tenant will not, without the written consent of the Landlord, use any apparatus, machinery, or equipment or device in, on or about the Premises which may cause any excessive noise or may set up any excessive vibration or excessive floor loads or which in any way would increase the normal amount of electricity agreed to be furnished or supplied under this Lease, or as specified in the Building Standards Manual, and, further, the Tenant shall not connect with water any apparatus, machinery, equipment or device without the prior written consent of the Landlord. The Tenant shall, at the Tenant's sole cost and expense, comply with all the requirements of all 5 municipal, state and federal authorities now or hereafter in force, pertaining to said Premises, and shall faithfully observe in the use of said Premises and Property all municipal ordinances and regulations and state and federal statutes and regulations now or hereafter in force and effect. 8.4 Any change in law or otherwise which may make Tenant's use of the Premises impracticable or impossible shall not affect Tenant's obligations under this Lease. 9. UTILITIES; JANITORIAL SERVICES Subject to Tenant's obligation to pay rent under this Lease and perform Tenant's other obligations, the Landlord agrees to furnish in connection with the Premises, the following: electricity (commensurate with the Landlord's electrical system and wiring in the building of which the Premises are a part, supplying approximately 110 volts) for lights and other usual and ordinary office purposes; replacement of ceiling light bulbs and tubes in the fixtures provided by the Landlord; heat and air conditioning, subject to government authority regulations from time to time in effect, during normal business hours (8 a.m. to 6 p.m., Monday through Friday, except holidays and from 8 a.m. to 1 p.m. on Saturdays); janitorial services as specified in the Building Standards Manual; and provide for use in common of the elevators, restrooms, and other like facilities of the Building. All said costs shall be included in Building Operating Costs. Landlord reserves the right to establish special charges to be paid by Tenant for additional non-standard services provided. The Landlord shall not be liable for the failure to furnish any of the items or services herein mentioned when such failure is caused by or results from accidents or conditions or matters beyond the reasonable ability of the Landlord to control, or caused by or resulting from lack of utility services, breakdown of mechanical equipment, repairs, labor disturbances, or labor disputes of any character, whether resulting from or caused by acts of the Landlord or otherwise; nor shall the Landlord be liable under any circumstances for loss of or injury to property or persons, however occurring, through or in connection with or incidental to the furnishing of any of such items or services, nor shall any such failure relieve the Tenant from the duty to pay the full amount of rent and other sums of money herein provided to be paid by the Tenant, or constitute or be construed as a constructive or other eviction of the Tenant. 10. INDEMNIFICATION; INSURANCE 10.1 INDEMNITY. Tenant agrees to indemnify, defend and save harmless Landlord, Bankers Insurance Company any property manager(s) engaged by Landlord or Bankers Insurance Company and each of their affiliated companies, partners, shareholders, agents, directors, officers, and employees (collectively, "Indemnitees") from and against any and all liabilities, damages, claims, suits, injuries, costs (including court costs, attorneys' fees and costs of investigation, and actions of any kind arising or alleged to arise by reason of injury to or death of any person or damage to or loss of property occurring on, in, or about the Leased Premises or by reason of any other claim 6 whatsoever of any person or party occasioned or alleged to be occasioned in whole or in part by any act or omission on the part or Tenant or any invitee, licensee, agent, employee, director, officer, contractor, subcontractor, or tenant or Tenant, or by any breach, violation, or nonperformance of any covenant of Tenant under this Lease (collectively "Liabilities") even if such Liabilities arise from or are attributed to the concurrent negligence of any Indemnitee. The only Liabilities with respect to which Tenant's obligation to indemnify the Indemnitees does not apply is with respect to Liabilities resulting from the sole negligence or willful misconduct of an Indemnitee. If any action or proceeding is brought by or against any Indemnitee in connection with any such Liabilities, Tenant shall defend such action or proceeding, at Tenant's expense, by or through attorneys reasonable satisfactory to Landlord. The provisions of this paragraph apply to all activities of Tenant with respect to the Leased Premises or Building, whether occurring before or after the Commencement Date of the Term and before or after the expiration or termination of this Lease. Tenant's obligations under this paragraph are not limited to the limits or coverage of insurance maintained or required to be maintained by Tenant under this Lease. 10.2 TENANT'S INSURANCE. Tenant shall, at its sole expense, maintain in effect at all times during the Term, insurance coverage with limits not less than those set forth below with insurers reasonably acceptable to Landlord and which are licensed to do business in the state in which the Building is located.
Insurance Minimum Limits --------- -------------- A. Workers' Compensation --------------------- Workers' Compensation Statutory Employer's Liability $500,000 This policy shall include a Waiver of Subrogation in favor of the Indemnitees. B. Commercial General Liability ---------------------------- Bodily Injury/ $1,000,000 each occurrence, Property Damage or equivalent, subject to (Occurrence Basis) a $1,000,000 aggregate
This policy shall be on a form acceptable to Landlord, endorsed to include the Indemnitees as additional insured, contain cross-liability and severability of interest endorsements, state that this insurance is primary insurance as regards any other insurance carried by any Indemnitee, and shall include the following coverages: (1) Premises/Operations; (2) Independent Contractors; 7 (3) Broad Form Contractual Liability specifically in support of, but not limited to, the Indemnity sections of this Lease; and (4) Personal Injury Liability with employee and contractual exclusions removed. C. Comprehensive Automobile Liability Combined single limit for $500,000 of equivalent bodily injuries/property damage This policy shall be on a standard form written to cover all owned, hired and non-owned automobiles. This policy shall be endorsed to include the Indemnitees as additional insured, contain cross-liability and severability of interest endorsements, and state that this insurance is primary insurance as regards any other insurance carried by any Indemnitee. Evidence of these coverages represented by Certificates of Insurance issued by the insurance carrier must be furnished to the Landlord prior to Tenant moving in. Certificates of Insurance shall specify the additional insured status mentioned above as well as the Waivers of Subrogation. Such Certificate of Insurance shall state that Landlord will be notified in writing thirty (30) days prior to cancellation, material change, or non-renewal of insurance. If Tenant does not procure insurance as required hereunder, Landlord may, upon advance written notice to Tenant, cause such insurance to be issued, and Tenant shall pay to Landlord the premium of such insurance within ten (10) days of Landlord's demand, plus interest at the highest lawful rate for a loan of like amount from the date of payment by Landlord until repaid by Tenant. Upon the request of Landlord, Tenant shall provide Landlord with certified copies of any and all applicable insurance policies. 10.3 WAIVER OF LIABILITY. No Indemnitee will be liable in any manner to Tenant or any other party claiming by through or under Tenant for any injury to or death of persons unless caused by the sole negligence or willful misconduct of an Indemnitee. In no event will any Indemnitee be liable in any manner to Tenant or any other party as the result of the acts or omissions of Tenant, its invitees, licensees, agents, employees, directors, officers, contractors, subcontractors, or tenants of Tenant, or any other tenant of the Building. All personal property upon the Leased Premises is at the risk of Tenant only and no Indemnitees will be liable for any damage thereto or theft thereof, regardless of whether such property is entrusted to employees of the Building, or such loss or damage is occasioned by casualty, theft, or any other cause of whatsoever nature, even if due in whole or in part to the negligence of any Indemnitee. 10.4 WAIVER OF SUBROGATION. Notwithstanding anything herein to the contrary, no party will have any right or claim against any Indemnitee for any property damage (whether caused, in whole or in part, by negligence or the condition of the Leased Premises or the Building or any part thereof) by way of subrogation or assignment, Tenant hereby waiving and relinquishing any such right. To the extent Tenant chooses to insure its property, Tenant shall request its insurance carrier to 8 endorse all applicable policies waiving the carrier's right of recovery under subrogation or otherwise in favor of any Indemnitee and provide Landlord with a certificate of insurance verifying this waiver. Landlord hereby waives and relinquishes any right or claim against Tenant for damage to the Leased Premises or the Building by way of subrogation or assignment, to the extent covered by insurance proceeds. Landlord shall request its insurance carrier to endorse all applicable policies waiving the carrier's right of recovery under subrogation or otherwise in favor of Tenant and a certificate of insurance will be made available at the request of the Tenant. 11. ASSIGNMENT OR SUBLETTING 11.1 The Tenant shall not sell, assign, transfer, mortgage, hypothecate or otherwise encumber this Lease or the leasehold interest granted hereby, or any interest therein, or permit the use of the Premises or any part thereof by any person or persons other than the Tenant and Tenant's employees and business invitees, or sublet the Premises, or any part thereof, without the written consent of the Landlord in Landlord's sole discretion in each such case being first had and obtained; and notwithstanding any such assignment, mortgage, hypothecation, encumbrance or subletting, the Tenant shall at all times remain fully responsible and liable for the payment of the rent and other sums of money herein specified and for compliance with all of the obligations of the Tenant under the terms, provisions and covenants of the Lease. If Tenant is a corporation, unincorporated association, trust or general or limited partnership, the sale, assignment, transfer or hypothecation of any stock or other ownership interest of such entity which from time to time in the aggregate exceeds twenty-five percent (25%) of such interest shall be deemed an assignment subject to the provisions of this Paragraph 11.1. 11.2 If Tenant subleases or assigns any portion of the Premises and whether or not such sublease or assignment was consented to, and the rental exceeds the amount of rent due hereunder, Tenant shall pay to Landlord all such excess rent as additional rent. In no event shall Tenant be permitted to sublease or assign any portion of the Premises at a rental amount less than the amount due under the terms of this Lease. 11.3 Any act described in Section 11.1 which is done without the consent of the Landlord shall be null and void and shall be an Event of Default. 11.4 Landlord shall have the right to sell, transfer or assign any of its rights and obligations under this Lease. 12. SIGNS; ADVERTISING The Tenant shall not place or maintain or permit to be placed or maintained any signs or advertising of any kind whatsoever on the exterior of the Building, or on any exterior windows in said Building, or elsewhere within the Premises so as to be visible 9 from the exterior of said Building, or on the interior walls or partitions, including doorways, of the Premises, visible from the public hallways or other public areas of the Building except such numerals and lettering on doorways as may be approved and permitted by the Landlord (and the Landlord shall have the right to specify the size, design, content, materials to be used and locations upon the door of any such materials and letter); and the Tenant shall not place or maintain, nor permit the placing or maintaining, and shall promptly remove any that may be placed by Tenant, of any awnings or other structure or material or machinery or equipment of any kind whatsoever on the exterior or extending to the exterior of the Building, or on the outside (that is to say, the side not facing inward toward the interior of the Premises) of any interior wall or partition separating the Premises from other portions or areas of said Building. 13. MAINTENANCE OF INTERIOR OF PREMISES The Tenant shall take good care of the Premises and shall, at the Tenant's own cost and expenses, keep in good sanitary condition and repair and shall promptly make all repairs to the same to the satisfaction of the Landlord, except for usual and ordinary wear and tear by reasonable use and occupancy or fire or other casualty; and at the end or other expiration of the Term, shall deliver up the Premises in the same condition as received, ordinary wear and tear by ordinary use thereof, fire and other casualty only excepted. Landlord may, but shall not be obligated to, make any repairs which are not promptly made by Tenant and charge Tenant for the cost thereof as rent. Tenant waives all rights (whether statutory or otherwise) to make repairs at the expense of Landlord, to cure any alleged defaults by Landlord at the expense of Landlord, or to deduct the cost thereof from rent or other sums due Landlord hereunder. 14. DAMAGE OR DESTRUCTION If the Building is, without fault of the Tenant, damaged by fire or other peril to the extent that the entire Demised Premises are rendered untenantable and cannot be reasonably rendered in as good a condition as existed prior to the damage within one hundred eight (180) days from the date of such damage, the Term of this lease may be terminated by the Landlord or the Tenant by giving written notice to the other party; but if such damage is not such as to permit a termination of the Term of this Lease as above provided, then if such damage is not caused by Tenant or Tenant's agents, employees, guests or invitees, a proportionate reduction shall be made in the rent herein reserved corresponding to the time during which and to the portions of the Premises of which the Tenant shall hereby be deprived of possession. The Tenant agrees that Landlord shall not be responsible or liable for any loss due to business interruption occasioned by such fire, casualty or other cause which renders the Premises untenantable nor shall Landlord be liable for any damage to Tenant's property or persons. Tenant may not terminate this Lease on account of any damage caused by Tenant or Tenant's agents, employees, guests or invitees. 10 15. DEFAULTS 15.1 Each and any of the following shall be deemed an "Event of Default" by Tenant and a material breach of the Lease: (a) Tenant's failure to pay the Monthly Rent or any other sum payable by Tenant hereunder as and when such payment is due and such failure shall continue for ten (10) days after written notice by Landlord to Tenant of such failure; (b) Tenant's failure to observe, keep or perform any of the other terms, covenants, agreements or conditions under this Lease, including, without limitation, the Building Standards Manual, that Tenant is obligated to observe or perform and said failure continues for a period of ten (10) days after written notice by Landlord; provided that if the nature of Tenant's default is such that it cannot be cured solely by the payment of money and that more than ten (10) days are reasonably required for its cure, then Tenant shall not be in default hereunder if it shall commence the correction of such default within said ten (10) day period and shall diligently prosecute the same to completion; (c) Tenant's vacation or abandonment of the Premises; (d) (i) Tenant's (or general partner of Tenant, if Tenant is a partnership) making an assignment for the benefit of creditors; or (ii) A custodian, trustee, receiver or agent being appointed or taking possession of all or substantially all of property of Tenant (or a general partner of Tenant); or (iii) Tenant's failure to pay Tenant's debts as such debts become due; or (iv) Tenant's (or a general partner of Tenant) becoming "insolvent" as that term is defined in Section 101(26) of the "Revised Bankruptcy Act" (Title II of the United States Code; II U.S.C. & 101 et seq.); or (v) Tenant's (or a general partner of Tenant (a) filing of a petition with the bankruptcy court under the Revised Bankruptcy Act, or (b) otherwise filing any petition or applying to any tribunal for appointment of a custodian, trustee or receiver of Tenant (or of a general partner of Tenant) or commencing any proceeding relating to Tenant (or a general partner of Tenant) under any bankruptcy or reorganization statute or under any arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction, whether now or hereafter in effect; or (vi) Any petition being filed against Tenant (or a general partner of Tenant) under the Revised Bankruptcy Act and either (a) the bankruptcy court orders 11 relief against Tenant (or a general partner of Tenant) under the chapter of the Revised Bankruptcy Act under which the petition was filed, or (b) such petition is not dismissed by the bankruptcy court within sixty (60) days of the date of filing; or (vii) Any petition or application of the type described in subparagraph (v)(b), above, filed against Tenant (or a general partner of Tenant), or any proceeding of the type described in subparagraph (v)(b), above, is commenced, and either (a) Tenant (or a general partner of Tenant) by any act indicates its approval thereof, consent thereto, or acquiescence therein, or (b) an order is entered appointing any such custodian, trustee, receiver or agent, adjudicating Tenant (or a general partner of Tenant) bankrupt or insolvent, or approving such petition or application in any such proceeding, and any such order remains in effect for more than sixty (60) days; or (e) Any guarantor of this Lease defaulting under any guaranty of this Lease, or attempting to repudiate or revoke any such guaranty or any obligation under such guaranty; or the occurrence of any event described in Paragraph 15(d), above, with respect to any guarantor of this Lease (as if Paragraph 15(d) referred to such guarantor in place of "Tenant"); or (f) The liquidation, dissolution, failure to exist or disqualification of Tenant. 15.2 Landlord shall have the right, but not the obligation, to cure any of Tenant's defaults under this Lease, in which event Tenant shall forthwith reimburse Landlord all costs thereof, including any attorneys' fees, together with interest from the date expended until the date repaid at the rate of eighteen percent (18%) per annum. No exercise of this right shall be deemed to be an acceptance of such default or a waiver thereof. 16. REMEDIES 16.1 Upon the occurrence of an Event of Default hereunder, Landlord may at any time thereafter, without notice or demand except as stated hereafter and without limiting Landlord in the exercise of any other right or remedy which Landlord may have by reason of such default or breach: (a) Enter upon and take possession of the Premises. In such event, Landlord shall have the right to remove all persons and property from the Premises and store such property in a public warehouse or elsewhere at the cost and risk of and for the account of Tenant, and all such persons shall quit and surrender possession of the Premises to Landlord. Tenant hereby waives all claims for damages which may be caused by the entry of Landlord and taking possession of the Premises or removing and storing the furniture and property and hereby agrees to indemnify and save Landlord harmless from any loss, costs, damages or liability occasioned thereby, and no such entry shall be considered or construed to be forcible entry or construed to be a termination of the Lease unless Landlord expressly elects to terminate this Lease. Should Landlord 12 elect to enter, as hereby provided, or should Landlord take possession pursuant to legal proceedings or pursuant to any notice provided by law, Landlord may then or at any time thereafter terminate this Lease pursuant to Paragraph 16.1(c), below: (b) Tenant and each and every subtenant and assignee of Tenant shall remain and continue liable for the equivalent of the rent and other charges herein reserved and required by the Tenant to be paid and met until the expiration of this Lease and for any and all loss or damage, including all fees and expenses and attorneys' fees which the Landlord may sustain or incur by reason of any such event, and the Landlord may relet all or any part of the Premises at such price and upon such terms and for such duration of time as the Landlord may determine in the name of the Landlord or as agent of the Tenant, or otherwise, and receive the rent therefor and apply the same first to the payment of such expenses and fees as the Landlord may have incurred in entering, dispossessing and in letting, including among others all expenses of the Landlord reasonably incurred in putting the Premises in proper condition (including tenant improvements) and then to the payment of the rent and other charges reserved hereunder and the fulfillment of the Tenant's covenants hereunder, the Tenant and any subtenant of the Tenant and assignee of the Tenant shall remain liable for any deficiency. Acts of maintenance, efforts to relet the Premises, or the appointment of a receiver on Landlord's initiative to protect Landlord's interest under this Lease shall not constitute a termination of this Lease, unless and until Landlord expressly elects in writing to terminate this Lease; (c) Terminate this Lease and all rights of Tenant therein and recover from Tenant in an action of all of the damages suffered or to be suffered by Landlord, including the damages and costs described in subparagraph (b) above; and (d) Pursue any other remedy now or hereafter available to Landlord under the laws or judicial decisions of the State of Florida. 16.2 Acceptance by the Landlord of any rent after the same has become due and payable shall not constitute a waiver by the Landlord of any rights which the Landlord may have under the terms of this Lease in the event of a default with respect to any other payment of rent. 16.3 The Landlord's rights and remedies under this Lease shall be cumulative, and shall not be exhausted by one exercise thereof, and shall not exclude any other rights and remedies authorized, provided or permitted by law. No failure or omission on the part of the Landlord promptly to exercise or insist upon any of its rights hereunder shall operate as a waiver of any such rights; and no waiver on the part of the Landlord of any breach or default or lack of prompt or full and complete performance or compliance by the Tenant hereunder shall operate as a waiver of any subsequent breach or default or lack of prompt and full performance or compliance. 13 17. LANDLORD'S RIGHT OF ENTRY The Tenant agrees that the Landlord, or its officers, agents, servants, and employees, may enter said Premises at any hour to protect the same against the elements, or accidents, or to effect repairs or replacements, and at any reasonable hour for the purpose of examining the same, showing the same to prospective purchasers or tenants, or for any other reasonable purpose. 18. NOTICES Any bill, statement, notice or communication which the Landlord may desire or be required to give to the Tenant shall be deemed sufficiently given and rendered if, in writing, delivered to the Tenant personally, or sent by registered or certified mail addressed to the Tenant at the Building or left at the Premises addressed to the Tenant, and the time of the rendition of such bill, statement, or notice shall be deemed to be the time when the same is mailed to the Tenant, or delivered, or left at the Premises as herein provided. Any notice to Landlord shall be in writing, addressed to Landlord at Landlord's Address (or such different address as Landlord may notify Tenant) and shall be sent first class U.S. mail, postage prepaid, certified return receipt requested. 19. TAXES ON TENANT'S PERSONAL PROPERTY AND TAXES ASSESSED ON RENTALS 19.1 The Tenant shall pay promptly when due any and all taxes and assessments that may be levied or assessed against Tenant's personal property located in, on or about the Premises and will cause such personal property to be assessed directly to the Tenant. If for any reason said personal property cannot, or is not assessed separately and is included with the Landlord's real or personal property tax assessments, the Tenant will upon demand pay to the Landlord the amount of taxes levied or assessed against the personal property, using for such purpose the valuation and rate of tax placed thereon by the taxing authority, if the same can be determined and if not, using a reasonable valuation. 19.2 In addition to the rent hereinabove provided for, the Tenant shall pay to the Landlord, promptly as and when due, all sales, use or excise taxes, levied, assessed or payable on or on account of the Leasing or renting provided for hereunder, or on account for the rent payable hereunder. 20. COSTS OF COLLECTION The Tenant shall promptly pay to the Landlord all costs and expenses of enforcement of this Lease and of collection, including a reasonable attorney's fee, including on appeal, with respect to any part of said rent and other charges and sums of money herein reserved or required by the Tenant to be paid and met, which may be sustained or incurred by the Landlord after the date the same, or any thereof, becomes 14 due; and the Tenant further agrees to pay all reasonable costs and expenses, including a reasonable attorney's fee including on appeal, which may be sustained or incurred by the Landlord in or about the enforcement or declaration of any of the rights or remedies of the Landlord or obligations of the Tenant, whether arising under this Lease or granted, permitted or imposed by law or otherwise. 21. PRIOR AGREEMENTS This agreement supersedes and revokes any and all prior written agreements between the parties relating to the Premises, and all oral agreements between the parties relating to the Premises are hereby merged into this Lease; and no amendment, modification or variation of the Lease or any terms or provisions of the Lease, shall be effectual, binding or valid unless and until the same is reduced to writing and signed by the party to be charged thereby. No notice, request or demand in this Lease provided for may be waived except by written waiver thereof signed by the party waiving the same. Submission of the Lease to or by Tenant shall not create any rights in favor of Tenant until this Lease has been executed by both Landlord and Tenant. 22. FLOOR PLANS Any floor plan or other plan, drawing or sketch which is attached to or made part of this Lease, such as Exhibit "A", is used solely for the purpose of a reasonable approximate identification and location of the demised Premises, and any markings, measurements, dimensions or notes of any kind contained therein shall be subordinate to any specific terms contained in this Lease. Attached to the construction plans for the tenant improvements shall be a specification sheet stating in detail the finishes to be used in the demised premises. Both Landlord and Tenant shall initial the construction plans and specifications indicating this approval of the terms contained therein. Construction of the tenant improvements by contract shall be the responsibility of the Landlord and any cost in excess of the Tenant Improvement Allowance shall be the Tenant's responsibility. If Tenant requests any Change Orders that create cost over and above the original scope of work then Tenant shall be responsible for that additional cost. Tenant has inspected the Premises and the Building and has verified the dimensions thereof to the satisfaction of the Tenant; and the Tenant has inspected and is familiar with the condition of the elevators, stairways, halls, air conditioning system and facilities; and sanitary facilities of the Building and the Tenant agrees to accept the Premises. 23. NO AUTOMATIC RENEWAL There shall be no extension or automatic renewal of the terms of this Lease unless otherwise agreed in writing by the parties hereto. Tenant shall have no right to hold over and, if Tenant does so with Landlord's consent, same shall be a tenancy from month-to-month terminable at will by either Landlord or Tenant. 15 24. BUILDING STANDARDS MANUAL By the execution of this Lease, the Tenant accepts and agrees to abide by, and to instruct the Tenant's employees to abide by all provisions of the "Building Standards Manual" and any modifications or additions made thereto from time to time during the term of this Lease. The initial set of these regulations is attached as the "Building Standards Manual" (Exhibit "B"). 25. TERMS AND HEADING As used herein the singular shall include the plural, the plural shall include the singular, and each gender shall include the other where the context shall so require. The headings in this Lease are not a part of this Lease and shall have no effect upon the construction of interpretation of any part hereof. This Lease shall be governed by the laws of the State of Florida. 26. CONDEMNATION In the event the whole or any part of the Building of which the Premises are a part, other than a part not interfering with the maintenance or operation thereof shall be taken or condemned for any public or quasi-public use or purpose, the Landlord may, at its option, terminate this Lease from the time title to or right to possession shall vest in or be taken for such public or quasi-public use or purpose and the Landlord shall be entitled to any and all income, rent, awards or any interest therein whatsoever which may be paid or made in connection therewith. 27. SUBORDINATION TO MORTGAGES This Lease is hereby made expressly subject and subordinate at all times to any and all mortgages, deeds of trust, ground or underlying leases affecting the Premises which have been executed and delivered or which will hereafter be executed and delivered and any and all extensions and renewals thereof and substitutions therefore and to any and all advances made or to be made under or upon said mortgages, deeds of trust, ground or underlying leases. Tenant agrees to execute any instrument or instruments which the Landlord may deem necessary or desirable to effect the subordination of this Lease to any or such mortgages, deeds of trust, ground or underlying leases and in the event that the Tenant shall refuse, after reasonable notice, to execute such instrument or instruments which the Landlord may deem necessary or desirable to effect the subordination of the Lease to any or all such mortgages, deeds of trust, ground or underlying leases and in the event that the Tenant shall refuse, after reasonable notice, to execute such instrument or instruments, the Landlord may, in addition to any right or remedy accruing hereunder, terminate this Lease without incurring any liability whatsoever and the estate hereby granted is expressly limited accordingly. The Tenant hereby agrees to attorn to any future owner of the Lessor's interest in the 16 Premises under this Lease, whether such occurs by reason of the dispossession of the Landlord or otherwise, and such shall not constitute a default by Tenant hereunder. 28. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS 28.1 With fifteen (15) days after request of Landlord, Tenant shall deliver to Landlord a duly executed certificate stating the Termination Date, the Monthly Rent, the amount of any prepaid rent and security deposits, the fact that this Lease is in full force and effect, the fact that this Lease is unmodified (or if modified, the date of the modification), and the fact that Landlord is not in default (or if a default exists, the nature thereof). Failure to timely deliver same shall be conclusive evidence that the Termination Date of Monthly Rent are as set forth herein, no rent has been paid in advance, there is no security deposit, and that there are no modifications or Landlord's defaults. Such certificate will be relied on by Landlord, prospective lenders or prospective purchasers. 28.2 During the term of Lease and any extensions thereto, Tenant (and Tenant's Guarantor) shall produce current financial statements as requested by Landlord, any prospective purchaser or lender or any lender of record within thirty (30) days of written notification from Landlord. If Tenant (or Tenant's Guarantor) is a company which is required to make periodic reports to the Securities and Exchange Commission, a copy of Tenant's (or Tenant's Guarantor) most recent publicly disclosed financial statements shall be sufficient for purposes of this Lease. 29. QUIET ENJOYMENT Landlord agrees that Tenant, upon paying the Monthly Rent, all additional rent and all other sums and charges then due and upon performing the covenants and conditions of this Lease to be performed by the Tenant, may enjoy peaceful and quiet possession of the Premises during the term of this Lease. 30. PARKING SPACES Tenant hereby agrees to lease from Landlord the number of parking spaces indicated in Paragraph 1 hereinabove in the attached parking garage and in the surface lot at 3rd Avenue South and 3rd Street South for the Term of the Lease and any renewals thereof. The monthly rental shall commence at the per space rate therefore indicated in Paragraph 1 hereinabove and shall thereafter be adjusted to the rate generally charged by Landlord. 17 31. SUBSTITUTION OF PREMISES At any time hereafter, Landlord may substitute for the Premises other Premises (herein referred to as "the new premises") provided: (a) The new premises shall be substantially similar to the Premises in area and use for Tenant's purposes and shall be located in the Building; (b) The rental for the new premises shall be adjusted in accordance with Landlord's scheduled lease rates but shall not exceed the rental paid for the Premises; (c) If Tenant is already in occupancy of the Premises, then in addition: (i) Landlord shall pay the expense of Tenant for moving from the Premises to the new premises and for improving the new premises so that they are substantially similar to the Premises; and (ii) Landlord shall first give Tenant at least thirty (30) days notice before making such change. If Landlord shall exercise its right hereunder, the new premises shall thereafter be deemed for the purposes of this Lease as the Premises. 32. LANDLORD'S RIGHT TO ALTER COMMON AREAS Without abatement or diminution in rent, Landlord reserves and shall have the right to change the street address and/or location of entrances, passageways, doors, doorways, corridors, elevators, stairs, toilets, or other common areas of the Building or the complex without liability to Tenant. 33. EXCULPATION Notwithstanding anything to the contrary set forth in this Lease, it is specifically understood and agreed by Tenant that there shall be absolutely no personal liability on the part of Landlord or on the part of the partners of Landlord with respect to any of the terms, covenants and conditions of this Lease, and Tenant shall look solely to the equity of Landlord in the Property for the satisfaction of each and every remedy of Tenant in the event of any breach by Landlord of any of the terms, covenants and conditions of this Lease to be performed by Landlord. This exculpation of personal liability is absolute and without any exception whatsoever. 34. SUCCESSORS AND ASSIGNS Except as otherwise provided in this Lease, all of the covenants, conditions and provisions of this Lease shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns. 18 35. SECURITY AGREEMENT Tenant hereby grants to the Landlord a security interest under the Uniform Commercial Code as adopted by the State of Florida in all the furniture and fixtures, goods and chattels of the said Tenant now owned or hereafter required, which may be brought or put on said premises, as security for the payment of rent herein reserved, and agrees that said security interest as well as the Florida Statutory Landlord's lien for the payment of said rent may be enforced by distress, foreclosure or otherwise, at the option of the said Landlord, and Tenant agrees that such lien is granted to the Landlord and vested in said Landlord, and the Tenant further agrees that in case of the failure of said Tenant to pay the rent herein reserved when the same shall become due, and it becomes necessary for the Landlord to collect said rent by suit or through an attorney, or should Landlord employ an attorney because of the breach of any of the terms, covenants or agreements contained in this lease, the Tenant will pay the Landlord a reasonable attorney's fee together with all costs and charges incurred by, through or in connection with such collection or in any other suit or action or appeal which may be brought in any Court because of a breach of any terms, covenants or agreements contained in this Lease. 36. MECHANICS LIEN The Tenant shall have no authority to incur, create or permit, and shall not incur, create, permit or suffer, any lien for labor or materials or services to attach to the interest or estate of either the Landlord or the Tenant in the Demised Premises or in the building or other real estate of which the Demised Premises form a part; and neither the Tenant nor anyone claiming by, through or under the Tenant, shall have any right to file or place any labor or material lien of any kind or character whatsoever or any mechanics lien or other lien of any kind, upon the Demised Premises or the building or other real estate of which the Demised Premises form a part, so as to encumber or affect the title of the Landlord, and all persons contracting with the Tenant directly or indirectly, or with any person who in turn is contracting with the Tenant, for the erection, construction installation, alteration or repair of the demised premises or any improvements therein or thereon, including fixtures and equipment, and all material-men, contractors, mechanics, laborers, architects, from the date of this instrument, they and each of them must look to the Tenant only to secure the payment of any bills or charges or claims for work done, or materials furnished, or services rendered or performed during the term hereby demised. 37. RECORDATION This Lease shall not be recorded. 38. RADON GAS Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risk to persons who are exposed to it 19 over time. Levels or radon that exceed Federal and State Guidelines have been found in buildings in Florida. Additional information may be obtained from your county public health unit. 39. REAL ESTATE BROKER Tenant represents and warrants to Landlord that no broker, agent, commission salesman or other person has represented Tenant in the negotiations for or procurement of this Lease and of the Premises and Tenant does and shall agree to indemnify and hold Landlord harmless from and against any and all loss, cost, damage, claim and demand, meritorious or otherwise, for or from any fees, commissions, payments or expenses due or alleged to be due to any broker, agent, commission salesman or other person purporting to represent Tenant in connection with this Lease, the premises, or the negotiations therefore. IN WITNESS WHEREOF, the Landlord and Tenant have executed this Lease as of the day and year first above written. WITNESS: LANDLORD: /s/ Erica Rudin - ------------------------ BANKERS INSURANCE COMPANY /s/ Susan M. Dill - ------------------------ By: [illegible] --------------------- Date: 1-1-98 ------------------- WITNESS: TENANT: /s/ Diane Helland - ------------------------ INSURANCE MANAGEMENT /s/ Erica Rudin SOLUTIONS GROUP, INC. - ------------------------ By: [illegible] --------------------- Date: 1-1-98 ------------------- 20 BANKERS FINANCIAL CENTER 360 CENTRAL AVENUE ST. PETERSBURG, FLORIDA 33701 INSURANCE MANAGEMENT SOLUTIONS, INC. FLOOR RENTABLE AREA (SQUARE FEET) - ----- --------------------------- 2 9,768 3 14,198 4 10,771 5 125 6 13,923 7 7,865 8 7,914 9 2,027 10 7,478 16 885 17 1,788 ------ Total RSF 76,742 Diagram of: BANKERS FINANCIAL CENTER 2nd FLOOR Diagram of: BANKERS FINANCIAL CENTER 3rd FLOOR Diagram of: BANKERS FINANCIAL CENTER 4th FLOOR Diagram of: BANKERS FINANCIAL CENTER 5th FLOOR Diagram of: BANKERS FINANCIAL CENTER 6th FLOOR Diagram of: BANKERS FINANCIAL CENTER 7th FLOOR Diagram of: BANKERS FINANCIAL CENTER 8th FLOOR Diagram of: BANKERS FINANCIAL CENTER 9th FLOOR Diagram of: BANKERS FINANCIAL CENTER 10th FLOOR Diagram of: BANKERS FINANCIAL CENTER 16th FLOOR Diagram of: BANKERS FINANCIAL CENTER 17th FLOOR EX-10.81 17 g75105aex10-81.txt 10/7/01 BANKERS INSURANCE GROUP ADMINISTRATOR APT. EXHIBIT 10.81 APPOINTMENT OF ADMINISTRATOR THIS AGREEMENT made this 7th day of October, _____, between Bankers Ins. Group (the "AYO Company") and Insurance Management Solutions Group (the "Administrator"). On _____________, _____, the AYO Company entered into an AYO Claims Agreement (the "AYO Agreement") with the Florida Windstorm Underwriting Association ("FWUA") under which the AYO Company agreed to perform claims handling, administrative and related services, as more particularly described in the AYO Agreement (the "Services") on properties which are covered both by policies issued by the FWUA and by policies issued by the AYO Company. A copy of the AYO Agreement is attached hereto as Exhibit A. The AYO Company wishes to appoint the Administrator to perform the Services. NOW, THEREFORE, it is agreed as follows: 1. The AYO Company hereby appoints the Administrator to perform the Services of the AYO Company described in the AYO Agreement and, by the execution hereof, the Administrator hereby assumes and agrees to perform all of the obligations and duties of the AYO Company under the AYO Agreement. 2. Under the AYO Agreement, the FWUA is obligated to pay the AYO Company compensation computed in accordance with Paragraph 5 thereof. From and after the date of this Agreement, the following provision shall govern such payment: Check one: [ ] All of such compensation shall continue to be paid to the AYO Company. [X] All of such compensation shall be paid to the Administrator. The Administrator and the AYO Company are authorized to allocate such compensation among themselves in such proportion as they shall determine. 3. The FWUA has consented to the execution of this Agreement and the performance by the Administrator of the Services; provided, however, that the AYO Company shall at all times remain liable for the performance of all duties and obligation imposed upon it under the AYO Agreement and nothing herein shall be construed as releasing the AYO Company from the performance of such duties and obligations. The failure or refusal of the Administrator and the AYO Company, or either of them, to perform any of the duties and obligations under the AYO Agreement shall constitute a default thereunder, entitling the FWUA to exercise any and all remedies available to it under the AYO Agreement against the Administrator, the AYO Company, or either of them. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as of the date and year first above written. AYO COMPANY: Bankers Insurance Group ---------------------------------- By: Robert G. Menke ------------------------------ Title: President --------------------------- ADMINISTRATOR: Insurance Management Solutions ---------------------------------- By: Robert G. Gantley ------------------------------ Title: V.P. Claims --------------------------- CONSENT The FWUA hereby consents to the appointment of the Administrator in accordance with the above provisions and the performance by the Administrator of the Services. Florida Windstorm Underwriting Association. By: ------------------------------ Title: --------------------------- Date: ---------------------------- EX-21.1 18 g75105aex21-1.txt LIST OF SUBSIDIARIES EXHIBIT 21.1 LIST OF SUBSIDIARIES
NAME OF COMPANY STATE OR JURISDICTION OF INCORPORATION --------------- -------------------------------------- Insurance Management Solutions, Inc. Florida Colonial Claims Corporation Florida IMS Direct, Inc. Florida
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